California Revenue $1.5B (6.5%) Lower Than Expected, Automatic Spending Cut Triggers May Fire; 4 Better Ways to Fix the Problem

The recovery has fizzled out in California with revenues $1.5 billion below overly-optimistic estimates.

California tax collections since the start of the fiscal year have fallen $1.5 billion behind projections, raising concern that the most-populous U.S. state will face automatic spending cuts.

Revenue was $810.5 million less than budgeted in October, bringing the total to 6.2 percent below expectations for July 1 through Oct. 31, according to figures released today by Controller John Chiang. Since the start of the fiscal year, the state has spent $1.7 billion more than it budgeted.

The $86 billion spending plan Governor Jerry Brown and fellow Democrats adopted in June included a series of cuts to be activated if revenue falls below certain levels. In December, Brown’s finance department will estimate whether the rest of the year’s revenue can meet the original projection.

“October’s poor revenues capped a very disappointing first four months of the fiscal year,” Chiang said in a statement. “Unless revenues and expenditures begin to track with projections, the state will face increasing cash pressure in the months ahead.”

Tier 1 Cuts

• Trim University of California and California State University budgets by $100 million each
• Increase community-college fees by $10 per unit
• Cut in-home services for the elderly and disabled

Tier 2 Cuts

• Seven-day reduction in the school year to save $1.54 billion
• End $248 million in student busing subsidies

Tier 2 cuts kick in at the $2 billion shortfall level.

To put this in perspective, it took months of wrangling to reduce spending by $12 billion and the state is already (in a single quarter), $1.5 billion in the hole.

Rather than increase taxes (grumbling on that is guaranteed to start), how about ....

1. Putting an end to collective bargaining for public unions
2. Getting rid of needless bureaucracies
3. Scrapping prevailing wage laws
4. Scrapping defined benefit pension plans

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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