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California Tax Revenue Falls, Boosting Chance Of More Cuts

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California State Capitol in Sacramento (Justin Sullivan/Getty Images)

California State Capitol in Sacramento (Justin Sullivan/Getty Images)

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SACRAMENTO (CBS/AP) – California tax revenue fell nearly $539 million below projections last month, pushing the state closer to automatic, mid-year budget cuts to schools, universities and social services, State Controller John Chiang reported Tuesday.

July’s personal income, sales and corporate taxes were 10 percent below projections. If revenue falls more than $1 billion below estimates, the budget Gov. Jerry Brown signed earlier this summer calls for additional spending cuts.

“While we hope for better news in the months ahead, every drop in revenues puts us closer to the drastic trigger cuts that could be imposed next year,” Controller John Chiang said in releasing the numbers.

Income taxes beat projections by 3 percent last month, but sales taxes were down 12 percent and corporate taxes fell 19 percent.

The report comes after a massive sell-off on Wall Street. While stocks recovered some lost ground Tuesday, a declining market is bad news for California. The state relies disproportionately on income and capital gains taxes from the wealthy.

KCBS’ Holly Quan Reports:

The so-called trigger cuts would come in stages, under the budget Brown signed for the fiscal year that began July 1.

If revenue falls $1 billion to $2 billion short of projections, it would mean $600 million in cuts spread between the University of California and California State University systems, the Department of Developmental Services, the state’s in-home supportive services program. Library grants, corrections and community colleges also would be cut.

A shortfall of $2 billion to $4 billion would trigger another $1.9 billion in cuts, including $1.5 billion from public schools, $250 million from school bus transportation and $72 million from community colleges.

KCBS and Chronicle Insider Phil Matier Comments:

This year’s $86 billion budget relied on a combination of spending cuts, higher-than-expected revenue assumptions and new fees for vehicle owners and those who live in rural areas where the state provides fire protection.

The state had faced a $26.6 billion deficit over 18 months at the beginning of the year, but it was reduced primarily with spending cuts, money transfers between government accounts and an unexpected surge in tax revenue last spring.

State Department of Finance spokesman H. D. Palmer said Chiang’s numbers may be overly pessimistic because July is traditionally a low revenue month. Moreover, the finance department projects the state’s sale tax revenue will meet July projections.

He referred to Chiang’s lower estimate as a bookkeeping issue.

“There’s a lot more definitive data that have to come through the door between now and the end of the year that are going to determine whether the trigger is going to be pulled in part, in full or at all,” Palmer said.

School administrators should begin negotiating now with teachers unions in case they face the possibility of more cuts, said Teri Burns, director of legislative advocacy for School Innovations and Advocacy, an education lobbying group.

The state’s budget bills prohibit additional layoffs this school year but permit school districts to end their year seven days early, depending on the severity of the cuts. Other options include asking teachers to take pay cuts or laying off non-teaching staff.

State Sen. Bob Huff of Diamond Bar, Senate Republicans’ chief budget negotiator, said the impending triggers could force Democrats who control the Legislature to make concessions on reforming state pensions and capping state spending.

“When it comes to just actually pulling the trigger on the cuts, they (Democrats) are not going to be willing to do that,” Huff said. “The Republicans are looking for reforms and the Democrats are looking for revenues, and there’s a way to meet in the middle here.”

(Copyright 2011 by CBS San Francisco. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)

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