Highlights & Analysis of the 2012-13 Governor'€™s Budget [UPDATED]

Wednesday, February 15, 2012

Prepared by Senate Republican Fiscal Office

Executive Summary

The Governor has projected a General Fund budget deficit of $9.2 billion ($4.1 billion in 2011-12 and $5.1 billion in 2012-13).  This differs from the Legislative Analyst’s November 2011 estimate of $12.8 billion ($3.0 billion in 2011-12 and $9.8 billion in 2012-13).  The difference is largely attributable to the administration’s revenue estimates being about $4.0 billion higher and expenditures being about $400 million higher than the Legislative Analyst’s forecast.

Governor Brown proposes $10.3 billion in solutions ($9.2 billion problem plus $1.1 billion reserve) that include $4.2 billion of Expenditure Reductions, $4.7 billion in Revenues, and $1.4 billion of Other (primarily one-time special fund loans and transfers).  However, it appears that about $1.7 billion of “Expenditure Reductions” are not programmatic reductions, but are achieved by continuing the suspension of local government mandates ($828 million) and achieving efficiencies through Medi-Cal managed care ($843 million).  In addition, the “Revenues” are actually $7.2 billion, but cleverly offset by a negative $2.5 billion adjustment to reflect Proposition 98 interaction (i.e., the Proposition 98 share of new tax revenue).  Thus, it appears the Governor is actually proposing about $2.5 billion in real programmatic spending reductions and $7 billion of real tax increases.

The Governor’s Budget plan relies heavily on his $6.9 billion tax increase initiative despite the fact that General Fund revenues are already growing by nearly six percent this year without increasing taxes, and are expected to grow even more rapidly in the near future (see Revenues Page 9).  In fact, based on the Governor’s own projections, the tax increase revenue would exceed the structural budget gap by $4-5 billion in future years. It is irresponsible to push for an unnecessary tax increase, and even more reckless to use school children as hostages by making education the target for his trigger cuts (see Trigger Reductions on Page 58) if voters do not approve his tax increase initiative.

Read Complete Highlights & Analysis (pdf, 61 pages)