Highlights and Analysis of the Governor's 2011-12 May Revision

Friday, June 17, 2011

Executive Summary

In January, the Governor’s Budget identified a General Fund budget deficit of $25.4 billion.  That deficit grew to $26.6 billion when the Governor cancelled the $1.2 billion sale of state buildings approved by Governor Schwarzenegger.  In March the Legislature enacted a package of bills that provided about $13.4 billion of “solutions” that included about $7 billion in spending reductions and $6.4 billion of fund shifts, loans, transfers, and increased revenues (but no new taxes).

The Governor’s May Revision now estimates a General Fund budget deficit of $9.6 billion ($4.8 billion carry-in deficit from 2010-11 and $4.8 billion operating shortfall in 2011-12).  According to the Administration, this new deficit accounts for the $11 billion of solutions already adopted by the legislature and another $2.4 billion awaiting the Governor’s signature.  It also reflects $6.6 billion of higher than anticipated revenues and $3 billion of higher spending (includes backfill for $1 billion of Proposition 10 currently subject to litigation).

It should be noted that the Governor’s revised budget problem ($9.6 billion) actually includes a $2.2 billion General Fund spending increase for K-14 education and an additional $1.3 billion of General Fund spending to backfill spending reductions and fund shifts that have not materialized (about $300 million of health and human services reductions; and $1 billion because Democrats tried to go around the voters to take Proposition 10 funds).  Instead of using the $6.6 billion revenue windfall to increase spending and unwind previously adopted reductions, it seems reasonable that all the new funds would go towards reducing the budget deficit – thus, an argument can be made that the problem should only be about $6.1 billion.

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