Wind or Windfall in the State Budget?

There are constant headlines about a state revenue “windfall.” It refers to a projection that this fiscal year, the Dept. of Finance thinks there will be more revenue than it did back in January when Gov. Brown made his original budget proposal.

The May revise was discussed in a prior post. It was noted that while more revenue was projected for the current year, it turned out that the general fund, viewed as a checking account, now seems to have been more overdrawn at the start of the fiscal year (July 1, 2010) than was thought in January. On the other hand, more revenue came in through April which caused some revisions in revenue projections.

Budget documents refer to revenue and transfers, not just revenue, and the word transfers can hide some mischief. But let us ignore that complication. So what do we find for the current fiscal year 2010-11?

Deeper in the whole as of 7/1/10: -$1.6 billion

More revenue (& transfers) during year: +$3.8 billion

Net “windfall” for 2010-11: +$2.2 billion

What happens in the next fiscal year if no further changes are made in taxes according to Dept. of Finance projections? In that case, revenue (& transfers) drops from $94.5 billion this year to $89.9 billion next year (2011-12), i.e., a change of -$4.6 billion. Forgive me if I have trouble seeing the windfall.

Well then, how do you get a windfall out of all of this? You have to start by assuming that the governor gets exactly what he wants in terms of his tax extensions-resumptions. For the current year, the “further in the whole” estimate remains the same. The governor gets more revenue (& transfers) than if no tax measures are enacted of about $5.1 billion. So the net “windfall” with the tax measures for this year (2010-11) is about +$3.4 billion. But then next year (2011-12), revenue (with transfers) – even with the tax extensions-resumptions – drops by $2.1 billion. So there is a net gain over 2 years of about $1.3 billion. In state budget terms - and given the vagaries of forecasting, we are at a level of noise.

Now there is a lot of sloshing back and forth in all of these numbers between the general fund and special funds that finance things like roads, etc. And there are those mischievous transfers. But that is the governor’s budget. His projections are that if he gets everything he wants – presumably approved retroactively through some ballot proposition – general fund revenue (& transfers) will be up somewhat over the two year period but the hole to be dug out of will be somewhat deeper. His forecasts, of course, can be wrong. Maybe the California economy will blossom beyond what is projected. Or maybe it will be worse.

Finally, it might be noted that those who argue against tax extensions-resumptions say there is no need because of the windfall. But the windfall - if that is what you want to call it - seems to be dependent on those very tax extensions-resumptions.

In any event, as of May 2011, there seems to be more wind than windfall.