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Tuesday, August 9, 2011

More Mysterious than Illuminating

You will have seen the headlines about how state revenues fell short of budget projections, potentially threatening a pulling of the budget trigger that would cut more from UC's budget.

It is true that the budget was based on optimistic revenue projections. And it is true that the underlying economy does not look to be supportive of such optimism. However, the controller's report on cash receipts on which the headlines are based is not illuminating.

Much of the forecast revenue that did not appear came from miscellaneous sources such as estimates of abandoned property that gets transferred to the state. The loss did not appear to come from personal income taxes which are subject to volatile capital gains receipts. Some came from the sales tax which is not good because sales tax is a proxy for consumption and reflects underlying economic developments.

So the bottom line is that the situation doesn't look nice, but exactly the exact source of the problem is more mysterious than illuminating. A major part of the problem is that the added revenue assumed by the legislature was not allocated among the various taxes. It was just supposed to appear somewhere.

The controller's report is at http://www.sco.ca.gov/Files-ARD/CASH/fy1112_jul.pdf

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