The tangled budgetary web

California had a complicated budget process even before voters added a rainy day fund with inflows based by formula on capital gains taxes and other revenues. The rainy day fund came on top of Prop 98 which, also by formula, guarantees spending on K-14. Now the Legislative Analyst's Office (LAO) is projecting that unanticipated revenue coming into the state now may cause potential budgetary problems over the next year or so.

LAO presents 4 of 5 revenue scenarios in which the net effect of the rainy day fund requirement and the Prop 98 requirement leads to a negative balance in the general fund. The governor, in his upcoming May revision, needs to avoid such a negative balance. And, as it turns out in the 4 scenarios, even the end-of-year sum of the regular reserve plus the rainy day fund is below what the governor projected in his January 2015 budget proposal for 2015-16.

(As we have noted in prior posts, the governor's January budget included a revised estimate of the current year's budget, i.e., for 2014-15, which showed falling total reserves - a deficit in common parlance but not necessarily in Sacramento-speak - for this year followed by increased total reserves for next year - a surplus. The new LAO estimates don't show what happens to total reserves during this year, but it appears at least in the 4 scenarios, there would likely be a deficit next year on a total reserves basis.)

The LAO then suggests in general terms either that for next year, there would have to be actual cuts in non-Prop 98 spending (which includes UC), or a variety of artful accounting "adjustments" that would get around the Prop 98 and rainy day fund requirements.

The LAO's analysis is at http://lao.ca.gov/reports/2015/budget/scenarios/may-revision-scenarios-040715.pdf