This Is The Horrifying Budget Report That Caused Everyone To Freak Out About California


Why are California munis going into the toilet?

Well, there are a few reasons, but one culprit is the state’s Legislative Analysis Office, which on November 10 came out with some very ugly revenue projections for the coming year, and the years after that.

The nut is that the state has a $25 billion imminent budget problem.

They write:

Our forecast of California’s General Fund revenues and expenditures shows that the state must address a budget problem of $25.4 billion between now and the time the Legislature enacts a 2011–12 state budget plan. The budget problem consists of a $6 billion projected deficit for 2010–11 and a $19 billion gap between projected revenues and spending in 2011–12.

2010–11 Deficit. We assume that the state will be unable to secure around $3.5 billion of budgeted federal funding in 2010–11. This assumption is a major contributor to the $6 billion year–end deficit we project for 2010–11. We also project higher–than–budgeted costs in prisons and several other programs. In addition, our forecast assumes that passage of Proposition 22 will prevent the state from achieving about $800 million of budgeted solutions in 2010–11.

2011–12 Deficit. The temporary nature of most of the Legislature’s 2010 budget–balancing actions and the painfully slow economic recovery contribute to the $19 billion projected operating deficit in 2011–12. This gap is $2 billion less than we projected one year ago. Actions taken during the 2010–11 budget process to reduce Proposition 98 education spending are a major contributor to the decline.

And then even beyond 2012, the situation is still pretty ugly.

There will be huge shortfalls through 2016

Growth isn't expected to pick up briskly

Neither is employment

No housing recovery seen

And capital gains growth will be modest

Tax revenue not really going anywhere

And changes to taxes will make things even harder.

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