Legislative Analyst Pegs Budget Gap at $25.4B Over 18 Months

On Wednesday, California's Legislative Analyst's Office released a report projecting that the state will face a $25.4 billion budget deficit over the next 18 months, the Los Angeles Times reports (Goldmacher, Los Angeles Times, 11/11).

About $6.1 billion of the deficit projection comes from what LAO considers false assumptions in the budget for the current fiscal year. The remaining $19.3 billion gap is expected to occur during the fiscal year that begins in July 2011.

Assumptions in Current Budget

In October, California lawmakers approved an $86.6 billion general fund budget that relied on an expectation of $5.4 billion in new federal funds (Yamamura, Sacramento Bee, 11/11). The assumed federal funds include $1.3 billion in higher payments for Medi-Cal, California's Medicaid program (California Healthline, 10/11).

Legislative Analyst Mac Taylor said an expected $400 million in Medi-Cal savings will not materialize because of delays in passing the budget and ongoing cost constraints (Williams, AP/Los Angeles Daily News, 11/10). Taylor estimated that California would receive about $1.9 billion of the $5.4 billion in assumed federal funds.

Taylor also said state lawmakers were overly optimistic with other budget assumptions. He cast doubt on a projection that California could reduce spending by $780 million by cutting prison health care funding (Sacramento Bee, 11/11).

Coming Challenges

Addressing the state's budget deficit likely will be more difficult in the coming fiscal year because lawmakers already have made deep cuts to Medi-Cal and education, which account for more than half of the state's budget.

Federal and state regulations restrict the amount of additional funding the state can cut from these programs (AP/Los Angeles Daily News, 11/10).

Taylor recommended that legislators take quick action and consider cutting services and raising taxes. He added that lawmakers might face new challenges resulting from the passage of Proposition 22, which prohibits the state from tapping into local government and transportation funds (Buchanan, San Francisco Chronicle, 11/11).

Taylor projected that California will continue to face structural deficits of more than $20 billion annually unless lawmakers make systemic changes to the budgeting process (York, Capitol Weekly, 11/10).

The Road Ahead

Gov.-elect Jerry Brown (D) has vowed to start work next week on a budget plan for the upcoming fiscal year.

Brown will take office on Jan. 3 and has a constitutional deadline to present a balanced budget plan to the Legislature by Jan. 10 (Herdt, Ventura County Star, 11/10).

Broadcast Coverage

Headlines and links to broadcast coverage of the new deficit projection are provided below.

• "25 Billion Dollar State Budget Shortfall Predicted" (Russ, "KXJZ News," Capital Public Radio, 11/10).
• "California Budget Deficit Could Grow to $25 Billion" (Small, "KPCC News," KPCC, 11/10).