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California has $2 billion in unexpected tax revenue

Tax income has been outpacing forecasts — good news as Sacramento struggles with a $15-billion budget deficit. GOP leaders are already using it as fodder against Gov. Brown's proposed tax increases.

May 05, 2011|By Shane Goldmacher, Los Angeles Times
  • Although an unexpected increase in tax revenue might ease the state's budget woes, Gov. Jerry Brown has said he wants five years of tax increases to help ensure California's financial well-being for a sustained period.
Although an unexpected increase in tax revenue might ease the state's… (Ken James / Bloomberg )

Reporting from Sacramento -- State officials are reporting an unexpected $2-billion surge in tax receipts that will help lawmakers close the remaining $15-billion budget deficit, and the Capitol is humming with hope that more is coming.

But the windfall could complicate Gov. Jerry Brown's push for tax increases, which he says are needed for California's longer-term financial health.

Some analysts say the surprise — the sign of a brightening economy — could be just the beginning. Revenue has crept up incrementally for months and jumped in April, when people paid their taxes. It may be time to raise projections, they say, with the potential for billions more to flow into state coffers.

"As much as a third of the deficit will probably, hopefully, disappear," said Brad Williams, an economist and former chief revenue forecaster for the Legislature.

But Brown is not talking that way. As the governor prepares his updated budget plan for release in mid-May, indications are that he will try to mute such expectations.

"He's taking a very prudent and conservative approach to this," said Department of Finance spokesman H.D. Palmer.

Some Republicans are already pointing to the extra revenue as one more reason why Brown should scrap his effort to hike taxes. But the governor remains insistent that the most sensible way to stabilize state finances is by balancing spending reductions and tax increases.

The revenue uptick, he warns, could be fleeting: State cash ebbs and flows, and it's too early to speculate about what the current rise really means. Even if it endures for a year or two, it won't be enough, he says.

For too long, the attitude in Sacramento has been that "money comes in, so let's not do" anything difficult such as cut spending or hike taxes, Brown complained recently. He wants five years of tax increases to help ensure California's financial well-being for a sustained period.

Republicans have thus far blocked Brown's efforts to renew more than $11 billion in expired or expiring increases in sales, income and vehicle taxes. Connie Conway (R-Tulare), the Assembly minority leader, said the pile of unanticipated receipts has bolstered their cause.

"The revenue is a good indicator that it's not necessary to raise taxes," Conway said.

Assembly Budget Committee Chairman Bob Blumenfield (D-Woodland Hills), who supports Brown's program, said that view denies the reality of California's finances.

"It's ignoring the glaring problem that's before us," he said. "We're starved for resources and about to collapse on ourselves."

Whatever boon the economy brings won't be enough to bridge the entire shortfall, the Democrats note. About 40% of any extra general-fund revenue collected after June 30, when the current fiscal year ends, would go to schools unless California's education funding law is suspended.

Democrats have already pushed through $11 billion in severe spending cuts and other measures to shrink the deficit. But Brown could determine in revising his proposed budget that some services that survived those cuts will cost more than expected.

"Even with these revenues, there's no gravy train in sight," said Brown spokesman Evan Westrup. "This will continue to be a tight budget."

Senate President Pro Tem Darrell Steinberg (D-Sacramento), in a recent speech to the Sacramento Press Club, said he didn't want to get "too excited" that California's tax collections were outpacing projections. He noted that in April 2010, revenues collapsed "like a souffle."

But this April, receipts continued their upward march. Jason Sisney, director of state finance at the nonpartisan legislative analyst's office, said his office is still developing a new forecast, but there is cause for optimism. Monthly reports on new jobs in California have been bullish. And income tax withholdings, an indicator of future economic growth, have been strong, he said.

"The news to date has been good," Sisney said.

Hector Barajas, a GOP strategist, said the revenue bump would complicate the governor's plan to sell a skeptical public on raising their own taxes, as Brown has promised to do. People might simply say, "I'm not going to give you any more of my money," Barajas said.

The extra tax revenue could also make some of Brown's other proposals more difficult to pitch. Those include eliminating redevelopment agencies and a tax credit for businesses that hire in downtrodden neighborhoods.

Brown has said those measures, which have stalled in the Legislature, are necessary to save the state money. Business interests may now argue that they are less necessary.

Whatever the political complexities, administration officials concede that the cash infusion is a good problem to have.

"It sure beats the heck out of the alternative," Palmer said.

shane.goldmacher@latimes.com

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