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'Fiscal cliff' deal could drain millions from California budget

The deal won't allow California and other states to keep some revenue from the U.S. estate tax. Gov. Brown had included $335 million in such revenue in his budget.

January 03, 2013|By Chris Megerian, Los Angeles Times

SACRAMENTO — Washington's avoidance of the so-called "fiscal cliff" is generally good news for California's finances. But the deal approved by President Obama on Wednesday will still take a bite out of the state budget.

The legislation won't allow California and other states to keep a portion of revenue from the federal estate tax, a levy on wealth inheritance. California hasn't received any revenue from the tax since 2004, and analysts doubted that Congress would reverse course and restore the money.

But calculations by Gov. Jerry Brown and Democratic lawmakers still included $335 million in such revenue over the next year and a half. They estimated the revenue would soon grow to at least $1 billion annually.

H.D. Palmer, a spokesman for Brown's Department of Finance, said administration officials have already figured out how to make up the money, but he declined to provide details.

The governor is scheduled to release his new budget proposal, with updated tax figures, next week.

"This is a small part of a much larger picture," Palmer said.

The nonpartisan legislative analyst's office, which has projected a $1.9-billion deficit this year, has not included estate tax revenue in its forecasts and expects state finances to improve in the long term. Lawmakers look to the analyst for independent financial advice.

California leaders have a record of making overly optimistic financial estimates to cover the state's budget gaps. When projections don't pan out, they typically cut spending or scramble for new funding sources.

The first budget Brown signed into law after returning to the governor's office in 2011 included a $4-billion tax windfall that didn't materialize.

Palmer said the administration included the estate tax money last year because budget estimates are based on existing laws. At the time, federal tax policies were set to expire and allow the state to start collecting those funds again.

However, it was clear that the federal government did not intend to resume sharing the revenue, said Norton Francis, who researches state and local finances at the Tax Policy Center in Washington.

"It wasn't part of the [Obama] administration's plan," he said. "It was never part of any of the other proposals."

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