Lower property taxes are increasing the state's obligation to schools, the general softness in the economy is hammering major tax receipts and a likely delay in the anticipated sale of EdFund are all contributing to the problem, the report says.
Absent corrective action, the gap between revenues and expenses will grow to $8 billion in the fiscal year. In addition, the state will enter the fiscal year about $2 billion in the hole from this year. In all, lawmakers will have to adopt about $10 billion in solutions next year, Hill said.
And the situation isn't expected to improve any time soon. In 2009-10, the state faces a shortfall of $8 billion in the general fund, the report said.
The state enacted a $102 billion general fund spending plan in August that contained a $4 billion reserve. But lower tax receipts and higher expenses will pull the state $1.8 billion into the hole by next June, according to the report.
On Tuesday, Assembly Republican Mike Villines of Clovis said the Legislature earlier this year squandered an opportunity to create a "playbook" for the budget in good times and bad. He said lawmakers will not be able to dodge the worsening deficit this time around.
Hill's report on Wednesday offered some solutions that would certainly invite political opposition, including eliminating programs, shifting costs and raising taxes.
Hill suggested immediate cuts be made now to "double up" savings for the new year. The report said suspending a cost-of-living increase scheduled to go into effect in June for aged, blind and disabled poor receiving Supplemental Security Income/State Supplementary Program benefits would generate a $250 million savings.
Gov. Arnold Schwarzenegger also has the authority to delay $1.6 billion in debt payment, according to the report. The suggestion was made during the 2007-08 budget negotiations, but governor refused.
Presently, state revenues are $1.1 billion below forecast, according to the latest financial bulletin. Finance Department officials attributed the decline largely due to the weakened real estate market.
According to the legislative analyst's report, a drop in local property tax revenue will place an extra burden on the state general fund. Because property taxes help offset education expenses, the state will have to contribute $1 billion more to fund Proposition 98, the state law guaranteeing schools a minimum level of funding.
Other factors driving down revenue forecasts include a delayed sale of EdFund, the state's student loan guarantee program.
And instead of pulling in $1 billion, as the budget assumes, the analyst now assumes the state will receive $500 million in the 2008-09.
By Judy Lin & Dan Smith, Sac Bee
November 14, 2007