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Budget Update—April 13, 2010
Home > Government Relations > State Budget

While many of you have been on spring break, the true budget geeks in Sacramento have been engaging in our favorite spring ritual--watching California's daily tax receipt tally. The month of April accounts for about $10 billion in personal income tax revenues, which is 22% of annual PIT revenues and 11.4% of total annual general fund revenues. While most of us pay most of our state income taxes through withholding, the relatively few "make or break" large taxpayers often have huge end-of-year settle-ups due from stock options and capital gains.

So, two days before the tax deadline, how are the tea leaves reading? Through Friday, a net (tax payments minus tax refunds) of $1 billion had been collected. Today's report will be a big one, accounting for the weekend's receipts. There have been strong days and weaker days, including two that saw more refund claims than payments. As of now, it's completely feasible that we hit the $10 billion number, although overshooting it, and thus significantly reducing the huge state deficit, seems ambitious.

In good news, however, the state's revenues in the first three months of the year outpaced projected revenues by $2.3 billion. However, even if the trend continued, the good news doesn't necessarily reduce the deficit equally. Most notably, as idenfitied by the Legislative Analyst in a March 19 letter to legislative budget staff, perhaps as much as 60% of the new revenues would be required to be provided to Proposition 98.

While that would normally have me putting on a party hat and dancing on my desk, it is very unlikely that schools and community colleges will be provided billions more amidst $10-$15 billion in cuts to UC, CSU, and health and human services. More likely, the higher revenues that come in above projections, the harder we're going to have to fight to avoid a suspension of Proposition 98. Even with the added revenues, we're going to have to fight hard to avoid deeper cuts to our categorical programs and to hold on to the 2.21% enrollment growth the governor included in his January budget.

We must and will continue to tell our story about the students being shut out because of enrollment caps and the impact to the services of our most educationally disadvantaged students of the student success categorical cuts.

Nevertheless, we must be happy about the good news. The state's economy is turning a corner. As I e-mailed a couple of weeks ago, the state's unemployment situation seems to have stabilized (although more bad news may come in the report expected this Friday because of the closure of the NUMMI automotive plant in Fremont), and the cataclysmic drop in revenues seems to have abated.

We have several difficult years ahead. It will likely take five years for employment to return to pre-recession levels, and California's next great economic driver has yet to be identified. State revenues are roughly $35 billion below where they would have been this year with ordinary growth, and it will take a long time to rebuild the level of services Californians are accustomed to. Nevertheless, this has been the situation at the end of nearly every recession, and the sun has always returned to the Golden State.

I wouldn't bet against us now. And, California's community colleges are better positioned than ever to lead the way.