May 18, 2012 / 11:41 PM / 7 years ago

UPDATE 1-Calif. watchdog sees budget gap topping $17 billion

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SAN FRANCISCO, May 18 (Reuters) - California’s budget gap may be more than $17 billion, greater than the $15.7 billion gap forecast by Governor Jerry Brown, the state’s budget watchdog said in a report released on Friday.

The Legislative Analyst’s Office said it sees general fund revenue coming in roughly $550 million below the estimate in the revised budget plan Brown unveiled on Monday.

The non-partisan agency also estimated the plan overstated by about $900 million the amount in property tax revenue from shuttered redevelopment agencies the state will have to distribute to schools.

H.D. Palmer, a spokesman for Brown’s finance department, said the governor’s administration identified $2 billion in redevelopment-related funds to distribute but opted to be conservative so it included only $1.4 billion of them in its budget plan.

“Given the data we had in hand when we put the budget together, we think we properly scoped the size of the problem,” Palmer said, referring to administration’s projected $15.7 billion budget gap.

Brown said on Monday the budget deficit would swell from his January estimate of $9.2 billion due to a slow economic recovery and weaker-than expected revenue.

To tackle the shortfall, the 74-year-old Democrat proposed cutting work hours for state employees and spending cuts on social, healthcare and welfare programs.

His plan, which proposed $91.4 billion in general fund spending, also assumes voters in November will approve a ballot measure to raise the state’s sales tax and increase personal income taxes on the wealthy.

If voters reject the measure, $6.1 billion in additional spending cuts would be needed later in the year, with $5.5 billion of the cuts falling on schools and community colleges.

Credit analysts left their ratings and outlooks on California unchanged despite Brown’s bigger deficit estimate. But they said both could suffer if the governor and lawmakers fail to act quickly to close the gap. Analysts also warned they will be on the lookout for accounting gimmicks.

Lawmakers face a June 15 deadline to approve a budget for the fiscal year beginning on July 1.

The Legislative Analyst’s Office released its report as Facebook Inc held its initial public offering, which is expected to generate much-needed revenue for California as a result of taxes on capital gains.

The agency earlier this week estimated the state through its next fiscal year will see $2.1 billion in revenue linked to the IPO, assuming voters support the tax measure backed by Brown and Facebook shares rise to $45 a share in six months from their initial public offering price of $38.

Facebook’s shares closed at $38.23 on Friday, their first day of trade.

Brown’s budget plan expects Facebook-related revenue will help offset some of the state’s revenue weakness. (Reporting By Jim Christie; Editing by Eric Walsh)

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