November 11, 2010 / 1:24 AM / 9 years ago

California to see $25 billion budget gap: report

SAN FRANCISCO (Reuters) - California faces a $25 billion deficit through the next fiscal year, its budget watchdog said on Wednesday, just weeks after leaders of the most populous U.S. state closed a $19 billion gap and days ahead of a planned sale of some $10 billion of state debt.

State workers protest outside the State Capitol in Sacramento, July 1, 2009. REUTERS/Max Whittaker

The state’s Legislative Analyst’s Office said in a report that incoming Governor Jerry Brown and lawmakers must tackle a projected deficit of $6 billion in the current fiscal year and a shortfall of $19 billion in its next fiscal year.

“Similar to our forecast of one year ago, we project annual budget problems of about $20 billion each year through 2015-16,” the report added, noting that those estimates may be understated.

California’s government has seen its revenue plunge in recent years due to the combined effects of the housing slump, mortgage crisis, turmoil in financial markets and a double-digit state unemployment rate. Analysts see a long recovery for the state that lags the national recovery.

Separately, the state controller said that California’s October revenues were 4.6 percent, or $232.3 million, above estimates in the state’s recently enacted budget.

State Treasurer Bill Lockyer’s office does not expect the report by the Legislative Analyst’s Office to affect its planned sale of roughly $10 billion in tax-exempt revenue anticipation notes next week.

Lockyer spokesman Tom Dresslar said state fiscal problems were disclosed in the prospectus for the sale of the short-term debt, which will have May 2011 and June 2011 maturities.

“The state will have more than sufficient cash available to pay the $10 billion plus interest on time and in full,” Dresslar said.

WOBBLY BUDGET ASSUMPTIONS

After a record stalemate, Governor Arnold Schwarzenegger and lawmakers last month agreed to and enacted a budget, which required closing a $19 billion shortfall, for the current fiscal year that began on July 1.

Budget critics said it had too many accounting gimmicks and was overly optimistic in assuming funds from Washington.

The report by the Legislative Analyst’s Office said the near-term $6 billion shortfall will result from Washington not sending California an anticipated $3.5 billion and higher-than-expected costs for prisons and other programs.

Additionally, a ballot measure approved by voters last week will prevent California from raiding local government funds, costing the state government $800 million.

“The temporary nature of most of the Legislature’s 2010 budget-balancing actions and the painfully slow economic recovery contribute to the $19 billion projected operating deficit in 2011-12,” the report said. It noted the state will also lose more than $8 billion due to the expiration of temporary tax increases adopted last year.

As it has in previous years, the Legislative Analyst’s Office urged state leaders to tackle budget troubles with a combination of revenue increases and spending cuts.

“Without immediate action to begin tackling the structural deficit for the long term, the state may not be able in the foreseeable future to move beyond its current stumble from one terrible budget problem to the next,” the report said.

“The solutions needed to balance the budget will mean unavoidably painful sacrifice by today’s Californians. The benefit of this sacrifice would be putting the state on a sound fiscal footing,” it said.

Editing by Gary Hill

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