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California Budget Shortfall Will Trigger Automatic Cuts

2 min readBy: Scott Drenkard

Back in July, California did the improbable: they passed an on-time, balanced budget which included a sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. rate decrease. However, the nonpartisan California Legislative Analyst’s Office (LAO) recently released a report that projects that revenues are likely to fall $3.7 billion short of the amount needed to cover the outlays for the current fiscal year, despite previously rosy expectations. Due to the stipulations of the budget that was passed, this shortfall will trigger automatic cuts to several government programs.

These automatic cuts, sometimes called “sequestration” cuts, are divided into two tiers by the California budget. Tier One cuts are triggered if revenues are forecasted to fall $1 billion below the budget assumptions, and Tier Two cuts are triggered on a prorated basis if there is a forecasted revenue shortfall of $2 billion or more.

The California Director of Finance will determine the actual amount of the automatic cuts by comparing the LAO report with the administration’s forecast, which will be released this December. Whichever of the two forecasts has the higher projection of revenue collection will be the number used for determining sequestration.

Should the recent LAO report be used to determine cuts, the expected shortfall of $3.7 billion would make for cuts deep into the Tier Two category, and would result in a total of $2 billion in sequestration cuts.

Among the biggest cuts are the following government programs, courtesy of Mercury News:

  • $1.5 billion in K-12 funding, which could reduce the school year by seven days.
  • $248 million by eliminating home-to-school transportation.
  • $100 million to the University of California.
  • $100 million to California State University.
  • $100 million to the Department of Developmental Services.
  • $100 million for In-Home Supportive Services; also imposes a 20 percent reduction in service hours.
  • $72.1 million to juvenile justice; increase county charge for youth offenders sent to the adult prison system.

For a video of Mac Taylor announcing his projections, click here.

Follow Scott Drenkard on Twitter @ScottDrenkard.