Bloomberg News

California’s Revenue Estimates Duel as State Revenue Gap Grows

November 18, 2011

Nov. 17 (Bloomberg) -- California Controller John Chiang reported on Nov. 10 that revenue from July through October had fallen $1.52 billion behind projections. Four days later, the Finance Department said the gap was actually $1.28 billion.

California still has two agencies tracking monthly cash receipts, even as it faces a projected a shortfall of $3.7 billion this year -- the estimate released yesterday by the independent Legislative Analyst’s Office.

“The way our constitutional offices are structured, these folks can operate as they see fit and not cooperate,” Lew Uhler, president of the National Tax-Limitation Committee, a group in Roseville, California, that seeks to limit spending, said by telephone. “That has been a concern for years.”

California, with an economy bigger than India or Canada, has five bureaucracies keeping tabs on receipts as part of their responsibilities: The controller’s office with a total budget of $224.3 million a year, the finance department at $56.5 million, the legislative analyst at $7.5 million, the Board of Equalization at $490.1 million and the Franchise Tax Board at $612.3 million.

“When they come out with different data, it confuses everything,” Assemblyman Jim Nielsen, a Gerber Republican and vice-chairman of the budget committee, said in a telephone interview. “At least as a first step, I would suggest they do more collaboration and coordination.”

Mixed Messages

The mixed budgetary messages come as California confronts the possibility of automatic spending cuts through a series of “triggers” written into the $86 billion budget. A shortfall of $1 billion will mean cuts to universities, social services and public-safety programs; missing by $2 billion may slice the public-school year by seven days.

The Finance Department and the Legislative Analyst will draw up revenue forecasts that will determine whether the “trigger” cuts will be made, finance spokesman H.D. Palmer said by telephone. The higher of their two forecasts will be the “yardstick” for the decision, he said.

Spokesmen for Chiang, the independently elected Democratic controller, and the Finance Department, which reports to Governor Jerry Brown, a Democrat, said there’s little or no duplication in how they collect data.

The Finance Department tracks receipts by the agencies that levy taxes and collect fees, Palmer said. The controller’s office monitors deposits into and withdrawals from the treasury, said Jacob Roper, a spokesman. That means there can be a gap of days or even weeks between when an agency receives cash and it’s deposited into the treasury, the equivalent of receiving a check and waiting to take it to the bank.

‘Increasing Confusion’

“With the increasing prominence of the controller’s monthly announcements, we have identified increasing confusion among policy makers, the press, investors, and program stakeholders about the real track of monthly budgetary revenue trends,” Jason Sisney, the deputy legislative analyst for state and local finance, said by e-mail.

In Texas, the second most-populous state, the comptroller’s office alone tracks and reports revenue, said Billy Hamilton, a former deputy comptroller of public accounts. Hamilton writes a column on state fiscal issues for a tax newsletter.

“You don’t get dueling sets of numbers, usually,” he said.

In Montana last year, a bipartisan legislative committee angered Democratic Governor Brian Schweitzer by adopting a revenue estimate $45 million below the administration’s, according to the newspaper the Missoulian.

‘Consensus’ Method

In Connecticut, contradictory estimates in 2009 led lawmakers to approve a bill requiring a “consensus” method for gauging receipts, said Liz McNichol, a senior fellow at the Center on Budget and Policy Priorities in Washington, a nonprofit focusing on issues affecting lower-income Americans.

Then-Governor M. Jodi Rell, a Republican, vetoed the bill, saying the calculations of her Policy and Management Office and the Legislature’s Fiscal Analysis Office served the state well. The Democrat-dominated Legislature overrode Rell’s veto. Connecticut now has a single office tracking revenue, said Gian- Carl Casa, undersecretary for legislative affairs in the policy office in Hartford.

In some respects, states with dueling revenue estimates mirror the federal government, said Verenda Smith, senior manager of administration and policy for the Washington-based Federation of Tax Administrators. Projections from the White House and the Congressional Budget Office often differ, she said by telephone.

“From democracy’s standpoint, that’s often good for debate,” she said.

--Editors: Pete Young, Ted Bunker

To contact the reporter on this story: James Nash in Sacramento at jnash24@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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