Bloomberg News

Brown Estimate May Be Off $900 Million, Analyst Says

May 18, 2012

California Governor Jerry Brown’s plan to close a $15.7 billion budget deficit may overstate revenue by $900 million because it depends too much on “highly uncertain” funds from defunct redevelopment agencies, the nonpartisan legislative analyst said.

While most of Brown’s revenue forecast is “reasonable,” the governor’s reliance on $1.4 billion in funds from redevelopment agencies, which were dissolved in February, makes the budget vulnerable, the Legislative Analyst’s Office said today in a report.

“We find that the administration’s estimate of liquid assets available for distribution is subject to considerable uncertainty,” the report said.

California, the world’s ninth-largest economy, lost more than 1 million jobs in the recession, costing the most populous U.S. state 24 percent of its revenue. Brown announced a revised spending plan May 14 after he said the deficit had swelled from $9.2 billion in January, mostly due to lower-than-projected tax collections.

The 74-year-old Democrat called for higher sales and income taxes, a 5 percent cut in employee pay and a $3 billion reduction in social services for the year beginning July 1. Funds for schools and community colleges would be cut by $5.5 billion if voters reject the tax increases.

Tax Gains

Brown, who served two terms as governor from 1975 to 1983, intends to tap the financial accounts of the former redevelopment agencies, which capture incremental tax gains on improvements made in blighted areas.

H.D. Palmer, a spokesman for Brown’s Finance Department, said the state budgeted conservatively on redevelopment funds by including only $1.4 billion of the total $2 billion in the 2012-2013 budget.

As the state’s roughly 400 former redevelopment agencies shut down their operations, they must report their assets to the Finance Department by the end of June, Palmer said by telephone.

“Whether it’s our estimate for the rest of the year or the legislative analyst’s estimate, this issue is going to be put to rest before next year’s budget,” Palmer said.

To contact the reporter on this story: James Nash in Los Angeles at

To contact the editor responsible for this story: Stephen Merelman at

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