This article introduces you to the new School Services of California, Inc., Trigger Tracker--our way of giving you a quick, at-a-glance summary each month of how actual state revenue receipts are tracking against monthly estimates of cash receipts from the 2011-12 State Budget revenue forecast.
Why do we care? In June 2011, during the 11th hour of Budget development, leaders in the Legislature and Governor Jerry Brown chose to increase the forecast of state General Fund revenues by $4 billion, based largely on receipt of higher-than-anticipated revenues in May. Higher receipts triggered hopeful optimism that robust revenue growth lay ahead. This optimism also opened a window of opportunity sorely needed to pass a balanced majority-vote Budget without new taxes.
Because this increase in projected revenues wasn't grounded in the economic forecast of the time, the 2011-12 State Budget also set automatic cuts to state-funded programs, including child care, K-12 education, and community colleges, triggering reductions in state spending of billions of dollars if state revenues fall short.
How does the "trigger" work? If revised revenue forecasts prepared by the Legislative Analyst's Office (LAO) for release in November, and revenue forecasts prepared by the Governor's Department of Finance (DOF) in December, are more than $1 billion, but less than $2 billion below the estimate for the 2011-12 State Budget, midyear cuts of up to $601 million are implemented, including a 4%, $23 million cut to child care, a $30 million reduction in community college funding, and a $10 per unit increase to community college enrollment fees (the fee increase would not be effective until summer 2012).
If both revised forecasts fall $2 billion or more short, then additional reductions of up to $248 million in home-to-school transportation, $1.5 billion (4%) in school district revenue limits, and $72 million to community colleges are triggered.
How are we doing?
Actual revenues for July and August are now available, and, as reported in "State Revenues Fall Short in August" in the September 30, 2011, Fiscal Report, both months are below expectations. DOF revenue estimates for July and August reflected an additional $465 million allocated toward meeting the $4 billion goal established last June. However, not only were these additional revenues not realized, actual revenues even fell short of the expectations of the May Revision, coming in $131 million below the May forecast--for a total shortfall of $596 million for the first two months of the fiscal year.
The additional $4 billion in revenues is allocated among the 12 months of the 2011-12 fiscal year based on estimated personal income tax receipts. However, staff from both the LAO and DOF acknowledge the difficulty of projecting when revenues that would support the optimistic June assumptions actually may appear. If the gains materialize, it is possible that they will be reflected in corporate tax receipts and higher-then-expected tax revenues from capital gains, both of which we won't see until after the beginning of 2012.
Nevertheless, the glacial pace of California's economic recovery does not provide much comfort for those concerned about the Budget trigger. For you, then, we provide our Trigger Tracker for a quick, at-a-glance update of actual monthly revenues compared with the hopeful expectations embodied in the June Adopted State Budget. We will update the Trigger Tracker each month until we know the outcome--after the LAO November forecast or by December 15, when the Director of the DOF is charged with making the final determination about the midyear cuts.
--Michael Ricketts