Volume I, No. 17

March 12, 2009

State Revenues Projected to Continue Slide

By David Walrath

School districts should not make expenditure commitments based on the receipt of new federal stimulus funds.  After conversations with administration officials, hearing testimony during legislative hearings, and reading news reports from legislative leaders and the State Controller, we believe state revenues will continue to deteriorate for the next 16 months and could be between $4 billion to $6 billion lower than the estimates used when the state budget was enacted three weeks ago.   While some new revenues may occur and expenditures may be reduced because of the trigger mechanisms in the State Budget, they will not result in eliminating this possible state General Fund revenues reduction. 

In the March 10th testimony before the Assembly Budget Committee, the Legislative Analyst’s Office (LAO) indicated that the Legislature should look for ways to reduce public education general fund expenditures and use federal funds to backfill those reductions.  Committee members did not reject the LAO recommendation. In fact, some appeared to support the recommendation as a means to restore health care cuts made in the current budget.  If this attitude continues, and state funds continue to deteriorate, then using federal funds to backfill a reduction in state General Fund public education support becomes a more probable outcome.  The LAO will present a new revenue and expenditure estimate in the next two weeks.  The Department of Finance will present their revenue and expenditure update at the May Revision after the May 19, 2009 Special Election.