California Faces an Additional $8 Billion Deficit Over Next 16 Months

The California Legislative Analyst's Office released a report with financial projections.

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SAN FRANCISCO—Talk about tilting at windmills. The nonpartisan California Legislative Analyst's Office released a report today saying that the state, after a hard-fought effort only a few weeks ago to close a $42 billion budget gap, is now facing an additional $8 billion deficit over the next 16 months. "The budget package . . . adopted by the legislature and the governor in February was an impressive step in addressing the state's monumental budget shortfall," Mac Taylor, the state's legislative analyst, writes in his report on the latest financial projections. "Unfortunately, the state's economic and revenue outlook continues to deteriorate."

With tax revenues still drying up, the report finds, the state is simply not collecting enough cash to support its nearly $100 billion general fund—a situation lawmakers in more than 40 other states also find themselves in. California is expected to bring in as much as $30 billion in new funds from the federal stimulus package, far more than most other states, which should help lawmakers fund basic services in the next few months.

But because many of the solutions in the budget deal reached in February—which included $15 billion in spending cuts and almost $13 billion in tax hikes—expire after a few years, Taylor estimates that the operating shortfalls are only going to get bigger. "Without corrective action," the report says, "the state's huge operating shortfalls will reappear in future years." The report estimates that the deficit will climb to $26 billion by 2013.

State lawmakers, still recovering from their months-long political struggle to get the last budget passed, are predictably disheartened by the report. "Our year of shared sacrifice is not over," says Noreen Evans, chair of the Assembly's budget committee. "As grim as it is, this forecast is not even the worst-case scenario facing California. We must be prepared for more bad news to come."

And keep their fingers crossed, in the meantime, that the goal posts will stop moving.