Legislative analyst Mac Taylor gave Gov. Brown's budget proposal a thumbs-up when you look at the state's financial picture long-term because it continues to whittle down future deficits. But short term, he believes the governor overestimates tax revenue.
"What we're concerned about is that the capital gains assumptions that administration is making is a little bit optimistic," he explained.
Taylor believes the state will take in $3 billion less than what the governor predicts. The disagreement is mostly over how much the wealthiest Californians will bring in. The richest one percent pay 40 percent of the state's total intake of personal income tax, boosted by capital gains. The Brown administration believes its numbers are correct.
"Revenue forecasting in this time of economic uncertainty is very challenging, and particularly so for those high-income, high-wage Californians whose behavior can swing revenue numbers substantially," said H.D. Palmer with the California Finance Department.
A big game changer could be the much-anticipated initial public offering of Facebook this year, which neither the LAO nor Gov. Brown accounts for, but could bump up capital gains significantly with the stock offering topping $100 billion.
"This is the largest one that we've ever seen and it's much bigger than Google, the biggest one we've had," Taylor says.
Still, if the legislative analyst is correct, it raises the possibility that lawmakers will have to consider even more budget cuts to make up the additional $3 billion shortfall. School leaders speculate the budget axe will be pointed their way since education was not slated for cuts unless the governor's tax hikes fail in the November election.
"A lot of school districts said that anymore cuts beyond the cuts they've already made, push them over the edge to the point of insolvency," says Kevin Gordon, who advises school districts on budget planning.
The legislative analyst also warned that cuts to welfare are way too severe. However, the Brown administration says if California does not scale back benefits from four years to two years, the price tag for the program jumps half a billion dollars more next year.