CSAC Bulletin Article

Legislative Analyst’s Office Projects Higher Revenue than Governor’s Proposal

January 19, 2017

The Legislative Analyst’s Office (LAO) published its initial response to the 2017-18 Governor’s Budget proposal, reflecting a discrepancy in revenue projections between the state’s two major fiscal forecasters. Revenue growth is expected by both, but due to months of revenues coming in below projections, Department of Finance (DOF) downgraded its revenue forecast by $3.2 billion, causing the Governor to propose reduced spending levels in light of a potential $1.6 billion deficit absent any corrective action.

Alternatively, the LAO projects revenues will recover by the May Revision and general growth will be stronger than predicted by DOF. The main discrepancy is found in the personal income tax (PIT) with LAO commenting that DOF’s PIT estimate for 2017-18 seems too low, nearly 2% lower than the LAO, given economic and stock price growth. This could be partly explained by the use of different capital gains calculation methodologies.

The 2017-18 budget proposal is not the first time that the DOF and LAO have offered different projections for revenues and potential growth. Regardless of their differences, however, in the 2017-18 Budget Summary, the Governor offered that “it is possible that revenues will recover in the coming months, particularly if final income tax receipts in April surge.” In the event that the LAO is correct in its more optimistic outlook, it would be reflected in the May Revision and the “proposed cuts can be avoided,” according to the Governor.

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