SAN FRANCISCO — The California Department of Finance reported this week that revenue continues to flow into the general fund at a weaker-than-projected pace.
November agency cash was $4.9 billion, $439 million below projections in the state's most recent amended budget.
Both personal income tax receipts and sales tax collections were well off the target, according to the report released late Tuesday, while corporation tax collections were off slightly.
For the first five months of fiscal 2010, year-to-date general fund revenue is $29.3 billion, or 3.4% below budget projections. The state is headed into a difficult budget process, with Gov. Arnold Schwarzenegger required to deliver a fiscal 2011 budget proposal in less than a month.
That proposal will have to address a shortfall greater than $6 billion for the current fiscal year, according to projections from the state's Legislative Analyst's Office, largely because paper solutions in the current budget failed to materialize in reality. The LAO also projects a $14 billion structural deficit for fiscal 2011 that must be addressed.
Coincidentally, two outside entities provided widely diverging views on state government credit quality yesterday.
In the California Lutheran University Center for Economic Research and Forecasting's quarterly economic forecast for California, executive director Bill Watkins wrote: "In my opinion, California is now more likely to default than it is to not default. It is not a certainty, but it is a possibility that is increasingly likely."
His analysis on the default appeared to largely be a distillation of recent California politics headlines: Democrats reject spending cuts, Republicans reject tax hikes.
"They have probably run out of smoke and mirrors, although their ability to engage in budget gimmickry is amazing, enough to make an Enron accountant blush," Watkins wrote, referring to the accounting scandal at Enron Corp. early in the decade.
Watkins' analysis is dead wrong, according to Tom Dresslar, spokesman for Treasurer Bill Lockyer.
"He may know something about economic forecasting, but it's pretty clear he knows nothing about the risk that California's going to default on its bonds," Dresslar said. "He just takes this huge leap of illogic to say just because we're going to have a tough time with the budget this year, there's a more than 50% chance of default."
Dresslar went on to note, as Lockyer has on many occasions in recent years, the high constitutional priority of debt repayment, and a continuous appropriation, which means debt gets paid with or without a budget.
"We're not going to default next year, the year after that, or ever," Dresslar said.
A more measured view came from Standard & Poor's, which issued a report looking at state and local governments' ability to weather the recession, though it did not address California or any other government specifically.
"By and large, we expect that governments' relatively superior (but not unlimited) ability to make structural adjustments should allow most of them to weather the current downturn even if the recovery is weak," wrote analyst James Wiemken.
If there is a timeline for material credit quality degradation, it is measured in years, not months, he wrote.
"Such a scenario would most likely also involve a series of consecutive events over a four- to six-year period (encompassing a prolonged weak recovery followed by another significant recession), most of which we view as unlikely," Wiemken wrote.
