SAN FRANCISCO — California’s Department of Finance said Monday that state revenues continue to slip compared to budget forecasts, leading the Golden State closer to mid-year budget cuts.
The department said revenues for the first four months of fiscal 2012 are $1.26 billion, or 5%, below the $25.2 billion projected in the state budget after October receipts came in $608 million below estimates in the current budget.
Gov. Jerry Brown signed a budget in June that achieved balance partly by assuming revenue would come in $4 billion higher than previously forecast. If real revenue falls too far below budget assumptions, spending cuts are to be triggered to education and other services, in two tiers, depending on the size of the shortfall.
Last week, Controller John Chiang said October revenues came in $810 million below projections in the state budget, pushing the gap this fiscal year to $1.5 billion.
“It looks increasingly likely that both tiers of spending cuts will be triggered,” said Moody’s Investors Service analyst Emily Raimes.
Rating agency analysts have mostly figured the potential for cuts into their ratings.
The state Legislative Analyst’s Office and the Department of Finance will make separate revenue forecasts for the fiscal year that will determine whether cuts will be made. The LAO is expected to release its report this week and the Department of Finance before Dec. 15.
More than half of state revenues are expected in the second half of the fiscal year.
Finance officials said for the cuts to be avoided, receipts from personal income and corporate taxes in the second half of the year would have to fill the bulk of the revenue hole.
The department said personal income tax revenues came in $362 million, or 10%, below the month’s forecast of $3.422 billion.
If the shortfall is less than $1 billion, no cuts will be triggered. But if it is between $1 billion and $2 billion, a first round of $600 million of cuts start Jan. 1, which would mainly come from trimming allocations to state universities and health and human services.
A further $1.9 billion round of belt-tightening will begin if the shortfall is $2 billion or more, primarily affecting K-12 education. California is the lowest-rated state in the nation, according to Standard & Poor’s and Fitch Ratings, both of which assign A-minus ratings. The state carries an A1, two notches higher, from Moody’s.
The state’s general obligation bonds have traded at a spread of 105 basis points on average for a 10-year bond compared to a triple-A rated GO bond over the last three months, according to Thomson Reuters.
