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State Budget Outcome Not Over Yet

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    NEWSLETTERS

    So, the 2012-2013 "balanced" state budget is set, pending voter approval of Proposition 30, the package of temporary tax hikes that will bring in the rest of the money required to get through the year and the next few thereafter.

    Yes?

    In all likelihood, no.

    That's because when the governor and legislature put together the budget, they build it on a series of assumptions, many of which never come to pass.

    Here are a few that proponents are counting on this time around:

    --$500 million from the state's cap-and-trade program: Under the terms of AB32, California's landmark greenhouse reduction law, on Aug. 1, the state will begin to auction off carbon credits for those pollution emitters who need to exceed their allocation. The Brown administration estimates first-year revenue of $1 billion, with half intended for general state spending. The problem is the courts may not uphold the law or the way policy makers want to spend the funds.

    -- $2.4 billion over the next four years from resumption of the federal estate tax: Current law allowing tax exemption from the first $5 million of inheritance is scheduled to sunset in 2013 and return to $1 million.

    The Brown administration expects the law to sunset, but the more conservative Legislative Analyst's Office bets against the change.

    Who's likely to be right?

    Here's a hint: Last fall when anticipating state revenues, the Brown administration predicted $4 billion more than the LAO; LAO was right.

    --$2 billion in capital gains income from Facebook stock that is sold: Everybody's hoping for a return of the "Google Effect," which provided the state with an extra billion dollars annually (round numbers) in 2006 and again in 2007. Given the different stock price directions of the two companies, such an assumption may be unduly rosy for 2012-2013.

    Add up these numbers along with a couple of billion-dollar court suits about state reductions to federally mandated programs and we could be in a world of budget hurt very quickly.

    With all due respect, the Brown administration isn't the first to manufacture numbers on a wing and a prayer.

    The Schwarzenegger administration got itself in hot water again and again, not only through law suits that backfired almost every time but also because upon his election, Republican Arnold Schwarzenegger actually believed that he could saddle up next to President and fellow-Republican George W. Bush, and get a cool $500 million because the state was a little short. That didn't happen, either.

    The bottom line is this: the more that budgets are built on questionable assumptions, the more they tend to fall apart. And when that happens year after year, people begin to challenge the credibility of the budget makers -- and given the public's high level of cynicism to begin with, that can't be good.

    Larry Gerston teaches political science at San Jose State University and is the political analyst for NBC Bay Area.

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