The First $1 Billion In Revenue Shortfalls Are Free

You may have read that if state revenues are short of the optimistic projections in the current state budget, then cuts will be  automatically triggered in December.

And since new numbers from the state controller show that revenues are running $700 million behind projections, you might assume that $700 million in cuts would be triggered.

Of course, you would assume wrong.

For two reasons. First, the triggers will be based on estimates of what the shortfall will be at the end of the budget year next June, and a large amount of state revenue arrives in the spring tax season.

Two different entities -- the legislative analyst and the state department of finance, which reports to the governor -- will make estimates. According to the trigger law, the higher estimate of revenues will be the one that's used.

Second, let's say the shortfall is estimated at $700 million. That would not be enough to trigger cuts. Under the trigger cuts legislation, the first $1 billion in shortfalls doesn't trigger anything. No harm, no foul.

Only if the shortfall is greater than $1 billion do the triggers go into effect.

Deeper triggers come into play if the shortfall exceeds $2 billion. And even then, the maximum possible trigger cuts are $2.5 billion -- even though the budget has $4 billion in revenue assumptions.

So the triggers aren't balanced. And they are uncertain.

More on Trigger Cuts:

California's "Bleak House"

Tax and Spend: The Missing Link

Trigger Cuts Focus on Healthcare, Education

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