Personal Budget Plan

Calif. budget: Some see a year of magical thinking

The growth in California's economy during the three decades since he first held the governor's office, he said, could be described as "a marvel, even a miracle and some kind of gift."

The budget he signed Thursday for the new fiscal year extends that abiding faith into the year ahead.

Brown and his fellow Democrats in the Legislature balanced the budget largely on the hope of a small miracle — that California's general fund will collect about $12 billion more in tax revenue than was anticipated in January. If not, it will mean more spending cuts, including the possibility of shortening the school year by seven days.

The biggest question mark hanging over the budget plan is whether that revenue gift will appear.

Many economists are skeptical. California is struggling to pull itself out of recession, and one recent forecast suggests the housing bust will remain a drag on the state's economy for years, contributing to an unemployment rate that will persist above 10 percent until mid-2013.

The Brown administration says there is evidence to support the sunny revenue projections that include an estimated $4 billion in higher tax receipts on top of more than $6 billion Brown assumed in his May budget revision. Several billion dollars more than anticipated already has been deposited in the state's accounts.

Department of Finance officials say the main reason is that the wealthiest Californians are seeing their incomes grow faster than the average worker.

The state's income tax takes a bigger bite of their earnings, which makes tax revenue susceptible to wide swings during relatively small changes in the economy. That volatility — which sent tax revenue crashing a few years ago — now is bringing in more cash than the state expected even six months ago.

But some economists say the rapid revenue growth so far this year cannot be sustained while the state remains stuck in a sluggish recovery.

"It's certainly not based on any change in the economic outlook," said Jerry Nickelsburg, senior economist with the University of California, Los Angeles Anderson Forecast.

The June edition of the Anderson forecast projected employment growth of 1.7 percent in 2011 and 2.4 percent in 2012. That would be better than the nation as a whole, but still leaves the state in a hole after a much larger initial decline.

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