LAO: $10 Billion In Red Ink

The early read on Legislative Analyst Elizabeth Hill's new state budget report is not a pretty one: she forecasts a $2 billion deficit in the current fiscal year and an $8 billion operating shortfall as of next July.

The sobering assessment is not as surprising in Capitol circles as it might be elsewhere. For weeks, there have been signs that Governor Schwarzenegger's budget wonks have been circling the wagons, asking state agencies to look for ways to make serious reductions in expenses for next year.

But the nonpartisan analyst's numbers are a good benchmark of the battle to come.

Hill's report says that state finances have taken a $6 billion nosedive since the budget was signed by the governor in August. Fortunately, that budget projected a $4 billion reserve -- hence, the current year deficit is only $2 billion.

So what happened? Yes, the economic slowdown has taken a big bite out of revenues. But the analysis also shows the danger of making risky assumptions in budgeting. Hill points to the problems that have cropped up with the governor's plans to sell off the student loan agency EdFund for $1 billion (think half that, says Hill, and not until next year); and to much lower-than-expected revenues from expansion of Indian casinos.

And no surprise here: it's not going to get any better anytime soon. The LAO report says the state is in danger of the same $8 billion deficit coming back in 2009-10. That's $16 billion in red ink in less than three years.

Other policy goals notwithstanding, next year at the Capitol may be an encore performance of The Year of the Budget.