The Shape of Things to Come?

As state government budgets were finalized across the country before July 1st, the expected state employee layoffs did not materialize. One of the reasons was an overestimation of income as the economy improves during the fiscal year. This wishful thinking of “counting your chickens before they are hatched”, is starting to unfold:

California tax revenue plummets in July, raising fear of trigger cuts

California’s tax revenue plummeted in July, missing expectations by nearly $539 million and raising fears that deep education cuts will be needed to keep the state budget balanced.

The bad news, announced Tuesday, came less than two months after Gov. Jerry Brown and state lawmakers patched together a budget on the assumption that a budding economic recovery would produce a $4-billion revenue windfall. Those hopes are now fading.

The plunge occurred before the recent Wall Street gyrations that wiped away many of the year’s stock-market gains. If the economy remains sluggish and the $4 billion does not materialize, cuts in public schools, universities, libraries, child care, and services for the elderly and frail will automatically take effect.

“Every drop in revenues puts us closer to the drastic trigger cuts that could be imposed next year,” state Controller John Chiang said in a statement accompanying his July revenue report.

In Washington on Tuesday, the Federal Reserve sharply downgraded its outlook for the American economy, predicting a “slower pace of recovery” than previously forecast.


Unless the government addresses the factors that led to our credit rating downgrade, expect to see the above trend in California spread across the country. On the bright side, at least the states have budgets: the Federal government seems to think a budget is no longer relevant.

David DeGerolamo

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