How to make $1.4 billion of the state’s budget deficit disappear

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There are supposed to be two ways to close a deficit: raise taxes or cut spending.

But a move is afoot in the Legislature to trim California’s budget shortfall through Sacramento’s time-honored third way: making rosier revenue assumptions.

The Legislative Analyst’s Office gave lawmakers just such an opening.

Assembly Speaker John A. Perez (D-Los Angeles) said Thursday that Republicans and Democrats alike had agreed to cut $1.4 billion from the deficit by penciling in the rosier revenue forecast by the LAO, which anticipates more tax revenue than is projected by the state Department of Finance.

Republicans have yet to publicly acknowledge accepting the higher tax assumptions in closed-door talks, though Assembly GOP leader Martin Garrick (R-Solana Beach) said in a statement Thursday that there was ‘common ground’ between the parties on which revenue figures to use. The governor’s office disagreed that there was any such agreement, said Aaron McLear, Gov. Arnold Schwarzenegger’s spokesman.

The LAO forecast covered the time period between April 2010 and June 2011. In April and May, revenues did, indeed, come in stronger than the governor’s finance department had projected (by $300 million, though still $100 million below the LAO forecast).

‘Things are on track,’ deputy legislative analyst Michael Cohen said.

But that’s beside the point. If the LAO is proved wrong, the budget will have long since passed and whatever shortfall emerges will have to be rolled into next year’s deficit.

-- Shane Goldmacher in Sacramento
twitter.com/ShaneGoldmacher