Friday, January 29, 2016 The CSAC Bulletin
LAO, Finance Differ on Revenue Projections

A familiar theme is emerging in the 2016 budget discussions: disagreement about revenue estimates. Both the California Department of Finance and the Legislative Analyst’s Office (LAO) make revenue projections – and frequently, they do not align. Typically, the Finance Department forecasts more conservatively than the LAO.

This week, the LAO released a new report critiquing Finance’s property tax revenue estimates as included in the Governor’s January budget proposal. While property taxes are local government revenues, projections are included in the state budget because of the complex interactions with streams of state funding.

The LAO’s estimates clock in $1 billion higher than the Finance estimates over the next two years. The LAO analysis also identifies flaws in the Department's methodology, which “systematically underestimates” returning tax increments following RDA dissolution. The differences are primarily due to assumptions related to RDA dissolution and growth in property values.

The LAO report does note that their assumptions and projections are based on economic expansion, and a slowdown or recession could have a negative impact on property tax revenue. However, the report suggests that there is typically a lag in the impact on property values, meaning that the reduction to property tax revenue would be delayed by several years.