UCLA and other UC schools may have further budget cuts if the LAO's report is correct. (courtesy Creative Commons)

The review indicated that General Fund revenues and transfers in the 2011-2012 fiscal year will be $3.7 billion below the level the June budget package predicted. The shortfall will cause $2 billion of cuts to state programs.

The LAO also predicted that at the end of the 2011-2012 fiscal year, California will have a $3 billion deficit.

In 2012-2013, the group predicts that California will have to deal with increased costs after a number of temporary budget measures expire. Proposition 98 school costs will require repayment of $2 billion of Proposition 1A property tax loans. As a result of this and other costs, the LAO said the 2012-2013 budget has a projected shortfall of $10 billion.

The state will have to address this budget problem before the state adopts a 2012-2013 budget plan.

In a statement, California Controller John Chiang said:

“Today’s news is no surprise. Our economy’s sluggish growth means a tax windfall is unlikely, and not a penny of the estimated $4 billion has been collected to date. The Governor and lawmakers were smart to backstop their hopeful budget projections with mid-year cuts, but they may not have gone far enough. Today’s report tracks with the troublesome pattern we have seen in the State’s receipts and spending, which could mean a cash-flow problem in California’s near future.”

Jean Ross, executive director of the California Budget Project, also released a statement saying:

"The LAO's new forecast underscores the fiscal challenges that California continues to face. The outlook suggests that revenues will lag the optimistic forecasts used as the basis of the 2011-12 spending plan and that shortfalls will persist absent significant additional revenues. Unemployment remains stubbornly high, both nationally and here in California, and state and local government job losses are weakening overall job growth.

"The LAO's report provides a first look at the state's fiscal outlook for the remainder of this year and beyond. It is important to note, however, that due to the timing of certain personal income tax payments, policymakers lack critical information needed to develop an accurate picture of the state's fiscal situation. Still, the budget shortfalls forecast by the LAO highlight the need for policymakers to take a balanced approach to addressing the state's ongoing budget gaps. Without additional revenues, policymakers will be forced to make even deeper cuts to our public schools and universities and other public structures that underpin a strong economy and are essential to the lives of Californians.

"Policymakers should strive to address the state's fiscal challenges with a multi-year approach that fosters long-term stability. Deeper spending cuts, such as those that would be imposed by the so-called 'triggers' in the June budget agreement, will only serve to slow an already struggling economy."

Senate President pro Tempore Darrell Steinberg (D-Sacramento) released a statement saying:

"Today’s numbers make it clear that the state’s first priority must be to get to the ballot in November and raise needed revenues to avoid any more damage to Californians. The notion of cutting deeper into education, public safety and services for those in need is unthinkable. I imagine an overwhelming majority of Californians agree.

“We’ve cut to the point that the results are being felt like never before. The cupboard of easy solutions is bare. Just ask the students in our higher education systems; the more than one million elderly, blind, or disabled living in poverty; the families who see their kids go to school where the classrooms are more crowded and the resources are dwindling. We’ve hit a crossroads where the time has come to turn things around. 

“Democrats have tackled more than half of the reoccurring deficit problem we’ve been plagued with ever since Governor Schwarzenegger cut the Vehicle Licensing Fee. As the LAO points out, last year’s budget actions have put our ongoing deficits at the lowest we’ve seen since the recession began. By building on that foundation, new revenue will finally allow the state to recover and reinvest.”

Earlier this year, state lawmakers and the governor predicted that the economy would improve the second half of this year. Based on LAO’s report, they guessed wrong. Here are some negative consequences of the budget woes:

-Schools and social services have been warned to prepare for budget cuts, reports the San Diego Union-Tribune. California may have to cut school funds by up to 4 percent starting in February if a report next month confirms the budget’s gap is as large as the LAO’s report suggest. 
 
-The University of California budget could be reduced by $100 million every fiscal year from 2011-2012 to 2016-2017. The California State University budget could also be cut by $100 million every fiscal year for the same span of time.

-Childcare funding could be reduced by $17 million during the 2011-2012 to the 2014-2015 fiscal years, by $18 million in the 2015-2016 fiscal year and $19 million in the 2016-2017 fiscal year.
 
-State grants for local libraries could be reduced $16 million a year and developmental services could be reduced $100 million a year.

If, however, estimated revenues are short by $1 billion or less, California will not have to make January budget cuts, according to the San Diego Union-Tribune. If the fiscal shortfall is between $1-2 billion, a preselected round of cuts will be made. If the shortfall is over $2 billion, public schools will have substantial budget cuts.

The LAO’s report said that the exact amount of cuts will be determined by the Director of Finance next month. Read the full report here.

Reach associate news editor Hannah Madans here.