California’s budget gap may widen to $28.1 billion in the next 18 months, according to an estimate from Governor-elect Jerry Brown, who takes charge of the most- populous U.S. state next month.
The estimate takes into account a $2.7 billion drop in projected estate-tax collections, and compares with the most recent estimate of a $25 billion gap for the period, Brown said.
“California is facing a very serious budget crisis,” Brown said today at the start of a public meeting of state officials in Sacramento to discuss the fiscal situation. “This latest increase comes from actions that are taking place in the Congress that will have an effect on California.”
In an accord to extend U.S. tax breaks enacted in 2001 and 2003, President Barack Obama proposed making the top estate-tax rate 35 percent. If the rate goes into effect next year, it will be the lowest since 1931, except for this year, when the levy was suspended. Brown, a Democrat who takes office Jan. 3, faces a widening gap after budget makers closed a $19 billion deficit for the current fiscal year, which ends in June.
The new estate tax structure also would exclude the first $10 million of a couple’s wealth. Current law sets the tax rate at 55 percent next year, with an $8 million exemption per couple. The lower rate would hold through 2012 under the tax agreement negotiated in Washington.
Republican Governor Arnold Schwarzenegger, who couldn’t seek re-election because of term limits, and lawmakers closed the gap in a budget that passed on Oct. 8, a record 100 days late.
Standard & Poor’s rates California general-obligation debt A-, its fourth-lowest investment grade and lowest of any state. Moody’s Investors Service gives it an A1, one step higher and the same as it gives to Illinois.
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