Earlier this week, the nonpartisan Legislative Analyst said the $7-billion-per-year tax hike won't bring in as much as he thinks. He says the governor's proposed state budget will also fall short.
Legislative Analyst Mac Taylor gave Governor Jerry Brown's budget proposal a thumbs-up when you look at the state's financial picture long-term because it continues to whittle down future deficits. But short-term, he believes the governor overestimates tax revenue.
"What we're concerned about is that the capital-gains assumptions that the administration is making is a little bit optimistic," said Taylor.
Taylor believes the state will take in $3 billion less than what the governor predicts. The disagreement is mostly over how much the wealthiest Californians will bring in.
The richest 1 percent pay 40 percent of the state's total intake of personal income tax, boosted by capital gains.
The Brown Administration believes its numbers are correct.
"Revenue forecasting in this time of economic uncertainty is very challenging, and particularly so for those high-income, high-wage Californians whose behavior can swing revenue numbers substantially," said H.D. Palmer, California Finance Department.
A big game-changer could be the much-anticipated initial public offering of Facebook this year, which neither the Legislative Analyst's Office nor the governor accounts for, but could bump up capital gains significantly with the stock offering topping $100 billion.
"This is the largest one that we've ever seen and it's much bigger than Google, which is the biggest one we've ever had," said Taylor.
Still, if the legislative analyst is correct, it raises the possibility that lawmakers will have to consider even more budget cuts to make up the additional $3-billion shortfall.
School leaders speculate the budget ax will be pointed their way since education wasn't slated for cuts unless the governor's tax hikes fail in the November election.
Kevin Gordon advises school districts on budget planning.
"A lot of school districts have said that any more cuts beyond the cuts that they've already made will push them over the edge, to the point of insolvency," said Kevin Gordon, president, School Innovations and Advocacy.
The legislative analyst also warned the cuts to welfare are too severe. But the Brown Administration says if California doesn't scale back benefits from four years to two years, the price tag for the program jumps up to a half-billion dollars more next year.