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By Kevin Yamamura
kyamamura@sacbee.com
Published: Friday, Dec. 28, 2012 – 12:00 am | Page 1A
Last Modified: Friday, Dec. 28, 2012 – 5:00 pm

Gov. Jerry Brown and California lawmakers struck an upbeat tone in recent weeks as they enjoyed their most positive budget outlook since the economic downturn.

Whether that mood survives the winter depends on Washington.

State budget experts say the biggest immediate threat to California finances is a recession triggered by automatic federal cuts and tax hikes, absent a political deal to avoid the so-called “fiscal cliff.”

The state’s biggest federal program, Medi-Cal, is spared from automatic cuts. But a new recession could threaten the state tax revenue that serves as the lifeblood for California government.

“A lot of it relies on confidence, and I think that one of the things that makes this especially hard to predict is we can’t really know how businesses and consumers will respond,” said Jason Sisney, the chief forecaster at the Legislative Analyst’s Office.

In November, the LAO predicted a relatively small $1.9 billion state budget deficit through June 2014, followed by surpluses in years thereafter.

But in a separate simulation based on a federal impasse, the LAO estimated the state would receive $11 billion less across two years in a recession, nearly a 6 percent drop. A decline that size would force state lawmakers to impose spending cuts, just as many Democrats are eager to restore health and welfare programs, or to look for other ways to raise money.

Sisney said recession predictions assume that consumers and businesses lose confidence in the economy because people have to pay higher taxes and the federal government reduces its spending.

Absent a deal, about 400,000 Californians would stop receiving unemployment checks after this week, representing 43 percent of the state’s 923,000 beneficiaries, according to the state Employment Development Department. These are people who have collected unemployment checks beyond the standard 26 weeks. Some have been able to receive up to 99 weeks of assistance.

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