Furloughs to hurt tax collection, officials say

Denise Moreno Ducheny (D-San Diego) left and Dennis Hollingsworth, right (R-Temecula), senate minority leader, talk during a portion of the during a portion of the budget debate in Sacramento, July 23, 2009. Denise Moreno Ducheny (D-San Diego) left and Dennis Hollingsworth, right (R-Temecula), senate minority leader, talk during a portion of the during a portion of the budget debate in Sacramento, July 23, 2009. Photo: Robert Durell, Special To The Chronicle Photo: Robert Durell, Special To The Chronicle Image 1 of / 1 Caption Close Furloughs to hurt tax collection, officials say 1 / 1 Back to Gallery

California will be unable to collect nearly $1 billion in revenue through the next fiscal year because state workers who collect unpaid taxes cannot keep up with their workload due to furlough days and budget cuts, state finance officials told lawmakers Tuesday.

The setback could further strain California's budget, contributing to shortfalls in the current and next fiscal years.

Officials from Gov. Arnold Schwarzenegger's administration - from the Department of Finance, the Franchise Tax Board and the Board of Equalization - presented the state Senate Budget Committee on Tuesday with the estimated revenue losses due to the furloughs and budget cuts.

At the hearing, Sen. Denise Moreno Ducheny, D-San Diego, told the officials they should rethink the wisdom of the work stoppages at the tax and equalization boards.

"I just don't see where we're getting savings," a visibly frustrated Ducheny, who chairs the Senate Budget Committee, told a panel of administration officials.

State employees are being forced to take three furlough days each month through June 30 to save the state an estimated $1.3 billion this fiscal year. But those savings have not accounted for the impact on revenue collection.

Among the workers being forced to miss days of work are auditors, tax collectors and other enforcement workers who go after people and businesses that fail to voluntarily pay their taxes.

State officials said they expect that those workers will be able to eventually catch up and collect some of the missed revenue. However, they noted that some will be forever lost because investigators will miss the statute of limitations in some cases, along with other complications that will allow scofflaws to avoid paying.

Furloughs at the Franchise Tax Board and budget cuts at the Board of Equalization account for only a fraction of the $1.3 billion in estimated savings - about $100 million in unpaid salaries.

Allowing employees from those two agencies to work full time would bring California enough revenue to cancel at least one furlough day that impacts workers in all departments, Ducheny said.

Officials told the Senate committee that the furloughs and cuts resulted in $177 million in uncollected revenue in the last fiscal year, an estimated $367 million this fiscal year, and an estimated $420 million in the 2010-11 year.

The Schwarzenegger administration says despite the loss of revenue for cash-strapped Californians, all employees should be treated equally when it comes to forced time off. One furlough day a month amounts to roughly a 5 percent cut in pay for state workers.

"At the end of the day, it was recognized that we might lose revenue somewhere, lose morale and productivity," Pamela Schneider, legislative director for the Department of Personnel Administration, told the committee panel. But, she said, the decision to go forward was weighed against potential savings.

Asked about the loss of revenue, H.D. Palmer, spokesman for the Department of Finance, said the administration knew the furloughs and cuts would have "different effects on different departments."

"We see it as part of a way to achieve $1.3 billion in savings," he said.

But that figure does not include loss of revenues. The Board of Equalization, which has refused to enforce mandatory furloughs, had its budget cut by $40.5 million, the equivalent of three furlough days. Workers have been asked to take a voluntary pay cut and voluntary unpaid leave. The agency also is likely to face layoffs and officials there estimate general fund losses of up to $156 million per year.