Sacramento vs. 1,000-pound Gorilla: budget woes bring more cuts, tax increases. (Federal Tax).

"This past year was one of the ugliest budget sessions in my memory," said FTB Executive Director Gerald Goldberg at this year's annual State Committee on Taxation meeting with the FTB in October. "The budget was the 1,000-pound gorilla last year and will be again this year."

The state recently experienced a two-year budget shortfall of $23.6 billion.

"We came in with a balanced budget and are now, again, looking at a $15 billion to $25 billion shortfall through this current and next budget year," said Goldberg. "So we haven't made a lot of progress, and we have used up the easy ways of closing the shortfall."

California's general fund is roughly $80 billion.

To put things in perspective, Goldberg said that even if every state government employee under the direct control of the administration were laid off, California would still end up with a budget shortfall. The state has more than 188,600 authorized positions.

"We're going to have to be creative," he said. "This [shortfall] won't be easy to close."

20-Percent Drill

Although the budget wasn't signed until September--two months after the constitutional deadline--there is no penalty for failing to meet the deadline.

"But it does create a certain amount of chaos," said Goldberg.

The FTB is undergoing a series of drills, such as the "20-percent drill," in which officials play out what would happen if the agency's budget were cut by 20 percent.

"You can imagine that a 20-percent cut to our budget would have a draconian effect--and it does," says Goldberg. "The irony is that there is no way to do this except to cut into our revenue production capabilities."

Ways to Save

Revenue increases, expenditure reductions and restructuring will have to be considered to save money, said Goldberg, adding a prediction that California will end up with its own tax shelter program.

A restructuring proposal under consideration--a result of the 20-percent drill--would combine the FTB and state Board of Equalization, saving the state an unknown amount.

Goldberg said a better idea is to combine the FTB with the Employment Development Department's tax branch.

Combining the FTB with the EDD is something the governor could do via executive order, subject to ratification by the Legislature, whereas joining the BOE and FTB would require a constitutional amendment.

"They've been talking about this for years," said Stuart R. Josephs, chair of the Federal Subcommittee of the Committee on Taxation. "The budget crisis might be the impetus to make this happen."

Brilliant Ideas?

Goldberg is looking to California's CPAs for revenue generating ideas, and other suggestions on how to reduce the budget shortfall.

CalCPA members can e-mail their ideas to [e-mail].

New Child Support System

In the midst of these budget woes, the Legislature has given the FTB the task of developing the state's automated child support system.

The FTB now collects arrearages, but it has been mandated by the state to develop a statewide, automated child support system.

Goldberg said it was the FTB's expertise and success in developing systems that landed it the job.

The FTB is negotiating a $900 million contract with IBM to develop the program, which should be rolled out to every county in the state and ready for use by the end of 2008.

"The rollout will be an enormous effort," Goldberg added.

Nonfiler Extensions

Cathy Cleek, FIB director, Filing Compliance and Systems Bureau, said that 43 percent of California's nonfilers are wage earners and 25 percent of those are repeat offenders.

The main reason people give for not filing? Time, according to Cleek. To help these folks along, the FTB's INC program allows taxpayers and CPAs to get a 30-day extension. Just visit www.inc.ftb.ca.gov for details.

User-Friendly E-Filing

The FTB wants to make e-filing user-friendly for everyone in hopes of fulfilling an IRS goal of having 80 percent of all returns filed electronically by 2008.

To help achieve this, the FTB is offering e-filers:

* Free e-filing for Form 540EZ;

* The benefit of an April 30 filing due date; and

* April 30 due date to pay any balance due--if payment is made electronically.

E-Future

Future Web-based plans at the FTB include a free Web payment option that allows taxpayers and CPAs to arrange electronic payments, estimates, extensions and bills online; an automated nonfiler case resolution option; and account balance and refund status viewing for business entities.

Also in the works is a secure electronic communication tool that will allow CPAs to send confidential information electronically to their clients and to the FTB.

You can keep an eye on these, and other future changes, by visiting the FTB's website, www.ftb.ca.gov, which will boast a new look beginning in January.

Deanna McCrary is a CalCPA editor and writer. You can reach her at [e-mail].