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Budget Deficit Now $9.6 Billion, Regulatory Reform Still Missing From Plan

California Governor Jerry Brown unveiled a revised budget last week that calls for a $9.3 billion tax extension, Moneycoupled with a $2.6 billion cut in spending, holding firm to his belief that the state’s budget crisis should be addressed with a mix of tax hikes and spending cuts. The governor was able to minimize the size of the tax extension, originally more than $12 billion, thanks to an unexpected jump in tax collection. The updated forecast calls for an additional $6.6 billion in revenues over the next two years.

Under the new tax plan, the quarter-percentage point increase in income tax rates would be revived in 2012. It expired at the end of last year. The proposal also calls for maintaining a 1 percentage point bump in the sales tax, which lapses at the end of June. The higher rates would remain in effect through 2015.

The revised budget did contain some spending cuts, including the elimination of 43 boards and commissions, as well as 5,500 state employee positions. The state’s school system, however, would see some $3 billion in education spending. The budget proposal also starts to pay off California’s sizeable debt left after years of borrowing. According to the Governor’s Department of Finance, including previously approved budget actions ($11 billion), pending budget legislation yet to be signed by the governor ($2.4 billion), and $6.6 billion in unanticipated revenues, the state’s current budget deficit is estimated at $9.6 billion.

However, the budget is missing any of the major reforms asked for by the business community and acknowledged by the Governor. There is no pension reform or improvements to the regulatory environment, two issues that would help to resolve the underlying structural problems of California’s perennial budget problems. The Governor continues to advocate for the elimination of redevelopment agencies and, although he did not eliminate enterprise zones, his changes to the program would hurt some of the hardest hit by the recession.

What ultimately happens in California remains to be seen. State Republican lawmakers remain opposed to any tax increase and they released their own budget proposal last week. Adding to the tense atmosphere, the unknown of newly drawn districts has hampered negotiations. And finally, the new talk of yet another scam pulled over on taxpayers.

Voters last year approved Prop 25 which would have punished lawmakers when the state budget is late by docking their pay and perks for every day that a spending plan is overdue. Fine print in the initiative may have contained a sizeable loophole. The law stipulates that merely passing a budget bill, not a balanced budget, is enough to keep state pay rolling into lawmakers’ hands. The Legislature passed a budget bill in March that closed about half of the deficit. Anti-tax advocates and good-government groups denounced any plan to pay lawmakers if they don’t balance the budget on time. Ultimately, it will be state Controller John Chiang who decides whether lawmakers get paid absent more budget action by June 15. His office is studying the issue. The devil is always in the details. For more information, contact Kate Klimow, Vice President of Advocacy and Government Affairs.


Posted on May 23, 2011

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