Based on developments to date, it appears more and more likely that the Legislature will produce another fiscally irresponsible budget fix. And to cap off this achievement, the Legislature did not pass the bills by the June 15 date that both Governor Arnold Schwarzenegger and Controller John Chiang said was a critical deadline.
Consistent with past practices, legislators will be punting a good bit of the problem into next year by using one-time revenues to balance this budget and leaving a big gap to be filled somehow next year. The total of one-time revenues could easily exceed $9 billion:
|
$2 billion |
Shift local property tax revenue to the state |
|
$4 billion |
Spend down the state's "reserve" |
|
$2.3 billion |
Accelerate revenues |
|
$1 billion |
Sell the State Compensation Insurance Fund |
|
$9.3 billion |
TOTAL |
On June 9, Senate Democrats said they oppose much of the $4.5 billion budget reserve proposed by the governor. This money should be used to soften cuts in college funding and health and education, Senate President Pro Tempore Darrell Steinberg said. "The purpose of a rainy day fund is to provide funds for a rainy day," he said.
The governor countered that this reserve is not a "rainy day" fund. Budget chief Ana Matosantos pointed out that this reserve was added because the legislative analyst said the deficit would be $3 billion larger than estimated by the governor. "To eliminate that reserve in the budget proposal would mean that you don't accept the legislative analyst's projection that the problem will get worse and don't accept the views of economists who say that revenues will continue to come in lower than projected," Ms. Matosantos said.
Further, the Democratic majority on the budget conference committee – especially the contingent from the Assembly – appears to be rejecting many of the proposed cuts. The Democrats have voted not to strip the Hastings College of Law of nearly all of its funding, and not to cut Cal Grants. They also have said they will not accept the governor's proposals to cut welfare (known as CalWorks), the Healthy Families program, and In-Home Supportive Services.
Republican Assemblyman Roger Niello commented during the panel's June 9 meeting that the committee members are rejecting too many cuts. "We are never going to get where we need to be," he said, unless the committee starts approving major spending reductions.
On June 12, the conference committee took up several tax-related items. On party-line votes, the committee approved the governor's plan to increase estimated tax payments to the Franchise Tax Board and to increase withholding, but delayed a vote on legislation requiring financial institutions to perform data-matching for the FTB (SB 402, Wolk).
Earlier in the week, the conference committee unanimously rejected the governor's proposal to hire more anti-fraud auditors in the Department of Health Care Services. Committee chair Assemblywoman Noreen Evans said it would not make sense to hire more people while the current workforce is being forced to take two furlough days every month. "I just don't see how that's a good way to provide our services," she said.
The state's big-city mayors, including Los Angeles Mayor
Antonio Villaraigosa, came to Sacramento on June 9 to oppose any state raid on
property taxes from local government. They said if such a proposal passes, they
will have to lay off police officers. Senator
Steinberg was not inclined to rip property taxes away from local agencies. In a
June 11 editorial, the San Diego
Union-Tribune called the proposal "egregious," saying "The
state shouldn't make cities, counties and special districts suffer because of
its irresponsibility." (Sources: The
Sacramento Bee, June 10; Capitol
Weekly, June 11; San Diego
Union-Tribune, June 11.)
In other budget-related news:
Assembly Speaker Calls for Majority-Vote Tax Increases. Democrats are pushing for major tax increases to address the budget gap. Assembly Speaker Karen Bass announced June 10 that she would like the $24.3 billion gap to be addressed with approximately $12 billion in new taxes and $12 billion in spending reductions, but acknowledged that such a plan is unlikely, given the opposition to tax increases from the governor and legislative Republicans. Still, she said, "new revenue" is needed, and she said Democrats have been working on majority-vote bills that would raise this revenue. The Sacramento Bee reported that "numerous Assembly Democrats said privately … that their caucus has spent many hours in behind-closed-doors meetings the past two weeks discussing the need for new revenue and numerous possibilities." (Source: The Sacramento Bee, June 11.)
Governor Revokes Fund-Transfer Authority, Increases Pressure for Budget Solution. Governor Arnold Schwarzenegger sent a letter to the state controller June 11 informing the controller that he has revoked authorization to transfer money from various state accounts to the general fund. After thanking Controller John Chiang and Treasurer Bill Lockyer for doing "an excellent job under very difficult circumstances," the governor wrote:
"I know that you agree with me that issuing a Revenue Anticipation Warrant (RAW) without enactment of the solutions we need to bring our budget back into balance would be irresponsible. Last April, I authorized the establishment of the General Cash Revolving Fund (GCRF) in anticipation of issuing a RAW as needed. I have informed legislative leaders that under no circumstances will I agree to issue a RAW to paper over our current budget shortfall.
"Therefore, pursuant to Government Code Section 16381, I hereby revoke the authorization to transfer money from any special fund and other state accounts to the General Cash Revolving Fund. This revocation ends any chance that the state could issue a RAW and helps to clarify that our only alternative to running out of cash is to enact the budget solutions needed to restore the 2009-10 budget to balance."
SEIU Spends $1 Million on TV Ad Supporting Tax Hikes. The Service Employees International Union, which represents 700,000 government workers in California, is spending $1 million on a 30-second television ad urging the state to use tax hikes and spending cuts to solve the state's budget problem. The union, which opposed Proposition 1A, which would have extended for two years most of the taxes enacted in February, says it supports a "balanced approach." The ad does not mention what cuts the union would support, but does offer some specific targets for tax hikes. The ad began airing June 10 in the Sacramento, Los Angeles, San Francisco and San Diego media markets. (Source: The Sacramento Bee online, June 10.)
May Revenues $827 Million Below Estimates in May Revise. The state's fiscal situation continues to deteriorate. Controller John Chiang reported June 10 that May revenue collections were $827 million below estimates that were made in the "May Revise" released May 14. All of the major taxes were down, with personal income tax revenues off by $475 million (23 percent) and sales tax off by $109 million (3.3 percent). Corporate taxes were $84 million below estimates (25.8 percent). A total of $243 million in corporate tax revenue was remitted in May.
Controller Chiang said: "Without immediate solutions from the governor and Legislature, we are less than 50 days away from a meltdown of state government. This presents a terrible threat to California's economy and to the state's delivery of basic public services. A truly balanced budget is the only responsible way out of the worst cash crisis since the Great Depression."
(Cal-Tax: Were the estimates off because the February tax increases are not bringing in as much as estimated? The state's number-crunchers are still using static estimates.)
Senate Republican Leader: No More Budget-Related "Midnight Specials." Senate Republican Leader Dennis Hollingsworth told the Riverside Press-Enterprise that there will not be a repeat of the "midnight specials" to implement Big Five budget agreements this year. He said he wants all budget talks to take place in public or be subject to hearings by the budget committee of each house.
"Look at all the problems we've had with these midnight deals and early morning votes," he said. "We should have every decision be made through the normal constitutional processes."
Aaron McLear, a spokesman for the
governor, observed: "It remains to be seen how big a part of this process
the Big Five meetings are going to be. It's not just the governor's meeting or
Senator Hollingsworth's meeting; whatever they do in Big Five needs to be
agreed upon by everyone." (Source: Riverside
Press-Enterprise, June 8.)
Genest Admits Department of Finance Error on Public Safety Survivor Benefits. Director of Finance Mike Genest this week admitted that the Department of Finance made a grievous error when it included survivor benefits for fallen police and fire personnel on the list of benefits to be cut.
Mr. Genest said: "Governor Schwarzenegger strongly believes family members of fallen police and fire personnel who died protecting public safety have suffered enough and would never propose to suspend their benefits. In fact, he specifically asked me to make sure that none of the mandates proposed for suspension would affect these benefits and I had assured him they would not.
"Unfortunately, the Department of Finance erroneously included the survivors' benefit mandate on a long list of mandates proposed for suspension. I deeply regret any alarm or anxiety that our error may have caused, and will personally ensure that survivor benefits are immediately removed from this list of proposed suspensions."
Governor Launches "Waste Watchers"
Feature on Website. In an
attempt to ferret out waste in government, Governor Arnold Schwarzenegger has
placed a "Waste Watchers" icon on his website for taxpayers and
government employees to report examples of waste. According to the governor's
press release: "The Waste Watchers site allows state employees and other
Californians to go online and report any government waste they may be aware of,
either anonymously or by name. The administration will monitor the site and
investigate submissions."
State Treasurer Advises Democrats to Cut
Deeply. State Treasurer Bill
Lockyer met with Assembly Democrats in caucus June 8
and told them they have to make unpopular cuts in the budget. The former Senate
president pro tempore started by telling them to assume they are not going to
be re-elected. "That's a very liberating thought, and with it you can get
a lot done," he said.
He added that fairly
or not, voters blame them for years of red ink.
Mr. Lockyer also told his fellow Democrats that the entire
problem has to be solved now, as jumping half-way over a chasm is not a good
idea. He added that gimmicks have been a cancer on the budget – and have grown
in the last decade – and that an honest budget will show voters they can't have
all the services they want without paying for them. (Source: George Skelton in
the Los Angeles Times' Capitol Journal, June 11.)
Cal-TaxReports, June 15, 2009
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