After a flurry of activity shortly before the July 1 start of the 2009-10 fiscal year, there has been a noticeable slowdown in budget negotiations. However, observers in the Capitol remained vigilant this week, as many issues are in flux and the situation may change quickly as deals are put together behind closed doors.
Senate President Pro Tem Darrell Steinberg said all sides have agreed to suspend budget negotiations until the administration can provide more detailed information on how the stalemate has affected the state’s education funding guarantee (Proposition 98), the Orange County Register Total Buzz blog reported July 8.
As the week comes to a close, discussions have been focusing on a temporary suspension of the Proposition 98 minimum guarantee. The California Teachers Association, one of the most powerful lobbying forces in Sacramento, began a million-dollar television campaign attacking the governor’s plan to reduce proposed funding for schools.
Here is a brief rundown of the major activity that has taken place in the past two weeks:
· The Assembly and Senate voted in unusual weekend sessions on June 27 and June 28 to send two budget bills (SB X3 16 and SB X3 17) to the governor on majority votes.
· On June 28, the Assembly approved AB X3 39 (Evans), a bill with various fee and tax increases, including a car tax, oil severance tax and tobacco tax. The bill passed on a 44-31 vote, with several Democrats opposed or not voting, and is now in the Senate. (Cal-Tax: The Legislature's Democratic majority contends – wrongly – that this bill requires only a majority vote, rather than the two-thirds vote required by the state constitution for changes in taxes intended to increase revenue.)
· On June 29, the Senate approved AB X3 2 (Evans), a majority-vote budget bill that includes a car tax increase, an "emergency services" surcharge on home insurance premiums, a tobacco tax increase of $1.50 per pack, and an oil severance tax of 9.9 percent. The bill was approved by both the Senate Budget and Fiscal Review Committee and the full Senate, by votes of 23-14 and 22-17, respectively, and was sent to the Assembly.
· On June 30, Governor Schwarzenegger vetoed both of the major budget measures. The bills are:
SB X3 16, making some spending reductions in health, education, prison and court programs; increasing community college fees; and making other modifications designed to encourage more federal funding and to paper over parts of the state deficit (such as by adjusting welfare caseload estimates and by deferring state employees' pay for one day to push $1.2 billion in payroll into the next fiscal year); and
SB X3 17, a "revenue acceleration and enforcement" measure containing many provisions strongly opposed by Cal-Tax. The bill would, among other things, increase tax withholding schedules by 10 percent; require individual and corporate taxpayers to accelerate estimated payments; impose withholding on independent contractors; require financial institutions to perform data matches for the Franchise Tax Board; expand the state's sales tax reach to include retailers that advertise via "click-throughs" on California websites; suspend professional licenses of those with unpaid tax liabilities; require non-retailers to register with the Board of Equalization; and impose penalties on so-called "abusive tax avoidance transactions."
In his nearly identical veto messages, the governor did not directly address the policies contained in the bills, and instead continued his tradition of leaving issues somewhat open-ended. In the message explaining the veto of SB X3 16, he wrote: "I have been very clear that the Legislature must solve the entire deficit, must make the hard decisions now, and must not push the problem off to tomorrow. This bill and its companion measure, SB X3 17, do not meet any of those criteria. For these reasons, I am returning this bill without my signature."
In related news:
IOUs Will Be Used by FTB to Pay Income Tax Refunds, and Will Be Accepted for Income Tax Payments. Since July 2, the Franchise Tax Board has been paying taxpayer refunds with IOUs (paper registered warrants). It is anticipated that the practice will continue until the Legislature comes up with a package to solve the deficit problem. The tax agency also will accept registered warrants that are not yet redeemable for full face value as payment for tax liabilities. Information regarding registered warrants is available on the state controller's website.
Court Says Medi-Cal Cuts Were Illegal. California acted illegally by trying to cut Medi-Cal payments by 10 percent last year for doctors, pharmacists and others who treat 7.1 million poor people, a federal appeals court ruled July 9. The San Francisco Chronicle reported that the 3-0 decision by the Ninth U.S. Circuit Court of Appeals was a victory for health professionals, but a blow to the state. The governor and legislators have imposed further reductions this year, which could be hampered by the ruling. "We do not doubt the severity of the fiscal challenge facing the state of California," Judge N. Randy Smith said in the ruling. " But a budget crisis does not excuse ongoing violations of federal law." (Source: San Francisco Chronicle online, July 9.)
Cal-TaxReports, July 13, 2009
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