Despite several promises from legislative leaders of both parties to make the budget process more open to the public, negotiations remained solidly behind closed doors this week.
With the failure of Assemblywoman Noreen Evans' expanded budget conference committee to produce an acceptable budget fix, efforts to resolve the estimated $26 billion deficit have fallen to the Big Five process.
Senate Republican Leader Dennis Hollingsworth, who has been vocal about opening the budget process to the public, posted a broad outline of the Big Five's July 12 agenda on his website, but did not provide details of the agenda items, and did not update the site to indicate what decisions were reached at the meeting. Agendas for subsequent meetings were not posted.
After an agreement is reached, there probably will be the usual drill: jam through a series of budget trailer bills as fast as possible, without hearings or a chance for the public to comment.
At one point during the week, reports about the legislative leaders' activity indicated that an agreement was near. The governor indicated the reports may have been optimistic, and he was right. As of Monday morning, details had yet to be unveiled on big-ticket items such as paybacks for school funding reductions, cuts in social services, or a possible shift of local property taxes. (Cal-Tax: The latter is borrowing that the state will have to pay back.)
One of the sticking points has been the effort by legislative Democrats, at the behest of the powerful California Teachers Association, to put the provisions of Proposition 1B, defeated soundly by voters in May, into the package. The amount at issue would total approximately $40 billion over the next six to seven years. The teachers' union says Proposition 98 requires payback of cuts. (Cal-Tax: This is incorrect. The payback provisions were in Proposition 111, sponsored by Cal-Tax and approved by voters in 1990. The provisions apply only when school appropriations are governed by "Test 3," not when they are on "Test 1," as is currently the case. The language is in the state constitution's Article XVI, Section 8[d]. In the discussions regarding the payback, there has been no talk of where the funds are going to come from to make this economic commitment.)
Public employee unions and their allies are pulling out all the stops in opposition to spending cuts. In addition to lobbying Democrats and threatening them with retribution at the next election, they have been organizing demonstrations outside the Capitol, have launched a multimillion-dollar television ad campaign attacking the governor and the proposed cuts (while suing to prevent the airing of ads the governor has produced in response), have filed suits to invalidate cuts and even to invalidate Proposition 13, and have launched initiatives that would raise taxes and make it easier for the Legislature to raise taxes and pass the budget (by reducing the vote requirements for both).
In other budget-related news:
Revenues for 2008-09 Fell Below May Estimates. For the fiscal year 2008-09, revenues were down $694.5 million (0.8 percent) below the estimates in the May revise. However, for the month of June, general fund revenues were $132 million above estimates, according to Controller John Chiang.
Since corporate tax revenue came in much stronger than expected in June ($1.3 billion above estimates), this means there was a significant shortfall in personal income tax (down 18 percent) and sales tax (down 5.8 percent) revenue last month.
Corporate tax receipts were padded by protective payments due to the June 1 imposition of the 20 percent "understatement penalty." An unknown portion of this amount will have to be refunded to taxpayers once corporate returns for open years become final.
Counting this corporate acceleration, the state collected a total of $85.87 billion in general fund revenue in 2008-09, compared with $96.37 billion the prior fiscal year.
When transfers to the general fund are included, the state received $87.8 billion in 2008-09. In the same 12-month period, the state spent $98.2 billion out of the general fund.
In the proposed May revise, the governor is trying to hold general fund spending to $84.1 billion.
Cal-TaxReports, July 20, 2009
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