On January 8, Governor Arnold Schwarzenegger released his budget proposal for the 2010-11 fiscal year – a plan that includes $8.5 billion in spending reductions, $4.5 billion in funding shifts and $6.9 billion in anticipated federal funds. The proposal does not include any major tax increases.
During a press conference to discuss how he plans to address a projected $19.9 billion deficit, the governor said, "I refuse to raise taxes in this budget."
Last year's budget included tax increases intended to raise $12 billion (with Californians facing job losses and cutting back on non-essential spending, actual collections have fallen short of that figure).
California Taxpayers' Association President Teresa Casazza said: "The governor is right to focus on closing the state's structural deficit without new taxes. Economic recovery and job creation should be the focus of every piece of legislation this year, starting with the budget bill, and tax increases would simply stall the recovery and reduce job opportunities in this state."
Ms. Casazza added: "California appears to be on the cusp of economic recovery, as long as our elected officials focus on improving job opportunities and don't stop the recovery dead in its tracks by raising taxes again."
As part of the budget proposal, the governor renewed his call for the Legislature to approve the recommendations of the Commission on the 21st Century Economy – the principal one being a new business net receipts tax at a rate of approximately 4 percent, replacing some existing taxes. No legislator from either party has endorsed the commission's plan or introduced any legislation to implement any part of the plan.
Ms. Casazza said, "We are concerned that enacting an untested business net receipts tax could exacerbate budget problems by increasing the uncertainty of the state's revenue stream."
The budget also includes a surcharge on property insurance premiums that would generate funds for firefighting and other emergency services – a recommendation the governor has made in previous budgets. Responding to a reporter's question about whether this is a tax, the governor said there is some debate over whether it is a tax or a fee, but he believes it is a fee.
The federal funds would help to pay for the costs of federal education mandates, to increase federal reimbursement of state Medi-Cal costs, and to pay for the incarceration of illegal immigrants. The governor promised a strong lobbying effort to get the money, and said that "for each federal dollar we fall short, we have a trigger list" of additional cuts (worth $4.6 billion) and new revenue options (totaling $2.4 billion).
The revenue options involve a one-year delay in the implementation of tax incentive provisions approved in last year's budget compromise. Click here to see the governor's full list of cuts and revenue increases that will be triggered if federal funds don't materialize.
The governor said the $19.9 billion gap between revenues and projected state expenditures includes $6.6 billion in the current budget year, and $13.3 billion in the fiscal year that will begin July 1.
The budget also calls for adding a measure to the June ballot to shift $550 million in Proposition 10 (tobacco tax) funds to the programs under the Department of Social Services and the Department of Developmental Services. A similar proposal was rejected by voters in May 2009.
Reaction from Democratic legislative leaders indicates that the budget negotiations will not go quickly. Senate President Pro Tem Darrell Steinberg immediately blasted the governor's budget, saying his initial reaction to the plan was, "You've got to be kidding."
Assembly Speaker Karen Bass (who will be succeeded shortly by incoming Speaker John Perez, who was officially elected to the post last week) also criticized the budget, calling it "a big pile of denial." She said fighting for tax increases will not be Democrats' main strategy, but "all the tools must be on the table."
Asked about what specific tax increases might be pursued, Senator Steinberg said he will push for tax withholding for independent contractors. This would result in the contractors paying double state income taxes in one year (if such withholding starts on January 1, 2011, such taxpayers will pay 100 percent of their 2010 tax in April and 100 percent of their 2011 tax in the same calendar year). Senator Steinberg estimates that he can get $3 billion in revenue, but $2.7 billion would be one-time money, and thus would not address the state's long-term budget problem.
For the governor's complete budget proposal, as well as a variety of summary charts and tables, go to http://www.ebudget.ca.gov/.
Cal-TaxReports, January 11, 2010
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