Governor Arnold
Schwarzenegger, Senate President Pro Tempore Darrell Steinberg and Assembly
Speaker Karen Bass were in Washington, D.C. last week seeking $7 billion in
federal funds that the governor already has included as revenue to balance his
$82.9 billion general fund budget.
According to
reports, they were fighting an uphill battle. The view on "The Hill"
(D.C.-speak for the small hill the U.S. Capitol sits on) is that the federal
government is hemorrhaging red ink with all the new spending initiatives, and
it will be difficult to pass a plan favoring a single state.
Drew Hammill, a spokesman for House Speaker Nancy Pelosi, said
California already has received tens of billions from the stimulus bill, and
"that being said, the federal government is not responsible for the State
of California's budget, and we look forward to hearing a sustainable plan for
the state to get its house in order." At a meeting, Speaker Pelosi reportedly
held open the possibility of aid, but said any aid would not go to a single
state.
Congressman Tom
McClintock said, "Budget deficits that are made in California need to stay
in California, and that goes for the other 49 states as well."
The governor and
legislative leaders seemed pleased with their efforts. Governor Schwarzenegger
said, "We're going to fight and we're going to work together to get this
money."
What happens to the
state budget if the federal funds are not forthcoming?
The governor has suggested
the following:
|
Trigger
Solutions in 2010-11 Governor's Budget |
|
|
Expenditure
Solutions |
($3,752) |
|
Eliminate CalWORKS |
$1,044 |
|
Reduce Medi-Cal eligibility
to federal minimum and eliminate some optional benefits |
532 |
|
Reduce state employee salaries by an additional 5
percent |
508 |
|
Eliminate IHSS program |
495 |
|
Redirect additional county savings to benefit the
General Fund |
325 |
|
Eliminate most inmate rehabilitation programs and
implement inmate population and other parole changes |
280 |
|
Eliminate Healthy Families Program |
126 |
|
Eliminate funding for UC/CSU enrollment growth |
112 |
|
Eliminate various Proposition 99 programs |
115 |
|
Reduce trial courts' budget |
100 |
|
Freeze eligibility and level of awards for CalGrant financial aid |
79 |
|
Eliminate funding for housing programs for foster
youth |
36 |
|
Revenue
Solutions |
($2,339) |
|
Extend suspension of net operating loss changes |
$1,200 |
|
Extend reduction of dependent tax credit |
504 |
|
Delay implementation of sharing of tax credits |
315 |
|
Delay single sales factor for corporate taxes |
300 |
|
Delay changes in carry-back losses for corporations |
20 |
|
Other
Solutions |
($847) |
|
Fund existing mental health services with
Proposition 63 funds |
$847 |
|
Total
Trigger Solutions |
$6,938 |
|
Source: Legislative Analyst's Office |
|
What are the chances the Legislature will approve this package? The
consensus around town is that this, too, will be an uphill battle, as the
Democrats do not want to vote for the expenditure reductions and Republicans
are unlikely to vote for the tax increases (which will require a two-thirds
vote).
This is not the only problem faced by the governor in securing a
balanced budget. Some of the other weak links:
·
Estate Tax May Not Return. The budget assumes that the state will
collect $892 million from the estate pick-up tax when President Bush's federal
estate tax relief expires in 2011. The legislative analyst points out that a
House-passed bill to reauthorize the tax does not include the state pick-up
tax.
·
New Revenues: No Proposals. The budget includes $450 million of new
revenues for which there are no specific proposals, according to the
legislative analyst.
·
Losses From Tax Cuts Not Counted. Revenue losses from the proposed homebuyers
tax credit and sales tax exemption for the purchase of "green
technology" manufacturing equipment are not reflected in the budget. These
proposals could reduce revenues by $210 million to $650 million, depending on
the sources of the estimate.
·
Use of Earmarked Early Childhood Funds. The trigger in the budget assumes that the
Legislature will place on the June ballot – and voters will approve – a
proposal to divert $550 million from earmarked early childhood funds to the
general fund. Voters rejected this same proposal in May by a 66 percent
"no" to 34 percent "yes" margin.
·
Use of Earmarked Mental Health Funds. The budget assumes the Legislature will
place on the June ballot – and voters will approve – the transfer of $452
million earmarked by Proposition 63 for mental health to the general fund.
Voters rejected this same proposal in May by 66 percent "no" to 34
percent "yes" margin.
·
New Revenue From Speeding Fines Proposed. The budget anticipates $297 million from
fines on motorists. This new revenue would come from a new speed enforcement
program, proposed by the governor, that would use
cameras to catch speeders. This may or may not be adopted.
·
Insurance Tax Exaction Proposed. The governor is proposing a 4.8 percent
surcharge (he calls it a surcharge, others call it a tax) on residential and
industrial fire insurance to generate $238 million for the Department of
Forestry and Fire Protection. If passed by less than a two-thirds vote, this
could be overturned in court as an illegal tax, since homeowners not served by CalFire would be paying the surcharge.
·
Federal Waiver Needed. Several proposed cuts will need federal
waivers, such as the $1 billion in savings from changes in the In-Home
Supportive Services program that has grown in cost substantially over the last
few years.
·
Courts May Interfere With Budget Cuts. The budget proposes $7.6 billion in cuts,
including $2.4 billion from reduced Proposition 98 spending, $1.6 billion from
employee salary cuts and personnel reductions and an $800 million reduction in
prisoner medical costs (from $11,627 per inmate to $5,740 per inmate per year).
With the federal court receiver in charge of the prison health care system, can
these cuts be made? Developments so far with respect to the 2009-10 budget have seen judges persuaded by the spending lobby's
arguments and striking down several budget savings.
·
Property Tax Estimate. The budget is predicated on a property tax
assessed value decrease of 2.2 percent in 2010-11. If values fall by a larger
percentage, there will be additional general fund costs for school support.
(Sources: Governor's Budget;
Legislative Analyst's Office "Overview of the Governor's Budget"; The Sacramento Bee, January 21 and January
22.)
Cal-TaxReports, January 25, 2010
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