On June 21, almost one week past the Legislature's constitutional deadline for sending a budget to the governor, Senate President Pro Tempore Darrell Steinberg unveiled a budget proposal that would increase taxes by more than $4 billion a year while shifting several state programs to the counties.
The taxes would be an oil severance tax at an unspecified rate, permanent extension of the car tax (the Vehicle License Fee, or VLF) that was enacted as a temporary tax last year, and a tax on employers through the two-year postponement of business tax incentives approved in recent budgets (loss carryback and carryforward, credit utilization provisions and elective single sales factor).
Cal-Tax President Teresa Casazza said the tax increases would harm the state's chances for an economic rebound: "California's unemployment figures are unacceptably high and barely moving. With so many of our friends, neighbors and family members looking for work, the worst thing we could do is hit our struggling economy with more taxes."
Ms. Casazza also noted that the supporters of the tax plans reportedly are attempting to circumvent the state constitution's two-thirds vote requirement for taxes. "Legislators should be looking for ways to create more jobs, not more litigation," she said.
A description of the plan released by Senator Steinberg says the goal of the revenue provisions is to "give counties additional revenues to pay for the restructured services," to the tune of "about $3.2 billion in 2010-11, and increasing to about $4.3 billion by 2013-14." The description continues: "This should take the form of both new revenue streams and authority for counties to raise additional revenues on their own to deliver the services and meet the needs of the community." (Cal-Tax: Under the terms of Proposition 218, local tax increases still would require voter approval.)
Key elements of Senator Steinberg's realignment:
· Transfer community-based public safety programs from the state to counties (up to $1.6 billion over four years). This involves:
o Shifting state juvenile parole services to counties, and shifting certain criminals (primarily drug and property crime offenders) to counties for both incarceration and community supervision, while maintaining existing funding for COPS/Juvenile Justice program (set to expire in 2011-12).
o Shifting Medi-Cal drug programs, the offender treatment program, and Drug Court Program to counties, and restore Substance Abuse and Crime Prevention Act funding to counties.
o Eliminate the state Department of Alcohol and Drug Programs, transfer any necessary remaining functions to other state agencies (such as the Department of Health Care Services), and add one oversight position to the Health and Human Services Agency.
· Increase the counties' share of CalWORKs from 2.5 percent to 25 percent and transfer CalWORKs child care to counties (up to $2.6 billion over four years).
· Shift Adult Protective Services and various state-supported aging services to counties (up to $85 million over four years). Includes a proposal to eliminate the California Department of Aging and transfer some of its functions to other state agencies, while adding one "aging oversight" position to the Health and Human Services Agency.
(Cal-Tax: Based on the information available, this plan doesn't seem to pencil out. So far, the public has received just a broad outline of the plan, presented as part of a press conference. No bills have been identified for the tax proposals. Since the proponents scored the revenue from the oil severance tax at $1.2 billion, we assume – based on past revenue estimates from the Board of Equalization – that they intend the rate to be 10 percent. However, it would take time for this new tax on oil production to be implemented by the BOE, so it is doubtful that the revenue projection would be met. There are no specifics at all on local tax-raising provisions. There was no information on the vote needed to pass the plan. A majority vote would be all that is needed to authorize locals to raise the taxes, but the voters might turn down the tax hikes. And there is a logistical issue: without an urgency clause, the plan could not go into effect until January; with an urgency clause, it would require a two-thirds vote of the Legislature.)
Senate Republican Leader Dennis Hollingsworth said Republicans will not support the new taxes. He said, "Raising taxes to pay for the shift of programs isn't shrinking government, it's just avoiding the inevitable: State government has to get smaller and more efficient in this day and age."
Assembly Speaker John Pérez has proposed a budget plan that calls for an oil severance tax, a shift of funds from the state's container-recycling fund, and $10 billion in borrowing to address this year's budget imbalance. The Los Angeles Times' PolitiCal blog reported June 22 that Assembly Democratic leaders are discussing scaling back their plan, to $4 billion. The Times also reports: "Both Senate and Assembly Democratic sources say Pérez is meeting daily with Senate President Pro Tem Darrell Steinberg in hopes of crafting a plan that Democrats in both houses can support. That plan is expected to include a new tax on oil production, a call to delay nearly $2 billion in corporate tax cuts set to go into effect next month, and billions in new borrowing to meet the state's obligations this year."
(Cal-Tax: Those who say the two-thirds vote requirement is the reason the Legislature misses its budget deadlines should take note – more than a week after the June 15 deadline, there is no budget legislation for any member to vote on, and neither of the rough outlines of budget plans put forth by the two Democratic leaders has the support of even a simple majority of the Legislature.)
County officials gave the proposal a cold reception. Riverside County Supervisor John J. Benoit, a former state legislator, said he hasn't seen the details yet, but added, "I' m generally quite leery of anything that the state wants to turn over to the counties, because it usually comes with a ' you do it and we're not paying full boat for it.'" Sonoma County Administrator Veronica Ferguson said she is concerned that programs would grow without revenue to pay for the growth, and added, "We'd better have a revenue source that matches (the expansion)." Larry Lees, Shasta County's top administrative officer, said, "What typically happens is the money doesn't follow." (Cal-Tax: Another factor that may concern local officials is that in the past, the state has frequently raided local coffers to pay for state spending. Even after transferring programs, this threat could remain.)
Meanwhile, Daniel Weintraub, who runs the respected HealthyCal.org blog, noted in a June 23 post that shifting services to counties wouldn't help balance the state budget. After listing the proposed revenue sources, he wrote: "The Senate Democrats were already counting on most of those revenues to help balance the state budget. So any money shifted from them to the counties would have to be made up elsewhere, or state spending would have to be cut further to make up the difference."
During a June 24 meeting of the budget conference committee, a representative of the Legislative Analyst's Office said the realignment plan "is in a conceptual stage right now," so the office doesn't have a detailed analysis. The representative said some of the programs probably should be realigned to locals, but the details will be important, and some programs probably shouldn't be sent to locals because there would be major differences in how the programs would operate from county to county, and this could cause problems.
The legislative analyst's staff also told the committee that if the Legislature retains the authority to change the use of realignment funding from year to year – sometimes paying for the realigned services, sometimes using it for other things – "it would be difficult" to claim that the revenue would not be included in the Proposition 98 formula, because it would be general revenue. However, if the funds were "wrapped up" in a realignment plan that essentially removes legislative authority, the revenue potentially could be excluded from the Proposition 98 base.
Assemblyman Jim Nielsen, a member of the conference committee, said any realignment plan for public safety needs serious scrutiny to make sure dangerous criminals aren't released into California communities. He said such a plan is not just a shift of government responsibility, but also "a huge shift of consequences to the people we represent."
(Sources: Description of proposal from Senator Darrell Steinberg's office, June 21; The Sacramento Bee, Los Angeles Times, The Desert Sun, Redding Record Searchlight and Sonoma Press Democrat, FlashReport, all June 22.)
In other budget-related developments:
Assembly Speaker Urges Democrats Not to Negotiate. The Los Angeles Times reported June 24 on a potentially major twist in the budget negotiations. The newspaper published a memo that Speaker Pérez reportedly sent to Assembly Democrats urging them not to negotiate with the governor until he first makes concessions. The memo says it is important that the Democrats "hold firm and not engage in any negotiation until the governor shows signs of reciprocation," and further states that "to date, there has been no productive engagement on budget talks with the governor" and Republican lawmakers.
Assembly Republican Leader Martin Garrick responded: "For the past 93 days, Assembly Republicans have urged our Democrat colleagues to begin productive budget discussions to put a budget in place before the end of the fiscal year. The Speaker seems intent on avoiding negotiations with Republicans, with only a week left to the end of the fiscal year. He hasn't even put his borrowing scheme in writing yet so that it can be analyzed. … In his latest memo, the Speaker seems to back up what some Assembly Democrats have been signaling for months – they are willing to shutdown state government if Republicans do not agree to billions in tax increases on cars, kids, businesses, alcohol, and oil." (Sources: Los Angeles Times, June 24; News release from Assembly Republican leader, June 24.)
Governor Says State
Workers May See Pay Drop to Federal Minimum Wage. The Department of Personnel
Administration, in a June 24 memo, warned state workers that their salaries might
be reduced to the federal minimum wage of $7.25 an hour if a budget is not
passed soon. The administration is basing its position on a 2003 California
Supreme Court decision, and said that "absent an appropriation, which for most of the payroll comes
through the annual state budget, the Controller is prohibited from paying state
workers beyond what is required by the federal Fair Labor Standards Act (FLSA)."
The memo continued: "Absent a state budget, we will send instructions to
the Controller to pay wages in accordance with the FLSA for the July pay
period."
Controller
John Chiang opposes that idea and will pay full wages, Reuters news service reported June 24. A
spokesman for the controller said, "The controller's concern here is that
with the state's current payroll system, minimum wage checks cannot be cut and
full pay cannot be returned in a way that complies with federal law."
Employee Payday Delay Likely to
Be in Budget Again. One of the most gimmicky gimmicks in the 2009-10 budget is
likely to be in the 2010-11 budget as well, based on June 24 action taken by
the budget conference committee. The current budget delays the last payday of
the current fiscal year by one day in order to push the spending –
approximately $1.2 billion – into the 2010-11 fiscal year. The conference
committee heard testimony that this payroll delay is an "ongoing
action" that now must be approved every year in the budget, until the
state has more money. Committee members voted 9-0 to approve a package of state
employee budget items that included the pay delay.
Cal-TaxReports, June 28, 2010
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