Perhaps a headline over a San Diego Union-Tribune editorial best sums up the status of the state budget: "Chaos Ahead." California started the 2010-11 fiscal year July 1 without a spending plan in place, and with no reasonable prospect for enacting one in the near future.
The developments this week:
· Senate and Assembly Democratic Leaders Agree on Budget Platform. There were sketchy reports in the press July 1 that Senate and Assembly Democratic leaders have agreed on a budget plan. However, party leaders did not release the plan to the press and public. A copy obtained from sources indicates that the plan is simply a statement of principles, with no identified budget cuts. Nor does it have any details on fiscal impact, but it appears to be substantially out of balance. It does propose massive tax increases on businesses, and shifting costs to local governments (which are having their own budget meltdowns).
Until this announcement, Assembly Speaker John Pérez and Senate President Pro Tem Darrell Steinberg had been proposing significantly different plans. The Senate plan relied on tax increases and big shifts of programs to local government, while the Assembly plan relied on taxes and heavy borrowing to be paid back from receipts from recycling and a tax on oil production.
Speaker Pérez
said the governor's budget would be bad for the state. "This budget could
create a worse unemployment rate if we adopt all the cuts the governor has
outlined," he said.
Assembly Republican Leader Martin Garrick commented: "The fact that
Democrats are talking to each other is better than no progress at all, but it's
certainly no cause for celebration. There is still no Democrat budget framework
in writing to evaluate, though we can surely expect more of the same. Democrats
melded some of the Senate taxes and the Assembly borrowing schemes, and agreed
to stand firm against reducing government spending."
The Contra Costa Times wrote in an
editorial: "We can expect more ill-conceived plans to 'balance' the state's
deficit. … Senate Democrats … are calling their plan a 'realignment' of
services … Placing a new burden on counties makes little sense."
· Governor Orders State Employees to Be Paid Federal Minimum Wage; Appellate Court Rules in Favor of Governor's Authority. The Schwarzenegger administration has ordered State Controller John Chiang to reduce state worker pay for July to the federal minimum allowed by law – $7.25 an hour for most state workers. The instructions from the Department of Personnel Administration exclude roughly 37,000 state workers in six bargaining units that recently came to tentative labor agreements with the governor. Some employees, such as doctors and lawyers, would get no pay because federal law exempts them from any minimum wage requirement.
In a letter to the controller, Department of Personnel Administration Director Debbie Endsley wrote: "In May 2003, the California Supreme Court held in White v. Davis that in the absence of an approved state budget, the Controller has no legal authority to pay state employee wages and salaries except as required by federal labor law." The letter said the six unions that have negotiated new contracts are not included "because we are seeking and expect the Legislature to approve a continuous appropriation for these six units … before the end of the month."
Controller Chiang responded with a statement saying "I have made it clear that once the courts hand down a final resolution, I will abide by that ruling. In the absence of the leadership needed to bring the Legislature to an agreement on his budget, the governor again resorts to political tricks. Because of the limits of the state's current payroll system, there is no way that his order can be accomplished without violating the State Constitution and the federal Fair Labor Standards Act. In short, his demands will do nothing to solve the budget deficit, but will hurt taxpayers by exposing the state to billions of dollars in penalties for those violations."
On July 2, the Third District Court of Appeal issued a ruling supporting the governor's position. In David Gilb v. John Chiang, the court wrote: "We shall also conclude the DPA has the authority to direct the Controller to defer salary payments in excess of federally-mandated minimum wages when appropriations for the salaries are lacking due to a budget impasse." (Sources: The Sacramento Bee online, July 1; Department of Personnel Administration letter, July 1; Statement from Controller's Office, July 1.)
·
Governor
Makes Strong Stand on Budget. On July 1, the governor made a statement on
the budget impasse that was published by the FlashReport blog. The governor
wrote: "Today makes the start of the new fiscal year, and unfortunately
there is still no budget in sight. The Legislature knows what happens when a
budget is late: extreme, painful measures like IOUs, furloughs, layoffs, and
minimum wages. Yet they once again have delayed solving it. And in the process
made it even larger.
"I have in the past described our annual budget crisis as an illustration
of two very different political philosophies about how to get California's
economy back on track. On one hand, there are people like me who believe in lower
taxes, smaller government, and helping our employers and entrepreneurs create
jobs and grow revenue.
"But on the other side, there are those who believe in higher taxes, more
government, and protecting public-sector employees before we help the private
sector. The other side seems to always want to solve our problems by raising
taxes higher and higher, especially on businesses."
(Sources: Legislative sources; San Francisco Chronicle, July 1; FlashReport, July 1; Contra Costa Times, June 27; San Diego Union-Tribune, June 29; news release from the Governor's Office, June 28; Los Angeles Times, June 30.)
Cal-TaxReports, July 6, 2010
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