Failure of the Legislature to pass a 2010-11 state budget during the 2010 session that ended August 31 has Capitol observers wondering whether the state can operate without a budget until after the November election. A number of people believe the prospect appears likely. There still is an opportunity to resolve the budget issue in a special session, but there do not appear to be any Republican votes for another tax increase, as the Democrats are demanding.
Governor Arnold Schwarzenegger said September 1 that there is "no reason yet to call a special session," but said he will continue meeting with legislators to work toward a budget compromise. "We are very close," he said.
Debates on Democratic and Republican budget proposals were finally held on the floor of each house on August 31 – the last day of the regular session. This was the first time a budget bill was put up for a vote this year.
The plan offered by Republicans eschewed tax increases, and zeroed-out the state's CalWORKS welfare program and child-care programs (AB 1633, Garrick, and SB 873, Hollingsworth). These proposals failed on votes of 25-50 in the Assembly and 12-24 in the Senate.
Democrats presented their plan without the tax components needed to make it balance (AB 1636, Blumenfield, in the Senate and AB 1609, Blumenfield, in the Assembly). As a result, legislators were asked to approve an unbalanced budget, with fewer cuts in programs. The state constitution – Article IV, Section 12(f) – prohibits the Legislature from sending the governor a budget bill where general fund expenditures exceed revenues.
In the Senate, AB 1636 failed with a 21-14 vote, six votes short of the two-thirds required for passage. In the Assembly, the vote was 50-28, four votes short.
Senator Bob Huff said: "It's a sham to be voting on a budget without identifying that you are going to raise the Vehicle License Fee, eliminate tax breaks made last year … to pay for it. It's disingenuous."
As expected, the issue of increasing taxes was the main difference between the parties. Democrats argued that tax increases are needed to fund important programs. Republicans countered that tax increases would hurt the economy and cause job losses. Senator Jeff Denham told his colleagues, "You will not see a tax increase from this caucus."
Senate Republican Leader Dennis Hollingsworth, who presented AB 1633 on the floor, said the Republican budget does not ask taxpayers for more, and requires the state to live within its means.
The Democratic budget plan was presented by Senator Denise Ducheny. She said the proposal restores some of the budget cuts made last year, and said tax extensions that voters rejected last year could be imposed to balance their proposal, along with postponement of various tax incentives.
Senator Bob Dutton said that if the Legislature takes away a tax incentive that was offered just last year to encourage businesses to expand in California, no business will ever be able to trust in tax incentives in the future.
Senate President Pro Tempore Darrell Steinberg called the budget debate "cathartic," even though everyone knew what the result would be.
The governor wasn't so sure. In a speech to the San Francisco Chamber of Commerce, he said, "Why they put it up for a vote in the first place, no one knows." He added, "So Senator Steinberg insisted he doesn't want to hear the word 'drill' … so let's call it Kabuki, whatever you want to call it, but that's what it is."
In a press conference on September 1, the governor reiterated his stand against new taxes, saying flatly, "No taxes." He said he does, however, support changing the tax structure to tax services and lessen the state's reliance on income tax from the wealthy.
The governor said legislators are responsible for the budget cuts that are needed now, because they approved a pension system the state cannot afford, and that is taking money away from other programs. He said it only took the Legislature five minutes to pass the 1999 bill that increased public employees' pensions, and added: "That five minutes cost the state a fortune. … It's very simple, just roll it back … undo it, end of story."
He added that Germany, Great Britain and Greece recently cut spending, and their economies have improved.
During the floor debates over the budget, there was considerable discussion about "investment" during the years that Pat Brown was governor. Republicans pointed out that environmental impediments to investment were not on the books during those years. However, the word "investment" has taken on another meaning, as a number of Democrats during the debate used it to refer to additional general fund spending for ongoing purposes.
Cal-TaxReports, September 7, 2010
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