Governor Arnold
Schwarzenegger unveiled his state 2008-09 budget proposal January 10, calling
for major budget reforms, no new taxes, spending cuts to many state agencies,
spending increases for the state tax agencies to pay for more auditors, and the
release of 28,048 felons from prison to save money.
The governor also
declared a state fiscal emergency that requires the Legislature to immediately
consider making changes to the budget for the current fiscal year. If the
Legislature does not act on the governor's proposed changes within 45 days,
lawmakers are prevented from acting on other bills or adjourning.
"You can't tax
your way out of this problem," the governor said during his budget press
conference, as he went through charts and graphs illustrating the state's
structural deficit, estimated to reach $14.5 billion in the next fiscal year if
nothing is done. "I'm going to keep my promise – I will not raise taxes on
the people of California."
(Cal-Tax: The
budget does not include the health reforms being pushed by the governor, nor
the associated tax increases that are included in the health care financing
initiative that the governor and Speaker Nunez are trying to qualify for the
November ballot.)
He called for a
Budget Stabilization Act that, if approved by voters, would amend the
constitution to establish a long-term average rate of growth, set twice a year
by the Department of Finance, that would be a cap for
spending. Revenue left over after that spending would be put in a savings fund,
and that fund would be tapped when annual revenue falls below the amount needed
to sustain that year's growth in spending. Under the proposed constitutional
amendment, automatic reductions in spending could be triggered by the governor
if the Department of Finance predicts a year-end budget deficit.
Cal-Tax Acting
President Teresa Casazza praised the governor for taking steps to make the
state budget more predictable and stable: "California has a chronic budget
problem. When the economy slows – as we are currently experiencing – it is time
to limit the growth in spending and to find ways to improve productivity and
efficiency with less revenue. When the economy rebounds, it is then time to set
aside revenue for those rainy days ahead."
The budget includes
an estimate of $60 million in new revenue in the current fiscal year and $329
million in 2008-09 from "Franchise Tax Board and Board of Equalization
collection and enforcement enhancements," as well as a predicted $2
billion gain from the accrual of June personal income tax and corporate tax.
Democrats blasted
the governor for not including tax hikes in his plan, and some Republican
lawmakers said the governor had indeed called for a tax increase in the form of
a proposed "fee" on property owners to fund firefighting efforts.
The firefighting assessment,
described by the administration as a fee that would not need the two-thirds
legislative approval of a tax, would add a charge to the property insurance
bill for every residential and commercial property in the state, at a rate of
$12.50 for every $1,000 in insurance premiums – an estimated $125 million
annual cost for property owners. Finance Director Mike Genest
told reporters that it would be a fee because it is "modest" and
because all Californians benefit from fire protection.
Assembly Speaker
Fabian Nunez said the governor presented a "cuts-only budget," and
called the no-taxes pledge a "straitjacket" that makes it impossible
for the state to help the poor. Mr. Nunez repeatedly mentioned the need for
"creativity" in the budget, at one point citing the possibility of
selling the state lottery, and told reporters that it would be wrong to cut
programs for the poor while giving "breaks" and "subsidies"
to wealthy yacht owners and people with vacation homes.
The governor's
budget calls for cutting general fund spending from $103.3 billion in the
current fiscal year to $100.9 billion in 2008-09. The governor proposed
shutting down 48 state parks, and reducing education funding by $400 million
this year and $4 billion next year. The budget forecasts general fund revenue
at $102.9 billion in 2008-09, up from $101.2 billion in the current fiscal
year.
The governor's plan
would use borrowing by selling the remaining $3.3 billion in Economic Recovery
Bonds authorized in 2004, and the governor proposed deferring early debt
payment on bonds to free another $1.5 billion. Mr. Schwarzenegger also asked
the Legislature to place $28.3 billion in bonds on the November ballot to raise
$6.4 billion for schools, $7.7 billion for higher education facilities, $11.9 billion
for water facilities and $2 billion for court construction.
Additional budget
items of note:
The budget predicts
that the assessed value of property in California will grow 9.3 percent in the
current fiscal year and 7.1 percent in 2008-09, meaning the government will
continue to enjoy increases in property tax revenue despite the state's housing
market slowdown.
An increase of $11
per vehicle in the vehicle registration fee is proposed, at a cost of $522
million a year for motorists to pay for California Highway Patrol services.
This fee is distinct from the Vehicle License Fee, which is a car tax assessed
on the value of the vehicle.
A revenue gain of
$21 million is predicted from making permanent the use tax on boats, vehicles
and aircraft brought into California less than one year from purchase outside
the state.
Personal income tax
revenue is expected to increase 7.2 percent in 2008-09, with some of the growth
in revenue attributed to redirecting FTB rent savings to
"revenue-generating purposes" such as hiring additional auditors. (Cal-Tax:
The budget's predictions of revenue gains from new auditors may be overly
optimistic, however, since it takes a great deal of time to hire and train
auditors, and then the audits and appeals can take years before any money comes
in.)
The budget notes
that per capita consumption of cigarettes has fallen from 123 packs a year in
1989-90 to 84 packs in 1997-98 and 49 packs in 2006-07. "The long-term
downward trend in consumption should continue to reduce cigarette tax
revenues," the document says. The estimated 2008-09 revenue of $1.09
billion includes $3.78 million in estimated gains from increased collection
efforts at the BOE.
(Sources: Governor's
Budget Summary 2008-09; Governor's press conference and Democratic leadership
press conference; The Sacramento Bee; all January 10.)
Cal-Taxletter January 11, 2008
© 2008 California Taxpayers' Association. All Rights Reserved.