Cal-Tax Annual Meeting:
State Finance Director Urges Budget Reform

Director of Finance Mike Genest described the feast-or-famine budget process that has been in place for the past 20 years and said it is time to "reform our budget process permanently." He called for the creation of a "rainy day fund," along with a revenue limit and a mechanism for mid-year course corrections in the budget. The governor's plan would restrict the amount of increased revenue that could be deposited in the General Fund in any year to no more than the average percentage increase in revenue for the prior 10 years. Excess revenue would be put in the rainy day fund. Mr. Genest said if this proposal had been in place for the past 10 years, the state would not be confronted with the significant budget problem it faces this year.

The governor's finance director said state spending is controlled by "entitlements," not appropriations. He noted that the developmental services entitlement has grown 15.5 percent a year for 10 years. In-Home Supportive Services costs have gone up 12.7 percent a year, partly due to the fact that employees unionized. When employees unionize, there is usually a massive growth in costs, he observed. (Cal-Tax: In 1999, Governor Gray Davis and the Legislature approved union-backed legislation to pave the way for the IHSS workers to join unions.)

When asked if the Legislature will put a revenue limit on the ballot, Mr. Genest said negotiating this year's budget will be difficult, but the public needs to insist that budget reform be part of the package.

On other issues, he expressed interest in an October-to-October fiscal year, comparable to the federal government's fiscal year. He also wondered why the governor's budget has to be introduced by January 10, since it is a placeholder budget that must be revised in May to account for the state's April tax collections.

Cal-Taxletter April 4, 2008

© 2008 California Taxpayers' Association. All Rights Reserved.