State of the State:
Governor Uses Annual Speech to Reiterate Call for Tax Hikes

In the second State of the State Address of his current term, Governor Jerry Brown on January 18 touted his tax increase initiative and budget cuts, saying, "Neither is popular, but both must be done." He said California's economy is "on the mend," but without budget cuts and taxes, the state budget will remain unbalanced.

Describing his tax plan (which would increase personal income tax rates for high-income Californians from 2012 through 2016, and increase the sales and use tax rate 0.5 percent from 2013 through 2016), the governor said: "It's fair, it's temporary, and it's half of what people were paying in 2010."

Although the governor's budget proposal calls for a 7 percent increase in expenditures, he said he is "determined to press ahead … with substantial budget cuts."

The governor then launched into full-throated support of the high-cost, high-speed rail project. He called it a "bold" plan, and compared it to water projects, Bay Area Rapid Transit and other major undertakings of the past that were criticized at their inception as possible boondoggles. "Without hesitation, I urge your approval," he told the Legislature.

BOE Member George Runner said: "I agree with the governor that we must do more to spur job creation and investment in our state. Unfortunately, by pushing higher taxes, the governor sends the entirely wrong message. We don't need higher taxes, we need more private sector jobs. … When Californians have jobs, the state always has plenty of revenue. The governor should be campaigning for jobs, not higher taxes."

BOE Member Betty Yee had a very different reaction. "Every public official should join Governor Brown in pounding the pavement and making the case for additional revenue to keep education as our top priority and stave off further harmful cuts to Californians most in need," she said.

After delivering the speech in the Capitol, Governor Brown traveled to Los Angeles, where he repeated the address to an invitation-only audience in City Hall, and then met privately with teachers at an elementary school in Burbank. On Thursday, he traveled to Irvine and San Diego to continue campaigning for his tax measure.

The Los Angeles Times reported that during the stop in Los Angeles, the governor said he opposes legislation that would postpone the elimination of redevelopment agencies, saying, "I don't think we can delay this funeral."

Redevelopment agencies received more bad news earlier in the week, when Moody's Investors Service announced that it has downgraded all California tax allocation bonds rated "Baa2" and above, and that all California tax allocation bond ratings "remain on review for possible downgrade." The decision to downgrade the bond ratings by one notch affects approximately $11.6 billion in debt. Moody's said the decision "primarily reflects near-term cash flow risks arising from legislation recently upheld by the state supreme court that dissolves all redevelopment agencies."

January 20, 2012

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