California’s ‘Mullet budget’ – Conservative in front, but liberal in back

June 14, 2013

By Katy Grimes

SACRAMENTO – The Assembly and Senate Republicans should have registered their ‘no’ votes on the budget, and packed up and gone home to their districts on Friday, instead of allowing the process to be dragged out for another 24 hours.

The Democratic supermajority not only has enough votes to pass whatever budget they choose, it was entirely crafted without input from Republicans.

The only adult in the majority

California is indeed a strange place when Gov. Jerry Brown is the only adult in the room at budget time.  The Democrats and Gov. Brown reached a budget compromise earlier in the week, and it was Brown who reined in the Democratic Supermajority spending wish list… slightly.

And the budget is still far from perfect.

While Brown allocated $1.7 billion in the budget to pay down some debt, the budget fails to pay down any significant amount of the state’s growing debt.

Budget Relevance

On Friday, the Assembly passed the budget bill, AB 110, on a 54-25 party line vote. The floor debate was clearly defined by party as well.

But, according to Assemblyman Jeff Gorell, R-Camarillo, there are four very clear problems with this budget:

1. the budget plan programs massive spending obligations next year.

2. Fails to address in any meaningful way the state’s massive wall of debt of nearly $700 billion.

3. This budget diverts Proposition 30 revenues to programs that are not education, as promised by Gov. Jerry Brown.

4. Borrows $500 million from the state’s cap-and-trade fund to go right into the general fund.

Gorell said the Democratic budget sets California on a course for new spending that will be unsustainable.

And earlier in the week, Gorell compared the budget to a mullet haircut –“It’s conservative up front, but it’s liberal in the back.”

“My caucus believes our responsibility is to represent the taxpaying citizens of California, that’s why we were sent here,” Assembly Republican Leader Connie Conway, of Tulare. “And yet we feel that in this process perhaps we did not have the equal opportunity to do that. To not be included was a choice of others, not ours.”

“We stand ready to work when the opportunity is afforded us and in a process that we think should be democratic, not simply done by Democrats,” Conway said during the budget debate.

Prop. 30 borrowing

One of the biggest problems with the budget is it relies on new tax revenues from Prop. 30, passed in November. But Prop. 30 is set to sunset in five/seven years. By then, the state will be used to spending the money it brings in, and either drastic cuts will need to be made, or Democrats will push for an extension.

The other problem with Prop. 30 spending is the money was promised by the governor to go to education. Gorell said the budget has Prop. 30 money, allotted for numerous non-educational programs, “in contravention of voters’ intentions and desires when they narrowly supported Prop. 30 last fall.”

Cap-and-trade borrowing

“This budget proves that cap-and-trade is an illegal tax,” Assemblywoman Shannon Grove, R-Bakersfield, said. “AB 32 was supposed to save the planet from global warming.”

AB 32 is California’s Global Warming Solutions Act of 2006, and  allowed the California Air Resources Board to devise a cap-and-trade system whereby it holds a quarterly auction program “requiring many California employers to bid significant amounts of money for the privilege of continuing to emit carbon dioxide — or be faced with closing their doors in California, laying off their employees, and moving their businesses to other states,” the Pacific Legal Foundation recently said.

“And, Prop. 30 was sold to put money in schools,” Grove added. “It’s going to welfare instead of paying off the school debt.”

“The budget proposal contains a $500 million loan from the controversial “Cap and Trade” program, which was supposed to fund environmental improvement projects, Conway added. “Instead, the loan will be used for the general fund. It will cost taxpayers $26 million in interest and there is no plan on how to fund this new spending next year.  Also, the proposal hides spending increases by implementing them at the end of the year and locking in future increases.”

Grove and Conway are right. But Democrats in the state see the cap-and-trade and Prop. 30 tax revenues as pots of money in which they can borrow. The only problem is the state never repays what it borrows.

Education spending

“The budget proposal reduces the debt repayment to schools by $676 million,” Conway said. “The state will still owe this money to education, but the obligation will be pushed back another year to fuel more spending.”

“Republicans proposed a freeze on tuition, which was rejected by the majority party,” Conway said. “The new college scholarship entitlement program created by this budget will not be funded for another year.  Meanwhile, the Democrat budget contains no guarantee against future tuition hikes. “

Debt? What debt?

According to the governor’s budget proposal, California’s “wall of debt” includes:

* Deferred payments to schools and community colleges;

* Economic Recovery Bonds;

* Loans from Special Funds;

* Unpaid costs to local governments, schools and community colleges for state mandates;

* Underfunding of Proposition 98;

* Borrowing from local government (Proposition 1A);

* Deferred Medi-Cal Costs;

* Deferral of state payroll costs from June to July;

* Deferred payments to CalPERS;

* Borrowing from transportation funds (Proposition 42).

Brown has had little explanation or discussion of the state’s massive debt problem in this budget since first proposing it in January, in the May Budget Revise, and through today’s budget vote. But before understanding state spending and any talk of a surplus, the state’s debt cannot be ignored.

According to the Small Business Action Committee, because the Legislature has refused to make any sincere pension reforms moves, nearly $2.5 billion in pension debt has been run up just in the last two years.

Brown occasionally speaks of California’s “wall of debt.”  However, he is usually careful in his definition of debt, and only attributes a very small segment of what the actual debt obligation is.

The written May Budget Revision said the budget plan would reduce the wall of debt to less than $5 billion by the fiscal year end of 2017, from $27 billion today.

Democrats have been touting a surplus with this budget But it must be difficult to reconcile a supposed state “surplus,” with actual, total bond debt of $79.6 billion, California State Teachers’ Retirement System debt of $70.9 billion, California Public Employee Retirement System debt of $128.3 billion, and other post-employment benefit debt of $63.8 billion, according to SBAC.

Conway noted the State Auditor recently totaled up all of the state’s unrestricted assets and income, and then compared them against the state’s liabilities to determine California had a negative net worth of $127.2 billion.

“What would a Republican budget look like?” Gorell asked. “More Prop. 30 monies wold go to public education, particularly payig down Prop. 98 deferrals and other debt. No borrowing against special funds like cap-and-trade. Refrain from adopting long term programatic spending against a short term, temporary revenue stream. And likely we’d abandon financial sipport to the calamity that was once high speed rail, which has no morphed into a monument to government tone deaf largesse and inefficiency.”