But — It's Still a Phony Budget

John Seiler:

If a new budget passes as described in news accounts, Controller John Chiang should continue withholding legislators’ pay. That’s because the deal worked out between Gov. Jerry Brown and the dominant Democrats in the Legislature still would be a phony, unbalanced budget. Which still would be in violation of the Proposition 25 requirement to pass a budget by June 15, or legislators’ pay is docked.

The Bee provided details of some of the changes that supposedly “balance” the budget. One is “$200 million Amazon online tax enforcement.”

They actually think they can heist this money even though Amazon has promised it will fire the “affiliates” — some 20,000 small Mom and Pop outfits — that would be taxed. The tax would only affect those who use Amazon’s sales engine, not buy directly from Amazon itself (direct sales are ruled by federal law which isn’t changing).

So, instead of collecting $200 million in new taxes, the law well could cut $200 million in tax receipts as these affiliates go out of business or move to other states. If something doesn’t exist you can’t tax it.

If the Bee report is correct, then even Jerry Brown has bought into the anti-business mentality of the Legislature.

Higher Revenues?

The proposed budget also figures, according to the Bee, “$4 billion in higher projected revenues in 2011-12, with triggered cuts.” If the revenue doesn’t come in, then more cuts are triggered.

Well, they might as well just “trigger” the cuts now. The recent economic forecasts from Chapman University and the Center for Economic Research and Forecasting expect California’s economy to stagnate, at best. The expected higher revenues likely won’t come in at all.

On the positive side, the tax extensions-increases are not in the budget. So the July 1 tax cuts will go into effect, providing a needed shot of adrenaline into the economy. And there will be no vote on higher taxes until, perhaps, November 2012.


The questions about the “trigger” and a potential tax hike in 2012 also cast a pall of uncertainty over the state, especially businesses trying to figure out what will happen to them. Many of them will throw up their hands and move to another state — or country.

Joseph Vranich, the Business Relocation Coach, just reported on June 20 that businesses are leaving California at a rate five times higher than in 2009 — which was the height of the recent Depression.

Here’s Vranich:

Today, California is experiencing the fastest rate of disinvestment events based on public domain information, closure notices to the state, and information from affected employees in the three years since a specialized tracking system was put into place.

Out-of-state economic development officials are traveling through the state to alert frustrated business owners and corporate executives to their friendlier business climate versus California’s hostility toward commercial enterprises.

  • * From Jan. 1 of this year through this morning, June 16, we have had 129 disinvestment events occur, an average of 5.4 per week.
  • * For all of last year, we saw an average of 3.9 events per week.
  • * Comparing this year thus far with 2009, when the total was 51 events, essentially averaging 1 per week, our rate today is more than 5 times what it was then.
The same tracking system has been in place throughout the three-year period.
Our losses are occurring at an accelerated rate. Also, no one knows the real level of activity because smaller companies are not required to file layoff notices with the state. A conservative estimate is that only 1 out of 5 company departures becomes public knowledge, which means California may suffer more than 1,000 disinvestment events this year. The capital directed to out-of-state or out-of-country, while difficult to calculate, is nonetheless in the billions of dollars.

What About Armageddon?

All Brown’s warnings that “war of all against all” and “armageddon” would ensue without a vote on higher taxes was just so much Brownian flapdoodle.

Bottom line: It’s still the typical legislative smoke-and-mirrors and gimmicky budget Gov. Brown pledged he never would sign.

In other words, it’s business-as-usual at the Capitol.

June 28, 2011

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