Democrats Pass Hinky Budget

JUNE 29, 2011

By KATY GRIMES

With a surprising lack of debate between parties, the California Legislature passed the budget late last evening, and only with a majority vote, attempting to close what began the year as a $26.6 billion deficit using a great deal of hope for increased state revenues.

Democrats pinned the budget’s balance on assumptions of future tax revenue estimates and projected spending levels. But even if tax revenue does increase as much as Democrats are hoping it will, many are saying that there will still be a budget shortfall in the near future.

After months of negotiations and nearly $10 billion in spending cuts, the budget plan is expected to close the $26.6 billion gap by nearly $20 billion — with the rest of the revenue on a wing and a prayer.

The motive for passage was strong as lawmakers’ pay had been suspended by Controller John Chiang for passing an unbalanced budget on June 15, which Gov. Jerry Brown immediately vetoed.

This budget is expected to bring about reinstatement of the legislators’ pay.

The eight bills, which made up the entire budget bill, were passed easily in the Assembly; and after several tries and some arm-twisting, then passed in the Senate.

Brown is expected to sign the budget as presented, bringing the general fund spending down to $86 billion from $91.5 billion.

However, this budget is a far cry from the budget Brown proposed in January. Brown has insisted that his budget proposal was a balance of cuts and revenues increases — tax increases — which Republicans refused to agree to.

Future Tax Increases?

Brown and the Democrats will still need to address the shortfall issue and are talking about putting a ballot initiative together for voters to approve tax increases.

But voters have defeated the last seven tax-increase attempts put before them.  And Republicans insist that if voters are faced with increased taxes, they should also be allowed to vote on key reforms: pension reform, a spending cap and regulatory reform for the state’s struggling businesses.

“This latest budget is based on the hope that $4 billion in new revenues will miraculously materialize, but does absolutely nothing to change government as usual,” said Sen. Bob Dutton, the Senate Republican Leader. “The Democrats have said no to all of the Republican reforms that Californians are demanding, including pension reform, a spending cap and job creation.”

The budget includes even more cuts to higher education, in addition to the $500 million already cut by the University of California and California State University systems, and includes cutting seven days from the K-12 public school year.

Critics say that this budget is full of carryovers into future years, still making it unbalanced.

Specifically, the cuts and hoped-for new revenues include:

* $150 million cut to the University of California and California State University

* $150 million cut to state courts

* $200 million in Amazon online sales and use tax

* $2.8 billion in deferrals to K-12 schools and community colleges

* $300 million from $12 per vehicle increase in DMV registration “fee”

* $150 million from fire “fee” for rural homeowners

* $1.7 billion from redevelopment agencies

* $1.2 billion in higher May and June revenues

Higher Revenues?

The budget anticipates $4 billion in higher revenues in 2011-12, with triggered cuts if revenues do not come in as anticipated. The 1.06 percentage point sales tax swap, which will redirect money to local governments for Brown’s “realignment” plan, is one of the anticipated revenues, angering many lawmakers with its passage.

And Republicans said they were “iced out” of budget negotiations, leaving Democrats owning the entire budget, process and all.

“This budget not only lacks regulatory relief that is critical for creating job opportunities, it lacks the other reforms that Californians are demanding and deserve,” said Dutton. “Californians want a hard spending cap and they want reforms to fix the unsustainable state and local pension systems. Pension reform is the only way to ensure that state and local governments can continue to fund essential services in the future.”

Dutton said numerous times this week that this is a “Hope without Change” budget. “It relies on the hope for billions of phantom dollars and does nothing, absolutely nothing, to change government as usual. Even worse, it does nothing to put people back to work.”

The budget appears to work on a balance sheet, but many of the nifty accounting tricks only last one year, which will surely trigger a shortfall. And if the “recovering” economy continues to flail, the budget shortfall will only be that much more dramatic, leaving taxpayers on the hook once again.

And Brown knows this. “We still have our wall of debt out there,” Brown said earlier in the week. “We still have work to do.”