On-time budget full of holes, games, gimmicks

June 16, 2012

By Katy Grimes

SACRAMENTO — The Legislature met its constitutional budget deadline, which means legislators will not be docked their pay this year. However, claims by legislative leadership that this budget really is a balanced, honest budget, free of gimmicks and accounting tricks were met with guffaws, anger and stiff verbal sparring on the floor of the Senate and Assembly Friday.

When pigs fly this budget will be considered honest and balanced.

Last year’s budget was $86 billion; the budget just approved Friday is $92.1 billion, and largely relies on passage of Gov. Jerry Brown’s tax initiative in November.

In what world is budgeting done using wishful thinking and hoping for future revenue?

Without passage of the income and sales tax increases Brown is proposing, massive cuts will be triggered, primarily to education.

“I finally realized that education really is the Democrats’ priority… for cuts,” Assemblywoman Shannon Grove said Friday. Of the $6 billion in trigger cuts, $5.9 billion will be cuts to education.

Grove stirred up emotions in the Assembly when she dared to direct a question to the author of the budget bill.  “Let me get this right,” Grove said, directing her question to Assemblyman Bob Blumenfield, D-Los Angeles. “We just passed the budget bill, and now we are being asked to pass the budget bill junior because the first budget bill is already out of balance?”

Her question caused Assembly Speaker John Perez to appear out of nowhere like a ninja, and pound on the podium with the gavel with a force rarely heard in Assembly chambers. Perez and Assembly Majority Floor Leader Charles Calderon took Grove to task over the geographical direction of her question… apparently Perez wanted her question directed toward all of the Assembly members, and not just at the bill’s author.

Grove handled the dust up with aplomb, and made her point. And that was the point–she was pointing out that the budget bill is a sham. Democratic leadership didn’t want this in the record, and they tried to stop her.

Such childish antics from elected leaders.

Some budget details

The bottom line with the 2012-13 budget is that it will grow spending by nearly half a billion dollars more than the Governor’s May Revised Budget, amounting to a 6.2 percent increase in General Fund spending.

The budget includes hundreds of new special taxes and fees, including a permanent 1 percent increase on  lumber products, to be paid by consumers.

The budget relies on $900 million in nasty fund “shifts” from transportation, from the State Off-Highway Vehicle Trust Fund, and the Harbors and Watercraft Fund. This money will go right into the General Fund for payment of transportation-related bond debt service.

State Parks funding is going to increase by $55 million, thanks to the Off-Highway Vehicle Trust Fund, Motor Vehicle Account and new license plate revenue.

Spending on environmental protection programs will be ramped up as long as they are associated with the reduction of greenhouse gas emissions.

As occured in last year’s budget, the Democrats are authorizing a $313 million loan from the State Disability Fund to cover Unemployment Insurance interest expense, owed to the Federal Government, and due in September.

Future taxes pay for current spending

The Governor is counting on bringing in $45 billion with his tax increase, and says that this money is needed to keep up with state spending. But what he hasn’t admitted is that this money would go to pay current state expenses.

California politicians have made a mess of the state budget for many years. But this year is probably the worst.

Standard & Poor’s is threatening to downgrade California’s outlook if lawmakers don’t balance the budget without gimmicks. “We are  being disciplined by our lenders who will downgrade us for fudging,” said Assemblywoman Diane Harkey, R-Dana Point.”

Wall Street bankers are forcing California to clean up its financial mess in order to prevent a catastrophic economic tsunami.

California’s economy is nearly one-eighth of the entire country’s gross domestic product. It totals 30 percent of the debt carried by all 50 states, according to Gabriel Petek, an S&P analyst. Petek,interviewed by FOX Business, said that California is overly reliant  on personal income taxes, and that the state’s tax structure is behind the deficit because of this reliance.

While the budget has been declared as balanced, California is starting off the new budget year with $63 billion debt, including the record deficit, according to one financial analyst I spoke with.

S&P is not fooled any longer by California’s budget trickery. Gabriel Petek, and analyst with S&P reported, “for California to rely on capital gains tax revenue from things like the Facebook initial public offering is like looking for change in the seat cushions.”

In March, FOX Business reported that Brown was too optimistic in forecasting more than $2 billion in expected state capital gains revenue over five years from the Facebook IPO.

“Even the state’s own legislative analysts told the governor’s office its forecast was too rosy — as investors could sit on the Facebook (FB: 30.01, +1.72, +6.09%) stock and not cash out, or simply move out of the state, among other things,” FOX Business reported.

“Already, California has seen a migration of upper bracket taxpayers out of the state. It has the worst credit rating out of all 50 states at single A minus.”