But the report injected a significant note of caution into the coming debate, reminding policymakers that the Golden State’s recent nightmarish fiscal straits still could return if the country’s economic health sours anew. “Although the Legislative Analyst’s Office doesn’t predict that another economic downturn is imminent, the report analyzed how easily the state budget could absorb the impact of another recession and found that the state is still vulnerable to budget deficits,” observed the San Jose Mercury News. “A sizable reserve is the key to making it through the next economic downturn with minimal disruption to public programs,” the report concluded, according to the paper.

Familiar battle lines

Neither party’s priorities — nor Gov. Jerry Brown’s — have changed since the last time budget wrangling began in earnest. In a statement, Department of Finance director Michael Cohen played down the idea that the relative windfall should open the door to big new spending initiatives. “The strong economy is good news for California, but the recession scenario outlined by the Legislative Analyst is a sobering reminder that we must continue to pursue fiscal discipline, pay down liabilities, and build up our Rainy Day Fund during these fleeting good times,” he said, according to the Sacramento Bee. Brown’s next budget proposal was due to arrive in January.

Meanwhile, Hoover Institution fellow Bill Whalen suggested that “both parties likely will go along with expanding services for the developmentally disabled and restoring payments to doctors with Medi-Cal caseloads. … Chances are that Democrats will take another run at Gov. Jerry Brown over a big-ticket prize such as universal preschool. Meanwhile, Republicans will want to cut taxes.”

Unions to the fore

As the parties drew up their battle lines, however, California’s politically active unions already pressed ahead with a strategy designed to increase taxes by bypassing Sacramento entirely. “A proposed ballot measure to continue the so-called temporary tax hike 12 years beyond its scheduled Dec. 31, 2018, cutoff was cleared by the secretary of state for signature collection,” George Skelton confirmed at the Los Angeles Times. “The initiative’s sponsors are the California Teachers Assn. and the state Services Employees International Union. The teachers union contends that $50 billion in education cuts will never be made up, that inflation-adjusted funding still is $1 billion under the 2007 level and that K-12 spending, when factoring in California’s high cost of living, ranks 42nd in the nation.”

What’s more, however, one service employees’ chapter has linked up with the California Hospital Association and the California Medical Association in a rival effort to “extend the higher income tax rates permanently,” Skelton added. “It could be a political disaster to have two competing tax hikes on the ballot. So the two sides are negotiating in an effort to create one compromise proposal.”

Taxing cigarettes

Complicating the campaign season still further, a separate effort to raise taxes by $2 per pack of cigarettes — including electronic cigarettes or vapes — has drawn the support of unions including the California State Council of Service Employees, which ponied up $2 million. Tom Steyer, the billionaire Democratic donor and former hedge fund manager, also offered $1 million of his own money, according to the Sacramento Bee. “An alliance of public health, labor and health care groups has pushed the tax increase as a tool to reduce smoking rates and to better fund Medi-Cal, California’s low-income insurance program. Revenue from the tax hike could fund higher reimbursement rates for doctors who see Medi-Cal patients,” the Bee noted.

In familiar language, critics hit back, charging that the proposed increase would actually fall most heavily on the less well-off. The pack tax “largely would fund programs for the poor; yet the poor would pay for the programs because they form the largest group of smokers,” wrote the Orange County Register’s editorial board. “It would raise up to $1.3 billion a year. But as we always warn, boosting cigarette taxes also would increase the black market, which especially afflicts the poor.”

An accountant — as opposed to a journalist or a partisan, or a journalist/partisan — would be infinitely more inclined to look at the numbers and say Brown is getting credit he doesn’t deserve. This is why it was so depressing to see Legislative Analyst Mac Taylor — who used to seem more like an accountant than a political operator — pretend in November that the state could look forward to years of budget surpluses.

This is why it’s nice to see straightforward news accounts pointing out that all is not remotely well with California’s finances. Take it away, Dan Walters:

“As severe recession struck the nation a half-decade ago, California and most other states borrowed heavily from the federal government to prop up their unemployment insurance programs.

“At one time, the states owed Washington more than $47 billion, but the debt has since been cut by more than half to $21 billion, and many of the debtor states have completely erased their negative balances, according to a nationwide surveyby Stateline, a website on state government affairs maintained by the Pew Charitable Trusts.

“But not California. The state began borrowing in 2009 and accounted for more than $10 billion of the debt at its peak, but it has declined only slightly – thanks to a political stalemate in the Capitol — and California now accounts for nearly half of the national debt total.”

Mac Taylor, civic arsonist

Contrast this with LAO boss Mac Taylor in November. He said multibillion-dollar surpluses could soon be the norm in California because of tough decisions made in recent years — by Brown to hold down spending and by voters to raise taxes.

This is grossly misleading. California has hundreds of billions of dollars in unfunded retirement benefits, liabilities so immense that they make the state debt to the feds seem trivial.

The LAO is California’s most respected government agency. But that is based on previous directors. Mac Taylor will be remembered as the LAO boss who encouraged Californians to believe lazy, stupid budget spin — instead of the previous sort of LAO boss who tore such spin apart.

By Katy Grimes

SACRAMENTO — “Everything’s Coming Up Roses,” from the Broadway musical Gypsy, should be Gov. Jerry Brown’s new theme song. His 2013-14 budget proposal, released last Thursday, was full of happy news, good times a projected balanced budget and an upcoming surplus.

Clear the decks! Clear the tracks!
You’ve got nothing to do but relax.
Blow a kiss. Take a bow.
Honey, everything’s coming up roses!

Even more amazing than the governor’s rosy budget is that Legislative Analyst Mac Taylor appears to agree. Mostly.

Overview

I attended the LAO’s meeting yesterday at their Sacramento office where they presented their overview of the governor’s budget proposal. But a roomful of journalists didn’t completely buy the “everything’s coming up roses” message.

“The governor’s proposed budget reflects the significant improvement in the state’s finances that our office identified in November,” the LAO announced. “The budget roughly is in balance,” Taylor said today at the meeting.

Taylor explained that, in the LAO’s November budget projections, they recommended that “fiscal restraint” was necessary. “I think the governor’s proposal reflects that kind of discipline. He should be commended,” Taylor said.

Taylor admitted that, even with fiscal discipline, the governor did not address the state’s retirement obligation — a $500 billion unfunded pension liability. Taylor mentioned concern with the growing state teacher retirement fund.

He acknowledged that many of the reporters present had written stories questioning the gaping difference in the LAO’s projection of a $1.9 billion deficit, and Brown’s projected balanced budget  and surplus. Taylor explained that, while Brown’s administration and the LAO were still far apart in budget projections, the Department of Finance did a better job this time around bringing their lofty projections back down to earth.

Last year, Brown’s budget numbers were so far off of the LAO’s that, by the May Revise of the Budget, Brown and the Department of Finance had to drastically reduce their happy projections, and at least address the fiscal mess the state was in.

This year, Brown has erased the deficit from his budget proposal, and is projecting that, by 2015, California will enjoy a $1 billion surplus. Everything’s coming up roses.

Math is hard

According to Teen Talk Barbie, “math class is tough.”  

And the governor’s numbers don’t add up — particularly with the more than $500 billion unfunded pension debt, as tallied by a Stanford University study; and the $10 billion owed to the federal government for California’s Unemployment Insurance borrowing.

Brown’s budget proposal lists only $181.2 billing in unfunded retirement liabilities. However, State Budget Solutions‘ third annual State Debt Report demonstrated an unfunded California pension liability of $617 billion — larger even than the number in the Stanford study.

Wall of debt

According to the governor’s budget proposal, California’s “wall of debt” totaled only $34.7 billion last May, and is now down to $27.8 billion. It 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).

Taylor said that the choice is paying down the debt, versus adding new revenues, but not both.

Taylor noted that the wall of debt was not included  because “we know what the numbers are.”

But any way you slice it, California owes a great deal of money and its budget cannot be balanced, or honestly look at a surplus, anytime soon.

Health and education funding

California is facing a dramatic change in health care funding in the very near future because of  Obamacare. The state will be shifting the entire Healthy Families program into Medi-Cal.

Healthy Families is low-cost insurance for children and teens. Medi-Cal is California’s health care aid for anyone receiving welfare assistance. This is not apples-to-apples by any stretch of the imagination.

Taylor acknowledged that he didn’t want to discuss this, and shifted right into education spending.

Prop. 39 and education funding

An area in which Taylor appeared to be in disagreement with Brown was over Proposition 39, the ballot initiative which passed in November, taxing out-of-state businesses with a physical presence in California.

Projected Prop. 39 revenue will go right into the General Fund as well as into spending for renewable energy. It also factors into the mandatory education spending calculation of Proposition 98. Prop. 39 is estimated to bring in $1 billion in tax revenues, but many warn that this is also a volatile revenue prediction.

Taylor said that the Prop. 39 ballot pamphlet specifically said that revenue from Prop. 39 would be spent on energy-related projects for the first five years, and then into education.

Taylor argued that the Prop. 39 revenues should not be counted toward education funding for the first five years. “But, it has short-term consequences — only five years,” he said.

Differing ‘assumptions’

Taylor said that Brown’s budget proposal “assumes a different set of assumptions.” But isn’t accounting usually done one way in this country? A different set of assumptions may work in marketing, but not in the real world where real people have to face real budget crises.

While Brown’s budget proposal is even more rosy than the LAO’s projections, the economic assumptions in the budget summary claim that there is an economic recovery, many sectors of the economy are improving, real estate conditions are better, the housing market is improving and unemployment is dropping. On Thursday, Brown never mentioned how the millions of unemployed Californians will find work, or how the economy will improve with this increase in government spending and taxing.

I don’t believe for a minute that Taylor buys into Brown’s budgets. What Taylor says publicly and what his reports say also have differing assumptions.

By Wayne Lusvardi

Every year state Senator Joe Simitan, D-Palo Alto, holds a contest for his constituents to submit ideas for new laws.  Simitan boasts that 18 submittals have been enacted as new laws since 2001.  Well, here’s an “oughta be a law” challenge for Sen. Simitan:

A new law is needed to make state budgeting more clear.

The reason stems from AB 1495, which added Section 35.50 to the budget for fiscal year 2012-13, which began on July 1, 2012. This new section of the budget shifts the method of reporting funds from “cash accounting” to “accrual accounting.”

This is important.

Under cash accounting, revenue and expenses are recorded at the same time.

But under accrual accounting, the reporting of revenues and expenses may occur at a different time.

For example, State Legislative Analyst Mac Taylor’s new forecast of state budget revenue surpluses starting in 2014 is based on counting two years’ worth of revenues from the new taxes in Propositions 30 and 39, then applying the revenues to just one fiscal year.  This distorts the actual budget picture and leads to inflated budget estimates.

Budget Section 35.50 means that the Legislature is returning to its old “tax and spend” habit of spending on luxury public pensions and environmental programs.

Unknown revenues

The LAO is concerned because this new rule will result in “no longer [having] a good idea of a fiscal year’s revenues until one or two years after that fiscal year’s conclusion.” The LAO is asking for some help from the Legislature so that it can track the actual status of the budget.

The LAO wrote:

“We are now convinced that the problems that this new accrual method will introduce to the budgetary process outweigh its benefits. We recommend that the Legislature direct the administration to develop a simpler, logical budgetary revenue accrual system by 2015. Alternatively, to help ensure the accuracy of our forecasts and improve transparency, we recommend that the Legislature require the administration to document accruals regularly online.”

The problem with the new accounting rule should not be a partisan issue. It’s just accounting.

Now that Democrats soon will have a supermajority in both houses of the Legislature, they’re completely responsible. Republicans can do no more than stand on the beach and shout at the wind.

If a new law isn’t passed to make the accounting more accurate, allowing the LAO to make more accurate budget estimates, the only result will be disaster. The credit-rating houses, such as Moody’s and Standard & Poor’s, will have to downgrade the state’s credit rating even further to reflect the shaky numbers. In turn, lower credit ratings would mean higher payments from the general fund to pay for state and local bonds.

It’s like this. Suppose your income is $50,000 a year several years in a row and you apply for a car loan. The steady income shows your ability to repay is excellent.

But suppose you make $100,000 one year, then $0 the next. The average still is the same: $50,000 a year. But your income is unpredictable, so the auto credit companies would consider you a bad risk.

The same with the state. Accurate, predictable numbers are honest numbers. And honest numbers make the credit agencies happy.

By Wayne Lusvardi

How could all of the following so-called impartial ballot guides miss a key controversial component of Proposition 31 that would have ended the original republican form of local government in California?

* The California Legislative Analysts Office;

* The Official State Voter Guide, Arguments FOR and AGAINST;

* The League of Women Voters of California;

* Voter’s Edge California;

* The California Voter Foundation.

Prop. 31 was titled the “Government Performance and Accountability Act.” It promised good government reforms, such as:

* A two-year budget cycle;

* Granting veto power to the governor in case of a fiscal emergency;

* Three-day advance notice of all bills in the state legislature;

* Requiring performance budgeting in all state and local government agencies;

* Requiring all new funding bills in legislature to find new money or cut other programs.

Hardly anyone but this writer pointed out that all of the above reforms were already on the books in one form or another.

On top of that, Prop. 31 had a provision to allow the relaxation of existing laws and regulations under newly formed local government “Strategic Action Committees” if new procedures were “functionally equivalent” to existing laws.  Prop. 31 promised to allow local governments to use gasoline and property taxes routed through the state with few purse strings. This must have seemed like a dream come true for those who have been seeking the deregulation of environmental laws, affordable housing quotas and labor laws.

Who in his right mind could have been against Prop. 31 with all of the above promises?  Why did it go down at the ballot box by a margin of 1,864,603 votes if it would have resulted in all of the above reforms?  Was it because Prop. 31 would have ended, for the most part, California’s republican form of local government?  Noooo!  That wasn’t the reason cited by most news sources!

Republicanism Upheld Only by Accident

The reason attributed to Prop. 31 losing by most sources was not that it would have replaced a republican form of government with unelected regional councils controlled by the Legislature.  The only opposition George Skelton and the Los Angeles Times had to Prop. 31 was that it was “long and complex.”   TV station KQED in Northern California said it was just “too complicated.”

But even those who found it too complicated never mentioned that Prop. 31 would have mostly ended California’s republican form of revenue sharing.   In its place would have been a hybrid regional form of governmental revenue sharing.  The new revenue sharing mechanism under Prop. 31 would have funneled gasoline and property taxes to the Strategic Action Committees, rather than cities, counties, and school districts.  And some of Prop. 31’s provisions could have trumped the “home rule” of zoning, housing, etc.

This would have been one of the most radical changes in California history.  But none of the official voter guides mentioned it.  For the most part, neither did the mainstream media.  And neither Prop. 31’s supporters nor opponents made any mention of this.  Nobody seemed to care if California’s republic effectively ended.

Except for this writer, the only other source to alert the public that Prop. 31 would end the republican form of government in California was Stanley Kurtz of the New York City-based National Review magazine.  Kurtz’s opposition to Prop. 31 was based on his timely book, “Spreading the Wealth: How Obama is Robbing the Suburbs to Pay for the Cities.”

Imagine all those liberal, leftist, green and even big government Republican Party-hating libertarian voters out there who might have voted for Prop. 31?  Satirically: If only they had known it would have ended republicanism and replaced it with regionalism and socialized wealth redistribution, they might have voted for it?

‘Neutral’

So the next time you look at one of those so-called neutral state or third party voter guides, think again about whether you should trust their analysis or recommendations.  One should be reminded of the definition of a neutral person from the New Devil’s Dictionary:

“Neutral, n.  A person whose prejudice is so terribly obscure, so incomprehensible, or so transparent that others see no purpose in silencing that person.”

California’s republic was in peril, but hardly anyone noticed it. As Machiavelli wrote, “The people, when deceived by a false notion of the good, often desires its own ruin.”

Which raises the deeper question of whether much of the media and citizenry entirely miss historical social change?  The winners may write history; but the winners only in error write the news.

Proposition 31 was rightly defeated at the polls but for the wrong reasons. But who would have known or even cared?

Editor’s note: This is the first in a series of articles on the propositions on the November ballot.

Oct. 8, 2012

By Dave Roberts

Proposition 30 is either a vital lifeline for budget-ravaged schools and social services. Or it’s unnecessary taxation by a government with a record of wasting money that will accelerate the exodus of residents and businesses out of state. It would increase sales taxes a quarter cent; and boost income taxes up to 3 percentage points on those making $250,000 or more a year. The top income tax rate would rise to 13.3 percent, the highest state rate in the nation.

Those were the contrasting views of numerous Democrats, liberals and education officials supporting Prop. 30, and a couple of Republicans and a taxpayer advocate opposing it at the Assembly Budget Committee’s recent informational hearing.

The latest Field poll showed Prop. 30 losing support, with just 51 percent saying they will vote for it, down from 54 percent in July. Forty percent believe they are already over-taxed.

Prop. 30 is expected to generate about $6 billion annually for four years beginning in 2013, after which the sales tax hike expires. The income tax hike on top earners continues for three more years after that. The actual amount generated could be a couple billion dollars more or less than $6 billion, depending on how the economy is doing, according to legislative analyst Mark Whitaker. The Legislative Analyst’s Office does not factor in the ramifications of residents and businesses leaving the state as a result of higher taxes.

Prop. 30 is competing on the ballot with Proposition 38, an income tax hike on nearly all Californian earners lasting 12 years that is projected to generate about $10 billion annually in initial years, with most of the money slated for schools. If both propositions receive a majority of votes, only the one receiving the most votes would take effect.

League of Women Voters

Arguing in favor of Prop. 30 at the committee hearing was Trudy Schafer, representing the League of Women Voters of California.

“Californians recognize that education and other services like health care, child care, the courts have all been cut to the bone,” said Schafer. “Prop. 30 begins to move California toward financial stability and adequate funding for all the services that we want from our government. We can’t continue to cut vital public services like schools and public safety. After years of such cuts, our schools, our universities, public safety services and others are at the breaking point. We just can’t continue to do this and still keep an economy that is strong, well informed, well educated for the next generation.”

School funding has been cut $20 billion in the last four years, resulting in 30,000 teacher layoffs, according to Schafer. She warned, “If Prop. 30 is not enacted, schools would be forced to shorten the school year, lay off thousands more teachers, increasing class sizes perhaps by another 20 percent, stop buying textbooks and increase community college tuition even more. So we need to stop those things.”

Jarvis group

Making the case against Prop. 30 was David Wolfe,  representing the Howard Jarvis Taxpayers Association. He argued that calling Prop. 30 a “temporary” tax hike is deceptive because it lasts seven years and it’s likely there would be an effort to extend it at that time, as occurred with the failed Prop. 1A tax extension effort in 2009. Wolfe also pointed out that Prop. 30 would do nothing to solve California’s problem of unpredictable levels of tax revenue from year to year.

“Prop. 30 will not fix our progressive income tax system that created our current structural budget problem,” he said. “In fact, by adding three new brackets to the seven already in place it makes the problem worse. Already the top 144,000 taxpayers in the state, the top 1 percent, pay 37 percent of the total personal income tax revenue that the state receives. And this is a problem that Proposition 30 does nothing to address. Everyone knows that the number one problem with California’s tax structure is volatility. And even the governor admits that Proposition 30 makes this volatility problem much, much worse.”

Wolfe argued that raising income taxes on those making $250,000 or more will hurt small businesses, which typically file their taxes as personal instead of corporate income. “This is something we can ill afford with 2 million Californians out of work right now,” he said.

California doesn’t exactly have a strong track record in spending tax dollars wisely, Wolfe noted.

“It’s very difficult to justify a $50 billion tax increase when one considers the amount of wasteful spending and lack of reforms that have been uncovered just this year alone,” he said. “Let’s start with high-speed rail. The Legislature authorized this year that $6 billion worth of bond money at an interest cost to taxpayers of $300 million a year go to build not a usable segment but a piece of track between Bakersfield and Merced.”

Wolfe also cited pension reform that is estimated to save $30-$50 billion over 30 years when the state’s unfunded pension liability has been estimated at $500 billion. “We would argue this is not reform, this is window dressing,” he said.

And he mentioned the budgetary “rainy day fund” that was supposed to be on the 2012 ballot but instead was moved to 2014 after Democrats reneged on their agreement. There’s also the $54 million parks department slush fund that no one knew about while parks were threatened with closure.

“We can’t even manage the money that we have available,” said Wolfe. “And now taxpayers should give $50 billion more? No way.”

No new money

Ironically, although Prop. 30 is touted as helping schools, “it will actually provide no new money for educational programs,” he said. “And although it supports Prop. 30, this was clearly articulated by the California School Boards Association.”

Howard Jarvis has run a radio ad making that point and quoting the CSBA.

But Dennis Meyers, CSBA assistant executive director for governmental relations, told the committee that its words were taken out of context. “Proposition 30 is good for public schools; they are much better off with it than without it,” he said.

However, Meyers acknowledged that Prop. 30 won’t in fact provide new funding, but instead would simply restore some of the funding that has been cut in recent years.

“Without Prop. 30, schools are 14 percent below the amount of funding they received in 2007-08,” he said. “With Prop. 30, we are 9 percent [below]. It begins to build back what we lost over the last five budget cycles.”

One of the main points of contention in the two-hour Assembly committee hearing focused on whether California’s government is actually spending more currently than it has in the past. Brian Nestande, R-Palm Desert, said the budget cuts have been overstated because many are only temporary.

“They are almost illusionary because they happen one year to the next and then go right back,” he said. “Your overhead stays the same, basically. But as far as spending overall, spending is up overall. I’m not going to argue that these aren’t hard choices. But the point of fact is that if you factor in the use of special funds, it’s $20-30 billion more than it was a couple years ago. Federal monies, tens of billions of dollars more. Money that the state spends from the federal government, from special funds, from our general budget is up every year since I’ve been here. That’s just a fact.”

That assertion threw the Democrats on the committee into a tizzy. One after another cited cuts to schools, the courts, health care and a plethora of social service programs, which are all paid out of the General Fund.

But Nestande is correct about the increase in overall spending, according to figures from the state Department of Finance. Total state spending in the 2012-13 budget is $225.4 billion. That includes $91.4 billion in the General Fund, $39.4 billion in special funds, $11.7 billion in bond funds and $82.9 billion in federal funds. It’s true that General Fund spending is down from its high of nearly $103 billion in 2007-08. But total spending is at an all-time high. It’s now $31 million, or 16 percent, higher than the state spent in 2007-08, and has more than doubled in the past 14 years.

Nestande argued that what’s really needed in California is an overhaul of the tax system, moving toward a consumption tax.

“Economists agree, right or left, a consumption-based tax is the best taxing system for an economy,” he said. “You get more revenue into the state by allowing the economy to grow and not having this disproportionately heavy income tax, heavy sales tax, which harms the economy and inhibits growth and inhibits revenue to the state.”

By WAYNE LUSVARDI

Call it pension “entrap and raid” —  instead of environmental “cap and trade.”

Gov. Jerry Brown is floating an idea to divert $1 billion from the auction of pollution credits under California’s Cap and Trade Program to plug a $9 billion gap in the state-operating budget. The $1 billion would go toward funding the huge shortfall in funding pensions.

The Jan. 11 issue of the Los Angeles Times is reporting that Brown’s proposal is enraging business organizations who are calling it a back-door tax.

This comes as no surprise to business groups who sponsored Proposition 26 on the Nov. 2010 ballot to plug a loophole in California’s Cap and Trade law that could have allowed it to impose “fees, levies, charges or revenue allocations” without a supermajority — two thirds — vote of the electorate.  Is it coincidental that, in the official ballot arguments for Prop. 26, the fiscal impact was shown as $1 billion?

Cap and Trade is a mandatory emissions trading program that forces industries to either reduce pollution or buy pollution credits from low polluting industries that have credits to sell.  The first auction, scheduled for August 2012, is coincidentally estimated to raise $1 billion.  The monies confiscated from businesses would be used to create green “jobs and deliver public health, economic and environmental benefits.”  But now part of those funds are proposed to be diverted to be put into the state general fund, which Prop 26. forbids.

Tax Farming?

The governor’s proposal confirms suspicions of critics that Cap and Trade is nothing but a “tax farming” scheme with little net environmental benefit.  Tax farming was a system used in ancient Persia, Egypt, Rome and Greece of outsourcing taxation to “tax farmers,” who bid at auction for the contract rights to collect a particular tax and make money doing so.

Under California’s Cap and Trade law, it will also be mandatory for municipal electricity and water providers to buy pollution credits.  This would result in a tax on utility rates.  Electricity and water ratepayers could end up paying for state pensions in their energy and water bills.

Brown’s proposal seems to be an action of desperation after State Controller John Chiang announced that state revenues for December fell $1.4 billion under the state’s projections.  A revenue gap of $2.5 billion has grown since the state budget was adopted in June 2011.

Quoted in the LA Times, Jim Metropulos, a lobbyist for the Sierra Club, stated that perhaps Cap and Trade auction receipts could be used to “backfill” existing state environmental programs.  These funds conceivably could be used to free up other general fund monies for other purposes.  But California’s Cap and Trade Law –AB 32, the Global Warming Solutions Act of 2006 — was not meant to be a way to partly backfill the state treasury.

A Trial Balloon

Brown’s proposal is apparently what is called a “trial balloon” in politics.  William Safire’s Political Dictionary defines a trial balloon as “a testing of public reaction by suggestion of an idea.”

Business groups are already saying they will legally challenge any such proposal to divert cap and trade funds to the state general fund.

Brown’s trial balloon may not fly with voters who are facing $6 billion in higher annual electricity costs due to the imposition of California’s new Green Power law.

Brown has yet to float a trial balloon on many of the recommendations of the State Legislative Analyst’s Office on where to cut state government, including $3.5 billion in annual tax credits the LAO says “are not achieving their stated purpose.”

It remains to be seen whether Brown’s trial balloon will stay afloat or will plummet back to mother earth.