There was only one thing wrong with Senate Budget Committee Vice-Chairman Bob Huff’s analysis of how Gov. Jerry Brown produced a “balanced” budget by magically assuming an extra $4 billion in revenues. Said Huff, a Republican from Diamond Bar: “That’s a wand that Harry Potter would be proud to wield.”
As every Calbuzzer knows, Huff got the wrong wizard.
This was sorcery of a much higher order than a mere Hogwart could conjure. No, this was a job for a genuine Ainur, one possessed of the greatest otherworldly powers – a wily wise man who understood the theological and cosmological weaknesses of his adversaries.
Or, as Gov. Gandalf Himself described trying to bargain with the Republicans: “I thought we were getting close, but as I look back on it, there is an almost religious reluctance to ever deal with the state budget in a way that requires new revenues.”
And so Brown, after some heavy séance sessions and pot stirring with Senate President Pro Tem Darrell Steinberg and Assembly Speaker John Pérez, cooked up exactly what he said he would not: the all-gimmicks “balanced” budget that could be approved by Democrats alone and signed by him.
As detail man Kevin Yamamura of the SacBee outlined it (and from which we steal), the Magic Budget maintains $150 million cuts each to University of California, California State University*, $150 million cut to state courts, $200 million in Amazon online tax enforcement, $2.8 billion in deferrals to K-12 schools and community colleges, $300 million from $12 per vehicle increase in DMV registration fee, $50 million from fire fee for rural homeowners, $1.7 billion from redevelopment agencies and higher tax receipts worth $1.2 billion from May and June.
Brown tossed out some of the items from the Steinberg-Perez budget that he voted last week, to wit: $1.2 billion from selling state buildings, $900 million from raising a quarter-cent local sales tax, $1 billion from First 5 commissions, $500 million cut in local law enforcement grants, $540 million deferral to University of California and $700 million in federal funds for Medi-Cal errors.
The truly fancy wand-waving came by way of adding: $4 billion in higher projected revenues in 2011-12; a 1.06 percentage point sales tax swap that redirects money to local governments for Brown’s “realignment” plan; moving about $1 billion in child care programs outside of Proposition 98 protection, lowering the guarantee and cutting $71 million cut in Department of Justice’s Division of Law Enforcement (which AG Kamala Harris is not happy about, btw).
What makes the whole thing work however is the big honking assumption of $4 billion in additional revenues that simply weren’t assumed about five minutes ago. We asked Brown spokesman Gil Duran how that could be and he referred us to the Finance Department – kinda like Richard Nixon saying, “Hey, you want to know about invading Cambodia, talk to the Defense Department.”
His best argument – “trigger” cuts are built into the budget that would go into effect if revenues don’t meet projections. Brown called these prospective cuts “serious.”
According to Brown adviser Steve Glazer, the projection of additional revenues was based on $1.2 billion in unexpected tax income collected in May and June. But if revenues don’t meet projections by January, prisons and the University of California and California State University systems would each lose another $100 million. Programs for the sick, disabled and poor would be cut by twice that amount. Moreover, K-12 schools could face a $1.5-billion cut and be forced to shorten the school year by up to seven days.
Once conditional budget cuts are approved, the Legislature could restore the funding later of course. But according to Glazer, those restorations would be subject to a veto by the governor. Moreover, according to H.D. Palmer of the Department of Finance (he called us to be “helpful” after we spoke to Duran and Glazer), DoF’s projections were finalized after they began seeing June tax receipts that were looking better.
And, H.D. noted, this isn’t the first time prospective cuts would be used, based on projected revenues: It was done in February 2009, leading to $680 million in cuts to MediCal optional benefits, CalWorks, trial courts and judges, and higher education funding when previously assumed federal stimulus money didn’t materialize in the spring.
Glazer said the newly projected revenue – assuming it comes in – will balance the coming year’s budget. But it won’t address other problems Brown was hoping to solve by negotiating with the Republicans – the structural deficit (about $5 billion, down from $20 billion when Brown took over) and the state’s long-term “wall” of debt of about $35 billion.
Gandalf and the Democrats got some help on Tuesday from Treasurer Bill Lockyer who pronounced the budget “financeable.” The budget, Lockyer said, “reduces the need for external cash flow borrowing by as much as $2 billion, saving significant borrowing costs. Perhaps more significantly, this budget, for the first time in recent years, honestly and clearly balances revenues and spending.”
Republicans who have been neutered, tried to claim a victory for having prevented Brown and the Democrats from raising taxes. “The simple truth is because of Republicans’ resolve, temporary tax increases will expire this Friday and the average California family will save nearly $1,000 per year,” said GOP Assembly Leader Connie Conway.
But the Reeps clearly failed to use their minority veto power to win pension reforms, regulatory relief for business or a spending cap – all items that had been bargaining chips as long as Brown was seeking their votes to extend taxes and/or place a tax measure on the ballot.
Look now for the Republicans to launch ballot measures seeking drastic changes to California’s pension plans, a hard spending cap and who knows what else they can come up with to distract money and attention from the public employee unions who may seek to alter Proposition 13 as it affects commercial and industrial property or impose an oil severance tax or whack the wealthy or, who knows, maybe even push a measure to allow local jurisdictions to raise taxes by majority vote (Democracy? Gasp!).
Which reminds us that back in March Gandalf told George Skelton of the By God LA Times that if there was no two-thirds vote for extending taxes that he would put up an all-cuts budget, that the Democrats would “put in gimmicks” and that he would veto that and “Then everybody sits there until we run out of money. It’s not going to be a pretty sight. It’s like one-two: No tax, all cuts, gimmicky budget, veto, paralysis.” Said Brown, “It’ll be a war of all against all.”
Or, as Calbuzz likes to say, “Bellum omnium contra omnes.”
Now that they have had their man parts removed, this may be the Republicans’ only play.
And just for the record, earlier this month, we referred to Brown as “a great seer, with nothing up his sleeve.” Who knew Gandalf was hiding $4 billion up there?
* Department of Amplification: After posting this piece, we received a note from Mark Hedlund in Steinberg’s office informing us: “Just a point of clarification — the cuts to UC and CSU actually total $650 million for EACH system. [The] March budget action already cut $500 million from each system, with the extra $150 million added as part of the final budget package. Community colleges also [were] cut by $400 million. None of this includes potential trigger cuts for the three systems if revenue projections fall short.”