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Posts Tagged ‘California Budget Project’



Why Prop 26 is the Polluters Protection Act of 2010

Monday, October 4th, 2010

By Jean Ross
Special to Calbuzz

One of the least publicized measures appearing on the Nov. 2 ballot is one of the most mind-numbing but nevertheless one of the most important issues voters will decide.

Proposition 26 makes two major changes to the state’s constitution. First, it ­redefines some types of “fees” as “taxes,” thereby requiring two-thirds, rather than a majority, vote of the Legislature to increase or enact a fee at the state level. And it requires a vote of the people, rather than an action of a governing body, at the local level.

The debate over what’s a tax and what’s a fee is one of those “only in California” issues that dates back to Proposition 13 and its limitations on the Legislature’s ability to raise a tax and its subsequent requirement that local governments seek voter approval in order to impose or raise a tax.

Opponents of Proposition 26 have christened it the “Polluter Protection Act,” since the fees at issue are primarily those that regulate, mitigate and otherwise respond to environmental, health, and other social impacts of products and services. In other words, businesses seeking to avoid financial responsibility for the “externalities” of the products that they sell. Proposition 26 would not, in contrast, apply to fees paid by “ordinary Californians” such as community college and state park entry fees.

Proposition 26 is aimed at overturning a unanimous 1997 California Supreme Court decision in  Sinclair Paint Company v. Board of Equalization. The Sinclair decision upheld the constitutionality of a fee imposed on paint producers to defray the cost of services for children at risk of poisoning from lead-based paint.

The court found that such fees were regulatory fees – not taxes — and could be imposed by a majority vote. Sinclair built on the logic of a prior appellate court ruling that ruled that, “A reasonable way to achieve Proposition 13’s goal of tax relief is to shift the costs of controlling stationary sources of pollution from the tax-paying public to the pollution-causing industries themselves.”

Conversely, if the state can’t impose the fees on “pollution-causing industries” to recoup the cost of environmental monitoring and remediation, those costs will be shifted to taxpayers as a whole. Or, in an era where budget crises have become the status quo, programs that enforce environmental, food safety and other laws will be scaled back, if not eliminated. Which may be the true goal of the backers of Proposition 26.

If all of this wasn’t enough, Proposition 26 would also impose a two-thirds vote requirement for approval of “Any change in state statute which results in any taxpayer paying a higher tax.”

This is a subtle but important change from the state’s existing two-thirds requirement for any “changes in state taxes enacted for the purpose of increasing revenues.” It means that a bill that closed an obscure and ineffective corporate tax loophole, while lowering taxes for, say, all personal income taxpayers, would require a two-thirds vote.

More troubling, the language is sufficiently vague as to potentially allow a handful of lawmakers to block any bill, not just a tax bill that required anyone to pay a higher tax. How might this work? Think about future increases in the state’s minimum wage that increased the tax bill for low-wage workers or, at the higher end of the income distribution, an increase in Medi-Cal payments to physicians that also translate into higher incomes and income tax liability. Or seismic safety laws that require the purchase of sales-taxable building materials. You get the picture.

Because the “any taxpayer who pays a higher tax” provision is retroactive to January 1, 2010, Proposition 26 would also blow a $1 billion bigger hole in this and future years’ budgets by repealing a carefully crafted, revenue neutral “fuel tax swap” approved by the legislature earlier this year that was designed to give the state greater flexibility to use existing tax dollars to help close the budget gap absent subsequent two-thirds approval by the legislature.

The bottom line: Proposition 26 would take away one of the few remaining budget-balancing  tools from state and local governments, allow polluters and their allies to shift the cost of monitoring and remediating environmental and other hazards to the general public, make it even tougher to get rid of special interest tax breaks, and open the door to even more supermajority gridlock.

Voters got it right in 2000 when they defeated a similar measure 48-52%. Californians should tell the backers of Proposition 26 that the second time around isn’t a charm.

Jean Ross is the executive director of the California Budget Project

Budget Debate: Cuts and Taxes Versus Cuts Alone

Friday, June 25th, 2010

By Jean Ross
Special to Calbuzz

As the state slouches toward the start of the new fiscal year, there’s been little progress toward reconciling the three vastly different spending plans offered up by the Senate and Assembly majorities and the Governor.

The Senate and Assembly plans offer a balanced mix of spending reductions and additional tax revenues, while the Governor relies on spending cuts alone. All three plans assume continued federal aid to the states, which may be dead as a newly deficit-obsessed Congress appears ready to risk throwing the nation back into recession in the near-term to avoid increasing long-term federal deficits by a fraction of one percent.

The Assembly Democrats’ “Jobs Budget” largely relied on borrowing $8.7 billion against future Beverage Recycling Fund collections, a debt that would in essence be repaid through a complicated shift of revenues between the state and local governments along with a new oil severance tax. Press reports suggest that this plan will be scaled back to $4 billion of borrowing in response to legal concerns raised by the Attorney General’s office and State Treasurer Bill Lockyer.

Earlier this week, Senate Democrats released a plan that would shift financial responsibility for public safety, drug and alcohol treatment, and welfare programs from the state to county governments along with dedicated revenues. This proposal would not reduce costs in the short term, but is aimed at encouraging counties to find ways to coordinate services and invest in preventive services so as to reduce long-term costs.

How do the plans stack up?

Assembly: Uncertain Borrowing Plan The strongest selling point for the Assembly’s proposal may be the recognition that the state faces a budget problem that may well be too large to be addressed in a single year through any fiscally responsible or politically viable combination of spending reductions and revenue increases.

The plan’s initial spending target would spare many critical, but already battered programs, from the budget-cutting axe. That said, the Attorney General has raised serious concerns about the borrowing scheme at the heart of the proposal that exemplify the unintended consequences of well-meaning ballot measures that promise to put the state on the road to fiscal solvency.

Proposition 58, approved by the voters in March 2004, allowed the state to debt-finance a prior budget shortfall but either closed the door on or greatly complicated – depending on one’s reading of the law – future efforts to use debt to address a budget gap.

Senate: Shift Burden to Locals There’s a lot to like in the Senate’s “realignment” proposal. It would give counties new program responsibilities along with hard cash to pay for them. I share the sentiment of many long-time budget-watchers who argue that the 1991 shift of program responsibility and money to county governments is, perhaps, the best example of a public policy driven by the need to close a budget gap to emerge from recent decades’ chronic budget woes.

As with any complex proposal, however, the devil is in the details. We question whether some of the revenues – such as assumed savings attributable to the new federal health reform law – and some of the shift of responsibility – primarily for state-supported child care programs – is feasible, but the overall concept and structure is meritorious.

Governor: “Terrible Cuts” There’s not much to say about the Governor’s plan other than the fact that it delivered – in spades – upon the promise of “absolutely terrible cuts” that would leave California ill prepared to face an increasingly competitive and more globalized economy and would leave the state’s families adrift in the toughest labor market in decades without a safety net.

What happens next and when does it happen? Just weeks ago “Capitol insiders” predicted a quick – at least by California standards – resolution to the budget debate. However, moods seem to be shifting. The fact that California is the only state in the nation with a “double supermajority” requirement – for passage of a budget and any tax increase – is always worth repeating and greatly complicates any effort to reach agreement on a spending plan. The size of the problem and the limited options available to deal with it increase the odds of a long, hot summer of budget talks.

Jean Ross is the executive director of the California Budget Project, a Sacramento-based nonprofit policy research group. A comparison of the three main budget plans is available on the organization’s website.

Jean Ross: “The Battle for California’s Future”

Friday, May 14th, 2010

Today the Governor will release his final “May Revision” – the document that updates budget estimates and policy proposals.

Release of the May Revision traditionally signals the end of spring training and the shift of budget season into high gear. And as much as we might have hoped otherwise, we’re not surprised by Schwarzenegger flack Aaron McLear’s statement that the May Revision would include no tax increases and “absolutely terrible cuts.”

Since January, much of the smoke from the smoke and mirrors “solutions” proposed by the Governor has dissipated. The state is likely to receive $3 billion to $5 billion in federal funds – but not the $7 billion unrealistically assumed by the Governor in January.

The state has won some legal challenges to past budget-balancing actions, but lost others. Unrealistic hopes that strong April tax collections would ease pressures on the budget have also dissipated, and the harsh reality of the state’s fiscal situation has begun to emerge from the Capitol fog.

We generally try to avoid hyperbole, but this year, it is fair to say that the battle over the budget that will soon begin is nothing short of a battle for California’s future.

Our public institutions and structures are battered, some near the breaking point.

Per student spending in California’s public schools has fallen so deeply as a result of recent budget cuts that we now trail the rest of the country by a greater margin than at any point in the last 40 years. Student fees have more than doubled in less than a decade in the California State University and University of California systems and more increases are in store, while 2009-10 budget cuts closed the door to the CSU and UC for nearly 20,000 students.

Cash assistance grants have been cut to 1989 levels and purchase half what they did 20 years ago at a time when one out of every seven mothers in the labor market finds herself without work.

While a litany of budget facts can be mind-numbing, they are also informative. The state is on track to spend $18 billion less this year than it did just two years ago – yet an almost identical gap remains. Just how large is that gap? Almost exactly equal to what the state spends annually for prisons and all higher education from community colleges to the UC and CSU and student aid.

By taking revenues off the table, the Governor places California firmly on a fast track race to the bottom. The glory days of California’s past were the direct result of investments in public structures from schools to transportation and health care. The state has not, and cannot, compete in a global economy with a workforce made up of individuals who were homeless or lacked health care as children and who were turned away from college as young adults.

By taking revenues off the table, the Governor also ignores one of the two major causes of California’s current budget crisis.

While the still-pervasive impact of the economic downturn is certainly the primary source of our current fiscal woes, over the longer term, a systematic erosion of state revenues – the $10 billion plus annual cost of tax cuts enacted over the past 15 years – ensures that the state faces bad budget times even when the economy is strong.

This last point bears mentioning, since the Legislature kicked off this year’s budget battles by digging an even deeper hole, approving hundreds of millions of dollars of new tax breaks on top of the billions of dollars of tax cuts enacted as part of the 2008 and 2009 budget agreements. All of which brings to mind the cover art from an old New Yorker in which artist Edward Sorel reserves the deepest ring of hell for “politicians who promised to cut taxes and balance the budget.”

There will be no happy ending to this year’s story.

The problem is too big and the options available just too few. However, there can be a better ending than the one promised by the Governor’s spokesperson. Craft the inevitable spending cuts so that they preserve the core capacity of the structures and policies that have served California well in the past.

Start the state on the path towards doing what it should and must do right: building a healthy future and providing a safety net for those who need one when all else fails. Go back to Washington, again, hand-in-hand with governors and lawmakers from around the country to make the point that prominent economists have made: state and local budget cuts threaten to derail an already fragile economic recovery.

Finally, the Legislature should admit that it made a mistake and roll back recent dark of night tax cuts. Lawmakers should also close loopholes in the sales tax that reward businesses that don’t create a single job in California and allow resource extractors to go untaxed.

So as the battle begins, the question remains: if this is a battle for California’s future, who’s going to fight for the future?

Jean Ross is the executive director of the California Budget Project, a Sacramento-based non-profit research group.

Cal Forward Fee Proposal Meets Our Hawaiian Eye

Wednesday, April 14th, 2010

When last we checked on California Forward’s reform proposals we saw them drifting in some Legislative backwater. But friends tell us there may still be breath in some of the proposals and the one Calbuzz thinks is most likely to be a sleeper relates — you guessed it — to whether it takes a majority or two-thirds to approve of fees.

As we noted in our last look at this damn thing, SCA 19, Cal Forward’s omnibus reform bill,  includes a provision that says:

any bill that imposes a fee shall be passed by not less than two-thirds of all Members elected to each of the two houses of the Legislature if revenue from the fee would be used to fund a program, service, or activity that was previously funded by revenue from a tax that is repealed or reduced in the same fiscal year or in a prior fiscal year.”

Jim Mayer and Fred Silva of Cal Forward said this would apply only in some specific and rare cases and would not undercut the Legislature’s ability to raise fees in most cases by majority vote.  We said we thought the measure would affect the Legislature’s power on fees because (quoting us) “every program, service and activity is funded by ‘revenue from a tax,’ and so, any place where the Legislature wanted to subvent tax funds with fee funds would require a two-thirds vote.”

Comes now someone who, unlike Calbuzz, actually understands the budget — Jean Ross, executive director of the California Budget Project, who tells us: “The language is so broad that it appears to require a two-thirds vote to impose or increase a fee that goes to any program that receives support from the General Fund.

“That would include CalFire, community college fees, everything that receives even a dime of state general purpose funding, or a dime of revenue from a tax that has been cut at any time in the state’s history.”

Oops. Another reason — along with the elimination of the two-thirds vote on the budget (which we like, BTW) — that Cal Forward’s package of proposals is ready for the fork.

Now this: Check out CBP’s latest, a detailed report on who pays taxes in California, which sh.ould come in handy the next time some candidate starts claiming the state has the highest taxes in the nation

This just in: Our Honolulu Bureau’s Big Waves and Little Drink Umbrellas Desk reports that Aloha State airwaves are crackling with ads from candidates in a May 22 congressional race, which threatens to become the latest special election nightmare for Democrats and the White House.

With the Scott Brown special election stunner still top of mind, Speaker Nancy Pelosi’s troops are facing the real possibility of losing their long-held grip on the state’s First District seat because of an all-party ballot, which makes the top vote-getter the new representative without a run-off, coupled with an all-politics-is-local internecine brawl between two Hawaii Democrats.

The scenario was set up when longtime Rep. Neil Abercrombie resigned in December to run for governor, to replace outgoing Republican Linda Lingle (who’s having big problems of her own ) amid a California-style budget mess. The Democratic Establishment, in the persons of U.S. Senators Daniels Akaka and Inouye, quickly lined up behind state senator Colleen Hanabusa, a reliable legislative hack who’s now running as a “partner” of President Obama, who won the district in his home state with 70 percent of the vote in 2008.

But Ed Case, a moderate and former Democrat House member, also jumped into the contest, raising the specter that Republican Charles Djou, a Honolulu city councilman, may split the seam and capture the seat amid the D’s feuding. Case is casting himself as an outsider by running against Washington insiders and, Mai Tai sources say, would run likely run stronger against Djou in a one-on-one matchup because of his appeal to independent voters.

But Case broke the play-nice rules of Hawaii politics by challenging Akaka in the 2006 Senate primary and payback is a bitch; the Asian-American Action Fund, strong backers of the two U.S. Senators, has warned off any national Dems of a mind to get behind Case by noting that 60 percent of the voters are of Asian descent, a not-so-subtle shot aimed at helping Hanabusa and dissing the white guy.

Gleeful Republicans meanwhile are nationalizing the race, and uniting behind Djou, a smart and boyish looking moderate with a nice-looking young  family who’s campaigning as a small-government entrepreneurial types. GOP presidential hopefuls Tim Pawlenty and Mitt Romney have both weighed in on the contest, contributing money to Djou and portraying him as a scourge of “Obamacare, a costly stimulus bill and cap and trade legislation.”

And Mahalo for that.

Feds Not the Problem; They’re Part of the Solution

Tuesday, January 19th, 2010

Jean-Ross-smallBy Jean Ross
Special to Calbuzz

There’s not a lot of good news about the economy these days, either here in California nor in the nation at large. What little there is, economists largely attribute to the impact of the federal economic recovery bill – the American Recovery and Reinvestment Act of 2009 (ARRA) – enacted last February.

The nonpartisan Congressional Budget Office estimates that the infusion of federal funds boosted economic growth by 1.2 percent to 3.2 percent in the third quarter of 2009 and kept some 600,000 to 1.6 million more Americans from losing their jobs.

Here in California, the ARRA provided $8.5 billion in direct aid to the 2009-10 state budget – keeping teachers in classrooms, students in college, and families and seniors receiving needed health services. Absent these funds, lawmakers would have been forced to cut deeper or raise taxes more.

Californians will receive an estimated $13.6 billion in tax credits, $606 million in added unemployment insurance benefits and $860 million of food stamp benefits — money aimed at boosting consumer spending while helping families make ends meet. Infusion of these dollars was arguably one of the few bright spots in a year of dismal economic news.truelies

That’s why Gov. Schwarzenegger’s recent statement that Washington is “part of our budget problem” was puzzling. Lawmakers have made the argument that California hasn’t received its “fair share” of federal funds for at least two decades.  But this argument hasn’t worked yet and there’s no indication that Congress will look more kindly on this approach in 2010.

There is a better approach that makes for good economic policy and, we believe, offers much better odds of success.

The nascent economic recovery remains fragile, both here and in the nation as a whole. A number of prominent economists believe that state and local government budget cuts could drag the economy back into recession or prolong what is likely to be an anemic recovery. As we’ve argued before, California is “too big to fail.” The magnitude of our budget crisis, and the measures needed to address it, are sufficient on their own to act as a dead weight on the national economy.

The level of spending reductions needed to balance the state’s budget in the absence of continued aid is almost unfathomable. Even a balanced approach that includes additional tax revenues would require deep reductions that would cost jobs, threatening the state’s ability to compete in the global economy for decades to come and shredding a safety net for families and children that is already in tatters.

So what’s the answer? Congress should act immediately — not to provide special treatment for California, but rather to head off the possibility that state and local budget cuts across the nation will drag down an already weak economy.

BangIn terms of “bang for the buck,” federal aid to the states far surpasses additional tax cuts and is exceeded mainly by extending unemployment insurance benefits and increasing food stamp benefits, measures we’d urge Congress to consider, as well.

Federal dollars won’t provide a permanent solution to California’s structural budget shortfalls – the gaps that exist even in good economic times – but can mitigate the impact of that portion of the state’s fiscal woes attributable to the broader economic malaise.

Jean Ross is the executive director of the California Budget Project, a Sacramento-based nonpartisan policy research group. You can visit the CBP on the web at www.cbp.org and www.californiabudgetbites.org.