Budget Debate: Cuts and Taxes Versus Cuts Alone
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.
Question for the experts – if this budget is delayed beyond the November election, would it be governed by the November ballot initiatives (assuming they pass) One would lower the vote threshold for a budget, another makes it more difficult to raid local coffers, and another would subject fees to the 2/3 requirement.
I believe this would be the case, however, the state will run into a serious cash crunch prior to November
Without any movement on raising revenue, it’s hard to see how the Assembly can do much but cut.
California voters approved 3 out of every 4 tax increases on the June 8 ballot. People understand that we need new revenues. Unfortunately the game plan in Sacramento hasn’t changed very much. Instead of clear, defensible proposals to raise revenues directly (oil severance, increase the marginal tax rate on high earnings, increase corporate taxes) we again are faced with gimmicks. For example, raising oil severance revenues then tying them up with a 20 year obligation to Wall St. seems counter productive. The Democratic leadership needs to realize that earnest negotiations are only the final step. Long before that we needed bold proposals that set the bar where it ought to be. Instead the budget proposals are complicated and incomprehensible. It’s like the Dempocrats want to raise funds but want to hide the fact that that is what they are trying to do. This is a self-defeating strategy.