Despite the election of a new Democratic Governor and nearly 30 incoming freshmen legislators, as the new 2011 legislative session begins, the main source of concern, conversation, and unfortunately continuity, remains the state’s ongoing budget crisis.
With the projected deficit estimated at nearly $26.4 billion, Governor Jerry Brown released his first budget proposal since winning election last fall. He has called for $12.5 billion in spending cuts, including reductions in welfare, social services, health care for the poor and a combined $1 billion cut to the University of California and California State University systems.
Governor Brown also wants the Legislature to call a special election in June to give voters an opportunity to continue hikes in the income, sales and vehicle taxes (set to expire this year) for an additional five years. His proposal relies on the $12 billion in new revenue that the tax extensions will bring.
The only area of state spending being protected by the new administration is K-12 education.
In an effort to persuade voters to back his tax extension, Governor Brown also has said he will seek to fundamentally restructure state government, shifting a host of responsibilities from the state to counties and cities, a process he has acknowledged will be complicated and controversial.
That includes eliminating redevelopment agencies and ending tax breaks available to businesses that operate in depressed areas designated as enterprise zones. A growing number of cities and counties are lining up in fierce opposition to this portion of the Governor’s proposal, stating that it will stop vital economic growth and cost thousands of jobs.
The Governor’s office has said that if voters approve his proposal, revenue generated from the sales tax and vehicle license fees currently set to expire in July would go to local governments to help pay for the changes.
Despite the passage of Proposition 25 last November – which lowered the threshold for budget passage to a simple majority – the governor’s proposal to extend taxes will require support from Republicans in the state Legislature who have vowed to oppose all taxes.
While Governor Brown campaigned on a promise not to raise taxes without voter approval, this is seen as a politically risky move after Californians rejected an extension of the taxes just two years ago as part of a package of ballot measures supported by former Governor Schwarzenegger.
Already strongly adverse to the notion of increased taxes, Republicans are also questioning the Governor’s characterization that his plan relies on half cuts and half taxes, roughly $12 billion of both, to solve the deficit. The remainder of Brown’s plan relies on nearly $2 billion in internal borrowing, transfers and non-tax revenues.
In particular, they call into question four items that Brown has dubbed “spending cuts” but involve taking outside money to reduce the state’s general fund burden. These include taking $861 million in Proposition 63 mental health funding; $1 billion in First 5 early childhood development reserves, $1.7 billion in aforementioned redevelopment funds and $1 billion in a fuel-tax swap that involves local transit money.
Because of these fund shifts, as well as other accounting maneuvers, Republicans are contending that the governor’s proposal contains $14 billion in taxes and $8 billion in cuts.
Further complicating what will inevitably be a difficult negotiating process is the factor of timing.
In order to allow enough time to place the tax question on the ballot for an anticipated June election, the Governor’s proposal also assumes the state Legislature would pass a spending plan by March — a date unheard of in recent years as legislative budget debates have typically dragged on late into the fall.
