By Jeremy Los
March 30, 2011 (Sacramento) – Governor Jerry Brown yesterday declared budgetary talks with Republicans “dead.” The GOP issued 53 proposed alternatives, leading the Governor to accuse Republicans of obstructing the process with new demands that would widen the budget gap, not close it. View Governor Brown's video message to the people by clicking the above image.
The 60 day goal set by the Governor during the election to solve California’s massive $27 billion budgetary gap has long passed, and as we reach day 80, the gap still sits at a staggering $15.4 billion. That’s after massive cuts approved by the Legislature in Medicare, education and social services in a budget that presumed a June ballot initiative would extend certain taxes to close the remaining gap.
But now the prospect of a June initiative appears to have also fallen by the wayside, since it would require at least two Republican votes in each house to put a measure on the ballot—and not a single GOP member has been willing to vote in favor.
“Each and every Republican legislator I’ve spoken to believes that voters should not have this right to vote unless I agree to an ever changing list of collateral demands,” states Brown. “Many of the Republican demands will actually increase our budget deficit and mean additional cuts to education and public safety.”
Talks regarding the budget have broken down between the two sides due to both sides being unwilling to compromise.
“I present a plan that was half budget cuts and half tax extensions, that had the support of business, labor, environmentalist, and farm groups,” said Gov. Brown, in his YouTube video today. “I laid out detailed plans for pension reform, putting a cap on state spending, and regulatory reform.”
According to Brown, there were some glaring problems that could not be compromised, including his plan to eliminate a $1 billion tax break to companies that “keep jobs out of California.” Brown stated, “ I don’t think we should take money from our school children, our public safety, and our public universities and give it to companies that don’t create jobs in California. We must protect our schools, our public safety, our public universities, and our environment.”
Governor Brown walked away from the negotiating table following Republican leaders offering up 53 different budget proposals. GOP Senators have demanded pension and regulatory changes. Republicans would like to see a hard cap on spending; they would like spending to increase no further than the rate of inflation and population growth.
California Republican leaders are steadfast in their belief that they are doing the will of the California people.
"The PPIC poll shows that Assembly Republicans are in lockstep with the will of the voters. Californians want big government to stay out of their pockets. It's time Sacramento listened to the people for a change,” said Assembly Republican Leader Connie Conway, of Tulare. “We must focus on reforms like job creation, a spending cap and reining in public pension costs to ensure California never faces a deficit of this magnitude again."
It is evident that California Republicans have firmly planted their feet in this fiscal tug-o-war. The GOP is determined in its stance of no-new taxes and no-increased revenues.
“As a fiscal conservative, however, I cannot justify the expense of putting this on the ballot only so the people can tell us "no more taxes" yet another time,” said Republican Assembly member Brian Jones, 77th dist. (Santee) back in January about the possibility of putting on a June tax election.
Just how realistic are Republican alternatives proposed?
Jean Ross, of the California Budget Project believes that the plans proposed by Republicans will have no immediate savings, actually doing the opposite and widening the budget gap. For instance, the GOP proposal to remove changes to redevelopment would cost a billion dollars. Republicans also want to restore cuts made by Democrats for spending on county fairs and off-road vehicle parks.
According to a document Senate Republicans provided to reporters, they asked Brown for pension cuts to current and future employees as well.
According to the Legislative Analyst’s Office’s 2010-2011 employee compensation background, an estimated 358,000 people work for the state at a salary cost of about $23.6 billion. About two-thirds of these employees work in the executive branch, which accounts for about 12 percent of projected state General Fund expenditures including $7 billion in salaries and $3.4 billion in pension and health benefit costs, among others, said Jason Sisney, Director of State Finance for the Legislative Analyst’s Office He added, that, “Further reductions to these costs are necessary as one part of a comprehensive budget solution.”
But Ross suggested that it’s misleading to suggest that pension cuts could make any significant dent in the state budget. While she agreed that some trimming of pensions is likely needed, laws and union contracts restrict how much can be cut—and even if deep cuts could be made, it would still be only a small fraction of what’s needed to close the massive budget gap.
Some Democrats have proposed revenue increases to avoid painful cuts, such as closing loopholes for corporations that offshore assets without paying California taxes, imposing a well-head tax on oil as other oil-producing states already do, or raising taxes on the wealthiest Californians. However Republicans have adamantly opposed all measures to raise revenues.
At the nonpartisan California Budget Project, Ross agrees that the budget cannot be balanced with cuts alone. “Policymakers could start by reversing recent corporate tax breaks. Slipped last minute in to recent budget deals without a single public hearing, these tax cuts could cost the state upwards of $2 billion per year when fully implemented,” she said in a Sacramento Bee editorial last year.
Ross also proposed reverting taxes on the wealthiest Californians to 1991 levels, which she estimated could raise $4 billion to $6 billion. California is also the only oil producing state in the US without an oil severance tax. Republicans have opposed ALL of these proposals, instead demanding more cuts in spending and services.
According to the Sacramento Bee, in the proposal sent by Republicans, the GOP wants a June ballot that would ask voters for an 18-month extension in higher taxes on sales, income, and vehicles rather than a five-year extension proposed by Gov. Brown.
The San Francisco Chronicle states that Gov. Brown is asking for $12.5 billion in spending cuts along with an extension of $14 billion in tax revenue. Brown seeks to eliminate tax-break programs like enterprise zones and also mandate multistate corporations that do business in California adopt the single-sales tax structure, which would mean corporate taxes would be based on actual sales in California.
“Governor Brown’s proposal to combine dramatic budget reductions with a temporary extension of higher rates on the state income tax, sales tax and the motor vehicles registration fee is fiscally responsible,” said L.A. Area Chamber President & CEO Gary Toebben. “We know that extending the tax increases will have a short-term negative impact on our economy, but not as negative as the dramatic reduction in education, infrastructure and social services that would come from a $25 billion budget cut.
The cuts that Brown has been forced to ask for will undoubtedly impact the poorest Californians. It will ask those who are on public assistance to pay more for medicine and emergency room visits.
Last weeks cuts saw Medi-cal’s budget shrink by $1.7 billion, making it the program with the most significant cut. The program will see a 10% rate reduction to providers as well as a cap of seven visits to the doctor or clinic a year, but with exceptions being made for children, pregnant women, and the mentally ill.
If the partisan battle between the two sides continues, the Governor’s plan for a June election will fall by the way side, leaving Brown to seek possibly putting the tax extensions on a November ballot.
If tax extensions are not approved for June, many fear that more drastic cuts will be on the horizon. School superintendants fear that if the June election gets pushed back to November that they too will face even more debilitating cuts.
With spending per pupil rapidly declining in California, our education system has taken a sharp plummet to the bottom of the national rankings. According to Ross, with California cutting per pupil spending by nearly 25 percent, or $1,500 per student, it now ranks 45th in the nation in spending per pupil.
If the measure fails, Fresno Unified School District Superintendent Michael Hanson said "We will spend the '11-'12 school year decimating, devastating and tearing down programs … across this entire state."
Ross said of the ballot initiative that “Particularly for schools, delaying until November is just a disaster.” She predicts that if the tax election is delayed until November school districts “will have no choice but to target budgets low and have to lay off teachers and other employees.”
“I’m going to explore every possible avenue,” said Brown “There’s more than one way to get to the goal, and over the next several weeks and months I’m going to find a way to get our budget balanced.”
Last week saw Governor Brown slash $11 billion from the budget through extensive cuts and internal borrowing and transfers. The Governor has cut programs like Medi-cal, CalWorks, the state’s welfare-to-work program, as well as CSU and UC education. Higher education will take a hit as UCs and CSUs will both have their funding reduced by $500 million each, while community college tuition will jump to $36 per unit.
According to the San Francisco Chronicle those cuts could double if tax extensions are not put into place. In order to deal with the budget cuts CSU may cut up to 10,000 students next year and could cost numerous university positions, according to officials.
“Not only will students not get a meaningful college education,” said Lillian Taiz, president of the California Faculty Association in an interview with the San Francisco Chronicle, “but kids who spent their whole high school career preparing for college will find the door slammed in their faces.”
Local politicians have got into the act in trying to find alternative ways to close the massive budget gap.
East County’s State Senator Joel Anderson( R-Alpine) called on the Governor to move highway maintenance and construction work done by Caltrans to the state and local level, which he said would save several billion dollars, according to the San Francisco Chronicle. "Our idea will save billions of tax dollars by realigning, reforming and revolutionizing the way highways are built and maintained in California,” said Anderson.
The San Francisco Chronicle notes “a proposal to raise by 1 percentage point the income tax rate on Californians earning more than $500,000 was considered too politically risky to attempt” because Republicans would spin it as the Governor wanting to “raise taxes” on everyone.
This type of political rhetoric and lack of fiscal backbone is only magnifying the budget issues in our state. It is interesting to note that while an increase to income taxes of wealthy Californian’s is deemed too politically risky, the incomes of the wealthiest 1 percent of Californians actually grew 81 percent from 1978 to 2008, while those in the bottom 20 percent dropped 11.5 percent, according to the nonprofit California Budget Project.
The 2011-2012 California budget appears to be headed down the same path as years past as both Democrats and Republicans will continue to banter back and forth.
According to Jean Ross, “The problem is too deep to either cut your way out or tax your way out of it.”
Thus far, San Diego and East County’s state legislators remain staunchly divided, with Republicans opposed to increasing taxes or other revenues and Democrats opposed to further deep cuts to education and socials services without also asking some sacrifices from the wealthiest Californians.