If It’s July, We Must Be Talking About the California Budget

This is the problem. If a majority could pass a budget rather than having the minority thwart the people’s will--and the Governor (elected by a majority of all Californians) can then blue pencil (reduce or eliminate) amounts in the budget—we would have accountability.

I have numbers still swimming in my head from yesterday’s trek to Sacramento along with a head full of smoke worse than the “brown LA haze” (from all the fires around our capital city) and some mastery of budget numbers from a press conference by the Speaker and President pro Tem of the Senate, briefings by budget staff with bloodshot eyes, and an in the hallway interview with Republican Assemblymember budget point person Roger Niello, at right in the middle of a gaggle of reporters, and on message (spending needs to be cut to the level of revenues).

There are news reports out about the product of the budget conference committee, which on a party line vote passed a budget and the accompanying trailer bills for consideration by the Senate and Assembly floors. These reports and assertions made about what the committee approved, vary by a few billion dollars one way or another. The bottom line is that the Democrats have passed out of committee a proposal to close the state budget gap of $15 billion with a combination of revenue increases—largely taxes—and spending cuts that they argue, and I agree is balanced and painful—and is a compromise between what they would like to see and what the Republicans apparently would like to see. At least we have the details of a plan with bills to be in print shortly.

Bear with me a little on the numbers--even though they will undoubtedly change before there is a state budget. Indeed, the conference committee bill has not been scheduled for floor votes in eithr house and there are now negotiations taking place between the Big 4 (majority and minority leaders in both houses) and/or the Big 5 (Big 4 plus the Governor) which indicates the bill reported out may be moribund.

The Democrats say that this is about a $16.5 billion fix--$15 billion to bridge the deficit gap and about another billion and a half or so for a reserve. Slightly less, $8.2 billion is in tax increases, with a total of $9 billion in additional revenues. There are $6 billion in cuts to education ($2 billion), health care and human services (at least $1.4 billion) and public transit ($500 million on top of $1 billion already cut). Here are some details:

• It reinstates the tax brackets on the wealthiest Californians above the current 9.3% maximum by reinstating the 10% (for taxpayers filing joint returns with taxable income above $321,000) and 11% marginal tax brackets (for those with incomes above $642,000). This produces $5.6 billion, based on Franchise Tax Board calculations and is similar to what Republican Governor Wilson did in the early 1990’s when the state faced a huge deficit.Revenue generated $5.6 billion.

• It closes a corporate tax loophole for large corporations on carrying forward losses similar to a suspension made before when we had revenue problems. Revenue generated: $1.1 billion. The FTB estimates the value of NOL carried forward exceeded $260 billion as of 2006. The budget suspends the NOL for three years.

• It suspends a tax adjustment for upper-income Californians. Revenue generated: $815 million. The Democrats argue that in a year where the poor, elderly, and disabled aren’t getting cost-of-living increases for SSI/SSP and CalWORKS, the state shouldn’t be adjusting all of the tax tables for everyone else. Suspension of “indexing” would result in a proportional increase for taxpayers with incomes of up to $97,000 (joint returns), and a flat increase thereafter. As an example, a taxpayer with taxable income of $50,000 would pay about $34 more while a taxpayer with income exceeding $97,000 would pay about $180 more.

• It rolls back a tax loophole for upper-income Californians. Revenue generated: $215 million. Since 1997, taxpayers have received a nonrefundable income tax exemption credit for each dependent – regardless of their income. In 2007 this credit was $294. The LAO recommended making the dependent tax credit the same dollar amount as the personal exemption credit for all taxpayers. That credit was $94 for single taxpayers and $188 for couples. The Conference Committee proposal is a variation of the LAO recommendation. It would roll back the dependent credit for taxpayers with adjusted gross income (AGI) that exceeds $150,000. As a result, it would protect the credit for lower and middle-income households.

• It restores the franchise tax. Revenue generated: $470 million. Virtually all companies are required to pay some amount of corporation tax. The top rate is now 8.84 percent. Prior to 1997, it was 9.3 percent. The Conference Committee proposal rolls back the 1997 tax cut, and restores the 9.3 percent rate.

And it steps up tax enforcement. Revenue generated: $1.5 billion. Modeled after successful tax amnesty efforts in the past, this proposal will collect taxes already owed to the State.

These are taxes supported in opinion polls such as the Field Poll and PPIC surveys. And while the public may answer poll questions that they in a generalized fashion agree with the notion of cutting services, they are strongly opposed to cuts when asked about the specifics—except as to prisons—where this budget plan calls for a modest cut that is opposed by the Republicans.

And so, Speaker Bass is correct when she states: “In every poll we've seen and every conversation I've had Californians are telling us don't decimate education, don't shred the safety net, don't close parks and provide healthcare for kids – don’t close clinics. The straight truth is that takes revenue. And the straight truth is we can help solve this budget deficit by closing tax loopholes and rolling back overly generous tax breaks that were given to big corporations and the wealthiest Californians – rolling them back to levels they were under other Republican governors.”

Mind you there are cuts here that hurt children in health care—despite last year being the year of health proclaimed by our Governor. There are billions in cuts to education, despite this year being the year of education. And there are public transit cuts in a year of skyrocketing gas price increases, a world of hurt faced by commuters and all Californians, and the need to reduce use of the automobile to clear our air.

And about those fires—Are Republican legislators going to agree to a modest fee hike proposed by the Democrats to insurance of $13 per year in average fire zones and $25 in high fire zones, so we can pay for fighting them rather than under reserving them in the state budget? Or are we going to leave smoke hanging in the air on this one too?

Does it matter what the majority of Californians want and the majority party that they have voted into office? Or are we ruled by a minority on the budget that is otherwise powerless because of their lack of electoral success.

The numbers may change, but the basic dynamics will remain the same. And we can argue about the numbers. The fires still rage and we don’t have a budget. We fiddle and the tune is not getting more melodic.