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A Cry for Reform So We Can Have a California Budget Based on Principles

By Fred Keeley

It is true that Assembly Member John Laird should not have to end his Assembly career on the sour note of the nearly three-month late State Budget. Assembly Member Laird is an outstanding person and a great legislator. It is also true that the recently adopted State Budget is proof positive that the budgeting system in California is broken and needs massive reform.

Republicans said that they were holding out because, as a matter of principle, they could not and would not vote for a budget that contained tax increases. The newly adopted budget contains billions of dollars in tax increases. Vehicle license fees are going up, and withholding from workers paychecks will increase (whether or not you owe more taxes).

Democrats said that they were holding out because, as a matter of principle, they could not and would not vote for a budget that harmed public education and/or low-income individuals and families. The newly adopted budget cuts $3 billion from the “workload level” budget for K-12 public schools; and, cuts SSI/SSP and CalWORKS programs as well.

Both Republicans and Democrats said that they were holding out because, as a matter of principle, there must be no more borrowing (also known as “smoke and mirrors”) to balance the budget. There is at least $10 billion in new borrowing to balance the budget.

Both Republicans and Democrats, and the Governor, said that they were holding out because, as a matter of principle, there must be “budget process reforms” that would prevent future legislatures and governors from having to go through this disgusting exercise again. The single so-called reform in the budget has effect for only a single year, and none of the reforms necessary to avoid this problem again were ever even placed on the table for inclusion in the final budget.

There are at least three real and major reforms of the state budgeting process that must take place. Otherwise, we will continue to see budgets adopted late that are not worth waiting for, such as the budget adopted this year.

Revenue Volatility. The major reason that California’s budget swings from surplus to deficit is the volatility of the two major sources of the General Fund: State sales tax, and, state personal income tax. Both over-perform the economy in good times (surplus), and under-perform the economy in bad times (deficit). Among many worthwhile solutions to this aspect of the broken budget process would be to broaden the application of the sales tax to services, while also reducing the sales tax rate. Treating capital gains differently from ordinary earned income would also help.

Rainy Day Fund. Any growth in the General Fund revenues beyond one per centum over projections by the Department of Finance, should be placed in a “rainy day fund” to off-set the impacts of under-performing revenues when the economy is on the down side of the business cycle. This must be done by Constitutional Amendment so that the legislature and the governor cannot suspend this requirement on a whim.

Require the Majority to Govern. California is one of only three states (the other two are Arkansas and Rhode Island) that require more than a majority vote to approve the state budget. This is the major reason that the state budget is late year after year. It is also why the state budget, once it is adopted, is so terribly unreflective of the desires of most Californians. A modest yet essential reform would be to allow the budget to be adopted by a majority vote of the Assembly and Senate until June 15th each year. If the budget were not adopted by that date, then the vote threshold would increase to 2/3’rd’s vote of both houses of the legislature. This would create a strong incentive for the majority party to take responsibility for governing, and would still allow the minority party to have substantial power on bills that would go into effect immediately and those with appropriations.

California Forward, which Leon Panetta is co-chairing and where I am a member of the Leadership Council, is conducting in-depth public meetings throughout California. We are doing so in order to build a strong base of support for needed reforms of the California state budgeting process, as well as other state government reforms. Together with Republican business and higher education leader Bill Hauck, I am co-chairing California Forward’s efforts to get a thoughtful, meaningful package of real reforms to the ballot. While the ideas above are presented as mine, they are shared by many people who care that California budgeting process results in budgets that reflect the hopes and aspirations of the vast majority of Californians. A final budget process reform package would be likely to include other ideas as well. Ideas such as reforms, but not repeal, of Propositions 13 and 98. Reforms of tax credits (which are the same as expenditures from a budgeting point of view).

I strongly encourage anyone who is interested in seeing California’s budget reflect Californians’ values, to go to California Forward’s website and join in this essential debate and reform project.

Fred Keeley is the elected Treasurer of the County of Santa Cruz. He is also a member of the Leadership Council of California Forward. He served in the California State Assembly from 1996-2002, representing the Monterey Bay area.

Posted on September 17, 2008

Comments

I strongly agree that the budget process in CA needs to be redesigned. I realize the partisan impact and philosophies, but it's time for change. CA needs people in Sacramento who will, as Mr. Keeley notes, work for the benefit of the CA people, not their party. It is not logical to me that we can increase the amount of money available in the budget without increasing the income of the state. It simply is not possible to budget without income. There has to be another method of income besides constantly increasing taxes on everything. Services, like everything else, are over priced. Adding taxes to these will have the same result as the Republicans request to cutting services. Someone has to stop the inflation cycle. Why is it not possible to simply say "No" to increased costs of products - increasing the cost is not based on anything but the need of someone in the chain to make more money. Freeze costs of services and products at their current rate (I don't believe it's possible to freeze them at a reasonable rate of several years ago). Reduce the "mark-up" of all products. The state pays the true cost of the item as do all people in CA. It does not cost $26 for a dress that has no decoration, 4 seams, no hem, and no style. CA is one of 3 states to have a minimum wage at $8 per hr or more (CA, MA, WA). Once costs are contained, it is only reasonable to have a "rainy day fund." That philosophy is what families should also be teaching their children to empower them to reduce the level of indebtedness in the US. Then, yes proceed with a realistic method to get a proposed budget passed in a timely manner. The ridiculous budget process can be resolved in a practical way, but it needs bipartisan support and leadership.

Posted by: Sandra at September 17, 2008 08:06 AM

We are experiencing the leadership of people who are acting more like public figures and less like public servants. We elected them folks and this is what we get. The real blame lies in a public that only gets excited when things get really bad. This budget problem is decades old. We need to think very hard about our choices in future elections. For now we need to get away from a 2/3 Majority requirement to accept a budget and use the 2/3 vote only when we have a govenor who will not follow the people's will.
I know our current govenor has our best interest at heart but now is not the time to make his point. He sould have been working toward his goals back when he first got into office regarding reform to budget. Maybe in small steps not all at once we can remove our reliance on all the programs we now depend on without any alternative options other than cutting them off cold turkey.

Posted by: Terry at September 17, 2008 08:16 AM

While the 2/3rds vote must be eliminated it should be eliminated both on the budget and revenue enhancement (the legislature can already vote through tax cuts on a simple majority). The June 15th deadline is artificial. By Keely's own reasoning of majority rule, why does one give the minority power after a certain date?

Posted by: publius at September 17, 2008 09:03 AM

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