From ALERT Newsletter, June 12, 2009, California Chamber of Commerce
“The expenditure of vast sums of public money to meet the demands of our social problems cannot be continued indefinitely unless a sound fiscal policy is adopted to balance budgets.”
These words of warning were spoken by the State Controller - not this year, but in 1934 in the depths of the Great Depression. Our state’s economy has not collapsed to that extent, but our budget policy may be in even worse disarray.
The California Legislature met the recession and its past fiscal mismanagement head-on this week as it struggled to fix its deeply imbalanced budget and avoid running out of cash sometime this summer. Legislative leaders and members of the legislative budget conference committee worked this week to devise alternatives to the Governor’s proposal to resolve $24 billion in budget shortfalls through June 2010.
Recognizing that voters have lost patience with their elected leaders and have drawn the line at new tax increases, Governor Arnold Schwarzenegger proposed $24 billion in budget solutions in late May. The Governor’s proposal rejects new taxes, and includes few one-time gimmicks or loans—at least relative to previous budget solutions. The Governor’s proposal also includes a $4 billion reserve, anticipating that the economy and tax revenues will not quickly recover.
The new deficit reduction proposals will cut deeply into numerous public programs and have raised alarms from public employee unions and other public sector beneficiaries. Some of the highest-profile proposals include:
The reactions from the public sector unions have been fierce. The American Federation of State, County and Municipal Employees (AFSCME) proposed a six-page list of tax increases totaling more than $30 billion and demanded Democratic legislators sign a pledge to support it. The Service Employees International Union (SEIU) has launched a $1 million statewide television advertising blitz calling for new taxes to help balance the state budget.
The public employee union strategy is two-fold: gaining support for tax increases this year to offset program cuts and related reductions in government staffs, plus their longtime fiscal policy goal—repealing the requirement that state tax increases win two-thirds approval of the Legislature.
The legislative and political activity are operating under a tight deadline: likely within no more than six weeks, California will be unable to pay all of its bills, due to a shortage of cash. And each succeeding month, the cash flow situation will worsen, progressively threatening more and more programs and the state’s credit rating.
But legislators and the Governor cannot focus only on the immediate crisis. From 2010 through 2013, tens of billions of dollars in short-term budget solutions will vanish, including federal stimulus, temporary tax increases, local government loans, tax accelerations and asset sales. Some of these solutions must be repaid; others must be accompanied by offsetting spending reductions.
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