January 13, 2011
from Kevin Pedrotti, Legislative Advocate of the Golden State Builders Exchanges
Governor Jerry Brown unveiled his budget plan this week which proposes large cuts to nearly all state programs while hopeful Californians will agree to extend previous temporary tax hikes for an additional five years that are set to expire mid-2011.
Brown’s proposed spending plan eliminates an 18-month budget gap estimated at $25.4 billion, comprised of a current year shortfall of $8.2 billion and a budget year shortfall of $17.2 billion. Overall, the budget proposal includes $12.5 billion in spending reductions, $12 billion in tax extensions and modifications, $1.9 billion in other budgetary methods to close the gap and provide for a $1 billion reserve. A combination of $26.4 billion package is needed in order to also provide a $1 billion reserve. In addition, the deficit will grow to $26.6 billion if the proposed sale of state office buildings, blocked by court order, does not proceed, requiring the budget deficit to grow to $27.6 billion in order to have a reserve.
The budget also proposes to change the role that state and local governments play in local development activities by eliminating state tax benefits for enterprise zones and phasing out the current funding mechanism for redevelopment agencies. This will return billions in property tax revenues to schools, cities and counties and help pay for public safety, education and other services.
As part of his budget plan, Governor Brown wants voters to renew $9 billion in higher sales, income and vehicle taxes in a special election this spring. The Legislature passed the increases as part of the 2009 budget, and they are set to expire by the end of June. The legislature’s approval is needed to put the extension on the ballot. The Governor will ask voters to prolong a 0.25-percentage point surcharge on state income taxes, a 0.5-percentage-point increase in the vehicle license fee, a 1-cent increase in the state sales tax rate and a reduction in the tax credit for dependents, from $300 to $99.
In May 2009, voters rejected a two-year extension of the same taxes in a special election called by Governor Schwarzenegger. Governor Brown will ask the voters to reconsider.
For transportation specific programs in the Governor’s proposal, Brown is advocating the position of the heavy construction industry to reenact the 2010 Fuel Tax Swap in response to passage of Proposition 26 in November 2010. Proposition 26 requires a two-thirds vote threshold for any tax measures occurring after October of 2009.
Given GOP opposition to tax hikes, there are contingency plans to use an obscure state law to bypass the necessary two-thirds threshold — and thus the need for Republican support — to place the tax question on the ballot. Brown is quoted as saying it would be "much better if this is a bipartisan effort" but left the door to such a maneuver open. The Senate Republican leader said that "zero" members of his caucus would cast votes under the current proposal and Assembly Republicans stand united " against the plan to "place the same tax increases that voters overwhelmingly rejected less than two years ago back on the ballot."
The game is on and a high-stakes game it is. Much could happen and changes will made before an actual vote on a budget plan. Brown is doing his best by staying in constant contact with all four legislative caucuses. It is still early to predict if he can unite the legislature to complete the budget process quickly in his first months as Governor and then convince voters to give the state more of their money. Failure of the voters to approve an extension of taxes will require even more reductions and a vote on a new budget plan.
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