2010 Budget Fixes, Part Four:
March Solution or March Hare?
by Sheila Kuehl
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As California awaits the January unveiling of Governor Brown's first budget, this set of essays reviews the budget situation over the last twelve months, culminating in a report on the new budget when it is presented.
This essay is the fourth in a series describing the condition of the 2009-10 state budget at the beginning of 2010, the 2010-11 budget introduced in January of 2010, the many Special Legislative Sessions called by the Governor to address the problem of escalating deficits and the tug of war between the Legislature and the Governor on solutions. You have received this essay either because you joined my general essay list or someone forwarded it to you. If you received it by forwarding, this essay is from former California State Senator Sheila Kuehl. If you want to subscribe to these essays, go to my website at www.SheilaKuehl.org. If you want to unsubscribe, there's an easy button at the bottom of this email.
My first essay in this series gave an overview of the budget situation in the middle of fiscal 2009-10 and the problems foreseen by the Legislative Analyst as 2010 began. The second essay set out Governor Schwarzenegger's proposed 2010-11 budget. The third essay described the first "fixes" proposed by the Democratic majority. This essay sets out the "fix" bills sent to the Governor, his vetoes and the compromises finally enacted at the end of March. Further essays will describe struggles throughout the summer and final passage of the budget in October, as well as problems that arose immediately after that passage.
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Bailing the Leaky Boat With A Thimble
As the third month of 2010 opened, the California Senate and Assembly had developed a number of legislative "solutions" to meet the growing deficit. Since revenue for the California budget relies primarily on income taxes and capital gains, and, since neither of those sources was holding its own in early 2010, and since Republicans in both houses, as well as the Governor, steadfastly refused to approve any new taxes, the Legislature met constantly to work out cuts, cuts and more cuts. Since tens of billions of dollars had already been cut from education and social services, Democrats in the legislature desperately sought other solutions, such as the gas tax swap described in the previous essay. The result in March was a set of bills sent to the Governor to pull more money out of the budget.
Mad As A March Hare, or Just Hare-Brained
The phrase "Mad as a March Hare," popularized but not invented by Lewis Carroll, referred to the erratic behavior of hares during their main mating month, which was March. The phrase "Hare-brained" was coined for the same behavior. It describes perfectly the three-corner struggle in March over how to stem the flow of red ink in the then-current, 2009-2010 budget. The Governor had called a "fiscal emergency" which triggered a 45 day period within which the Legislature was required by an initiative that had been added to the State Constitution to propose a solution. On the 45th day of the Special Session, the legislature "enrolled" (a term that means sent to the Governor's desk) six bills. The Senate had passed a number of bills that would have cut $5 billion dollars from the current budget but, when they were dealt with in the Assembly, the cuts were reduced to $4 billion, as the Assembly did not take up a tax enforcement measure passed by the Senate, and did not adopt provisions to delay corporate tax breaks, which was an original part of the tax swap proposal. The bills went to the Governor. He vetoed half the proposed cuts. They negotiated over what he wanted. He proposed. They demurred. Finally, at the end of March, a compromise was signed but the budget was still out of whack by about 17 billion. Here's a further description:
The Four Billion Dollar Solution: What Was Sent To The Governor At First
In addition to the gas tax swap scheme, the bills sent to the Governor's desk contained a 5% cut to state workers' wages, suspensions of dozens of local programs, a 3% cut in the budgets of the state-run centers that serve the developmentally disabled, and, without any specifics, an $811 million cut to the prison medical system. Other proposed savings were more speculative and related primarily to moving expenses into a future budget. A bill to require online retailers like Amazon to collect taxes did not make it to the Governor's desk. The rest of the needed budget solutions were to wait for summer, when everyone prayed the fiscal outlook for the state's earners would be improved.
The Two Billion Dollar Veto
The Governor did not agree. He "baffled" legislative leaders by nixing more than half the proposed cuts which were contained in one bill: AB X8 2 (X8 denotes the eighth extraordinary session). The bill contained a plethora of cuts: implementation of conservatorship legislation, cuts to crime labs, imagined deportations of criminals to their countries of origin, the cuts to prison medical care, cuts in information technology, the 5% cuts to state workers and several others. The Governor vetoed this bill and signed all the others including the gas tax swap, but not without extracting yet another price.
Gee! You Mean Tax Breaks Add To The Problem?
Apparently not understanding that tax breaks actually add to a deficit gap, the Governor switched positions several times over the last part of March. He first threatened to veto the gas tax swap because he wanted "job-creation bills". He then demanded bills giving tax credits to first-time homebuyers and a sales tax exemption on the purchase of manufacturing equipment by environmental technology firms, both of which were new issues in the discussion. He demanded a five-cent-per-gallon reduction in the gasoline sales tax. The legislature said no. He demanded a $3,000 hiring credit for each new job created in California. The legislature said no. He demanded the total elimination of public transit funding. The legislature said no. Finally, to break the stalemate, the legislature agreed to pass the home buyers tax credit and the sales tax exemption (with a ten year cap), which actually increased the deficit, and then offered a compromise that took $1.1 billion out of the mass transit budget. Finally, he signed bills reducing the budget by $2 billion.
What Made Sense, and What Didn't
The gap that needed to be filled approached 20 billion dollars in the 2009-10 and 2010-11 budgets. Many of the proposed cuts would have affected the 2010-11 budget, as well, but they were, for the most part, vetoed. The solution that finally got signed in March trimmed only about $2 billion in expenditures.
As to the tax breaks, virtually no one could understand how the Governor could insist on them, even if they might have made stand-alone sense in richer times, when what was needed was reduction of the calculated deficit. Tax breaks add to a deficit. End of story. And even though the Governor insisted the green tech tax break would bring in money, a state tax board disagreed and opined that, if all green-tech purchases were exempted, revenue would drop by about 13.5 million.
By the beginning of April, 2010, everyone was exhausted, relationships were frayed to the point of vanishing and the solution was still not in sight.
Next: Spring Turns to Summer and The Democrats Act Alone
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