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Special Session on Budget
Yesterday the Governor formally called another special session of the Legislature to propose a variety of spending reductions and revenue increases, in order to address a projected revenue shortfall of $11.2 billion in the current year. The Governor's proposals include spending reductions totaling $4.5 billion, revenue increases of $4.7 billion, and a $2 billion shortfall would remain. According to the Governor's Budget document, the state will run out of cash in February if no action is taken to reduce spending or increase revenues. In addition to the $11.2 billion problem in the current Budget Year, the Department of Finance projects that revenues will be $13 billion lower in the 2009-10 Budget Year.
The centerpiece of the proposed revenue increase package is a 1.5-cent increase in the sales tax for three years, an oil severance tax of 9.9 percent, expanding the sales tax to additional services, and adding a nickel per drink alcohol tax. Combined, these increases would amount to $4.7 billion. The Governor's proposed reductions in the amount of $4.5 billion include a whopping cut to education in the amount of $2.5 billion, across the board reductions in the UC and CSU Budgets in the amount of $132 million, close to $800 million in cuts to health and human services programs, a reduction of $230 million in state funding for transit agencies, and a savings in state employee compensation in the amount of $320 million by requiring state employees to take a one day furlough each month for the next eighteen months, as well as eliminating two state holidays.
Thankfully, the Governor did not propose any reductions to Library programs in his plan yesterday.
WHAT HAPPENS NEXT?
The Assembly met briefly before noon yesterday to elect its officers for what is now known as the Fourth Extraordinary Session, and the Senate met at 4pm. Both houses then adjourned, with dozens of legislators heading for trips to China, India, Maui and other destinations. In the meantime, the leaders of both houses and the Governor are to meet periodically. In light of the Republican leaders referring to the Governor's sales tax increase as "dead-on-arrival," and Democratic leadership referring to proposed cuts to the poor, elderly, and disabled as a "non-starter," it is unlikely there will be any agreement on the Governor's proposal before the Special Session concludes on November 30th, the last day of the 2007-08 Legislative Session.
COMMISSION TO EXAMINE CALIFORNIA'S REVENUE SYSTEM
In announcing that he was calling a special session to deal with the state Budget crisis, Governor Schwarzenegger also signed Executive Order S-12-08, to create the new bipartisan Commission on the 21st Century Economy to "re-examine and modernize California's out-of-date revenue gathering laws that contribute to our feast-or-famine state Budget cycles." The twelve member commission, which will be made up of six appointees by the Governor, three by the Speaker of the Assembly, and three by the Senate President pro Tem, will suggest changes that will result in a more stable revenue stream, and will report the findings to the Governor and the Legislature by April 15, 2009. The announcement of the bi-partisan commission notes that California's tax system has not been restructured in over eighty years, even though the economy has changed dramatically, and that 50% of California's personal income tax revenues come from just 1% of wealthy residents. Similarly, nearly 15% of the state's revenue comes from taxes from capital gains. Consequently, according to the Governor's office, boom years produce more spending than can be sustained in bust years, putting state services in constant annual jeopardy. Illustrating the volatility inherited in California's current tax system, the Governor's Executive Order cites as an example a 28.1% increase in personal income tax revenue in fiscal year 1999/2000, followed by a 29.5% decrease in personal income tax revenue in fiscal year 2001/2002.
STATE ELECTIONS PRODUCE NEW LEGISLATORS - A FEW RACES "TOO CLOSE TO CALL"
On December 1, thirty-one new legislators in the Senate and Assembly will be sworn in to office to begin the 2009-2010 session. While Assembly Democrats had been actively targeting several vulnerable district races, hoping to edge closer to a two-thirds majority in their house, they were not able to produce the significant gains they had desired. As was expected, two Republican seats in the Palm Springs and San Diego area have turned over to Democrat hands, as the voter registration has been trending more Democratic, and the get-out-the-vote efforts favored Democrats. Assembly District 78 was previously held by termed-out Republican Assemblywoman Bonnie Garcia, and will now be represented by Democrat Marty Block. Similarly, Assembly District 80 was previously held by termed-out Republican Assemblywoman Shirley Horton, and will now be represented by Democrat Manuel Perez. The Assembly District 15 race was a hard-fought battle and another loss for Republicans, which resulted in Democrat Joan Buchanan prevailing over her Republican challenger, in an effort to replace termed-out Republican Assemblyman Guy Houston. Many thought this race would be much closer, but Buchanan prevailed over Abram Wilson 52.9% versus 47.1%.
In one of the most closely watched races this year, Assembly District 30 featured a battle between prominent dueling families from the Central Valley - the Parras and the Florez'. For the last six years, Assemblywoman Nicole Parra, a moderate Democrat, represented this seat, but was termed out this year. Instead of backing the Democratic candidate, Fran Florez, mother of Senator Dean Florez, Parra chose to back the Republican candidate, Danny Gilmore. Danny Gilmore ultimately prevailed in this race, and this victory for Republicans means they pick up a seat here.
At the end of the day, the net gain to the Democrats in the Assembly is, essentially, two new Democratic seats, bringing the total Democrat seats to 50 Democrats and 30 Republicans. In a press release issued by Assembly Speaker Karen Bass she notes, "These gains are an enormous victory for Democrats in a history-making election."
In the Senate, ballots are still being counted in the razor-thin race pitting former Assemblymembers Hannah Beth Jackson (Democrat) versus Tony Strickland (Republican). On Wednesday morning, it was rumored that almost 80,000 ballots in Ventura and Los Angeles County were still not tallied, and thus, it could take some time to call this race.
Of note, there will be seven current or former members of the Assembly moving over to the Senate: Mark Leno, Lois Wolk, Mark DeSaulnier, Loni Hancock, Bob Huff, Mimi Walters, and John Benoit. Senator Tom Torlakson is the only member of the Senate who will be returning to the Assembly for a two-year term. He has indicated that he would like to run for Superintendent of Public Instruction in 2010.
Submitted by Mike Dillon and Christina DiCaro, CLA Lobbyists
Posted on November 7, 2008 2:24 PM | Permalink