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Update on State Budget Crisis
When the new 2009-10 Legislative Session convened Monday, December 1st, Governor Schwarzenegger declared a "fiscal emergency" and called a new Special Session to deal with the Budget crisis. When the Governor calls a Special Session to deal with a "fiscal emergency" the Legislature has 45 days to adopt the Governor's Budget plan or adopt an alternative.
Negotiations between the Democrat and Republican leaders and the Governor, known as the "Big Five," have gone nowhere, and the Budget crisis continues to worsen daily. The Governor's Department of Finance is now estimating the deficit in the current Budget year at $15 billion, and the upcoming Budget year at $25 billion, for a total of $40 billion, absent corrective action. The plans put forth thus far by both the Governor and the Democrats would address about half of the deficit problem by enacting reductions, along with tax increases in the current year that would carry forward to the Budget year.
Last Monday afternoon, the Senate and Assembly held a rare joint floor session to hear presentations by the State's Treasurer, Controller, Director of Finance, and Legislative Analyst's Office. Treasurer Bill Lockyear stated that major construction projects that were dependant on Bond funding would come to a halt within weeks without a budget solution in place, and Controller John Chiang warned that the state would run out of cash by the end of February. Further, Chiang added that borrowing money from Wall Street through Revenue Anticipation Warrants (RAW's), would be prohibitively expensive because California's credit rating is the lowest in the nation, except for Louisiana.
Friday, key Senate Budget subcommittees met to consider: (a) The Governor's earlier proposals, which include a 1 1/2 percent sales tax increase for three years, and the extension of combined state and local sales taxes to a number of services. (b) Alternatives to the Governor's proposals suggested by the Legislative Analyst's Office (LAO), and (c) The so-called "November alternative" or Democratic plan put forth in the last Special Session which called for reinstating the Vehicle License Fee and other revenue increases along with massive cuts in the current year. The subcommittees heard presentations from representatives of the Department of Finance, and Legislative Analyst's Office, and invited public comment on the various proposals.
The presentations and testimony before the subcommittee was for information only, and no vote was taken.
Yesterday afternoon, Assembly and Senate Republicans, who have thus far opposed any tax increases, came forth with their own plan. According to a Senate Republican Caucus release this afternoon, "The Republican Special Session Budget Plan contains $22 billion in solutions - both revenue measures and spending reductions." The plan adopts previous Budget cuts suggested by Democrats, the Legislative Analysts Office, and the Governor's own proposal, and adds additional revenue suggestions ($6.5 billion) and spending reductions ($15.6 billion) to reach the $22 billion. Of the $6.5 billion, the Republican proposal would raise, $6 billion is dependent on obtaining voter approval to: (1) Redirect Proposition 10 funds currently directed for children's health programs ($2.1 billion), and (2) $3.9 billion, also subject to voter approval, would redirect funds from another initiative passed by the voters, Proposition 63, which established funding for mental health programs. The remaining $500 million to reach the $6.5 billion revenue total are the result of previous Democrat proposals transferring money from the Motor Vehicles Account, etc.
On the reduction side, the Republican plan adopts many previous cuts suggested by Democrats and the Governor, and makes additional cuts in K-14 funding, and higher education. The Republican plan also calls for so-called "reform" legislation, unrelated to the Budget, such as extending deadlines for greenhouse gas and engine retrofit regulations, allowing employers to create workweek flexibility, changing laws regarding meal and rest breaks, enacting a strict spending cap on the state Budget, etc. During an Assembly Budget Committee hearing on the Republican plan this morning, Democrats and many education advocates were critical of the $10.6 billion in proposed cuts to K-14 education programs. Others were critical of the plans to divert funds from Propositions 10 and 63, as well as cuts to in home support services and programs for the aged, blind and disabled.
None of the proposals put forth thus far focus on borrowing property taxes as allowed under Proposition 1A. Significantly, the Republican plan does not take away the adult literacy funding as proposed in an earlier plan by the Republicans, nor does it propose cuts to any other library programs.
Submitted by Mike Dillon and Christina DiCaro, CLA Lobbyists
Posted on December 16, 2008 2:31 PM | Permalink