Friday, Jun. 29, 2012
Budget for Brown relies on tax hikes
Republicans claim it's mostly 'shifts' and 'gimmicks'
By Kevin Yamamura, Torey Van Oot / The Sacramento Bee
SACRAMENTO -- California state budgets rarely look better than on the day they are signed.
With the fiscal year starting Sunday, revenues have yet to fall short, cuts face no legal challenges and polls show a multibillion-dollar tax initiative clinging to a slim majority of voter support.
Gov. Jerry Brown on Wednesday night signed a $91.5 billion spending plan that he hopes will put California's budget troubles to bed for good. One of his demands was that Democrats send him a plan that not only eliminates the current $15.7 billion deficit but maintains a balanced budget in years to come.
But it will take a hefty dose of optimism to believe California will avoid budget struggles hereafter.
For starters, the budget plan relies on voters passing a temporary tax hike on sales and high-income earners to raise $8.5 billion in the current budget cycle.
If that fails, K-12 schools face classroom reductions, and universities and community colleges stand to lose funding. Few believe education groups would take such cuts lightly, setting up another battle over school funding next spring, if not beforehand.
"Ultimately, it will be up to the voters," said Senate President Pro Tem Darrell Steinberg, D-Sacramento. "I trust the voters. I think they've seen what has occurred in this state with these cut-only budgets over the last number of years."
With a deal with Brown in hand, Democratic lawmakers sent the governor "trailer" bills Wednesday that detail how to carry out the cuts and revenue increases contained in the main spending legislation.
They sent the governor the main bill on June 15, the constitutional deadline after which lawmakers would have lost pay and compensation for expenses had they not passed a budget.
California's budget hole grew deeper this spring when tax returns showed that state leaders were too optimistic when they closed the deficit last year with a last-minute bonus projection of $4 billion.
The nonpartisan Legislative Analyst's Office said in May that Brown's latest revenue forecast was $550 million too high. The LAO also said Brown may have overstated redevelopment agency assets by $900 million.
Even the analyst's projection may fall short. It assumes California will receive $2.1 billion from taxes on Facebook stock transactions through June 2013. But that relies on a Facebook stock price of $42 per share in November when another round of insiders will sell, $10 higher than the current share price.
"What we look for is there to be at least realism," said Gabriel Petek, an analyst with Standard & Poor's, whose credit ratings help determine the interest rates California pays on its borrowing. S&P gives California an A-minus, lowest among U.S. states.
"We prefer that there not be overly optimistic projections," Petek added. "I think last year everyone believed the $4 billion (projection) was optimistic ... It doesn't seem like there's something like that in this budget, so it seems like it is more achievable."
Furloughs help state
Some of the biggest budget cuts this year hit trial courts and state workers. Court employees and lawyers warn that the public could face problems submitting legal filings and accessing small claims courts. Most state worker unions have agreed to take 12 days of unpaid leave, saving the state nearly 5 percent.
Safety-net cuts include an 8.7 percent cut in subsidized child care, equal to about 10,500 slots for low-income families. The state also extended a 3.6 percent cut in hours to in-home care recipients, smaller in scope than Brown initially demanded.
Other high-profile reductions won't save money immediately. The governor's plan to cut off welfare-to-work services to jobless parents after two years won't begin until January, and the state won't count previous months of welfare-to-work aid against recipients, so most savings won't occur until 2015.
In the meantime, welfare savings will come in less painful ways. The state for two more years will allow parents of young children to receive aid without finding work, which saves on child care and job training costs.
The state also will require some CalWORKs recipients who receive smaller grants and no services to confirm eligibility once per year rather than twice, which lawmakers said would save on administrative costs.
Brown staked his budget deal partly on shifting all 880,000 low-income children in Healthy Families to Medi-Cal, which he contends would improve efficiency. The change saves $13 million in the upcoming fiscal year -- and $73 million at full implementation in 2014-15.
Prominent health care groups opposed the change, while Republicans vowed to block a related $183 million tax on managed care plans that previously paid for Healthy Families -- a move that would result in a net loss for the budget, they said.
"It's less than 10 percent cuts," said Senate Republican Leader Bob Huff, R-Diamond Bar. "The rest are gimmicks, other tax increases, shifts. It's a typical kind of budget we've had in the past -- kick the can down the road."