Billions riding on May 19
The plug for California’s $42 billion budget hole makes just about nobody happy, but business groups are reluctantly lining up behind it.
Six propositions designed to balance California’s budget, Props. 1A through 1F, will go before voters May 19. They contain a combination of spending limits, greater reserve funds for down years, sustained tax increases and some restored education funding.
The kicker: The state’s Legislative Analyst’s Office on March 13 said that softer-than-expected tax revenue from California’s suffering economy means an $8 billion shortfall even if the propositions pass. But Democrat Pedro Nava, an assemblyman who represents much of Santa Barbara and Ventura counties, said that the propositions remain better than the alternative – deep cuts.
“Having gone through this process now for a number of years, attempting to fix an $8 billion shortfall is easier than fixing a $16 billion hole,” Nava told the Business Times. “If the initiatives fail, then we’re going to have to make deeper cuts in all of the programs that people care about.”
Bill Buratto, chief executive officer of the Ventura County Economic Development Association, said the group hasn’t taken a formal position yet but that its policy committee plans to recommend that the association “very reluctantly support all six” propositions.
“The general consensus in the business community is that nobody likes taxes,” Buratto said. “That having been said, we also have to have a state budget in order to continue to operate.”
Business groups such as the California Chamber of Commerce have lined up to endorse the bargain contained in Prop. 1A, the centerpiece of the initiatives. The proposition is a compromise: Spending limits and more “rainy day” savings are coupled with cementing increases in sales taxes, personal income taxes and vehicle license fees for several years. The increased taxes are expected to generate $16 billion to help balance this year’s budget.
But a group of unlikely bedfellows is not onboard.
The California Nurses Association — one of the state’s most powerful labor groups — has come out against the propositions, as has the California League of Women Voters, a longtime advocate of budget process reform. And Republican state Sen. Tony Strickland, whose district stretches from Thousand Oaks to Santa Barbara, said he opposes Props. 1A and 1B, an education spending measure connected to Prop. 1A.
“It adds an extra two years of taxes. In this economy, that’s the worst thing you can do,” Strickland told the Business Times. “If you look at our unemployment rate in California, it’s the worst since 1982. We’re past the tipping point with jobs. The way to get out of this budget mess is to create jobs, not see them leave.”
Other major California election players such as the California Teachers Association haven’t yet taken a position on the initiatives.
Here’s a closer look at each proposition.
Prop. 1A
Prop. 1A would do much of the heavy lifting of balancing the state budget.
It’s designed to help smooth the state’s volatile revenue stream, which tends to shoot up along with the economy in boom years and crash in bust years. Revenue “peaks” would be shaved off into a “rainy day” fund and saved for poor years, an idea pro-business think tanks support.
It would consolidate the state’s two “rainy day” funds into one and raise the target balance from 5 percent of state revenues to 12. 5 percent. At the same time, it would mandate that topping off the fund become a priority for any extra money the state pulls in.
It would also limit uses of the reserve fund to emergencies such as fires and earthquakes and making up the difference if the state can’t maintain its spending compared with the year before.
The measure would give the governor the power to cut many of the state’s capital outlays by up to 7 percent and slash so-called “cost of living” increases to most state programs, though increases for most state employees’ salaries would be exempt.
Finally, the measure would keep recently passed increases in the sales tax and personal income tax until 2012 and the vehicle license fee until 2013.
Prop. 1B
Prop. 1B depends on the passage of Prop. 1A.
It would restore $9.3 billion of the roughly $12 billion cut from state education funding during budget wrangling. According to the Legislative Analyst’s Office, “[e]ach year beginning in 2011, 1.5 percent of state revenues — currently about $1.5 billion — would be taken from the [state’s rainy day fund] and paid to schools and colleges until the entire $9.3 billion was paid.”
Prop. 1C
Prop. 1C lets the state borrow $5 billion from future lottery profits to balance this year’s budget and do so again in the future. It also lets the state Lottery Commission increase prizes to generate greater profits.
But the Legislative Analyst’s office says that repaying the debt could lead to future problems. Also, the measure yanks some education funding generated by lottery profits, requiring an increase in education funding elsewhere to make up the loss, the Analyst’s Office said.
Props. 1D to 1F
Props. 1D and 1E take childhood development and mental health money and temporarily move it to other children’s health programs.
Prop. 1D would shift $608 million from early childhood health care and education programs and put them toward programs for foster children and children with developmental disabilities. Prop. 1E would take $227 million from mental health programs and move them toward mental health programs directed at very young, low-income children.
Finally, Prop. 1F would ban pay increases for the state’s elected officials in years the state runs a budget deficit.
Meg Whitman — the former CEO of e-Bay whose name has been circulating as a Republican gubernatorial candidate — has come out in favor of Props. 1D to 1F, though she opposes the first three on the May 19 ballot.
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