Brown Drops Tax Extension, Agrees to Majority Budget

Jerry-BrownIt was in a lot of ways an amazing turn of events, as Governor Jerry Brown gave up any hope of striking a bipartisan budget deal on taxes, abandoned the idea of placing tax extensions on the ballot, and instead announced they would push through a plan that would rely solely on the support of Democrats in the legislature.

The Governor’s announcement was unveiled in a joint news conference with Senate Leader Darrell Steinberg and Speaker of the Assembly John Perez.

“I thought we were getting close, but as I look back on it, there is an almost religious reluctance to ever deal with the state budget in a way that requires new revenues,” the Governor said Monday.

It still relies on some questionable assumptions, as they hope for “an economic surge” which would generate billions more in “windfall tax collections.”

However, Governor Brown and the Democrats said they would agree in advance to further cuts, in case the money does not materialize – which is likely to be the case, though a revenue forecast projects the state will receive another $4 billion in extra revenue in 2011-12 based on strong tax receipts in May and June.

The Bee reports this morning, “The higher revenue forecast replaces the riskiest items in Democrats’ first budget: a sale of state buildings, a quarter-cent local sales tax increase and taking $1 billion from First 5 commissions.”

However, there will be cuts to education, corrections and other social service programs, should revenue fall short of projections.

School districts would be asked to reduce the school year by seven days, longer than it was proposed at any time under the previous regime.

“Going forward, we do expect more revenues in the budget year coming up, but in case we’re over-optimistic, we have severe trigger cuts that will be triggered and go into effect. Those will be real,” Governor Brown stated

In a statement from Senator Steinberg, “This is a balanced budget that protects, to the greatest extent possible, California’s public education system, jobs, the economy, and our way of life. While this budget implements more than $14.6 billion in harsh and very real cuts, it also puts us on a pathway over the next 18 months to eliminate a structural deficit that’s plagued California for a decade.”

“This budget is the most austere fiscal blueprint California has seen in more than a generation. Spending levels are at an historic low, and every sector of society will feel the difficult choices we’ve made to bring this budget into balance,” the Senator continued.

“Earlier this year, the Governor asked both Democrats and Republicans to get out of their comfort zones and do what was best for California,” he added. “For Democrats, that meant agreeing to billions of dollars in cuts to programs that are vital to children, the elderly, the sick and the poor. We delivered in March and we’re delivering again in June – with billions more in cuts, particularly if revenues fall short of projections.”

“Unfortunately, Democrats were forced to deliver alone. We used all the tools available to us under the Constitution to do just that – deliver,” the Senate leader said Monday.  “The imperative for revenue is as great as before because there is still a structural deficit looming. We will move forward through the initiative process to put the question before the voters in November of 2012.”

However, the Bee reports that several economists think the leadership is crazy.

“Outside fiscal experts were doubtful that $4 billion in additional tax revenue would materialize,” the Bee reported this morning.

“It isn’t as if it’s been a cascade of good news since May,” said Jeff Michael, director of the University of the Pacific’s Business Forecasting Center as reported by the Bee.

“They’re out of their minds,” said Chris Thornberg of Beacon Economics, a Los Angeles consulting firm, as reported by the Bee.

On the other hand, a reasonable argument can be made that, if they have a contingency in place, there may be less risk.  On the other hand, it will breed some uncertainty, particularly for school districts trying to set their 2011-12 schedules.

In addition to the $4 billion from higher projected revenues, the agreement adds a “1.06 percentage point sales tax swap that redirects money to local governments for Brown’s ‘realignment’ plan rather than to the state. Sales tax rate will fall one percentage point on July 1.”

It retains the $150 million cuts to UC and CSU, the $150 million cut to state courts, $200 million in online taxes, $2.8 billion in deferrals to K-12 and community colleges, a $12 increase in vehicle license fee generating $300 million, and a $50 million from fire fee for rural homeowners.

Gone are provisions to sell state buildings, $900 million from raising a quarter-cent local sales tax, $1 billion in cuts to First 5, and $500 million in cuts to local law enforcement grants.

Attorney General Kamala Harris issued a statement criticizing the budget.

She wrote, “The proposed $71 million cut will cripple California’s statewide anti-gang and drug trafficking operations. Our Division of Law Enforcement leads 50 task forces across the state that target criminal gangs and drug trafficking organizations.”

She added: “Earlier this month, one of these task forces took down 101 leaders and members of two transnational gangs terrorizing California’s Central Valley. Last month, we announced the seizure of over 100 lbs of methamphetamine and the arrests of more than 30 gang members in the Bay Area.:

The attorney general concluded, “These cuts will eliminate many, if not all, of these task forces and jeopardize many ongoing investigations.”

—David M. Greenwald reporting

About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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  1. Neutral

    [i]”The Republicans in Sacramento are basically moronic. But we’re hopeful that they can realize we’re on an unsustainable trajectory here, one that is not fiscally responsible and one for which they are at least partially responsible,” Gil Duran, Brown’s press secretary, said in an interview with KPCC. [url][/url][/i]


  2. E Roberts Musser

    [quote]“Unfortunately, Democrats were forced to deliver alone. [/quote]

    [quote]The Republicans in Sacramento are basically moronic. [/quote]

    Republican bashing – same old, same old…

  3. wdf1

    ERM: [i]Republican bashing – same old, same old… [/i]

    If the Republicans offered compromise in a constructive way on anything to try to support this budget, I would be interested to know.

  4. J.R.

    Well, I will give the Democrats in Sacramento credit for producing a budget, even though I don’t think very highly of their understanding of its impact.

    In contrast, the Democrats controlling the US Senate in Washington have not produced a budget

    We won’t make progress in solving our problems until we realize that both parties are working primarily for the interests of the political class.

  5. Frankly

    [i]”If the Republicans offered compromise in a constructive way”[/i]

    It is a hoot when lefties continue to blame the GOP for the left’s continued success leading us toward fiscal doom.

    By “constructive way” do you mean allow tax increases?

    The Democrats have said no to all of the Republican reforms that Californians are demanding, including spending reforms with caps, pension reforms and tax and regulatory policies that would spur job creation.

    The Democrats are determined to defend the base status quo. I support the GOP standing firm on their proposals. Democrats can defend the status quo; then go it alone and take full responsibility for the outcome.

    The state spending per GSP has soared over the last several decades. We may not spend the most per pupil, but here is more proof that being a low-tax state can result in better education outcomes:

    Comparing CA to Texas… CA’s 2011spending ($404.3B) plus debt ($371.2B) will be 38.8% of the state GDP ($1,994.5B). Texas’s spending ($183.5B) plus debt ($210.6B) will be 33.5% of the state GDP ($1,176.6B). In 1992 CA’s spending and debt was 33.9% of the state GDP.

    But here is the deal… in 2007 when the economy was still humming, the ratio of spending ($388.1B) plus debt ($330.2B) to state GDP ($1,883.7B) was 38.1%. it didn’t matter that we were filling state coffers with revenue… the politicians were spending faster than we could produce. This is the reason we call them looters.

    We have been on a spending spree in CA for far too long. It is time to turn back the clock to where our spending and debt is in the 33% of GDP realm again. It is time to celebrate and reward the producers and punish the looters for the damage they have done.

  6. wdf1

    J.B.: [i]We may not spend the most per pupil, but here is more proof that being a low-tax state can result in better education outcomes:[/i]

    I grew up in Texas, and for their sake, I am happy that they have some high schools that measure well in a way that they can be proud of. But you choose a bit of an odd example to make your point – ~3 schools in a top ten list. What about the rest of the state?

    According to this – [url][/url] – the top spending states on a per student basis are N.Y., N.J., Massachussetts, Wyoming, Vermont, Connecticut, Massachussetts.

    If you look at test score performance on the “Nation’s Report Card” ([url],RED,5,0,within,0,0[/url]), at least four of those states come out ahead in both reading & math, for both 4th & 8th graders — N.J., Mass., Vt., Ct. Texas and California come out below average. I don’t find any reason for you to be bragging about Texas, much less California.

    And by the way, I tend to think of those four higher performing states as being more strongly pro-union. I thought the conservative narrative was that unions didn’t care about education, and that getting rid of them would allow for students to perform better.

    But to your original point about the budget. Sure there are places to cut. But I don’t see a value in cutting education when state funding was already pretty bad. A statewide ballot on taxes seemed like a very reasonable option to me. Either way, the voters could have had their say on the direction of budgeting at this juncture.

  7. J.R.

    Congress is required by law to pass a budget each year.

    Last year, when Democrats controlled both the House and the Senate, neither Pelosi nor Reid passed a budget. Unbelievably, they just ignored their legal obligation.

    This year the Republican controlled House passed a budget but the Democrat controlled Senate has again not done so.

    “The Democrats would need 7 more votes to control the US Senate, as you know.”

    This is partly true. But budget bills cannot be filibustered. And it’s not that the Democrats have been unable to pass a budget, as you know. They have not put a budget forward because of political calculations. They would either have to propose unpopular cuts or else admit that they have no way to control exploding deficits.

    Do you think that not proposing a budget is a good way to solve our financial problems?

  8. davehart

    Governor Brown went into office with an amazing amount of optimism. His realization that the Republicans have a “religious” aversion to any taxes, including all of the ones we pay, shows how willing he was to believe in their ability to approach the budget on a rational level.

    I believe the only way forward now is to propose an all cuts budget that totally relies on existing tax revenues. This is a budget that many of the Democrats and civilized people will not and would not vote for. However, it remains to be seen if there is ANY budget the Republicans will vote for. Is this statement Republican bashing? Hardly. It’s just simply true. Every state budget over the last 12 or 13 years has been exacted by the thinnest of margins with only those Republicans who were termed out of office voting in favor.

    I really think it’s time to call them on their stance. To get most of the Republican votes, you will have to get about half again as many Democrats to get a majority vote. Then, there will be a budget that the Republicans own and can point to as their version of what the state of California should look like. I don’t think they have the balls.

  9. Frankly

    The GOP has stood firm on variations of the following four base requirements for a budget they would support.
    A cap that would limit total spending on recurring items (e.g., prison guards or the Department of Motor Vehicles) to the previous year’s total, adjusted for inflation and population growth. If two-thirds of the Legislature approved, surplus revenue over the cap could be spent on one-time projects, such as roads or gubernatorially declared emergencies. The cap would remain in place until the state had repaid more than $40 billion that had been borrowed or deferred to help balance previous budgets.

    A set of limits on public employee pensions, including a requirement that new employees be given a 401(k) plan and, if they choose, a small pension — half the costs of which they’d have to cover. Pensions would be based on just the first $119,000 of an employee’s salary, and an assortment of techniques used to inflate pensions would be banned. Most controversially, the state would be empowered to reduce the pension benefits that current employees were slated to receive but had not yet earned.

    Require state agencies to estimate the economic impact of proposed regulations and consider alternatives that would be equally effective but less costly.

    Amend the California Environmental Quality Act to discourage frivolous lawsuits and bar projects from being subject to the act solely on the basis of greenhouse gas emissions.[/quote]
    All of these things sound completely reasonable to any sane person except those that have a vested interest in government distributions of other people’s money. Yet, state Democrats have rejected all of these and continually blame the GOP for a lack of compromise. Priceless.

    I have been following this organization [url][/url]. Even though bipartisan, their recommendations match most of what the GOP has been demanding.

  10. JayTee

    Nobody wants taxes raised and nobody wants needed programs cut, but the money has to come from somewhere. Unless we’re going to contact the mint and tell them to just print up whatever money we need to pay all the bills and start over, what’s the alternative?

  11. E Roberts Musser

    [quote]If the Republicans offered compromise in a constructive way on anything to try to support this budget, I would be interested to know.[/quote]

    If the Democrats offered compromise in a constructive way on anything to try to support this budget, I would be interested to know.

  12. wdf1

    ERM: For starters, what was wrong with closing the budget with half cuts and half tax extensions in a statewide vote? The initial proposal seemed like it dealt with a lot of cuts that Republicans wanted, and that Dems were loathe to make. And the tax extensions that Republicans were leary of, but that was clearly more palatable to the Dems.

  13. E Roberts Musser

    To wdf1: If my recollection serves me correctly (which it often doesn’t!), didn’t the Republicans simply ask that pension reform be on the table for discussion, and were given a flat “no” by Gov. Brown?

  14. wdf1

    ERM: [i] If my recollection serves me correctly (which it often doesn’t!), didn’t the Republicans simply ask that pension reform be on the table for discussion, and were given a flat “no” by Gov. Brown?[/i]

    Simply pension reform? Well, at the last minute (right before the deadline to submit for a possible June ballot) they also threw in 7 pages of demands, including many points that hardly had anything plausible connection to the state budget — moving the presidential primary election date(?). I think Don Shor or another regular posted this a few weeks ago:


  15. E Roberts Musser

    To wdf1: From your link: “It is unusual for such a negotiating document to be made public in the midst of talks and could be a sign negotiations are collapsing.” Perhaps negotiations were collapsing because Democrats were not willing to budge one inch; so the Republicans played “tit for tat”. IMHO, both sides and the Governor have been childish … just my take on things. But then I think part of CA’s problem is very basic – as a state it is so schizophrenic… again just my opinion as an East Coaster who thinks CA is a bit out of touch with reality…

  16. Frankly

    Most of the “7 pages of demands” from the GOP budget proposal directly, or at least indirectly, supported correcting structural budget problems and jobs protection and creation. These are the exact things that Brown and Democrats seem hell bent on ignoring… so it makes sense why they whine that the GOP demands don’t connect to the current budget. They connect to the bigger picture of fiscal prudence and viability.

    Nevertheless, I see the problem with the GOP as a Democrat problem similar to the war in Iraq. The winners defeated the army of their opponent only to create a sea of poorly managed insurgents bent on the humiliation of their enemy. Conservatives by nature are more independent in their thoughts and actions. When their leadership is weakened by the political process, they are more likely to go their own way on policy issues. Their saving grace is their macro principles which tend to be much more unified than are those of Democrats that splinter into a thousand special interests.

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