Governors latest budget proposals: Gambling with Californias future

As the implications sink in, a new poll shows a majority of Californians reject Gov. Arnold Schwarzenegger’s latest proposals to deal with a $15.2 billion deficit in the state’s budget for the coming fiscal year. Though California’s deficit is by far the largest of any state, over half of U.S. states face similar problems.

Only 35 percent of some 2,000 California residents polled approved of the governor’s plan, while 56 percent said they disapproved, according to the Public Policy Institute of California.

The governor’s budget revision, issued May 14, projects General Fund spending of just under $102 billion in 2008-09. Schwarzenegger continued to reject new taxes. Instead, he called for dealing with the deficit by combining deep cuts to human needs programs with selling $15 billion in bonds to Wall St. investors over three years, to be repaid over 32 years with increased profits from a “modernized” state lottery.

Voters would need to approve the bond sales in November. If they do not, the governor would substitute a temporary 1 percent sales tax increase.

Health care advocates sharply criticized the governor’s call to slash such programs as in-home care for seniors and the disabled, eliminate dental and other benefits for Medi-Cal (state Medicaid) recipients, tighten Medi-Cal eligibility rules to dump over 400,000 parents from the program in coming years, and cut payments to hospitals treating Medi-Cal patients.

“It’s a very ugly budget and needs to be rejected,” Anthony Wright, executive director of the Health Access coalition of over 200 organizations, told the World. Noting that the Legislature has rejected similar budget proposals in recent years, he added, “We need to be very clear about the impacts of the cuts, that they are severe and will have major impacts on society and on our economy.”

“These budget cuts will devastate access to health care for millions of poor Californians and will wreak havoc on the ability of middle class Californians to meet their health care needs,” Dr. Richard Frankenstein, president of the California Medical Association, said in a statement.

California is far from alone in facing a significant budget crunch. Though California’s shortfall is by far the largest both in absolute terms and in percentage of the previous year’s General Fund, the Washington-based Center on Budget and Policy Priorities says over half the states are having budget troubles.

In a report updated May 21, the center said “the bursting of the housing bubble” and weakened consumer spending have cut state sales tax and property tax revenues.

Last month the center reported that at least 13 states had made or were considering cuts affecting health care for low-income children and families. At least five states were cutting or thinking about cutting services for low-income seniors and disabled people, while at least nine were cutting or proposing to cut K-12 education and a dozen were cutting or proposing to cut higher education.

The center also points out that cuts to state programs have a ripple effect throughout the economy as workers are laid off, vendor contracts cancelled and payments reduced to businesses and service providers.

While Schwarzenegger’s latest proposal takes less from education than his original budget released in January, California educators say the cuts remain unacceptable.

The state’s nonpartisan legislative analyst, Elizabeth Hill, called the governor’s view of growing lottery proceeds “overly optimistic” and said the plan poses “significant risks.”

Assemblyman Alberto Torrico, who represents a working-class district near San Francisco, said, “The governor is gambling with California’s future by relying on a risky scheme to fix a dysfunctional system.”

Writing recently for California Progress Report’s web site, Lenny Goldberg, executive director of the California Tax Reform Association, cited potential revenue sources including a bill by Assemblywoman Loni Hancock to adjust the income tax brackets so families in the top categories would pay 10 and 11 percent, for an initial $6.3 billion. He said over $1 billion could come from instituting an oil production tax, levied by all other oil producing states, and listed a number of other potential revenue sources.

The Public Policy Institute poll showed a strong majority in favor of raising state taxes on California corporations and state income taxes paid by the wealthiest Californians, while less than 40 percent favored increasing taxes paid by all residents, such as the sales tax.

Legislators now face a June 15 deadline to pass a balanced budget by a two-thirds supermajority. While Democrats control both legislative houses, they lack the required numbers to override Republican opposition on fiscal matters.

mbechtel @pww.org