California budget: Back to Square One, as disaster looms

The Gordian knot that is California’s budget process got a lot more complicated this week, as Republican Governor Arnold Schwarzenegger Jan. 6 vetoed a complex of compromise budget measures legislative Democrats sent him for signature, after weeks of talks between the governor and legislative leaders of both parties failed to reach agreement.

Though the Democrats’ 15 bills contained more than $7.3 billion in spending cuts along with $9.3 billion in new revenues, Schwarzenegger demanded even deeper cuts as well as measures to weaken labor and environmental regulations that Democratic legislators would not accept.

The governor’s veto plunges the process back to the starting line.

“This is absolutely one of the most challenging times California has ever faced,” state Senator Loni Hancock (D-Berkeley), a member of the Senate Budget Committee, said in a telephone interview.

Calling the governor’s rejection of proposals that would resolve 44 percent of the projected shortfall “shocking,” Hancock said fiscal collapse is a real possibility, adding, “The governor was handed a great gift and he needs to take it and work with us.”

Citing as particularly disturbing the governor’s demand for a 6 percent cut in the CalWORKS basic welfare grant, which hasn’t been raised since 1998, Hancock said that during her entire time as a legislator, “every year our schools and health clinics are more challenged. We have limited benefits and make it harder to get them. We can’t do this any more.”

A glance at the back-story helps in understanding the current crisis.

A 2008-2009 budget was finally passed last September, 85 days late. Approval of measures to close a then-$15 billion-plus gap followed months of struggle between Democratic legislators whose majority in both Assembly and Senate does not reach the two-thirds required to pass a budget, Republicans most of whom have signed a no-new-taxes pledge, and a governor who can’t budge his fellow Republicans on taxes and calls for levels of human services cuts Democrats won’t accept. The end product was a melange of spending cuts largely to human services programs, along with various maneuvers and one very small tax change.

But in a “Nightmare on Elm St.” scenario, the deficit reemerged during the fall, soaring to an estimated $41 billion-plus by the end of 2010. Schwarzenegger called the legislature into special session, and following weeks of continued stalemate, the Democratic majority passed a plan designed to get around the two-thirds requirement by raising revenues through “fees” instead of taxes.

In his veto message, Schwarzenegger claimed the Democrats’ plan would “punish people with increased taxes” without making “the serious cuts necessary,” or helping to keep Californians working during the economic crisis.

Senate president pro tempore Darrell Steinberg and Assembly Speaker Karen Bass responded by pointing out that their plan, if signed by the governor, would “create more than 367,000 good-wage California jobs” through infrastructure projects, and reflected some of his environmental and public-private partnership proposals.

“As expected, the governor has vetoed the package, because it didn’t contain everything he wants — despite an impending cash crisis that will prevent the state from financing infrastructure projects, force IOUs on companies that do business with the state and delay Californians’ tax refunds,” they said in a Jan. 7 op-ed in the Sacramento Bee.

Schwarzenegger’s latest proposals, outlined just before the New Year, include a temporary hike in the sales tax, new taxes on alcohol and oil production, cuts in state income tax dependent care exemptions, borrowing from the private sector and from voter-mandated human services programs, and changing state lottery rules as well as unpaid leaves and holidays for state workers.

In yet another twist to the complex situation, Republican legislators and their backers in the far right anti-tax Howard Jarvis Taxpayers Association filed suit Jan. 6, claiming the Democrats’ compromise budget measures violate Prop. 13, passed in 1978, which established the two-thirds requirement for tax increases.

Meanwhile, late last month the non-partisan California Budget Project reported that with unemployment in the state at 8.4 percent in November and underemployment rising rapidly, the number of Californians relying on food stamps and the WIC supplemental food aid program is soaring, and welfare rolls that declined in 2007 were growing by over 2,200 families a month last year. The report cited a broad panel of economists as concluding that experience demonstrates it is economically preferable to raise taxes on those with high incomes than to cut state expenditures” during a recession.

In a letter to her constituents, Sen. Hancock called for changing to a simple majority to pass the state budget, adopting a two-year budget and including five- and ten-year projections of expenses and income to aid in advanced planning. mbechtel @pww.org