Though state tax revenues are now projected to come in $6.6 billion better than expected, Gov. Jerry Brown said the state still faces a “wall of debt” as legislators hammer out California’s 2011-2012 fiscal year budget in Sacramento.
Brown, announcing his May budget revision Monday, said the improved revenues would allow for enhanced K-12 funding, but an overall shortfall will require drastic cuts and an extension of higher sales and vehicle taxes, as well as a extension of higher income taxes.
“California’s economy is growing, but we still face a $10 billion structural deficit and a wall of debt for years to come,” said Brown. “California’s finances were plunged into turmoil by the Great Recession and a decade of short-term fixes and fiscal gimmicks. This is not the time to delay or evade. This is the time to put our finances in order.”
The revised budget still faces a $9.6 billion budget deficit for the pending fiscal year. A further $35 billion in accumulated budgetary debt, created by previous borrowing against future years to “balance” unbalanced budgets, remains unaddressed.
The “wall of debt” includes $1.9 billion in borrowing from local government, $1.2 billion in deferred Medi-Cal costs; $4.3 billion in unpaid state mandates to local governments, schools and community colleges; $5.1 billion in loans from special funds; and $7.1 billion in economic recovery bonds. Brown’s budget would pay off at least $29 billion of the $35 billion outstanding by 2015.
Tax increases key to plan
Balancing the budget would require, in large part, an extension of a 1 percent sales tax and a .5 percent vehicle license fee, due to expire in June. Brown’s budget calls for a further .25 percent income tax surcharge to be implemented in 2012, and last until 2015.
Thus far, Republicans in the Legislature have opposed such tax increases.
“With $6.6 billion in new revenues, Republicans are right – we don’t need, and it’s ridiculous to ask voters for, five years of new taxes,” said Senate Republican Leader Bob Dutton (R—Rancho Cucamonga) and Senate Budget Vice Chair Bob Huff (R—Diamond Bar) in a statement.
Passing those tax increases would not only require Republican votes – it would also require California voter approval on a ballot which Brown has called for “soon,” but not yet specified a date for.
The sales and vehicle taxes would head to local governments in an effort to curry voters’ favor. The money would help local governments pay to operate services previously funded by the state.
K-12 education to benefit; prisons, boards to be cut
The revised budget would increase spending on K-12 education by about $3 billion year-over-year from $49.8 billion to $52.4 billion, but spending would remain below a $56.6 billion high in 2007-2008. The state would still owe schools and community colleges $10.4 billion in previously deferred payments and $3.0 billion in school underfunding – part of Brown’s $35 billion “wall of debt.”
State government would be cut, eliminating 43 boards, commissions, task forces, offices and departments and about 5,500 state positions. More than 50 percent of those positions cut would come from the Department of Corrections and Rehabilitation, as the state plans to shift tens of thousands of inmates to local jails this summer.
Brown’s new budget would also sell state properties like the Los Angeles Coliseum and the Montclair Golf Course in Oakland.
Enterprise Zones, previously slated for elimination, would survive the new budget. But Enterprise Zone credits could only be used for new job creation under Brown’s proposal. The budget revision would encourage job creation in other ways as well, with a revamped hiring tax credit and reduced sales tax on equipment purchases.
Redevelopment Zones would still be eliminated under Brown’s new proposal.
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