Democrats in the California Legislature came to a budget agreement with Gov. Jerry Brown (D) on Monday, containing deep cuts to higher education and state courts and a possibility for further cuts – including a seven-day reduction in the K-12 school year – should anticipated revenues not materialize.
The compromise budget, drafted with no Republican participation and termed “Plan B” by Brown, abandons the tax extensions which were a cornerstone of Brown’s budget plan.
“We’ve made tough decisions,” Brown said shortly before legislators approved the plan Tuesday. “It’s a good budget, but it’s not the budget I started with in January and the Democratic leadership wanted, and that was a budget with revenue.”
Brown said he would now pursue his desired tax extension as a ballot measure in November 2012, following the Legislature’s inability to approve a summer or fall 2011 referendum on the taxes.
Brown pinned blame for the delay on Republican legislators, who Senate President Pro Tem Darrell Steinberg (D – Sacramento) referred to as “the gang that chooses not to govern.”
To put tax extensions on the ballot, Brown needed the participation of two Republicans in both the State Senate and the Assembly. Despite months of negotiations, and language to enact Republican demands like pension reform, a spending cap, and an overhaul of environmental rules, Brown said he was unable to win over the needed votes. He cited “an almost religious reluctance” on the part of Republicans to agree to taxes.
The Republicans who were negotiating with Brown – Tom Berryhill of Modesto, Anthony Cannella of Ceres, Bill Emmerson of Hemet and Tom Harman of Huntington Beach – said in a joint statement that Brown’s proposed concessions were never meaningful, and were gutted by labor unions.
“The Democrats have proven once again that they are unwilling to stand up to the unions that fund their political campaigns and adamantly oppose meaningful pension reform,” the four said in a joint statement. “They didn’t want a bipartisan deal in March, and they don’t want a deal now. And, ultimately, it’s the hardworking people of California who pay the price.”
Budget sees taxes, services decline
Without the extensions, or a “tax bridge,” the emergency taxes approved in February 2009 will expire Friday. California’s state sales tax will drop one cent, to 7.25 percent. The vehicle license fee will also plummet, to just 0.65 percent of a car’s worth.
The changes will save Californians $5.87 billion in taxes annually, but cost the state the same amount.
Despite the loss of funding, the budget is balanced for this year while eliminating more than 75 percent of the structural deficit going forward. That reduces California’s structural deficit from $20 billion to $5 billion, but means the government still has work to do next year.
“We’ve made dramatic progress, but we’re not out of the woods,” Brown said.
To balance the budget with no new taxes, the budget plan relies on “significant” cuts and higher-than-anticipated revenues, resulting in a document approved by California Treasurer Bill Lockyer as “financeable.”
The plan hinges on an additional projected $4 billion in higher tax revenues, which Brown now sees as feasible due to an unanticipated $1.2 billion in revenues collected by the state in May and June. Should the state not receive that funding, a further $2.6 billion in cuts would take effect.
“They’re not cuts that Democrats like to make, I’ll tell you that,” Brown said.
Higher education, In-Home Supportive Services, public safety programs, childcare funding, safety-net programs, library grants and school bus transportation would all be slashed should revenues fail to meet the $4 billion threshold. The largest triggered cut, a $1.5 billion blow to education, would reduce the K-12 school year by seven days.
“This budget is the most austere fiscal blueprint California has seen in more than a generation,” Steinberg said. “Spending levels are at historic lows and every sector of society will feel the difficult choices we’ve made to bring the budget into balance.”
Regardless of revenues, the plan calls for an additional $150 million cut to state courts, a $12 per vehicle increase in DMV registration fees, $50 million in wildfire fees from rural homeowners, and $200 million from forcing online retailers to charge California sales tax. The University of California and the California State University will each see an additional $150 million cut, while $2.8 billion will be deferred from K-12 schools and community colleges.
The CSU can’t sustain that cut, according to Charles B. Reed, CSU president. With the additional cut, the CSU will have lost nearly one-fourth of its state funding, with a potential, further $100 million triggered cut which wouldn’t occur until after the Spring 2012 semester begins, making planning “impossible.”
“This budget is a great disappointment for the California State University. It is a shame that the Legislature was unable to reach a compromise that would have kept taxes at current levels and prevented further massive cuts to the public’s universities,” Reed said. “... California’s economy cannot fully recover, nor can its future promise be fulfilled, by starving its universities.”
The budget solution does remove some cuts from the budget Brown rejected earlier this month. Among the items chopped: controversial plans to sell state buildings, shift $1 billion from First 5 commissions, cut local law enforcement grants, defer funds to the UC, and raise local sales tax one quarter-cent.
Pay to resume for lawmakers, soon
Legislators, whose pay was frozen when Brown vetoed the budget due to a proposition which requires the legislature to pass an on-time budget, will begin receiving pay again once Brown signs the new budget into law. Each lawmaker lost about $5,000 in pay due to the budget stalemate.
Despite this year’s stalemate, Assembly Speaker John A. Pérez (D—Los Angeles) expressed hope that the negotiations begun for this year’s budget cycle could carry forward to 2012 budget planning, and that Republicans would return to the table.
“The conversation has been started, and we will keep that conversation going as we move to the ballot next year,” Pérez said.
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