Budget deal by Brown, Dems scraps tax election, may trigger cuts
Published: Tuesday, Jun. 28, 2011 - 12:00 am | Page 1A
Gov. Jerry Brown relinquished a cornerstone of his budget plan Monday by forfeiting a 2011 tax election and securing a deal with Democratic lawmakers that shortens the school year if tax revenues fall short of optimistic projections.
After months of seeking GOP votes, Brown decided four days before the new fiscal year that a bipartisan deal was impossible. The Democratic governor wanted Republicans to pass a temporary extension of higher sales and vehicle taxes as a "bridge" to a fall election, but Senate Republicans would not vote for taxes.
"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," Brown said, sitting at the end of a wooden bench in his office with Senate President Pro Tem Darrell Steinberg and Assembly Speaker John A. Pérez.
Republicans said Democrats scuttled the deal because they were unwilling to do enough to make long-term changes to public pensions, institute a tough spending cap and provide regulatory relief for businesses.
With no bipartisan agreement, the state sales tax will drop one percentage point and the vehicle license fee half a percentage point on Friday.
"Republicans listened to the voters and stayed true to the only special interest we represent – California's taxpayers," Assembly Republican leader Connie Conway of Tulare said in a statement.
Brown and Democratic leaders hammered out their majority-vote budget over the weekend to bridge California's remaining $9.6 billion deficit. The governor vetoed legislative Democrats' first plan June 16, contributing to legislators' loss of pay. The governor and Democrats have feuded ever since, but they refocused together once Brown gave up on Republicans.
The linchpin of the new deal is a projection that the state will receive another $4 billion in extra revenue in 2011-12 based on strong tax receipts in May and June.
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.
Lawmakers must approve cuts to education, corrections and safety-net programs that will take effect if revenues fall short of projections. The most visible may be an additional seven-day reduction that state officials will encourage districts to take at the end of the school year if enough revenue doesn't come in.
Both houses are scheduled to vote this afternoon. Assuming they pass the plan and Brown signs it, the Legislature's 120 lawmakers would begin receiving pay for work starting today. Controller John Chiang, who blocked their pay, believes he cannot intervene if the governor signs a budget, spokesman Garin Casaleggio said.
Rank-and-file lawmakers will have lost about $4,830 each in 12 days' worth of pay and personal expenses if the new budget passes today and receives the governor's signature.
Under the new plan, the University of California and California State University will each absorb additional $150 million reductions, for a total of $650 million apiece. They risk losing another $100 million each if the state falls short of revenues. The university systems already have said they will seek tuition hikes to offset new state reductions.
Since January, Democrats will have solved the state's original $26.6 billion deficit with $11.8 billion in unexpected revenue, more than $12 billion in cuts and about $3.5 billion in fund shifts and internal borrowing.
The budget will include a $500 million reserve.
The $11.8 billion in unexpected revenue is nearly equivalent to Brown's original tax extensions.
"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," Brown said. "Those will be real."
Outside fiscal experts were doubtful that $4 billion in additional tax revenue would materialize.
"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.
"They're out of their minds," said Chris Thornberg of Beacon Economics, a Los Angeles consulting firm.
Brown's Department of Finance director, Ana Matosantos, will decide in January whether revenues and economic indicators are strong enough to avoid the cuts. State Treasurer Bill Lockyer, who said in May that triggered cuts were necessary for the state to borrow from Wall Street, had no comment Monday.
Sen. Bob Huff, R-Diamond Bar, called the revenue assumption "a wand that Harry Potter would be proud to wield."
"Senate Republicans call on both the governor and Democrat leaders to return to the bargaining table and take steps to bring about true reform that will put an end to boom/bust budget cycles, rather than rely upon a phantom $4 billion that may never materialize," Huff said in a statement.
Republicans blocked taxes this year, but they also lost an opportunity to shape pension cuts, a spending cap and regulatory changes. They may instead seek to place a pension measure on the ballot next year by collecting signatures.
That could set up a war of initiatives in 2012. Brown said he is not giving up on his tax vote, while legislative leaders are targeting November 2012 to ask voters for more taxes.
Steinberg said Monday's deal was the best that could be reached with a majority vote.
"Unfortunately, we were forced to deliver alone," Steinberg said, "and we used all the tools available to us under the constitution to do just that – deliver."
Here's how the handshake budget deal between Gov. Jerry Brown and Democratic leaders compares to the plan he vetoed nearly two weeks ago:
It adds the following:
• $4 billion in higher projected revenues in 2011-12, with triggered cuts if the money doesn't come in.
• 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 maintains these provisions:
• $150 million cut each to University of California, California State University
• $150 million cut to state courts
• $200 million in Amazon online tax enforcement
• $2.8 billion in deferrals to K-12 schools and community colleges
• $300 million from $12 increase per vehicle in DMV registration fee
• $50 million from fire fee for rural homeowners
• Higher tax receipts (now worth $1.2 billion for May and June)
It rejects these elements:
• $1.2 billion in revenue from selling state buildings
• $900 million from raising a quarter-cent local sales tax
• $1 billion in revenue shift from First 5 commissions
• $500 million cut in local law enforcement grants
• $540 million deferral to University of California
• $700 million in federal funds for Medi-Cal errors
– Kevin Yamamura, Bee Capitol Bureau
After months of seeking GOP votes, Brown decided four days before the new fiscal year that a bipartisan deal was impossible. The Democratic governor wanted Republicans to pass a temporary extension of higher sales and vehicle taxes as a "bridge" to a fall election, but Senate Republicans would not vote for taxes.
"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," Brown said, sitting at the end of a wooden bench in his office with Senate President Pro Tem Darrell Steinberg and Assembly Speaker John A. Pérez.
Republicans said Democrats scuttled the deal because they were unwilling to do enough to make long-term changes to public pensions, institute a tough spending cap and provide regulatory relief for businesses.
With no bipartisan agreement, the state sales tax will drop one percentage point and the vehicle license fee half a percentage point on Friday.
"Republicans listened to the voters and stayed true to the only special interest we represent – California's taxpayers," Assembly Republican leader Connie Conway of Tulare said in a statement.
Brown and Democratic leaders hammered out their majority-vote budget over the weekend to bridge California's remaining $9.6 billion deficit. The governor vetoed legislative Democrats' first plan June 16, contributing to legislators' loss of pay. The governor and Democrats have feuded ever since, but they refocused together once Brown gave up on Republicans.
The linchpin of the new deal is a projection that the state will receive another $4 billion in extra revenue in 2011-12 based on strong tax receipts in May and June.
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.
Lawmakers must approve cuts to education, corrections and safety-net programs that will take effect if revenues fall short of projections. The most visible may be an additional seven-day reduction that state officials will encourage districts to take at the end of the school year if enough revenue doesn't come in.
Both houses are scheduled to vote this afternoon. Assuming they pass the plan and Brown signs it, the Legislature's 120 lawmakers would begin receiving pay for work starting today. Controller John Chiang, who blocked their pay, believes he cannot intervene if the governor signs a budget, spokesman Garin Casaleggio said.
Rank-and-file lawmakers will have lost about $4,830 each in 12 days' worth of pay and personal expenses if the new budget passes today and receives the governor's signature.
Under the new plan, the University of California and California State University will each absorb additional $150 million reductions, for a total of $650 million apiece. They risk losing another $100 million each if the state falls short of revenues. The university systems already have said they will seek tuition hikes to offset new state reductions.
Since January, Democrats will have solved the state's original $26.6 billion deficit with $11.8 billion in unexpected revenue, more than $12 billion in cuts and about $3.5 billion in fund shifts and internal borrowing.
The budget will include a $500 million reserve.
The $11.8 billion in unexpected revenue is nearly equivalent to Brown's original tax extensions.
"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," Brown said. "Those will be real."
Outside fiscal experts were doubtful that $4 billion in additional tax revenue would materialize.
"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.
"They're out of their minds," said Chris Thornberg of Beacon Economics, a Los Angeles consulting firm.
Brown's Department of Finance director, Ana Matosantos, will decide in January whether revenues and economic indicators are strong enough to avoid the cuts. State Treasurer Bill Lockyer, who said in May that triggered cuts were necessary for the state to borrow from Wall Street, had no comment Monday.
Sen. Bob Huff, R-Diamond Bar, called the revenue assumption "a wand that Harry Potter would be proud to wield."
"Senate Republicans call on both the governor and Democrat leaders to return to the bargaining table and take steps to bring about true reform that will put an end to boom/bust budget cycles, rather than rely upon a phantom $4 billion that may never materialize," Huff said in a statement.
Republicans blocked taxes this year, but they also lost an opportunity to shape pension cuts, a spending cap and regulatory changes. They may instead seek to place a pension measure on the ballot next year by collecting signatures.
That could set up a war of initiatives in 2012. Brown said he is not giving up on his tax vote, while legislative leaders are targeting November 2012 to ask voters for more taxes.
Steinberg said Monday's deal was the best that could be reached with a majority vote.
"Unfortunately, we were forced to deliver alone," Steinberg said, "and we used all the tools available to us under the constitution to do just that – deliver."
COMPARING DEALS
Here's how the handshake budget deal between Gov. Jerry Brown and Democratic leaders compares to the plan he vetoed nearly two weeks ago:
It adds the following:
• $4 billion in higher projected revenues in 2011-12, with triggered cuts if the money doesn't come in.
• 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 maintains these provisions:
• $150 million cut each to University of California, California State University
• $150 million cut to state courts
• $200 million in Amazon online tax enforcement
• $2.8 billion in deferrals to K-12 schools and community colleges
• $300 million from $12 increase per vehicle in DMV registration fee
• $50 million from fire fee for rural homeowners
• Higher tax receipts (now worth $1.2 billion for May and June)
It rejects these elements:
• $1.2 billion in revenue from selling state buildings
• $900 million from raising a quarter-cent local sales tax
• $1 billion in revenue shift from First 5 commissions
• $500 million cut in local law enforcement grants
• $540 million deferral to University of California
• $700 million in federal funds for Medi-Cal errors
– Kevin Yamamura, Bee Capitol Bureau
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