Brown releases revised budget plan with $6.6-billion windfall
Los Angeles Times, May 16,2011
State revenue has rocketed to a projected $6.6 billion beyond expectations, a windfall that Gov. Jerry Brown wants to use to stabilize education spending and help repair California's battered finances.
In the revised budget plan that Brown released Monday, schools would receive about $3 billion that would otherwise have been deferred, aiding districts' ability to plan the academic year. The proposal also devotes some of the unanticipated money to business tax credits and to delaying a portion of the tax increases the governor had sought earlier this year.
But although the revenue surge erases a substantial chunk of what had been a $15-billion deficit, Brown said it was not enough to put the state in the black. His spending plan still relies partly on renewing tax increases that are due to expire this year or have already expired.
"The wall of debt must be brought down," Brown said, alluding to the borrowing, accounting shifts and other maneuvers that have left California's books perpetually unbalanced. "I don't want to continue the games and gimmicks of the past."
The governor's continued push for more revenue, however, is complicated by the unexpected receipts: Republican lawmakers are already pointing to the revenue surge as one reason to block his plans.
"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 a statement issued by GOP Senate leaders.
Brown is using some of that revenue to modify his tax plan, which he now hopes to achieve by persuading lawmakers to enact the income, sales and vehicle levies and then asking for voters' blessing. The income tax rate increase he had previously proposed for this year would not be enacted until 2012 under his revised blueprint. The change would save taxpayers $2 billion.
"We modified it to give taxpayers a break," the governor said.
The extra revenue would also be used to preserve a scaled-down "enterprise zone" program, which gives tax credits to businesses that hire workers from blighted neighborhoods.
Also in the governor's plan are some reductions. He calls for the elimination of 43 boards and commissions, some of which pay six-figure salaries to their members and have been labeled patronage posts by their critics. And the administration announced last week that it plans to close 70 state parks to save money.
State finance officials attribute the revenue windfall — achieved despite the state's high unemployment and stagnant wages — to a sharp increase in earnings of the wealthy, who pay tax rates much higher than those of average earners. California's financial health has long been tied to the fortunes of high earners.
"It looks like the upper-income taxpayers are having a greater gain in their income than previously anticipated," said Brown's budget director, Ana Matosantos. Soaring investment profits played a role; capital gains tax collections are on track to rise 60% for 2010 and 45% for this year, according to the governor's budget.
School officials welcomed the news that Brown wants to boost education payments, allowing them access to much-needed cash sooner than expected.
Kevin Gordon, an advisor to education groups in Sacramento, said funding delays like the one Brown initially proposed had thrown school finances into turmoil. The revised budget will provide "real, green money" that can be plunged into classrooms, Gordon said.
But administration officials cautioned that much of the money would disappear without the proposed tax increases and that the state could be hobbled by tens of billions of dollars in debt in the future, possibly unable to fund crucial government programs.
The governor's latest plan comes after he and lawmakers pared $11 billion from an estimated $26-billion deficit by cutting programs and taking other measures. Brown declared the cuts "the most significant reductions in government probably in the last decade."
Many of the cuts came from programs serving the poor, elderly and children. State-subsidized child care for 11- and 12-year-olds was eliminated, and one year was sliced from the duration of welfare aid for low-income families.
And welfare grants were cut, as were cash grants for the low-income elderly, blind and disabled. The reductions will make it more difficult for the poor to go to doctors and for the elderly, blind and disabled to receive subsidized care in their homes or institutions. State university funding plunged by $1 billion. Community college fees will grow from $26 to $36 per unit.
About $2 billion was also diverted from voter-approved mental health and early childhood programs. Advocates for the children's services have sued, and Brown's revised budget sets aside $1 billion to pay for the programs in case the state loses in court.
Brown did make some concessions to GOP lawmakers Monday — for example, maintaining a smaller version of the enterprise zone program they had fought hard to keep. But he is sticking to his plan to eliminate another form of government assistance to corporations: subsidies for firms that develop downtrodden neighborhoods.
He also is still pushing to end a tax break that can save companies money when moving operations out of state. He proposes using the $940 million the state would gain from such a change to create a new tax break for businesses to offset the cost of their manufacturing equipment.
Absent from the governor's new plan are proposals to overhaul the state's pension system or put stricter limits on state spending — both key GOP demands. But Brown, who needs some Republican votes to raise taxes and to put any increases before voters, said he was open to such changes.
Brown acknowledged that the spending plan lawmakers ultimately pass could be markedly different from his proposal.
"I've given you the blueprint," he joked, "and now the other architects will start to screw it up."