Author Archive
August 3, 2009: Tax Commission Having Trouble Seeing Eye To Eye
Posted by: | CommentsLast week we told you about the 21st Century Economy Commission, the 14 member panel charged with overhauling the states tax system. As you know, Governor Schwarzenegger called a legislative special session set for late September for the legislature to act on the commissions final report.
The tricky part is getting the commission to agree on what will make it into the report. The commission is even having trouble reaching a consensus on the topic of “workshops” that will take place for the public on August 26 and 28 in Southern and Northern California. The tax plans being debated include a “new major tax” called the Business Net Receipts tax (BNRT), which is reminiscent of a “value added tax” (VAT), a new carbon tax on fuels, and a flat tax proposal.
The commission does post all of it’s internal communications online which offers insight into their proposals and frequent disagreements. No information has been posted on the planned workshops, we will keep you posted.
July 30, 2009: Schwarzenegger Calls for Special Session To “Fix” Tax System
Posted by: | CommentsOn the heels of closing the book on the states “latest and greatest” budget, Governor Schwarzenegger is calling for a special legislative session set for September to address California’s tax system.
The Legislators will be called on to act on the recommendations handed down in a report due September 20 from the 21st Century Economy commission. The bipartisan, 14 member commission was formed by Governor Schwarzenegger and Assembly Speaker Karen Bass in October 2008 to modernize and stabilize the states tax system. The goal of the commission is to:
- Establish 21st century tax structure that fits with state’s 21st century economy;
- Stabilize state revenues and reduce volatility;
- Promote the long-term economic prosperity of the state and its citizens;
- Improve California’s ability to successfully compete with other states and nations for jobs and investments;
- Reflect principles of sound tax policy including simplicity, competitiveness, efficiency, predictability, stability and ease of compliance and administration;
- Ensure that tax structure is fair and equitable.
The last one has me just a bit nervous. Generally when California politicians speak of making the tax structure “fair and equitable” that is code for raising taxes. Here is the Governor’s statement on calling the special session:
“For too long our broken tax system has taken Californians on an unwelcome rollercoaster ride. This Commission will help change that, and provide students, teachers, the elderly and the poor a more reliable funding stream. I assure all Californians that I will call on the full legislative body to immediately consider the Commission’s recommendations as soon as they are submitted.”
The last meeting scheduled by the commission on July 22 in Los Angeles was cancelled. The presentations from the meeting on July 16 are available on the commissions web site. The “Tax Structure Options” are worth a quick read through.
July 29, 2009: California-We Have A Budget
Posted by: | CommentsYesterday as promised Governor Schwarzenegger signed the budget “solution” approved by the Assembly and Senate. The Governor also used his pen and his veto power to slash an additional $489 MILLION dollars in spending cuts.
Here is the policy update I received from Governor Schwarzenegger’s office with the official breakdown:
BUDGET
Governor Schwarzenegger Signs Budget to Solve $24 Billion Deficit
Budget Eliminates Waste and Does Not Raise Taxes
Governor Arnold Schwarzenegger signed a $24 billion budget solution that includes $16.1 billion in spending reductions. Over the past five months, the Governor has consistently led the difficult task of solving a combined $60 billion budget deficit – roughly a third of our entire state budget over the 2008-09 and 2009-10 fiscal years. When included with the $15 billion in reductions passed in February, the cuts amount to approximately $31 billion. While there are some one-time solutions in the budget agreement, the Governor fought to minimize those one-time moves and also to stave off the alternative of higher taxes. There are no tax increases in this budget agreement.
Because the entire budget package was not approved, the Governor used his veto pen to eliminate an additional $489 million in spending, which will leave California with a $500 million reserve. For the complete list of vetoes, go to www.dof.ca.gov.
”This is not an easy budget, but it is a necessary budget that does not raise taxes, solves the $24 billion dollar deficit and includes long-term reforms,” said Governor Schwarzenegger. “I see the real Californians that will be affected by the decisions made within this budget and nothing guarantees revenues won’t drop further, but this budget puts us on a path toward fiscal responsibility so we can focus on bringing jobs back to get California moving forward again.”
Below is the breakdown of how the Governor and legislative leaders agreed to solve the $24.2 billion|i| deficit:
Expenditure Reductions Total: $16.1 billion
- Education: 1) Recapturing savings previously thought lost by missing June 30 deadline and recalculating Prop 98 accordingly (and therefore the overall size of our problem); this means the additional increase of $1.6 billion in the Prop. 98 guarantee for 2009-10 that we had anticipated does not happen; 2) Redevelopment Agency shift to schools; 3) additional cuts to UC and CSU funding(just under $2 billion total for 2008-09 and 2009-10). $9.3 billion
- Corrections: Leaders agreed upon a reduction level in corrections, specific program reforms will be determined upon the legislature’s return in August. $785 million
- General Government: Suspension of COLAs; leveraging state assets (no current-year savings); consolidating and reorganizing boards and commissions, including elimination of the Integrated Waste Management Board; IT procurement reform. $1.7 billion
- State Employee Compensation: Third furlough day adopted; eliminate rural health care; score health care savings. $820 million
- Health and Human Services: Long-term CalWORKs reforms, including graduated sanctions and twice-yearly check-ins; Medi-Cal eligibility changes and improved care coordination; IHSS fraud initiative including fingerprinting; Healthy Families eligibility changes. $3.0 billion
- Vetoes: $489 million
Fund Shifts Total: $1 billion
* These include CalFIRE interagency agreement with the legislature and transportation spillover
Revenues Total: $3.5 billion
* These include: Optional personal income tax withholding changes; tax enforcement; SCIF proposal; special fund transfers
Borrowing Total: $2.2 billion
* These include: Proposition 1A suspension; loan from State Highway Account; various loans and fund shifts to keep state parks open
Other Total: $1.4 billion
* June to July state payroll and health premiums delay
Total Solution: $24.2 billion
* Reserve: $500 million
Reforms Total: $2.3 billion ($2 billion General Fund)
Governor Schwarzenegger insisted that this budget solution could not only be about our short-term cash needs – it must also be about structural reforms to put our state budget on more solid footing in future years. The Governor worked with legislators to include structural reforms in this solution, many of which he has been fighting for since he was first elected to office. Some of these reforms will show significant savings in the current fiscal year (and much more in out-years) These include:
- Consolidating and Eliminating Boards and Commissions. Including elimination of the Integrated Waste Management Board. $50 million in 2009-10
- Rooting Out Fraud From IHSS. Putting in place a fraud prevention program that includes background checks and fingerprinting for service providers. $250 million in 2009-10 General Fund ($546 million total funds)
- Reforming CalWORKs. For short-term savings, focusing available funding on those who are meeting the work requirements. $510 million in 2009-10
- Corrections Custody and Parole Reforms. Of the $1.2 billion in reductions that legislative leaders agreed to for the 09-10 fiscal year, the goal is to have roughly half of those reductions come from parole and corrections custody reforms. $641 million in 2009-10
|i| Note: The size of the problem was adjusted from $26.3 billion to $25.1 billion (which includes target reserve of $2 billion) because: 1) the state is able to capture the $3 billion in savings from 2008-09’s Proposition 98 allocation previously believed to have been lost on June 30, which reduces the size of the 2009-10 guarantee by $1.6 billion; and 2) June revenues came in $536 lower than projected. Additionally, we did not reach the desired reserve of $2 billion, instead attaining reserve of just $918 million, meaning the Governor and legislators solved for $24.2 billion.
|ii| This, in addition to the $400 million blue-penciled by the Governor in the February budget, equals an approximate $1.2 billion spending reduction in Corrections for the 2009-10 fiscal year.
JULY 27, 2009: Budget Package Off To The Governor’s Desk
Posted by: | CommentsSleep deprivation and a marathon 20 hour session won out in Sacramento, the Legislature finally approved a budget package on Friday. The package consists of about $15 BILLION in cuts and complicated accounting slight of hand tricks.
Two bits didn’t survive the chopping block. The first drilling provision in 40 years off the Santa Barbara coast and the ability for the state to borrow gas tax revenue from local governments both were axed out of the final package.
The $1.2 BILLION dollars in cuts to corrections was approved but no decision is official on exactly where the cuts will come from. Once the issues cools off it will be resolved.
The package is still about a BILLION dollars short. Governor Schwarzenegger vowed to only sign a budget that resolves the entire $26+ BILLION dollar deficit. I guess a BILLION short is close enough, Schwarzenegger has said he will sign the budget this week. He is planning on using cash reserves and his line item veto power to make the ends meet.
The question is: will this one stick? If the economy continues to deteriorate, how long until this one becomes obsolete? Will all the expected “savings” materialize as promised? In the mean time, IOU’s will soon cease and our financial crisis will come down a notch….for now. It’s a safe bet the deficit will rear it’s ugly head once again.
So…this month another fiscal year began without a balanced budget and another budget is now off to the Governor to be signed. Another missed opportunity for our Legislature finally address some of issues that will forever plague our state and it’s ongoing budget calamity: entitlements, illegal immigration, union contracts and legacy costs. Only when our lawmakers take a hard, honest look at the back breaking amount of money dedicated to these expenditures will our state finally be able to stand on it’s own two feet financially. As long as Sacramento continues to try and be all things to all people we as a state will again find ourselves right where we are and have been: broke, over-taxed and teetering on the verge of a rising sea of red ink.
JULY 26, 2009: Welcome To California
Posted by: | CommentsFor a bit of levity on a Sunday, here is a video my brother (from another state) found from a Santa Cruz City Council meeting. He believes this is a perfect argument for why California should just fall off into the ocean. If she’s a registered voter, it’s no wonder we are in such a pickle.
In a time of great political calamity, we can all use a good laugh.
JULY 23, 2009: It’s 10PM In Sacramento-Do You Know Where Your Legislature Is?
Posted by: | CommentsIncase your not watching the Assembly and Senate floor sessions going on right now in Sacramento on the California Channel, lawmakers are voting on the now 31 bills that make up the new and improved budget scheme.
Here it is at just about 10PM and things are moving right along. So much so that the Senate just broke for a Republican caucus to the coffee shop and the Democrats are off to caucus in the lounge. Really…I’m not kidding.
The Assembly is voting on one of the bills, AB 5 as I type.
This could be a very long night under the capital dome…..
JULY 22, 2009: Third Time’s The Charm?
Posted by: | CommentsSacramento has come up with their “solution” to balance the states’ budget. The 24 separate pieces of legislation that make up the new budget are set to be voted on by the Assembly and Senate on Thursday night or Friday morning. Once the Legislature approves the package it could be on Governor Schwarzenegger’s desk by Saturday. The proposal consists of minor spending cuts, pillaging the piggy banks of local governments and some really creative accounting. This is Sacramento’s third attempt to pass a budget that will stick in less that a year. The first attempt was back in September ‘08 and the second was this past February when the Legislature gifted constituents with new taxes.
The new and improved budget is partly financed on the backs of local governments by “borrowing” and “redirecting” property tax revenue and other funding to the state. Cash strapped cities already in a bind now have to worry about the state raiding the coffers.
Proposed spending cuts total $15 BILLION and include:
- $9 BILLION from education.
- $1.3 BILLION from Medi-Cal.
- $1.3 BILLION by continuing three unpaid furlough days for state employees.
- $1.2 BILLION from the Department of Corrections.
- $528 MILLION from CalWorks.
- $226 MILLION from in-home health care.
- $124 MILLION from the Healthy Families program.
- $8 MILLION from state parks and beaches.
On a positive note, the budget plan does allow for a limited expansion of oil drilling off the Santa Barbara coast. Unfortunately the provision is limited to a single platform that will only generate $100 MILLION for the 08-09 budget. If drilling were realistically considered by the Legislature much of our annual deficit would be offset by it’s revenue.
Is this the best they can come up with? Really?
JULY 21, 2009: LA City Council Debate Jackson Memorial Bill
Posted by: | CommentsToday at 10AM the LA City Council will meet to hash out who will be footing the bill for the cities resources used for Michael Jackson Memorial at Staples. 5 motions will be brought up during the meeting to resolve the outstanding issues over who will pick up the tab, the taxpayers or AEG/Staples.
Council member Dennis Zine has been outspoken in defense of the taxpayers, even before the memorial took place. Council Member Zine has also called on City Attorney Carmen Trutanich to look into who gave the green light for the expenditure and if the city can take legal action to seek reimbursement.
Los Angeles, with it’s over $530 MILLION dollar deficit can little afford to be the sugar daddy for such privately planned events. The exact total for resources needed at the memorial, the private service at Forest Lawn and the Encino and Holmby Hills homes has yet to be finalized. LA Mayor Antonio Villaraigosa has stated that the memorial cost the city $1.4 MILLION dollars.
The city absolutely had a responsibility to be prepared but the all hands on deck approach of amassing over 3,000 police officers was excessive. During the memorial a SWAT call came in and none were available to respond as they were all at Staples, the Sheriffs Department was deployed instead. The cities planning was inflated due in part to AEG/Staples and the media hyping up the event with rumors of 750,000 people flocking from all over the world to Los Angeles for the event. The city estimates less than a 1,000 showed up without a ticket and reports no incidences or arrests. For Los Angeles it was much ado about nothing. But…there is still the issue of the bill. Oh and don’t forget the little issue of the just under $50,000 spent on box lunches for the over 3,000 police officers that came from Jensen’s Fine Foods in Wrightwood, 80 miles outside of Los Angeles.
The issue of who pays is deeply intrenched in politics. LA Mayor Antonio Villaraigosa and City Council Member Jan Perry both have very close ties to the AEG camp (owner Philip Anschutz/AEG president and CEO Tim Leiweke). AEG has contributed BIG money to Villaraigosa and his city initiatives. AEG in turn has benefitted from hundreds of millions of dollars in bond money, “rebates” and free building permits from the city. As long as AEG, the Mayor and Council Members engage in a tit-for-tat money games, the taxpayers will always be the ones holding the bill.
JULY 19, 2009: The “Big Five” Takes Five
Posted by: | CommentsGovernor Schwarzenegger cancelled a scheduled budget meeting with Legislative leaders today in Sacramento. The “Big Five” have agreed in theory to a basic out line of a budget solution. Tonight’s meeting would have been an opportunity to firm up the outstanding issues that continue to loom.
Schwarzenegger sited Assembly Speaker Karen Bass as the reason for the meeting’s cancellation. According to the Governor’s office, the Speaker was unable to make it back to Sacramento for the meeting. The Speakers office refutes that claim and says Bass was scheduled to be back in town at 6PM.
The “Big Five” negotiations have been rescheduled for Monday morning at 11AM.
JULY 16, 2009: Budget Negotiations Stalled Again
Posted by: | CommentsYesterday budget talks stalled once again in Sacramento. Lawmakers are at odds over what to do once a budget is passed and the economy returns to the land of the living.
Democrats are insistent upon a permanent “clarification” to Proposition 98 which would guarantee repayments of funding cuts in “Test 1″ years. The 2008-2009 budget year qualifies for the state’s first “Test 1″ year since it’s revision in 1990. Governor Schwarzenegger has offered his word and agreed to sign legislation to insure future repayments after the current crisis is resolved. Democratic leaders want something more permanent. What they call “clarification” could actually amount to a change in the state’s constitution without voter approval.
The “clarification” to Prop 98 might end up being a bargaining chip in a budget deal.
While the Legislature continues to tinker days away in Sacramento, the tide of red ink continues to rise. Earlier in the week Moody’s downgraded California’s bond rating. The state is once again entering junk bond territory.
Here’s an idea for our lawmakers…how about actually passing a budget before you start grand standing on future funding. A word of advice: Don’t count your chickens before they hatch.