Governor Schwarzenegger has now told California how bad its economy is and, as a consequence, how ugly the state budget is going to be.

In the current budget year, which ends June 30, 2009, revenues are $11.2 billion short of spending commitments. For the following fiscal year beginning July 1, 2009, revenues are expected to be $13 billion short. Oh, and as a bonus, revenues were $567 million lower in the fiscal year that ended back on June 30 of this year.  

Without either increasing revenues or reducing spending or both, California would find itself nearly $25 billion short of its spending commitments by June 30, 2010 — just shy of one-quarter of the state’s current General Fund. 

The GOP governor has called a special session to deal with what he rightly describes as a fiscal emergency. And he rightly points out that the sooner reductions are made, the more savings accrue. 

Although his fellow Republicans in the Legislature have pledged not to increase taxes and show no signs of budging, Schwarzenegger proposes a three-year 1.5 percent increase in the sales tax beginning in January 2009.

For counties like Alameda, whose sales tax rate is 8.75 percent, the boost would send local sales taxes over 10 percent. San Francisco would have a 10 percent rate under the governor’s proposal. Santa Clara, San Mateo, Los Angeles and Contra Costa would be close to 10 percent. Fresno, Sacramento, San Bernardino and San Diego — all areas hit by foreclosure woes — would see sales tax rates rise to more than 9 percent.

The GOP governor also would expand the sales tax base to include various services. In February 2009, the sales tax would be applied to appliance, furniture and auto repair, veterinarian care and golf.

(Editor’s Note: While California’s Capitol has advocated expansion of the sales tax base, it has never suggested anything as draconian as applying it to golf. Our phalanx of powerful special interest lobbyists has accordingly been instructed to remove that from the governor’s list.)

“It is patently unfair to single out California’s golfers, who already pay a fair share of taxes and expect them to assume a disproportionate share of the revenue needed to close the state’s budget deficit,” said Bob Bouchier, executive director of the California Alliance for Golf. “With courses suffering and golfers staying at home while the economy flounders, this is exactly the wrong time to deal a major blow to an industry that plays such an important role in California’s economy.”

In March 2009, amusement parks and sporting events would be subject to the sales tax. 

Embracing an idea backed by Democrats, the governor proposes an oil severance tax of 9.9 percent to raise $1.2 billion in the next fiscal year. The version of the idea by Democrats, however, only taxed the oil extractions at a 6 percent rate. The legislation died in the Assembly in March. 

Backing another Democratic idea, alcohol excise taxes would be boosted by five cents a drink starting in January under the governor’s plan. The idea has been introduced legislatively by Democrats for a number of years but has consistently failed due to lack of support from Republicans and stiff industry opposition. 

And, since he can’t restore vehicle license fees since he campaigned in 2003 to eliminate them — Remember the “car tax?” — the governor would increases vehicle registration fees by $12. 

As for reductions, public schools are approximately 40 percent of state spending so they take what numerically is the largest hit. However the governor attempts to soften the blow. A $244 million reduction is the elimination of a .68 percent cost-of-living increase.

The bulk of the proposed savings — $1.7 billion — comes from transferring less money to local districts but would allow districts to use money earmarked for other specific programs, called categoricals,  to make up the difference.  

There are unallocated cuts totaling $132 million for the University of California and California State University.

Benefits offered to California’s poor under Medi-Cal would be reduced as would payments to the aged, blind and disabled under the governor’s plan.

Senate President Pro Tempore Don Perata, an Oakland Democrat, praised the governor for suggesting taxes be increased.

“I applaud the governor for proposing a realistic solution to the state’s budget problems that includes significant new revenues. But the governor’s plan to slash assistance to the poor and the needy while raising their taxes is an unacceptable double blow to California’s most vulnerable citizens.”

Perata’s comment could be one of dozens made my Democrats during the last nine months about how taxes ned to go up and harm to the poor be prevented. 

Republicans show no sign of linking arms with their GOP governor — just as they did over the past nine months.

This from Assembly GOP Leader Mike Villines of Clovis and Senate Republican leader Dave Cogdill of Fresno:

“Raising taxes is the worst thing we could do right now. It will devastate an economy that is hanging on by a thread, threaten jobs and hurt working families.

“Instead of raising taxes so the Legislature can spend even more on bigger government, Republicans believe that our priority in the special session should be putting California jobs first and encouraging more companies to invest in our state. Rather than punish Californians, we should work together to make tough choices about budget savings, while renewing our commitment to passing budget reform to help our state live within its means again.”

Again the statement is unchanged from what Republican lawmakers said throughout the budget season that ended a record 85 days into the fiscal year with a spending plan that did nothing to correct the revenue and spending imbalance.

This might cause an observer, casual or otherwise, to wonder how the conversation, if it can be called that, will change during the special session — particularly with Republicans emboldened by their ability to get Democrats to capitulate to their demands during the last go-round.



Filed under: Budget and Economy


  1. Why won’t the Gov and the Dems, one must wonder, consider raising income tax rates across the board? Or, taking a page from the 60’s, adding a “surtax” to the rates now in effect? Sure, it would hit everybody who has income. But raising the sales tax hits everybody whether they have income or are unemployed. Income tax is deductable on the Federal Tax forms while sales taxes are a pure tax–no deductability allowed. So if you really hate taxes, why propose a tax that isn’t deductable?

    Comment by lotuslover — 11.06.2008 @ 3:16 pm

  2. There are so many below the tax radar that at least with a sales tax everyone feels the pain. I wonder what would happen if we looked at all of the programs that are provided but are not required and make some reductions or flat out stopped them. When you have money its OK to spend it on doing nice things for people but when you are broke you need to fund just those things that are critical.
    Is it critical to allow illegal immigrants the benefit of in state tuition?
    Is it critical to silo fund schools instead of allowing them to locally control whatever amount of state money they are given?
    Is it critical that we require prevailing wages on state projects?
    Is it critical that we provide two state paid for vehicles for members of the legislature?
    Is it critical that the automatic elevators in the capitol have operators?
    Is it critical that only the city housing a regional mall gets all of the sales taxes generated from people coming from over the entire region?

    This is the type of thinking that needs to take place to solve not only the spending problem but also the structural problem of our states budget.

    Comment by Paul — 11.06.2008 @ 3:32 pm

  3. If the Legislature ever returned to what it was originally supposed to do–keen, annual oversight and evaluation of each and every one of the State’s programs–and they asked the hard questions like “Is this working? For how many and at what costs?” we might find that there are ways to curtail or eliminate spending or at least suspend it until better times return. With all due respect to the budgeteers in both houses, the budget subcommittee hearings and full committee hearings are more like drills, with orders from leadership, responding to political pressure, than an honest drilling down on what’s working and what isn’t. We have had the metrics and the methodology for evaluating programs for many years but lack the political will to do so. That means, no sacred cows, everything on the table.

    I’m still looking for the leader who will say: We have a duty of compassion to be willing to each give what we can so that others may stay afloat, whether it’s pay cuts, time cuts, furloughs, taxes, etc.

    Comment by Robyn Boyer — 11.06.2008 @ 6:22 pm

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