A Question to Pose at the Upcoming Gubernatorial Debate

(Editor’s Note: Recently, The Sacramento Bee solicited requests for questions that could be posed to California’s two gubernatorial candidates, Republican Meg Whitman and Democrat Jerry Brown.  Here’s one: How are you going to balance the state budget for the first full fiscal year you are in office. Please be specific.)

In its November 2009 examination of the state’s fiscal outlook, the Legislative Analyst identifies a shortfall in the current fiscal year, which began July 1, of more than $20 billion.

Actions taken by the Legislature earlier in 2010 have helped reduce that hole.

In his May budget proposal, Gov. Arnold Schwarzenegger asked the Legislature to close a gap of $19.1 billion, which includes a $1.2 billion reserve.

To date, 85 days into the new fiscal year, no budget has been adopted.

Later in the same document, the Legislative Analyst predicts a $21.3 billion gap between revenues and spending commitments for the fiscal year beginning July 1, 2011.

That is the fiscal year for which either Whitman or Brown must propose a budget shortly after they take office in January.

A key reason for the sizable budget gap is that a series of temporary taxes approved in February 2009 expire. Those taxes were passed to help the state close what, at the time, was a $42 billion budget gap.

The largest amount of revenue lost comes from the end of a 1 percent increase in the sales tax — $4.5 billion.

A slight increase in vehicle license fees to 1.15 percent, which legislative Democrats want to make permanent in their budget proposal for the current fiscal year, also disappears resulting in a $1.5 billion revenue loss.

So does a .25 percent surcharge on state income taxes which generates just over $1 billion.

The tax credit the state offers for dependants would climb to $319 from $102, emptying state coffers of $702 million.

“The forecast of the general fund’s annual operating shortfall is affected significantly by the expiration at the end of … all of the temporary tax increases approved in February 2009,” the legislative analyst writes.

“These expirations, coupled with increasing program spending, cause the operating shortfall to rise to $21.3 billion,” the forecast says.

Federal economic stimulus money also evaporate next year.

Neither Brown nor Whitman offer any detail as to the budget one of them will propose  for the fiscal year beginning July 1, 2011 – let alone the $23 billion hole the analyst predicts for the following year when the state is required to repay cities and counties $2 billion it “borrowed” to help balance last year’s budget.

Brown says it will take “old-fashioned hard work, patience and a keen understanding of the process” to resolve the state’s budget mess.

Whitman says she has a plan to reduce $15 billion in state spending. In a March interview with the Riverside Press-Enterprise after a San Bernardino campaign appearance, she said paring back the state work force could save as much as $3.5 billion and a reduction in “fraud and waste” would yield $4.5 billion in savings.

“Reforming” the state’s welfare system could also save billions, Whitman contends.

The California Teachers Association, a strong supporter of Democratic legislative and statewide candidates, criticized Whitman’s proposal in a television ad because $15 billion in spending cuts would reduce state support for public schools by roughly half that amount.

Under complex formulas in the state constitution, public schools receive a minimum of 40 cents of every dollar in revenue that flows to the state.

On her campaign website, Whitman says California’s “long-term economic viability and competitiveness is directly connected to the quality of the education system in our state.”

Brown echoes Whitman on his campaign website:

“Long-term economic growth requires investment in education, infrastructure, our environment and our kids,” he says.

In his eight-page proposal to “get California’s government working again,” Brown offers few specifics on how he might close a $21.3 billion spending gap although he says the next governor should “level with the people and present an honest budget without the smoke and mirrors.”

He pledges to “engage” with both Republican and Democratic lawmakers and “listen to the concerns of groups most impacted by key budgetary decisions.”

Of the few specifics, Brown vows to “make immediate cuts” to governor’s office staff, “especially in the areas of press and communications, lawyers and other staff who are duplicative with agency and department personnel”

Operational costs and discretionary spending, like overtime and travel, would also be reduced both there and in other state agencies, Brown pledges, noting that the staff of the office has increased “significantly” since he was the state’s chief executive more than 30 years ago.

The budget for the governor’s office and its 185 employees is $19.5 million. The budget for the legislative, executive and judicial branches is $3.4 billion out of a state general fund of $86 billion.

Brown’s advocacy of a “rainy day fund” to cushion the state against unforeseen costs would also increase the expected 2011 budget shortfall.

Whitman also proposes tax cuts of at least $4.7 billion and as much as $12.3 billion.

The biggest ticket item on her list is elimination of the state’s tax on capital gains.

Over the past decade, state tax records show capital gains collections totaling $70.3 billion, ranging from a low of $3.2 billion annually to a high of $11.7 billion — an average of $7 billion between 2000 and 2009.

Like Brown’s emergency fund, Whitman’s tax cut would exacerbate the state’s gap between spending commitments and revenues.

Whatever spending plan is proposed by either Brown or Whitman, the main victims of the shortfall will be public schools and community colleges, as the teachers association points out.

“If the state funds schools at the levels reflected in our forecast, school districts could face significant difficulties due to simultaneous decreases in federal and state/local funding,” the analyst says in its forecast.

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