Dueling Budget Proposals

It’s been a busy week in budget-land and it is only Wednesday. On the heels of the Governor’s May Revision which, as we noted, contains absolutely terrible cuts, the Senate Democrats and Assembly Democrats released proposals for bringing the budget partly or fully into balance.

The Senate revenue plan would delay implementation of the “dark of night” corporate tax cuts; extend the temporary personal income tax increases enacted in February 2009; raise alcoholic beverage taxes, which are levied on a per gallon basis and haven’t changed since 1991; and extend and increase the temporary vehicle license fee enacted in February 2009. The Senate plan did not outline spending proposals; however, press reports note that the added revenues would be used to forestall the worst of the “terrible cuts” outlined in the Governor’s proposal.

The Assembly Democratic plan largely relies on using $8.7 billion raised by “securitizing” (i.e., borrowing against) the next 20 years of revenues paid into the California Beverage Recycling Fund. The loan would be authorized through a complicated set of transactions that Assembly Speaker John Perez and his staff argue can largely be accomplished through bills that can be enacted by majority vote. The Assembly plan would also delay implementation of the corporate tax breaks, but that action would require a two-thirds vote of the Legislature.

We’ve been asked what we think of the two plans and here’s an initial response based on a lack of details needed to undertake a serious analysis:

  • We applaud both plans’ rejection of the most terrible of the reductions proposed in the May Revision.
  • The Senate approach brings more “hard” money to the table and that’s a definite plus. We’d be much happier if both plans repealed the dark of night tax deals that will only worsen an already gaping structural gap in future years’ budgets if allowed to take effect.
  • We’re not dead set against “budgetary” borrowing as part of a comprehensive budget plan. The Assembly proposal recognizes the fact that the current problem may well be too large to be addressed through any fiscally responsible or politically viable combination of spending reductions and revenue increases. That said, it would kick a large can down the road into 2011-12, when economic conditions will, hopefully, improve but not enough to solve California’s underlying fiscal woes.

The bottom line: thumbs up on the acknowledgement that any solution to this year’s budget crisis must be a balanced one that involves both targeted spending reductions and revenue increases.

— Jean Ross

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