Press reports and the rumor mill suggest that lawmakers may be close to reaching agreement on a deal that attempts to address most, if not all, of the state’s $40 billion budget gap. A reasonable voter might wonder why, in the face of an impending cash flow crisis, reaching an agreement is so difficult. One factor stands out above all others – California is the only state in the nation to require more than a majority of its legislature to approve a budget under any circumstance and any state tax increase.
California’s double supermajority vote requirements have often led lawmakers to enact “solutions” to one budget crisis that lead to more severe problems in the future. Take, for example, provisions in the 2008-09 budget agreement that would raise a total of $2.4 billion in 2008-09 and 2009-10 and then result in a $5.4 billion total revenue loss between 2010-11 and 2015-16, with losses of approximately $1.0 billion per year thereafter. The big losses will kick in at a time when long-term budget forecasts issued by both the Legislative Analyst and the Governor’s Department of Finance estimate that the state will still face substantial budget shortfalls.
Despite projections of continued red ink, some reports suggest that an impending budget deal may include some type of a tax cut in the name of “economic stimulus.” Economic modeling suggests that tax cuts are an ineffective means of stimulating the economy. While their benefit to the economy is uncertain, at best, we do know that they will sow the seeds of larger, more challenging future budget shortfalls.
— Jean Ross