It’s What Ducheny Said, Not What Senate Democrats Propose

Sen. Denise Ducheny said a number of important things at the May 24 hearing of the Senate Budget and Fiscal Review, Subcommittee Number 5.

Unfortunately, Ducheny’s reasoned and revealing remarks were largely drowned out by a cacophony of carping by GOP lawmakers and others over the recommendation by Senate Democrats that 25 percent of the state’s $19.1 billion budget shortfall be filled with revenue rather than cuts in social services and health programs. (See Page 12 of the Subcommittee Agenda.)

What Ducheny says is important for a number of reasons, not the least being she chairs the upper house’s budget committee and, for the past three abysmal budget years, has spearheaded legislative efforts to staunch the state’s red ink.

Ducheny, a San Diego Democrat, has spent six years in the Assembly and is completing her eighth and final year in the Senate. Her length of service has given her  a breadth of knowledge, budgetary and otherwise, and a gift for practical problem solving.

For example, while Republican senators denounced the Democrats’ recommendation that $4.9 billion in revenue be used to help close the budget gap as another illustration of their “tax-and-spend” mantra, Ducheny politely explained to anyone within earshot of Hearing Room 113 what was actually going on.

“There needs to be a concerted conversation,” Ducheny said of how the budget must be resolved.  Her “experience in the building,” she said, is that the only way to do that is to “make everybody really mad.”

For all the ink and air time devoted to “Senate Democrats Propose $4.9 billion in Taxes,” it was clear from Ducheny’s remarks – and past budget history – that the final budget may or may not include higher taxes and, if taxes are increased, it might not be the ones Ducheny’s subcommittee recommended.

“The governor chose from Group A,” Ducheny said of GOP Gov. Arnold Schwarzenegger’s proposal to close nearly two-thirds of the budget gap with spending cuts. “We choose from Group B.”

In other words, the negotiations over a final budget have begun. The governor set his priorities in the budget he proposed May 14. Now legislative Democrats counter.

The largest chunk of the revenue increases offered by Senate Democrats is to postpone the effective date of two tax changes benefiting larger corporations for two years and continue for another two years the ban on businesses writing off prior year losses against tax year profits.

Doing so saves the state $2 billion in the fiscal year beginning July 1 and an additional $1.5 billion the following year.

In his January budget, Schwarzenegger proposed doing the same thing except for one year. He now says he no longer supports doing that.

“After the largest tax increase in our state’s history we cannot ask California taxpayers to continue to pay for Sacramento’s mistakes,” said Aaron McLear, Schwarzenegger’s press secretary.

During the subcommittee hearing, Ducheny said the thinking behind the two-year delay and continued suspension is that the next fiscal year and the following one have the most uncertainty.

While she didn’t say it out loud her experience – and that of her staff – causes them to realize that even as an economy recovers the state budget lags behind – that’s what happened under Gov. Pete Wilson in 1994 and 1995 and at the beginning of Schwarzenegger’s term in 2004 after the recession of following the bursting of the Dot Com bubble.

Ducheny did say that federal economic stimulus funds that helped blunt some of the cuts the state would have needed to make to balance its books begin to run out next year.

Temporary tax increases approved in the February 2009 budget also begin to expire as well.

In response to complaints by a lobbyist for the Howard Jarvis Taxpayers Association about the regressive nature of the proposed tax increases, Ducheny pointed out that Democrats are not extending the 1-cent sales tax increase set to expire at the end of the next fiscal year for that reason.

The sale tax is considered regressive because lower income Californians pay the same percentage as wealthier Californians. The income tax is progressive – liability increased along with the amount of taxable income.

Accordingly, Senate Democrats maintain a .25 percent surcharge on state income taxes for two years and maintain the dependant tax credit at $102 – down from $319 for two years.

Senate Democrats also boost vehicle license fees for two years from 1.15 percent to 1.5 percent, starting July 1.

Under the proposal the owner of a $30,000 car would pay $100 more annually. License fees can be deducted on federal taxes.

In the face of lobbyists arguing for the corporate tax breaks to go into effect as scheduled Ducheny said that under the budget state programs were being asked to hold steady for two years and that was the same thing being asked of the tax break’s beneficiaries.

“Right now they score it as costing me $2 billion,” Ducheny said of the price tag Schwarzenegger’s budget writers have attributed to the tax law changes. “There’s absolutely no sense in not suspending them for at least one year.”

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