Vote Finally Pending on a Budget But Does it Really Balance?

On October 7, the 99^th day of the fiscal year, lawmakers are finally expected to vote on a budget for the fiscal year that began July 1.

It is by far the latest delivery of a spending plan in California’s 160-year history. “(This budget) provides a way forward to protect the public structures of education, public safety, infrastructure and vital services, the special two-house legislative Budget Conference Committee said in an October 6 handout summarizing the proposal.

The committee held a 90-minute hearing outlining the proposal’s key features, which were ironed out without public hearing behind closed doors by the four leaders of the Legislature and Gov. Arnold Schwarzenegger.

Schwarzenegger described the budget was a positive step forward.

“The cuts and reforms the governor pushed for will absolutely help future leaders of the state govern more efficiently,” said Aaron McLear, the GOP governor’s press secretary.

Combing through the budget committee’s handout – a more detailed version is promised before the budget votes October 7 – questions emerge over whether the proposal actually closes the current fiscal year’s projected $17.9 billion gap between spending commitments and revenues.

Even if the plan balances, the Legislative Analyst in its November 2009 examination of the state’s fiscal outlook predicts a $21.3 billion budget gap the following fiscal year, sparked mainly by the expiration of more than $7.5 billion in temporary taxes imposed through the February 2009 budget to close that year’s shortfall.

Next year’s shortfall might fall by at least $550 milion if voters repeal several tax increases enacted in February 2009 by approving Proposition 24 on the November ballot.

To save $1.2 billion, the budget plan lawmakers will vote on October 7 prohibits businesses for two years from writing down current profits through carrying forward past losses. That’s one of the tax breaks Proposition 24 would repeal.

The budget committee’s handout says “over 90 percent of all corporations are exempted from this suspension.”

Estimates by the Franchise Tax Board are that for 2010, 70,000 of the state’s 740,000 corporate tax returns will be affected by the suspension. Those 70,000 would be the companies with the highest income.

Elsewhere, the handout says public schools – recipients of the largest chunk of the state’s general fund – will receive “ongoing” funding of $49.7 billion, up slightly from the $48.9 billion proposed by Schwarzenegger in his May budget plan.

However, the handout says, through a “new deferral of $1.9 billion” total state spending for public schools and community colleges would climb to $52.5 billion.

This deferral is a way to change state school accounting, the handout says, by deferring $1.9 billion in payments into the following fiscal year.

“This reduces the amount of money the state spends in the (current) fiscal year but provides the same level of programmatic funding for schools,” the handout says.

What isn’t said is that such a deferral means there’s $1.9 billion less the following fiscal year for schools.

This $1.9 billion loss comes in addition to a reduction of some $3 billion in money schools are owed from the state when the $7.5 billion in temporary taxes expire, reducing revenues to the general fund from which schools are guaranteed at least 40 percent.

The budget also expects $5.3 billion in “new or extended” federal funds. The handout notes this is less than the $6.9 billion the governor assumed in his January budget.

The handout doesn’t say its $1.2 billion more than lawmakers expected in their last budget plan in August.

Nor does the handout say that, to date, the state has received only $1.3 billion of the $5.3 billion in additional federal funds, according to Schwarzenegger’s Department of Finance.

The budget being voted on uses estimates by the Legislative Analyst predicting revenues will be $1.4 higher during the fiscal year than the estimates contained in the GOP governor’s May budget proposal.

“Three months into the fiscal year, this additional revenue has already been realized,” the budget committee handout says.

Through August, the Department of Finance shows state revenue collections $12 million above estimates.

The proposal’s “budget reform” is a measure that will appear on a future ballot doubling the size of the state’s “rainy day” fund from 5 percent of the general fund to 10 percent.

Voter approval would be required to implement the change.

Gubernatorial candidates Meg Whitman, the Republican nominee, and Jerry Brown have been critical of this year’s handling of the budget.

“What we are suffering from is a tremendous lack of leadership in Sacramento,” Whitman said of this year’s record delay at a September 1 campaign stop in Folsom. “(Legislative leaders) would have been in the governor’s office, under my leadership, every day. I would have chained them to the desk to get this done.”

Democrat Jerry Brown, California’s attorney general, says on his campaign website, that the Legislature is “broken” and stuck in a “morass of poisonous partisanship.”

Neither has presented any specifics on how they plan to balance California’s chronically-in-the-red books next year when it’s their responsibility to present a budget for the fiscal year beginning July 1, 2011.

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