Budget Ugliness Continues To Reveal Itself

The California Budget Project has done a preliminary report on the "solution" (and I'm glad they put it in quotes) reached yesterday and expected to be signed by the Governor today. They demystify the fact that this is, once again, a short-term fix that will actually worsen our budget situation in the future. The $42 billion dollar hole from this year is a direct result of constant short-term fixes over the past several decades, pushing off the problem until the current legislators are out of office. Even in this budget, it is balanced through $6 billion in borrowing, which might as well be magic since we have the worst bond rating in the country.

The worst part of this is the spending cap, which could cripple future budget and severely ratchet down state services well beyond demand or even the rate of inflation and population increases. We have seen from other states how this is a hammer on the heads of the least of society and it must be fought in the May 19 special election. But the CBP is just as perturbed about the massive tax cuts, at a time of a $42 billion dollar deficit, to large multinational corporations:

Give multi-state corporations the option to choose between two different formulas for determining how much of their income would be subject to tax in California. This provision would be in effect in tax years beginning on or after January 1, 2011 and would cost $650 million in the first full year of implementation, eventually increasing to $1.5 billion annually. This provision provides no benefit to small businesses that only operate in California.

The tax breaks for movie companies and new construction home buyers and for hiring new workers (which history has shown doesn't end up increasing employment but increasing employer chicanery with their payrolls) are all temporary, as are the tax increases. The only PERMANENT tax in the entire plan is this giveaway to giant corporations like Exxon. This is why Richard Holober claims that big business is the "only winner" in this budget.

The worst of the business tax cuts is a permanent change in the formula for calculating the income tax for multi-state and multinational corporations. This produces an initial big business tax cut of about $700 million a year. The State Senate analysis estimates the recalculation will eventually yield a corporate tax reduction - and state revenue loss - of $1.5 billion a year. This is not tax fairness. Combined with the tax hikes on everyday Californians, it is redistribution of income away from workers and consumers and into the pockets of our state’s biggest businesses. And it provides no tax savings for the mom and pop businesses that we usually count on to provide the camouflage for these corporate welfare schemes.

Another major sin in this budget are the agreements secured by Republicans to essentially increase greenhouse gas emissions by relaxing environmental regulations for large diesel vehicles. This is another example of Arnold Schwarzenegger being a complete hypocrite, running around the country painting himself as the "green governor" while ramming through a provision directly contrary to that.

Like the budget itself, AB 8 XX was not the subject of any public hearings. The measure’s scaling back of emission controls was one of many concessions sought by Republicans in order for three of them in the Assembly and three in the Senate to vote for the budget.

Since there were no public hearings on the measure, it was easy for the GOP to side with the construction industry and ignore the majority of its members who want California to reduce greenhouse gas emissions and improve air quality.

A 2006 statewide by the Public Policy Institute of California found that 62 percent of Republicans strongly support state action to ratchet down greenhouse gas emissions. So do 73 percent of Democrats and 70 percent of independent voters.

That same poll found that two-thirds of likely voters for rolling greenhouse gas emissions back to 1990 levels by 2020. That is the legislation that became AB 32.

Finally, there is $5.8 billion that will be on the ballot for voters to agree upon, including a privatization of the lottery (which assumes a $5 billion sale... who is lining up to buy the California Lottery?) that would be a net loss of revenue for the state in the long-term, and $800 billion in raids from various voter-approved funds for things like mental health treatment. Considering how unpopular the legislature is these days, there is no guarantee that any of these will pass, which will leave another hole to fill by June.

These are just some of the details that reinforce the object lesson that major fundamental reforms, in particular repealing the 2/3 rule, are desperately needed. None of the above measures help the state. They were put in to placate a fanatical minority who is emboldened by a conservative veto. Sign the pledge to repeal 2/3.