Wednesday Is Deal Day
In addition to a deal on the federal stimulus, it looks like - and I stress looks like - the Big Five have reached an agreement on a state budget deal.
Legislative leaders and Gov. Arnold Schwarzenegger have reached a tentative deal to close the state's projected $40 billion budget gap, according to sources close to the negotiations.
Staff members are working out some drafting issues, one source said, but a vote is scheduled for Friday.
Details of the pact are still emerging, but the plan involves tax increases, cuts and borrowing. The state also stands to receive billions in federal stimulus money as the package approaches closure in Washington.
Sources said Tuesday the plan would raise sales taxes by one cent on the dollar, increase income taxes across the board and hike the vehicle license fee from the current .65 percent of the vehicle's value to 1.15 percent. The taxes would last a minimum of two years.
These are generally flat increases (though the VLF is progressive based on the value of the car). They are not permanent, which means the structural revenue gap remains a long-term issue. They will be combined with up to $20 billion dollars in painful spending cuts (depends on what we get from the federal stimulus). And there are (at least) two big cappers that Republicans are getting in exchange for these revenue hikes.
As a tradeoff for new taxes, Republicans demanded that the deal include a limit on future state spending. Under the tentative agreement, the restriction would require the state to place money into a rainy-day fund after reaching a limit determined by state revenues over a 10-year period.
Voters would have to approve the spending limit, likely in a special election later this year, and it is particularly controversial among education groups who constantly seek more state money for schools. Concerned that the state's powerful teachers' union would try to kill the spending restriction at the ballot, budget negotiators included a provision that would extend the new taxes to five years if the spending cap passes [...]
Republicans and Schwarzenegger also asked for business-friendly changes in environmental and labor laws, emphasizing that looser regulations would help the economy rebound in California. While sources said unions have been successful in fighting labor changes, the deal exempts some major state highway projects from environmental review to hasten construction.
Let's take these one at a time. The spending cap (here called "brilliant" by high Broderist hack Dan Weintraub) is a pretty terrible idea, and it has failed virtually everywhere it has been tried. However, it is moderately popular in the state among voters, and Arnold will no doubt characterize it as a "reform," so I wouldn't say it's entirely sure to be rejected. However, combining it with an extension of the tax increases is a dumb strategy on the part of spending cap advocates. First of all, it seems unconstitutional, on the grounds of one initiative dealing with multiple issues. Second, you set up a situation where anti-cap advocates can offer a simple message - vote No to lower your taxes - which is the message that has won countless statewide elections in the past 30 years.
Then there are the environmental and labor reviews. It looks to me like liberals got most of what they wanted on this front. The exemptions are unfortunate, but increasing the gas tax and raising emissions standards will hopefully decrease the worst environmental effects.
There are a couple other elements, however. First, the state lottery sale, passed last year, will have to be on the ballot, and this budget counts on that for a short-term $5 billion dollar infusion of cash. It's just unlikely to me that anyone's going to buy it at that price, and it could fail at the ballot. And then there's the real capper for the Yacht Party - another corporate tax giveaway:
They would get a major break in state taxation from such a shift while their rivals from other states, such as Microsoft, could be hit with higher California taxes, but whether the shift would mean a net increase or decrease in state revenues is a highly contentious aspect.
The Franchise Tax Board has contended it would be a loss, but advocates say it would be a gain because California would become more attractive to job-producing investment.
Two years ago, a version of the "single sales factor" bill was attached to the final deal on the state budget, but, under fire from liberal groups, was rejected in the state Senate. And now it's part of this year's crisis-tinged negotiations, possibly as a sweetener for Republicans to vote for higher consumer and personal taxes.
Always wanting something for their "base," those Republicans. And by the way, I think we may be a little premature in calling this a done deal. Dave Cogdill says it's the best the GOP could get, but won't even commit to voting for it HIMSELF:
"My deal, one more time, has always been that I would try my best to get it to a position where I felt it was as good as I could get and I was willing to release my members," Cogdill said in a brief interview in the hallway outside his office. "That's where I am. So I'm not guaranteeing any votes; it's up to them (his members) to make that decision."
"But I've negotiated it to the point where I think it doesn't get any better," Cogdill said.
Asked if he specifically would support the package, Cogdill hedged, "We're waiting to see all the language and all of that so I'm not ready to commit who the votes will be at this point."
Not a guarantee at all. This still could be torpedoed when the votes come in.