As featured on p. 218 of "Bloggers on the Bus," under the name "a MyDD blogger."

Thursday, June 18, 2009

What The Democratic Budget Didn't Do

I mentioned in passing that I didn't particularly like the Democrats' budget counter-proposal. Let me go into some detail on that.

The Democratic budget provides a $3.8 billion dollar reserve. I recognize that, with state personal income tax revenues falling off the cliff (though by more in several states - man, Arizona's getting crushed - than here), that $3.8 billion will probably need to be used down the road, when this budget projection fails to match reality. But we're on fire right now, and using more of that reserve in this package would eliminate cuts that will probably contribute to more of an economic slowdown and bigger deficits down the road.

Of course, the reserve is so big because that's clearly the back-up plan for the legislature in case the $2 billion in taxes on oil severance and cigarette companies, so they can pay for their externalities, fail. I guess the problem is that those tax increases are only $2 billion dollars, and only around the margins instead of actually moving to a more progressive tax structure. However, there are of course short-term exigencies here - e.g. the 2/3 rule. But I'm assuming that putting the oil and cigarette taxes up is designed to provide fodder for future campaign ads - "X voted against kids and for Big Oil and Big Tobacco." Well, why wouldn't you HEIGHTEN those contradictions, then? There are plenty of other options - a nickel a drink alcohol tax, adding tax brackets between $47,500 and $1 million, etc. - that could be put into a model budget. Why not create the budget you WANT instead of the one you have to have, at least at first?

Finally, the budget sets aside the $2.5 billion dollar annual tax breaks for the largest corporations in America, secured in the last two budget agreements in the middle of the worst economic downturn since the Great Depression. That doesn't come close to sharing sacrifice, and it's really disappointing to see the Democrats shield big business on this. Their tax hikes are so small that all of them could have been covered by repealing the tax breaks. And a point of information - while normally repealing such tax breaks would require a 2/3 vote, because this is a modification of an existing budget and not a new budget, I'm not so sure that remains the case:

A couple of other points worth noting. First, the package of proposals is a modification of the state budget; the new fiscal year spending plan was actually enacted in February. As such, all proposals that are not a tax increase -- most notably, the spending reductions -- can be passed with a majority vote in each house. Trouble is, that would mean they wouldn't take effect for 90 days... thus delaying aid to the cash-strapped state. For the cuts to kick in immediately, it will take a supermajority vote -- which shifts some of the pressure over to the GOP about matching votes to their rhetoric about cuts, even if the rest of the package isn't to their liking.

Looking for some information on whether that applies to repealing tax cuts as well, I'll get back to you.

(As a side note, we will see what it's like if you lowered the 2/3 threshold for the budget and not for taxes - and that is, EXACTLY THE SAME. Taxes are part of the budget process. Walling them off makes it just as hard to pass a budget, especially if you're in the kind of hole that California is in.)

That the failed enterprise zone program is still funded at $500 million dollars annually is a sin.

Finally, there are very few solutions here - outside of the vehicle license fee for state parks - that incorporate the majority-vote fee increase items passed in January and vetoed by the Governor. They have veto bait in this deal, so I don't see why you wouldn't add the fee increases as well, which would have savings in the billions.

Some of the solutions that the Democrats came up with are fine, some gimmicky (delaying paychecks for state workers one day from June 30 to July 1, 2010 "saves" the state $1.2 billion dollars in this budget), but some still unconscionable - basically all of the education cuts sought by the Governor remain. There are $1 billion in Medi-Cal cuts that would need a federal waiver. And there were options to cancel those cuts.

The Democratic leadership thinks Schwarzenegger will cave and accept this budget. Keep in mind that, other than the $2 billion in tax increases, Republicans are somewhat irrelevant in a modification, and the fight will focus on whether that $2 billion will come from the budget reserve or additional cuts. Republican votes are needed to put the modifications in immediately, which maximizes their savings. So all these fiscally conservative Republicans can say now and waste the state lots of money. Their choice.

UPDATE: John Myers writes in to tell me that his understanding is it would take 2/3 to repeal those corporate tax credits. I pretty much figured this, but it seems weird that you cannot cancel what was enacted in the same budget cycle with a simple majority. In addition, treating repealing a tax cut like a tax increase and covered by Prop. 13 sounds just very wrong to me - an extension of conservative dogma that ought to be challenged in court. But yes, that's the most perverse part of our budget dysfunction. Hat tip to John for the info.

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