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Budget Pros and Cons

The Sacramento Bee‘s Kevin Yamamura does an excellent job of summarizing the various budget “Plan Bs” that exist, their advantages, and their risks:

The collapse of budget negotiations leaves a temporary vacuum as state leaders decide where to head next.

This much is known: the state needs to solve a remaining $15.4 billion deficit, and lawmakers have exhausted many options in the realm of spending cuts and fund transfers.

Gov. Jerry Brown and legislative Democrats have given up on a June tax election. But they have not abandoned their desire to solve most of the remaining deficit with additional tax revenue.

Republicans say they remain opposed to taxes, though they have not provided a complete alternative.

As novel as Brown’s approach has been this year, he faces the risk of heading down the same path his most recent predecessors did. The state could run out of cash as early as July, resulting in another summer of delayed payments to vendors and schools, as well as the risk of IOUs.

Here’s a look at the different options for Brown, in no particular order:

Blue-state special

The plan: Place taxes on the ballot by a majority vote of the Legislature.
Why: Avoids the need for Republican votes. If an election occurs early enough and fails, it provides lawmakers time to figure out an alternative solution, with a mandate from voters to cut further.

Challenges: Using only a majority vote requires creative legal thinking, and opponents would file suit immediately. Voters would be less inclined to support taxes without the blessing of both parties, as would major business groups. The election would occur sometime after June, so the budget would be late and the state would face cash challenges. Brown has already suggested this route is unconstitutional.

Slash and burn

The plan: Balance the remainder of the budget using additional spending cuts.

Why: Most cuts can be done with only a majority vote of the Legislature (though deep education reductions require two-thirds approval). State leaders could resolve the budget on time.

Challenges: The Legislative Analyst’s Office suggests cuts would likely hit every level of government, particularly K-12 schools and higher education. Schools would shorten the instructional year further, while state workers could face more furloughs. It is highly unlikely enough Democrats or Republicans would agree to such a plan, particularly on education.

What campaign promise?

The plan: Persuade the Legislature to approve taxes on a two-thirds vote, with no election needed.
Why: Avoids the uncertainty of an election, as well as the time and expense of a campaign. The governor and Legislature could resolve the state budget on time and secure higher tax rates before they expire.

Challenges: Republicans would drive a harder bargain than they did to place taxes on the ballot. They would seek to limit tax extensions to 18 months. They would ask Democrats to agree to place pension reductions and a long-term spending cap on a future ballot. And Brown would have to renege on his campaign pledge to ask voters before raising taxes.

The long and winding road

The plan: Gather signatures for a November tax initiative.

Why: Avoids the need for a legislative vote for taxes. Could impose cuts before the election to show voters what their taxes would buy back. Could pursue targeted taxes on oil and high-income earners, among others.

Challenges: It would be costly to gather enough signatures in time for a November election. Lawmakers would relinquish more than four months’ worth of higher sales and vehicle taxes and possibly lose an entire year’s worth of increased income taxes. It would be easier to attack as a tax increase because all three tax rates will have dropped by the time the election occurs. The state would face significant cash problems until November unless the Legislature makes deep cuts beforehand.

What’s past is prologue

The plan: Find some mix of cuts, accounting maneuvers and outside funds to bridge the remaining gap.
Why: Could be done on time with a majority vote. Avoids political liabilities related to tax hikes and deep education cuts. The legislative analyst has deemed it reasonable to use some onetime solutions rather than solve the whole problem in one bite.

Challenges: Governor would have to renege on his no-gimmick approach to solving the budget. May be difficult to find enough maneuvers to bridge the gap. Such options have proved unreliable in past years, adding to deficit problems. It does little to solve future deficits.

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