CDCAN Report  #125-2011, Tuesday June 14, 2011

Legislative Democrats Ready To Pass Majority Vote Budget Without Help From Republicans – Budget Plan Would Not Have Tax Extensions But Rely On Fund Shifts, One Time Solutions In Addition To Cuts Already Passed In March and Approved by Budget Subcommittees In May 

SACRAMENTO, CALIF  (CDCAN)  [Last Updated 06/14/2011  04:40 PM] -  Barring a last minute surprise, both the State Senate and Assembly will convene floor sessions Wednesday (June 15^th)  for a final vote on the 2011-2012 State Budget, with Legislative Democrats now ready to pass a spending plan on a simple majority vote without the tax extensions – but with fund shifts one time solutions in addition to the spending cuts previously passed in March and late May.  

That plan would avoid what has been termed the “all cuts budget” that Democrats said earlier would be necessary if the tax increase extensions were not approved.  

That means there would not be any additional spending cuts to health, human services, education or most other budget areas beyond what was already approved in March or late May.  Not certain is how the Governor’s proposed cut to redevelopment agencies – totaling $1.7 billion – will be handled under such a scenario.  The Governor, as of May 16^th, still wanted the Legislature to approve his proposed elimination of those agencies – which failed passage by one vote in the Assembly (but was never brought up for a vote in the Senate) in March.  

Senate Will Meet 10 AM – Assembly At 11:00 AM.  

The State Senate is expected to convene its floor session at 10:00 AM, while the Assembly is scheduled to meet at 11:00 AM.   Both sessions will be televised on CalChannel (check local cable listings) and streamed live on the CalChannel website at www.calchannel.com

June 15^th is the State constitutional deadline for the Legislature to pass a budget and send it to the governor – a date that in previous years has never been kept.  That changed this year in part because of Proposition 25 passed by voters in November 2010 that allows for a budget plan to be passed by majority vote (except for raising revenues) and also imposing penalties on legislators for each day a budget plan is not passed and presented to the Governor after June 15^th (penalties include loss of pay and expenses for each day that a plan is not passed and sent to the Governor)/  

Governor Brown signaled yesterday that he would consider signing such a budget plan, despite earlier statements that he would only approve a budget with the tax extensions or what has been referred to as an “all cuts budget”

Legislative Democrats are appear to be willing now to pass a budget plan on a majority vote with one-time solutions, accounting measures – sometimes referred to by the Governor and others as budget “gimmicks”, and increased revenues coming into the State’s treasury as the California economy continues to slowly improve, that gets the State at least through 2012.  

Besides a hoped for continued improvement of the State’s economy that continues to bring in higher revenues, Legislative Democrats are also counting on two other political factors to solve the budget deadlock on tax extensions in 2012: the new legislative districts drawn up by the independent commission that become final in late August in time for the June 2012 primary and November 2012 general elections that Democrats believe give them a shot at obtaining 54 Assembly and 27 State Senate seats – or the needed 2/3rds majority.  In addition, many political observers believe now that the new open primary law – which went into effect earlier this year that was pushed by then Sen. Abel Maldonaldo, the former Lt. Governor, as part of the 2009 State budget deal – could give Democrats an edge in helping to elect some Democrats or moderate Republicans .  

Neither political factor however would seem to come in time for the next budget either – which would be due June 15, 2012 – after the June primary election but before the November election, and before the newly elected members take office in December 2012.  

State Controller Issues Monthly Report Showing Continued Increase In State Revenues Above Budget Projections

Meanwhile, adding to the confidence of Legislative Democrats in passing a majority vote budget that doesn’t contain “all cuts”, State Controller John Chiang released today his monthly report covering California’s finances – including actual revenues brought in for the month May -  show the State’s total revenues continue to be above budget projections for this year – and above actual revenues that came in last year.  

Compared to the Governor’s 2011-2012 May Revised Budget estimates, total State General Fund revenues were $408.3 million higher (5.9%) than expected for the month of  May.

·         Personal income tax revenues came in above estimates by $12.3 million (0.4%)

·         Retail sales taxes were also above expectations by $305.9 million (9.0%)

·         However, corporate tax revenues were $11.1 million worse (-3.9%) than expected.

Compared to May 2010, the increase in revenues was even higher, with State General Fund revenues in May 2011 up $747.1 million (11.3%).

·         The total for the three largest taxes was above 2010 levels by $652.8 million (10.5%)

·         This was driven by personal income taxes, which were up $509.8 million (21.4%) and sales taxes, which came in $175.4 million above last May’s totals (4.9%). Corporate taxes were below last May by $32.3 million (-10.5%).

“Many indicators show that our state is still moving towards recovery, but a prolonged budget deadlock could needlessly endanger that progress,” said Chiang. “The Legislature can do no greater service to California’s economy than to deliver a balanced, sustainable and on-time state budget.

No Progress Toward Agreement With Republicans

·         While a last minute deal could still emerge, at the moment there appears to be no progress toward a final agreement to win at least two Assembly and State Senate Republican votes to pass a budget with the Governor’s proposal to extend for five years, the 2009 temporary tax increases set to expire – unless extended – on June 30, 2011.

·         The tax increase extensions issue would be placed on an either a special election ballot for voters to ratify as early as September (which the Governor said he wants) or on the ballot in a regular statewide election in 2012 (which legislative Democrats prefer).  The extensions proposal however would have what is referred to as “bridge financing” that extends the temporary tax increases for at least one year, because an election on the issue for voters to decide cannot be held until at least September at the earliest.  

·         Legislative Republicans have said the increased revenues reported this month and last by the State Controller is evidence that extending the 2009 temporary tax increases is not necessary – saying that combined with the new revenues, additional new spending cuts on top of what the Legislature approved in March and late May, and imposing a spending cap and other measures could result in a balanced budget without extending tax increases or raising new taxes.  

·         Legislative Democrats disagree, saying extending the 2009 tax increases are critical toward solving permanently the State’s budget crisis – including providing necessary funding for state programs and services that would be shifted to the counties and to fund K-12 education and higher education.  

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