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Brown’s rainy-day plan is the sane solution to California budget crises

By   /   Friday, May 2nd, 2014  /   Comments Off

Gov. Jerry Brown may be looking to make the rebalancing of California’s budget the signature achievement of his second administration.

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Henry Dubroff

Henry Dubroff

Gov. Jerry Brown took a big chance in calling the legislature back into special session to consider strengthening the state’s rainy-day fund.

So far it is paying off. At an April 28 hearing, Brown got a favorable reception from both Democratic and Republican Party panel members. And with the Democrats in the Senate reeling from a series of political scandals, Brown seems likely to win his bid to put a constitutional amendment on the November ballot.

Indeed, rather than seeking national office, Brown may be looking to make the rebalancing of California’s budget the signature achievement of his second administration. In his testimony, Brown called for “protective restraint” to rein in spending when favorable stock markets produce windfalls in capital gains taxes.

Fixing the state’s fiscal imbalance is important: Major credit rating agencies rank the Golden State 49th in terms of credit worthiness, ahead only of debt-ravaged Illinois.

The diagnosis of the problem is simple. During the past 25 years, stock market gains  have triggered billions of dollars in capital-gains tax revenue that quickly vanishes when the rally ends.

In the 1990s, dot-com era gains triggered first tax cuts and then spending increases — notably former Gov. Gray Davis’ egregious hand out to prison guards — that left the state in a mess when the Internet bubble collapsed.

After Davis was recalled, Gov. Arnold Schwarzenegger pushed through a modest  rainy-day fund but his administration was actually saved in part by a multibillion-dollar capital gains windfall from a single event, Google’s IPO, plus the real estate bubble. Then came the inevitable collapse.

Data from the governor’s official budget underscores the problem. Capital gains reached nearly $10 billion in 2006, greatly aided by the real estate bubble and lingering impact of the Google stock windfall. In that year, capital gains revenue hit 10.7 percent of general fund revenue.

But by 2009, capital gains had plunged to just $3 billion or 3.5 percent of the general fund — that’s a $7 billion hit for which the state was totally unprepared.

Under Brown’s proposal, the state would essentially move from cash to accrual accounting and use an average of past years for the capital gains budget number. Any surplus cash would go to paying down debt. Brown’s proposal would replace a budget spending cap amendment now heading for the ballot.

Some key Senate Democrats are balking, advocates for the poor don’t want to see money taken off the table, and restraint has proven to be a hard sell when it comes to legislators.

But Brown is on about the only course to fiscal sanity available in a state that that depends so heavily on its startup culture and investment gains for essential revenue.

Standing up for a principle

Give Vincent Armenta credit for doing the right thing.

The head of the Chumash Casino Resort and the Santa Ynez Valley Band of Chumash Indians was quick to pull a four-year presenting sponsorship of the Los Angeles Clippers in the wake of the Donald Sterling scandal. “We cannot ignore any statement that causes harm or hurts any group,” he explained in a statement. The Chumash expressed support for the Clippers players and coaches.

At press time, the Chumash was lauding the NBA’s decision to ban Sterling for life and slap him with a $2.5 million fine. But the tribe was waiting to see what happened with an NBA owners vote that determined if Sterling must sell the team before it reconsiders its sponsorship again. The vote was scheduled for May 1, after this issue went to press.

Armenta at times has been at odds with Santa Ynez Valley residents over the tribe’s development plans, including a recently announced effort to add more than 200 rooms to the resort. But in the wake of the Sterling saga, the tribe’s leadership should be applauded for standing up for the principle of treating all people with dignity.

Morehouse to lead SCAG

Finally, Ventura County will get a powerful voice when it comes to transportation funding. That’s because Carl Morehouse, a Ventura County city councilman, is taking over as head of the powerful Southern California Association of Governments. SCAG, as the organization is known, represents 191 jurisdictions and oversees the development of a regional transportation plan that totals more than $500 billion in projects and creates direct and spinoff jobs estimated at 500,000 a year.

Morehouse is a skilled land planner and longtime city councilmember. He can be a voice for economic vitality and common sense for Southern California and we’ll bet he makes sure that Ventura County gets its fair share.

• Contact Henry Dubroff at hdubroff@pacbbiztimes.com.

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