California lawmakers ended a stalemate that started July 1 by approving a $145 billion state spending plan for fiscal 2008-09 – only to have the governor veto it 12 hours later.
Even though it was a record 78 days into the state’s new fiscal year, the governor’s move makes sense. This is an abominable budget, filled with gimmicks and one-time measures that will do absolutely nothing to put California on a sound fiscal path.
Political leaders passed this paper-thin budget off to voters as the best way to close a $15.2 billion deficit. But their solutions left a lot to be desired.
The deal would have combined $9.6 billion in spending cuts and moved future revenues forward and delayed obligations so as to appear to balance this budget while deferring the problem the state faces up ahead. Just reading the previous sentence is enough to make your head spin.
Although tax rates would not increase in the proposed budget, taxpayers would have been affected in dozens of small ways.
The state could have used the cash generated by the increase in withholding taxes to reduce the spending gap. It would later refund the extra money without interest, in effect, robbing the poorest taxpayers in order to pay fat salaries to state bureaucrats.
Limited liability companies would have to prepay fees that normally would not be due until the next fiscal year, which is a hidden tax that won’t do a darn thing to close future budget gaps.
The state would give tax cheaters amnesty to encourage them to pay what they owe, something that hardly inspires fiscal discipline. Tax write-offs for business losses and research and development would be suspended temporarily, given companies less incentive to take risks.
Legislative leaders say the future tax breaks would cost the state $600 million a year. Some experts say the cost is more likely to be billions of dollars tacked on to an already untenable fiscal situation.
Both the plan to borrow against future lottery proceeds – generating $5 billion in cash, but not until the next budget year – and the restraints on future spending would have to have been approved by voters.
Even state Treasurer Bill Lockyer, a Democrat, said the plan “gives gimmicks a bad name” because it relies on “phony money and phony estimates.” It’s time to come up with a comprehensive plan that realistically confronts the current and future California budget deficits.