California faces higher deficit in revised 2012-13 budget

WTF CA 2012-13 budget 5.15.12

Gov. Jerry Brown has called for another round of steep cuts to California’s education, health care and social welfare programs to bridge an additional $6.5 billion deficit projected in the revised 2012-13 state budget. 

California Gov. Jerry Brown at a press conference discussing the revised 2012-13 state budget. SOURCE: CalChannel.com

“It’s a difficult budget and it reflects the fact that revenues are lowered than we expected,” Brown said yesterday. “We’re going to have to cut deeper.”

The Governor’s January budget initially projected a shortfall of $9.2 billion, but recent revenue numbers indicated that the deficit will likely balloon to $15.7 billion in the next fiscal year.

Read more: Sources of the higher deficit projections

The $6.5 billion deficit increase is primarily due to lower-than-expected state tax revenues (resulting from a slower-than-anticipated economic recovery) and higher Proposition 98 obligations to fund K-14 education. Recent court decisions and the federal government’s refusal to permit California to reduce its Medicaid funding obligations have added another $1.7 billion to the state’s budget shortfall.

To close the larger budget gap, Brown has proposed deeper cuts to state universities (University of California and California State University systems), CalWORKs (short-term welfare program for low-income families), Medi-CAL (the state’s Medicaid program) payments to hospitals and nursing homes, and compensations to state employees.

In addition, the Governor will seek to eliminate $1.4 billion in redevelopment funding, impose a $544 million one-time cut to local trial courts, and use the $292 million proceed received from the National Mortgage Settlement to offset existing homeowner and consumer protection programs paid out of the state’s General Fund.

Read more: Proposed cuts to bridge the additional $6.5 billion shortfall

“But cutting alone really doesn’t do it, and that’s why I’m linking the serious budget reductions – real increased austerity – with a plea to the voters: Please increase taxes temporarily on the most affluent and everyone else with a quarter of a cent sales tax,” said Brown.

The deadline for the state legislature to pass the 2012-2013 budget is June 15. The revised budget assumed that voters will approve the “realignment” tax measure in November; otherwise, trigger cuts to the tune of $6.1 billion will take effect on Jan. 1, 2013.

Brown’s tax initiative – the Schools and Local Public Safety Act of 2012 – would temporarily raise the sales and use tax by 0.25% and increase the state income tax rate by between 1% to 3% for taxable incomes between $250,000 to $680,000 or more. (State income taxes are assessed in addition to federal income taxes.) If approved by voters in November, the tax increases would take effect between Jan. 1, 2012 and Dec. 31, 2018.

“In the last three decades, the most affluent in California have doubled their share of the state’s income. So I think it’s fair,” said Brown. 

The tax measure is expected to generate between $6.8 billion to $9 billion for 2012-13, according to the Legislative Analyst’s Office. The additional tax revenue, Brown explained, would help the state meet its Prop. 98 obligations for K-14 education, fund and sustain the public safety realignment and prison reforms, and help close the General Fund’s structural deficit.

However, if voters reject the tax measure, local schools, community colleges, and state universities will bear the brunt of the trigger cuts. Schools could face another $5.5 billion in cuts, amounting to 3 weeks of instructions. The University of California and California State University systems could each experience another $250 million in cuts, prompting another round of tuition and fee hikes.

Read more: Programs subject to trigger cuts if tax ballot measure fails

“We have more spending obligations than we have revenue. I’ve bumped up the revenue on condition that people say yes. If the people say no, then we’ll have those trigger cuts and it will be felt at the U.C., it will be felt at the Cal State campuses, and it will be felt in every school district in the state. That’s where it’ll be felt,” said Brown. “It won’t be pretty.”

A USC Dornsife/Los Angeles Times poll in March found 64% of California voters would support a sales and income tax increase for 4 years if the money is used to prevent further cuts to schools and public safety programs.

Despite the favorable poll results, Brown’s efforts to pass the tax measure could be complicated by a competing tax initiative, which could splinter voter support for tax increases. The “Our Children, Our Future: Local Schools and Early Education Investment and Bond Debt Reduction Act” – backed by civil rights attorney Molly Munger – has reportedly submitted 775,000 signatures to county registrars around the state last week. To qualify for the November ballot, the Our Children, Our Future campaign must submit at least 504,760 valid signatures.

Our Children, Our Future proposed to raise state income taxes between 0.4% to 2.2% across all income levels for 12 years beginning in Jan. 1, 2013. The Legislative Analyst’s Office estimated that the measure would between $10 billion to $11 billion in annual tax revenue, and 85% of the funds would be dedicated to K-12 education with the remaining money going toward early care and other education programs.

Brown lamented the “very complicated” process to win his November tax measure.

“There are people who have the resources. They can enter into the ballot business of California and that’s what they’re doing,” said Brown.

Republican state lawmakers attacked Brown’s revised budget as being “more about politics than it is about presenting an honest and realistic budget plan” to address the state’s fiscal problems.

“We believe this updated proposal is part of the Governor’s strategy to try and fool Californians into accepting a costly tax increase as a necessary step,” according to a joint statement released by Assembly Republican Leader Connie Conway and Assembly Budget Committee Vice Chair Jim Nielsen. “Nothing could be further from the truth. Tax revenue is up two years in a row, but not enough to satisfy the spending demands of Sacramento Democrats.”

 

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