We here at the FlashReport are pleased to present this Guest Commentary, submitted by the Governor’s office, authored by David Crane.  Mr. Crane is a Special Advisor to the Governor for Jobs and the Ecomony.  Governor Schwarzenegger has called a special session of the legislature to deal with an $11.2 billion shortfall in the current fiscal year budget.  He has introduced a plan to deal with this problem that contains billions of dollars in both cuts and new taxes.  Crane discusses the Governor’s proposal below.  You can read the Governor’s proposal as it was presented here (you can even watch a video of the Governor presenting his plan).

$11.2 BILLION SHORTFALL REQUIRES A TOUGH COURSE OF ACTION – MORE CUTS AND NEW TAXES
David Crane, Special Advisor to the Governor for Jobs and the Economy

Yesterday, the Governor delivered the news that California faces a $11.2 billion revenue shortfall in the current year’s budget. The dramatic declines of Wall Street and real estate markets have so affected our capital-gains-dependent revenue that we must take emergency measures to address this urgent problem.

Our tax system’s dependence on capital gains and other non-stable sources of revenue is the basis of the budget problem we face today, and that we have faced for decades, and that’s why the Governor and the Legislature have established a bipartisan commission to modernize our tax system. But the commission’s recommendations will not be made until April 15, 2009 and the current year shortfall requires immediate attention, right now.

There are no easy solutions. The Governor’s proposal takes a balanced approach to address the shortfall, proposing $4.5 billion in cuts to spending and $4.7 billion in increased revenues, paired with a foreclosure abatement and economic stimulus package to stabilize our housing market and boost employment.

Some of the cuts include requiring state employees to take a one day furlough each month, eliminating two state holidays and premium pay for hours worked as well as the ability to count leave time as hours worked. The Governor has also proposed cutting education funding by $2.5 billion to a figure just $122 million higher than the minimum guarantee and reducing Medi-Cal benefits to the level provided by most states. The Governor’s cuts hit programs and agencies across the board, while making sure we protect vital services. Keep in mind that the Governor and Legislature already passed a budget in September for this fiscal year that made $10.9 billion in cuts.

On the revenue side the Governor has proposed a temporary sales tax increase, an expansion of the sales tax to certain services, an oil severance tax and an increase in the alcohol excise tax.

Let me be clear: The Governor believes that there is never a good time to raise taxes. And by the same token, this is also the worst time to make $4.5 billion in cuts. But the problem is that, as columnist Daniel Weintraub recently wrote, “the state’s financial picture is worse than it has been at any point in most of our lifetimes.” Therefore we must address this problem quickly and in the most responsible fashion.

To the critics who say not to raise taxes, what is their alternative? 11% of our revenues will now not materialize, and that $11 billion must be made up, one way or another, in the current budget year, which means over the next 8 months.

If their solution is to cut more, exactly what additional cuts do they propose?

If their solution is to stimulate economic growth so much that tax revenues grow enough to make up the shortfall within the next 8 months, what exactly do they propose that could boost budget revenues so much so quickly?

If their solution is to borrow, what exactly is their proposal in that regard and how do they propose to pay off that borrowing? And what’s the reason that businesses and other taxpaying Californians wouldn’t view the obligation to repay those borrowings as nothing more than latent future tax increases?

As the Governor explained, failure to act now will only worsen the problem and make solutions more difficult. In that he is surely correct. But unfortunately, for years California has seen plenty of “can-kicking” by legislators unwilling to face fiscal music. For example, in the midst of this serious economic slowdown, we are being forced to boost funding for our Unemployment Insurance Fund because past legislators failed to pre-fund the promises they made years ago to boost unemployment benefits. Likewise, in the midst of this slowdown, general funds around the state are going to suffer a doubling in contributions to meet employee pension promises because past legislators didn’t sufficiently pre-fund those promises when made. And the same is true for healthcare benefits.

Every business and every productive Californian on whom our economy depends, knows that when the state makes promises but fails to fund those promises someone else will be paying for that failure down the road in the form of higher taxes. Likewise, a failure by the Legislature to raise the revenues needed today to address this shortfall will be a message, loud and clear, to businesses and other economic participants in California that they face higher costs in the future. Faced with the certain prospect of greater costs down the road, why should they choose to grow and work here? That’s exactly the opposite of the sort of economic stimulus California needs.

Businesses and workers want the same fiscal responsibility from their state that they demand of themselves. To protect California’s economy, legislators must step up to the plate and address this revenue shortfall, and do so right now.

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This entry was posted on Thursday, November 6th, 2008 at 12:00 am and is filed under Blog Posts.