A great, succinct recap on the new California budget from the Wall Street Journal’s Allysia Finley…
California Dems Pass Budget
California Democrats have asserted for the past six months that it wasn’t possible to close the state’s $9.6 billion budget gap without raising taxes. Yet the budget deal that Gov. Jerry Brown and Democrat lawmakers struck this week does just that.
The budget agreement, which passed without Republican support, cuts $450 million from higher education and the courts and defers $2.8 billion in payments to K-12 education. It also takes $1.7 billion from local redevelopment agencies that use property taxes to subsidize private developers.
The deal assumes an additional $200 million in extra tax revenue from the collection of sales tax on online purchases, which is likely on the high side since Amazon has threatened to sever its relationships with its California affiliates if the state starts collecting online sales taxes. Democrats also want to increase fees on vehicles and rural homeowners by another $450 million, but they will need the support of at least four Republicans. State law requires a supermajority to approve tax and fee increases.
To close the rest of the gap, the deal assumes $5.2 billion more in tax revenue than the state finance department had predicted in May. This projection is based on the state’s May and June tax collections, which have exceeded the May forecast by $1.2 billion. The $5.2 billion comes on top of last month’s $6.6 billion revenue windfall. If the state doesn’t bring in as much revenue as lawmakers project, up to $2 billion in cuts to K-12 and higher education will be triggered with the remaining balance rolled over into next year.
Democrats have in the past used fantastic revenue assumptions to kick the state’s budget problems into the future, but this time their projections seem grounded in reality. State revenues are linked to the incomes of top earners and the health of corporate balance sheets, both of which are growing. The state’s improved fiscal condition will make it much harder for Democrats to obtain public support next year for a ballot initiative to raise taxes.
The public unions are applauding Democrats for not conceding to pension or spending reforms in budget negotiations. Mr. Brown had wanted lawmakers to put a $12 billion extension of the state’s “temporary” income, sales and vehicle taxes on a special-election ballot. Republicans refused to do so unless Democrats and public unions accepted reductions in spending and workers’ benefits.
Mr. Brown came out looking strong two weeks ago when he vetoed the Democrats’ budget, which relied almost entirely on accounting tricks, fund shifts and payment deferrals. The budget that the governor has agreed to, however, sidesteps structural reform. Some voters may also wonder why the governor waited until negotiations with Republicans over taxes had failed before he revealed that revenues were $11.8 billion higher than anticipated.
— Allysia Finley