After months of futile persuasion, California Gov. Jerry Brown and Democrats in the legislature agreed to a majority budget deal that doesn’t increase taxes, which would have required a 2/3 vote. Much of the deal is predicated on the projection of $4 billion in increased revenue from a prior forecast. If the revenue does not come in as scheduled, even deeper cuts would be triggered. There are some minor revenue-raisers in the deal, but for the most part, this is an all-cuts budget.
The proposal, which Democrats said they would pass as soon as Tuesday, does not include the renewed tax hikes that the governor had been pushing to put before voters. But it does contain some charges that Democrats believe they can legally raise without GOP support.
Car owners, for example, would pay $12 more per year to register their vehicles. Residents of wildfire-prone zones would pay a new fee for state firefighting efforts. Other revenue would come from forcing online retailers such as Amazon.com to collect sales tax on purchases by California residents.
The budget is partly based on an expectation of an extra $4 billion in income. Without that cash, steep cuts to education and other state services would kick in, including a reduction in schools spending that could shorten the instructional year by seven days in some districts.
“In case we are overoptimistic, we have severe trigger cuts,” said Brown, who has pledged not to sign a budget that pushes California’s debt further into the future. “Those are real.”
This comes on the heels of a majority-vote budget that legislative Democrats passed a couple weeks ago, which Brown promptly vetoed, still looking for a deal with a few Republicans to put tax extensions on the ballot. The gimmicks in that budget have been largely replaced by this expectation of new revenue. Combined with a $6 billion increase in revenue anticipation in the May budget revision, nearly $11 billion in solutions have come from this expectation of revenue. Brown lowballed the estimate in previous budget forecasts, perhaps to prepare for this reality. The details of the changes between the budget Brown vetoed and this new one can be found here
Early this year, Democrats passed an all-cuts plan to close well over half of a $26.6 billion budget deficit. This budget wraps that up by closing the final $9.6 billion gap. So overall, we’ve seen around $15 billion in cuts, a sliver of revenue, and revenue anticipation to balance the budget. Many of these “doomsday cuts” ended up being enacted. Because tax increases from two years ago will now expire at the end of the month, California residents will see effectively a tax cut, amid all these spending cuts.
There’s a lot to say about this. But I’ll focus on one point. In November of last year, California passed Prop 25, which allows the budget to be enacted by a majority vote. However, tax increases still required a 2/3 majority. This is despite the fact that a budget is comprised of spending and revenue. From the moment that passed, it was clear that an all-cuts, majority-vote budget would be the outcome for years and years hence. When you have two paths, and one is leafy and inviting, while the other is coated in razor blades and broken glass, politicians are sure to pick the leafy path. Of course, that’s what happened. All Prop 25 did was make cuts easier than revenues, which ensured cuts. Jerry Brown came in as an “apostle of common sense” who was going to persuade Republicans to do the right thing and extend tax rates. That didn’t happen, because Republicans had enough votes to deny such a maneuver. They proceeded to demand an outlandish series of policy changes, as if they won the election in 2010 rather than get crushed. And Brown spent months trying to agree to something, only to run out of time.
Given the law in the state, I’d rather a budget that essentially puts off the worst cuts until mid-year than to enact something terrible like a spending cap, or the destruction of environmental regulations, or slashes to public pension funds, all of which were on the table in the talks. But this was an inevitable outcome of Prop 25, and not a good one, from the perspective of the vulnerable, who have seen their safety net almost destroyed.
The one bit of good news is that Democrats and their allied labor groups are finally talking about putting revenue on the ballot through an initiative, which should have been the plan the day after Brown got into office, rather than this chimera of getting Republicans to agree to put taxes on the ballot. The ideas range from an oil severance tax to a millionaire’s surtax to doing a split-roll for Prop 13, closing a major scam that has allowed commercial properties to dramatically reduce their property tax rates. This will have to be fought on the ballot, because the structural barriers that restrict functional governance in California still exist.