Vol. 12, No. 2,856W - The American Reporter - March 18, 2006

by Philip E. Daoust
American Reporter Correspondent
San Francisco, Calif.

SACRAMENTO, Calif., Aug. 10, 2002 -- Lawmakers in California's state assembly are stuck in a partisan stalemate over a controversial budget plan to help remedy the state's $23.6 billion deficit.

Meanwhile, Governor Gray Davis is taking bold steps, including a requirement that state agencies make permanent budget cuts of up to 20 percent for the next fiscal year, 2003-2004.

In May, the governor released a revised budget proposal that added a devastating $11.1 billion dollars of additional red ink for a total budget deficit of $23.6 billion, or 30 percent of the California's general fund.

The revised numbers, according to the administration, were discovered after a larger than expected loss in revenue was tabulated in April.

On July 31, state agencies received a letter from the Finance Department directing them to devise a debt reduction plan by Sept. 13 for the 2003-2004 fiscal year. That allows department heads less than a month to cut one-fifth of their budget on top of the reductions already made for this 2002-2003 fiscal term.

The letter states that the reductions will be permanent and warns agencies "it is likely that this level of reduction can only be achieved by elimination of programs in their entirety."

With the governor up for reelection and voters frustrated with the overall economic condition of the country, the Davis administration is looking to cut as much red tape as possible, while steering clear of scaling back programs and services that cater to large voter blocks, like the elderly.

Meanwhile, Democrats and Republicans in the state assembly are mired in political wrangling, unable to agree on how to raise revenues and cut expenditures in order to bring the deficit under control.

For six weeks now, the Assembly has been locked in a stalemate over Republicans refusal to vote for a huge cigarette tax, and the Democrats unwillingness to direct deeper and more immediate cuts in state agencies.

The Democrats, lead by Governor Davis, want a $3 per pack tax on cigarettes, which they estimate will raise $4.5 billion in revenues for the current fiscal year, off-setting nearly 20 percent of the budget's deficit.

But Republicans have flatly refused to pass the budget with the tobacco tax measure included.

Although Democrats dominate both the Senate and Assembly, they cannot pass the budget without a two-thirds majority. In July the Senate easily passed the governor's budget plan, but it has been held up in the Assembly ever since. Therefore, with every one of the 24 Republicans refusing to vote for the tobacco tax, Democrats will likely have to make some concessions to secure passage of the governor's plan.

In recent days, Republicans have increased pressure on Democrats to come up with provisions that mandate deeper cuts in state agencies and programs. Currently the governor is asking for $7.5 billion, or 32 percent of the budget, to be cut from departments and programs in fiscal year 2003-2004. An estimated 6,000 state jobs will be cut for this fiscal year alone.

Republicans charge the governor's proposed cutbacks are still not enough to curb the state from accumulating massive debt - or running out of money altogether - in the next few fiscal years. Since the fiscal year began on July 1, California has been operating with a budget.

"We have a serious, serious problem that you cannot tax your way out of regardless of who you decide to go after," said John Campbell of Irvine, the ranking Republican in the Assembly on budget matters.

"We must look at those programs that are scheduled to expand exponentially ... and deal with them now, when it will be less painful to deal with them than several years from now," he said.

After hours of heated debate on Wednesday, the Assembly finally voted on the governor's revised budget. The final vote was 50-20 in favor of the budget, just four votes shy from the required majority. Not one Republican Assembly member voted for the plan.

Democrats, eager to pass the budget, especially in this election year, tried to appease GOP discontent by offering a proposal to double the state vehicle license fee in place of the cigarette tax. But Republicans have stated they won't support either provision.

"This is not something that you can now exchange one tax for another tax," Assembly leader Dave Cox, R-Fair Oaks, told the legislature.

"A tax is a tax is a tax," said Cox. "There must in fact be a significant reduction in spending."

The governor's revised budget plan also calls for deficit reduction by shifting funds, taking loans, securing federal funding, offsetting miscellaneous loans and debt restructuring.

While the revised budget claims that California is recovering from the recession "sooner than expected.the number of new jobs is not yet keeping up with the number of people joining the labor force, and unemployment has yet to fall."

The budget delay, according to the state controller's office, is costing Californians nearly $15 million a day, forcing the state to take out short-term loans to cover the costs of essential services.

The most significant loss of revenue for the state has been a dramatic decline in capital gains revenues from stock sales and options. According to the governor's report, during fiscal year 2000-2001, capital gains revenue made up as much as one-quarter of the state's general fund revenues, or $118 billion. However, for the fiscal year 2002-2003, the state expects only half of that figure, a significant decline.

Most damaging to the state has been significant losses in the NASDAQ over the past two years. In fact, from December 2000 to April of this year, the NASDAQ lost one-third of its total value. Many of California largest tech companies have the bulk of their wealth distributed in the tech-heavy NASDAQ.

Among other things, critics charge that Assembly members are so occupied raising campaign money, coupled with election year politics, that concerns over cigarette taxes and department cuts become secondary. August is considered the pivotal campaign fund-raising month in California state politics.

According to a report in the San Francisco Chronicle, there are more than 75 fund raisers scheduled in August by state legislators, with an average cost of $1,000 per guest.

Relevant Links:
View PDF file of the governor's budget plan. 108 pages.

No budget but capital flowing with cash State lawmakers hosting $1,000-a-head events

Official Web resource for the California State Legislature.

Copyright 2006 Joe Shea The American Reporter. All Rights Reserved.

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