California has a budget as of Friday morning, and it only took 100 days to get it! After a record length of time without a spending plan, the state legislature recorded the final vote on the $87.5 billion budget at 8:25 a.m., after an “all-nighter” power session that saw intense work on the 20 interrelated bills that make up the document.
Passed with bipartisan support, the budget nonetheless didn’t please everyone, and only squeaked by with just enough support to win two-thirds majorities in the Assembly and Senate.
Governor Arnold Schwarzenegger, who helped broker the deal that led to the vote, said he would sign the budget “quickly,” probably sometime during the day Friday. The governor called for a $1.2 billion reserve in his May proposal, but lawmakers approved only $200 million. Schwarzenegger said he’ll likely use his line-item veto power, which could mean further spending cuts, to increase the amount approved by the legislature.
Meanwhile, the government may have closed the original $42 billion budget gap, and saved the state from insolvency, but the budget is far from the cure for California’s financial ills. Waiting down the road for residents is a mix of tax increases and spending cuts, contrary to what was hoped for by the governor’s office. Under the new budget, residents will be asked to pay as much as $13 billion in “new” taxes. State spending, meanwhile, will be cut by $15 billion in the next 17 months, including $8.6 billion from public education.
K-12 public education and community colleges will share in $52.5 billion, but nearly $2 billion of that will not be paid until the next fiscal year. Schools also would get a $300 million payment on funds they are owed from previous years, but the budget also suspends Prop. 98, the formula used to calculate education spending. State university fees also head north in the new budget, though by how much is not yet clear.
Everyone will feel the budget sting, including the lower- and middle-class. For households earning $150,000, state tax increases will essentially cancel out the $800-per-couple tax credit in the stimulus package signed by President Barack Obama earlier this week, according to California’s Legislative Analyst’s Office.
The budget calls for raising the sales tax by one percentage point and adding 0.25% to state income taxes. Vehicle license fees are expected be adjusted up to 1.15% from 0.65%, a remarkable capitulation for Schwarzenegger, who resisted any such increase for the longest time. The governor won election in 2003 after campaigning to cut taxes and impact fees on vehicles registered from out of state, which he did after taking office.
Hoping to save $1.4 billion in payroll expenses, lawmakers plan to eliminate two state holidays, change overtime rules and furlough workers at least one day a month.
Even with the proposed tax increases and spending cuts, California will need to borrow money and use some of its share of federal stimulus money to make up the budget deficit.
In the midst of all the glum news, there are some budget winners: California’s prison system and some corporations. The new budget won’t cut prison funding a nickel. The budget also includes $700 million in tax breaks for large corporations, as the government tries to make a cushier berth to lure more business back to California and keep existing companies from leaving the state.
Interestingly, the budget forces Californians, and to a certain extent lawmakers, to tighten their belts. In addition to the national economic recession, California was hit harder than most states by the housing crash. Some homes lost as much as half their value over the past three years. December unemployment nearly doubled to 9.3% from 5.9% a year earlier.
California’s economy is large and diverse, and many economists still maintain that the state will recover, but perhaps a little slower because of the budget deal. A cut in state spending will result in even fewer jobs, some money experts think, while an increase in taxes may only further discourage already tightened consumer spending.
As expected, much wheeling and dealing ensued to get GOP lawmakers on board. For example: State Sen. Abel Maldonado (R-Santa Maria) cast the final Republican vote needed, after senate leaders met his demand to kill a gas-tax increase and add an election-reform proposal to a state ballot.
As of Aug. 31, California State Treasurer Bill Lockyer’s web page said the state owes $43,564,471,252 in total debt. That amount, however, reflects a 15.7% decrease from the same time in 2009.
Research for this story came from stories in the San Francisco Gate and Wall Street Journal. -AG