by Sheila Kuehl
December 27, 2010

As California awaits the January unveiling of Governor Brown's first budget, this set of essays reviews the budget situation over the last eighteen months, culminating in a report on the new budget. This essay is the sixth in a series describing the continuing budget struggles from 2009 to the present.

The first five essays have described budget proposals and negotiations in fiscal 2009-10, the Governor's January 2010 budget, the first "fixes" proposed by the Democratic majority, the "fix" bills sent to the Governor in March of 2010, his vetoes, the compromises finally enacted at the end of March, and the May Revision sent by the Governor to the Legislature, which was immediately spurned.  This essay sets out the Democratic response to the May Revision--The California Jobs Budget--which held everyone's attention until the end of August, as well as rejections of compromises by both sides.  The last essay will describe the final passage of the budget in October, as well as problems that arose immediately after that passage.

Leg. To Gov.: What Is It About "No" You Don't Understand?
Claiming that the Governor's proposed May Revision would actually cost California at least 400,000 local government, private sector and local school jobs, new Speaker John Perez and Assembly Budget Chair Bob Blumenfield proposed an alternative: The California Jobs Budget.  The proposal was to be carefully vetted in both houses, in full view of the public, and was claimed to represent a compendium of testimony from 50 budget sub-committee hearings, 12 full budget committee hearings and seven budget forums held around the state.

The primary proposal in the Jobs Budget was the funding of a $10.1 billion dollar jobs package to provide various forms of jobs initiatives, to pay off debt to local governments and schools in order to avoid massive layoffs, and to maintain employment services and training programs.  The proposed budget was claimed to close the 17.9 billion dollar shortfall that still remained after all the earlier tweaks and asserted that the state would be left in the next fiscal year with a one billion dollar reserve.

Putting Oil In The Job Lamp
The budget proposed to get most of its necessary funding from a new oil severance tax.  As Mother Teresa once said, "To keep a lamp burning, we have to keep putting oil into it." and the Democrats in the Assembly seem to have seen the light, at least so far as oil was concerned.   The revenue details were carefully laid out:

• Imposition of an oil severance tax.  California is the only oil producing state in the country that imposes no taxes on the pumping of oil.  The proposed tax was to be 6% of the sales price of oil.  Alaska and Louisiana both charge 12.5%.  A Rand study opined that the cost would not be passed back to the consumer as California imports more that half the oil we use and the theory was that competition would keep the prices even.  The new tax was estimated to generate $900 million in 2010 and much larger in 2011-12.
• Delay of $1 billion in new business tax breaks given to the top ten or twelve corporations doing business in California and built in to the 2009-10 budget.
• Jump-starting a new Jobs and Economic Stability Fund by borrowing $8.7 billion from the California Beverage Recycling Fund and $500 million from the Disability Insurance Fund (both also advocated by the Governor).
  

The combined revenues from these proposals was pegged at $10.1 billion.

Why Was It Called A "Jobs" Budget?
Aside from the obvious appeal of comparing oil companies and corporate profits to the creation of jobs, the budget was very specific in its proposed expenditures. $1.1 billion was to be invested in green and clean industries, training programs, and employment assistance programs, rejecting the Governor's 430,000 targeted workforce cuts.  It envisioned the repayment of $900 million owed to local governments for past, unfunded, mandates which the Assembly said would protect thousands of law enforcement and safety sector jobs.  $3.8 billion was to be repaid to school districts to retain employees who would have been cut by the Governor's proposed $2.8 billion hit to education.  The Jobs budget authors said it would provide $1 billion to higher education to protect current jobs and to avoid the student fee hike necessitated by the Governor's May Revision numbers.  It maintained the childcare program for parents on CalWorks, restored funds to the bottle recycling program and would have provided $100 million to local communities whose jobs might have been impacted, in the short term, by the oil severance fee.

Health, Resources and Corrections
The Jobs budget also rejected a number of the Governor's cuts in Health and Human Services: It fully funded Healthy Families, which gives children of working families on CalWorks access to healthcare.  It rejected most of the proposed cuts to MediCal, restored the money the Governor wanted taken out of mental health services and rejected proposed cuts to cancer screening and treatment, HIV/AIDS and maternal, child and adolescent health programs.  In addition, the budget provided full funding for state parks, accepted the Governor's reduction in prison medical costs, accepted the Governor's proposal to shift certain offenders to local jails and rejected the proposal to close the courts one day a week.

But It's A Long Long Time From May To December
And as the month of June sped by, the Governor rejected the Jobs Budget.  With the new budget due, at the latest, on June 30th, the Democratic leaders in both houses began their own discussion and, eventually, collaboration.  By June 30, with no communication of any assent from the Horseshoe (the first floor, u-shaped suite of gubernatorial offices), the Speaker and the President pro Temps announced a unified democratic budget framework.

The Unified Democratic Budget Proposal: June 30
The leaders offered a "framework" to the Governor that included most of the provisions of the Jobs budget laid out above.  In addition, they indicated they would not rule out extending the 2009 temporary tax increases to the Vehicle License Fee (VLF) and the Sales Tax, which were set to expire.  The VLF was targeted to fund a shift of public safety and welfare functions to counties.  The Governor rejected the unified budget outright and proposed spending caps to go to the people for a vote, while reiterating the litany of cuts he insisted were necessary.

The New Democratic Proposal: August 4
The August proposal from the Legislature kept most of the provisions of the Jobs Budget, with the additions made in the Unified Budget.  One addition to the revenue side, however,  was new and extremely controversial:  Rather than extending the temporary increases in the VLF and the sales tax which had been part of the previous year's budget solutions, the Democrats proposed raising the state income tax and the VLF, while, at the same time, reducing the sales tax. They claimed that, even though money would flow into state coffers, it would be "free" money because state income tax payments are deductible for federal income tax purposes, and, therefore, Californians would pay no more taxes overall. The Governor demurred, opining that middle class earners would be the losers and strengthened his insistence on budget "reform" measures, such as spending caps.

The Long Tepid Summer
With no agreement in sight, the Governor and the Democratic leaders continued to make their points, mostly in the press.  The Republicans in both houses, who held the keys to the two-thirds vote needed, did not offer clear information on what it would take to get a budget.  The months of August and September passed as hundreds of proposed changes went back and forth but none were accepted.  Finally, at the beginning of October, the longest budget stalemate in California's history came to an end.  The result looked very much like the August proposal but differed in a few significant ways.

Next:  The Final 2010-2011 budget passes in October