Plan B Is A House of Cards
Blow It Up-Blow It Down
by Sheila Kuehl
July 25, 2011

This is the sixth in a series of essays exploring the wild Indiana Jones adventure of California's 2011-12 budget.  In this exciting installment, finally drinking a dose of "we're not going to get any Republican votes to put tax extensions on the ballot, are we?" reality therapy, the Democrats send a majority vote budget to the Governor on June 15th.   Apparently suffering from some mistaken notion that Brown had signaled approval of the inclusion of a number of --- uh --- creative ways of balancing the budget, Democratic members who had worked round the clock to finish it were visibly shocked and amazed when he almost immediately vetoed it, throwing everything back to square one, with only 15 days left to bring home a budget.  Under an initiative passed last year, legislators began to lose never-to-be-recovered pay, without regard to whether each individual had worked out the budget or not, or whether they had voted to put it on the Governor's desk or not, which is a bit like withholding your paycheck because the guy next to you refuses to do his work.

Further essays will describe the final budget document agreed on by Democratic leadership and the Governor, an explanation of "re-alignment" proposals, and an analysis of the winners and losers.   

Plan A Is So Not Happening---And What Was Plan B Again?

By the beginning of June, it was becoming more and more clear that, despite posturing in the press and going to meeting after meeting with the Governor (with each meeting addressing an ever-increasing list of Republican demands), plus receiving ominous visits by the "no tax, nohow" enforcer himself, Grover Nordquist, Republicans were never going to put up even one vote to put tax extensions on the ballot, certainly not by the June 7th deadline to have them in place for a July 1st budget.  This reality was apparently too horrible for Democrats to accept, however, given the even deeper cuts it would make necessary, so discussions began to include the phrase "tax bridge" as a way of keeping the possibility of a tax extension vote on the table.  Unfortunately, a "tax bridge" meant that Republicans not only had to vote to put the taxes on the ballot, they had to vote to extend them until the public could vote.  This was going nowhere, fast.  The Senate, in some desperation to show who was doing what to whom, brought a bill with a full year of tax extensions up for a vote, and, not surprisingly, it died for lack of a 2/3 vote. 

No Bridge, Must Swim

Immediately following the failure of the tax bridge vote, the Senate, on a majority vote,  approved a bill allowing counties and school districts to seek local tax increases on their own, including taxes on income, sales, alcohol, cigarettes, oil drilling and even medical marijuana, in order to try to save some of the services being squeezed to death by state budget cuts.  Someone must have (incorrectly) surmised that this would be more anathema to Republicans than voting for the tax bridge.  It didn't get any Republican votes, but it did pave the way for a possible 2012 approach to increasing revenues.  The bill was held in the Senate, to be considered next year.  In the meantime, a new budget was being feverishly put together, with no tax extensions, to go to the Governor's desk by June 15th, the statutory deadline.

Voila!  A Balanced (sort of) Budget On Time!

On June 15, a majority-vote budget was sent to the Governor.  The budget was balanced, in the eyes of the Legislature, but "Gimmicky" in the eyes of the Governor and the Controller (who was to decide to withhold legislators' salaries because of it).  To be fair, the Senate and the Assembly were trying to find a way to present an on-time budget that didn't further decimate those who had suffered the most over the past five years of cuts: the poor, the sick, the elderly, K-12 schools, child care, higher education.  As one legislator put it, "I felt like I was watching California turn into a third-world country.  Those with money bought what they needed.  Those without could no longer count on the state for fairness."

First, of course, there had to be more revenue.  The Democratic majority voted to include 10.4 billion dollars in new budgetary "solutions", with about 4 billion coming from new revenues and the rest from additional cuts.  The reserve was lowered to $575 million. 

Presto!  New Money From Old Cups

In order to punch up hoped-for revenue as much as possible, the Legislature chose several options.  They returned to an old, discredited, plan to sell state buildings and lease them back, a quick-fix savings that was shown to actually increase costs to the state down the line.  It did, however, add 1.2 billion in revenue to the current budget.

They voted to end the "revenue exchange" that had been adopted to solve another budget crisis in 2004.  Under the new plan, they increased the ability of locals to have a sales and use tax 1/4 cent higher than before, and to transfer the same amount in property tax to the schools, saving the General Fund 900 million dollars in school funding.

They increased the vehicle registration fee (not the vehicle license fee, which is actually a tax based on the value of a vehicle) by $12, no matter the value of your car.  Although this is more regressive (that is, harder on the poor than the middle class and the rich), it can be done by a majority vote, if, under the initiative passed by the voters in 2010, it is directly related to a service connected to the fee.  Designating the monies to the Department of Motor Vehicles, the budget freed up 300 million for local governments to fund the public safety "realignment" (about which more in a later essay). 

They adopted a State Responsibility Area Fee to cover some of the costs incurred by state fire services called to protect private property on state lands.  This revenue was projected to be about 150 million and would replace General Fund monies paid to Cal Fire (the California Deptartment of Forestry and Fire) to do this work.  To explain:  there are a number of areas where the state has first-responder responsibility for fires, generally to protect public lands, forests, preserves, parks, etc.  Over the decades, local governments have permitted private developments in these areas, but the owners of these structures pay nothing for fire suppression services, whereas you and I pay our cities and counties for those services.  This means that the taxpayers of California are paying to protect this small sub-set of properties, and the Legislature wanted to put the burden on the beneficiaries.

Presto!  New Money Out of the Air

The most controversial of the various revenue assumptions in the June 15 budget stemmed from a belief that the uptick in overall revenues, experienced by the state over the last few months, would continue at the same rate.  The budget assumed about 815 million more than the revenue estimates in the May Revise.  The budget also included 700 million in hoped-for, additional one-time federal funds to offset costs in the Medi-Cal program.

The Inevitable Trip to the Barber

Although the Democratic majority did valiantly try to restore about 200 million in Prop 98 funds to childcare, 300 million of the 500 million dollar cut in the May Revise remained.  Childcare funding continued to need some real thought, however,  because, although the budget reduced all childcare slots overall by "only" 11% instead of the 15% adopted in the May Revise, at the same time it restored an unworkable 10% cut to all Title V contracts.  It did continue funding childcare for 11 and 12 year-olds and rejected earlier proposals to increase family fees.  This piece seemed ill-thought-out.

Overall, education, health and human services were even more deeply cut.  K-14 Prop 98 funding was reduced by about 3 billion dollars, by continuing a deferral of funds that had been removed in the May Revise.  An additional 744 million in "settle-up" payments that had been in the budget only days before, was also eliminated.  Class-size reduction and flexibility in spending were preserved.  The Cabinet-position Secretary of Education was eliminated, a move the Governor had actually requested.

The questionably legal ploy of taking 1 billion from Prop10/First Five Money and using it for children's Medi-Cal services, which had been rejected in the May Revise, was restored in this budget.  Apparently, everyone decided simply to cross their fingers that they would prevail in the litigation filed to prevent this.

An additional 150 million was taken out of the California State University system and an additional 150 million was taken from the already decimated court system.

Ok!  Here It Is!

The budget passes both houses with a majority and is sent "downstairs" (in the Capitol, the Legislature meets on the third floor, the Governor's "horseshoe" is on the first floor).  The Democratic members are jubilant, feeling they have, at least, done their jobs.  Unfortunately, that opinion was not shared by everyone.

Plan B Down The Drain  

It was probably not the way Jerry Brown hoped to make history.  The Legislature had miscalculated about his acceptance of the revenue devices in the budget and, only a few hours after the budget hit his desk, he became the first Governor in California history to veto a budget.  Democrats, believing they had done the only things they could to put together a majority budget with no tax extensions, but the least possible additional bloody cuts to the already-reeling poor, elderly, and sick Californians, as well as to the schools from pre-school to universities, were furious.  They had not only believed a few newspaper headlines indicating that the Governor "would look at everything", they also believed that holding the budget on the Governor's desk for a few days might somehow "leverage" the Republicans to a last-minute approval of the tax extensions.  It was a textbook study in what was heard being completely different from what was said.  So: Back to Square One.

Next:  The Last (Minute) Budget