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Budget Essay #9: California Is Terminated

by Sheila Kuehl
June 11, 2009

This is the second in a series of new essays on the current (May-June 2009) state of budget considerations and analyses on contributing factors.  In this essay, I set out the magnitude of the gaps and the Governor's proposals for cuts, cuts, cuts to the 08-09 and 09-10 budgets.

A Brief Review of the Road to Termination

I'm picturing a cartoon, perhaps in the style of political cartoonist Rex Babin of the Sacramento Bee:  Arnold is presented as the Terminator, holding high two pieces of a broken state of California, with children and old people raining down out of the break, broken, themselves. 

And it was so unnecessary.  A few years before Grey Davis was recalled, then-State Senator Tom McClintock railed on the floor of the Senate (a fairly regular event) about, among other things, the unfair burden of the "Car Tax" (California's Vehicle License Fee, a 2% declining tax on the value of your car, which we had all been paying, pretty much without noticing, since 1935).

The conservative radio blahblahsphere immediately seized on this as a juicy item, and, in the ensuing cacophony, the Legislature became convinced that we could only shut down the whining by suspending the fee for a year or two, since California was doing ok for money (remember those days?).  It seemed harmless enough because, built solidly into the adopted legislation was a provision that, should the state budget fall below a certain amount, the Vehicle License Fee would return to its historic level.

Shortly thereafter, state revenues did begin to dip from their expected amounts and, pursuant to the law, the vehicle license fee was set to automatically return.  Sen. McClintock and others immediately decried Gov. Davis for "raising" their taxes and a petition was filed that eventually led to Davis' recall and the election of our Republican Action Hero In Chief.

Never one to pass up a great visual or a (bussed-in) rally, the Governator smashed up a car and declared that the Car Tax had to be voted out permanently.  The Legislature, dazed and cowed by the recall and the new Governor's apparent popularity, caved.

Result:  a loss of revenue that, if aggregated since then, would have been about the same as the current deficit.

The Budget(s) Shortfall

The Legislature voted twice to adopt budgets in September 2008 and February 2009.  The 08-09 budget was cut by over 18 billion dollars and the 09-10 budget by 8.6 billion.  Since any hope of achieving significant gains by cutting "waste" or other phantasmagorical leftovers from past rhetoric is long gone, the actual big losers in those cuts were schools, healthcare and social services.  Even deeper cuts were averted by the adoption of a one cent, two-year, increase in the sales tax, and the once-anathema Vehicle License Fee was partially restored to 1.15%.   Strangely enough, large corporations got a tax break, worth about 2 billion a year, when fully implemented.

However, since revenue continues to precipitously decline, month to month, the General Fund now faces an additional shortfall of 24.5 billion dollars (19 if you don't count the very generous reserve the Governor proposes).

The Governor's Solution: Devastation to the Safety Net

In his "May Revision" proposal to the already-adopted 09-10 budget, as well as the current budget, the Governor proposes such deep cuts that, were they to be adopted, California would become the only state in the nation to have thoroughly destroyed its social safety net.  The Legislature is considering alternatives, which will still require deep cuts, but will contain some revenue enhancements, as well.
To set out the discussion for you, here are the Governor's proposals:

  • A (somewhat large) reserve fund of 4.5 billion dollars
  • 16 billion dollars in additional cuts:
  • In education:
    • 5.3 billion further reduction to K-12
    • 700 million further reduction to Community Colleges
    • 1.8 billion in "deferred" spending, including cuts that would do away with 85% of the money spent to transport kids to schools
    • 3 billion further reduction for UC and CSU
    • 300 million dollars in cuts to Cal Grants, including phasing out the program
  • In Health and Human Services- 5.6 billion in cuts, by cutting MediCal, eliminating CalWorks, eliminating Healthy Families (children's healthcare), massive cuts (750 million) to in home support workers, and eliminating adult day healthcare.
  • One billion dollar cuts to prisons, a portion of which is realized by eliminating rehabilitation programs.
  • Almost two billion in cuts to transportation and another two billion in funds withheld from local governments.
  • Cuts all state employees an additional five percent (most have already lost 10% of their income through furloughs)
  • Proposes entering into a lease for oil drilling off the coast of Santa Barbara.
  • Eliminates all general fund support for State Parks and requires that the entire system operate only on special funds and fees, resulting in the possible closure of 80% of our State Parks.
  • Accelerates revenues by 4.7 billion by increasing withholding percentages, tapping fees and shifting funds.
  • "Borrows" almost 2 billion from funds the voters and legislature adopted for specific purposes.
  • Sells a portion of the State Compensation Insurance Fund.

The Legislature's Options

A joint legislative Conference Committee on the Budget has been holding public hearings every day for the last few weeks to hear from thousands of Californians who are frightened to death by these proposals.  The Committee has already rejected eliminating Cal Grant loans and several members of both houses have indicated they cannot, in any kind of conscience, completely eliminate CalWorks and Health Families, and make California the only state with absolutely no safety net for its most vulnerable citizens.

Even so, it is difficult to ascertain whether protection of the safety net will win over a resigned air of inevitability.  There appears to be little stomach, however, for balancing the budget purely through cuts.  Even though additional, severe cuts must be part of the "solution", the Legislature can take specific steps by majority vote to increase revenues, even temporarily, and to lessen the unacceptable impacts of a "cuts-only" budget fix.

Next: Majority Vote Options and Why They Are Necessary