This is the fourth in a series of five essays on the legislature's actions related to California's 08-09 and 09-10 budgets from the time 08-09 was adopted in September of 2008 until both were finally modified and adopted in February of 2009.

My first budget essay outlined steps taken in October and early November because of the need to immediately amend the budget adopted in September of last year.  The second essay detailed failed votes and resulting freezes in outlays. The third essay explained the adoption of majority-vote budget amendments, which the Governor refused to sign. This essay details the (almost) final budget which got all votes but one.

Oh Boy, Another "Special" Session

It was January, and, although the Legislature had failed, so far, to amend the 08-09 budget, it was time for the Governor to present his 09-10 budget.  He called yet another "special" session to adopt both the amended 08-09 budget and the new year's budget, which, if adopted, would be many months early.  The Legislature in both houses convened to hear both budgets as a "committee of the whole".  This means that the natural and detailed hearings on the new budget would be folded in with the proposed amends to 08-09, truncated, and conducted by much larger committees.

The Situation

The 08-09 budget deficit had grown to 14.8 billion dollars, which, if left unchecked, would lead to a more than 40 billion dollar deficit by 2010.  The 09-10 budget, as proposed by the Governor, contained more cuts, a lot of borrowing and some tax increases.  Together, the two budgets would provide 15.8 billion in additional cuts over the September budget, 14.3 billion in tax increases and 10.9 billion in borrowing.  The final budget saw the numbers shift a little....a bit less in cuts and a bit more in borrowing.....generally, however, the totals remained the same.

The February 12th Budget "Deal"----Cuts:

Education was cut by an additional 5 billion dollars.  This meant that K-12 would receive less than the amounts required by Prop 98.  Somehow, however, a different calculation of the minimum allowable amount would make it all legal.  In addition, K-12 education was to be "repaid" later for its losses.  CSU and UC were cut an additional 10%.  The cost of living increase was eliminated for recipients of CalWorks and SSI/SSP.  The medical budget for the prisons was cut by 10%.  Funding for local transportation agencies was mostly eliminated. State employees were to be "furloughed" two days a month and their salaries reduced concomitantly.

Borrowing

A portion of the deficit would be pushed into the 10-11 budget, through the issuance of 5.9 billion in Revenue Warrants (you give me money, I give you more back later) which don't have to be paid back in the year issued (as opposed to Revenue Notes, which do).

Funds were to be swept from all the accounts for Prop 10 (First Five early childhood education programs in the counties), even if the money was already committed and, along with Prop 63 (mental health) dollars, would be "redirected" into regular expenditures, if approved by the voters in the next special election.

Special funds would be drained into the General Fund and paid back at some future date.  The Tire Fund, for instance, which aggregates monies collected when tires are sold to pay for recycling them and keeping them out of landfills, was drained. The sale of future lottery proceeds remained in the budget, as before. 

Tax Increases

Sales tax was increased by 1 cent on the dollar for two years.  If the spending cap proposed in Proposition 1A fails in the special election, the tax increase is extended for an additional 1-3 years.  The Vehicle License Fee increased from .65% of a vehicle's value to 1.5%.  Gas taxes increased by 12 cents on the gallon but had to be used to pay off transportation bonds.  Those who pay income tax would be charged a surcharge of 5% on their tax liability. The amount of the dependent credit allowed to families was lowered.

Changes if the Federal Stimulus $$ exceeds 10 billion

Hopes ran high for a large federal stimulus package to help rescue California.  The budget in February set out changes that would automatically take place, if the federal stimulus package to California exceeds $10 billion:
Cuts would drop by 1.2 billion: there would be no reduction in SSI/SSP; MediCal dental, chiropractic, optometric, podiatric, psychiatric and other benefits would be restored; a 10% reduction in MediCal hospital reimbursement rates would not go into effect; CalWorks would have 4% of its lost monies restored; higher education would have its cuts diminished by 100 million.
Borrowing would drop by 5.5 billion and tax increases would drop by 1.8 billion, as the 5% surcharge on income tax liabilities would be dropped to a 2.5% surcharge.
(Note: As of the date of this essay, the stimulus package was not slated to reach 10 billion, so the changes set out in this paragraph would not come into effect).

Tax Breaks, oops, I mean "Economic Stimulus"

Under the general and generous rubric of "economic stimulus", provisions in the February budget (the one-vote-short-budget) allows multi-state businesses to base the portion of the overall income they attribute to California (and, therefore, pay taxes on) simply on the percentage of sales they attribute to California.  Currently, they must identify what percentage of their overall payroll, property and sales occur in California and pay taxes accordingly.  The change included in the budget has the effect of reducing taxes for corporations with significant employment and property in California and significant sales outside the state.  It was calculated to provide a 700 million dollar first year benefit to these businesses, growing to 1.5 billion a year in monies not coming into the California budget.

There was also a film and TV production credit that returned 20-25% of productions costs for films produced in California, limited to 100 million dollars in any one year, for a total of 500 million dollars.

To encourage hiring, small businesses that employ less than twenty people will receive a $3,000 tax credit for each new hire, for a total of up to 400 million not coming into the budget for the first two years.

The Little Budget That Could(n't)

Even after all the concessions made above, the budget was one vote short in the Senate.  (Remember, with Senator Mark Ridley-Thomas now an L.A. County Supervisor, his seat was open, which meant that, with the requirement of a two-thirds vote on the budget and tax increases, three Republican Senators had to vote for the budget.)  The Republican leader in the Senate, Dave Cogdill, said he would support the budget (after all, he had negotiated it and thought it to be the best that could be achieved in the current crisis).  He was immediately replaced as Republican leader, but continued to indicate he would keep his word and vote for the budget.  Republican Senator Roy Ashburn had already indicated he would hold his nose and vote for the budget.  Republican Senator Dave Cox, who had actively pushed for, and gained, the sweep of Prop 10 child development funds into the General Fund, at the last minute decided not to vote for the budget unless several other, new, changes were made.  It all came down to the Republican state Senator from Santa Maria: Abel Maldonado.

Next and Final Installment: How Abel raised Cain.