state budget, taxes and massive new debt have emerged at the top of the
Legislature’s agenda this month. Some wonder how the Legislature could
have been working on any issues other than jobs, the economy and the
budget, given the gravity of those problems. But making up for lost
time, legislative leaders have laid on the table billions in new taxes
and mixed in a stunning proposal for new deficit spending.

After two weeks of proposals and counterproposals, the Assembly
Democratic leadership this week doubled down on the deficit, proposing
to borrow more than $9 billion to paper over part of the current
deficit, avoiding the tough decisions needed to balance the budget.

Their proposal finances existing, unfunded programs by borrowing money
and increasing taxes to pay off the new debt over the next 12 to 20
years. This one-year "solution" leaves $9 billion worth of programs in
place without any future source of revenues.

The new debt would be repaid using fees and taxes that consumers and
manufacturers pay for recycling beverage containers, and disability
insurance taxes paid by California workers. The programs formerly
supported by these revenues would instead be financed by a new tax on
oil extracted only in California.

But wait, there’s more!

Anticipating that two-thirds of legislators wouldn’t  vote for a tax
increase on California-produced oil, the proposal relies on a patently
illegal maneuver: reducing the sales tax by an amount matching the
increase in the extraction tax. This "revenue neutral" maneuver is
designed to avoid the people’s stated intent (found in the state’s
Constitution) that all tax increases be approved by a two-thirds vote.

The $9.2 billion shell game, dressed up in elaborate legal and
financial finery, (1) punitively raises taxes on an important sector of
the California economy and would make California oil the highest taxed
in the nation; (2) places the state’s recycling program at risk for
funding shortfalls and the beverage manufacturers at risk for even
higher fees and taxes; and (3) puts off tough decisions on $9 billion
in ongoing programs for which there is no current funding by adding to
the state’s debt for up to 20 years.

Earlier, the Senate Democratic leadership proposed nearly $5 billion in
tax increases to address the budget shortfall, including:

The Governor’s Office and legislative Republicans swiftly rejected the
proposed tax increases, recognizing that adding even more taxes during
a recession would hobble the state’s tentative recovery.

Not to be lost among the frenzy of tax and debt proposals, the Governor
two weeks ago released the May Revision of his budget proposal,
identifying a nearly $18 billion gap between projected revenues and
program demands. He put forward no new taxes, set out an additional $4
billion in program cuts beyond his January proposal, and insisted on
substantive budget and public pension reforms as a condition of signing
a budget. The kinds of deep cuts reluctantly recommended by the
Governor are an inevitable consequence of the deep recession and a jobs
and investment climate that will cause California to trail the nation’s

In 2004, voters adopted constitutional provisions to prevent borrowing
to fund state budget deficits. The events of the past two weeks
highlight not just the state’s budget gap, but the gap between the
real-world recession experiences of taxpayers and employers, and the
other-world demands of public sector programs and government employees.

The Democratic proposals also illustrate the extremes to which the
Legislature will venture to avoid facing the simple truth that the
public sector appetite for spending has exceeded the economy’s capacity
to satiate it. When the private sector economy isn’t strong, all
segments of government will suffer. We need to be focusing our efforts
on improving our economy, not raising barriers to growth and job