With a June election to extend the 2009 tax increases
now officially kaput, and legislative leaders and the Governor
committing to not place the measure on a June ballot by a majority vote, state leaders are entering
uncharted territory in their quest to resolve California’s fiscal crisis.
What are the fallback options to address another $15
billion or more in budget solutions by the new Prop 25 deadline, which is June
15 or legislative pay is cut off?
Here are my thoughts on a Plan B, and for good
measure Plans C and D:
Plan B: A gimmicky or worse budget approved by the
Legislature by June 15. Legislative Democrats have created the specter of an "all cuts"
budget, even prevailing on the Legislative Analyst to prepare a list of cuts to illustrate the shape
and extent of another $13.5 billion in spending cuts. But an all-cuts budget is
either a myth or a euphemism. More likely will be a revised plan that avoids
most of the worst cuts, whacks some earlier untouched areas, like K-14
education and corrections, but that papers over the gap using tried and true
methods of the past decade.
The Plan B budget might include more borrowing, such
as an idea floated by cities fighting elimination of
redevelopment agencies to securitize a 40-year loan into a one-year $7.4
billion budget solution. Or Democrats could pump up expected 2011 fiscal year
revenues by billions more dollars. After all, with a now-recovering economy
state revenues have already come in higher than forecast.
Finally, notwithstanding the comforting noises made during last fall’s
campaign, majority vote tax increases remain a very real threat, should
Democrats and their allies get backed into a corner. Tax proposals already
introduced this year just on internet sales, tobacco and sweetened beverages would total billions in new
revenues. It is well within the realm of the plausible to imagine these or
other tax increases incorporated into budget trailer bills,
as newly authorized by Proposition 25, thereby avoiding the 2/3rds
legislative vote requirement.
Plan C: Unions gather signatures for a November ballot
measure re-imposing 2009 tax increases. The California Labor Federation has already announced it
is considering such a move. The difficulty with this approach is that it still
requires a fix in June to enable the Legislature to pass an ostensibly balanced
budget to continue to receive their pay. And at least some of the new solutions
(see above) must be plausible to enable the state to borrow more money at the
beginning of the fiscal year to satisfy its cash flow needs. Therefore, this
strategy must also incorporate some real or apparent budget solutions.
Plan D: Governor Brown is "forced" to recant his campaign promise to seek voter approval of any
new taxes. This scenario would require the Legislature, including at least
four Republicans, to present him with a budget plan that includes additional
spending cuts, very short-term tax extensions, some economic development
reforms and, say, his commitment to support the ACA 4 budget reform on the 2012
ballot. This approach would require a very heavy lift on all sides: a flip-flop
by the Governor on his signature campaign promise, a vote for actual tax
extensions – not a "vote for a vote" – by certain Republicans, and acceptance
by legislative Democrats of major policy reforms that are anathema to their
Plan D is a
mutual sacrifice (or some may say a "mutual suicide") pact: it could only
succeed after the fundamental weaknesses of Plans B and C were understood. But
the tradeoffs inherent in such an approach, which also bring major policy
"wins" to all sides, and the necessity of the parties to return to the
bargaining table after the failure of round one, might reveal the advantages of
doubling down on this seemingly riskier approach.