Silver Lining in Trigger Cuts Cloud

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

The “trigger” budget cuts decision announced by Gov. Jerry Brown may reflect a silver lining – that the economy is starting to rebound. Gov. Brown announced $1 billion in budget cuts aimed at higher education, MediCal, services for the disabled and school buses. However, the cuts are far short of the $2.5 billion in cuts that the Legislative Analyst Office projected based on the state’s financial standing last month.

One reason for the better-than-expected news is because revenues are increasing. Sales tax is up 8% over last year; income tax is 4.5% ahead of last year. Assembly Budget Committee Vice-Chair, Jim Nielsen, reports that income tax is up $1.5 billion from last May, and corporate tax is up $467 million.

Certainly, those directly affected by the proposed cuts will see a dark cloud and detect no bright lining. The cuts will have negative effects on some people and that fact must be recognized. However, the cuts were less than expected, sparing K-12 schools, signifying perhaps that the state’s economy is rebounding somewhat.

Yesterday, the Federal Reserve said the U.S. economy is maintaining moderate expansion. That announcement seems to mirror what is happening California. Early reports of holiday shopping also have been upbeat.

No one is making wild predictions (like the legislature did when it passed the budget last June with that anticipated $4-billion that they hoped and prayed would show up) but the upswing could mean California is starting to dig itself out of a hole, which means more revenue for public services.

Which brings up the perplexing problem of the many tax initiatives that have been filed.

Under the state’s initiative system, measures have to begin the process a year ahead of an election. The fiscal environment could be quite different next November. If the revenue is still increasing, but the recovery is fragile, a tax increase could crush a recovery. On the other hand, if the recovery becomes robust new revenue collection could fill the budget holes left by the trigger without the need of new taxation.

The moderate but positive economic news proves once again that the best remedy for government budget woes is a strong business climate and solid economic growth.

California Common Sense did an interesting analysis of the trigger cuts which you can find here.

 

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