Author: Loren Kaye

The referendum filed yesterday by a representative for Amazon to
repeal the law applying sales taxes to certain online
purchases would have a small effect on the state budget, if successful.

But if the referendum appears on a ballot, it would
make a major statement about one of the most important untested aspects of last
year’s Proposition 25. This measure is best known as
permitting the state budget and appropriations to be approved by a simple
majority vote of the Legislature, and withholding pay and expenses from
legislators if they miss the June 15 deadline to pass a budget.

During last year’s campaign on Prop 25 I argued that the measure could also threaten the
very existence of the people’s referendum power; that is, the ability of voters
to reject at a statewide election a statute passed by the Legislature. Simply
stated, I suggested that the creation of a new category of budget-related
bills, which can take effect immediately but be passed by a majority vote of
the Legislature, might insulate virtually any bill from the threat of
referendum. Prior to Prop 25, the only measures insulated from the referendum
were those passed by a two-thirds vote of the Legislature – a high standard
requiring substantial legislative consensus.

Just because state taxes weren’t extended by the
Legislature (or the voters) to close the state budget gap doesn’t mean the
Legislature is not planning to raise your taxes.

And when I write "Legislature," I’m including
Republicans.

Even as negotiations to temporarily extend sales,
income and vehicle taxes came a cropper, both the Assembly and Senate approved
legislation – by supermajority votes – moving tax increase proposals to the
opposite house.

These tax increases would not support trivial
programs like colleges and universities, trial courts or state parks. They go
to a core function of state government: subsidizing renewable energy and energy
efficiency programs and research.

Controller John Chiang took a victory lap this week,
enjoying accolades from an unusual quarter – legislative Republicans and conservatives. But while Chiang has made
political hay by slamming shut the pay window, he has actually added to the
fiscal irresponsibility surrounding the budget.

If the Controller’s action is left unanswered, the
Legislature and Governor will effectively no longer have the final word on the
state’s budget. The Controller will be able to second-guess – and only after
the fact – whether a budget passed by the Legislature is a bona fide budget,
for purposes of deciding whether legislators will continue to be paid. The
criteria the Controller uses to determine "balance" is of his own devise. He
may change it from year-to-year as he pleases. He may even halt legislative pay
after the Governor signs and enacts a budget. 

One can envision future Big Five negotiating sessions
becoming a Big Six, with appropriate consideration given to the Controller’s
priorities.

As the most outspoken, if not prettiest, opponent of Proposition 25 on these pages, I take smug
satisfaction in how the measure has exploded in its champions’ faces.

Last November, Senate Leader Darryl Steinberg said, "(T)here is no reason
for a late budget again with the passage of Prop. 25… (it’s) a real game changer."
Yes, the Democrats on a virtually party line, simple majority vote passed and
sent to the Governor a budget, which he promptly vetoed. Boom!

Well, at least (they thought) by passing a budget on
June 15 they avoided the pay penalty included in the measure. Boom! Controller
John Chiang has stopped their salary and expenses because the on-time budget
wasn’t balanced budget.

In vetoing the budget bill, Governor Brown criticized Republicans for stymieing his proposed election to extend temporary taxes. But the real message was delivered to Democratic leadership in the Legislature: "I’m in charge here."

Pressured by a deadline to play-or-not-get-paid, Democratic majorities passed a gimmicky budget, described by the Governor https:> as "not a balanced solution." He further said the budget "continues big deficits for years to come and adds billions of dollars in new debt. It also contains legally questionable maneuvers, costly borrowing and unrealistic savings. Finally, it is not financeable and therefore will not allow us to meet our obligations as they occur."

The Legislature debates the state budget today, appropriate since today is the budget deadline. A handful of determined Senate Republicans have offered a path to an election on tax extensions, contingent on Democrats agreeing to changes in laws that cramp business investment and hinder fiscal solvency.

Some may question the relevance of the business climate changes to the state’s fiscal health. I offer this: while Californian workers and even government employees have suffered under the chill of the recession, state regulatory agencies have been on a hiring binge.

Figures released by the national Bureau of Economic Analysis showed the state’s gross domestic product recovering by 1.8 percent, after adjusting for inflation. This compares to national real economic growth in 2010 of 2.6 percent.

California’s GDP, at just over $1.9 trillion, is still below its 2008 peak. And our anemic recovery shows: 33 states are growing more robustly than California, including most of our key competitors. Construction, finance and nondurable manufacturing continue to be the major private sector economic laggards.

Two budget-related developments yesterday bring a
small amount of clarity to the political positioning on achieving a deal. But
their long-term effect is to re-allocate political power.

Controller John Chiang released
a legal opinion interpreting the section of Proposition 25 that would halt salary and expense
payments to the Legislature if it fails to transmit a budget to the Governor by
June 15. His lawyers concluded that even if the budget is timely passed and
sent to the Governor, if it is not a balanced budget, then legislators
would forfeit their pay until they pass one that is balanced. This twist arises
from an earlier measure, Proposition 58 in 2004, which requires that the
Legislature may not send to the Governor, nor may the Governor sign, a budget
that would spend more than the revenues estimated for the year. Until the
Controller’s memo, this constitutional provision had no teeth. Now that
provision has been given real force, and the arbiter of whether a budget is
balanced – and therefore whether the Legislature will be paid – will be
Controller John Chiang.

California has a budget deficit.

The deficit was caused by (1) the Legislature
spending one time revenues on ongoing programs, and (2) most recently, the
recession.

The deficit has persisted because the Legislature
relied on gimmicks and one-time solutions instead of dialing back spending.

At the urging of Governor Brown, the Legislature
adopted $13 billion in solutions, including billions in permanent spending
cuts.