Author: Loren Kaye

With the state budget now more than 50 days late, the usual suspects have again lined up to decry the two-thirds vote requirement to pass the state budget. But the problem isn’t a late budget – it’s an unbalanced, undisciplined budget.

The typical defense of the supermajority vote is that it promotes consensus and restrains overspending or tax increases. But in practice it has done neither: taxes are already checked by a two-thirds vote, and spending has obviously not been constrained by the budget vote hurdle.

So maybe the time has come to jettison the two-thirds budget vote, and replace it with some legitimate budget reforms that would actually control spending. After all, the fundamental cause of the budget debacle has been persistent bankrolling of workload budgets that have exceeded even extravagant revenue increases: to illustrate, a 44% increase in General Fund tax revenues between 2003 and 2007 was not enough to cover all the spending demands.

You know that real reform is about to happen when opponents let loose their menagerie of hobgoblins and boogeymen.

Today’s LA Times was the forum for the tax raisers to complain about common sense tax policy. But they had to dress it up as a give-away, because that’s what you do when common sense is not on your side.

The common sense part: taxpayers pay taxes on income (profits) and can write off losses. But for many business taxpayers, their business cycles do not conform to the arbitrary dates of a tax year. Federal tax law has long recognized this fact of economic life, and has allowed taxpayers to write off losses going back two tax years and forward up to 20 years. (The latter is particularly helpful for businesses with long gestation periods, like biotech firms.)

California only recently agreed to partially conform to federal law, allowing write-offs of losses prospectively for ten years. But as part of their initial $8 billion tax increase to close the budget gap, Democrats proposed to suspend the ability to write off these losses for two years, but offered to extend the carryforward to 20 years. The suspension would amount to a $1.5 billion increase on business taxpayers.

Rose King is a well-regarded policy consultant and advocate for mental health treatment. She has written a stinging indictment of the "botched implementation" of Proposition 63, the Mental Health Services Act of 2004, which blames both state bureaucracy and the use of the initiative process itself. King makes some cogent points about the pitfalls of policy making by initiative.

The most notorious workplace benefits bill of the year, AB 2716, will be considered by a key Senate committee today, and on behalf of supporters, the Field Research Corporation has released a doozy of a poll. By a three-to-one margin, voters support a state law to guarantee that workers receive a minimum number of sick days from their employer. Also, three-quarters of voters “are concerned” about the millions of estimated workers without paid sick days. Moreover, the same 75% – 25% margin finds voters believe paid sick day laws will significantly increase the cost of doing business and the costs will be passed on to customers.

So voters are basically a sympathetic bunch, and when asked they acknowledge that new benefits aren’t free. But the poll doesn’t ask what would be the only useful question: given a choice between a compassionate benefit and certain job losses or pay cuts, which is a higher priority?

The state employees are marching. The editorial boards are wringing their collective hands. The Controller is standing firm. But guess what — Governor Schwarzenegger’s executive order on state spending issued last Thursday does not cut anybody’s pay.

Typical of the reporting is a story in yesterday’s Sacramento Bee which says, inaccurately, that the Governor instituted “a temporary pay cut.”

If anyone took the time to actually read the executive order, one would discover that it merely orders the Director of the Departments of Finance and Personnel Administration to
“work with the State Controller to develop and implement the necessary mechanisms, including but not limited to pay letters and computer programs, to comply with the California Supreme Court’s White v. Davis opinion to pay federal minimum wage to those nonexempt FLSA employees who did not work any overtime.”

Spread the news, especially to the Air Resources Board. California drivers respond to price signals. Judging from its skepticism of market solutions – embodied by the draft blueprint for greenhouse gas controls, which minimized the role of markets in achieving emission reductions – the Board doesn’t buy this. But recently-released gasoline sales data for California demonstrate that drivers do respond to higher gasoline prices.

The State Board of Equalization recently released its March, 2008, gasoline consumption report, which shows taxable gasoline sales falling by more than three percent from a year ago, and by 5.5% per capita from two years ago.

George Skelton. The LA Times columnist yesterday recounted his recent lunch with Speaker Karen Bass, who pitched her excellent idea for a tax commission by among other things stating, "I’d expect it to come up with more stable ways to generate revenue so we are not completely dependent upon the upper income brackets."

Never reticent when sensing a possible inconsistency, Skelton no doubt asked her why then has she proposed nearly $6 billion in new taxes aimed directly at upper income taxpayers, increasing even more our dependence on high earners? It’s a shame the Speaker’s response to that pointed question did not make the column’s final cut.

Kudos to Skelton for detailing the increasing dependence of the California budget on the personal income tax, especially on high earners. But in discussing the smaller role of the state sales tax, he draws the wrong conclusion: the reason the state is less dependent on the sales tax is quite simply because we’ve become more dependent on the PIT.

Sometimes all the attention to inaction overwhelms news of very important actions. With all the clamor over last week’s non-progress on the state budget, you may have missed an important decision by the State Board of Education supporting high standards for student proficiency.

For years, the state has had a two-track system for proficiency in 8th grade math – one for Algebra 1 and one for General Math, which tests 6th and 7th grade math standards. Governor Schwarzenegger and education reformers, including business, civil rights groups, and higher education, advocated a single standard of Algebra 1, phased in over three years, to set high expectations, eliminate an invidious two-track system, and ensure students were on track to have skills they need to thrive in the 21st century workforce.

Readers of this blog already know that the legislative Budget Conference Committee voted along party lines to recommend a nearly $10 billion tax increase to provide most of the fill for a $15 billion budget deficit.

While a $10 billion tax increase may seem shocking, the sheer amount is the least of it. After all, surely noone believes that anything close to that amount would eventually be adopted by a bipartisan vote of the Legislature. More disturbing, though, is the direction that the tax increases are headed:

First, about one-fifth of the revenue increases are really just accelerations or gimmicks, which would create a $2 billion hole in next year’s budget.