This op-ed originally appeared in the Flashreport
As budgets go in California there is much to be liked about the Governor’s May revise. First, it balances and does again reduce the accumulated structural deficit (internal and external borrowed monies used to plug holes since 1999) projected to fall from a height of $35 billion to $26 billion. The budget establishes a reserve and projects to nearly repay deferred education funding by 2013-14, although increasing deferrals again the next budget year.
This feat is accomplished by year-to-date state tax collections and other “revenues” $3 billion higher than the Governor’s January projections. You may recall that sales and personal income taxes (PIT) increased with Proposition 30 and that PIT increases were retroactive to January 2012. The high price of gasoline has also added to state coffers as sales taxes are assessed on the base price. The tax “bump” is projected to decrease in 2013-14 due to the one-time effect of retroactive taxation and accelerating capital gains taken in 2012 by taxpayers to avoid the increasing rate for 2013.
In addition, $500 million in Cap and Trade fees could be added to the tax equation, borrowed to fund a reserve. General Fund spending continues to rise and is projected to increase roughly 7% year over year as we implement healthcare. In addition, there are still many categories that bear close attention. Education realignment is assumed, and prison overcrowding is still a court issue.
The continuing debate over education funding could be resolved with a simple increase in the minimum funding level for ALL schools, and a decrease in categorical funding. Backfilling some at the expense of others – or politics over policy, will not help educate our kids. As for our criminal justice system, the Governor is opposed to more early releases, but changes in sentencing guidelines could be implemented. Recall AB 109 passed in 2011, reduced state prison population by transferring supposed low-level offenders to our counties. Counties are still trying to cope with more prisoners and less room and money.
Reducing unemployment, still stuck at close to 9% would go a long way to solving our woes, filling local and state coffers. Middle-class private sector job creation, as afforded by clean-tech, manufacturing and infrastructure is the only way to ensure our youth and talent remain in-state. We should not be wasting our resources to educate, incubate and send out-of-state.
A short moratorium on future regulation would send a very positive signal to the business community, as they increasingly downsize and relocate. It’s very tough to keep up to speed with the onslaught of regulation emanating from the agencies and legislature – time to take a deep breath (no pun intended). Even our vibrant Bio-Tech and Bio-Med firms need electricity, water and a stable tax and regulatory environment to grow, retain and attract talent. Information technology firms such as Facebook, Google and the like are great, but do carry a boom and bust effect for our state as capital gains ebb and flow.
To leave on a high note, the Governor does seem willing to negotiate some tax breaks that we have been proposing for years. Allowing a sales tax credit to purchasers of manufacturing equipment is sorely needed, as companies wishing to expand in California have merely to set up shop next door in Nevada or Arizona to avoid the tax. In addition, our credit rating is steady and improving, our cost of borrowing has decreased and I do expect that the Governor will hold the line on refusing to allow any “direct” tax increases or additional spending by the heavily dominated Democrat Legislature. I’ll keep you posted.