[Eagevawax]

http://www.mercurynews.com/politics/...092?source=rss


ReprintPrint Email Font Resize
More tax hikes, spending cuts for California?

By Mike Zapler

Mercury News Sacramento Bureau
Posted: 03/14/2009 06:00:00 PM PDT

SACRAMENTO — After all the drama in the capital early this year, you might think the state was done with its budget debate for a while. But there's one more big decision to make this month about how much to hike income taxes and how deeply to cut higher education and programs for the poor.

And it appears the answer may be: higher taxes and deeper cuts.

The budget plan that Gov. Arnold Schwarzenegger signed recently contains a lengthy menu of measures to fix the state's $40 billion deficit. But part of the menu is subject to conditions: Almost $3 billion in tax increases and program reductions would be scrapped if California receives enough money from the federal stimulus package, which was still under construction when the budget was passed.

Specifically, the state would have to receive enough from the feds to offset $10 billion in general fund spending through mid-2010. But with the federal aid package now signed into law, two recent estimates peg the total the state will receive at just $8 billion, though the matter is far from settled.

To be clear, the federal spending package will actually deliver much more than $10 billion to California — some estimates peg the figure at as much as $50 billion in aid to local governments, business tax credits and other programs. But much of that money is earmarked for specific purposes, like unemployment and health benefits, and won't help plug the state's deficit.

Experts
Advertisement
Quantcast
have conflicting views of which federal dollars will actually boost California's main budget fund, which pays for everything from public schools to prisons.

"It's a question of how you read the law," said Jean Ross, executive director of the California Budget Project, a think tank that advocates for working-class and poor people. "The language (in the budget) is very broad."

Indeed, the governor and legislative leaders left lots of room for interpretation in the budget package.

The decision ultimately rests with the governor's finance director, Mike Genest, and state Treasurer Bill Lockyer, who will hold a public hearing on the issue Tuesday and must decide by April 1 if the federal funding on its way will be sufficient.

Size of surtax

The stakes are high. If they decide that California won't clear the $10 billion hurdle, it will mean an extra surtax for residents at every income level. As it stands, personal income tax rates are slated to increase by 0.25 percentage points for two or four years, depending on the outcome of a May 19 ballot measure to curb state spending.

But that figure would be cut in half — to 0.125 percentage points — if the finance officials determine the stimulus bill will deliver $10 billion. For a family of three with $80,000 in income, the difference could be roughly $100 a year on their state income tax bill. For the state, the extra surtax is expected to generate $1.8 billion annually.

Nearly $1 billion in program cuts are also riding on the outcome. They include:

# Eliminating dental and other benefits for people enrolled in Medi-Cal, the state's health insurance program for the poor.

# Reducing monthly stipends by an additional 2.3 percent for 1.1 million blind, disabled and elderly people enrolled in the Supplemental Security Income program.

# Cutting the monthly stipend for CalWorks welfare recipients by about 4 percent. A family of three that now receives $723 a month would get $693, roughly the same dollar stipend that was provided two decades ago.

# Trimming an additional $100 million from the state university system, which is already planning tuition hikes to counter other state budget cuts.

"These are real programs that affect real people," said Mike Herald, a legislative advocate for the Western Center on Law and Poverty.

Political math

Finance officials are framing the decision whether to trigger the extra tax hike and spending cuts as a just-the-facts calculation. But heavy political pressure will be brought to bear, and their decision is far from simple mathematics.

One example: At this point, the governor's staff isn't counting nearly $5 billion in federal education money the state is expecting to receive, saying it's unclear how it would be spent. But advocates for the poor say those funds almost certainly will be used to counter state cuts to public schools and therefore should be counted toward the $10 billion threshold.

"It's a little disingenuous" not to include that money, Herald said.

Of course, there may be a strong incentive for finance officials to play it conservative. With revenue continuing to deteriorate — the state controller said Thursday that tax receipts in February were nearly $1 billion below the governor's estimate just a month earlier — California may well need the $2.8 billion that would be generated from the extra tax hikes and spending cuts.

As the protracted budget standoff demonstrated, generating that kind of money later through the legislative process could be a tall order. Officials also may be mindful of a report released Friday by the independent Legislative Analyst's Office that, thanks to lower-than-expected revenue, the newly signed state budget is already billions of dollars in the red.

"They may be thinking it's better to take the bird in the hand," said Barbara O'Connor, a professor at California State University-Sacramento's Institute for the Study of Politics and Media.