Posted in Budget Crisis
Last updated 06/28/2011 at 11:31 p.m. PDT

Budget Passes with No Taxes, Plenty of Cuts

Democrats' plan relies on revenue the state has not yet received

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By Bay Citizen Staff on June 28, 2011 - 11:31 p.m. PDT
jimmywayne, Flickr
California Capitol Dome in Sacramento

California's Legislature passed a budget Tuesday night that relies on deep cuts, optimistic revenue projections and a plan for even deeper cuts if that money never materializes.

The votes came one day after Gov. Jerry Brown and the Legislature's Democratic leaders announced they had reached an agreement on a plan that would close the state's $9.6 billion budget gap without raising taxes.

“Democrats in the California State Legislature made tough choices and delivered an honest, balanced and on-time budget that contains painful cuts and brings government closer to the people through an historic realignment," Brown said in a statement Tuesday night. "Putting our state on a sound and sustainable fiscal footing still requires much work, but we have now taken a huge step forward.”

No Republican lawmakers voted for the plan, as was the case with an earlier budget Democrats passed on June 15. Brown vetoed that plan, because he said it relied on "gimmicks" to eliminate the state's deficit.

Brown is expected to sign the new budget Wednesday. Once he does, the state will resume paying lawmakers, who were forced to forfeit their salaries beginning June 16 as a result of Proposition 25.

The measure, which voters approved last November, requires the state to stop paying lawmakers for every day after June 15 that they do not pass a balanced budget. Although legislators passed a budget in time to meet the requirement, state Controller John Chiang determined that budget wasn't balanced and withheld their pay.

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Lawmakers will not be able to recoup the money they forfeited between June 16 and June 28.

Unlike last year, when the budget was 115 days late, the new budget, if approved by the governor, is two days early. It will take effect Friday, when the fiscal year begins.

The budget plan includes $86 billion in spending — $5.5 billion less than last year's budget — and calls for big cuts to higher education. The California State University and University of California systems will each lose $650 million, which they will likely make up with tuition increases.

The budget does not include tax extensions, which Brown wanted but Republicans refused to support. Without those extensions, Brown and Democrats were faced with a choice: make even deeper cuts now or wait to see if revenues remain higher than expected.

They chose to wait, banking on an additional $4 billion in anticipated revenue, largely from income and sales taxes. If that revenue falls below $3 billion, the budget triggers deeper cuts to a number of state programs — including more cuts to higher education.

If the revenue falls below $2 billion, the budget will trigger cuts to elementary and secondary education programs, including shortening the school year.

Because the budget does not include tax extensions, the state's sales tax will drop by 1 cent, but vehicle registration fees will increase by $12.

Republican lawmakers, who successfully rebuffed all of the governor's efforts on tax extensions, wondered why, if such tax measures were needed, the budget passed without them.

"If we now have the revenue that we needed at the beginning of the year, why is it we keep going back to the voters and asking for yet more?" Sen. Bob Huff, R-Diamond Bar, the ranking Republican member on the budget committee, told the Mercury News.

For a time Tuesday evening, it looked like the budget might fail. While the plan sailed through the Assembly, some Democratic senators balked at voting for it, hoping to secure changes to separate legislation that would essentially eliminate redevelopment agencies. After a relatively brief meeting between the holdouts and their party's leader, Senate President Pro Tem Darrell Steinberg, the bill passed with just enough votes, 21 to 19.

Steinberg was quoted as saying that the budget gave him “very mixed feelings.”