The Good Bad and Ugly of the State Budget Deal

What are taxpayers to think about the budget deal reached this week by California’s political leadership? For those who not only carry the financial freight for themselves but also for government the budget definitely reflects a mixed bag.

But let’s start with a major caveat up front. As far as we know the "deal" is still conceptual only with nothing yet released in writing. Fiscal conservatives will want a lot more than 24 hours to analyze the final language carefully. We are not being paranoid. Remember that Prop. 1A on the May 19th ballot was sold as budget reform but after the language was carefully reviewed it was clear that there was no spending discipline in it at all.

The Good

Taxpayers are pleased there are no new tax increases in this proposal and that Proposition 13 was left alone. Gov. Schwarzenegger showed us flashes of the leadership we thought he was capable of during the recall. Additional taxes would have merely accelerated California’s decline.

There are real cuts in this proposal. While no one is cheering cuts for cuts’ sake significant reductions in spending are absolutely necessary to bring expenditures into alignment with revenues. Some of these include $3 billion in reductions to higher education $1.2 billion to corrections and $1.3 billion to Medi-Cal. Education will also see a multi-billion dollar cut but much of that will be backfilled by federal stimulus money.

It also appears that the state is taking its first nascent steps toward selling unneeded assets such as the Orange County Fairgrounds. Some boards and commissions such as the Integrated Waste Management Board will be eliminated and many of the state’s furloughs would be made permanent through June of 2010.

The Bad

While we are pleased that no new taxes were forced on the people of California during these difficult economic times we remain extremely concerned that a broader more fiscally responsible plan could not have been reached. For example we applaud the Governor for initially putting pension reform on the table and quite frankly we weren’t really surprised to see that would be a deal killer from the labor controlled Democrats. But real fiscal reform in California will never be achieved until we control public employee pensions at both the state and local levels.

And despite the fact that many injuries to taxpayers are inflicted by local governments (a pox on both their houses) we simply can’t support the raid by the state on local government funds. While local governments should use the loss of revenue as motivation to pursue their own reforms we also are concerned that the loss of revenue will only increase the pressure to raise taxes at the local level.

The Ugly

The failure to adopt the deep and meaningful reforms that are necessary for long term financial stability is a disappointment to taxpayers. The real question is whether this budget deal will be viewed by Wall Street as sufficient enough progress as a basis upon which to extend additional credit. While taxpayers are technically not going to pay more taxes the tax accelerators have the effect of taking money out of the pockets of taxpayers before it is due. Some argue persuasively that this is just as bad as a tax increase even though they will be getting the money back.

Also under the category of Ugly are all the accounting gimmicks that are used to "kick the can down the road" to use a worn out phrase. From what we can gather the proposal has several "expense deferrals" one-time revenue accelerators and numerous assumptions that virtually guarantee that we will be back arguing over these same issues in a few short months. Perhaps the worst of these is pushing a month’s worth of pay for state workers from 2009-10 into 2010-11.

Perhaps the best that can be said of this proposal is that it could have been a lot worse. But that is hardly a ringing endorsement of responsible budgeting.

Jon Coupal is President of the Howard Jarvis Taxpayers Association — California’s largest taxpayer organization — which is dedicated to the protection of Proposition 13 and promoting taxpayers’ rights.