Budget Update—August 4, 2010
The plan would increase personal income taxes and the vehicle license fee, while lowering the state sales tax for a net tax increase of $1.8 billion. The rationale behind the complex swap is that PIT and VLF are deductible from federal income taxes, essentially shifting a portion of the tax increase to the federal government. A complete description of the complex swap is available. The plan further delays corporate tax cuts scheduled to take effect January 1, which are also proposed for repeal by CTA-led Proposition 24.
The plan suspends Proposition 98 funding for K-12 schools and community colleges, while still providing a level of funding $3 billion above the governor's May budget plan. Most of the additional funds are used to eliminate the governor's proposed $1.5 billion "revenue limit" cuts to K-12, as well as the elimination of state-funded child care. Unlike the governor's plan, Democrats would uphold the "maintenance factor" deal with K-12 schools and community colleges included in last year's budget, which will restore $900 million in ongoing community college funding over the next several years as the economy improves.
While the complete details for community colleges aren't expected to be available until the next day or two, we expect the plan will:
- fund enrollment growth at 2.21%
- eliminate proposed "negative COLA"
- increase funds for Economic and Workforce Development, possibly through targeted growth ($25 million)
- backfill lost federal funds used to mitigate categorical cuts last year ($34 million)
Republicans and the governor say that the plan is dead on arrival, and continue to insist that no tax increase be included to close the $17.9 billion deficit.
Where do we go from here?
The Democrats' plan will likely be formally adopted on a party-line vote by the Budget Conference Committee, which is expected to wrap-up deliberations this week. We will likely then see votes on the floor of each house next week to frame the Democrats' budget in the media, although the requisite two-thirds are unlikely to be there. Nevertheless, we have strong intelligence that at least some Republicans are interested in the tax swap idea, and this plan could be the framework for a budget deal.
Since January, the League has supported a balanced plan to close this significant state budget deficit. While we will leave the specific revenue sources to the tax experts, this framework appears to be reasonable, and mitigates the worst cuts proposed in the governor's budget plan.
For budget advocacy and technical information:
- Theresa Tena, Director, Fiscal Policy
- Stacy Berger, Northern California Regional Representative
- Elaine Reodica, Southern California Regional Representative
Have a question or comment but don't know who to contact?
E-mail email@example.com or call the League at (916) 444-8641.