(January 14, 2005) California Finance Director Tom Campbell emphasized the need for structural reforms to end the state's chronic budget deficits in remarks at the California Chamber of Commerce Luncheon Forum yesterday.

A capacity crowd of more than 100 guests heard Campbell's overview of the Governor's 2005-06 budget proposal released earlier this week and the reforms the Governor is proposing to force state government to live within its means.

“Sacramento has to be responsible, it has to be responsible in the budget and it has to be responsible its the legislative function,” Campbell stated.

The Chamber applauded the Governor for having the courage to tackle the difficult, but necessary issues to bring the state budget under control. Resolving the state's persistent budget woes is critical for the state's economic and jobs growth.

The Governor's budget proposal includes a 7.1 increase in Proposition 98 education funding, which is enough to cover the cost of living, population growth and programs. Overall expenditures in the budget proposal increase only 4.2 percent.  In order to accommodate the 7.1 percent increase, everything else is barely going up 2 percent, Campbell continued.

“That is a very important point to realize,” stated Campbell.  “This budget is responsible, not because it cuts, but because it reduces the rate of growth. You’ve got revenue going up and you’ve got expenditures going up at a lower rate.”

California Finance Director Tom Campbell speaks at the California Chamber of Commerce Luncheon Forum.

Fiscal responsibility is the only way California is going to get this house in order, he said. The budget proposal is restricting the rate of growth overall while protecting areas the Governor has said are his priorities --  health of the children of California and protection of the developmentally disabled  --  and asking everyone else to participate in a reduction in the rate of growth, continued Campbell.

This means that Proposition 42 money will have to go into the general fund, rather than for infrastructure and transportation programs.  ' While I regret having to do that, it is however a necessity,' Campbell said.  All the money that has been borrowed from Proposition 42 and will be borrowed will be paid back once the state reaches a point of zero borrowing, he said. 

The proposed structural reforms include a constitutional amendment  -- if it is passed by voters and the Legislature -- that would protect Proposition 42 money after next year, Campbell said.  This structural proposal also provides that if a budget is not agreed upon by the end of the fiscal year, under certain circumstances the Governor can call a special session and implement across the board cuts, Campbell continued.

“There are some that say, ‘Not me, everything but me’,” said Campbell.  “That’s no way to run a business.  You cannot be honest and expect people to consider you as fair, if your across - the - board approach says ‘except for this group’.”

Other obligations that the U.S. Constitution requires the state to pay would be exempt from these cuts, but that is it, continued Campbell.  This requirement to measure state expenditures and revenue will also accrue at two other times throughout the year, not just once, Campbell stated.

Another component of the Governor's budget proposal is that there are no taxes. The reason there are no taxes in the budget is because we know California must be business friendly for the economy to grow, said Campbell. 

“By not increasing taxes, we send an very important message to those who have jobs to offer in California,” said Campbell.  “If you increase taxes in this environment, you are going to lose jobs in California.”

The California Competitiveness Project of the California Business Roundtable commissioned a study in 2002 of jobs in mobile sectors, industries that are capable of locating outside of the state, stated Campbell.  The report said,  “Five percent of mobile sector companies interviewed have plans to move jobs out of California, but the problem affects more than just the mobile sector companies -- half of all companies interviewed have formal policies proscribing the addition of jobs n California,” Campbell stated.

Tax levels in California already are above the national level. California ranked  ninth in the nation, according to the 2001/ 2002 census, reported Campbell.  He pointed out that businesses don’t just look at tax levels when determining where to locate operations; they look at trend a. What has been happening in California is alarming, he stated.   Between 2000 and 2003, California was one of only six states that had business tax increases greater than total taxes, according to a study by Ernst & Young, reported Campbell.

The Chamber will be actively monitoring and participating in the budget process to ensure the budget balances the state's funding needs while encouraging economic growth.

For more information on the 2005-06 budget or to view the highlights, please visit http://govbud.dof.ca.gov