(January 13, 2012) The Governor’s budget proposal for 2012–13 takes a balanced approach toward closing California’s budget gap by reducing expenditures and increasing revenues so that the state can rebuild its rainy day fund, state Finance Director Ana Matosantos told a California Chamber of Commerce audience yesterday.
Finance Director Ana Matosantos explains the Governor’s proposal to balance the budget and reduce the structural deficit at the CalChamber Luncheon Forum on January 12. Speaking at the first CalChamber Luncheon Forum of the year, Matosantos explained that Governor Edmund G. Brown Jr. has proposed a $137.3 billion budget for 2012–13 that aims to close a projected $9.2 billion General Fund deficit by relying largely on tax increases from a November ballot initiative.
Cuts/Hikes
The Governor forecasts a $9.2 billion deficit in June 2013 before his proposed cuts and tax increases. Matosantos explained the proposed budget resolves this deficit and projects a year-end $1.1 billion reserve by increasing revenues, loans and transfers by $8.5 billion, cutting non-education programs by $3.8 billion, and increasing K-14 spending by $2 billion more than the schools and community colleges would have otherwise received. The K-14 increase is a function of higher General Fund revenues from the new taxes.
The Governor’s budget would not only close the remaining structural gap, but also would begin to pay off budgetary borrowing, Matosantos said. “California currently has $33 billion in budgetary borrowing that is outstanding. Under this budget plan it would be paid off and we would be able to start rebuilding the rainy day fund.”
The Governor’s proposal has reduced the structural budget deficit from $20 billion to $5 billion, a three-quarters reduction, Matosantos explained.
Put another way, the budget proposes $6 billion in new General Fund spending next year (assuming taxes pass). Of this, $4 billion is for K-12 education, $2 billion repays an earlier loan to local government, and about $900 million is for corrections, offset by reductions in health, welfare and child care, Matosantos said.
If the tax increases do not pass in November, the Governor has proposed a contingency plan to reduce spending by $5.4 billion beginning in 2013. Major reductions to K-14 education ($4.8 billion), higher education ($400 million), courts ($150 million), and various public safety programs, mostly in the Resources Agency ($28 million), were outlined in Matosantos’ presentation.
Some Targeted Tax Increases
The budget includes some targeted tax increases on business, but these are not critical to the Governor’s budget-balancing strategy, Matosantos said. The major revenue increase proposals are in the Governor’s tax initiative, including for 2011–12 and 2012–13, $5.8 billion in new income taxes for high-income taxpayers, and $1.2 billion from a half-cent increase in the state sales-and-use tax.
The only business tax proposal, requiring a two-thirds vote, is the extension of the tax on managed care plans, originally passed several years ago.
Business is not unaffected by the Governor’s tax increase proposal, however. Businesses pay one-third of sales taxes, and net business and proprietors’ incomes are a significant share of adjusted gross incomes for the personal income tax side.
After her formal presentation, Matosantos took questions from the audience. One attendee cited the proposed “surcharge” on employers for the state’s Unemployment Insurance (UI) Fund (a $470 million budget item) and inquired about the administration’s long-term plans for addressing the fund’s deficit. The surcharge is to finance future interest payments for funds borrowed from the federal government to pay California’s UI benefits and repay the funds borrowed from the employee-financed disability fund. Matosantos said the Governor’s budget takes a first step toward dealing with UI issues by addressing the General Fund costs associated with the loans and changing eligibility for UI. This specific proposal has not yet been formally released, and probably would require a two-thirds vote of the Legislature to pass.
The Administration is also including in the budget up to $1 billion in revenues from its new, controversial tax on cap-and-trade auction transactions in the Air Resources Board’s greenhouse gas reduction program. The revenues would be used to “invest in clean energy, low carbon transportation, natural resources protection, and sustainable infrastructure.” Though the Administration claims this is a “fee,” the intended uses of the proceeds leads many to believe that this levy will be a bona fide tax.
Government Reorganization
The Governor’s budget proposal also includes a comprehensive reorganization of the executive branch, including:
- Reducing the overall number of agencies and departments.
- Further reorganizing economic development programs, in effect reassembling many of the components of the old Trade and Commerce Agency.
- Creating a new Business and Consumer Services Agency that includes the various business regulatory agencies from the existing Business, Transportation and Housing Agency and the State and Consumer Services Agency.
- Creating a new stand-alone Transportation Agency and including within it the departments of Transportation, Motor Vehicles, High-Speed Rail Authority, the Highway Patrol, the California Transportation Commission and the Board of Pilot Commissioners.
- Creating a Department of Revenue that consolidates the tax collection functions of the Franchise Tax Board and Employment Development Department, but not including the Board of Equalization.
- Eliminating the departments of Mental Health and Alcohol and Drug Programs and folding their functions into the Department of Health Care Services.
- Eliminating the Unemployment Insurance Appeals Board.
More Information
The Governor’s budget proposal, summaries and charts are available on the Department of Finance website at www.ebudget.ca.gov.