Democrat-Controlled Budget Committee Issues Final Report -- Governor, GOP Legislators Declare It DOA
By Paul McIntosh, Executive Director
pmcintosh@counties.org
As Democrats on Wednesday, June 17, issued the report that will serve as the basis for bills amending the 2009-10 State Budget, Governor Schwarzenegger and Legislative Republicans announced that they would not support the proposal. The report results from weeks of work by the Budget Conference Committee, composed of three Democrats and two Republicans each from the Senate and Assembly. While the 10 legislators agreed on billions of dollars in cuts, it is the billions on which they do not agree that will now take center stage.
The Budget Conference Committee’s Final Report includes a $3.8 billion reserve and addresses the budget gap for both the coming fiscal year (2009-10). The document points out that “over half of the total solution” is a result of “deep cuts in every area” that total over $11 billion.
Republicans do not strongly object with those cuts, but find highly objectionable some of the taxes and other revenues that the plan would implement. These include accelerating certain tax withholdings that the Governor proposed; imposing a withholding requirement for independent contractors, a 9.9% oil severance tax, a $1.50 per pack cigarette tax; and levying a surcharge on property insurance that will fund CalFIRE. All of these actions plus other revenue measures described below would produce about $7 billion.
Two of the revenue proposals would increase local revenue somewhat. Extending sales tax nexus to out-of-state sellers, such as Amazon, that pay commissions to California firms or residents for sales referrals would reportedly bring in $50 million of ongoing revenue to locals; requiring businesses without a resale license to register with the Board of Equalization for purpose of paying use tax would also generate some local revenue.
The remaining $5 billion of solutions the report contains include other measures and one-time solutions such as selling the part of the State Compensation Insurance Fund’s book of business ($1 billion) and deferring state employee paychecks from June 30 to July 1 ($1.2 billion).
Despite the interparty conflicts, Democratic leaders have said that budget debates and votes will begin as early as Monday and have predicted that the Legislature will pass a budget with or without tax increases by the middle of next week.
County Issues
Of particular importance to counties, the Conference Report adopts a two-year shift to the state of nearly the entire local share of the Highway Users Tax, which sustains almost every road department in the state. The two-year shift would exceed $1.7 billion. The Conference Committee also voted to suspend the first two quarters of Proposition 42 payments – totaling $288 million – until May 2010.
However, the committee rejected the Governor’s proposal to borrow $1.98 billion of property taxes from local agencies, and also did not approve the Legislative Analyst’s Office (LAO) proposal to take half ($250 million) of the recently enacted Vehicle License Fee increase that funds local public safety programs.
Redevelopment agencies, after recently winning a lawsuit against the state to keep it from shifting $350 million of their 2008-09 revenue, are not yet out of the woods after all. Legislators voted to change the statute somewhat in an attempt to address the legal issue the court identified in finding for the redevelopment agencies, and will be taking not only the $350 million for 2008-09, but the same amount again in each of the next two fiscal years.
The committee approved a one-year suspension of Williamson Act subventions, for a state savings of $34.7 million. The committee also suspended a number of mandates to save nearly $100 million, though the legal justification for indefinitely deferring paying claims for years that the mandate was not suspended seems suspect.
The committee approved a $300 million realignment of CalWORKs grants to counties that will increase the existing county share of 2.5%. The committee earmarked revenue for the shift from the Vehicle License Fee administrative funds at the Department of Motor Vehicles. This fund source was identified by the LAO last year, at which time the LAO recommended the Department of Motor Vehicles raise fees to cover the loss of these administrative funds.
For more detail on these proposals and all other local impacts contained in the Budget Conference Committee’s Final Report, please visit CSAC’s Budget News page here.
We will bring counties more news as the budget situation evolves.
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