State Budget:
Legislature Approves Budget Crafted Behind Closed Doors
On June 15, the state constitutional deadline for the Legislature to pass a budget, the Assembly and Senate quickly approved a state budget bill and several budget trailer bills, despite bipartisan objections and complaints that the budget process lacked transparency.
The major tax-related bill, AB 1475, which CalTax aggressively opposes because it would impose a penalty on taxpayers who overpay their income/franchise liability, was not voted on or discussed in either house, but is expected to be brought up for a vote sometime next week.
The main budget bill (AB 1464, Blumenfield) was approved first in the Senate, with Democratic Senators Lou Correa and Mark Rubio joining Republicans in opposition. In the Assembly, Democratic Assemblyman Sandré Swanson said he could not support the plan because it would not spend enough on a variety of social programs, and he joined Republicans in opposition. Independent Assemblyman Nathan Fletcher did not vote.
Much work still remains on the state budget. The Assembly and Senate plan on returning next week to hammer out additional details on remaining budget bills, since the Legislature on June 15 took action on only seven of the 29 budget and trailer bills.
Much of the budget approved by the Legislature relies on gimmicks, borrowing, faulty estimates, tax and fee hikes independent of the governor's tax initiative, and other questionable proposals that likely will be tied up in court. The budget also assumes that voters will approve the governor's tax initiative in November.
Senator Tom Berryhill told the Democratic majority: "This budget is a slow-motion train wreck, and you're driving … . If you think the voters are going to give you your tax increases in November, and all you offer is this sham, you are sadly out of touch."
Assemblyman Bob Blumenfield, who chairs the Assembly Budget Committee, praised Democrats for a budget that he said will "finally restore financial stability in California," and will "end the era of chronic deficits."
Republicans disagreed with that assessment. Assemblyman Tim Donnelly said the budget relies on "extortion money that we're going to take from businesses" through the cap-and-trade program, and characterized the spending plan as a "sledgehammer" that is going to destroy the state. "You guys are going to tax the future out of California," he told his Democratic colleagues.
Senate President Pro Tem Darrell Steinberg indicated that legislative leaders and Governor Jerry Brown are still working out differences on some of the budget provisions, but was optimistic that a resolution will be reached soon
The spending plan was put together by Democratic legislative leaders behind closed doors, bypassing the usual budget process and open conference committee.
Under the plan, general fund spending is projected to be approximately $92 billion, up from $86 billion in 2011-12. However, the budget still may be out of balance, as it relies on the passage of the governor's tax initiative and two furlough hours per week for state workers – a change that has yet to be approved by any union but one, and may never be approved by all, according to a story published in The Sacramento Bee. In addition, the budget's revenue estimates may be too high, considering recent economic developments.
The budget calls for most of the $16 billion budget gap – the projected shortfall that would occur if no changes were made to existing spending and revenue – to be closed by the governor's $9 billion tax increase on the November ballot and more than $5 billion of gimmicks, such as taking $450 million from the motor vehicle account, using mortgage settlement funds and using more redevelopment funds.
Senator Jean Fuller called on state Controller John Chiang and Treasurer Bill Lockyer to determine whether the budget is truly balanced. Senator Fuller told the San Jose Mercury News: "These 'take it or leave it' budgets have been unbalanced, built on gimmicks, and are neither transparent nor honest. Therefore, it is crucial that the top two fiscal officers of our state review and express an opinion about whether or not this budget is balanced."
Taxpayer groups launched an all-out assault on a 20 percent Franchise Tax Board erroneous refund penalty in budget trailer bills AB 1475 and SB 1015. CalTax and others said the proposal would actually trigger a loss of revenue, as taxpayers would be much less likely to overpay taxes, and because of the additional appeal and litigation costs. Governor Jerry Brown's budget supporting documents misrepresent the issue as a "fraudulent claim" penalty, even though his own trailer bill language makes no mention of fraud, and calls it an erroneous refund penalty.
Senate Republican leader Bob Huff said there are no jobs, pension reforms, or spending cap anywhere in the Democratic leaders' budget.
Budget Trailer Bills
Tax-related provisions in AB 1475 and SB 1015 are:
· Impose a 20 percent erroneous refund penalty;
· Extend to the Board of Equalization and the Employment Development Department the Financial Institution Record Match program currently housed with the Franchise Tax Board;
· Repeal all provisions in California law relating to the Multistate Tax Compact;
· Require tax elections to be made on timely filed, original returns (stated as beng declaratory of existing law, but its application possibly may apply to all elections); and
· Revise FTB authority to issue withholding orders against taxpayer wages (a taxpayer-friendly measure).
2012-13 Budget and Trailer Bill Vehicles
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Assembly Side
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Subject
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Senate Side
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Main Budget Bill (approved by both houses June 15)
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Transportation (approved by both houses June 15)
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SB 1006
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General Government
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Health: Omnibus (approved by both houses June 15)
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SB 1008
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Health: Coordinated Care
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AB 1468
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SB 1009
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Mental Health Realignment
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AB 1469
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State Hospitals (approved by both houses June 15)
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Human Services
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Developmental Services (approved by both houses June 15)
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SB 1013
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Child Welfare Services Realignment
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AB 1473
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SB 1014
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Department of Alcohol and Drug Programs
Realignment
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AB 1474
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Tax Enforcement (no floor votes taken as of June 15)
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SB 1016
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Education
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AB 1476
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SB 1018
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Resources
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AB 1478
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SB 1020
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Realignment Superstructure
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AB 1480
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SB 1021
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Public Safety
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AB 1481
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SB 1022
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Public Safety Capital Outlay
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AB 1482
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SB 1023
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Public Safety Realignment
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AB 1483
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SB 1024
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Redevelopment
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AB 1484
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Supplemental Appropriations Bill (approved by both houses June 15)
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SB 1026
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Los Angeles Regional Interoperable
Communications System: CEQA
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AB 1486
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SB 1027
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High-Speed Rail CEQA
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AB 1487
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SB 1029
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High-Speed Rail
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AB 1489
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SB 1030
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Managed Care Tax (2/3 vote)
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AB 1490
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Seismic Safety (2/3 vote)
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SB 1032
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Timber Harvest "Fee" (2/3 vote)
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AB 1492
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SB 1034
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Healthy Families
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AB 1494
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Budget Bill Junior No. 1 (approved by both houses June 15)
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SB 1036
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High-Speed Rail No. 2
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AB 1496
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June
15, 2012
© 2012 California
Taxpayers Association. All Rights Reserved.