A Message From CalTax President Teresa Casazza

Governor's Call for Fiscal Discipline Must Be Heeded

Teresa CasazzaWhen he released his 2013-14 state budget January 10, Governor Jerry Brown spoke frequently of the need for "fiscal discipline." He noted that on an engine, a "governor" is a device that suppresses speed, and said: "That is the metaphor for 2013. Don't spend too much money – keep the brakes on. … I embrace my role of saying 'no.'"

The California Taxpayers Association applauds the governor's message of fiscal discipline and living within our means. All levels of government need to embrace this mantra, especially as California's economy remains highly vulnerable to slipping back into a recession.

Under the governor's state spending plan for the 2013-14 fiscal year, general fund spending is estimated to increase 5 percent, from $93 billion in the current year to $97.7 billion, with a projected budget reserve of approximately $1 billion. However, the governor acknowledged that various risks, including action by the federal government and the courts, rising health care costs, and economic uncertainties could quickly return the state to a fiscal deficit.

The budget does not address the Unemployment Insurance Fund deficit, or the more than $100 billion in unfunded retiree health and pension liabilities.

Notable components of the spending plan include:

Health Care Taxes and Fees. The budget proposes to retroactively impose the gross premiums tax on Medi-Cal managed plans. Revenue from the tax will replace $86 million general fund support in 2012-13 and $217 million in 2013-14. A Board of Equalization decision regarding the taxation of premiums on a cash versus accrued basis has resulted in refunds estimated to be $233 million in 2012-13 and $149 million in 2013-14. In addition, the budget proposes to extend the Hospital Quality Assurance Fee to supplant $310 million general fund in 2013-14.

Cap-and-Trade. The budget revises cap-and-trade auction proceeds for 2012-13 downward from $1 billion to $200 million – because the first auction in November 2012 produced only $55.8 million – and auction proceeds for 2013-14 are projected to be $400 million.

Enterprise Zones. The budget proposes regulatory "reforms" that are expected to generate $10 million for the state in 2012-13 and $50 million in 2013-14. Additional changes to the enterprise zone program are expected to be introduced in legislation later this month.

Franchise Tax Board. The budget proposes $152 million for the Franchise Tax Board to continue the third year of a six-year implementation of its Enterprise Data to Revenue Project.

State Employee Pay Raises. The budget includes pay raises for state employees who are at the top step in their salary classification. These pay raises were part of the state's previous negotiations with various public employee unions.

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