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About this blog: I am a native of Alameda County, grew up in Pleasanton and currently live in the house I grew up in that is more than 100 years old. I spent 39 years in the daily newspaper business and wrote a column for more than 25 years in add...  (More)

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Budget guesswork

Uploaded: Mar 22, 2012

Newspapers and other media outlets reported last week how many teachers had received notices of potential layoff that were delivered by the March 15 deadline prescribed in the state education code.
Of course, what budgets for the fiscal year that starts July 1 will be is a complete guessing game at least until the November election.
That's when Gov. Brown and his teachers' union allies will learn if voters approved of their plan for a temporary four-year increase in the sales tax by one-quarter percent as well as seven-year income tax surcharges on wealthy people. The governor and one teachers group cut a deal last week to combine their efforts so it will be a very compressed timeline to get the initiative on the ballot.
The governor didn't bother to bring the proposal to the Legislature because it takes a two-thirds majority to put it on the ballot and he'd already failed to get two Republican votes in each house last year when he tried to extend the temporary sales tax enacted on Gov. Schwarzenegger's watch.
The governor built his budget on the assumption that the measure would pass. If it fails, then the bulk of the $5 billion in reductions will hit k-12 education, which has been largely spared cuts in his proposed budget. And budget assumptions also include one-time, windfall funding that will be realized when Facebook goes public.
Talk about putting school districts in no-win positions. It would be crazy to assume the tax increase will pass so budgeting and layoffs must be built on the assumption of failure. In addition, the budget year will be nearly half over before any result is known.
In addition to the governor's proposal, there's another tax increase proposal to fund education that would add a sliding scale surcharge to the income taxes and put the estimated $10-12 billion in revenues into a dedicated fund for education. It's backed by civil rights attorney Molly Munger who has poured millions of her own funds into the campaign. She has shown no signs publicly of backing off so it's likely both will be on the ballot.
Two huge issues:
1. California's income tax is so progressive that if the top 1 percent have a good year—so does the state. If markets are down and there are no initial public offerings, the state's budget takes a major hit. The current conditions are even more challenging because property taxes, which normally have risen consistently as values have climbed and new construction has come onto the tax rolls, has been going south for the last few years. The state relies much too heavily on income tax hitting the wealthy—and both tax measures will do the same.
2. Both proposals are bandages and do nothing to address the structural deficit where revenues year-over-year consistently are short of matching anticipated expenditures based on the prior year's budget.
Neither proposal is polling very well—political types say that if a tax measure isn't polling better than 60 percent this time of year, it's in trouble by the time November rolls around. The governor's is in the low 50s and the second measure is polling worse, despite the public's apparent willingness to sock it to the wealthy folks.
The underlying and often erroneous assumption is that those folks will simply stay and pay instead of finding a friendly state like Nevada, Texas, Florida or Washington, which do not collect state income tax.
The prior governator established a blue-ribbon tax review committee that submitted a report calling for significant reforms that went nowhere. It deserved series consideration because the state's budget disaster coupled with its oppressive regulation and the stranglehold that public employee unions have on the Capitol bodes ill for this once Golden State.

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