California’s unstable tax base, debt and falling revenue are among the threats that could upend the budget despite the infusion from the passage of Proposition 30.
By Chris Megerian, Los Angeles Times
November 11, 2012, 4:51 p.m.
SACRAMENTO — The election wasn’t even over Tuesday when state Treasurer Bill Lockyer’s phone started ringing. Activists of all stripes had the same message for him: With voters apparently poised to approve billions of dollars in tax hikes, it was time to spend more money.
“They had to be reminded the money has already been spent,” Lockyer said.
As California tries to shake its national reputation as a financial bungler, policymakers in Sacramento will be managing an estimated $6 billion in annual revenue from Gov. Jerry Brown’s newly approved tax plan, Proposition 30. The money is already included in the budget the governor signed last summer.
The bloodletting that has become a ritual part of assembling the state budget is expected to fade. But some of the issues that have made California’s financial problems so persistent remain and could still create a budget gap if things don’t go as planned.
In essence, analysts say, voters have stabilized the patient, but surgery may still be required.
Brown has long acknowledged that fixing the state’s fiscal problems will require more work. He told reporters last week that “there are no cure-alls” and pledged to hold the line against new spending. As the former seminary student often does, he used a biblical allusion to make his point.
“We need the prudence of Joseph,” he said.
The governor’s plan will increase the state sales tax by a quarter-cent for four years and raise levies on high earners by one to three percentage points for seven years. Passage of Proposition 30 prevents billions of dollars in education cuts and gives the state an opportunity to end the fiscal year without a deficit for the first time in five years.
But California still has the lowest credit rating of any state. Its tax system is unstable. Borrowing costs remain high, and there are signs that the Brown administration’s current $91.3-billion budget may be fraying at the seams as savings fail to meet expectations.
“By no means is California out of the woods yet,” said Kil Huh, a director at the Pew Center on the States in Washington. “They’ve built up a set of challenges that are daunting for any state.”
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