Wednesday, January 7, 2009

Expecting A State Tax Refund? Think Again.

State officials on Tuesday braced for the possibility of delaying tax refunds to millions of Californians, along with student grants and payments to vendors, as the latest round of budget negotiations between Gov. Arnold Schwarzenegger and Democratic legislators collapsed.

With little more than a month's worth of cash left in the state treasury, the governor and lawmakers have been unable to agree on how to erase a budget gap projected to reach $41.6 billion by the middle of next year. Democrats announced Tuesday that two weeks of discussions had ended in an impasse and sent Schwarzenegger the $18-billion fiscal package they passed last month. The governor vetoed it, as he had promised to do.

tate Controller John Chiang has said that as early as Feb. 1, his office may begin issuing promissory notes if lawmakers have not resolved the budget crisis. The state has done this only once before since the Great Depression -- in 1992.

"We have not made any decision about deferring payments or using IOUs, but they are possibilities if the governor and Legislature don't come to some agreement soon," Chiang spokeswoman Hallye Jordan said Tuesday.

Under the state Constitution, schools and bondholders get first rights to any cash in the state's coffers.

Among the first to get IOUs instead of payments would be business and individual taxpayers who are expecting refunds, local governments and recipients of grants from the California Student Aid Commission. Last year, more than 10 million taxpayers received state refunds totaling $8 billion.

Senate President Pro Tem Darrell Steinberg tells the SacBee ed. board that the Governor got cold feet:

Between Sunday night and Monday, something else occurred unrelated to the specifics of the issues. It is cold feet, you know. He met with Republican leaders on Monday morning. I think he is back in that place where he believes he can get Republican votes for revenue and therefore doesn't have to do this unorthodox majority vote thing. We have been sort of going down that road for five or six years. It hasn't resulted in a single vote.

Arnold thinks he's so AWSOM that he can convince the same people who have stomped on his stomach for 5 years to come around. Or, more likely, he didn't want to make the anti-tax zealots cross and risk a court battle. There is no chance his budget can pass - it has even more tax increases in it than the work-around budget, and a substantial portion of it is, essentially, "hope for private investment." This leads us even further down a road to ruin. Don't expect any tax refunds, folks.

What's so frustrating about this is that the answers are so ridiculously simple. Loni Hancock, the new State Senator from the Berkeley area, put this out today, and the solutions are in nice bite-sized chewable portions.

1) The 2/3rds Vote

California requires a 2/3rds vote to pass a state budget. This is not how a democracy normally functions. California is one of only three states with this 2/3rds vote requirement. Forty-seven other states, the United States Congress, and every city, county and school district in California pass budgets with a simple majority vote.

The 2/3rds vote requirement has proved fatally dysfunctional for California, making it impossible in recent years to pass budgets on time or with transparency and accountability.

2) "The Pledge"

Every Republican Legislator, except one, has signed a pledge promising never, under any circumstances, to raise taxes for the things government provides - schools, roads, parks, clean air and water, fire and police protection. Their pledge is not to their constituents, but to Grover Norquist, the founder of the Washington, D.C. based conservative organization called Americans for Tax Reform.

Grover Norquist is the Republican lobbyist who is famous for saying, "I don't want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub." It is ironic that even though right-wing policies to deregulate, privatize, and cut taxes have been discredited at the national level and repudiated by the American people, Grover Norquist is poised to achieve his goal in California.

The $18 Billion Solution

Both the Governor and the Legislature rejected the Republican proposal as posturing, while the Democratic majority presented the Governor with an ethical and rational solution to wipe out $18 billion of the $41 billion deficit. The Democratic package raises revenue by eliminating the gas tax, replacing it with other taxes that will not hurt the finances of the average working family in California (the State Constitution allows taxes to be raised by a simple majority if the result is 'revenue neutral') and puts in place a Highway Users Fee on gasoline that can be used only for transportation infrastructure.

It works. It keeps California solvent as we address the remaining $23 billion shortfall and negotiate a budget for next year. Our mid-year solution takes $2 billion from education, not the $10 billion in cuts proposed by the Republicans. The cuts made are devastating - but the school doors stay open and California lives to fight another day.

Where is the Governor?

Governor Schwarzenegger recognizes that taxes must be raised or the state will collapse. He has called for tax increases, many of which Democrats would support - including an oil production tax (of the 22 oil producing states in the United States, only California does not have a tax on oil production of any sort) and a sales tax expansion to cover some services. However, he has been unable to get a single vote from Republican legislators, and was denounced by the California Republican Party for recognizing the need for increased revenue if the state is to survive.

Now the Governor refuses to sign the $18 billion solution crafted by the Democrats. Instead he demands concessions on labor and environmental regulations and additional cuts in grants to the poorest people in California.

We Need 3 Changes in the Budget Process

California must adopt a simple majority to pass the state budget. Let the majority party negotiate a budget and be held accountable for that budget, like the U.S. Congress and all local governments.

California should adopt a two-year budget. The second year of the budget cycle should be devoted to program oversight and any needed adjustments.

Lastly, when the budget is adopted it should contain five and ten year projections of expenses and income, so advanced planning can be done realistically.

Republicans want to pull off a neat trick - they want to destroy state government without being RESPONSIBLE for it. And California, quite frankly, has let them. We'll be feeling the consequences now. What a disaster.

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