California now has a budget for the fiscal year that started almost a month ago. But for advocates of sustainable tax and spending policy, the hard times are only beginning. As a new report from the California Budget Project explains, lawmakers faced with a $23 billion shortfall chose to rely on spending cuts to close two thirds of the gap. The list of cuts is grisly. Health, education, child services, support for the disabled, and just about every other category of state spending will be slashed significantly. The consequences for Californians are expected to be dire.
Astonishingly, the budget includes virtually no changes on the tax side of the ledger that can meaningfully be described as tax increases. While $3.5 billion of the current-year shortfall will be made up through tax changes, most of this revenue will be realized by accelerating collections rather than increasing the level of taxes. Specifically, $1.7 billion of the "new revenue" for fiscal year 2010 will be realized by accelerating personal income tax withholding so that more income tax will be withheld in the first half of the calendar year. This means, of course, that the legislature has just dug itself a $1.7 billion fiscal hole for the next fiscal year. Assembly Speaker Karen Bass, who's claiming that "in no way should this [budget] be misconstrued as kicking the can down the road,” must not have read this part of the budget agreement.
Bass -- and Governor Arnold Schwarzenegger, who boasted that the budget agreement "puts us on a path toward fiscal responsibility" -- must be equally unaware of a clever provision through which the state is closing $2 billion of the budget gap by forcing local governments to lend the state up to 8 percent of their property tax revenues in the upcoming fiscal year. The idea is that the state will pay back this loan, with interest, by the end of the 2013 fiscal year. In the short run, of course, this move will force local governments to make $2 billion worth of the hard decisions--cut spending or hike taxes and fees--that state lawmakers found themselves unable to deal with this year.