Dems, GOP agree on surplus

Surplus? What surplus? That was the message from legislative leadership this
week as the hands came out for a piece of the unexpected tax revenues. The
state so far has collected billions in revenues above this time last year.
And yet, everyone seems to be talking about fiscal restraint.

“The increased revenue more allows us to dodge a bullet than really move
forward,” said Assemblyman John Laird, D-Santa Cruz, chairman of the
Assembly Budget Committee.

The surplus revenue quickly disappears when one starts to add up the state’s
pending obligations and shortfalls, Laird said. These include $330 million
for midyear federal funding cuts from the Bush administration, $500 million
for a likely federal takeover of the state corrections system, $1 billion in
obligations to CalWorks and teacher retirement, and an as-yet unknown amount
needed for levee repair.

There are two programs that Assembly Democrats will push for, Laird said:
pushing community college fees back to $20 a unit from the current $26, and
$50 million to extend health care to uninsured children. These programs
should help pay for themselves over time with increased income-tax revenues
and lower emergency room health costs, Laird said.

Meanwhile, Democrats likely will oppose tax cuts, particularly those that
would benefit the wealthy. After all, Laird said, the out-year deficit of $5
billion is approximately equal to the amount lost due to the car-tax
rollback Gov. Arnold Schwarzenegger instituted when he took office.
“I think that would be horrific public policy,” Laird said. “We should not
adopt the Bush strategy in California.”

Perhaps it’s easier to find agreement when times are good, but legislative
Republicans say they are basically on the same page. The vice-chairman of
the Assembly Budget Committee, Rick Keene, R-Chico, said that while he
generally supports lowering taxes, the state needs to figure out where the
revenues are coming from before it makes any changes. He added that he is
waiting to see the revised budget numbers at the end of the week.

“It’s all speculative right now,” Keene said. “There is not a lot to talk
about before Friday.”

The budget Schwarzenegger will deliver Friday will include $3.2 billion for
debt reduction, with money going both to retire current debt and also to
create a reserve. This move is designed to smooth the way for the $37
billion, multi-bond package that will go on the ballot in November. It also
contains new money for education–but not to repay the over $2 billion
schools say the governor owes them.

Senate Minority Leader Dick Ackerman, R-Irvine, said that his caucus likely
would oppose both new spending and tax cuts. He added that he could be
amenable to a rollback of community-college fees, given that the state had
been “monkeying around” with those fees for a long time.

“What we are going to recommend is the same as it was in January: Use the
money to pay down the debt,” Ackerman said.

Vincent Sollitto, a spokesman for the California Chamber of Commerce, said
that the revenues at least partially validate the policies of his former
employer, Gov. Arnold Schwarzenegger. The governor’s decision to reform the
workers’ compensation system and hold the line on tax increases have
stimulated economic growth, he said.

“This certainly validates what folks have been saying for a long time, that
the state doesn’t have a revenue problem, it has a spending problem,”
Sollitto said. He added, “The state needs to be very careful not to repeat
the mistakes of a few years ago.”

Those mistakes, of course, related to the huge increase in revenues that
came with the California centered dot-com economy. The states capital-gains
revenue fell by more than two-thirds when the bubble popped, helping create
the current structural deficit.

But holding the line on spending could be difficult, as news of the extra
revenue had brought interest groups out of the woodwork demanding increased
funding for foster care, Medi-Cal and other causes. On Monday, thousands of
members of the Service Employees International Union held a “Revise Rally”
at the Capitol, demanding that the state raise wages and abandon plans to
ask union members to pay more of their health insurance and pension fees.

While the unexpected revenue has thrown the Capitol into a slight tizzy, it
didn’t need to be this way, said John Chiang, chairman of the Board of
Equalization and a candidate for state controller. He said the state needs
to do two things: First, find a way to foster better communication with the
private sector so that budget watchers can better predict capital gains
revenue; second, there ought to be a standing plan to address shortfalls and
the deficit in the event extra revenues come in.

“We ought to have a ‘sunny day scenario’ saying that if we get extra
revenues, these will be our priorities,” Chiang said.