A very long and painful budget process began earlier this month when Gov. Arnold Schwarzenegger put forth his budget for 2008–2009. With a looming $14 billion deficit in the state, the governor has mandated that all state agencies make 10 percent cuts across the board in order to close the gap. This sets up a year of budget negotiations that promises to be like nothing we have seen before in California. But the question remains: Will small business be the victim of this 10 percent cut, or do our state leaders have the opportunity to make 2008 the “Year of Small Business”?
One thing to remember is that the budget proposed in January is the first step in a long process that will culminate with a final version — whatever that may be — in May. Small business owners have seen promises come and go, so we take cautious encouragement from Schwarzenegger’s initial foray in the budget quagmire. It is entirely possible and likely that the final product will look markedly different from what we saw this month.
The governor’s focus on enhancing public-private partnership efforts through this budget is encouraging to small business.
Increasing the partnerships between the public and private sector has the potential to be a winning situation for everyone. Small business gets the opportunity to do what they do best — provide a good product efficiently and for a reasonable cost — and the public benefits with projects completed quickly and within budget. We urge the governor to continue his promise to California’s job creators by ensuring small business plays an integral role in these innovative public-private partnerships.
Small business also remains hopeful that the governor and legislators will hold the line on new taxes on hardworking Californians. We cannot tax our way out of this budget hole — period. Tax increases discourage entrepreneurs and, given California’s unbalanced tax structure, that impact will fall on those responsible for creating the invaluable new jobs that California most needs.
The more small business is taxed, the less incentive they have to grow and expand, which means fewer entry-level jobs. With the California unemployment rate of 5.6 percent already higher than the national average, this is a blow that small business can ill afford.
It should be noted that small business will not escape unscathed from a 10 percent reduction in state government expenses. All you have to do is consider those businesses that provide valuable goods and services that could see a loss in income. Having said that, Californians deserve to have their government balance the state budget like any business or family would by reducing expenses to match income. Californians are overtaxed, and our government leaders have a nasty habit of spending like drunken sailors, so this could be a golden opportunity for all of us see state government operating “lean and mean” and more efficiently as a result. What a concept!
That brings to mind one of the strangest paradoxes of this whole debate. Schwarzenegger and the Legislature seem perilously focused on creating a $14 billion health care program funded by a slew of new and increased taxes. They will argue that the burden on the General Fund is negligible if anything, but increased payroll taxes will impact the ability of small businesses to grow, limiting future state revenues. Additionally, the lack of cost-reduction provisions will lead to increasing health care costs, leading to calls for higher taxes or, as seen in Massachusetts, a reduction in benefits and worse.
Small businesses recognize that there are tough financial choices to be made by those leading our state in the critical months ahead. Our hope and desire is that the final budget our leaders roll out later this year will exercise fiscal restraint and will not unfairly place the burden on small businesses and the people they employ. We remain committed to working with our legislative leaders and the governor to ensure that our voice is heard so that 2008 can truly be lauded as the “Year of Small Business.” However, such a year demands that Schwarzenegger focus on the immediate needs of the state, particularly its hardworking small businesses, so we will see if our leaders are serious about California’s future.