Lombard Street, San Francisco, California
Good Tuesday morning!
The California Legislature is in session. Today’s schedule is here.
On to today’s California headlines:
Gov. Jerry Brown announced Monday that the state budget deficit had grown by a remarkable 70 percent since January, but fiscal experts said the economy had little to do with it.
They instead blamed a bad marriage of volatile capital gains and political intransigence that led state leaders last year to count on a huge upswing in revenues that never materialized. At the same time, corporate tax changes from 2009 appear to have cost California more than state officials ever realized.
The Democratic governor says the general fund deficit has mushroomed from $9.2 billion to $15.7 billion. Most of the widening gap comes from acknowledging that his previous forecast was too optimistic, a concern that economists voiced last summer.
“I think the sense we were all getting last year was that we were getting to the end of our rope in solutions,” observed Brad Williams, a fiscal forecaster who previously worked for the Legislative Analyst’s Office. “This was what was left – an aggressive forecast.”
The recession has had a lasting impact on a general fund budget that dropped from $103 billion in 2007-08 to $86 billion this year.
Gov. Jerry Brown released a plan to close California’s rapidly growing deficit by switching state offices to a four-day week, slashing welfare benefits and healthcare for the poor and relying on a variety of short-term fixes — all in the hopes that voters will give the state some breathing room by raising taxes in November.
The governor, who unveiled his revised budget proposal in the Capitol on Monday, is facing a nearly $16-billion budget gap, far larger than the $9.2 billion he predicted in January. He warned that the deficit could grow significantly if voters reject his proposed ballot measure to raise the state sales tax and income levies on the wealthy.
That would trigger additional cuts, including reductions in public education equivalent to lopping three weeks off the school year, he said.
“I’m linking these serious budget reductions … with a plea to the voters: Please increase taxes temporarily,” Brown said at a morning news conference.
His $91.4-billion spending plan sets up confrontations with interests that are supporting his tax campaign. To save $400 million, he’s negotiating with public labor unions to reduce the state workweek to 38 hours, worked over four days — a 5% cut in payroll costs. And he’s pushing fellow Democrats in the Legislature to accept steep cuts in social services, which they have so far resisted. Brown acknowledged that budget negotiations will be especially challenging.
Just a few months ago, Gov. Jerry Brown chastised “declinists” and “dystopian journalists” for their pessimism about California, particularly about emerging from a deep recession.
“Contrary to those critics who fantasize that California is a failed state, I see unspent potential and incredible opportunity,” Brown told the Legislature in January, citing supposed signs of economic recovery.
On Monday, however, Brown blamed a sluggish economy for revenues falling billions of dollars short of the rosy estimates in the budget he signed last June.
“You can never get it quite right,” Brown told reporters as he released a revised budget aimed at closing a deficit he pegged at $15.7 billion, $6.5 billion more than his previous estimate.
“We have an uncertain economy,” he added, describing revenue and deficit numbers as a “guesstimate.”
Whatever the deficit may truly be, Brown’s revised 2012-13 budget is as much a political document as a fiscal one, clearly aimed at persuading voters to approve new sales and income taxes next November.
As state leaders sweat over another possible round of cuts from schools and social services, casino operators are offering officials a cut of the action if they will legalize Internet poker in California.
After two years of hearings and study, the proponents — who are also generous political contributors — say the stars may finally be aligning for them. The California Senate leader this year is co-sponsoring legislation that he hopes will put hundreds of millions of dollars into the state treasury.
Further improving the operators’ odds, the Obama administration said in December that federal law does not prevent states from allowing some forms of Internet gambling.
“It gives California lawmakers a green light,” said Whittier Law School professor I. Nelson Rose, an expert on the gambling industry.
The opinion by the U.S. Department of Justice has given impetus to states scrambling for a share of online poker wagers. Experts estimate that such bets add up to more than $40 billion annually in the U.S. — all on sites run by overseas companies not regulated or taxed by the states.
Enjoy your morning and Dan Walter’s Daily video: From ‘fairy dust’ to credibility for Gov. Jerry Brown?