George S. May Business Blog

California budget plan agreed upon, heads to Schwarzenegger’s desk for approval

California legislature took major action today to eliminate the $42 billion California budget deficit through steep cuts and an assortment of new taxes.

The plan has taken some time to get approved by the Senate, 15 weeks to be specific, but finally managed to lock down the final Republican vote that was necessary to pass it. It was State Senator Abel Maldonado that finally came forth with the required “aye” vote, only after senate leaders agreed to his demand to add certain reforms and strip the bill of its proposed gas-tax increase. Mr. Maldonado added that he did not actually approve of the provisions within the bill, for the most part, rather he cast his vote out simply because California was in extreme financial danger. Not to mention that he was heavily lobbied by the Governor and legislative leaders from both parties.

I don’t like the budget, I don’t like the revenue increases,” Mr. Maldonado said in an interview before casting his vote, “but I don’t want California to fall off the cliff.”

So now the California budget bill heads to Gov. Arnold Schwarzenegger’s desk. It is projected that the bill will be signed by the weekend, thereby kick-starting plans to resume construction projects and send out the tax refunds that had been delayed.

The Governator admitted in a statement that he was “extremely proud of the members of the legislature, both Republicans and Democrats, who had the courage to stand up and put the needs of Californians first”, acknowledging the difficulty of the budget decisions.

The California budget plan calls for California to generate up to $13 billion in revenue primarily by raising sales taxes one percentage point and adding a surcharge on state income taxes.

There is one provision within the California budget plan that I like to call the “oops, my bad” proposal. If anyone remembers when Agent Arnold was campaigning originally, he promised, pushed, and after being elected accomplished, a cut back in the state vehicle license fee. Well, no longer.  The ” car-tax” will jump back up from .65% to 1.15%

As for the proposed spending, or reduction thereof, these are the details that I am aware of thus far:

The California budget proposal will cut $15 billion in spending, $8.6 billion of that from education. In addition, the California budget proposal looks to save $1.4 billion in payroll costs by eliminating two state holidays, reducing allowed overtime rules, and sending workers home at least one day a month.

Large corporations look to get a nice chunk of change through tax breaks: $700 million that is.

The California budget hopes to secure the remainder of the deficit by borrowing cash from the federal stimulus package.

In fact, that is a major reason why legislators were so hard-pressed to pass this California budget plan. As legislators sat in a stalemate over provisions within the plan, it was becoming more and more likely that without it they would not receive a chunk of the $26 billion they expected to receive from the federal stimulus package President Barack Obama signed Tuesday. U.S. Sen. Barbara Boxer met Wednesday with state legislators, warning them that California could lose $5.8 billion in stimulus money if it didn’t balance its budget soon.

Although, for the reason listed above, Senator Maldonado was somewhat forced to sign off on certain provisions he did not agree with, I do want to commend him for sticking to his guns. When a legislator like Mr. Maldonado openly has the best interests of the California tax payers in mind and no matter the pressure put on him by other legislators, stands behind his convictions, it is refreshing. I mentioned above that along with the elimination of a gas tax increase the Senator had certain reforms that he required before putting his stamp of approval on the California budget plan. One of them would require the state to hold open primary elections and stop pay increases for lawmakers in years that the state faces a budget shortfall.

Now, that makes absolute sense to me. It happens in most every business (if you don’t perform well, your job may be in jeopardy and you definitely don’t get a raise) why not in state legislature? And who is more qualified to make the decisions than the tax-payers who are reaping the detriments of the failing economy?

Kudos Mr. Maldonado. I applaud your dedication to the welfare of the California tax payer and your incessant resistance to hasty efforts of California lawmakers. I sincerely do not believe that this bill will provide a complete solution to the problem, in fact in some cases actually may exacerbate areas of crisis, but I do believe that you are one of the law makers in the California legislature that actually has the best intentions of the California tax payer in mind.

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