Posted on 05/11/2006 7:54:36 PM PDT by NormsRevenge
A multibillion dollar tax windfall has eased the strain of California's perennial state budget debate and handed Gov. Arnold Schwarzenegger a chance to buy off Democrat and Republican critics as he heads into his re-election campaign.
Stock gains, home sales, business profits and taxes on rising gas prices are expected to bring in revenue at least $5 billion above forecasts from just two months ago. The money already has allowed the Schwarzenegger administration to pledge that it will give more to public education and appease the state's teachers union, which has been critical of the governor's spending.
"It really helps the governor, there's no doubt about it," said Larry Gerston, political science professor at San Jose State University. "It makes it harder for the Democrats in terms of the November election to say he's failed."
But economists warned that the billions in revenue is likely to be provide only a one-time boost that will do little to reverse the state's ongoing structural deficit, the state's practice of spending more than it expects to take in during the next fiscal year.
Nor will it correct California's dismal credit rating, which remains tied with Louisiana for the lowest in the nation.
"This budget is still incredibly fragile; we're deficit-spending," said Chris Thornberg, senior economist with the UCLA Anderson Forecast. "It's hard to fathom, but it's like you're spending $100 more a week than you earn and get a $50 raise so you think you can then spend $50 more. It's crazy."
On Friday, Schwarzenegger will release his revised budget plan for the 2006-07 fiscal year, which must be approved next month by the Legislature to take effect on time on July 1. The total amount of new revenue might be even higher than $5 billion.
His administration has been leaking details of how it plans to spend the money over the past few days.
On Wednesday, Schwarzenegger announced he will pump an additional $2.8 billion more into education than he initially proposed in January. He also will propose repaying over seven years another $2.9 billion that education advocates claim he has owed public schools since the two sides struck a budget-balancing deal in 2003, just months after Schwarzenegger took office.
Administration officials offered the latest details on Thursday, saying the governor will increase spending on the state's children's health initiative.
Funding for the program, which covers children who are not eligible for MediCal or other programs, will increase by nearly $24 million above his January proposal in an attempt to cover 11,000 children waiting for coverage. The governor will also direct the first of $75 million in payments over 20 years to build housing for mentally ill homeless people.
Speaking in Sacramento, Schwarzenegger cast the state's overflowing coffers as part of a "golden moment" for California to reflect on its economic recovery since he took office. He said his budget for the next fiscal year is intended to achieve three goals: increase funding for classrooms, repay debt and stimulate economic growth by not raising taxes.
When he ran in the 2003 recall election, Schwarzenegger called for eliminating California's persistent deficits and curbing the Legislature's free-spending ways.
Yet his budgets continue to spend more than the state is projected to take in, continuing the so-called structural deficit. When passed, the budget will be balanced largely with the infusion of unanticipated tax revenue from this year.
His preliminary budget in January called for increasing general fund spending from $90.3 billion in the current year to $97.9 billion in the year that begins July 1. That spending increase would come even as revenue over the same time would lag by $6.4 billion, according to the January budget.
On Thursday, Schwarzenegger said he is remaining true to his campaign pledge of fiscal prudence. He noted that the state's deficit has declined from $16.5 billion in 2003 to an estimated $6.4 billion next year, and repeatedly touted his commitment to education.
"When I became governor, I vowed to never again let the state get off-track and abandon fiscal discipline. I intend to keep this promise to the people of California," Schwarzenegger said in a speech before a national association of county government workers meeting in the capital.
"A budget is more than just about dollars and cents, more than about ledger sheets and numbers, more than about assets and liabilities. A budget is about our values. It's an expression of who we are and what we really care for," he said.
The governor will use part of the windfall to pay for his boost in education spending and the remainder to appease fiscal conservatives and analysts on Wall Street. He will propose spending about $1 billion to pay off a major state debt - bonds issued to balance the 2004-05 budget - a year early in 2009. He also wants to set aside $2 billion in reserves.
Retiring the deficit-reduction bonds early will give Schwarzenegger a stronger argument with voters to approve a $37.3 billion public works spending package that will be on the November ballot. The state will be able to absorb the debt more easily.
On its face, Schwarzenegger's savings plan would boost state reserves to their highest level in nearly 30 years and put a down payment on creating an $8 billion rainy-day reserve fund that voters approved in 2004.
In reality, those reserves likely would be only temporary because much of the money may be needed to cover pending lawsuits, federal program cuts, higher prison costs and as yet undetermined raises for state employees whose contracts expire this year. All those costs were not fully accounted for in the governor's preliminary budget in January.
Senate Republican leader Dick Ackerman said the governor's plan to dedicate so much of the state's windfall to retiring state debt is responsible but said he wished more could be done.
"We would like to pay off all our debt now, but under the circumstances we can't," Ackerman said, noting that the deal to pay so much to education has probably wiped out the ability to do any more.
boost boost boost.
Have they ever heard of the word "savings"?
How does money to the teachers unions improve education? The courts just stopped evaluation testing, to boot.
So just to make sure I'm getting this right:
Windfall for government = good
Windfall for oil companies = bad
The Austrians $1.7B capitulation to organized labor will equate to almost a 15% acceleration in the rate of increases in Prop 98, minimum, funding levels by 2010. Adding almost $2B to the proposed 2006-2007 education budget is bad enough, but priming that pump, two years retroactively, is simply irresponsible.
Vote for a Republican gubernatorial candidate in the June primary but get rid of the Austrian and then Prop 98.
Re-arranging the deck chairs are they?
Funny he is trying to appease the "fiscal conservatives," something he used to claim to be. I think Wall Street has more clout than the former.
He will propose spending about $1 billion to pay off a major state debt - bonds issued to balance the 2004-05 budget - a year early in 2009. He also wants to set aside $2 billion in reserves.
$12 or so billion in bonds were issued which would bring the total bill to about what, $20 billion? And he's gonna pay off a whole 1/20th of it? WOW! /s
Retiring the deficit-reduction bonds early will give Schwarzenegger a stronger argument with voters to approve a $37.3 billion public works spending package that will be on the November ballot.
Paying off $1 Billion of $20 Billion, a fraction, will motivate people to approve $37 Billion more? I think not.
... reserves likely would be only temporary because much of the money may be needed to cover pending lawsuits, federal program cuts, higher prison costs and as yet undetermined raises for state employees whose contracts expire this year.
The CCPOA has been getting quite favorable treatment lately.
Senate Republican leader Dick Ackerman said the governor's plan to dedicate so much of the state's windfall to retiring state debt is responsible but said he wished more could be done.
Whoop-di-do! A whole billion? When triple that is going to an already over-funded education budget? Dick, you have lost your way.
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