LAO proposes increased taxes, suspension of prop 98

California’s nonpartisan budget analyst has taken a different approach to solving the state’s $19.1 billion state budget deficit.

Gov. Arnold Schwarzenegger proposed $19 billion worth of budget solutions in his May 14 budget revision, and although the governor’s proposal might be enough to close the $17.9 billion state deficit and leave a $1.2 billion reserve for California’s General Fund, his plan calls for new taxes and drastic cuts in human services and health programs.

Mac Taylor, the state’s legislative analyst, has recommended raising community college per-unit fees to $40, reducing funds for physical education courses, and suspending the state’s education funding mandate.

The Legistlative Analyst’s Office also proposed reducing funds for physical education courses in community colleges.

“Last year, community colleges took $382.8 million in cuts. While the cuts are largely obscured through lost jobs for our part-time faculty and classified employees, the cuts were equaled the operating budget of 24 Palo Verde Colleges,” said Scott Lay, president/chief executive officer of the Community College League of California. 

The LAO said the state would pass up “major amounts of federal funding” if the CalWORKs program were to be completely eliminated, as the governor has proposed.

Should the Legislature abolish CalWORKs, which supports needy families, California will become the only state in the union to not have a welfare-to-work program.

For example, the state would forego the annual $3.7 billion federal “Temporary Assistance to Needy Families” block grant.

California would also bypass hundreds of millions of dollars in emergency contingency funds, which were authorized by the 2009 federal stimulus package.

The LAO also suggests that despite the governor’s assumption that the state would continue to receive all expected federal funding for child care, which could total about $660 million in 2010-11, it is still unclear whether California would in fact receive the same amount of federal funding, given the absence of state funding.

Alternatively, the LAO has proposed fee increases and the suspension of Proposition 98, which requires a minimum percentage of the state budget to be spent on K-14 education, to reduce the amount of cuts.

It estimates that raising the community college per-unit fee to $40 per credit unit will generate $150 million in additional revenues and such a fee hike would not affect financially needy students since they are eligible to receive full fee waivers.

“Small increases will just end up in increases in tuition and not in growth,” said Sam Lee, dean of language arts and enrollment management. “Growth is what gives students access to classes.”

Alcohol tax rate increases are also being proposed.

According to the LAO website, “many economists believe that taxes on alcohol do not fully compensate for the societal costs associated with drinking. Since alcohol tax rates have not been updated for inflation since 1991, such an adjustment could produce more than $200 million of General Fund benefit.”

In terms of the long-term effects, the LAO is encouraging the California Legislature to build a stronger rainy day fund that will prepare the state’s budget, as well as its government, to manage future economic downturns.

The governor has suggested giving local governments the responsibility and funding for criminal justice programs. The LAO adds additional shifts to this proposal, such as a state-local relationship for the provision of certain health and social services, mainly within context of federal health care reform.

The constitutional deadline for state legislators to pass a budget is June 30. Every year, for the past 20 years, the Legislature has missed its deadline.
California requires a two-thirds vote to pass a budget.