Watching Sacramento and the machinations in the Capitol will be even more interesting in the next couple of years.
Gov. Brown is riding high after convincing voters to raise the income tax rate on high-income earners to 13.3 percent, the highest level in the country. His political capital is significant and, with Democrats set to enjoy super-majorities in both houses of the Legislature, he should be able to advance his agenda.
Last week, the non-partisan Legislative Analyst’s Office released a rosy fiscal projection for the next five years after the passage of both Prop. 30 (raising income tax rates plus bumping the sales tax by one-quarter cent for four years) and Prop. 39, which changed taxation for corporations operating in multiple states.
The bottom line is that revenue is up and the budget gap come June 30 is estimated at $1.9 billion, a far cry from the $16-20 billion gaps that have been seen since the Legislature and deposed Gov. Gray Davis passed a budget more than 10 years ago that established ongoing spending levels with one-time money.
While the picture looks good now with budget surpluses predicted in the next four years, that could easily change the analyst’s office cautions. The projections assume steady economic growth and a trend up in the stock market.
The likely biggest challenge is the Democrat super majorities that will want to restore programs that have been cut to struggle to bring the budget closer to balancing. The governor must be willing to aggressively use his blue pencil to rein in spending. Given the critical role that government employee unions—particularly the state teachers union—played in the Prop. 30 campaign, they are going to want to see some cash in their pay checks as will state employees. No raises beyond those already negotiated are included.
Throw in that the state has no reserve fund-despite the passage Prop. 58 during the Governator Schwarzenegger’s term that mandated a rainy day fund and was passed with the governor’s assurance that the state was tearing up its credit cards. How readily he forgot that statement.
The outlooks also don’t include dealing with the substantial shortfalls in the pension funds for state employees and teachers.
In short, we’re a long way from out of the woods and the governor seems hell bent on ramming ahead with his high-speed choo-choo to nowhere in the San Joaquin Valley—a minimum $68 billion boondoggle that he sees as part of his legacy.