FAKE BUDGET REFORM

1
FAKE BUDGET REFORM

• Why the May 19, 2009 Special Election
  Legislative Propositions Make Matters Worse
  
• Presented by Jeffrey M. Reid on behalf of the
  Fresno County Lincoln Club

2
Props 57 and 58 - March 2004

• What We Approved
• 15B Deficit Recovery Bond
• To refinance then existing 17B Budget Deficit
• Balance Budget Act
• Requires Annual Balanced Budget
• Establishes Rainy Day Fund (3)
• Prohibits Future Deficit Bonds

3
What They Said

• The California Recovery Bond and the California
  Balanced Budget Act, Proposition 58, together
  will give Californias leaders the tools
  necessary to restore confidence in the financial
  management of the State.
• The California Balanced Budget Act will PROHIBIT
  BORROWING TO PAY DEFICITS ever again and will
  require enactment of a BALANCED BUDGET.
  
• Governor Schwarzenegger needs both Propositions
  57 and 58 to pass. It will give him the tools
  necessary to STOP BORROWING, STOP OVERSPENDING,
  and PUT OUR FINANCES BACK IN ORDER.
• It is the only way to ensure Californias
  financial future.
  
• ARNOLD SCHWARZENEGGER, Governor State of
  California
  
• LARRY MCCARTHY, President California Taxpayers
  Association
  
• ALLAN ZAREMBERG, President California Chamber of
  Commerce
  

4
Prop 1A What They Say Now

• WE HAVE TO TAKE ACTION NOW TO START REFORMING OUR
  BROKEN BUDGET SYSTEM.
  
• 1A WILL FORCE ACCOUNTABILITY AND STABILITY OVER
  THE BUDGET PROCESS
  
• It will help stabilize future state spending and
  create an enhanced rainy day fund.
  
• California's budget system is badly broken and
  needs reform NOW
  
• It forces politicians to save into a "rainy day"
  fund and increases the size of the fund from 5
  to 12.5 of general fund spending. The rainy day
  fund can only be used in times of emergency.
• TERESA CASAZZA, President California Taxpayers'
  Association
  
• ALLAN ZAREMBERG, President California Chamber of
  Commerce

5
BUDGET REFORM NOW?

• MORE TAXES (Prop 1A)
• MORE INFLEXIBLE SPENDING (Prop 1B)
• MORE BORROWING (Prop 1C)
• MORE LEGISLATIVE SHENANIGANS (Prop 1D, Prop 1E
  and Prop 1F)
  

6
PROP 1AITS A TAX INCREASE!!!

• 1 Sales Tax increase for another year - 4.5B
• Quarter Increase in Personal Income Tax for 2
  more years - 7.2B
  
• Doubles Car Tax 2 more years - 3B
• Reduced Dependent Care Credits 2.8B

7
PROP 1A RAINY DAY FUND

• 3 OF GENERAL FUND REVENUES
• Already a requirement of Prop 58
• RAINY DAY FUND OF 12.5
• Already supposed to be 5 (or 8B)
• TOTAL BALANCE TODAY
• 0
• TOTAL BALANCE 2010 AND 2011
• 0

8
NO RAINY DAY FUNDING IF

• Transfers suspended by a simple Executive Order
• Current law applies until 2011
• After 2011, whenever there are any costs to
  address an Emergency
  
• 69 Declared Emergencies in the past 5 years

9
THERES A HOLE IN MY BUCKET

• Half the Rainy Day Fund immediately used to pay
  the Prop 1B Bribe (if 1B is passed)
  
• 8B of the 9.3 Prop 1B is a Bribe
• If 1B fails (or after the Bribe is paid) half the
  Rainy Day Fund immediately available to spend on
  new capital expenditures
  

10
THERES ANOTHER HOLE IN MY BUCKET

• Half the remaining half is immediately used to
  pay down the inaptly named Deficit Recovery
  Bonds
  
• 5B total
• They already have to pay these bonds
• They are simply paying from a fund they claim is
  being set aside for a rainy day

11
BOILED DOWN RAINY DAY FUND

• Once this Governor leaves town
• Provided we have no further emergencies
• 1.5 of General Fund (GF) Revenues go to a Rainy
  Day fund (up to 12.5 of GF)
  
• 1.5 available for bribe payments and earmarked
  capital expenditures
  
• Current law already supposed to fund a 3 Rainy
  Day fund (up to greater of 5 of GF or 8B)

12
ISNT THERE A SPENDING LIMIT?

• No limit on future expenditures
• Future budgets based on 10 year trend line of
  General Fund revenues
  
• But, if thats not enough, if they find an
  emergency in the state, they can spend the rainy
  day fund to address it.
  
• If thats still not enough they can raise taxes
  and spend the whole amount.

13
FINALLY, ITS A TAX INCREASE!!!

• This isn't about the perfect being the enemy of
  the good enough.
  
• Not simply lame and laughable budgetary reform.
  
  
• It is also a tax increase.

14
PROP 1B BRIBE

• LAO Reports current Prop 98 deferred maintenance
  obligations total 1.4B
  
• First time that Prop 98s test 1 guarantee
  factors apply (schools receive 40 of GF Budget)
  
  
• Governors prior position no new maintenance
  obligations arise.
  
• We dont think this is a gray area. (J.D.
  Palmer, DOF spokesman, January 2009)
  
• Education Advocates disagree
• Claim budget deal creates new maintenance
  guarantees that really dont apply
  
• Demand 7.9 of added maintenance payments

15
WELL PAY YOU ANOTHER 8B IF

• Dont oppose the mild expenditure limits of Prop
  1-A
  
• If Prop 1-A passes, you get the 8B
• Increases the base of all future Prop 98 minimum
  funding fights
  
• It does nothing to clarify the formulas or
  resolve future disputes

16
THE LAO SAYS

• "the costs of this measure would, likely be
  higher than under current law, potentially by
  billions of dollars each year."
  
• They arent talking about the 8B bribe
• Its about the permanently higher new Prop 98
  minimum funding guarantee
  
• Prop 1B gives California even less future budget
  flexibility

17
PROP 1C A NEW BLANK CHECK

• Lottery no longer funds school programs
• All future net Lottery funds available at all
  times, forever, for new borrowing
  
• No future taxpayer approval required.
• Initial Bonds estimated at 5B.
• Thats not a cap. Its only the first.

18
WHERES MY MONEY?

• They spent the Lottery funds, forever, on new
  borrowings
  
• What about the Schools?
• The obligation to pay lottery profits to
  schools is now a new burden on the General Fund
  
• General Fund locked into paying Schools new
  payments equal to 2009-10 lottery funds
  
• Plus automatic increases for inflation and
  student population

19
PROP 1D

• Takes unused balances of Prop 10 Tobacco taxes
  from First 5 Programs
  
• 600M 1 year bandaid
• 268M years 2-5
• Prop 1D doesnt go far enough
• Prop 10 taxes shouldnt be locked away for narrow
  purposes to begin with
  
• Should be permanently redirected to the General
  Fund

20
PROP 1E

• Redirects 1 Millionaires PIT (Prop 63) from
  specified mental health program expansions to
  other federally mandated Medical mental health
  programs
• 226M 2 year bandaid
• Prop 1E doesnt go far enough
• Prop 63 taxes shouldnt be locked away for narrow
  purposes to begin with
  
• Should be permanently redirected to the General
  Fund

21
Prop 1D and 1E Exhibit A

• Legislature amends initiatives when they get in
  their way
  
• If Prop 1A ever actually impinges on their
  spending, dont expect them to stay in place
  
• Gann Initiative
• Gutted by Prop 98
• Killed off by Prop 111

22
PROP 1F

• June 1 the Director of Finance projects June 30
  fiscal close out
  
• If deficit is projected, any pending pay increase
  for state officials is suspended
  
• for that year only
• Doesnt fix the taxing and spending or lack of
  Executive leadership
  
• Its on the ballot to make us feel good
• Its actually insulting foolishness
• Dont enable Abel.

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CONCLUSION

• If you believe that more taxes, more borrowing,
  more inflexible spending mandates, and more
  legislative shenanigans is budget reform, vote
  yes.
• If you want to roll back the tax increases, stop
  new borrowing, stop categorical funding set
  asides, and reject the Legislature's mendacity,
  then vote no.