Soda Pop & Oil Erase The Deficit?

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Assembly Speaker John Perez and his fellow Democrats are lining up behind a budget deficit fix that mixes soda pop, crude oil pumped out of the ground in California, and cold hard cash from Wall Street investors.


John Myers

Photo: John Myers

The package unveiled this afternoon builds on so many of the 'third way' solutions considered around the Capitol in recent years -- some ultimately successful, some not -- and now puts (at least) three budget ideas on the table: one from Assembly Dems, one from Senate Dems, and the May 14 proposal from Governor Schwarzenegger.

Speaker Perez is pushing the proposal as a jobs package, in part, because he says there would be money left over from the complicated deficit-erasing financing scheme to pay for job training and other programs targeted at economic recovery.

"We have a very critical moment here when we have 2.3 million people out of work," said Perez at today's news conference. He said the creativity of the plan avoids many of the deepest cuts proposed by Schwarzenegger, while admitting it's a one-time fix of the state's problems in exchange for some complicated long-term borrowing and repayment.

So, trying my best to explain what was laid out, here it is:

The state would borrow $8.9 billion from Wall Street investors by "securitizing" 20 years worth of revenues in the state's beverage container recycling fund (money tied to bottles and cans of soda, beer and more, and a fund that's currently cash-starved). But as Assembly budget staffers explained to reporters, the source for the repayment of the Wall Street cash goes beyond the beverage fund -- and lands on a new tax on oil drilled in California.

Still with me?

The package includes more annual dollars for local governments by increasing the local portion of the sales tax by one-quarter of a penny (which also reduces some obligations of the state's general fund) and then decreasing the state portion of the sales tax by an equal amount. So, say Democrats, that part is a wash for California consumers.

But if the proposal ended there, it would leave the state general fund with less money. And that's where... wait for it... the oil severance tax comes in. The oil tax would be set at a level that's exactly equal to the now missing state portion of the sales tax.

And that supposedly makes the plan... wait for it... "revenue neutral" in Capitol parlance. And that means... drumroll... it can be approved by a majority vote of each house, thus not requiring any GOP votes.

Portions of that oil tax money would help fund the currently ailing beverage recycling fund... the very pot of money from which Wall Street investors would be repaid over the next 20 years for this one-time infusion of $8.9 billion.

If you're still with me (and welcome to a story that will not be explained fully on KQED Public Radio this afternoon and tomorrow morning), keep in mind that Assembly Democrats believe the Wall Street cash avoids the governor's deep reductions for public schools and child care programs, to name but two. They also believe that, as said before, it provides extra money for economic recovery projects.

[Here's the official news release from Perez's office.]

But again, this is a fix only for this year's budget. And staffers also said this afternoon that the complicated revenue changes do increase the ongoing base funding for K-14 education (via Proposition 98) by $1.7 billion.

The oil severance tax idea, as you may know, has been seriously kicking around the Capitol for a couple of years. Meantime, the entire package must pass muster with Schwarzenegger, whose spokesman threw some cold water on it this afternoon. The proposal "includes no real spending cuts and no real reforms," argued gubernatorial press secretary Aaron McLear, "only legal gymnastics for majority vote tax increases."

Speaker Perez says the whole proposal will get a full vetting in public, beginning later this week in the Assembly Budget Committee.

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About John Myers

John Myers is senior editor of KQED's new multimedia California Politics & Government Desk.  He has covered California politics for most of the past two decades -- serving previously as Sacramento bureau chief for KQED News and, most recently, as political editor for KXTV News10 (ABC) in Sacramento. He moderated the only gubernatorial debate of 2014, and was named one of the nation's top statehouse reporters by The Washington Post. Follow him on Twitter @johnmyers.
  • Peter Glick

    Did they open a medical marijuana store in the Capital?

  • Adam Howard

    Peter, if they didn’t, they need to so they can fix whatever head trauma caused such stupid thinking in our legislators…

  • Ron

    Vote out all incumbents the legislators have lost here minds if they had one to start with