Analyst Urges Legislators Think Hard on Brown's Tax Plans
That scenario is one that lawmakers at state Capitol should consider carefully, urges the Legislature's independent budget analyst.
"The Legislature faces a very difficult situation" in how to budget given the political uncertainty over taxes, Legislative Analyst Mac Taylor said in a midday news conference to discuss his office's new report.
So, too, do the biggest benefactors of state revenues: schools. The LAO report reaffirms what our education reporter Ana Tintocalis found for her Monday radio story: school districts are already assuming the worst.
That reaction is no doubt in large part due to their 2011 experience with the budget's 'trigger cut' mechanism and the inclusion of yet another one of these automatic cuts -- a bigger one -- in 2012 should the November 6 ballot measure to raise taxes fail.
And on the tax measure is also a source of disagreement. On Monday, the LAO analysis of Brown's income and sales tax initiative came in at $2 billion less than what the governor's number crunchers have estimated.
The new report only adds to the dispute, with the LAO believing Brown's overall revenues are too optimistic in the current 2011-12 fiscal year, the budget year beginning July 1, and even in future years.
Legislative Analyst Taylor said all of that big picture disagreement hinges on a very small part of California's population: high income earners. The LAO revenue models project, in their words, "significantly less" personal income taxes from the wealthy -- most notably in the 2012 tax year.
"We're just not sure how they (the Brown administration) get to their numbers," Taylor told reporters.
The analyst pointed out that the state budget's growing reliance on personal income taxes, which now account for more than 60% of budget dollars. So, too, is the much discussed reliance on the fortunes of the state's most wealthy -- literally, the top 1% of taxpayers.
The LAO report points out that Governor Brown's new budget projects 2012 capital gains by California taxpayers to be a whopping $34 billion higher than the LAO's own analysis from November. That translates into a $3 billion disagreement in personal income tax revenues.
"In order to get the kinds of [revenue] gains the administration is forecasting," said Taylor, "it kind of looks like you need pretty good improvement in capital markets and housing markets." And he said neither seems to be in the tea leaves.
Which gets us back to the budgeting choices that legislators need to make in the coming weeks and months, and the political context in which those choices will be made.
As we learned last week, legislative Democrats are either skeptical or outright opposed to enacting spending cuts by early March, preferring instead to wait for April tax receipts to give a more accurate look at the cash available. On the one hand, the LAO report seems to affirm the 'wait and see' strategy, in that it casts doubt on the governor's estimates.
But on the other hand, it also may fuel Republican legislators' calls for an even more prudent budget, one that doesn't hinge on a major tax increase being ratified by voters this fall.
"It will simply result in yet another boom and bust cycle, which caused our current budget crisis," said newly elected Senate GOP leader Bob Huff in a statement on the governor's tax initiative and the concerns raised in the LAO report.
Meantime, a different political question comes to mind. Suppose that the governor's campaign to raise taxes extols the virtue of those taxes as protecting schools (as it no doubt must)... but at the same time schools begin cutting their budgets for a worst-case scenario of the taxes being defeated. How does that dissonance play out in the minds of the public?