Greek-style Austerity Measures

Brown Seeks 5-year Extension of California Tax Increases

The newly sworn-in Democratic governor has warned interest groups, lawmakers, schools and citizens to brace themselves.

January 10, 2011

Associated Press – Gov. Jerry Brown proposed a budget for the coming fiscal year Monday that deals with the state's ongoing deficit with tough medicine for nearly every Californian, making deep cuts to most areas of government while calling for a five-year extension of tax increases enacted in 2009.

In releasing his first budget plan, the newly elected Democratic governor said he wanted to end the types of acccounting gimmicks, borrowing tricks and overly optimistic revenue assumptions that characterized the recent budgets signed by former Gov. Arnold Schwarzenegger.

His budget projects the deficit at $25.4 billion over the next 18 months.

To close it, Brown called for $12.5 billion in spending cuts, including reductions in welfare, social services, health care for the poor, community colleges and a combined $1 billion cut to the University of California and California State University systems.

Brown also wants the Legislature to call a special election in June to give voters an opportunity to continue increases in the income, sales and vehicle taxes for five years. The taxes were approved two years ago next month and are due to expire this year.

They would generate $12 billion in revenue if voters agree to an extension.

Brown said his spending plan for the fiscal year that begins July 1 is intended to end the state's continual deficits and balance the budget for the next several years without borrowing money to do so.

"It's better to take our medicine now and get the state on a balanced footing," Brown told reporters in releasing his plan.

He said the only area of state spending he would protect is K-12 education, but that assumes voters approve the tax extensions. If they do not, or if the Legislature fails to muster the two-thirds vote needed to place the question on the ballot, cuts will be even deeper, Brown said.

Republican lawmakers reacted negatively to the prospect of extending the tax increases. Most of them have signed a pledge pushed by anti-tax advocate Grover Norquist, who runs a Washington, D.C., nonprofit called Americans for Tax Reform.

The pledge says they will not support any tax increases.

"Well, this is going to be a nonstarter with the Republicans, and I think the people of California, as well," said Assemblyman Jim Nielsen, vice chairman of the Assembly Budget Committee. "If that were to be taken to the ballot, I think it would be resoundingly defeated.

"It's OK to put it up as a strategic proposal, but for that to be part of the final agreement, I do not see that as a reality."

Voters rejected an extension of those taxes in May 2009 as part of a complicated series of measures placed on the ballot by the Legislature and Schwarzenegger, whose popularity was plummeting at the time.

Lawmakers will have to act quickly to place a special election before voters. Some Republican support in the Assembly and Senate will be needed because of the two-thirds rule.

Brown acknowledged that Republican lawmakers will be hesitant to support the ballot measure but said he was confident he could get enough support to push ahead with the special election.

He also said he expected help from a number of interest groups representing business, labor, education and community associations.

"I think there are a significant number of people who have an open mind," Brown said. "I think people will want to defend and protect California as they have come to understand it."

The tax extensions will be coupled with deep cuts to a state government that already has sustained years of recession-induced reductions.

Brown also has said he will seek to fundamentally restructure state government, shifting a host of responsibilities from the state to counties and cities, a process he has acknowledged will be complicated and controversial. That includes eliminating redevelopment agencies and ending tax breaks available to businesses that operate in depressed areas designated as enterprise zones.

If voters approve, revenue generated from the sales tax and vehicle license fees would go to local governments to help pay for the changes.

The governor also is seeking an 8 to 10 percent cut in pay for state workers who aren't covered by union-negotiated contracts, which he said would save the state about $308 million.

That actually could be an improvement for some state employees who currently are furloughed three days a month, said Patrick Whalen, general counsel for California Attorneys, Administrative Law Judges and Hearing Officers in State Employment, one of six unions operating without a contract.

Brown also wants a $1 billion rainy day fund.

Brown is proposing an $84.6 billion general fund budget, slightly less than the $86.5 billion adopted under former Gov. Arnold Schwarzenegger's last budget.

The state's general fund revenue comes largely from sales, income and corporate taxes.

New Governors Confront Daunting State Budget Woes

January 3, 2011

PBS NewsHour - The New Year rings in the start of some new governors' terms -- and nearly all of them face budget shortfalls. Gwen Ifill discusses state budget woes with three public media reporters: John Myers of KQED Public Radio in California; Karen Kasler of Ohio Public Radio and Television; and Karen DeWitt of New York State Public Radio.



Transcript

GWEN IFILL: From New York to California today, the new year brought a wave of newly elected governors into office. But in many states, the celebrations ended before they began.

GOV. ANDREW CUOMO (D-N.Y.): It starts with jobs, jobs, jobs, getting the economy running once again.

GOV. SCOTT WALKER (R-Wis.): Let us get Wisconsin working again.

GWEN IFILL: Across the country, many of the 26 new governors taking charge are facing a common problem: red ink. California is probably in the worst shape, with a growing $25 billion deficit and an unemployment rate topping 12 percent.

That's what's facing incoming Democrat Jerry Brown, who held the job once before from 1975 to 1983.

GOV. JERRY BROWN (D-Calif.): I take this obligation freely...

WOMAN: ... without any mental reservation...

JERRY BROWN: ... without any mental reservation.

WOMAN: ... or...

JERRY BROWN: Really, no mental reservations.

GWEN IFILL: Today, at age 72, he begins his third term, succeeding Republican Arnold Schwarzenegger.

JERRY BROWN: The budget I present next week will be painful, but it will be an honest budget. The items of spending will be matched with available tax revenues. And specific proposals will be offered to realign key functions that are currently spread between state and local government in ways that are complex, confusing and inefficient. My goal is to achieve greater accountability and reduce the historic shifting of responsibility back and forth from one level of government to another.

At this stage of my life, I have not come here to embrace delay and denial.

GWEN IFILL: In Michigan, the state budget deficit is approaching $2 billion. Plus, the state is tied with California for the second highest unemployment rate in the country: 12.4 percent. New Republican Governor Rick Snyder vowed to tackle the problem during his inaugural address on Saturday.

GOV. RICK SNYDER (R-Mich.): Our solution has to address the issue, the challenge of keeping our young people in this state. We must create more and better opportunities and jobs for the underemployed and the structurally unemployed. The reinvention of Michigan must not leave anyone behind.

ANDREW CUOMO: I, Andrew M. Cuomo...

MAN: ... do solemnly swear.

ANDREW CUOMO: ... do solemnly swear.

GWEN IFILL: In New York, Democratic Governor Andrew Cuomo decided to scrap the usual elaborate inaugural festivities.

ANDREW CUOMO: There's a lot of disappointment vis-a-vis the government. There's a lot of suffering from the economy, and I don't think a grand ceremony or a lavish ceremony would be appropriate. In my administration, this is going to be the way it works. When we actually do something and perform and help the people of the state of New York and we make government function, then we're going to have a big party and celebrate, and not before.

GWEN IFILL: Best estimates put New York's budget deficit at upwards of $9 billion. To start whittling that down, Cuomo plans Wednesday to announce a one-year freeze in state workers' pay.

For more now on the budget shortfalls facing the governors, we're joined by three public media reporters, John Myers, the Sacramento bureau chief for KQED Public Radio, Karen Kasler, capital bureau chief for Ohio Public Radio and Television, and Karen DeWitt, capital bureau chief for New York State Public Radio and PBS station WXXI.

I want to start you with, John Myers, because I hear that today at the inaugural lunch, Jerry Brown served hot dogs. How big a hole is California in?

JOHN MYERS, Sacramento Bureau Chief, KQED Public Radio: Well, he actually ate a couple of free hot dogs that were being offered on the state capitol lawn, Gwen. So that's probably about the same, though I don't think Jerry Brown will tell anybody there are any free lunches anymore around California.

Yes, things are tough. He has got a $28 billion shortfall. You said $25 billion in the opening. And that could be the low number. It could be high to $28 billion given the changes in the estate tax law there in Washington, but as much as $28 billion over a year-and-a-half. The governor made it clear he doesn't want to do smoke and mirrors. He doesn't want to do gimmicks and budgets anymore. He wants to have an honest budgeting. That's something he talked about a lot. That is going to be really tough to do.

One of the most politically polarized places in all of California is right here in Sacramento. And the new governor is finding that out very soon. He has a short window here, too, I should mention. He wants to put some cuts forward, but he probably wants to put some taxes on a special election ballot in May or June of this year. The voters would have to say something about that. And of course to get it on the ballot, you have got to get lawmakers to do that here in just a matter of weeks.

GWEN IFILL: Karen DeWitt, speaking of politically polarized see capitals, let's talk about Albany for a minute. What is Andrew Cuomo facing there?

KAREN DEWITT, Capitol Bureau Chief, New York State Public Radio: That's right. And as you mentioned in the piece, the state budget deficit is $9.5 to $10 billion.

That's 10 percent of all the money that the governor and legislature have control over spending. The budget is bigger but they only have control over about $90 billion. This is the third year we have had a multibillion-dollar budget deficit. But, unlike the past two years, there's probably not going to be billions of dollars of federal stimulus moneys to bail them out.

So, Cuomo is going to have to go against every major interest group, the unions, the education community, the health care community, and he's going to have to make cuts, because he said that he's not going to do taxes and he's not going to increase spending. It's a very fiscally conservative agenda for a Democratic governor. He's really going to go up against everyone. And it's going to be very interesting to watch.

GWEN IFILL: Very interesting.

Karen Kasler, in Ohio, John Kasich hasn't taken the oath of office yet. He does on January 10 I believe. What does he face?

KAREN KASLER, Capitol Bureau Chief, Ohio Public Radio: Well, interestingly enough, we don't have this polarization in Ohio's capitol. The Republicans took back the Ohio House. They strengthened their power in the Ohio Senate. And of course John Kasich succeeded outgoing Governor Ted Strickland, who is a Democrat.

And so, in a sense, it could be argued that John Kasich, who you may remember from his time as a House Budget chair back in the mid-1990s -- he called himself the architect of the federal balanced budget back then in 1997 -- he says that, you know, he doesn't have any constraints, that he can do pretty much what he wants to do. He feels like that there is a lot of low-hanging fruit, as he puts it. He says that certain low-hanging fruit hasn't been picked because of political issues, political reasons. He says that he wants to go after this. He won't get specific, but it certainly seems like issues involving and programs involving Medicaid and also nursing homes, hospitals, some of these areas are going to be likely targets.

We have about a $4 billion to $8 billion budget deficit that was estimated. Now we're hearing from the incoming Senate Finance Committee chairman here in Ohio that it could be as high as $10 billion. We have a $52 billion two-year budget, so $10 billion out of balance, that is a huge number to deal with.

GWEN IFILL: Let's try to tick through some of the reasons why the states are in such dire straits. We just heard Karen DeWitt say in New York that this was a question of stimulus funding which was now missing. Let's go to California and talk about these pension liabilities. That's a big chunk of what's going wrong there, isn't it?

JOHN MYERS: Yes, Gwen, I think that's fair.

I mean, the outgoing governor, the ex-governor, Arnold Schwarzenegger, one of the last things he did in the office in the budget deal that was done in the fall was rework some of the pensions of public employees in the state level, making them a little bit less generous. There's still a lot more work to do there.

I think you're finally seeing the public kind of take notice of this issue certainly. But it goes far beyond that. One thing I was struck by Governor Jerry Brown saying today when he took the oath of office was he said that maybe California doesn't have a problem, but it has a condition, and a condition that can only be managed and not fixed.

That's a very different kind of rhetoric than saying I have got a solution to this. It says maybe we're just -- kind of this is the way things are and we have just got to do the best we can. And that's a real mind shift set I think for the public, both here and in other states that are having problems.

GWEN IFILL: And Jerry Brown also said today that people are going to have to be prepared to take the pain. Is that a message anybody ever wants to hear? How's -- what was the reaction to that?

JOHN MYERS: Well, in general, everybody said, well, we agree he's right. But then the devil will be in the details. I think the real question for a governor like Brown -- and this may be true in other parts of the country, too -- is, can you get the public to finally understand what's going on? Can you get them to really understand the depth of the problems we're having here in California, others are having?

Brown called it, can people have a devotion to California first and party second? And I think that's his real test out here.

GWEN IFILL: Let's talk about this idea about what it is that people expect.

One of the things in New York state, Karen DeWitt, is that we have heard that, during the campaign, at least, Andrew Cuomo, Governor Cuomo, had talked about a property tax cap, which seems to run against the idea of creating additional revenues for a state that is in a tough situation.

KAREN DEWITT: Yes, that's absolutely right. But property taxes are among the highest in the nation. And people are upset with that. But once they see -- Cuomo wants a property tax cut -- once they see what the fewer taxes are going to bring, if that brings cuts to education and to health care, then the public may not be behind it in the same way, because I think, in theory, people say taxes are too high, spending is too high, government is out of control.

But if you ask them specifically in polls, well, would you cut school aid, would you cut it at your children's school, they will say, no, we don't want to do that. So, it's going to be difficult for Cuomo to continue to convince people that these cuts have to be made.

GWEN IFILL: So, is there low-hanging fruit in New York State, like John Kasich is looking for in Ohio?

KAREN DEWITT: Well, you know, there isn't really. They have already done a lot of that. They raised a temporary income tax on the wealthy. That expires in April. Cuomo says he doesn't want to renew that. So they have made a lot of the easy cuts. You know, they have cut things like the paper supplies of state agencies. Former Governor Paterson imposed 900 layoffs. So there really isn't a lot of stuff left. They're going to have to make really fundamental cuts, maybe consolidate agencies, and stop doing some services that have been done for a long time in New York.

GWEN IFILL: One of the critical conditions -- connections, Karen Kasler, between the federal government and the state governments is this question of who is paying for Medicaid, for the health insurance program for the poor? And, in Ohio, that seems to be a big part of the drag on the state budget. Is that true?

KAREN KASLER: Right. Forty percent of the state budget is Medicaid. And, interestingly enough, when you look through the state budget, 85 percent of Ohio's budget is money that has passed through to local boards or agencies or government entities. Of course, that includes some Medicaid money, but also K-12 education and that sort of thing. So the point of trying to explain this to people, how to make these cuts and not have it impact your school, your town, your road that you drive to go to work is going to be a very difficult case to make. The Columbus Dispatch here today has a little interactive thing on its Web site where you can try to balance the state budget. What would you cut? And then you go through and figure out what the newspaper's headlines would be if you were the governor and you cut money to education, you cut money to Medicaid, all these sorts of issues.

So, it's a very challenging thing to explain to people how this money will affect you if indeed it is cut. It's easy to talk about in principle, but, in fact, it becomes a totally different argument.

GWEN IFILL: Well, let's talk about the other half of this. There is obviously the debate, John Myers, about cutting. How about the debate about raising money? Is there any discussion in Sacramento about how to get additional revenues into the system?

JOHN MYERS: Yes, there is, Gwen. One of the things that Governor Brown talked about during his campaign this fall was that, if there were going to be new taxes, it would have to be with a vote of the people. And so that's part of this idea that he would have a special election some time in the late spring, early summer to ask the voters to extend temporary tax increases, some that were put up last year, a car tax, a sales tax, an income tax, slight ticks in those, to keep them from expiring, which they're set to do right now.

Of course, that's a tough sell with the voters. They have got to be drawn into that and believe it's real. You have to get Republicans to buy off on it here in Sacramento before you could ever get it on the ballot. And I think you're right. I think that's a tough one for everyone to try to understand. But, again, the question is, what are you going to do if you don't have those revenues? What else are you going to cut? Schools, colleges, universities, prisons even. That's a huge draw here in California -- a lot of tough questions.

GWEN IFILL: Karen DeWitt, are there tough questions about raising taxes, raising revenues in some way in New York?

KAREN DEWITT: Yes, absolutely. I mean, Governor Cuomo has promised that he's not going to raise taxes. Now, he didn't say specifically he wasn't going to raise fees. But I don't think you could raise like the DMV fees for driver's licenses or any of that stuff enough to make up $10 billion. So they're going to have to face the cuts. And it's really going to be -- it's going to be tough. It's going to be very tough for him.

GWEN IFILL: And how much tougher is it made by the fact that Albany has such a famously dysfunctional legislative-executive relationship?

KAREN DEWITT: Just -- that just adds spice to it, I think, right? The legislature is just notoriously dysfunctional, though the legislative leaders say that they are going to work with the governor. But the thing is, the legislature does have a lot of power in New York State over budget matters and other things. So the governor can't just come through like a steamroller, like his predecessor, Eliot Spitzer, was the famous steamroller. He's going to have to try to convince them to come along with him. And that's quite a bit more difficult than just trying to bludgeon them into submission.

GWEN IFILL: Karen Kasler, we have a party change happening in Ohio's Statehouse. How is that going to play into this? And is there -- are there revenues that can be raised as a part of closing this gap?

KAREN KASLER: Well, when you talk to various lawmakers about the budget, the incoming speaker has said that it's going to take horrific budget cuts to deal with this budget deficit. Other lawmakers have made similar comments. But then John Kasich, the incoming governor, is almost very casual about the budget deficit. He doesn't come across as being overly worried about it. And he claims that there's going to be a balanced budget with a tax cut. And with the Republicans in control of the House, the Senate and the governor's office, we're not going to see a tax increase, certainly. I know John Kasich has signed the no new taxes pledge that is talked about by other national conservative groups. That pledge also allows some fee increases, but not just to raise money.

John Kasich has been talking a little bit about public-private partnerships, leasing the Ohio Turnpike, possibly prisons, and maybe some other things. There are some reports about leasing state government office space and selling the buildings. So there are a lot of opportunities. He says everything is on the table, that he has no constraints.

GWEN IFILL: Well, it's going to be fun to check back in with you guys and see how much reality comes with -- against the promises. Karen Kasler, Karen DeWitt, and John Myers, thank you all very much.

JOHN MYERS: Thanks.

KAREN KASLER: Thanks.

KAREN DEWITT: Thank you.

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