News & Updates - High Taxes Could Go Higher Still

By Robert C. Lapsley

Sacramento Bee
January 11, 2015

Gov. Jerry Brown unveiled his spending plan for the 2015-16 fiscal year on Friday, and given the current cash flows, there is much good news.

But as we embark on another round of budget negotiations in Sacramento, the governor and legislative leaders need to add more transparency to the state budget process as they negotiate over their vision for California’s future.

In 2015 the budget won’t be about fiscal crises but whether powerful special interests will persuade the Legislature and the governor to spend more.

As of Dec. 15, more than $20 billion in spending proposals had been introduced, according to numbers cited by the Governor’s Office and numerous ideas about how to increase our taxes.

Before lawmakers get to work, we should understand how much the state takes in and where this money goes. Let’s start with the most basic state budget facts.

The state budget is made up of four pots of money – the general fund at $108 billion in the current budget, special funds at $44.3 billion, bond funds, which ultimately are repaid as general fund, at $4 billion, and $98 billion from the federal government.

Put them together and they add up to more than a quarter-trillion dollars – on a per capita basis, the highest ever at $6,600 per person, nearly a quarter higher than the pre-recession budget of 2007-08.

Even during the recession, overall government spending continued to grow in all but one year – and that was before voters approved $40 billion in new taxes under Proposition 30 in 2012.

Although lawmakers cut general fund expenditures by $16.6 billion during the recession from 2007-08 to 2011-12, they shifted money from funds to keep many of the programs operating.

While the general fund was cut, special funds expenditures increased $7.2 billion in this same period. Federal funds, largely driven by the federal stimulus used by state and local governments to maintain program levels, grew by $16.9 billion in those years.

Special fund spending continues to grow, and now comprises more than 17 percent of the total state budget. The special fund budget is more than 40 percent of the general fund budget, an all-time high.

By 2013-14, general fund expenditures had nearly recovered to just $2.3 billion below 2007-08. But special funds had grown to $12.9 billion above their previous level.

As a result, general fund revenue is now only 42 percent of all spending, down from a high of 62 percent during Jerry Brown’s first two terms as governor in the 1970s.

The special funds have been used on more than one occasion to make up the general fund shortfall through ongoing borrowing and outright shift of program funding.

This shift jeopardizes the transparency of the budget process. Special funds also receive less scrutiny than general fund spending. The shift to special funds means there is less focus on how tax dollars are being spent.

To his credit, Brown made the budget one of his top priorities in his first term. His leadership successfully stabilized both the state and the budget while also paying down billions of dollars in other state debts.

Today, California is already among the highest-taxed states in the country. But powerful special interest groups and some legislators can hardly wait to ramp up spending again. They are lining up behind various new tax proposals, from extending the $7 billion per year from Proposition 30, to raising property taxes by altering Proposition 13, to taxing oil or tobacco or levying a new fee on services.

Brown and the Legislature need to lead a discussion focused on all four pots of money, where it is being spent, and whether we can meet our future revenue needs through increased taxes, or through reforms that help improve our economic competitiveness.

Transparency is fundamental to Californians’ faith in government. The governor and lawyers have an opportunity to lead an honest discussion about the future of our state so that we can make informed decisions about our budget priorities and how to fund them.

Read More

CBRT eNews

Stay informed on the latest news and events from CBRT by signing up for our eNews updates.