Yesterday, California, facing the lack of a budget to provide adequate funding sources for state programs and services, began issuing IOUs. State contractors will not be paid, students will not get Cal Grants, and local governments will not get necessary state funding. The State Controller has already halted tax refund payments. Because no budget agreement was reached by February 1st, the State will be $346 million in the red at the end of February, and $5.2 billion in the red in April. And now with the second downgrading in four weeks by Standard & Poor's of the Golden State's remaining $8.7 billion of economic recovery bonds, getting the state out of its fiscal hole just got harder.
About 1.7 million Californians are looking for work, an unemployment rate of 9.3%. The news is bleak; California lost 78,200 jobs in December alone, the third biggest monthly job loss since the end of WWII Even the tech sector has not been immune to the economic crisis; Intel plans to lay off 5,000 workers and close five plants, one in Santa Clara. The California Unemployment Fund is broke, and now needs to rely on a Federal loan to continue paying benefits even though only 35% of the unemployed are receiving benefits. $2.4 billion will be needed to fund unemployment services through the end of the year. The shortfall could grow to $4.9 billion in 2010, and interest on the federal loans could total as much as $153 million. Of the record 68,000 appeals currently filed with the Unemployment Insurance Appeals Board, only 4% are resolved within 30 days, meaning many out-of-work Californians are still waiting to hear whether they qualify for unemployment benefits.
Workers don't have it much easier. State Controller John Chiang has stated that the Governor's attempts to save money by furloughing state employees two days a month are illegal, but Sacramento County Superior Court Judge Patrick Marlette has declared the order legal, and Chiang has said he will comply. However, the SEIU has filed a grievance in an attempt to stop the furlough, which will amount to a 10% pay cut to affected state employees. State job cuts may face another barrier: the Western Center on Law and Poverty has filed a lawsuit against Orange County, alleging that job cuts at social service agencies are illegal because they create delays for needy people seeking aid.
Many programs are in danger, including education. Assemblyman Tom Torlakson is working to ensure that the school meal program retains funding through the end of the school year. The Governor has proposed allowing schools to use class-size-reduction funds for other purposes, which critics say will lead to larger class sizes and dropping student achievement for schools and students in low-income and minority areas. The California Teachers Association is proposing an initiative to raise money for schools by increasing the sales tax by a penny, to make up for the expected cuts to state education funding.
The federal House economic stimulus plan would result in $4.5 billion for California infrastructure, but this is a drop in the bucket compared to the estimated $25 billion per year needed by the state for such projects. In total, California could conceivably benefit by as much as $11 billion from the House recovery plan, nearly a third of the budget shortfall.
Meanwhile, the Governor's proposed budget measures go directly against the economic recovery agenda being promoted at the federal level.
Proposals to raise the sales tax by 1½ cents and slash the child tax credit will disproportionately affect the poor. The proposal to permanently reverse parts of the state’s landmark Mental Health Services Act (MHSA) would redirect $227 million in MHSA dollars this year and completely and permanently eliminate the state’s obligations for basic mental health services. He has also proposed adding taxes to services such as rounds of golf, auto repairs, veterinary care, amusement park and sporting event admissions, as well as appliance and furniture repairs. While some of the proposed service taxes seem reasonable, taxing car repairs is a step too far. Does the Governor have any idea how hard it already is for working families to find the money for an unexpected car repair, or how many families need a running car just to keep their jobs? Adding 10% in tax onto an already expensive but necessary car repair may result in families who can't afford the repair, and lost their employment as a result, or who have to choose to skimp on food or utility bills to pay the increased cost of car repairs. There is even talk from some Republican lawmakers about eliminating the State Commission on the Status of Women.
Although it has been suggested that Indian gaming compacts and the state lottery can raise funds to help balance the budget, gambling income isn't a sure bet. Meanwhile, the state lottery is planning to build a $185 million new headquarters, and Governor Schwarzenegger has been appointing former legislators to high-paying government jobs.
There are rumors of a budget vote planned for tomorrow, and the sooner the better, since each day without a state budget costs the state $40 million. Revenue increases, including taxes, are finally on the table for both parties in the budget talks, although not without a great deal of political maneuvering. Democratic legislators are considering a deal to institute permanent curbs on government spending to win Republican support for tax increases Republicans are insisting that a spending cap be vote-proof: If a spending cap is defeated at the polls, any agreed-upon tax increase would be rescinded, possibly with rebates for taxes collected. A hard cap would create a situation where the state would be unable to flexibly respond to future needs. And apparently the state GOP is considering censuring any Republican lawmakers who vote for new or higher taxes even though polling shows that Californians want a mixture of cuts and revenue increases, and are willing to accept new taxes to end the state's financial crisis.
Read the rest of our series on the state and national economy.
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