Hector Amezcua / hamezcua@sacbee.com

Gov. Jerry Brown on Tuesday monitors early returns on Proposition 30. Voters approved the tax measure 54 percent to 46 percent.

Prop. 30 win gives Democrats cash they've sought for budget woes

Published: Thursday, Nov. 8, 2012 - 12:00 am | Page 1A
Last Modified: Saturday, Jul. 13, 2013 - 2:28 pm

One of the darkest hours of California's budget dysfunction came in February 2009, when lawmakers slumbered on chairs and under desks in the Capitol as leaders attempted to break a stalemate through physical exhaustion.

Gov. Jerry Brown and fellow Democrats hoped Wednesday that such days were long behind them after voters approved more than $6 billion in annual tax increases and appeared to put their party in the historic position of having two-thirds control of both houses.

In the short term, the passage of Proposition 30 has the greatest impact on state spending. K-12 districts will not eliminate weeks out of the current school year as had been discussed.

The University of California will hold tuition level through the year, while the California State University system will issue $250 refunds for the fall semester and lower tuition by the same amount in the spring.

Voter approval of Proposition 30 also averted cuts to services for the developmentally disabled, park rangers and lifeguards.

Proposition 30, which passed 54 percent to 46 percent, will provide several billion dollars annually for the state budget through 2018-19 by raising income taxes on top earners and sales taxes by a quarter-cent on the dollar.

Because of the tax increases and an expected improvement in the economy, state general fund revenues are projected to grow 16.5 percent, from $95.9 billion to $113.6 billion, over the next three fiscal years.

Voters also approved a corporate tax measure, Proposition 39, to raise an additional $1 billion for the state budget and clean energy programs annually.

It remains unclear whether the cash infusion will simply allow the state to hold the line or also begin reversing cuts made since the recession began.

Either way, virtually every constituency that has faced reductions is expected to lobby for more money.

That means Medi-Cal subscribers who lost dental care, in-home care workers who lost hours and low-income college students who faced grant cuts. It means K-12 school districts that want to shrink class sizes and restore a week of school.

"There will probably be some pent-up pressure from policy advocates related to the cuts they've made," said Gabriel Petek, a California analyst with ratings agency Standard & Poor's.

Education lobbyist Bob Blattner said K-12 districts are likely to respond based on their own needs. One district may hire teachers and reduce some class sizes. Another may extend the school year. And another may focus on pre-kindergarten or after-school programs.

While state universities are holding the line on tuition this year, there is no promise they will continue to do so. Lt. Gov. Gavin Newsom last month told KGO radio that Brown was being less than honest with college-age voters because UC and CSU will likely have to consider tuition hikes in 2013-14, albeit smaller than would have otherwise been the case.

But Assembly Speaker John A. Pérez already said Wednesday that he wants to revive his plan to cut tuition for middle-class families, an idea pegged at several hundred million dollars earlier this year.

Despite an expected influx in tax dollars, the state could still face deficits if projections fall short, past cuts don't save enough money or programs grow.

Already, it appears state leaders were too optimistic in projecting $1.9 billion in taxes from the Facebook initial stock offering this year, banking on a $35-per-share price through November. The company's stock has hovered around $20 since August.

From all revenue sources, the state took in $379 million less than expected through September, about 2 percent off the mark.

California revenues are notoriously difficult to predict because the state relies heavily on income taxes, particularly from wealthy earners who have volatile investments. That difficulty grew with Proposition 30 because the initiative relies mostly on higher income taxes on the top 1 percent of earners.

"I don't think they're out of the woods yet and they could be facing a small structural deficit again," said Jeff Cummings, a Fresno State University political science professor who has studied past California budget gridlock.

Nonetheless, Petek observed Wednesday that Proposition 30 "improved (California's) credit position, period." The simple fact that the state has additional money means it has a greater ability to repay loans, which helps its credit rating.

Senate President Pro Tem Darrell Steinberg and Brown nodded Wednesday to overhauling the state's tax system. Steinberg specifically referred to lowering the state sales tax but extending it to services – an idea proposed by a blue-ribbon panel under former Gov. Arnold Schwarzenegger but met with opposition from special interests.

Republicans are skeptical that Democrats, with a two-thirds supermajority, can avoid spending all of the new money they take in.

"It gives the majority party absolute leeway to decide how it wants to solve the problem," said Michael Genest, a Republican who served as Department of Finance director under Schwarzenegger. "But they haven't found great inclination to make profound progress in the areas of Medi-Cal, pensions and retiree health care. And those are very expensive and fast-growing costs."

Brown tried to control expectations Wednesday and douse the notion that the majority party would be profligate, saying the new money "will be used prudently and judiciously." He said he would prevent Democrats from raising taxes without another vote of the people, a campaign pledge he made in 2010. Steinberg sounded the same theme, saying he doesn't intend to seek a tax hike after voters just approved two tax initiatives.

"This is not instant coffee here," Brown said. "This takes time and effort. But over the next few years we're on a correct glide path."

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