Dan Walters

Opinion: California tax bonanza becomes a big problem

Gov. Jerry Brown unveils the 2015-2016 state budget at the Capitol on Jan. 9, 2015.
Gov. Jerry Brown unveils the 2015-2016 state budget at the Capitol on Jan. 9, 2015. The Sacramento Bee file

Every state budget cycle has its own narrative, but this year’s version is in a class by itself.

An expanding state economy and a temporary sales and income tax increase are flooding the state treasury with money, at least $4-plus billion more than the current budget assumes, and maybe even $5-plus billion.

Through April – the big month for personal income taxes – extra revenue topped $3 billion, and another larger-than-anticipated surge is expected in June, when quarterly income tax payments are due.

There’s so much money that how to spend it is becoming a political problem.

The state constitution may require that virtually all of it would go to K-12 schools and community colleges, be used to pay down debts, or be diverted into reserves.

However, advocates of health and welfare services for the poor, an earned-income tax credit for low-income workers, and higher education have been agitating for a share of the bounty and have support from Democratic legislators.

Those Democrats are hoping that revenue will be strong enough to accommodate at least some of their priorities.

Legislative Analyst Mac Taylor says budget laws also could be manipulated to free up some of the extra money to satisfy those demands, but Gov. Jerry Brown shows no inclination to do so.

Taylor also has been warning that under some circumstances, not only would the constitution require virtually all of the money go to schools, reserves and debt reduction but that those commitments could even require cuts in other programs in the 2015-16 fiscal year and beyond.

All of these scenarios are kicking around in anticipation of what its denizens call – ungrammatically – the “May revise” next week.

That’s when Brown will give the Legislature an amended version of the 2015-16 budget that he first proposed four months ago, including updated revenue numbers and his take on how they should be spent.

If the past is a guide, he and his budget team will minimize the revenue surge, maximize commitments to schools, reserves and debt repayment, and perhaps assign some of the new money to previous fiscal years under the state’s complex “accrual” accounting system.

Brown has preached belt-and-suspenders prudence, warning legislators that making big new spending commitments could prove disastrous if the economy once again falters.

Brown clearly hopes to end his second governorship four years hence with the state’s budget still in the black and just as clearly fears that another recession could undermine that hope.

The big surge in state revenue has another political dimension as well.

Were it to continue into 2016, it could undermine efforts of unions and other pro-spending groups to persuade voters to extend, or even make permanent, the temporary tax increases and impose other new taxes.

Call The Bee’s Dan Walters, (916) 321-1195. Back columns, sacbee.com/dan-walters. Follow him on Twitter @WaltersBee.

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