Dan Walters

Dan Walters: Wrangling over new state taxes

Aida Romero of Sanger demonstrates tai chi at a rally in 2013 on the state Capitol steps against proposed budget cuts for Medi-Cal, the state’s health care program for the poor.
Aida Romero of Sanger demonstrates tai chi at a rally in 2013 on the state Capitol steps against proposed budget cuts for Medi-Cal, the state’s health care program for the poor. hamezcua@sacbee.com

As the Great Recession gripped California, state revenues plummeted by 20 percent and Capitol politicians and major stakeholders battled over which programs would take the hits.

During this decade, however, a slow recovery from recession and a temporary hike in taxes approved by voters in 2012 have boosted general fund revenues from scarcely $80 billion when Jerry Brown began his second governorship in 2011 to an estimated $116 billion today.

The politics of penury were succeeded by the politics of prosperity, and in many respects they proved to be equally daunting.

At Brown’s insistence – and constitutional mandates – the bulk of the new money flowed to K-12 schools, to paying down debts and to reserves against a future downturn.

Advocates of other major budget sectors, especially health and welfare services for the poor, the elderly and the disabled, felt left out.

In the absence of another major economic turndown – which history indicates may be overdue – the flow of taxes will continue to be strong, a new report from the Legislature’s budget analyst concludes.

Legislative Analyst Mac Taylor sees revenues running about $3 billion above estimates during the current fiscal year to reach $116.3 billion, and rising to $123 billion in 2016-17 and $131.3 billion by Brown’s final budget, 2018-19. And that’s assuming that voters don’t extend the temporary taxes, an issue likely to be on the 2016 ballot.

The Capitol’s politicians already are beginning to wrangle over how the additional money will be spent.

Brown wants to continue to build reserves, so that even if there is a recession later in the decade, its effects can be cushioned. Under current law, those reserves are expected to hit $11.5 billion in 2016-17 and could reach $28.4 billion by 2019-20 – again, without a downturn.

However, many of Brown’s fellow Democrats want to loosen the purse strings.

Assembly Speaker Toni Atkins issued a laundry list that includes “funds for state costs associated with increasing the minimum wage to $15 per hour (and) meaningful new investments in developmental disability services, education ... and other critical needs.”

Voters also will pass judgment next year on a minimum wage boost because it stalled in the Legislature, and Nancy McFadden, Brown’s top aide, says a $15 wage would cost the state budget $3 billion, indicating that it will be one of 2016’s many budget issues.

The state’s strong revenue flow also could affect what voters do next year on taxes.

While the California Teachers Association and other advocates will tell voters that extending the temporary taxes on high-income taxpayers is vital to maintaining services, their opponents will contend that the state is already reaping a bounty of new revenues and doesn’t need to continue the extra levies, about $8 billion a year.

The underlying scenario will be much different from the fiscal crisis of 2012 and will compel tax advocates to devise a more nuanced message.

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