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Editorial

California budget deal: Once again, taxes are the stumbling block

The impasse over maintaining tax levels until voters can weigh in invites the kind of short-term budget gimmickry that's gotten Sacramento into its fiscal mess.

June 10, 2011

Democrats and Republicans in Sacramento are again closing in on a deal that would have voters decide whether to raise taxes in order to narrow the state's multibillion-dollar budget gap. There's a new hang-up, though. Because the deal wasn't struck in time to put the issue to voters this month, the state would have to hold a special election on taxes in the fall. Democrats want the Legislature to extend the taxes until then, avoiding the need to make more cuts. Republicans don't. That impasse invites the kind of short-term budget gimmickry that's gotten Sacramento into the fiscal mess it can't seem to escape.

When Gov. Jerry Brown took office, the state faced a budget gap of more than $25 billion. Brown and the Legislature agreed to more than $12 billion in cuts in March, but Democrats couldn't persuade Republicans to support the rest of Brown's proposal: asking voters to maintain sales, vehicle and income taxes at their 2010 levels for five years instead of allowing them to drop back to their 2008 levels. Although the two sides seemed close to agreeing on three key GOP demands — pension limits, a temporary cap on state spending and regulatory reform — Brown broke off the talks when Republicans sought a long list of additional concessions.

Now, as lawmakers near a similar deal, Republicans are balking at Brown's proposal to keep the higher sales and vehicle taxes in place until the special election. GOP leaders argue that the funding gap should instead be bridged by tapping a projected $6.6-billion surge in tax revenue and by pursuing one-time solutions, such as selling state buildings or borrowing more from state mental health and preschool programs.

The Republicans' approach, however, is not realistic. Nearly half of the $6.6 billion in extra revenue is required by state law to go to public education. Most of the rest is being used to cancel a $1-billion transfer from preschool programs that's being challenged in court, and to eliminate Brown's previous proposal to renew a surtax on personal incomes that expired in January. In addition, relying on asset sales and borrowing would only exacerbate the state's persistent fiscal problems rather than solve them.

The least disruptive approach would be to have the Legislature agree to a budget, including the tax hikes, without resorting to a midyear ballot measure, but neither Brown nor the GOP will support an increase without voter approval. So the next best thing is to maintain the higher rates until voters weigh in. State and local agencies will still have to make contingency plans for smaller budgets in case the ballot measure fails, but that's better than having to make painful cuts in July that prove unnecessary in the fall.

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