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Pérez vows fiscal discipline from Democrats

The Assembly speaker won't rush to spend a tax windfall and proposes a new rainy-day reserve to stash money

May 06, 2013|George Skelton | Capitol Journal
  • Assembly Speaker John Pérez, right, confers with Assemblyman Roger Hernandez (D–West Covina), as the Assembly debated Perez's measure to close a corporate tax loophole in August 2012.
Assembly Speaker John Pérez, right, confers with Assemblyman Roger… (Rich Pedroncelli, Associated…)

SACRAMENTO — Speaker John Pérez wants voters to know something: Cash may be cascading into state coffers as it hasn't for years. Democrats may totally control the Assembly with a new supermajority. But they're not going to be drunken sailors.

They're going to be disciplined and conservative, at least by Democratic standards.

Pérez, 43, a Los Angeles Democrat and former labor leader, invited me into his ornate Capitol office last week to get the word out.

"It shouldn't — but it may — surprise folks that Democrats with our supermajority will be looking to build on the fiscal responsibility that we've shown the last couple of years," the speaker said right off.

Actually, the Legislature whacked programs for five years because of the recession. The state no longer is spending more than it's taking in. But it's in the hole nearly $28 billion because of debt accumulated to make ends meet during the years of budget crises. And Pérez would like to pay some of that down.

Gov. Jerry Brown next week will submit a revised budget proposal for the fiscal year starting July 1. The Legislature must pass a spending plan by June 15 to keep getting paid.

In January, the governor proposed a $146-billion budget, including $98 billion for the key general fund. Since then, unanticipated money has been flowing into the treasury as the economy recovers. Personal income tax payments are running about $4.5 billion higher than projected.

But Pérez says there'll be little if any restoration of previous spending that was chopped, despite pressure from labor, healthcare and welfare lobbies.

"We don't have endless amounts of money," the speaker asserts.

In fact, Pérez intends to push for creation of an un-liberal-like savings account, a "rainy-day" reserve to stash dollars for use in stormy economic times.

The idea would be to prevent the Legislature from falling back into its old nasty habit of spending one-time money on new programs or tax cuts — and then getting stuck with red ink when the economy slumps.

"The best time to do this is right now, in proximity to our worst economic crisis," Pérez says. "The memory is recent enough that we can act smart enough and not replicate the mistakes of our past."

Pérez would target the state's most volatile revenue: taxes on capital gains, the villain of boom-and-bust budgeting. He'd transfer the capital gains take that exceeded 6.5% of general fund revenue into the rainy-day reserve.

The state already has a rainy-day fund, supposedly, but it's empty and has only been contributed to twice since Gov. Arnold Schwarzenegger created it in 2004. Presumably under Pérez's plan, the fund no longer could be ignored. And he'd double the size from 5% of general fund revenue to 10%.

The Legislature would place the proposal on the November 2014 ballot.

But wait! Schwarzenegger and the Legislature previously agreed on a new rainy-day fund three years ago. It was supposed to go on the 2012 ballot. Democrats pulled it off until 2014. They really don't like that version, regarding it as a flawed spending cap. So Pérez is offering an alternative.

Although the speaker is promising fiscal prudence, he'll continue to push hard for a major new spending program: hefty scholarships for middle-class college students. That's not necessarily contradictory, because he'd use a new funding source: revenue generated by closing a corporate loophole under Proposition 39, approved by voters last November.

Prop. 39 is expected to raise around $900 million. Half will be spent on retrofitting public buildings with renewable energy. The other half is headed into the general fund. Pérez wants to use all the latter money for scholarships.

He'd relieve tuition costs by up to 40% for students not poor enough to qualify for Cal Grant financial aid, but not rich enough to easily absorb the escalating fees of recent years. Students from families with incomes of less than $150,000 would qualify.

"Families in the middle got squeezed" by the soaring tuition, Pérez says. "You had families who saved up their whole lives to send their kids to college. They did everything we ask of parents. Then because of the budget crisis, fees were increased by 150% to 200% and many families had no way to prepare for it."

So scholarships are Pérez's priority. All three major players in the Capitol have one. Each is laying his on the negotiating table, and it probably will frame the makings of a budget deal.

Senate leader Darrell Steinberg (D-Sacramento) is demanding more emphasis on career tech, formerly called vocational ed.

The governor has his Robin Hood scheme to redistribute education funds, pouring more money into inner-city schools at the expense of the suburbs. He wants to spend significantly more on poor children and English learners.

Pérez says he agrees with that concept but finds "significant shortcomings" in Brown's proposal.

The governor would earmark the extra money for districts with heavy concentrations of disadvantaged students. Pérez and Steinberg think that all disadvantaged kids should benefit, regardless of whether they live in poor, middle-class or affluent communities.

Moreover, Pérez says, "increased school funding alone won't be enough to give [disadvantaged] students a fair shot at success and joining the middle class." He advocates spending education money on quality preschool.

"I still have my Head Start diploma," Pérez says. "There was an expectation of a certain amount of parental involvement." A good education, he asserts, "absolutely begins at home."

Pérez is preaching a practical and responsible budget. He's pledging fiscal restraint by Democrats. It will be interesting to see how they act.

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