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Assembly Speaker Pérez Introduces Alternative Budget Solutions, Proposal Provides $5.8 Billion More To Schools

By Vernon Billy - May 27, 2010

In a surprise move, Assembly Speaker John Pérez introduced an alternative budget solutions package that essentially sells $9 billion in bonds to Wall Street bankers and securitizes those bonds with funds from the California Beverage Recycling Fund (CBR). 

In addition to the $9 billion in bond funding, the Speaker proposes additional revenue that includes:

  1. $1.2 billion (approx.) in new oil production taxes,
  2. Increasing the alcohol tax,
  3. Suspending $2.1 billion in corporate tax breaks, and
  4. A $500 million loan from the Disability Insurance Fund.

The technical aspects of how these proposals interact with each other may be a little confusing, but the bottom line is that the state would issue a $9 billion bond and then use the approximately $600 million from the CBR to payoff the bond.  The loss of revenue from the CBR would be backfilled with the new tax on oil production.

Another, more political aspect of the proposal, would institute an additional tax swap between state and local taxes and shifting funds from local governments to schools.  This swap would only require a majority vote approval and avoid the need for Democrats to secure Republican votes to pass the proposal.

For K-12, the Speaker is proposing to use some of the new revenue to do the following:

  1. Avoid the Governor’s proposal to cut district and county office of education revenue limits by $1.5 billion and $28 million respectively.
  2. Provide $1.3 billion in mandate payments.
  3. Rejecting the $207 million negative COLA reduction proposed by the governor.
  4. Provide $51 million for the Emergency Repair Program.
  5. Provide $500 million towards paying down the deficit factor.
  6. Rejecting the Governor’s May Revise proposal to eliminate Prop 98 child care funding.

While the Speaker should be given an “A” for effort, his plan is wrought with challenges.  The first challenge being its political viability.  Part of the Speaker’s plan does require a two-thirds vote, which ostensibly requires Republican support which does not appear to be forthcoming anytime soon.

The next major challenge for the Speaker’s plan is that for all practical purposes, the bulk of the revenue that it generates is one-time in nature.  These one-time funds would artificially inflate the Proposition 98 minimum guarantee without the needed ongoing revenue stream to fund it.  As a result, the K-12 funding provided under the plan would be in jeopardy in the subsequent budget year. 

The Speaker’s plan is intended to help stimulate and stabilize jobs, which in turn would help maintain the state’s tax revenue stream and help avoid additional job losses. 

Critics of the plan argue that the short-term benefits of the plan do not outweigh the long-term costs.  This, of course, depends on one’s vantage point. Since all can agree that the state budget and revenues are cyclical, waiting out and avoiding drastic cuts that may cause irreparable damage to public education and the social safety net, may not be a bad strategy.

The Governor’s office has reportedly already blasted the plan and Republicans in the legislature continue their opposition to any new taxes.  It should be noted, however, that this Governor has used the exact same strategy himself to buy time and to resolve the budget problem temporarily.

Given the same ‘ol lines in the sand are being drawn, we don’t expect this budget fight to be resolved quickly.

Editor's Note:  Vernon M. Billy is president of Governmental Solutions Group, LLC (GSG) a Sacramento-based consulting and legislative advocacy firm. GSG serves public and private education organizations, non-profit organizations and private sector companies.