Expert: 'circus' tricks used to balance budget
BY ANNE BURKE
UCLA Today Staff
Gov. Arnold Schwarzenegger and the Legislature’s first joint
effort at setting California’s fiscal house in order resulted
in some remarkable feats that included a “triple flip”
to pay for a voter-approved bond issue and a “backflip”
to make up for lost revenue from vehicle license fees, the UCLA
Anderson Forecast’s Michael Bazdarich said in a recently released
review.
The so-called triple flip was set in motion when Schwarzenegger
persuaded California voters to approve a $15-billion deficit-plugging
bond issue, Bazdarich, a senior economist with the forecast, wrote
in a report titled, “The Circus Is Back in Town: More on the
State’s Budget Crisis."
The bonds were supposed to be paid through a .25% sales tax levy,
but rather than raise the state sales tax, Sacramento took .25%
of the 1.5% of sales taxes that goes to local governments, the economist
noted. That was the first “flip.”
The second occurred when Sacramento compensated local governments
for the lost sales tax revenue by dipping into property tax revenues
that would have gone to public schools. The acrobatic stunt was
complete when the state designated General Fund outlays to compensate
K-12 schools for lost property tax revenues, according to Bazdarich.
Bazdarich’s colorful assessment of Schwarzenegger’s
first foray into the world of California budget politics was released
Dec. 8 as part of the quarterly Anderson Forecast, one of the most
widely watched and often-cited economic outlooks for California
and the nation.
Bazdarich said the triple flip is not the first time Sacramento
has “given away revenues not its own.” To compensate
local governments for revenue lost when Schwarzenegger lowered the
vehicle license fee, Sacramento turned to property taxes, Bazdarich
explained. But since the state doesn’t “own” property
tax revenues, the funds will be diverted from flows currently going
to public schools, he wrote.
“In effect, [vehicle license fee] cuts will be paid for ....
out of the K-12 education budget portion, the same as with the Deficit
Finance Bond debt service,” Bazdarich explained.
In comparison to the Schwarzenegger administration’s acrobatics,
Bazdarich said that budget wrangling under former Gov. Gray Davis
resembled a flea circus because there were “lots of appearances
of action, but nothing much really going on.”
The forecast predicts that the California economy will grow at
a slightly slower pace in 2005 and that the deceleration looks to
continue into 2006. Next year, personal income growth will slow
to 5.2% from this year’s 5.6%, and taxable sales will drop
under 5% from 2004’s 6%, according to the forecast’s
senior economist, Christopher Thornberg.
Still, California can expect a “solid but not spectacular”
year in 2005, Thornberg said. Payroll employment growth, at .8%
this year, will rise by 1.6% in 2005. But trouble could be brewing
in 2006 because of an expected plunge in consumer spending on homes
and durables, said Edward Leamer, who directs the forecast.
With political considerations precluding cuts in spending and Schwarzenegger
firmly opposed to new taxes, the state budget situation remains
“out of control,” Thornberg wrote.
“Of course, the idea of ‘no new taxes’ when the
state is running a deficit is an oxymoron,” Thornberg added.
“All the financing done to make up the gap through borrowing
is only taxes deferred, not taxes avoided.”
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