Brown Halts California Budget Talks as Republicans Balk at Tax Extension
California Governor Jerry Brown
Ken James/Bloomberg
Jerry Brown, governor of California.
Jerry Brown, governor of California. Photographer: Ken James/Bloomberg
California Governor Jerry Brown broke off negotiations with Republican lawmakers for support of a June referendum on $9.3 billion of higher taxes and fees, the cornerstone of his deficit-cutting budget plan.
Closed-door talks during the past month have failed to win over Republicans needed to put the tax issue on a statewide ballot, Brown, 72, said yesterday. While the governor’s fellow Democrats hold majorities in the Senate and the Assembly, they lack the two-thirds needed to authorize the vote. The leader of the Senate said a June referendum is now impossible.
“Much is at stake, and in the coming weeks I will focus my efforts on speaking directly to Californians and coming up with honest and real solutions to our budget crisis,” Brown said yesterday in a statement. He didn’t say how he would proceed.
The governor took office in January on a pledge to repair financial strains that have left California, the most populous U.S. state, with the lowest credit rating from Standard & Poor’s. Brown has said his plan to let voters decide whether to extend fee, sales and income tax increases set to end in June was crucial to closing a $15 billion gap in his $84.6 billion proposed budget without deep cuts to schools and public safety.
“The governor and legislative Democrats are obviously upset and lashing out at their inability to get buyoff from public-employee unions for the reforms that the public supports and Republicans think are necessary to fix California,” Senate Republican Leader Bob Dutton of Rancho Cucamonga said in a statement.
Extension Package
Brown wanted voters to pass extensions of a 0.25 percentage-point increase in personal income-tax rates; a 1 percentage-point boost in the retail-sales levy, to 8.25 percent; an increase in auto-registration fees of 0.5 percentage point, to 1.15 percent of a vehicle’s value; and a reduction of the state’s annual child tax credit to $99 from $309.
The governor had said he wanted a June election so he would know the outcome before the start of the fiscal year July 1. He has said that a rejection of the extensions would mean more spending cuts and has publicly chastised Republicans for opposing his plan to let voters choose which option to take.
“Denying the people of California the right to vote on these matters of such profound importance would be nothing less than tragic,” Brown said in a March 25 letter to Dutton.
Republican Demands
Brown proposed a statewide vote in January. Since then, Republicans have said they would block the referendum unless Democrats agreed to include a ballot measure on whether to dismantle the current government pension system and replace it with a hybrid that includes elements of a traditional defined- benefit plan and a 401(k) defined-savings account.
Republicans also sought voter approval for a cap on state spending. The limit they proposed would be based on a formula tied to inflation and population change. Republicans also wanted a referendum on rescinding environmental regulations which they say hinder business growth.
The on-again, off-again talks faltered after Republicans late last week presented a take-it-or-leave-it list of 53 demands, such as curbing teacher tenure and boosting funding for county fairs, in exchange for supporting a June ballot.
“The only thing missing from their list was a pony,” said Senate President Pro Tem Darrell Steinberg, a Democrat from Sacramento. “We would have given them a pony if it meant they would let the people have the opportunity to vote.”
Alternative Methods
The list prompted Democrats to say they were ready to abandon the negotiations and pursue alternatives such as a citizens’ petition for a vote in November or finding a way to call a special election without Republican backing.
“We will use the power of our majority to aggressively pursue a different path,” Steinberg said yesterday.
The Republican caucus in the Assembly will resist any attempt to push through a measure authorizing an election with a simple majority vote, said Sabrina Lockhart, a spokeswoman for Connie Conway of Tulare, the chamber’s top Republican. She said such a move might be illegal and would skirt the will of voters.
The delay comes as public support for the referendum has waned. A March 24 survey by the Public Policy Institute of California showed likely voters backing it fell to 51 percent compared with 66 percent in January.
A November ballot set by a citizens’ petition also likely would pit Brown’s tax extension against two initiatives sought by Republican-backed groups. One would slash government pensions and the other would limit state spending.
Cuts Made
The governor signed budget bills last week that reduced spending by $8.2 billion and shrank the deficit by another $3 billion through loans and transfers.
Controller John Chiang has warned that California may resort to paying bills with IOUs by July if lawmakers haven’t passed a deficit-closing budget by then. Treasurer Bill Lockyer has said he may not be able to sell bonds this year if the tax- extension vote is delayed until November. Both are Democrats.
Brown’s declaration of an impasse in the negotiations dims hopes for long-term progress toward aligning state revenue and spending, said Gabriel Petek, an S&P analyst in San Francisco.
California’s general-obligation debt shares a fifth-highest A1 with Illinois, the lowest state credit rating from Moody’s Investors Service. It gets an A- from S&P, the fourth-lowest investment-grade level and the worst for any state.
“It will continue to train our focus on the state’s finances, liquidity and cash position,” Petek said in a telephone interview.
To contact the reporter on this story: Michael Marois in Sacramento at mmarois@bloomberg.net
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net
Rate this Page