Wednesday, January 9, 2008

The Governor's Budget Plans

Governor Schwarzenegger used his State of the State address to propose a state constitutional amendment he calls the Budget Stabilization Act, which would enable the executive branch to cut state spending on its own authority without having to go back to the legislature. As the Sacramento Bee describes it:

The governor's plan would trigger automatic cuts if the Department of Finance determines the state is facing a deficit in November, January or June of each year. If the deficit is 1 percent or less, state agencies would have to cut costs by 2 percent. If the deficit is more than 1 percent, agencies would have to cut by 5 percent.

Based on advice he received from President Clinton, who used a similar mechanism in Arkansas, Schwarzenegger has proposed that the Legislature establish a list of cuts in advance that the state would have to install anytime it incurs a deficit.

The governor plans to declare a fiscal emergency on Thursday, and unveil a more detailed budget plan then. While the governor has said he won't raise taxes, the Los Angeles Times reports he plans to impose new fees on residential and business insurance bills to raise money for firefighting:
The plan, which the insurance industry has agreed to support, would cost California property owners and renters $12.50 for every $1,000 in insurance premiums, for a projected $125 million.
The administration describes the levy as a fee and not a tax. A tax would require approval from a two-thirds majority in the legislature, while a fee only requires majority approval.
The charge would be added to an existing 2.35% premium tax on property insurance policies. That tax, which is not earmarked for any particular program, generated $216 million for the state budget in 2006, according to the Department of Insurance.
The governor has indicated he will propose across-the-board cuts; we will know more after his proposal tomorrow. The CSU has not fared well in previous budget crises. From CFA's news release:
During the previous budget crisis, the CSU was cut by a half billion dollars. The state universities never recovered that lost funding so in inflation-adjusted dollars, the CSU budget remains below the 2002 level. As a result, the CSU turned away eligible students, cut classes, and increased class size, all of which resulted in longer times to graduation. Most importantly, these cuts threatened the faculty’s ability to offer quality education.

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