Matthew Renda

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November 15, 2012
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California budget deficit shrinks to $1.9B with taxes

SACRAMENTO — A nonpartisan legislative analyst says California is facing a much smaller deficit of $1.9 billion through the end of the next fiscal year and could even see surpluses over the next few years, prompting a variety of responses across the Nevada County political spectrum.

The Legislative Analyst’s Office (LOA) Wednesday released a positive but cautious forecast for the state, a week after Californians approved Gov. Jerry Brown’s sales and income tax initiative, according to the Associated Press. Analyst Mac Taylor says California is at a “promising moment” that could mark the end of a decade of budget deficits.

He projects a much smaller deficit of $1.9 billion for the 2013 fiscal year, compared to the $15.7 billion deficit lawmakers faced earlier this year.

The analyst’s report projects a surplus starting in 2014, thanks partly to Brown’s tax initiative, the state’s economic recovery and previous budget cuts.

Assemblyman Dan Logue, R-Chico, who currently represents western Nevada County at the state level said that purported economic recovery is based on rosy projections that do not align with reality.

“We’re headed for an economic meltdown,” said Logue, citing impending defense cuts, which he said will affect the many related industries based in California, AB32 or the cap-and-trade market which will further imperil small business and the new federal health care system, known as Obamacare, which Logue said will add another drain on small business.

“California has turned the business community into ATM machines,” Logue said, saying the LOA is basing its numbers on an economic recovery that will not happen.

In the 1990s, severe defense cuts cost California about a half million jobs, according to the San Francisco Chronicle. While California as a whole is less dependent on the defense industry hundreds of thousands of jobs are at stake.

“At some point the federal government is going to have to address a $1.6 trillion deficit and Obama will look at defense,” Logue said.

The Golden State currently boasts the fourth-highest unemployment rate, Logue said.

Jim Firth, chair of the Nevada County Democratic Central Committee, diverged from Logue’s interpretation, praising Gov. Brown and his ability to solve state’s large financial troubles.

“When Jerry Brown was elected governor, he said he would put the fiscal house in order,” Firth said. “Given the amount of problems, it seems like he is doing a really good job. He is well on his way toward accomplishing his goal.”

Firth said the budget should not be an issue because California has a robust economy that includes multiple industries including manufacturing and agriculture.

“Given the amount of components to our economy, it should come back,” Firth said.

On Wednesday, the governor said the analyst’s report validated his administration’s work these past two years to reduce spending, streamline departments and make government more efficient.

“We’ve had cuts. We’ve had a lot of cuts. And with Proposition 30 we have some revenue. ... Together it puts the state in a very solid position for a sustainable balanced budget for years to come,” Brown told reporters at appearance at a UC Board of Regents meeting.

The governor said he would like to see the state exercise fiscal discipline, pay down our debts and build a rainy day fund. “We’re not out of the woods yet,” he said.

The analyst’s report projects a surplus starting in 2014, thanks partly to Brown’s tax initiative, the state’s economic recovery and previous budget cuts, but he cautioned that the forecast is dependent upon a continuing steady economic recovery and strict spending controls by the governor and Legislature.

Brown, a Democrat, bet big this November by asking voters to approve Proposition 30, which raises the statewide sales tax by a quarter cent and boosts income taxes on the wealthy to help solve the state’s ongoing deficit. Voters, particularly minorities and those between the ages of 18 and 29, agreed.

The tax hikes are expected to provide an additional $6 billion a year for the state and deliver on a campaign promise Brown made two years ago to fix the state’s perpetual budget deficits and to raise taxes only if voters approved.

Proposition 30 raises the statewide sales tax to 7.5 percent for four years and income taxes rates to between 10.3 and 12.3 percent for seven years on income over $250,000 a year. The credit rating agencies Standard & Poor’s and Moody’s signaled their approval of the state’s financial picture after it passed.

Voters also approved more taxes under Proposition 39, which closes a corporate tax loophole and is projected to raise about $1 billion a year.

The $91.3 billion budget lawmakers approved last summer called for about $6 billion in automatic cuts to K-12 schools and universities if the initiative failed.

According to the state finance department, tax revenues have largely been on pace with the state’s budget projections. Overall, revenues are $176 million below forecast, but October revenues came in $208 million above the month’s forecast.

To contact Staff Writer Matthew Renda, email or call (530) 477-4239.

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The Union Updated Nov 16, 2012 12:07PM Published Nov 16, 2012 07:48AM Copyright 2012 The Union. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.