California's fiscal year begins on the 1st of July. The Governor is mandated to present the Legislature with a projected budget by 10th January, and the Legislature to approve a budget by 15th June. A two-thirds majority is necessary to approve the budget in the Legislature. In November 2010, voters voted on Proposition 25, a ballot measure that would bring down the vote threshold from two-thirds, in order that legislators could approve budgets with a simple majority.
On December 6 the year 2010, the then Governor Arnold Schwarzenegger called the legislature into particular session. He proposed a rigor agenda that would do away with state welfare and child-care plans, eliminate cash allowance to the elderly and disabled, and reduce vision coverage for children in receipt of government-subsidized healthcare because the state faces about $6.1-billion shortfall in the current fiscal year and a projected $25.4-billion deficit over the next year and a half.
On October 8, 2010, the California state passed an 86.6 billion dollar state budget. This announcement came in 100 days late which is the latest it has ever been. To many this was no surprise because for the past 24 years, it is the 23rd time the legislature has missed the deadline of the budget. The state is facing an estimated 25.4 billion dollar budget gap. In fact, some financial experts have ranked California as being in the most terrible financial condition. Its total state debt comes to around 290.8 billion dollars when calculated by adding up the 2010 budget gap, unemployment trust funds, OPEB UAAL's, pension and the total of outstanding debt.
The legislature approved the $86.6 billion general finance budget on the 8th October 2010, 100 days after the beginning of Fiscal Year 2011. In spite of the passage of the budget, several days afterward the leader of Senate announced that he would seek to amend the same budget when a new governor would take office, in 2011. Darrell Steinberg stated that his foremost priority after a new governor takes office the following year would be to bring back the nearly $1 billion in social services reductions that were implemented as part of the Fiscal Year 2011 budget. A number of the 21 bills that make up the budget were not published and made available to the general public before it could go to vote.
The budget also comprises of a pension reform provision on which Governor Schwarzenegger had be resolute, meaning that state workers hired after Nov. 1 2010, will collect lower pensions than persons currently on the payroll (Hemmila).
The revenue approximations in the budget is $1.4 billion extra because it uses estimations from the nonpartisan Legislative Analyst's Office rather than the Department of Finance. This budget keeps $1.2 billion in postponing the corporate net operating loss tax deduction. Revenue profits are to some extent reduced by three particular corporate tax reductions that will cost the state $118 million. Also, the budget did not embrace the Democrat's proposed tax swap. This budget added up $1.9 billion from loans and transfers from specific finances and bond debt savings as income, also assumed one billion dollars from the sale of 11 state-owned buildings that the state plans to lease back.
It also purportedly helps save the state an incredible $1.4 billion with a deferral of a corporate duty break for 2 years that lets businesses to subtract losses in one year from taxes they pay in the next. Additional sources have stated that the budget takes account of the assumption of $5 billion in federal resources, and $10 billion in loans from Wall Street. The budget contains $1 billion more in spending than the preceding year, which experts mentioned is possible owing to an increase in revenue. Governor Schwarzenegger planned asking for 2 billion dollars from the Public Employees' Retirement System of California as an advance aligned with future savings from intended pension cuts to help close the gap of the state's budget shortfall.
For the next Fiscal Year 2012, the new governor Brown and the legislature have brought down the initial 26.6 billion dollar budget gap by 11.2 billion dollars for the, mostly through budget cuts. Projections illustrate that the Fiscal Year 2011 budget will produce a deficit of at least 10 billion dollars, which is more than 11 percent of state spending in the Fiscal Year 2012. Early this month, reports of unexpected 2 billion dollars in tax revenue, complicated negotiations provoking Republicans to state that the governor's proposed tax increases are uncalled for. Democrats responded that the increased revenue is not certain to last. The governor holds that the most reasonable means to stabilize state funds is by harmonizing tax increases and spending reductions.
The governor failed to meet his self-imposed time limit for a budget deal since unrelenting negotiated with senators belonging to Republican for nearly 3 more weeks to the elimination of alternative budget stratagems before finally admitting that they could not come to agreement on the tax measure essential to his budget. Governor Brown will release an efficient budget plan in midway. After it was apparent that the governor was not winning over the much needed Republicans, Senate leader Darrell Steinberg, stated that he would rather have the lawmakers pass billions in tax expansions, which then the governor could enact into law and evade a public vote.
The legislature dealt with the state's shortfall by reducing expenditure for libraries by half, and cutting support to colleges and universities, child care, programs for the poor and state parks. It also approved a proposal to move tens of thousands of convicts from state penitentiaries to local jails. With the cuts and taxes, state would use up 84.6 billion dollars from the general fund in the governor's planned budget the.
The governor wishes to use a particular election on the 7th of June 2011, ahead of the constitutional deadline of June 15 for the Legislature to mail the governor a budget, then they will ask the people of California to vote to lengthen tax hikes that the legislature passed two years ago for an additional five year. Those tax hikes comprise of a 0.25% add to in the state personal income tax, a decrease of the state's child tax credit to $99 from $309, a 0.5% raise in the vehicle licensing fee to 1.15% of a vehicle's value and raising the retail sales tax by 1% to 8.25%.
For election to happen, the Legislature had to be active by the end of March. On the 2nd of Feb, when there had been slight action by the legislature, Governor Brown cautioned GOP policymaker against hampering a referendum that would let voters to settle on extended income, sales and car duties to help close a 25-billion dollar budget deficit. The Governor pointed out that if the taxes were not approved he would press on for the full 25 billion dollars in budget cuts. Public-sector unions, such as the California Teachers Association, showed they would cover payments for the media campaign in favor of passage for the taxes.
In this month of May 2011, officials announced surprising 2 billion dollars in tax revenue, which is taken as an indication that the state's financial system is making improvements despite the huge budget shortfall. The state of California has the second highest debit per capita for general duty borrowing at $2,362 per individual and according to a number of calculations the overall balance per capita is $19,800. The National Conference of State Legislatures in Dec. 2010 stated that the state was facing a midyear deficit of $6.128 billion, which is a representation of 6.6 percent of the Fiscal Year 2011 state budget (California state budget).
We California residents now have to cope with tax increases and spending cuts after getting knocked terribly hard over the past year by declining property prices and the recession. In this year's budget, we will be required to give as much as $13 billion in new taxes. Meanwhile, state expenditure, reduced by $15 billion in the next seventeen months, including $8.6 billion from the public education system.
A wide range of Californians will feel the sting. Some economists stated that the plan to stabilize the state budget mandatory by law will crash the poor, and slam the middle class as well. According to California's Legislative Analyst's Office, for a family unit earning $150,000, the tax increases will nearly eliminate the 800 dollars-per-couple tax debit in the stimulus package President Barack Obama signed. The state taxation arrangement and the federal credit work against each other, according to Legislative Analyst Mac Taylor.
The budget proposed to raise the sales tax by 1 percentage point, and 0.25% addition to state income taxes. A raise in the vehicle-license fee to 1.15 percent from 0.65 percent signified an incredible submission for the then governor Mr. Schwarzenegger. He won the 2003 elections after campaigning to reduce the so-called car tax, and this he accomplished after taking office.
One sector that was seriously affected is Education. Public Policy Institute reported that numerous schools have by now done away with physical-education tutors or cut programs. However, the education cuts were certainly felt when school districts were required to mail out layoff notices to their staffs. Higher education cuts have made life harder for especially students at the twenty three campus California State-owned University, which faced new cuts in addition to $386 million, in reductions the previous year.
Not all programs are crying out though these include some corporations and California's prison system. The new budget did not cut prison funding, and the spending plan also included $700 million in tax breaks for giant corporations (Wager).
The budget forces ordinary Californians like me to tighten our belts at a period when the state is suffering one of its nastiest recessions in decades. In addition to being upset by the overall national slowdown, the state of California has been hit harder than the majority of states by the housing crash. Some homes have lost their original value by almost half over the past few years. In December 2010, unemployment went up by almost doubled the number from 5.9% one year earlier to 9.3%.
Since the state's economy is so immense and diverse, most economists strongly believe it will recover from this hole. But because of the budget deal, they note it may rebound more slowly. They also suppose that a cut in state expenditure will upshot in even fewer jobs while a raise in taxes can only further discourage consumer expenditure (Woo and Scheck).
When the Legislature drafts a plan to bring the budget back into steadiness, it should let following essential components be part of its approach:
- Taking Action Early. Each month of deferred action in dealing with the new budget gap means that several savings loose opportunities. Taking action starting by the next couple of months would also aid ensure that the state continues to meet its cash flow necessities.
- Focusing on durable measures. The budget problems we are facing are long term in nature; hence, needs long-term solutions. The Legislature should center on dealings that have ongoing impacts.
- Making Hard Decisions Priorities. The range of the near-term and prospect budget gaps is so vast that the policymakers will need to make considerable reductions in all key state programs, in the coming months or years.
- Take account of Revenue alternatives. In the same way, the Legislature prioritizes its spending obligations it should do the same with the revenues. Through tax deductions, special credits, and exemptions, the state offers subsidies to various groups or persons in means that time and again have not been revealed to be cost-efficient.
Their alteration or elimination increases revenues without having to increase trivial tax rates. The Legislature should also seek to raise fees in those instances where the costs of state programs presently sustained by the General Fund can fittingly be shifted to specific beneficiaries. However, the state's fiscal situation is so terrible that the Legislature may also have to revert to the tax hikes that are set to come to an end by 2010-2011. The most excellent candidate for addition would be the vehicle license charge, where a fine policy case can be made to tax vehicles at a rate comparable to all other assets, and the exemption credit, where the present level is more dependable with the practice of approximately all other states. In the figures, the legislature is not likely to level the budget into stability without addition revenues to the mix.
- Assertively search for New Federal support. Just as the state is facing crushing fiscal troubles, so does our federal government. All the same, if the federal government does not lengthen relief for state financial support of Medicaid and other health and social services agendas, California may be obligated to cut these programs further just as the economic starts to take an upturn. If the federal government could extend just its relief of the federal medical aid percentage and relief for Temporary Assistance for Needy Families, both essentials of the stimulus act, it could assist the state settle $2.5 billion of its 2010-11 deficit and as much $5 billion of its 2011-12 projected shortfall. Additional federal measures could help the state run its prisons, education, and unemployment insurance programs at a lower cost to the state. To have been able to reflect on such possible savings in the 2010-2011 budget, California leaders needed to persuade the federal government to endorse changes within the following six months.
- Not to rule out trying the Ballot. The Legislature has the alternative of using an election, presenting a more clear-cut package of budget flexibility, letting the voters choose for themselves what is best. Alternatives also include redirecting revenues away from Proposition 10 that is early childhood development, Proposition 49 which are after school programs and Proposition 63 which relate to mental health (The 2010-11 Budget: California's Fiscal Outlook).
Before I embarked on a research for this paper, I had no idea that our budget took such a vigorous process to prepare. Also, I did not quite comprehend the depth of the financial crisis our state if facing nor how that affect the residents of California, my family and me. I am much more informed now after completing the research than I was before. I am aware of my right to review the budget proposal and share my thoughts on it as a free citizen of the state. I'm also familiar with the process, and I understand why the budget may sometimes not be signed on time. I now clearly comprehend some of the issues the sate faces and how it tries to overcome them. I intend to continue doing more research with all the resources available to me in order to keep myself updated on yourself of the decisions made by our State Public Leaders and how they affect us.