Californias long-term finances still shaky

By Dan Walters

Were Gov. Jerry Brown's deficit workout plan to become reality, its spending cuts and additional revenues would probably bring the California state budget into balance for at least a few years ― but the fiscal picture then becomes much cloudier.

As a two-house budget conference committee convened last week, Democrats concentrated on short-term aspects, particularly health and welfare cuts, while Republicans asked questions about the longer term that went largely unanswered.

The most important piece is a five-year extension of temporary income, sales and car taxes enacted two years ago. With other revenue moves, they would fill about half of the projected gap between income and outgo.

Republicans are refusing to place tax extensions before voters, and Brown publicly castigated them Thursday in a rare gubernatorial appearance before the conference committee. He dubbed it a "moment of truth" and called their refusal "not American, it's not acceptable, and it's not loyalty to California."

Whether a tax election deal eventually emerges is uncertain. But assuming it does and voters extend the taxes, what then?

Under Brown's plan, the sales and car taxes ― $5.9 billion in 2011-12 and growing beyond $7 billion by 2015 ― would flow to county governments to finance some public safety and mental health programs that would be shifted from the state in a move called realignment. The additional income taxes ― $1.9 billion in 2011-12 and growing ― would be dedicated to the schools.

County officials are leery about realignment since the program shifts would be permanent while the dedicated revenues would be temporary. Brown promises also to ask voters for a still-unwritten constitutional amendment guaranteeing counties' realignment funds after the taxes expire.

The schools' guaranteed financing, meanwhile, is already fixed in the constitution. It would increase with the income tax extension, which also would expire after five years.

"Do we have a long-term projection of where we will be (when taxes expire)?" Assemblywoman Diane Harkey, R-Dana Point, asked Michael Cohen, chief deputy finance director.

He replied ― rather lamely ― that the administration hopes "the state revenues will be there," adding, "We'll have had five years to make additional adjustments … five years of stability."

As Harkey implied, however, a constitutional realignment guarantee and the constitution's school financing provisions would create $10 billion-plus in annual spending mandates that the state likely could not finance without raising taxes again, even if the economy rebounds sharply ― which is by no means certain.

Making permanent spending commitments based on one-time or temporary revenues is how California slid into this mess in the first place.

Doing it again would be downright stupid.

Dan Walters is a columnist for Sacramento Bee. He can be reached at dwalters@sacbee.com. For back columns, visit www.sacbee.com/walters.