Based on initial reviews, the revised state budget unveiled by
Gov. Gray Davis Wednesday appears to be easier on the cities of
Morgan Hill and Gilroy, local school districts and Santa Clara
County than the version the governor released in January.
Based on initial reviews, the revised state budget unveiled by Gov. Gray Davis Wednesday appears to be easier on the cities of Morgan Hill and Gilroy, local school districts and Santa Clara County than the version the governor released in January.
However, with more conflict expected in the state Legislature before its passage, officials are cautioning that nothing is certain.
“As far as what he’s doing to us at this point in time, it’s really not where we’re looking,” District 1 County Supervisor Don Gage said Thursday. “We’re looking for the final budget – that’s where we know a lot the services … are getting cut.”
Jack Dilles, Morgan Hill’s finance director, tried to be positive about the impact on city services.
“It’s not as bad as it could have been,” he said Thursday.
While Morgan Hill will be affected along with the rest of California cities and counties, the $101,289,097 city budget for fiscal year 2003-04, released Wednesday, includes a reserve of more than $10 million that could be used to cushion state cuts.
Saying the state’s fiscal crisis has deepened in recent months, Davis revised his budget Wednesday to seek higher taxes on tobacco, cars, consumer products and the wealthy, while also planning to borrow more than $10 billion to finance part of the state deficit.
Partisan divisions formed almost immediately after Davis released his plan, and since California is one of the few states that require the budget to be passed by a two-thirds majority, those divisions could mean a tough future for Davis’ proposal.
Republican Senate leader Jim Brulte of Rancho Cucamonga said Republicans “are willing to negotiate on anything except taxes. We don’t think raising taxes is the answer.”
Assembly Speaker Herb Wesson, D-Culver City, said he supports most of Davis’ plan but said even higher taxes are necessary and that Republicans aren’t ready to compromise.
The $95.8 billion spending plan Davis sent to the Legislature differs greatly from his January budget proposal, which relied more heavily on program cuts to eliminate California’s record shortfall.
Although the Legislature has trimmed some spending in recent weeks and tax collections are slightly lower than expected, the administration now believes the deficit is closer to $38 billion because of increases in spending.
To close the widening gap, Davis would raise $8.3 billion in new taxes this year, including a hike in the car tax and a half-cent increase in the state sales tax.
“This is something we must do if we want to right the state’s financial ship,” Davis said.
The hike in the car tax, or Vehicle License Fee, would potentially ease one of the biggest fears of local governments.
In January, Davis proposed yanking compensatory payments the state makes to local governments to make up for a 1998 cut to the license fee during flusher times.
The move drew fire from local officials statewide. For Morgan Hill, Davis’ initial VLF cuts would have meant the loss of approximately $1.4 million annually of the city’s $16.5 million general fund. Gilroy, under Davis’ initial cuts would have lost $1.8 million annually of the city’s approximate $34 million general fund. For Santa Clara County, officials estimated it would have drained $85 million against the $1.8 billion county general fund.
But Davis’ revised budget counts on the automatic restoration of the 1998 cut, which would bring in about $4 billion a year by hiking the cost to the average driver by an extra $130 a year. State attorneys have said that the car tax can be raised without a vote of the Legislature if cash reserves fall low enough.
Morgan Hill’s Mayor Dennis Kennedy, Council members Hedy Chang and Greg Sellers and City Manager Ed Tewes were in Sacramento Thursday, learning about the budget revise.
“The message we heard today is mixed,” said Kennedy. “I do want to stress that this is a two-year budget cycle,” he said. “And the $34 billion deficit is a two-year deficit. It’s going to be tough (to get the budget passed) but, I see movement on both sides of the aisle.”
Having local VLF revenues stay intact is “great” for the city, said Gilroy City Councilman Charlie Morales. “As far as our city goes, which I’m very concerned about, I think it will keep us in the level of services that we’re offering (for) public safety.”
However, city and county officials believe in the short term they could still stand to lose some money depending on how the VLF proposal would be implemented. Officials said there could be a gap next year where local governments temporarily don’t receive the revenues – which could mean a $250,000 hit for the city and potentially tens of millions for the county.
The governor’s proposal cast an eye on Redevelopment Agency funding too. Davis wants to take more than $250 million from these agencies used to help spur economic development and urban renewal projects particularly including affordable housing.
The city of Gilroy escaped further harm because – for better or worse – it does not have an RDA. Morgan Hill does. Dilles said Morgan Hill’s program is “impacted, but not threatened”. The city stands to lose $1.9 million but, even so, Dilles said the program may emerge relatively unscathed by short-term borrowing and careful prioritizing.Meanwhile, a Davis plan to pass on the costs of major health and welfare programs to cities and counties with little corresponding financial support has also been altered.
Instead, the governor wants to shift a smaller number of programs to local governments and support them with $1.8 billion in new money from a 23-cent-a-pack increase in cigarette taxes and a higher income tax bracket for the state’s top wage earners.
Less responsibility for new programs means less of a problem – but whether the tobacco and income tax revenues will meet expenses for those that are transferred remains to be seen, said Gary Graves, a deputy county executive who specializes in budget issues.
California smokers now pay 87 cents per pack in cigarettes taxes. That would rise to $1.10 per pack in July and to $1.50 a pack in July 2004. The higher income taxes would be paid by singles earning more than $150,000 a year and married couples who earn more than $300,000.
Davis’s proposed sales-tax hike comes at a time when officials at the county’s bus and transit agency are also considering a bid to increase the sales tax – among other potential remedies – for an unprecedented deficit.
But the governor has also restored funding he had threatened to pull from the Williamson Act, a state program that uses property tax relief to help protect agriculture and open space.
The governor called his budget a compromise that can win bipartisan support in the Legislature, although it features higher taxes that Republicans have vowed to oppose.
By financing $10.7 billion of the deficit, Davis is planning to put more money in favored programs, such as education. His new plan continues the popular $1.7 billion program to reduce the number of students in each classroom.
Proposed cuts to school spending were not as severe as educators feared, but schools will still be expected to make about $2 billion in sacrifices.
School officials are still waiting to see what will really come out of Sacramento.
“We’re guardedly optimistic about the impact from revised budget but it’s not a completed package,” cautioned Carolyn McKennan, Morgan Hill School District superintendent. “It hasn’t been adopted by the Legislature. It appears that the governor has acknowledged that education is a top priority.
”However, we’ve gone through tremendous grief. There are lots of folks who won’t be working for us next year. There have been lots of hearings and money spent on reducing staff across California. Add up what that has cost us statewide … .”
MHSD trustee, Mike Hickey, was less optimistic.
“I don’t know what the hard numbers are going to be,” he said. “Those that are in charge at the state level are very excited. I guess I have a problem when you’re counting on gambling and cigarettes to come up with the funds that we need.
“We have to do something. I think we should tell Keenan to go to those prisons and ask some of those death row inmates about taking early retirement. I think it’s going to be back next year. This (revise) brings a lot of false hopes, people thinking, ‘Oh now we don’t have to make any of these cuts.’ It‘s kind of a stay for a year. I see us being right back again.”
Community colleges would take a smaller hit than the governor proposed in January and will share with K-12 schools an additional $700 million. Both the University of California and the California State University have also been spared deeper cuts.
Davis said the higher sales taxes would end when the bonds are paid off.
