Analyst: More Taxes, Fewer Cuts Needed

Gov. Gray Davis’ plan to start closing the state budget gap unnecessarily spares the prison system, would cause greater harm to public schools than anticipated and relies too heavily on cuts when sensible tax hikes should also be considered, according to Legislative Analyst Elizabeth G. Hill.

Hill, who heads the Legislature’s nonpartisan research arm, critiqued the plan Monday at the Assembly’s opening budget hearing. She complimented the governor for taking an “important first step” in addressing the state’s fiscal problems and agreed that the administration’s suggestions -- primarily budget cuts -- would produce most of the $10.2 billion in savings that it seeks.

But through her comments and a written report, Hill questioned whether they are the best ways to go about it.

She offered a long list of alternatives -- many of them taxes and fees -- for closing the state’s projected $21-billion-plus budget shortfall over the next 18 months. Her report came as the governor’s staff works on a proposed budget for 2003-04, in which it will have to make up the rest of the budget gap.

Hill’s advice to ease the pain of the cuts by spreading them wider and mixing them with tax hikes was underscored by testimony Monday from the governor’s deputy finance director, Robert Miyashiro. He acknowledged 500,000 people stand to lose medical assistance under the governor’s plan -- more than twice the number indicated by the administration earlier this month.

Budget gridlock was already brewing at Monday’s hearing, which opened discussion of the issue in the Legislature. Republican lawmakers appeared to be digging in on their vow to fight new taxes, as Democrats warned that bringing the state into the black with cuts alone would have dire consequences for the poor, elderly and children.

Assemblywoman Jackie Goldberg (D-Los Angeles) asked whether the cuts Davis proposed in medical assistance already are so severe that the “incontinent, frail elderly” would not be able to pay for supplies that “keep them from being in their own waste.”

Each mention of a possible new tax on business or the wealthy was met with Republicans warning that it could further hamper the economy.

Democrats were, however, receptive to Hill’s suggestions for steeper cuts at one agency largely missing from the Davis proposal: the Department of Corrections.

“There are no meaningful reductions in the criminal justice area,” Hill said of the Davis plan, noting that changing the overtime and workers’ compensation rules for prison guards could produce substantial revenue. She also suggested discharging nonviolent parolees early, putting some elderly inmates on parole early and closing the Northern California Women’s Facility as ways to produce nearly $79 million.

The California Correctional Peace Officers Assn., the 26,000-member union representing prison guards, is one of the largest financial contributors to state lawmakers. The association has given Davis $1.4 million since he was elected to his first term in 1998.

The legislative analyst’s office holds considerable influence over lawmakers. Legislators use its reports and recommendations as a foundation for drafting laws.

Miyashiro said that Davis is not ruling out cuts in the prison system, tax hikes or anything else for his budget proposal that will be unveiled Jan. 10.

He said the plan released earlier his month was just the “opening salvo in our approach to the budget.”

Monday’s hearing kicked off a series of hearings the Assembly Budget Committee will hold across the state this week in an effort to assess the potential effects of the cuts proposed so far by Davis.

Hill used the opportunity to suggest several major tax hikes that her office proposed during last year’s budget fight that were never approved. Her report notes the state’s budget problems this time around are “much more formidable and challenging than last year’s ... because a number of the one-time solutions heavily relied upon last year are no longer available.”

Among the tax-hike proposals she rolled out Monday was restoring vehicle license fees to their 1998 levels, which could raise as much as $4.7 billion. Increasing the income tax rate for top earners would generate $2.5 billion, she said, as would a sales tax increase of half a cent.

Hill also said lawmakers could consider suspending a manufacturers’ tax credit, at a savings of $400 million. Subjecting amusement parks and other recreational facilities to sales tax could produce close to another $2.5 billion, she said.

They are all ideas Republicans have promised to fight.

Hill warned that even if such tax increases are approved, only half the money would go to balancing the budget. The rest would be forced into education unless lawmakers passed a special “urgency bill” suspending Proposition 98, which mandates about 35% of the state’s general fund for public schools.

That news comes at a time when Davis is trying to take money from education funding -- not add to it.

And the $3.8 billion Davis is proposing to cut from education this year and next, Hill warned, would not be as easily absorbed by school districts as the administration indicates. The problem, she said, is that state requirements, including class size and special education funding, limit their discretion.

Instead of “across the board” cuts to local schools, Hill proposed reducing the education budget by the same amount Davis suggested through targeted cuts to the least-essential school programs, deferring some spending until the beginning of the next fiscal year in the summer, and shifting some federal child-care funds.

The report also noted that at least $1 billion of cuts Davis has proposed may not be legal. That includes taking $500 million in affordable-housing funds generated by local property taxes away from local governments, and cutting $500 million from the state teachers’ retirement fund.