In late February 2009, the California state budget for the fiscal year 2008/2009 was passed. This budget was the most delinquent budget in the history of California. Its delay placed the state in the position of not being able to pay its bills for a couple of months and having to issue IOUs. Unlike previous budgets that covered periods of one year each, this one covers the eighteen-month period from July 1, 2008 through December 31, 2009. According to the legislators that I talked with (some having served in the legislature for more than ten years), this was the most difficult budget they have ever dealt with. The main reason for the difficulty was that California was facing its largest deficit in its history. Negotiations regarding the new budget began similarly to those in prior years with the Democrats desiring to fill the budget gap with new tax dollars and the Republicans wanting to fill it by cutting social programs and other services and/or by borrowing against the future. This year, unlike others, both parties ran into a virtual dead end. The deficit was so high that neither party’s plan would work. Although it seems that the need for compromise should have been apparent from the start, it appears that legislators from both parties either failed to or chose to not recognize this need until very late in the process. When I talked with Assembly Speaker Karen Bass in late July (2008), she anticipated having a budget by mid-September. Although Speaker Bass said it was a tough budget year, she seems to have underestimated the degree of difficulty that would be encountered. On August 20, 2008, after months of negotiation by the Legislature, Gov. Schwarzenegger recognized the seriousness of the legislators’ inability to compromise and decided to offer a compromise of his own. His plan included spending cuts, temporary tax increases, non-tax revenue enhancements, borrowing (by securitization of the lottery) and an economic stimulus package to kick-start the economy. There was something for everybody. The plan was quickly criticized by legislators of both parties still not willing to compromise. Finally, six months later, a compromise was reached between the “Big 5” (consisting of the Governor and four legislative leaders) which, not too surprisingly, included spending cuts, temporary tax increases, non-tax revenue enhancements, borrowing from the lottery and an economic stimulus package. Voter approval Due to current laws, some of the items in the budget (primarily tax increases and borrowing) must be approved by the voters to become effective. This is what Propositions 1A through 1E are all about. Now that California finally has a budget (resulting from a heavily negotiated compromise by legislators of both parties) and the propositions are coming to a vote in order to complete the process, the California Republican Party (“CRP”) has decided to oppose all of the ballot propositions without offering a practical alternative. The California Democratic Party (“CDP”) was split but did not oppose any of the propositions. They stayed neutral on 1A, 1D and 1E and supported 1B and 1C. It will be interesting to see what voters do on May 19 since the results of this election could be an indicator of the outcome of the next California gubernatorial election. If California voters pass all of propositions 1A through 1E, it would seem that the only Republican candidate that would have a chance to win the election is former U.S. Representative and California Finance Director Tom Campbell. Of the three announced Republican gubernatorial candidates, Tom Campbell is the only one supporting the majority of the propositions. Insurance Commissioner Steve Poizner is opposing all of the propositions and former e-Bay Chief Executive Meg Whitman is opposing the majority of them. The passage of the propositions probably won’t have much impact on the Democratic candidates however, if all propositions fail, The failure could have significant impact. Of the three Democratic candidates, former Governor Jerry Brown and Los Angeles Mayor Antonio Villaraigosa are both supporting all of the propositions whereas San Francisco Mayor Gavin Newsom is supporting only propositions 1A and 1B. Whatever the outcome of the May 19th elections, let’s hope that enough people vote so that the decisions are made by a true representative sample of the voting population. It would be a real shame if the future of our state is decided by a small number of voters consisting of a lopsided sample. Gregory N. Lippe, CPA, is Managing Partner of the Woodland Hills-based CPA Firm of Lippe, Hellie, Hoffer & Allison, LLP, Chairman of the Valley Industry and Commerce Association (VICA) and a Director of First Commerce Bank.
