Regional News

Calif. Budget Would Delay State Bond Sale

SACRAMENTO — California Gov. Jerry Brown announced Monday what he described as a draconian budget proposal to bridge a $28 billion deficit.

“What I propose will be painful and require sacrifice from every portion of California,” Brown said.

Those sacrifices will include future local redevelopment projects, if lawmakers approve Brown’s budget. Redevelopment agencies would be phased out, though existing bonds and obligations would be honored.

“I don’t want to interfere with any redevelopment bonds, or any redevelopment commitment that has been contractually entered into,” Brown said.

The 72-year-old Democrat delivered his fiscal 2012 budget proposal exactly a week after taking the oath returning him to the office he first held as a young man in the 1970s.

Brown said his budget was honest, and free of gimmicks. The proposed budget delivers cuts across a wide spectrum of programs, calling for $84.6 billion in general fund spending in fiscal 2012, down from about $92.2 billion in the current year.

At the same time, Brown’s budget plans call for asking voters to approve a five-year extension of temporary income, sales and vehicle taxes before they expire at the end of June.

The budget presumes that California will not sell general obligation bonds until the fall of 2011 — the first time since at least 1988 the state will not sell GO bonds in the spring, according to Tom Dresslar, spokesman for Treasurer Bill Lockyer, who is responsible for selling California bonds.

By not selling bonds until the autumn, California will save almost a quarter billion dollars in debt service costs for fiscal 2012, Dresslar said in an e-mail. Such a bond moratorium will not delay any public works projects that have already commenced, but could delay projects that haven’t started yet, he said.

Lockyer said Brown’s austere budget is the correct approach to dealing with the state’s seemingly intractable deficits, which have resulted in California bond ratings of A-minus from Standard & Poor’s and Fitch Ratings, and A1 from Moody’s Investors Service.

“To prevent further damage to the state’s credit rating and start restoring California’s reputation, action by the Legislature and bovernor must be timely and credible,” Lockyer said in a statement. “It’s time narrow interests took a back seat to California’s interests.”

The tax extensions, the governor said, will buy the state time it needs to restructure its finances. They would also be the starting point for what Brown described as a “vast and historic” realignment of responsibilities between the state government and local governments and agencies.

Brown plans to start by sending the funding from his proposed sales and vehicle tax extensions directly to local governments who will assume responsibility for programs currently delivered by the state.

The election should happen “as soon as possible,” Brown said. The taxes in question begin to expire after June 30.

Brown said he doesn’t want a budget adopted before that election, but he does want lawmakers to enact the spending cuts that he is proposing, to show voters Sacramento is serious about spending cuts.

It requires a two-thirds vote of the Legislature to place measures on the special election ballot, meaning votes will be needed from minority Republicans.

Republicans were quick to announce their opposition Monday.

Assembly Republican leader Connie Conway said there would be no votes from her caucus to extend the temporary taxes.

“Assembly Republicans stand united as the last line of defense for California taxpayers,” she said.

Redevelopment as currently known will come to an end if Brown has his way.

State law permits cities and counties to form redevelopment agencies to revitalize areas they designate as blighted, allowing the agencies to keep incremental property tax increases in redevelopment areas, and using that increment to back bonds sold to finance improvements in those redevelopment areas.

Redevelopment agencies received more than $4.2 billion in incremental tax revenue in 2008, and had more than $20 billion in outstanding debt, according to the California controller’s office.

Redevelopment and enterprise zones, which are also on Brown’s chopping block, don’t add to the economy, he said.

“Overall they don’t add to the general revenue of the state,” he aid. “They move money around.”

The proposal to kill redevelopment could spark a major battle in the Legislature – or the courts.

“This budget proposal to eliminate redevelopment is more budget smoke and mirrors that will bring little financial gain for the state, but will cause widespread and significant economic pain in communities throughout California,” John Shirey, executive director of the California Redevelopment Association, said in a statement Monday. “It is another gimmick that will likely result in extensive litigation.”

Brown said his administration is developing a proposal that would allow local voters to approve local economic development financing.

In the current fiscal year, the California general fund is on target to bring in about $93 billion in revenue while spending $92.5 billion.

But the state carried forward a $6 billion deficit from fiscal 2010. California is also facing the end of federal stimulus funding that brought in $17 billion over three years; the temporary state taxes that are slated to expire will bring more than $8 billion in during the current fiscal year. The Legislative Analyst’s Office projects a cumulative $28 billion structural imbalance for fiscal 2012 if no actions are taken.

Brown’s proposed actions include cuts to welfare programs, health care programs for the poor, and higher education. Brown said he won’t cut K-12 education — unless the tax extensions are not approved.

Because of a measure California voters passed in November, Proposition 25, a budget can be adopted with only a simple majority.

But it’s unclear whether the majority Democrats will want to vote for severe cuts to programs they champion.

The Senate’s Democratic leader, Darrell Steinberg, refrained Monday from criticizing social services cuts in Brown’s budget proposal.

“His budget asks the Legislature and the public to make some of the most difficult choices we have ever been asked to make,” Steinberg said in a statement. “But as unappealing and painful as the governor’s proposed budget is, the only thing worse is to allow this fiscal crisis to linger.”

He promised expedited hearings on the budget.

Brown was critical of what he described as past budget gimmicks, including the economic revenue bonds approved in 2004 to finance the deficit, as well as the deals securitizing California’s share of tobacco settlement funds in return for one-time payouts.

“Debt is a very powerful tool,” he said. “But it has to be kept in balance.”

California will spend $1.5 billion this year alone on debt service for the economic recovery bonds, according to Brown.

“If you borrow too much, you’ve got to pay the piper,” he said.



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