Special Session on Budget Shortfall to Convene
The Governor has called a special session of the Legislature to address the growing State Budget crisis. The special session will begin on November 6, 2008, two days after the Presidential election. Capitol sources have informed us that the legislative leaders will be urging the Governor to work toward developing a plan that can pass the Legislature before all of the members are called back to Sacramento.
Earlier this month, the director of the Department of Finance (DOF) provided a rough estimate that current-year revenues could be short by $3 billion, based on the shortfall in September, which was just under $1 billion. Following that, Senate President pro Tem Don Perata (D-Oakland) estimated that the current-year shortfall would reach $10 billion. While the Administration and the Legislature claimed credit for closing a $15.2 billion budget gap with the passage of the 2008-09 Budget, that estimate was developed in conjunction with the May Revision over five months ago, and therefore likely understates the depth of the current economic and revenue problems given the collapse of the credit and stock markets this fall.
According to an October 27, 2008, article in the Sacramento Bee, the special session will cover a number of topics, but all are related to the deterioration in the state and national economies. These topics include bridging the Budget gap, economic stimulation, job creation, easing the mortgage crisis, and shoring up the state’s unemployment insurance fund.
Of major concern to many is whether the policy standoff between legislative Republicans, who strongly oppose new taxes, and legislative Democrats, joined by the Governor, who seek additional revenues to mitigate program cuts, will continue in the special session. Recall that the current-year Budget was 85 days late because of the inability to resolve this fundamental difference in solving the Budget problem.
Unfortunately, it appears that this standoff may continue in November. Yesterday, the Republican leaders in the Legislature delivered a letter to the Governor urging him to cut taxes to stimulate the California economy. Among their recommendations were proposals to establish a tax credit for businesses that hire new employees, cut the capital gains tax, and suspend certain regulations to spur job creation.
While these proposals may, in the long run, achieve their intended purposes, it is clear that their adoption would result in an immediate loss of General Fund revenues, which would make balancing the current-year Budget all the more difficult.
—John Gray and Robert Miyashiro