Spending cuts, tax vote at heart of California budget plan

SAN FRANCISCO (Reuters) - California Governor Jerry Brown will urge lawmakers to support cuts to welfare, health and higher education spending and call on them to back his plan to ask voters to raise taxes to close a state budget gap that may reach $28 billion, according to media accounts on Sunday.

Newly sworn California Governor Jerry Brown addresses the audience during his inauguration in Sacramento, California January 3, 2011. Photo taken January 3, 2011. REUTERS/Robert Durell

A spokesman for Brown declined to confirm details of the state budget plan the governor will unveil on Monday. But details attributed to sources familiar with plan are in line with public statements by Brown on the need to embrace austerity to tackle the state’s massive budget gap.

During his January 3 inaugural speech, the 72-year-old Democrat said he planned a “tough budget for tough times.”

Brown must close a $6 billion gap for the current fiscal year and an estimated $19 billion shortfall for the fiscal year beginning in July. Tax moves by the U.S. Congress could widen the deficit by another $3 billion.

His budget plan will be closely watched by the $2.8 trillion U.S. municipal bond market. California, the most populous state, is the market’s biggest issuer of debt and currently shares with Illinois Moody’s Investor Service’s lowest state general obligation credit rating of A1.

According to media accounts, Brown’s plan will be thick with spending cuts, not unlike budget proposals in recent years by his predecessor, Republican Governor Arnold Schwarzenegger.

The cuts have come in response to the steep dive in the state’s revenue caused by California’s housing market crash, recession, financial market turmoil and widespread job losses that slashed key revenue from personal income taxes.

Schwarzenegger and lawmakers agreed in October to an $86.6 billion general fund budget, down more than 15 percent from three years earlier. At $28 billion over the next 18 months, California’s deficit represents roughly a third of the state’s current budget.


Brown, who this month began his third term as governor after two terms in the 1970s and 1980s, will urge lawmakers to restrict who is eligible for welfare, how much they may receive in public assistance and how long they may get it.

Health spending will be pared by cutting back on doctor visits allowed those in state medical programs and requiring co-payments. State universities are targeted for spending cuts along with parks, courts and other public services.

To raise revenue, Brown will propose scrapping tax breaks for businesses in enterprise zones along with hundreds of redevelopment agencies established to improve blighted areas.

Brown will also ask voters to approve an extension of temporary increases despite their overwhelming rejection last year of a tax measure.

Fellow Democrats who control the legislature will be pressed by allies in the state’s powerful public employee unions to resist spending cuts and back tax increases.

Meanwhile, Brown needs Republican votes to put a tax measure to a statewide vote and members of the legislature’s minority already are under pressure to reject that.

Influential conservative activist Grover Norquist sent letters on Thursday to Republican lawmakers in California who had signed an anti-tax pledge telling them that “Voting to send tax increases to the ballot would violate the Taxpayer Protection Pledge, a written commitment that you made to your constituents to ‘oppose any and all efforts to raise taxes’.”

Reporting by Jim Christie; Editing by Jackie Frank