Schwarzenegger Unveils Budget Solution....Again

Gov. Schwarzenegger, his staff I should say (the Gov. is vacationing in Sun Valley, ID), introduced the latest iteration of his administration’s proposed fix to a state budget that is already $14 billion in the red for the current fiscal year and projected to reach $40 billion by 2010.

The main components in the new budget package include a blend of the governor’s previous proposals along with some new additions. The key provisions -

The Old:
- Temporary (yeah right) sales tax increase
- Alcohol tax increase
- New tax on oil production

The New:
- Cut dependent care tax exemption from from $309 to $103 per dependent.
- Adoption of legislative Republicans’ proposal to borrow surplus money from mental and children’s health programs. This requires voter approval.
- Carryover portion of current deficit to ’10-’11 fiscal year.
- $4.7 billion in borrowing from the private sector.

The Good:
- $15.4 billion in spending cuts

A more ambitious proposal that would deliver the sweeping reform that is needed to right the Golden State’s fiscal ship, as well as address structural budgetary problems, would have included tax and expenditure limitations that tie growth in state spending to inflation and population growth. Putting all the state's expenditures online in a searchable format would also be a step in the right direction, enabling more than 38 million California taxpayers to see how their tax dollars are spent and help identify potential savings.

ATR has repeatedly called attention to the adverse economic impact that the proposed taxes increases would have (see here, here, here, and here) but Schwarzenegger refuses to give up his push for tax increases despite the fact that the entire GOP caucus, whose votes are needed to pass a budget, has repeatedly made clear that tax hikes are off the table.

Schwarzenegger seems to continue where the Obama campaign left off as there is a heavy dose of HOPE found in his budget proposal. The $4.7 billion in proposed borrowing is contingent upon the financial market getting “much healthier than it is now” – not exactly something economists, are anyone for that matter, are predicting for the foreseeable future.

The budget package once again proves that Gov. Schwarzenegger really is the King of Wishful Thinking!