Column: Here comes the hard part for Gov. Newsom -- and California
The job is about to get a lot tougher for Gov. Gavin Newsom. He faces the certainty of whacking government services while raising taxes.
Newsom hasn’t uttered the feared “T” word publicly that I know of. But jacking state taxes even higher in infamously tax-burdened California is inevitable.
Every governor who has faced a significant budget deficit for the last 60 years has reluctantly hiked taxes.
The COVID-19 pandemic — and the collapsed economy it created when many businesses were ordered closed and people told to stay home — will also force the governor and Legislature to cut services. It’s at the very time that increasing numbers of afflicted or laid-off Californians need assistance most.
Until now, Newsom has flourished politically in the crisis. His performances in daily online briefings have portrayed him as a leader in the public’s eyes. In a recent poll of California voters, his job approval rating had climbed to an astonishing 70%.
Now comes the hard part. He’s facing a budget deficit that his Finance Department estimates at $54.3 billion. That’s a colossal hole of red ink. In January he proposed a $222-billion budget for the fiscal year starting July 1.
That initial budget “is no longer operational,” Newsom says. Like, no kidding. He’ll offer a revised one on Thursday.
Steep taxes and deep cuts are the two main tools available to repair a bleeding state budget. There also are other tools, none of which can do the job by themselves.
Fortunately there’s roughly $22 billion stashed as a reserve and surplus, but it won’t last long.
Newsom and other governors are pleading for more federal help. President Trump doesn’t sound enthusiastic. But Democratic House Speaker Nancy Pelosi of San Francisco has been pressing for $1 trillion to send states and local governments.
The governor could cut the pay of top state administrators. That wouldn’t save a ton, but it would show that the Newsom administration is willing to share in the financial sacrifice.
“There’s always a line of people standing up to be a department director,” says David Doerr, chief tax consultant for the California Taxpayers Assn. For decades, he was chief consultant for the state Assembly Revenue and Taxation Committee and is generally considered Sacramento’s top tax guru.
In a budget balancing brawl, Doerr says, “the first thing you look for is accounting ‘reform,’ which is a nice way to say ‘gimmicks.’ [Gov.] Jerry Brown reversed most of them. So use them again.”
Money can be “borrowed” or pilfered from special funds — such as truck weight fee and fishing license stashes — to help bolster the general fund, the state’s main checking account.
“It’s not a good policy move,” Doerr concedes. “But what are you going to do in this kind of situation? You can’t let the state go under.”
Doerr says he would offer a tax amnesty program. There’s bound to be lots of people who owe the state back taxes with mounting stiff penalties they can’t afford to pay. Forgive the penalties for a short period and entice them to pay merely the delinquent taxes.
“Use the slogan, ‘Get to us before we get to you,’” the Cal Tax consultant says.
“There also are probably some programs around that were good once upon a time, but things have changed in the last 50 years,” Doerr says. Bury them.
That’s no doubt correct. But everybody who opposes tax hikes — and that’s practically anyone who’d have to pay the levies themselves — bellows about fabled “waste, fraud and abuse.”
In 2004, new Gov. Arnold Schwarzenegger announced he would “blow up the boxes” of bureaucracy. But his fuse fizzled. He appointed a task force that recommended eliminating more than 100 boards and commissions and abolishing 12,000 state jobs. Little came of it.
Doerr’s formula for digging out of a deficit hole: “One-third revenue, one-third cuts, one-third accounting reform/gimmicks….
“You have to have taxes…. It takes leadership.”
Attorney Steve Merksamer, who runs a successful law and lobbying firm in Sacramento and was Gov. George Deukmejian’s chief of staff, says: “Every governor who had a fiscal crisis has raised taxes. That’s what we did, but we got lucky.”
In 1983, Republican Deukmejian agreed to a “trigger tax.” If the economy continued to slump, that would trigger a sales tax hike. But it rebounded and the tax wasn’t needed.
Brown’s father, Democrat Pat Brown, also faced a deficit in 1959 and raised taxes a record amount his first year as governor.
Pat Brown gimmicked the accounting system to escape raising taxes again before Republican Ronald Reagan ousted him in 1966. But Reagan then was drenched in red ink and had to raise taxes steeply.
Freshman Republican Gov. Pete Wilson faced a monstrous black hole one-third the size of his general fund in 1991. He filled the gap half with spending cuts, half with tax hikes and lectured Republican lawmakers that they were bleeping “irrelevant” if they didn’t vote for the taxes.
Schwarzenegger finally agreed to a huge tax increase in 2009 as the Great Recession shredded the budget. But voters repealed half of it.
Then Brown, facing a $27-billion deficit, went to the ballot with an initiative to tax mainly rich people. That sounded good to the middle class.
Newsom and legislators must choose their poison by June 15, the constitutional deadline for budget passage.
Get ready for howls of public protest, political demagoguery and falling Newsom job ratings.
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