Taxable Talk

The analysis is out and California has another Bad Budget™. Let’s see what’s in this “Let’s Defer to Tomorrow What We Don’t Want to Address Today” piece of cheese:

1. The budget assumes $5.4 billion in federal funds.  That seems fine until you realize that only $1.3 billion is likely to make its way here.  Well, that’s only a $4.1 billion difference.
2. The budget assumes that tax revenues will be higher than anyone in Sacramento (other than the people writing the budget) have projected.  Think of a rosy forecast, and then think best case of rosiness, then…well, you get the idea.  Let’s add another $2 billion of overage.
3. There’s cuts to state workers and schools.  Well, that might be good except the way the budget is written these cuts must be paid back.  That’s probably another $5 billion or so.
4. The budget assumes state workers will agree to major cuts in pensions.  Well, there’s probably no choice in that regard–the cuts pretty much have to happen.  Still, what if they don’t agree?  Contracts are contracts.

And the pension issue is particularly ugly, as Steven Greenhut reported in today’s Register. My educated guess is that the new governor will be facing a $30 billion deficit when he or she takes office. That’s a lot of money.

…No one knows what’s in it.

AP and the Sacramento Bee are reporting that a budget deal has been reached.

Assembly Republican Leader Martin Garrick (R-Carlsbad) released a statement stating, “Legislative leaders and the Governor have finally reached an agreement on a no-tax budget that protects California jobs. Staff will be drafting the budget language and bills in the coming days, and we plan to have a public hearing on Wednesday and a vote on Thursday.”

The devil is in the details, of course, so we’ll have to wait until next week to see what’s changing. I’ll keep you updated.

Ethel Merman sang about how appealing show business is. She wouldn’t be singing about how good California’s budget situation is. There’s basically nothing to report. In theory, there will be negotiations tomorrow (October 1st), but I remain pessimistic. There’s no reason to think anything will be swell or that anything will come up roses. Governor Schwarzenegger wants pension reform, and that’s attack on Democrats’ core constituency (public employee unions).

Meanwhile, there’s no word about what legislation (if any) Governor Schwarzenegger signed today…the theoretical deadline for him to sign or veto legislation.

On a lighter note, here’s the late Ms. Merman singing her signature song:

There’s no budget, but negotiations are scheduled to continue tomorrow. This story in the San Jose Mercury leads me to believe we’re still a couple of days away from an agreement, and likely at least a week from a vote.

This poses a dilemma for Governor Schwarzenegger: what to do with all the bills the legislature approved this year. Will he sign anything on or before September 30th (Thursday), or will he veto everything if there’s no budget? Governor Schwarzenegger isn’t commenting at all, but suspicions among individuals attending the CSEA Board meeting this past weekend is that one reason for the movement this past week was a likely veiled threat from Governor Schwarzenegger: Give me a budget that I like or all of your bills will be vetoed.

News reports state that a “framework for a budget deal has been reached” and that the Big Five (Governor Schwarzenegger and the Democratic and Republican legislative leaders) plan on working through the weekend to hammer out the details. The goal is to announce the budget on Monday with votes on the budget happening in early to mid-October.

No specifics were released, and while I hope a budget will be hammered out I’m less hopeful than others. The devil is always in the details…and those details don’t yet exist.

California doesn’t have a budget. When I return home from Sacramento on Sunday, California will not have a budget. It’s probable that when we vote in the mid-term elections in 40 days that California will not have a budget. Why is that?

Democrats complain that the reason is that Republicans are being intransigent; they are demanding cut, cut, cut to programs that can’t be cut any more; the only solution is that “some” taxes must go up (along with a whole lot of smoke and mirrors and a little bit of budget cutting).

Republicans say enough. Spending in California has grown massively; regulations have grown immensely; the only solution is cutting spending. Republicans say they won’t vote for one penny of new taxes. As I’ve said before it’s the unstoppable force meeting the immovable object.

However, there’s a hidden reality that’s known to both sides: The people–you know, those pesky voters like us–have said no to new taxes three times over the last two years. It’s quite apparent given the mood in the country that they’d say no again if asked. The Democrats are well aware that they will have to enact cuts.

The problem is that these cuts will now hit the Democrats’ core constituency: unions, especially public employee unions. Salaries, pensions, and the number of employees will be going down. Democrats don’t dare enact a new budget (that is, one that can pass the legislature) before Election Day; that would anger their constituents. Who cares that it’s costing California $50 million a day? If Democrats vote for what their constituents don’t like, they might be out of a job.

Supposedly, legislative leaders will be meeting with Governor Schwarzenegger tomorrow, but don’t hold your breath. My guess is that the budget will not be signed into law until November.

Why am I heading to Sacramento? The annual liaison meeting between California’s tax agencies (BOE, EDD, and FTB) and the California Society of Enrolled Agents (CSEA) and the quarterly Board of Directors meeting of CSEA.

There’s nothing new to report on the California budget. The unstoppable force has collided with the immovable object, and nothing’s happening for now. California Controller John Chiang is warning that he will soon be forced to issue registered warrants (aka IOUs).

This brings up an interesting issue. Assume you’re a California taxpayer (or a professional who prepares California tax returns). You’re waiting for that last Schedule K-1 to file Aunt Hilda’s tax return. However, that K-1 won’t be in your hands until September 20th or so. Aunt Hilda’s going to get a large California refund; the amount of the refund won’t change based on the K-a. Should you file the return now (and amend the return to report the K-1 when you receive it) so that Aunt Hilda can get her refund before California starts to issue IOUs, or should you wait?

Normally, it’s almost always correct to wait: You don’t want to amend a return unless you have to. However, if Aunt Hilda needs her money it may be right to file that return today so that she can get the refund (rather than an IOU). This is especially true if you believe that the K-1 won’t have an impact on the final numbers of her return.

One thing is certain, though: The budget mess will start to have an impact on many Californians soon. It will be interesting to see if that forces a change on either the unstoppable force or the immovable object.

Earlier this week Governor Schwarzenegger told an audience in Silicon Valley, “There’s a good shot that we will have a budget in the next two to three weeks.” The Democrats are proposing an increase in the income tax (and a smaller decrease in sales taxes) to close the $19 billion deficit. Republicans in the legislature are opposed. There must be Republican support in order for a budget to pass the legislature (it takes a two-thirds vote to pass the budget). In fact, Republican legislative leaders consider the current proposal a non-starter.

There have been no budget talks and none are scheduled.

I can only conclude that the Governor is using extremely wishful thinking. As of now, there’s no sign that the budget stalemate will end any time soon. Indeed, October is far more likely than August as to the month the stalemate ends.

The results for California’s first month of the new fiscal year (July, for 2010-2011) are in, and they’re not pretty. “California still lacks a 2010-11 state budget but its deficit is already widening as revenue falls below official forecasts and spending runs above expectations, Controller John Chiang said today,” per the Sacramento Bee.

But you need to look at the actual numbers to really see the problem. Revenues (aka taxes) came in just 1.9% under expectations. However, disbursements (aka expenses) were 12.6% higher than expected.

As I keep saying: It’s time to massively cut spending. Pensions need to be cut for government workers, and scandals like that in Bell need to end. We need a small government in Sacramento, and a decrease in regulations.

Of course, the Democrats in Sacramento are currently considering imposing regulations on grocery bags. It’s 42 days without a budget (beyond the constitutional deadline) and they’re debating about “Paper, or Plastic?”

I return home from my vacation and it’s as if I’ve never left. There’s no progress in the California budget situation. There have been no talks, and there’s nothing scheduled.

The Democrats did unveil a new budget plan last week. Governor Schwarzenegger called the plan “DOA.”

The only other news that came out last week is that Controller John Chiang warned that IOUs would begin to be issued in August rather than September if a budget isn’t passed this month. That seems a certainty at this point.