Tuesday, April 9, 2013

Proposition 30 and fiscal stability in California

In January 2013, the Governor of the State of California, Jerry Brown presented budget without deficit. This is the first time that the state has no deficit since 2007. Moreover, this is the first time California has ever forecasted surpluses over the future since 1990. The deficit has been particularly tremendous after the global financial crisis. The state’s deficit since 2008 is shown below.


The Governor’s major agenda has been fixing the state’s perpetual deficit and restoring the governmental revenue and further boost the economy. Last year, Jerry Brown proposed Proposition 30, which raises statewide sales tax for four years and income taxes for seven years on those who make more than $250,000 annually. Brown stated that it will ensure fiscal stability in California after the state government has struggled with deficit for 5 years due to economic recession. The voters put their trust on Governor Brown approving Proposition 30. 55.4% of voters voted 'Yes' on proposition 30. It will provide $6 billion to balance the state budget. The surge of revenue will lead the state governments to avoid deep cuts to public school and further increase of tuition at Californian universities and colleges.[2]

 It is great news for many Californians, especially the disadvantaged who desperately need fund from the state government. The revenue structure change by Proposition 30 seems turn the budget into surplus successfully. Thegovernment expects $98.5 billion in revenues and transfers. It plans to spend $97.7 billion according to the state Department of Finance. [3] That leads surplus of $851 million on top of a projected $785 million surplus for the current fiscal year. The Governor promised to prioritize spending on neediest people such as students from low income families and people with disability.

Spending for schools
First of all, Governor Brown plans to change ways of funding to schools. Although the base amount will be identical, the expenditure will increase for districts where students from low income families study, especially ones who have English deficiency or are in foster care. Overall, the funding for K-12 schools and community colleges will increase up to $56.2 billion from $53.6 billion in the current year.

Spending for higher education
The Governor promised $125 million funding to both University of California and California State University systems. However, the leaders of the universities did not welcome his budget because it is less than what they had asked. Particularly, the leaders of University of California system warned that they would increase tuition if the funding did not meet their requirement. A Democrat Speaker from Los Angeles, John Perez rebuked the leaders saying; “They have no ability to come back and talk to us next year about their budget if they take the money we gave them this year as an increase and then decide to do something that makes college more expensive for students in the way of fee increases”

Pros and Cons
Overall, the revenue structure change by Proposition 30 achieved fiscal stability in the state of California. This change led the government to appropriate adequate revenue to fund to public schools, health care and higher education. The state’s top fiscal analyst, Mac Taylor said Jerry Brown suggested sound budget because the revenues and expenditure are roughly in balance.[4] In addition, a journalist Nan Bresmer suggested that Proposition 30 would not only prevent cut to schools and public safety, but also protect health and human services for disadvantaged groups.[5]

However, there is also argument against Proposition 30. Some argues that the government should focus on growing economy to create jobs, cut waste and reform budget process rather than changing the revenue structure in a way to increase taxes. Furthermore, they also assert that it is more important to reform the education or pension system than tax hike. There is no guarantee that the raised sales and income taxes improve schools and other social services.

[1] http://www.sfgate.com/politics/article/Jerry-Brown-California-s-deficit-is-gone-4183371.php
[2] http://www.huffingtonpost.com/2012/11/07/jerry-browns-tax_n_2090335.html
[3] http://www.huffingtonpost.com/2013/01/10/california-budget-surplus-2013_n_2450349.html
[4] http://www.sacbee.com/2013/01/15/5114727/legislative-analyst-embraces-jerry.html
[5] http://www.dailynews.com/opinions/ci_21871390/pro-con-proposition-30-will-measure-save-state

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