Jerry Brown Warns Of Further Budget Cuts If Tax Plan Doesn't Pass

12/09/2011 01:56 pm ET | Updated Feb 08, 2012

By JUDY LIN, Associated Press

SACRAMENTO, Calif. (AP) -- Gov. Jerry Brown on Thursday warned of additional automatic cuts if voters reject his tax initiative next fall, offering Californians a stark choice between higher taxes and deeper cuts to schools, universities and public safety.

Brown's spokesman, Gil Duran, posted on Twitter a quote from the governor that said, "If taxes don't pass, there will be a hole that will trigger further cuts."

The Democratic governor and state lawmakers face a $13 billion projected shortfall over the next 18 months. Analysts have already predicted the state will have to make one round of required midyear reductions to schools, universities and social services. That decision is expected next week under pre-approved cuts authorized in the current budget.

Brown wants to increase taxes on high-income earners and raise the state sales tax by half a cent, to 7.75 percent. The proposal would raise about $7 billion a year for five years.

Brown filed the measure earlier this week with the state attorney general's office. It would appear on the November 2012 ballot if supporters collect 807,615 valid voter signatures.

If voters approve Brown's plan, individuals earning from $250,000 to $300,000 would pay an additional 1 percent income tax, bringing their tax rate to 10.3 percent. Individuals earning more than $300,000 but not more than $500,000 would be taxed an additional 1.5 percent, bringing their tax rate to 10.8 percent.

Individuals earning more than $500,000 would be taxed at 11.3 percent. The income amounts double in each category for joint filers.

The income tax hike would be retroactive to January 2012 and last five years. The sales tax increase would start Jan. 1, 2013, and last four years.

Brown indicated Thursday that he would include more automatic cuts in his new budget if voters don't approve his tax measure.

Democratic leaders applauded the plan, saying the tax initiative will offer voters a clear and realistic choice about the amount they are willing to pay and the services they demand.

"It's the only intellectually honest way to do it," Assembly Speaker John Perez, D-Los Angeles, said in an interview Thursday.

It's not clear what those additional cuts might include. Brown is not expected to release his new budget until January.

Last summer, Democratic lawmakers and Brown had hoped for a $4 billion increase in tax revenue through the current fiscal year when they passed the state budget. If the revenue doesn't materialize, a pre-approved list of cuts will go into effect, starting Jan. 1.

The state would give local school districts the option of slicing another seven days off the current 175-day school year, leading to concerns about the quality of education provided in the nation's largest school system.

Among other midyear cuts: Low-income seniors and the disabled would receive less in-home care, local libraries would not receive state aid, and health providers would be paid less under Medi-Cal, the state's health care program for the poor.

Already, a report from the nonpartisan legislative analyst predicts revenue -- a majority which comes from income, sales and corporate taxes -- will run $3.7 billion less than what the state assumed.

The analyst's report was one of two revenue projections called for in the state budget. The next will be released by Dec. 15 by the governor's Department of Finance. The automatic spending cuts -- referred to as trigger cuts in the Capitol -- will be based on whichever report contains the higher revenue projections.

While tax collections for the month of November came in 9 percent above projections, the state controller's office said Thursday that tax collections remain $1 billion less than anticipated revenues for the year. The state is also spending $2 billion more than it anticipated for the year.

"Regardless of whether midyear cuts are enacted next week, the Legislature faces a tremendous fiscal challenge when it returns to session next month," Controller John Chiang said in a statement.

Also Thursday, Brown directed California state government to change its budgeting process to spot savings and efficiencies.

The governor issued an executive order saying he wants his finance department to use performance measures, strategic planning, cost-benefit analysis and a method called zero-based budgeting. That approach requires annual evaluations of all spending requests.

He asked his finance director, Ana Matosantos, to work with agency secretaries and department directors and report back in 90 days with a plan to use in the new budget. Brown's order said there should be transparency about program goals, outcomes and funding.

Matosantos said in a statement that the state has saved $120 million in the Department of Mental Health by using zero-based budgeting and is expected to save $183 million next year.

Brown said the goal was to "common sense program-evaluation methods into the budgeting process, in order to fund programs based on their necessity and effectiveness."

He said the current budgeting method focuses on incremental changes, "rather than a deeper review of a department or program."

Associated Press writer Don Thompson contributed to this report.