September 19, 2008

Legislature to Vote Tonight on New Budget Compromise

Both Houses of the Legislature will begin work at 4:00 p.m. today on the latest State Budget Compromise.  The Legislature had approved a budget by the required 2/3 vote in the wee hours of Tuesday morning only to have the Governor threaten to veto it on Wednesday.  While legislative leadership spoke publicly about their ability to override the threatened veto with another 2/3 vote, there were concerns about the ability of Republicans to back some components of an override and about the impact to state programs and residents if the Budget were further delayed.

Throughout yesterday and today, legislative and executive staff and members have been meeting to develop a compromise.  What is expected to be voted on tonight is the same total budget of $104.3 billion with $58.1 billion for education.  The budget includes $93 billion in tax revenues and $2 billion in fines and fees.  The balance of the revenue is provided by $9 billion in accelerated tax collections and other accounting shifts. 

Changes that were made in order to gain the Governor’s support for the budget include the elimination of the $400 million tax amnesty provision; elimination of the increased payroll withholdings/subsequent tax refund; and a reduction in the budget reserve from $1.2 billion to $900 million. 

To make up for the approximately $1.5 billion in revenue timing adjustments is a doubling of the 10% penalty on corporations that underpay income taxes by $1 million or more.   In addition, the Governor insisted on increasing the amount of the “rainy day” fund and tightening the definition of when funds could be used for “fiscal emergencies”.  Funds under the Governor’s version can only be moved out by the Governor when revenue growth falls below the previous year, adjusted for growth in inflation and population.

The new budget still depends on two major provisions that must be approved by the voters in a special election.  First, is the proposal to securitize the lottery allowing the state to borrow against future lottery profits – this will have to be voted on in a special election whose timing is yet to be determined.  Second, are the rainy day fund changes to the State’s Constitution.

~Ernest Silva