Governor Schwarzenegger To Call Special Session on Budget

Governor Schwarzenegger announced this past Thursday that he will declare a fiscal emergency and call an emergency session of the incoming Legislature to address the state’s enormous budget deficit.  The session is scheduled to begin on December 6, 2010, the same day incoming members are sworn into office.
 
The Governor’s announcement comes just a day after the state’s Legislative Analyst’s Office (LAO) revealed that California will face a $25.4 billion budget deficit.  The Governor’s hope is that the special session can help to address the estimated $6.1 billion shortfall in the current budget, passed by the outgoing class of legislators just 34 days ago.
 
Governor-elect Jerry Brown, who will be sworn into office in January, has stated that he believes the special session “underscores the enormous challenges facing the state.”  He also stated that he has been working with his transition team since the day after the election to address the state’s budget problems.
 
It is unclear what the incoming Legislature could accomplish in just a month.  LAO Analyst Mac Taylor urged deep spending cuts and a multiyear budget cycle to rein in California's structural deficit.
 
He also proposed other solutions, including:

  • Modifying or eliminating several tax programs special credits, deductions and exemptions that the LAO said provide subsidies to certain groups of individuals "in ways that often have not been shown to be cost-effective."
  • Increasing charges to beneficiaries of state programs, such as community college students.
  • Extending the temporary sales and income tax increases enacted last year that are set to expire during the current fiscal year, leaving a budget hole of more than $8 billion.
  • Retaining the increase in the vehicle license fee and reduction in the dependent-exemption credit.
  • Re-examining corporate tax provisions such as the single-sales factor, which allows multistate companies to avoid paying some California taxes.
  • Extending state employee furloughs or personal leave programs.
  • Delaying lower-priority bond-financed infrastructure projects

At this point, anything is on the table for discussion.  Unfortunately, this means the business community is going to have to play defense against potential proposals.  In the past, the business community has been successful in defeating proposals such as mandatory withholdings for independent contractors.  It is very likely that we will see proposals similar to that in the coming months.
 
Stay tuned….

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