Courage Needed to Battle Structural Deficit GUEST COLUMN By Gregory N. Lippe In September 1970, a new hit song “Ball of Confusion” made its debut on the album “Temptations Greatest Hits II.” The following lyrics describe the pervasive feelings of confusion at that time: Fear in the air, tension everywhere, unemployment rising fast and the only safe place to live is on an Indian reservation. Politicians say more taxes will solve everything. Eve of destruction, tax deduction, people all over the world are shouting end the war. Can’t you hear me talking to you just a ball of confusion, that’s what the world is today. For many, those same feelings exist today. Sacramento appears to have its own “Ball of Confusion,” how to eliminate the “structural deficit,” defined as a situation where if the legislature does not make changes to the laws that currently exist, the future revenues available to fund state services will grow less rapidly than the costs. One side of the aisle seems to believe that we must significantly reduce spending without considering the raising of taxes. The other side seems to believe that we must raise taxes and that significant spending reductions are not necessary or possible. Recently, although it originally appeared that Gov. Schwarzenegger would stand tough and not agree to sign a budget that would continue to burden the future with spending mistakes of the past, such a budget was, in fact, passed by the legislature and signed by the governor. In signing the budget, it appears that the governor believed that he could eliminate the structural deficit by overhauling California’s bureaucracy in the near future. This belief could have been based on the “California Performance Review” which suggested a potential savings of $32 billion over five years. Now, unfortunately, the state non-partisan legislative analysts office reports that the potential savings would be far less, perhaps $10 billion to $15 billion. Although the revised savings would still be a significant accomplishment, implementation of a significant portion of the overhaul plan is doubtful since much of it represents policy shifts that have already been proposed, failed to gain traction in the Legislature and continue to have weak support among the majority party. It appears that California is still facing a budget gap of as much as $17 billion over the next two years. We all know that there are basically three ways to eliminate a deficit: decrease spending, increase revenue, or both. Here is where the problem lies. Neither side of the aisle appears to believe in compromise. Our governor seems to favor the elimination of legislative roadblocks by taking the decision to the people by way of an initiative or a referendum. This could be beneficial if the people had all the facts at their fingertips. Unfortunately, we are continually deluged with conflicting information as to the true size of the current and structural deficits and the actual impact that suggested spending reductions and governmental efficiencies will have on them. We simply don’t have adequate facts to make these important decisions. This is why we are paying our elected representatives, who supposedly have the necessary facts, to make the decisions. I believe that our legislature must eliminate the structural deficit and that the only truly effective way to accomplish this is a compromise proposal similar to one that was made by assemblymembers Keith Richman, a Republican and Joseph Canciamilla, a Democrat, prior to the passage of last year’s (2003-04) budget. Although their proposal was shot down (probably because it was a compromise) it recognized the necessity to fix the problem immediately and that to do so required both significant spending reductions and a temporary (lasting approximately 5 years) & #733; cent increase in the sales tax that would be designated for the sole purpose of reducing the deficit and would not be available for new spending programs. Although there are those that will argue that the sales tax is regressive and therefore takes a higher percentage of earnings from the lower income earners than it does from the higher income earners, an increase in income tax rates which only affects the higher income earners (who tend to be the business owners) will result in driving more businesses out of the state and creating higher unemployment. Election time is near. It is time to elect representatives that are willing and able to compromise and solve today’s problems today. It just isn’t fair to burden future generations with the mistakes of today and the past. Anti-business bills The following are the anti-business bills that I have chosen to profile this month: -AB 2042: This bill would prohibit growth at the ports of Long Beach and Los Angeles beginning on January 1, 2006 unless it can be accomplished without any increase (from a 2004 baseline) in air pollution caused by ocean vessels and diesel trucks servicing the ports. Potential results would be increased costs of goods movement, loss of businesses and loss of jobs. Status: Passed Assembly and Senate, sent to governor. Valley Legislators voting for bill: Assembly, Frommer, Levine, Montanez, Pavley; Senate, Alarcon, Kuehl, Scott. Valley Legislators voting against bill: Assembly, Strickland; Senate, Margett, McClintock. Valley Legislators absent, abstaining or not voting: Assembly, Koretz, Richman. -SB 1569: This bill would allow health care providers to sue a health plan without receiving a determination from the State’s Department of Managed Health Care (“DMHC”), the current regulatory body. In addition to undermining the authority of the DMHC, the bill will potentially result in higher health care costs for employers thus providing a disincentive for creating jobs. Status: Passed Senate and Assembly, sent to governor Valley Legislators voting for bill: Senate, Alarcon, Kuehl, Scott; Assembly, Frommer, Levine, Montanez, Pavley. Valley Legislators voting against bill: Senate, Margett, McClintock; Assembly, Richman, Strickland. Valley Legislators absent, abstaining or not voting: Assembly, Koretz. Gregory N. Lippe is managing partner of the Woodland Hills-based CPA firm of Lever, Lippe, Hellie & Russell LLP (LLHR) and a director of the Valley Industry and Commerce Association (VICA).
