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Monday, May 27, 2024

We Can Fix the Budget Process, If We Try

It’s now Saturday, August 23, 2008. The state budget that was due on June 30, 2008 is still not passed. Perhaps by the time this column appears in the newspaper we will have a budget, but even if we do, if history is any indication, one year from now we will be in a similar position to the one we are in now. The process is broken and needs to be fixed. There are many factors responsible for the process dysfunction. Let’s examine a few of the factors along with potential solutions: First, depending on which estimate you believe, the portion of the general fund that is mandated to specific areas or programs (education, health & welfare, prisons, debt service, etc.) is somewhere between 85 percent and 92 percent Therefore, the portion of the general fund available for discretionary items is only between 8 percent and 15 percent. This is the portion of the fund from which the Legislature must pay for economic incentives, non-mandated social programs, foreclosure relief, non-mandated environmental programs, etc. In short, the mandated portion of the general fund is too high, leaving too little for other important programs and issues. It is time to consider reducing the mandates. To accomplish a balanced budget, the Legislature and Governor need more discretionary funds to work with so they don’t have to ask for new or increased taxes or fees to fund important programs. Whenever these types of revenue enhancements are considered, the budget process drags. Also, most, if not all, of these increases require voter approval. Second, annual budgeting is too disruptive to the operations of the state. If California changed to a two-year budget with the ability to make certain revisions (if necessary) during the budget cycle, our state would not reach an operational impasse every year. An additional thought would be for our legislators to put more serious effort into the budget development earlier in the process (in the budget year) so that the May revision becomes more of a fine-tuning exercise instead of the beginning of a major battle. Third, California currently requires a two-thirds vote of the Legislature to pass a budget and to raise taxes. Many other states require a simple majority vote. In those states that require a simple majority, budgets are usually passed much quicker than in California. The problem with authorizing a simple majority vote at this time is that due to the gerrymandered safe-seat districts, there are many more party extremists in the Legislature than there are moderates. A simple majority vote would almost surely result in a budget that is significantly polarized; therefore, to enable a simple majority budget vote that will yield a budget that is not only balanced fiscally, but is also balanced ideologically, voting reform will be needed. There are two methods of voting that would result in more moderates being elected to the Legislature. One method, which will be on the November 2008 ballot, is independent re-districting. The other method is to have an open primary. This would most likely result in bringing more moderates into the Legislature than redistricting would bring. With an open primary, all registered voters could vote for the person of their choice in the primary regardless of which party the voter or the candidate belongs to. This could result in significant crossover voting for the more moderate candidates. With more discretionary funds available, a two-year budget (with greater effort earlier in the process), a simple majority voting requirement and more moderates in the Legislature, we would not only stand a good chance of having a budget passed on time, we would also stand a good chance of receiving a well thought-out budget that is balanced ideologically and is the result of reasonable compromises made by legislators from both parties who work well together. With the process reforms implemented, we can now consider what our well-considered, ideologically balanced budget will look like. It will be a budget that provides adequately for quality education, quality services and economic development worthy of attracting and retaining businesses, with appropriate cost controls and other efficiencies that would avoid the need for new or increased taxes or fees. Also, it will be passed on time. I’m a firm believer that whatever can be imagined can become reality. I provided the imagination. Let’s create the reality together. Gregory N. Lippe, CPA, is Managing Partner of the Woodland Hills-based CPA Firm of Lippe, Hellie, Hoffer & Allison, LLP, Chairman of the Valley Industry and Commerce Association (VICA) and a Director of First Commerce Bank.

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