Council Weighs in On State Budget Woes

By Mark McGuigan

June 25 -- With lawmakers in Sacramento engulfed in turmoil, the City Council Tuesday night unanimously supported a resolution to break the deadlock between Republicans and Democrats wrestling to bridge a $38 billion budget deficit before the July 1 deadline.

Members of the City Council sat in grim silence as Assembly Member Fran Pavley, who represents Santa Monica, painted a picture of a political landscape fraught with infighting and impasse.

“We have a fiscal problem but we have a bigger political problem,” Pavley told the council.

“This is tied into the recall, I’m convinced of it. It’s very politically charged up there,” she said referring to the move to recall Governor Gray Davis from office.

Pavley was in town seeking the City’s endorsement of the Democratic “balanced budget approach” -- a plan to resuscitate the state’s flat-lining economy using a series of spending cuts, short-term borrowing measures and tax increases.

One of the most contentious parts of the resolution -- yet one endorsed by both sides in Sacramento -- is a $10.7B “deficit spending bond.” The bond represents a one-time fix for the next fiscal year, to be paid off at $2.3 billion a year for the next five years.

In agreeing to the proposal, Mayor Pro Tem Kevin McKeown expressed his dismay at such an approach, likening the tactic to “financing your household with your credit card”.

“There’s one thing in this that is a bitter pill for me to swallow and that’s the short term borrowing of money,” McKeown told Pavley. “It’s like financing your household with your credit card; it may be what you have to do, and in this case I believe that it is what you have to do, but it’s not what you want to do.”

Although Pavley agreed that the bond was likely to cause additional budget problems in the future, it represented a “very big piece” of the current budget solution, albeit one that has to be repaid.

To repay the loan, the Democrats have proposed a half-cent rise in the sales tax -- what they call a “dedicated revenue stream to pay off that $10.7B deficit bond”-- and one that would sunset in five years once the loan has been repaid.

“Is that a great solution?” Pavley asked rhetorically. “No, but it’s practical given the political realities in Sacramento.”

Pavley admitted that a long-term solution is required, especially with budget deficits of $9 billion projected for fiscal year 2004-05 and $10 billion projected for 2005-06.

Although not slated for this year’s proposal, one option being touted as a long-term solution is an increase in personal income tax.

Outlining how the personal income tax formula would work, Pavley gave an example of a married couple with a taxable income of $400,000 (a gross of over $600,000). Such a couple she said “would be asked to contribute an additional $550 dollars to the state of California.” In return they would receive an increased allowance.

“This would be a good time, given what’s happening at the Federal government (tax returns) for asking people, the legislature and Cities and Counties to support a personal income tax option as part of a long term solution,” she said.

Tackling the long-term problem is necessary “so that we’re not back here next year, and not engaged in this very partisan, very political decision-making that goes on in Sacramento,” she added.

While such future tax hikes might not be popular with most married couples throughout the state, any rise in taxes is anathema to the Republican Party who, according to Pavley, has already rejected such a move.

Republicans, Pavley said, are “drawing a line in the sand (saying), ‘No new taxes, not even the half-cent sales tax.’”

Councilman Ken Genser asked: “Is there anything we can do as both a council and a community to encourage all the legislators to take this as seriously as you are?”

“They have essentially been told by their leadership in the Republican Party, ‘You are finished with elected office if you vote for any kind of tax increase’,” Pavley explained. “That threat has been made loud and clear and publicly, and I don’t know how to deal with that,” she added.

With the threat of relegation to political hinterland hanging over Republicans, the hands of the Senate are tied. California requires a two-thirds majority to pass a resolution, meaning that the budget could well miss its July 1 deadline due to political infighting.

“We are looking at a Democratic budget plan that could be up for a vote as early as Thursday in the Budget committee and maybe to the floor by next week,” Pavley explained.

“Will we get the two thirds vote? Probably not,” she said matter-of-factly.

Council member Bob Holbrook voiced the feelings of many council members when he told Pavley that it was “disturbing to hear of all the problems we have” in Sacramento.

“It’s a far different world up in Sacramento,” said Pavley, referring to the relative ease with which local government unites on issues that are in the best interest of the City.

“A lot of things are like local government (in Sacramento), but the partisan politics make it very difficult,” she added.

Although Assembly Member Pavley received the City’s endorsement, it came with a “buyer beware” message from McKeown.

“We’ve already taken the necessary measures as best we could,” he said, referring to the $5.2 million revenue increase the City hopes to garner from fees and fines, and the $7 million it hopes to make up in expenditure reductions.

“The state must at this point solve its structural problems and avoid what I hear is further shifts in local revenues going from Santa Monica to Sacramento,” McKeown said. “We wave goodbye and it never comes back.”

“Please bring the message back that it is time now for the state to make those hard decisions that we’re all faced with without further moving local revenues,” McKeown added before the final vote. “We just can’t afford the impact on our services.”