California Senate Approves a Budget Plan

100 days after the constitutional deadline to pass a budget, the California Senate finally came to an agreement and sent a budget to Governor Arnold Schwarzenegger. According to News10.com, the vote came after a long night of floor votes and party caucuses. However, not everyone is happy about the new changes and spending cuts it includes.

"This budget has too much spending, which could make next year's deficit even worse. I'm voting no, "said Sen. Jeff Denham, (R) Merced.

Democrats say the spending plan is fair.

The state Assembly passed the main bill Thursday afternoon in a legislative package aimed at ending California's record budget impasse and closing a $19 billion deficit. Trailer bill list

Lawmakers voted 54-1 Thursday in favor of the measure, SB970, getting just enough support in the 80-member house to reach the required two-thirds vote threshold.

The budget package contains no new taxes or fees, and just 40 percent of the gaping deficit would be closed by additional spending cuts. The rest would be addressed through rosy revenue assumptions and creative accounting.

California State Budget Crunch Brings Back Furlough Fridays

The California Supreme Court agreed to allow furloughs to resume on Friday, until they have enough time to thoroughly review the case. The judges must decide whether or not Governor Arnold Schwarzenegger has the right to order unpaid days off for state workers.

News10.net reports:

150,000 state workers will take an unpaid day off Friday in an effort to curb the state's budget crisis. Furloughing state employees three days a month will save $150 million a month.

The California Supreme Court cleared the way for furloughs to resume Wednesday, saying furloughs can resume while it reviews whether the governor has the authority to mandate unpaid days off for state employees.

Gov. Arnold Schwarzenegger recently ordered workers to be furloughed three days a month, following a previous round that ended in June.

It's a move that has an impact on the private sector as well as state employees.

Read more here

Governor Puts 200,000 State Workers on Minimum Wage

The Governor of my home state, Arnold Schwarzenegger, issued an order on Thursday that reduces about 200,000 California state workers’ wages to minimum wage. The pay reductions are going into effect this month. Many experts are predicting that this move is a tactic to put pressure on unions that have not agreed to pay and pension concessions.

According to a letter delivered to Controller John Chiang in late afternoon, July pay for most hourly state employees will be withheld to the minimum allowed by federal law – $7.25 an hour – and then restored once there's a budget.

Chiang, whose office cuts state paychecks, said Thursday that he won't follow the order unless a court tells him to.

The letter from the governor's Department of Personnel Administration instructs Chiang to withhold employees' pay because the state started the 2010-11 fiscal year without a budget appropriating money for payroll. Hours earlier, Gov. Arnold Schwarzenegger officially ended 17 months of furloughs for state workers.

The minimum-wage order exempts roughly 37,000 state workers in the six bargaining units that have tentatively agreed to labor deals.

Continue reading at SacBee.com…

Democrats propose tax hikes in response to Schwarzenegger's fiscal plan

Party leaders have been getting together in response to California Governor Arnold Schwarzenegger’s proposed fiscal plan, which I wrote about here. Legislators agree that there needs to be a way to increase revenue to close the $19.1 billion deficit, but how that will be done is always the argument.

Governor Arnold Schwarzenegger’s “spending blueprint” proposes eliminating California’s welfare program and cutting other state services. Democrats are responding by making a proposal of their own: generate billions in the form of new taxes.

The democrats’ detailed $5 billion plan calls for taxing oil companies, borrowing from the state’s recyclable bottles and can deposits, delaying corporate tax breaks, increasing personal income taxes, increasing vehicle license fees and raising taxes on alcohol. In order to pass, the plan would require at least some Republican votes. Republican legislators are expected to reject these tax hikes.

According to the Los Angeles Times, Schwarzenegger's office immediately dismissed the Democrats' proposals. "It is unfortunate that the Democrats' first instinct is to raise taxes," said Schwarzenegger spokesman Aaron McLear.

Read more about the proposed plans here.

Schwarzenegger budget: No new taxes, deeper cuts

Let’s face it, the California budget is a mess. With the unemployment rate so high and the tax revenue low, California faces a 19.1 billion budget deficit, according to the Associated Press. So, Arnold Schwarzenegger is rolling up his sleeves—not to show off his large muscles this time, but to propose some pretty big cuts across most state agencies and eliminating many health and social programs.

The fight is what it has always been: Republican lawmakers vote against raising taxes and Democratic leaders oppose more cuts to social programs, nothing new there. The good news is that Schwarzenegger vows to protect public education. Earlier today, I read he might propose to end state worker furloughs. Some people suggest the Governor cut corporate tax credits instead of low-income assistance programs that will hurt California’s poorest citizens and children. Finding the answer to our budget problem is not easy. There’s no doubt that we need a creative solution to the budget problem, and quickly. Tweet me your thoughts on this at www.twitter.com/ronideutch.

Read more of the article here.

No More Taxes on Short Sales, Foreclosures

According to SF Gate.com, Arnold Schwarzenegger has finally decided to provide relief to California homeowners. Currently, there is a law that requires Californians to pay income taxes on canceled or forgiven debt resulting from a short sale or foreclosure.

The state law runs counter to a federal law that exempts many homeowners from federal taxes on canceled mortgage debt. It's unfair and given the bleak housing market, it's also unseemly. It needs to be changed.

In 2009, the Legislature passed a bill that would have aligned the state with the federal tax exemption. It would have also aligned the state with a few other federal tax provisions. Schwarzenegger supported the mortgage tax realignment but not the other provisions. So he vetoed it.

Last month, he vetoed SBX832, another bill that contained the mortgage tax exemption. This bill contained two other sensible tax provisions - a state tax exemption on government stimulus grants for energy companies pursuing renewable sources of power, and a 20 percent penalty for Californians who are caught cheating on their taxes. Business groups opposed the penalty for tax cheats, and the bill barely squeaked through the Senate. The governor decided to veto that one, too.

The third time has been the charm - and right before Tax Day. Last week, legislators passed SB401, which simply brings the state into line with the federal government on this mortgage tax exemption. The governor is going to sign it and the state is going to allow taxpayers to use the provision in their taxes for this year.

Californians get Improved $10,000 Home Buyer Tax Credit

My home state of California recently extended a home buying credit that had expired last year. The bill (AB 183) was signed into law by Governor Arnold Schwarzenegger and is due to take effect on May 1^st, 2010. According to this article on The Californian.com, the law extended the credit to all homebuyers, not just first-time homebuyers.

"I have been up and down the state pushing this important housing bill that will get people off the fence and into homes while creating jobs and stimulating our economy, and today I am proud to take action and put it into law," Schwarzenegger said at the legislation's signing ceremony last month.

The new law's $200 million allocation is split 50/50 between eligible first-time home buyers who purchase an existing home and anyone purchasing a new home. First-time buyers are defined as those who have not owned a home in the past three years.

Unfortunately, the immediately obvious flaw in California's home-buying carrot is that it takes effect May 1, the day after the existing and also expanded federal home-buyer tax credit is scheduled to end.

When both the California and federal home buying tax credits were available simultaneously, Californians struck a tax credit motherlode — total tax credits of up to $18,000.

The first $100 million tax credit, approved in February 2009, was only for first-time home buyers who purchased new homes. Funds ran out after just four months, with 10,659 Californians claiming the credit, according to the Franchise Tax Board.

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Schwarzenegger Wants More Federal Money for California

In an attempt to close the budget gap during his last year in office, or at least make a worthy attempt, California governor Arnold Schwarzenegger swore earlier today that he would request more money from the Federal government to help the indebted State government. According to Reuters.com, Schwarzenegger went on to say that the State is owed more funding, and that a national healthcare policy would make things drastically worth for his California’s economy.

In a state of the state speech, the governor said creating jobs was the top priority for his last year in office and proposed spending $500 million in worker training funded by part of the budget which is in surplus.

He also laid out ambitious reforms for the final year of his term -- almost certain to include months of budget battle.

Schwarzenegger on Friday will present his plan to close a budget hole that reflects the problems of the boom and bust California economy. The U.S. economic engine faces deteriorating finances as it tries to balance its budget and preserve social safety nets in tough times.

The outgoing Republican governor, stopped by term limits from seeking reelection in November, called for tax reform, protection for higher education spending -- and more money from the federal government.

"We no longer can ignore what is owed to us, or what we are forced to spend on federal mandates," Schwarzenegger told the combined state Assembly and Senate, which must support any budget plan by a two-thirds majority -- a bar that has forced months of acrimonious debate in previous years.

Continue reading at Reuters.com…

Schwarzenegger Proposes New Round of Homebuyer Tax Credits

From the SacramentoBee.com:

Gov. Arnold Schwarzenegger proposed a new round of $10,000 state tax credits this morning for buyers of new and existing homes in California.

He proposed setting aside $200 million for the credits - twice what was allocated last year for tax credits given to more than 10,600 buyers of newly built homes.

The credit could be combined with an $8,000 federal tax credit that expires April 30.

The proposal was part of the governor's job creation strategy outlined in his annual State of the State speech to a joint session of the state Legislature.

The state's homebuilding industry has long pushed for an extension of the credit that last year helped it trim its supply of excess inventory. Builders competing with cheap bank repos have seen fewer sales the past two years than at any time during the half century California has been keeping records.

California Taxes Fall Short of November Target by $439 Million

My home state of California seems to find itself in one financial mess after another. Reports emerged yesterday that the state’s estimated tax revenue for November was $439 million less then the government had expected. With the fiscal year only have over, the state’s revenue is already short by an astonishing $1 billion. Some financial experts assert the decline is only a preview of what is to come, and that the upcoming year will be even more difficult on California’s budget.

Schwarzenegger is due to release his budget for the coming fiscal year in January. California Legislative Analyst Mac Taylor said in November the state will face a deficit of $14.4 billion beginning in July. That’s in addition to a $6.3 billion gap opening up in the current year as several projections within the budget falter or miss revenue projections.

“In many respects, the steps to close next year’s budget gap will be even more difficult and more challenging than what we’ve just had to do this year,” Department of Finance spokesman H.D. Palmer said yesterday.

California has been among the most affected by the recession as a wave of home foreclosures, rising unemployment and the 2008 stock market tumble dissipated expected tax receipts. From February through July, lawmakers worked to close a record $60 billion deficit with spending cuts, temporary tax increases and other one-time fixes. The unemployment rate rose to 12.5 percent in October from 8 percent the year before and 4.8 percent in July 2006.

Continue reading at Bloomberg.com…

Schwarzenegger's Office Blames $79,000 Tax Lien on 'Paperwork'

From MercuryNews.com:

Gov. Arnold Schwarzenegger was having a feel-good Thanksgiving week, passing out turkeys in East Los Angeles and giving thanks for "the blessings of freedom and democracy."

But then came the heartburn.

A gossip Web site Friday morning revealed that the IRS filed a federal tax lien against the governor last spring seeking $79,000 — a discovery Schwarzenegger's office blames on "a minor paperwork tracking discrepancy."

A copy of the tax lien, submitted in Los Angeles County, was first posted by TMZ.com. A search of public records databases shows the lien was filed May 11 and that it lists the governor's home address.

The governor's office at first questioned the authenticity of the document and insisted that Schwarzenegger had paid his taxes "in full and on time." Later, after officials spoke with the IRS, they explained there had been a snafu.

"The issue is completely unrelated to the payment of taxes," Schwarzenegger spokesman Aaron McLear said in a statement. "The matter will be resolved and the lien expunged without any penalty assessed upon the governor."

McLear — who said the governor learned of the matter only Friday — wouldn't comment further on the nature of the mix-up or on what kind of taxes the lien involved.

But an IRS primer on the collection process explains that the agency sends out several warnings to anyone who's been billed for overdue

Schwarzenegger's Budget Boss to Step Down

From the LA Times:

Gov. Arnold Schwarzenegger's budget director is departing after nearly four years in one of the most influential posts in Sacramento.

Budget czar Mike Genest announced his departure Monday, as a financial crisis continued to grip the state. His Department of Finance has predicted a $7.4-billion deficit for the fiscal year that begins next summer.

The figure is expected to balloon -- perhaps tripling -- as a result of sagging revenues, court rulings blocking recent budget cuts and overly optimistic savings projections by the Legislature and governor.

Genest said in an interview that he would leave by year's end, or sooner if a replacement is found earlier.

"It feels like a good time for me to step back from the day-to-day fray of things," he said.

Red ink has plagued Sacramento during much of Genest's tenure, the second-longest for a budget director since Ronald Reagan was governor.

There have been deep cuts to education, and social services for the needy have been slashed.

Continue reading at LA Times.com…

California Laws Get Tough on Mortgage Finance

California Governor Arnold Schwarzenegger signed seven new mortgage finance bills in to law on Monday, most of which crack down on fraud and set new requirements and restrictions for mortgage and reverse mortgage originators. Yesterday Housingwire.com posted an in depth article describing each bill and their intended purposes. Check out their list below.

Senate Bill (SB) 36 regulates the licensing requirements for residential loan originators in compliance with the federal Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act.

SB 237 requires appraisal management companies (AMCs) and appraisers register with the Office of Real Estate Appraisers and subjects appraisers to the provisions of the Real Estate Appraisers’ Licensing and Certification Law.

SB 239 raises the crime of mortgage fraud from a misdemeanor to a felony and makes it easier for prosecutors to obtain fraudulent loan documents to investigate cases.

Assembly Bill (AB) 260 places restrictions on subprime loans and prohibits originators from “steering” borrowers, or encouraging borrowers to buy riskier loan products when they are eligible for affordable products. It also gives state regulatory agencies the authority to suspend or revoke the licenses of real estate lenders and mortgage brokers that violate the state’s lending laws.

AB 329 sets guidelines for reverse mortgages originated for elderly borrowers — those over 65 years old — requiring specific disclosures and offering counseling service referrals. Originators are also prohibited from selling other financial products to a reverse mortgage borrower.

AB 957 gives the buyers of foreclosed property the right to choose local escrow officers to complete transactions. It prohibits the seller of a residential property from requiring the buyer to use an escrow service company or purchase title insurance chosen by the seller.

AB 1160 requires originators to provide borrowers with a mortgage summary document translated in the language the contract was verbally negotiated.

California’s Budget Suffers ‘Major Blow’ as Debt Sales Loom

From Bloomberg.com:

California’s revenue collections trailed its forecasts by $1.1 billion during the first three months of the fiscal year, showing new deficits are emerging in the budget Governor Arnold Schwarzenegger signed July 28.

Revenue was 5.3 percent less than was assumed in the $85 billion annual budget during the three months ended Sept. 30. Income tax receipts led the shortfall, as unemployment reached as high as 12.2 percent in August.

“Revenues more than $1 billion under estimates and recent adverse court rulings are dealing a major blow to a budget that is barely 10-weeks old,” Controller John Chiang said in a statement. “While there are encouraging signs that California’s economy is preparing for a comeback, the recession continues to drag state revenues down.”

The latest figures show that California is facing resurgent fiscal strains brought on by the U.S. recession. Since February, Schwarzenegger and lawmakers have cut $32 billion from spending, raised taxes by $12.5 billion and covered $6 billion more with accounting gimmicks and borrowing.

The budget news comes as the most populous U.S. state prepares to sell as much as $15 billion of bonds in the next nine months to refinance debt and fund public-works projects.

California, already the largest borrower in the municipal market, may offer as much as $4 billion of debt during the week of Oct. 26 to refinance the bonds used by Schwarzenegger to cover previous budget deficits. The budget enacted in July would allow the sale of as much as $11 billion more of general obligation bonds through the June 30 end of the fiscal year if financial markets allow, state Treasurer Bill Lockyer said. The exact sale amount hasn’t been decided.

California Budget Deal Closes $26 Billion Gap

California Governor Arnold Schwarzenegger and the California legislature announced yesterday that they had finally put together a budget deal that settles the states whopping $26 billion deficit. Reactions to the budget are mixed, but at least the state is finally taking responsibility for their budget. According to the LA Times, the following changes will be made to the stat budget. However, as the author points out the reductions do not add up to $26 billion, and are pretty general to say the least.

Cuts

• K-12 and community college education -- $4.3 billion
• Higher education -- $3 billion
• Medi-Cal -- $1.3 billion
• State worker pay -- $1.3 billion
• Corrections -- $1.2 billion
• CalWorks/welfare -- $528 million
• Home health aides -- $226 million
• Healthy Families children’s insurance -- $124 million
• Local transportation -- $1 billion
• Redevelopment agencies -- $1.7 billion

Additional Revenues

• Accelerate income tax withholding -- $1.7 billion
• Increase estimated tax payments for businesses and the self-employed -- $610 million

New Funds

• Sale of State Compensation Insurance Fund -- $1 billion
• Assumed federal funds for Medi-Cal program -- $1 billion

Accounts Shift / Borrowing

• Local government borrowing -- $2 billion
• Education deferrals -- $1.7 billion
• June 2010 state worker paycheck deferral -- $1.2 billion

The Wall Street Journal also published a piece with strong opinions on some of the cuts. Check out a clip of their article below, or find the entire full here.

Under the budget plan, state lawmakers would cut $15 billion in spending. The rest of the gap would be filled by taking funds from local governments and through one-time fixes and accounting maneuvers. The deal must still be approved by rank-and-file legislators, who are expected to vote on it Thursday.

"We have accomplished a lot in this budget," Mr. Schwarzenegger told reporters after lawmakers struck the deal Monday evening. "We dealt with the entire $26 billion deficit," he said.

The nation's most populous state faces a $26 billion gap in a $92 billion general-fund budget through June 2010. Mr. Schwarzenegger and legislators have been wrestling over the budget for weeks, forcing the state's chief accountant to issue IOUs to many creditors, including some welfare recipients.

As of Friday, the state had issued 153,711 IOUs, worth a total of $682 million. The office of Controller John Chiang said it would need to evaluate the budget proposal before determining when it could stop issuing the warrants.

Economists said the spending cuts would bruise a California economy already slammed by rising unemployment and foreclosure rates. "It will certainly offset a fraction of the federal-stimulus effect this fall," said Roger Noll, a professor emeritus of economics at Stanford University. "That will mean the depth and duration of the recession [in California] will both be bigger than otherwise would've been the case," he said.

The leaders of the Democratic-controlled state legislature said that of the $15 billion in cuts, $9 billion would come from education, $1.3 billion from state-worker furloughs and $1.2 billion from the prison system.

"For Democrats, I have to tell you that many of cuts we had to make, at another time, we would've thought unthinkable," said Assembly Speaker Karen Bass.

Ms. Bass also said that local governments "will have to share the pain." The state will take away $4.3 billion from local governments by borrowing from them or redirecting funds that had been earmarked for them.

California Government Doles Out More IOUs

Another 12,500 IOUs were issued by California on Tuesday, as a way to make up for bills they were unable to pay. This decision brings the total number of California’s IOUs issued to over 72,000, and that number is only expected to rise. Check out the following clip from a new Sacramento Bee article discussing this disastrous situation below.

Last week's decision by state Controller John Chiang to issue "registered warrants" instead of checks to taxpayers owed refunds, vendors and other groups was the most dramatic step a state has taken this year to confront billions of dollars in budget shortfalls. A total of 72,000 IOUs have been written since last week.

Gov. Arnold Schwarzenegger, a Republican, and the Democratic-controlled Legislature have been unable to agree on a package of spending cuts and tax increases to close a massive budget gap.

The result is a standstill — and IOUs that reached a total of $109 million Tuesday.

California issued IOUs in 1992 during a 61-day budget impasse. Some states issued IOUs during the Great Depression. The notes, now worthless, can be bought at antique shops, says Chicago bankruptcy attorney James Spiotto, an expert in government finance. Spiotto says he doesn't know of any state other than California to issue IOUs since the Depression.

Continue reading this article, here.

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Schwarzenegger Says He'll Veto Democrats' Plan For Balancing Budget

California Governor Arnold Schwarzenegger spoke outside of his office earlier today, making a promise to veto the new democratic budget-balancing bill should it reach his desk. The bill includes tax hikes on oil, tobacco, and motorist fees, all of which Schwarzenegger claims are unfair for Californians already rising tax bills.

“The proposal included what the lawmakers said were $11 billion in cuts to programs dear to Democrats -- to education, healthcare and welfare -- along with $10 billion in accounting maneuvers and other financial moves such as selling state assets,” asserts the LA Times.

But it was the levies intended to raise $1.9 billion in new taxes on oil and tobacco, and fees on motorists to fund state parks, that Schwarzenegger said would be unfair to Californians after higher taxes were imposed on them in February.

"None of that will fly with me," the governor said. "It will be irresponsible after the largest tax increase in California's history just four months ago to go back to the people and to say we want to increase your taxes but we want to protect the salaries of state workers."

The Democrat-controlled budget committee Tuesday rejected the governor's proposal to cut state employee salaries by 5% on top of the two unpaid days off per month that they are already required to take. The lawmakers also dispensed with many of his steepest cuts to state programs, which would have eliminated California's welfare system, its health insurance for children and college tuition aid for low-income students.

Continue reading this story at LATimes.com

Calif. Mayors Urge Schwarzenegger To Spare Cities

According to BusinessWeek.com, California mayors are urging Governor Arnold Schwarzenegger to consider local governments when making plans to close the budget deficit. Check out a portion of their article below.

The mayors of some of California's largest cities on Tuesday asked Gov. Arnold Schwarzenegger to avoid undermining local governments as he and lawmakers seek to close the state's $24.3 billion budget deficit.

Los Angeles Mayor Antonio Villaraigosa led a group of mayors from San Diego, Sacramento and Fresno who came to the Capitol to meet with the governor. They said the state should repay cities if it takes any of their tax revenue.

Schwarzenegger later said nobody is pleased with the state's fiscal condition but that tough decisions have to be made.

In another development Tuesday, the state Senate leader said Democrats were beginning to form their own plan to address the deficit, including fewer cuts than Schwarzenegger has proposed and closing some corporate tax loopholes.

Part of the governor's proposal to eliminate the shortfall calls for the state to borrow $1.9 billion from property tax collections and reduce the local share of the gas tax by $744 million.

The mayors said taking gas-tax money would be worse than borrowing from property taxes because the state would not be obligated to repay it. The state must repay local governments within three years, with interest, if it borrows local property taxes.

"One of our core principles is that any plan that pulls tax revenues from cities must be accompanied by a plan to get that money back into the coffers of local governments," Villaraigosa said during a news conference.

In addition to taking the gas tax from local governments, the Legislature's budget analyst has recommended siphoning even more local money from gasoline sales. It is unclear whether that proposal will be adopted by lawmakers.

San Diego Mayor Jerry Sanders said his city already has cut 18 percent from its $1 billion general fund. The state is threatening to take revenue worth another 7.5 percent.

He said the loss of the gas tax alone would mean 120 fewer police officers and 120 fewer firefighters for San Diego.

"We're here to call on the legislators and to call on the governor to balance the budget without balancing it on the backs of cites, counties and school districts," Sanders said.

Schwarzenegger disputed the claim that public safety would have to be cut if the state reduced gas tax revenue to cities and counties because that money is dedicated for transportation projects.

"One has nothing to do with the other," the governor said.

Michael Cohen, an analyst in the Legislative Analyst's Office, said cities that can defer road maintenance might not be hurt by the state's actions. Others may have to take money away from police or fire services to pay for emergency transportation projects, he said.

Cohen noted that cities still will receive federal money.

Senate Democratic Leader Darrell Steinberg said Tuesday that lawmakers were working on a budget plan that would not require local borrowing.

He said Democrats are working on their own budget plan that closely follows the proposed budget Schwarzenegger introduced earlier this month.