Governor Jerry Brown shocked Sacramento on January 8 when he announced his opposition to two November union-backed ballot initiatives that would sell a $9 billion school construction bond and extend Proposition 30 tax surcharges on the wealthy.
Brown made the comments at the budget press conference where he introduced his $173 billion state spending proposal for 2016-17. The plan calls for boosting K-12 education per student spending by 5.6 percent, $740 million for expansion of federal healthcare reform, putting $1.9 billion into a rainy day fund, and not increasing undergraduate tuition at the University of California or California State University campuses.
Brown denounced the union-backed ballot initiative that would extend his two-year Proposition 30 tax increases for another 12 years as “fatally flawed” because it would prohibit continuing to build a reserve fund to finance the state through future recessions.
But the California Teachers Association, California Federation of Teachers, Service Employees International Union, and California Hospital Association all see Prop. 30 extensions as a huge honey-pot that could generate an extra $7.5 billion a year by continuing the surcharge on couples making over $500,000 and individuals making more than $250,000.
The unions plan to spend the bulk of the new money each year on K-12 schools and community colleges. About $1 billion would also be split between health care for children and the General Fund.
Brown has the same concerns as Breitbart News reported in a June article titled “California is Greece, but with Capital Gains.” The only reason the Golden State ran a $6 billion surplus last year is that capital gains taxes have jumped from a recessionary low of $4.7 billion in 2010 to over $15 billion in the year ending June 30. Without that capital gain spike, the state would have run a disastrous $5 billion deficit.
Brown has good reason to be very afraid. The Dow Jones Industrial Average just finished the worst first-week of trading in its 199-year history, down 6.19%, according to Standard & Poor’s. Despite an almost 300,000 jobs gain and a 200-point early rally in the Dow on January 8, stocks tanked in the afternoon to finish down 167.65 points for the day. For the week, the Wilshire 5000 Total Stock Index lost almost -$1.3 trillion.
If the U.S. stock market remains unchanged at its current loss levels through June 2017, Breitbart News estimates that capital gains tax revenue would plummet by $8 billion and wipe out the rainy day fund the Governor built up over the last three years.
Brown told reporters that in the current union-proposed initiatives, “None of these revenues can be spent on state bureaucracy or administrative costs or be diverted to budget reserves.” He complained that the state with the third-highest tax rate in the world, just behind Denmark and France, is already too dependent on capital gains taxes from the top one percent of wage earners.
The union sponsors could tweak their initiatives to satisfy Brown’s objections, but they would have to make amendments by Monday to meet the November ballot wording deadline, California Teachers Association executive Becky Zoglman told the Ed Source blog.
Under the banner of the Coalition for Adequate School Housing (CASH), the union coalition of school districts and crony school construction contractors have already gathered enough signatures to place a $9 billion school bond on the November ballot.
Brown wants the bond size cut by at least half, but the union groups replied in a statement, “An extension of Prop. 30 revenues are a critical component to keeping our state on track and not letting us slide back into years of deficits and cuts. We look forward to more conversations with the governor and are hopeful we can address his concerns.”
Most of the cash from the bond under the state’s Local Control Funding Formula passed in 2013 would go to English learners and low-income, foster, and homeless youths. So-called “High Needs” districts with heavy Latino and black student populations would tend to get another $500 per student per year, while other predominantly white and Asian districts would get much less per student.