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California’s Treasurer Sees Deficits Extending for 20 Years

Sat October 27, 2007 - West Edition

SACRAMENTO (AP) California will face persistent budget deficits over the next 20 years unless officials take corrective steps that could include ending state support for the University of California and asking voters to raise property taxes to pay for public works projects, Treasurer Bill Lockyer said Oct. 1.

The annual debt affordability report prepared by the treasurer’s office projects an average yearly gap between revenue and spending of 3.5 percent, which would translate to a $14.6 billion shortfall in the fiscal year starting July 1, 2027, according to Lockyer.

“The sooner we get to fixing this problem, the easier and the smaller is the impact in the out years,” he said during a conference call with reporters. “They really should focus on this and get the job done soon.”

The 60-page report suggests a variety of steps lawmakers and the governor could take to balance the state budget, including:

• Increasing the energy efficiency of state buildings, saving an estimated $363 million over 10 years.

• Raising another $670 million a year by finding a way to collect unpaid sales taxes on purchases made through the Internet and mail order catalogs.

• Extending the sales tax to cover services such as auto repairs, generating as much as $36 billion a year if applied to enough industries.

• Asking voters to agree to pay for some public works projects with a statewide property tax.

• Raising income taxes for the wealthiest Californians, a tactic used by Republican Gov. Pete Wilson to help close a $14 billion deficit in 1991.

• Cutting off state budget support for the University of California, requiring it to rely on student fees, donations and other sources of revenue. Lockyer said that would save $7 billion by the 2027-28 fiscal year.

• Creating a state transportation financing authority, which would pay for highway construction by selling bonds that could be paid off with developer fees, tolls and fuel taxes instead of the state’s general fund.

• Using state partnerships with private companies to build and operate public facilities that would be financed through user fees, although the report notes that such fees might not be appropriate in some instances.

Lockyer said he was trying to “provoke discussion” and wasn’t recommending any particular proposal except the transportation financing authority.

But he said a combination of budget cuts and tax increases was the most politically probable solution, despite a refusal by Republicans in recent years to agree to any tax increases.

“I don’t know any other way to get through the problem than to do basically what (Governors) Ronald Reagan and Pete Wilson did when they were responsible for solving these problems, which is a combination of cuts and taxes,” he said.

A spokesman for Gov. Arnold Schwarzenegger’s Department of Finance, H.D. Palmer, called the report “thoughtful and thorough.”

“While we can’t validate the numbers he put into the report, we agree with the treasurer about the importance of eliminating the state’s structural deficit,” Palmer said. “It’s going to be a critical step. It’s also going to be a difficult one.”

He said the administration agreed with the concept of using public-private partnerships, calling it a “fiscally responsible and equitable way to share the costs of large infrastructure projects.”

But asked about the tax increase proposals in the report, Palmer said the administration was “not going to weigh in on every recommendation.”

Brad Hayward, a spokesman for the University of California, said any attempt to eliminate state support for the university would raise “real concern” among UC officials.

“We are proud of the fact that we are a public university serving the people of the state, and we’re not looking for that public status to go away,” he said.

Hayward said the state provides approximately 20 percent of the university’s income now, “a critical 20 percent.”

UC’s revenue also comes from the federal government, student fees, endowments, private research funding, the university’s hospitals and self-supporting enterprises such as parking lots and student housing

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