Judy Lin

Calif. gov. urges budget cuts amid $16B shortfall

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SACRAMENTO, Calif. (AP) — California Gov. Jerry Brown called on state lawmakers to embrace austere cuts and urged voters to approve tax hikes in outlining a revised budget Monday.

Brown proposed $8.3 billion in cuts across education, health care and welfare programs in laying out a plan to address the state’s $15.7 billion shortfall, an amount equal to 17 percent of the state’s discretionary fund. He warned that additional cuts are ahead if voters reject his tax-hike initiative in November.

“Cutting alone really doesn’t do it,” Brown told reporters in releasing his $91 billion general fund budget plan. “And that’s why I’m linking the serious budget reductions — real increase to austerity — with a plea to the voters: Please increase taxes temporarily on the most affluent and everyone else with a quarter of a cent sales tax.”

Brown, a Democrat, also is asking state workers to share the pain by taking a 5 percent pay cut, most likely by reducing their work hours. The pay reduction would be handled in contract negotiations with the state’s public employee unions.

In addition to the cuts, Brown hopes to close the deficit with $5.9 billion in new revenue from the tax initiative he proposed earlier this year that would temporarily add a quarter cent in the state sales tax and collect higher income taxes on those who make $250,000 a year or more.

If voters reject the tax increases in the fall, Brown is proposing $6 billion in additional automatic spending cuts, almost all of which would fall on K-12 schools. The so-called trigger cuts could mean that some districts would have to cut the school year by up to three weeks.

Brown said the cuts are real and will impact every school in the state. He likened California’s fiscal challenge to the federal government and European nations, including Greece and Spain.

“Given the decade of fiscal disconnect, I’ve committed to righting the ship of state and getting it into balance,” Brown said. “What that means is that things that are good in and of themselves have got to be stopped or curtailed if we are going to have balance. Otherwise we borrow and sink deeper into debt.”

Brown said California’s sputtering economic recovery is putting a heavier-than-expected drag on state tax revenue. The state has been blocked from making cuts to Medi-Cal and In-Home Supportive Services in court and by federal requirements.

The revised budget deficit is $6.5 billion more than the $9.2 billion gap Brown anticipated in January.

Brown called for cuts that would reduce child care for mothers trying to get off welfare, in-home supportive services for the needy and health care for the poor, as well as cut funding to courts and postpone payments to schools. Those reductions come on top of tens of billions of dollars in state budget cuts implemented since the recession started in late 2007.

Another $2.5 billion would involve delaying paying debt and other internal borrowing.

Democrats who control the Legislature said they would cut as much as they can while trying to preserve what they deem essential services. Senate President Pro Tem Darrell Steinberg, D-Sacramento, said Democrats are not looking for a public fight with the governor.

Republicans said the majority party has refused to enact reforms such as public worker pension and teacher accountability.

“When you have unsustainable policies, you have unsustainable budgets,” said Republican Senate leader Bob Huff of Diamond Bar.

Brown said his balanced approach was a fair and reasonable way to balance the budget. The sales tax increase would last four years while the income taxes on the wealthy would be raised for seven.

Public schools, which account for about 40 percent of state spending, would see a funding increase of 16 percent if voters approve Brown’s tax initiative. More money also would flow to the state’s three higher education systems, which have been the subject of student and faculty protests as courses have been cut and tuition has soared in recent years.

Brown to detail budget for tackling $16B shortfall

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SACRAMENTO, Calif. (AP) — California Gov. Jerry Brown will lay out details of a revised state spending plan Monday after announcing over the weekend that the state’s budget shortfall has swelled to $16 billion.

Brown said the deficit is much larger than he predicted just a few months ago, in part because tax collections have not come in as high as expected and lawsuits and federal requirements have blocked billions of dollars in state cuts.

In laying out a budget plan for the coming fiscal year that starts July 1, Brown will seek to balance the state’s finances in large part on voters approving higher taxes in November. His Saturday budget message and campaign pitch were the same: Raise taxes or endure crippling cuts to schools, colleges and public safety.

“Please join me in getting our state back on track and investing in our common future,” said Brown, a Democrat.

Democratic lawmakers who control the Legislature have resisted additional cuts Brown wanted made this year to health and social service programs. The recession has eroded many state services that have resulted in teacher layoffs, college tuition hikes, fewer medical benefits for the poor and elderly, and reduced child support programs for low-income mothers.

“Everything is going to hinge on this compromise funding initiative,” said Dean Vogel, president of the California Teachers Association. The state’s largest teachers union has donated at least $1.5 million to Brown’s tax initiative campaign.

Republican lawmakers say tax increases will only hurt California’s economic recovery but the governor said he had to pursue a ballot initiative because GOP lawmakers would not provide the votes needed to reach the two-thirds legislative majority required to raise taxes.

“I’ve told the governor, I don’t disagree that California might need some more revenue, but we have a basic philosophical difference about where you get that,” said Assembly Minority Leader Connie Conway, R-Tulare, in a recent interview. “The governor wants to tax people that are already paying taxes. We prefer to create more taxpayers. If you have more taxpayers, then you raise the taxes and you raise the whole system.”

Democrats, who control the Legislature, have been unwilling to enact deeper cuts so far this year.

“The size of the deficit and the dwindling of options after years of severe budget cuts also show that our state absolutely needs voters to pair cuts with revenues,” said Assembly Speaker John Perez in a statement.

Under Brown’s tax plan, California would temporarily raise the state’s sales tax by a quarter-cent and increase the income tax on people who make $250,000 or more. Brown is projecting his tax initiative would raise as much as $9 billion, but a review by the nonpartisan analyst’s office estimates revenue of $6.8 billion in fiscal year 2012-13.

The governor is expected to propose a contingency plan just as he did in his January budget. If voters reject the tax hikes, a list of unpopular cuts would automatically kick in. The results could mean three weeks less of school, higher college tuition fees and reduced funding for courts.

Advocates say those trigger cuts could get worse under Brown’s revised budget.

“We’ve already hit some of the bare minimums of what can be cut out of core health programs and other key services,” said Anthony Wright, executive director of Health Access California, a group that lobbies for health care for the poor.

About 20,000 pink slips were sent out to California public school teachers this year, although it’s unclear how many will actually be laid off until districts adopt their final budgets.

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California facing higher $16 billion shortfall

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SACRAMENTO, Calif. (AP) — California’s budget deficit has swelled to a projected $16 billion — much larger than had been predicted just months ago — and will force severe cuts to schools and public safety if voters fail to approve tax increases in November, Gov. Jerry Brown said Saturday.

The Democratic governor said the shortfall grew from $9.2 billion in January in part because tax collections have not come in as high as expected and the economy isn’t growing as fast as hoped for. The deficit has also risen because lawsuits and federal requirements have blocked billions of dollars in state cuts.

“This means we will have to go much farther and make cuts far greater than I asked for at the beginning of the year,” Brown said in an online video. “But we can’t fill this hole with cuts alone without doing severe damage to our schools. That’s why I’m bypassing the gridlock and asking you, the people of California, to approve a plan that avoids cuts to schools and public safety.”

Brown did not release details of the newly calculated deficit Saturday, but he is expected to lay out a revised spending plan Monday. The new plan for the fiscal year that starts July 1 hinges in large part on voters approving higher taxes.

The governor has said those tax increases are needed to help pull the state out of a crippling decade shaped by the collapse of the housing market and recession. Without them, he warned, public schools and colleges, and public safety, will suffer deeper cuts.

“What I’m proposing is not a panacea, but it goes a long way toward cleaning up the state’s budget mess,” Brown said.

Democrats, who control the Legislature, have resisted Brown’s proposed cuts so far this year. Republican lawmakers criticized the majority party for building in overly optimistic tax revenues.

“Today’s news underscores how we must rein in spending and let our economy grow by leaving overburdened taxpayers alone,” said Assembly Republican leader Connie Conway in a statement.

The governor pursued a ballot initiative because Republican lawmakers would not provide the votes needed to reach the two-thirds legislative majority required to raise taxes.

Assembly Speaker John Perez, D-Los Angeles, acknowledged that lawmakers have “limited and difficult choices left to solve the deficit.” Senate President Pro Tem Darrell Steinberg, D-Sacramento, said he wasn’t surprised by the deficit spike given that state tax revenue have fallen $3.5 billion below projections in the current year.

“We will deal with it,” Steinberg said Saturday. “And we know that more cuts are inevitable but we will do our very, very best to save more than we lose, especially for those in need.”

Under Brown’s tax plan, California would temporarily raise the state’s sales tax by a quarter-cent and increase the income tax on people who make $250,000 or more. Brown is projecting his tax initiative would raise as much as $9 billion, but a review by the nonpartisan analyst’s office estimates revenue of $6.8 billion in fiscal year 2012-13.

Supporters of the “Schools and Local Public Safety Protection Act of 2012″ say the additional revenue would help maintain current funding levels for public schools and colleges and pay for programs that benefit seniors and low-income families. It also would provide local governments with a constitutional guarantee of funding to comply with a new state law that shifts lower-level offenders from state prisons to county jails.

A second tax hike headed for the November ballot is being promoted by Los Angeles civil rights attorney Molly Munger, whose initiative would raise income taxes on a sliding scale for nearly all wage-earners to help fund schools.

Anti-tax groups and Republican lawmakers say both tax increases will hurt California’s economic recovery. State GOP Chairman Tom Del Beccaro has embarked on a statewide campaign to discuss alternatives to Brown’s tax hikes.

The governor is expected to propose a contingency plan with a list of unpopular cuts that would kick in automatically if voters reject tax hikes this fall. In January, he said they would result in a K-12 school year shortened by up to three weeks, higher college tuition fees and reduced funding for courts.

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Manhunt closes busy Northern California freeway

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SACRAMENTO, Calif. (AP) — Authorities shut down a busy Northern California freeway for several hours Friday, disrupting the morning commute as police search for a man suspected of opening fire at a commercial trucking business and crashing a stolen getaway vehicle on the freeway.

No one was injured in the shooting or crash but police kept closed a stretch of Interstate 80 that runs between San Francisco and Sacramento, bringing traffic to a standstill. Police were searching for the gunman in marshland off the freeway between the cities of Davis and West Sacramento.

“Until we can take the suspect into custody, our concern is the overwhelming safety of the public,” West Sacramento police spokesman Sgt. Nathan Steele said. “We understand it’s an inconvenience.”

The incident began around 6 a.m. when officers responded to reports of shots being fired near a commercial trucking business in the 400th block of Harbor Boulevard in West Sacramento, Steele said. A carjacking then occurred around the corner, and police spotted the stolen car and began pursuing it.

Steele said the gunman fired shots at police before crashing the car into the freeway median.

The so-called Yolo Causeway remained closed westbound at Enterprise Avenue and eastbound in Davis as of 7:40 a.m. Friday.

Police described the man as wearing a long trench coat-style jacket.

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NJ firm settles Calif. pension fund kickback case

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SACRAMENTO, Calif. (AP) — A New Jersey company that manages prescription benefits has agreed to pay $2.7 million to settle an investigation stemming from an influence-peddling case involving California’s largest public pension fund.

The California attorney general’s office announced Friday that Medco Health Solutions Inc. also has agreed to change its internal procedures.

The California Public Employees’ Retirement System did not renew a contract with Medco last year after an investigation revealed the company paid more than $4 million to Alfred Villalobos to help secure a prescription drug contract.

Villalobos is a former CalPERS board member who acted as a middleman to help companies gain contracts with the pension fund. The state attorney general has charged him with setting up a system of kickbacks to gain influence with pension fund executives.

Calif. Stands To Reap Windfall From Facebook IPO

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Calif. Stands To Reap Windfall From Facebook IPOCalifornia's nonpartisan Legislative Analyst Mac Taylor ponders a reporters question of his office's review of Gov. Jerry Brown's proposed $92.6 billion 2012-13 state budget as he discusses the report during a news conference in Sacramento, Calif., Wednesday, Jan. 11, 2012. Overall Taylor's office expects less tax revenue in the coming year than the governor's estimates, possibly requiring deeper spending cuts. (AP Photo/Rich Pedroncelli)(Credit: AP)

SACRAMENTO, Calif. (AP) — What’s good for Facebook and its employees could be very good for California’s treasury.

If the Menlo Park company goes public this year, as many have speculated, the state stands to reap hundreds of millions of dollars in capital gains taxes from Facebook investors and employees profiting from stock transactions. That could bring a much-needed windfall to a state government facing a $9.2 billion deficit.

In calculating how much revenue the state can expect in the next year or so, the nonpartisan Legislative Analyst’s Office released a report that considered historical income trends but also budgeted for a revenue bump on the assumption that Facebook and some other California companies will go public.

An initial public offering from the Silicon Valley social networking giant is the most anticipated, with the legislative analyst saying the company could issue $10 billion worth of stock. California taxes the capital gains from stock sales.

“In the coming months, the state’s revenue forecast will need to be adjusted somewhat to account for the possibility of hundreds of millions of dollars of additional revenues related to the Facebook IPO,” Legislative Analyst Mac Taylor wrote in the analysis of Gov. Jerry Brown’s budget proposal, released Wednesday.

Democrats are already using the so-called Facebook effect to delay the governor’s proposed cuts to social programs.

“It’s just another reason why we should not make consequential decisions … before we know,” Senate President Pro Tem Darrell Steinberg, a Democrat from Sacramento, told reporters Thursday.

Taylor cautioned that the performance of the overall stock market could play a larger role than any single initial public offering, no matter how successful, depending on whether the market has an unusually strong or weak year.

“We caution that it will be impossible to forecast IPO-related state revenues with any precision, and it is likely that little information about the state revenue gain from the Facebook IPO will be available before investors file tax returns in April 2013,” the report stated in a section titled “The Facebook Effect.”

The Brown administration did not calculate higher revenue based on the assumption that Facebook will go public, said Brown’s finance spokesman, H.D. Palmer. But the Democratic governor is counting on a prosperous year for the wealthiest California residents, estimating $56 billion in personal income taxes for the fiscal year that starts July 1.

The legislative analyst has a lower projection, estimating the state will raise $53.1 billion from personal incomes taxes in that same period. The wealthy are essential to funding California state government: The top 1 percent of income earners pay about 40 percent of all income tax, the dominant source for the state’s general fund.

California, where budget revenue slides up and down with changes in capital gains and stock options, has in years past benefited from outsized income tax filings from a handful of tech executives to help balance its budget.

Last decade, the state had Google Inc. to thank.

Mega-sized tax filings from Google executives began flowing into state coffers in 2006, two years after the company went public. The receipts helped fuel a tax windfall that allowed former Gov. Arnold Schwarzenegger to pour money into roads, classrooms and other popular programs, pleasing political enemies and helping smooth his path to re-election.

After cashing in more than 9 million shares valued at $3.7 billion that year, 16 Google insiders owed the state as much as $380 million in taxes. At the time, that was enough to cover the salaries of more than 3,000 state workers.

In addition to paying California’s 9.3 percent capital gains tax, the state’s millionaires pay an additional 1 percent income tax to underwrite mental health programs, the result of a voter approved ballot initiative.

Taylor, California’s legislative analyst, said a Facebook offering could be four times as large as Google’s IPO, making it the largest public offering ever by a California company. Google’s closing market capitalization in its first day of public trading in 2004 was $27 billion. There has been widespread speculation that Facebook’s IPO might value the company at more than $100 billion.

“It could have a significant effect,” Taylor told reporters Wednesday.

Facebook declined comment.

“As is our typical practice, we just don’t get into speculation about an IPO,” according to an email statement to The Associated Press from the public relations firm representing Facebook.

Gadi Behar, a venture capitalist in Silicon Valley, said the impacts of a potential Facebook IPO might not be felt for a couple of years.

“Once it goes public, they can’t sell the shares right away, so it will take a while for the money to be released,” said Behar, the founding director of Los Altos-based Silicom Ventures, a venture capital investment forum that provides funding to high tech start-ups.

“But from an investment perspective, I can see that people are more eager to invest in startups when a company like that goes public. It does have some kind of impact,” he said.

Based on his contacts at Facebook, Behar said he thought the company could go public within two months, but he said he could not be certain about a specific timeline.

___

Associated Press writer Garance Burke in San Francisco contributed to this report.

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