Can the Budget Be This Easy?

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John Perez is one of the sharpest political strategists in California. After a career spent working behind the scenes in the labor movement, he is now the Speaker of the California Assembly. The budget proposal he and his fellow Assembly Democrats produced this week shows his political skill. It's full of positives -- attempts to avoid job losses (particularly in the public sector) and unpopular cuts in the most popular programs, namely schools.

But how is Perez's budget math? Here there is reason to doubt.

The Assembly Democrats' proposals suggests that the state can meet its obligations and hold off big cuts in health and human services program with complex borrowing, a series of accounting manuevers, the delay of about $2 billion in corporate tax cuts, and the establishment of an oil severance tax in California (more on this last tax here).

The policy approach used by the Democrats has some merits. California is the only oil-producing state without a severance tax. Cutting education is usually counterproductive, since the economy needs more educated, skilled workers.

But the credibility of the budget is undermined by very optimistic revenue estimates -- billions higher than those offered in Gov. Schwarzenegger's budget. Given the last decade of budget history in California, it's safe to assume that both the governor and the legislature are overestimating revenues. The borrowing and the accounting manuevers are more of the same.

While the BP oil spill in the Gulf may make this the moment for an oil severance tax, raising taxes is difficult given the opposition of Republicans and the fact that the requirement of a two-thirds vote for revenue increases allows the minority party in the legislature to block tax increases. It's likely that Republicans will do just that, and force deeper cuts in popular programs.

Which is what makes this such a smart political document. Perez is framing the budget in a way designed to force the Republican to pay a political price for opposing taxes. Essentially, he's presenting the budget as a choice between taxing oil companies and cutting education. In this way, the summer budget season may look like a rerun. The Republicans win on policy. The Democrats win on politics.

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