It’s Christmas in May and Governor Gavin Newsom is playing Santa Claus. The tree in which all of his gift wrapped packages are stacked is the state vault.
The vault is overcrowded like never before.
Santa Claus flies through California promising voters expensive gifts that will very likely decide in a fall recall election whether to keep or toss him.
“It’s easier to be Santa than the Grim Reaper,” noted Democratic adviser Steve Maviglio, who was Governor Gray Davis’ communications director when he was removed in 2003 and replaced by Republican Arnold Schwarzenegger.
Davis was forced to play the Grim Reaper. That was when the vault became empty and red ink leaked from the state budget.
“We have cut the services and educational programs for people on the right and left,” recalls Maviglio. “That’s why we angered a lot of Democrats in the legislature. We also angered the law by increasing the vehicle license fee and reintroducing other fees that we had lowered.
“Newsom’s situation is exactly the opposite. He can spend money that exceeds all expectations. “
Newsom reported a staggering, unprecedented projected budget surplus of $ 75.7 billion on Monday. Of this, US $ 38 billion is discretionary play money. Most of the balance, $ 26.6 billion, will go to K-12 schools and community colleges. About $ 11 billion is put into a fund for rainy days or used to pay off debts.
In addition, the state expects the federal government to provide an incentive of $ 26 billion.
“Politicians love to give away money,” says Republican adviser Rob Stutzman, who was Schwarzenegger’s communications strategist in 2003. “This will help Newsom call back.”
But there is a potential downside, Stutzman adds.
“When you spend that much money it becomes apparent who’s not getting paid and you can become vulnerable.”
An example: the taxpayers with the highest incomes, who built up most of the gigantic surplus. They didn’t get what Newsom called a tax rebate and had every reason to believe they would be under the law.
This is not an argument for the merits of what Newsom has proposed – $ 600 discount checks for those earning less than $ 75,000 a year – but whether it fits the letter of the law.
It certainly does not fit the spirit of Proposition 4, which voters overwhelmingly approved in 1979, a consequence of their adoption of Proposition 13 to cut property taxes the previous year. Proposition 4 was commonly referred to as the Gann Limit, named after its sponsor Paul Gann who was a co-author of Proposition 13.
Under the Gann Initiative, government spending was limited by inflation and population growth. And when the limit was reached, the law decreed that the excess money should be “returned” to taxpayers “through a revision of tax rates or fee plans.” The law was later amended to split the 50-50 surplus between taxpayers and schools.
Only once before, in 1987, was the limit reached and a discount triggered. Republican governor George Deukmejian and the Democratic-controlled legislature reached a compromise within both the letter and the spirit of the law.
Everyone who filed a tax return – regardless of whether they paid no tax or belonged to the top 1% of the workforce – received a discount.
The controller at the time, Gray Davis, made sure that the checks were sent in time for Christmas.
Newsom proposes additional stimulus checks of $ 600 and $ 5 billion for rental assistance
Newsom estimates the state is spending $ 16 billion above the Gann limit and is proposing to “discount” $ 8 billion. Tax investigators earning between $ 30,000 and $ 75,000 will receive a check for $ 600. People on less than $ 30,000 have already received $ 600 checks from a previous government stimulus plan.
Anyone making less than $ 75,000 with a dependent will receive an additional $ 500.
Newsom called it “the largest tax rebate in US history”.
However, this is more of a different spending program – a stimulus plan – than a tax break.
A discount is when you buy something – or pay a tax – and get some back.
Newsom said two-thirds of Californians will receive the checks, which means one-third will be frozen.
That was not what voters were told when they approved the Gann limit.
“This is less of a tax break than a tax transfer,” says Dan Schnur, a USC and UC Berkeley political communications teacher who was once a Republican agent. “The constitutional reasons are questionable. It’s a lawsuit waiting to be happened. “
But Newsom’s budget clerks say the Gann language is broad and the governor’s proposal “satisfies” the law.
“They say the surplus has to be returned to taxpayers,” said HD Palmer, finance spokesman. “It is not specified how you do that.”
The governor believes he can do that by playing Santa Claus for those most in need. Fine. Just don’t pretend it’s a discount.
George Skelton is a columnist for the Los Angeles Times.