To end California budget stalemate, businesses offer compromise solution

Twelve top business groups have entered the California budget fray, telling Gov. Jerry Brown and legislative Republicans essentially to strike a bargain and pass a budget.

"We urge the Governor and the Legislature to respect voters and taxpayers by giving us an honest budget plan by June 15th, along with a structural reform plan that puts California back on the right track. That's a workout plan we are willing to support in the voting booth."

The group's so-called "workout plan" involves Republicans swallowing potential tax extensions that they have adamantly opposed, and Democrats getting on board for pension reform and spending controls.

Citizens are “tired of the instability created by our constant budget crisis," the group – comprised of city chambers of commerce, economic development groups, and business councils – say in a letter. "They want a balanced budget that does not rely on gimmicks and is completed within the constitutionally prescribed June 15th date.”

Some of the ideas have been around for months, but the letter attempts to consolidate them and give them the force of the business community. That could be important.

“This is different because the call is coming not from commissions but from major corporations with a stake in California’s future,” says Steve Levy, president of the Center for the Continuing Study of the California Economy. “They are asking elected leaders to knock off the partisanship and reach a compromise including tax revenues, cost savings and program reform to eliminate wasteful subsidies.”

Others have their doubts, however.

“People who oppose tax extensions or pension cuts won’t change their minds just because business people dub such measures 'a workout plan.' It sounds like something from the Pointy-Haired Boss in Dilbert,” says Jack Pitney, a political scientist at Claremont McKenna College, in an e-mail. “Still, it’s significant that business leaders are willing to back tax extensions. Business does not automatically support lower taxes and smaller government. Fiscal meltdown could harm the business climate and bigger cuts could hurt firms that sell goods and services to state and local government.”

Indeed, the letter attempts to bridge problems for both parties. It says: “We disagree with those who don't see the need for a workout – those who favor an all-cuts budget that will scar California's future, as well as those who want tax extensions without the reforms needed to get California out of this mess."

But the political dangers for both Democrats and Republicans remain.

“The dilemma for Democrats is that if they vote for this package, but it is presented to the voters separately as structural reform and as a temporary tax increase, the voters may only vote for change and not taxes," says Robert Stern, president of the Center for Governmental Studies in an e-mail. For Republicans, "if they vote for any tax increase – even putting it on the ballot – they may either be recalled or seriously challenged in next year’s primary, and thus have no future in the party.”

The state’s changing economic fortunes may mitigate the need for tax cut extensions. The state added 90,600 jobs in the first quarter of this year, putting California’s employment increase at 1.2 percent, compared with 1 percent nationwide. An economist for the Legislative Analysts Office, Justin Garosi, says if the jobs machine keeps apace, that could shave up to $6 billion off the $15 billion deficit.

“This debate has changed somewhat in the last 30 days because of the improved economy and the prospect that next year will be even better, thus reducing any need for the increased tax extensions,” says former Republican state Rep. Roger Niello. “This is the first time that a bunch of regional and local chambers [of commerce] have come together, and that part is different and welcome. But this new development may take the edge off the need for their proposals.”