CONTRA COSTA TAXPAYERS ASSOCIATION

P.O. Box 27, Martinez, CA 94553 • 925-228-5610 • krishunt@cocotax.org • www.cocotax.org

ISSUES UPDATE 2-19-09

The California Legislature remains deadlocked on the budget fix. As details emerge,
there is every reason not to support a budget fix that will not fix anything. The latest
information from the Howard Jarvis Taxpayers Association is that the $10 billion of the
$15 billion of the proposed “cuts” only suspend COLA’s and other types of automatic
spending for one year. Those are obviously not true “cuts”.

Political Columnist Dan Walters most recent column titled “Budget deficit package
not a full solution” echoes CoCoTax’s position that the current budget proposal is not
going to fix the state’s problems. He notes that “When the state faced a similar situation
in the early 1990s, then-Gov. Pete Wilson and legislators took a similar approach, only
to see the new taxes fail to generate the projected revenues and service demands soar
as the economy continued to spiral downwards, creating new deficits.”
With the temporary nature of the cuts and taxes, we will be in the same structural deficit
fix we are now. The full column can be found at:
http://www.sacbee.com/walters/story/1632818.html

State Controller John Chiang spoke to a small group of business leaders from the
Richmond Chamber of Commerce this morning. He provided an informed and
interesting perspective on California’s finances. I asked whether it was better to pass
the current budget proposal which did not solve the state’s problems or hold out for one
that actually did solve the problems. He said he thought the current proposal should be
passed but the Legislature should keep working on a subsequent plan that would
actually solve the state’s finances.

The new Republican Leader of the California Senate, Dennis Hollingsworth stated
this morning that “The vast majority of my caucus does not want to see a budget passed
with a tax increase. To the extent that that requires the budget negotiations to be
reopened, then that may be necessary."

Contra Costa Times Columnist Dan Borenstein did an excellent column recently on
the increased cost of County pensions. He noted the following:

Currently the county contributes about $174 million a year to the retirement association
to fund worker pensions. As a result of the stock market losses, that annual payment is
projected to nearly double by 2015, when the full effect of the downturn is phased in.
Put another way, the county currently contributes to the pension plan an amount equal
to about 30 percent of salaries. But, because of the stock market loses in 2008, that
amount will probably increase to nearly 55 percent by 2015. That's right: For every
$100,000 spent on employee salaries, the county will be spending roughly another
$55,000 to fund the pension.
That projection assumes, perhaps optimistically, that the stock market rebounds to
anticipated profits of about 8 percent a year. If the stock market continues to earn less
than that, the county will be on the hook for even more.
By the way, those numbers do not include bond payments the county makes annually
for money it previously borrowed to reduce its pension debt — payments that currently
cost the county an additional $55 million a year, or an additional nearly 10 percent of
payroll.

And I add to Dan’s words that this does not include the cost of retiree health care. With
the vast majority of County employees currently in negotiations, the impact of these
costs on the County budget cannot be ignored. The full article can be found at:
http://www.contracostatimes.com/danielborenstein/ci_11463047