HomeMy WebLinkAboutMINUTES - 03252003 - D1 I).1
THE BOA OF SUPERVISORS OF
CONTRA COSTA COUNTY, CALIFORNIA
Date: March 25,2003 Matter of Record
On this date,the Board called for public comment. The following persons
presented testimony:
Mollie Katz, (PEU Local 1)P.O.Box 212, Martinez, regarding budget
shortfall and cuts in spending and increases in taxes;
Christine McCracken, 206 Ludell Drive, Walnut Creek,regarding swim
club near Pleasant Hill Bart station;
Mr. Freeman, (no address given)regarding the Industrial Safety
Ordinance,
Ralph Hoffman, 60 St. Timothy Court, Danville,regarding District III
seat being vacant.
THIS IS A MATTER FOR RECORD PURPOSES ONLY
NO ACTION WAS TAKEN
UNIVERSITY OF CALIFORNIA, BERKELEY
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BERKELEY • DAVIS • IRVINE • LOS ANGELES RIVERSIDE SAN DIEGO SAN FRANCISCO ? ' SANTA BARBARA SANTA CRUZ
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DEPARTMENT OF ECONOMICS ALAN J. AUERBACH
549 EVANS HALL#3884 ROBERT D. BURCH PROFESSOR
BERKELEY CA 94120-3890 OF ECONOMICS A LAW
TELEPHONE: (510)643-0711
FAX: (510)643-0413
E-Mail: amerbach@eeon.beri;eley.eds
February 3,2003
To Members of the California Legislature:
As the economy struggles out of the recent recession, the latest data on output and employment growth do not
bode well for a strong, quick recovery of our national economy. This news is discouraging to California and
virtually all other state facing extraordinary budget gaps, but it does not change the fundamental task they
face. Because of the size of its budget gap and the lack of flexibility to run deficits, California most face up to
the need for immediate and substantial budget cuts and tax increases and act now. Delay in taking these
actions will make the eventual policies even more severe and, by jeopardizing the state's creditworthiness,
could exacerbate their impact on the state's economy.
At the federal level, the President has argued the need for a stimulus package. Unfortunately, much of what
the President has proposed would provide little immediate economic stimulus, and the fiscal retrenchment
required by California threatens to push the economy very much in the opposite direction. To provide an
effective stimulus, fiscal actions must take effect immediately and encourage spending, public or private.
Temporary federal aid to the states would help. It is an effective stimulus tool that would also provide needed
support for beleaguered state budgets, but there is precious little in this regard contained in the President's
map,
In this environment, the measures California takes in addressing its budget crisis are particularly important for
the economic health of the state and of the nation. In the short run, California must adapt policies that address
its current'fiscal imbalance with the least damage to the state's economy and its social fabric. But fiscal poliky
actions should net be limited to short-run measures. Like that of the lest of the nation, California's current
crisis is due, in part, to unanticipated declines in revenues caused by the recession and the end of the stock
market beam, to which California's income tax revenues have been especially sensitive. Steady growth in
mandated expenditure programs,particularly for health care,is implicated as well. But systemic problems also
beset California's fiscal system and budget process. While addressing these problems will have little
immediate political or economic payoff,farsighted reform measures can obviate the future need for the type of
painful adjustments we must now undertake.
For the short tern,the policy pmeriptlon is fairly clear,if dismal:
Identify cuts in spending and increases in taxes that distribute the burden of fiscal adjustment
equitably and with the smallest possible damage to the economy. These chance must be put in
place quickly. Delay w0l exacerbate the state's fiscal problems and thereby send a negative signal to
financial markets.
♦ To the extent that tax increases are needed and it is totally unrealistic to pretend that spending cuts
alone can solve the problem-they should be broad-based and should reflect the need to protect the
incentives to engage in economic activity.
♦ Progressivity is also an important objective, although the distributional effects of takes and spending
cuts should be considered together. The Governor's proposal to raise the state sales tax by 9
percentage point and to reintroduce personal income taut brackets of 10% and 11% are reasonable
short-term measures in light of these objectives: they avoid narrow tax increases, spread the burden
fairly, and eschew tax increases on business activity. Further, they require little fundamental change
in the state's tax structure,and so can be implemented quickly.
For the longer term, many structural tax issues need to be considered and the Governor's call for
reform is helpful:
♦ These refoms include broadening the sales tax base to include services and internet sales and,yes,
perhaps even reform of the commercial and residential property tax distortions that have accumulated
since the passage of Proposition 13. The objective in undertaking these reforms should be not to
increase taxes, but rather to permit less distortionary taxation through base broadening and tax rate
reduction.
♦ 4n the spending side, thought should be given to whether or not it is wise to earmark revenue
increases for specific categories of spending. No matter how worthy the spending may be,mandates
and earmarks reduce the state's budget flexibility and contribute to the harshness of fiscal adjustment.
Finally, the budget process itself needs reform, given its contnbution to delay in dealing with our
current problems, delays that have made the measures that we must take this year much more
painful.
The state's fiscal condition presents us with both a crisis we must solve and an opportunity to address the
systemicproblems that have contributed to our current situation.We urge acfion without delay both to restore
stability to the state's fiscal structure and to ensure the state's continued creditworthiness.
George Akerof, UC Berkeley
Kenneth J.Arrow, Stanford University
Alan Auerbach, UC Berkeley
J. Bradford DeLong, UC Berkeley
Victor R.Fuchs,Stanford University
Hilary Haynes,UC Davis
Peggy B.Musgrave, UC Santa Cruz
Richard A.Musgrave,UC Santa Cruz
John M. Quigley, UC Berkeley
Christina D.Romer,UC Berkeley
David Romer, UC Berkeley
Steven Sheffrin, UC Davis
Kenneth'Sokoloff, UCLA
Janet YeW, UC Berkeley
Cc:Governor Gray Davis