Dave Cox Senate Report: June 2006

Budget Update

The state budget debate is continuing with the May 12th release of the Governor’s revised budget proposal. The “May Revise” noted the large revenue increase that has been generated by the positive economic climate we have experienced in the last year. That has resulted in a revenue increase of $7.5 billion more than had been projected in early January.

The main feature of the May Revise is the Governor’s desire to pre-pay existing debts incurred by the state due to the deficits from previous budget cycles. Most significantly, he proposes to retire an additional $1 billion of the $10 billion in “Economic Recovery Bonds” approved by the voters in 2004 to cover debt from previous budget deficits. This brings the total debt relief proposal to $3 billion. I view this proposal positively, because as we experience economic recovery, our highest priority should be to pay down the debts we have incurred. I also applaud the Governor’s proposal to increase the budget reserve, or “rainy day fund” by $1.6 billion to a total of $2.2 billion.

Of course, the Governor also proposed some spending increases in his May Revise. For K-12 education, he proposes $2.3 billion in new discretionary spending above the levels contained in his January budget proposal. If approved by the Legislature, this would result in a total budget for K-12 education of $67.1 billion or approximately $11,268 per pupil during the 2006-2007 budget year.

It is important to note that even after the revenue increases, payments on the debt, reserve, and spending proposals, the Governor’s May Revise still projects an ongoing structural deficit in the next fiscal year of $7 billion. This means that we need to work in the next few weeks to find areas where we can reduce expenditures and work to continue our progress toward economic recovery in order to continue generating higher revenues. This will not be an easy task.

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Infrastructure Bonds On November Ballot

Late in the evening of May 4th, the Legislature passed an infrastructure bond package that will be placed on the ballot this November. The bond measures passed that night provide a total of $37.1 billion in general obligation bonds to finance future investments in transportation, flood control, education and affordable housing.

I voted in favor of transportation and flood control bonds, and against the education and housing bonds. I also voted for a constitutional amendment to strengthen the requirement that gasoline taxes will be used exclusively for transportation. I support making investments in transportation, levee repair and flood control improvements – areas that have been neglected for too long. I also fought for and won $2 billion to fund road repairs for all cities and counties in California. While I have supported previous statewide school bonds and some local school bonds, I did not support the education proposal because too much of the funding went to urban areas through a program called Hyperdense/Overcrowded Schools (such as Los Angeles and the Bay Area) and not enough to the high growth areas that I represent. There were also mandates requiring “green” school construction materials. The affordable housing bond spent too much money on projects that are not really infrastructure, such as urban parks and infill and transit oriented development incentives.

Here is a short summary of the bonds you will see on your November Ballot.

Proposition 1A – Transportation Investment Fund

This is a constitutional amendment that will strengthen the protections that were supposed to be enacted by the passage of Proposition 42 in 2002. Proposition 42 required that all sales taxes that we pay on gasoline be used on transportation projects. Unfortunately, legislators were allowed to waive the provisions during budget emergencies and those waivers were used in 2003 and 2004.

Proposition 1B – Highway Safety, Traffic Reduction, Air Quality, and Port Security Bond Act of 2006

This transportation bond will provide $19.9 billion for transportation purposes. $4.5 billion will be dedicated to new projects, and $2 billion to projects that are in the current State Transportation Improvement program. $1 billion is dedicated to Highway 99 improvements between Bakersfield and Chico. $4 billion will be spent on public transit operations and investment in new trains and buses. $3.1 billion is set aside for Port infrastructure, air quality and security projects. $1 billion will be used for public transit security. $750 million will be spent on state highway maintenance, and $2 billion will be split between cities and counties for local streets and roads.

Proposition 1C – Housing and Emergency Shelter Trust Fund Act of 2006

This housing bond will provide $2.8 billion for housing and related purposes. $345 million will go toward multi-family housing construction. $625 million is available for various down payment assistance and other homeownership programs. $245 million will be dedicated to “transitional housing” for those at risk of becoming homeless. $135 million is dedicated to farmworker housing. $850 million is available for “infill incentives,” and $200 million of the $850 million is set aside for “urban parks.”

A separate $200 million is dedicated to the Housing Urban-Suburban-Rural Parks Program. And $300 million is given to the Transit Oriented Development Implementation Program.

Proposition 1D – Kindergarten – University Public Education Facilities Bond Act

This education bond will authorize $10.4 billion of bonds to provide aid to school districts, county superintendents of schools, county boards of education, the California Community Colleges, the University of California, the Hastings College of the Law, and the California State University to construct and modernize education facilities. Approximately $7.3 billion will go towards K-12 education facilities. One billion of that is dedicated to Overcrowded/Hyperdense schools. $3 billion will be dedicated to higher education construction projects.

Proposition 1E – Disaster Preparedness and Flood Prevention Bond Act of 2006

This flood control bond will enact over $4 billion in bonds for flood control and levee repair projects. $3 billion will be available for repair and rehabilitation of state controlled levees in the Central Valley. $500 million is dedicated to flood control grants to local agencies throughout the state. And $290 million is available for the protection, creation, and enhancement of flood protection corridors and bypasses. An additional $300 million is dedicated to the Stormwater and Flash Flood Protection program.

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Gasoline, Oil & Taxes

We get a lot of comments from constituents regarding the high price of gasoline. It is hard for a lot of families to cope with the high prices when they have no choices about how to get from one place to another. They need their vehicles. This is especially true in our rural areas. I wish I could pass a bill that requires the prices to come down, but we all know that that would not work.

Gasoline is a global commodity. It is subject to the laws of supply and demand. Asian countries are growing at such rapid rates that demand has gone up very quickly, and supplies have not kept pace. Thus the price has reacted as one would expect.

Gasoline is made from crude oil, and crude oil accounts for approximately 55% of the cost of gasoline. The average price for a barrel of oil in 2004 was around $37 a barrel. Late last year it had reached a price of over $70.

The second largest component of the price of gasoline is federal and state taxes. These taxes account for approximately 20% of the cost. The federal excise tax is 18.4 cents per gallon, and state taxes are approximately 21 cents per gallon. This includes the state sales tax (which varies county by county in California) that is calculated on the total cost of a gallon of gasoline, including all taxes. In other words, it is a tax on a tax.

The rest of the cost of gasoline is for production, marketing, and distribution of the product. And for each of these there is a small profit. But if you ask any gas station owner in California how much money he or she is making, they will tell you it is not much.

According to some of my Democratic colleagues, the solution to this problem is to tax the profits of the oil companies, or add a tax to fund research into alternative fuels. Sometimes I do not understand how my colleagues come up with such silly ideas. Companies do not pay taxes. People pay taxes. When the cost of the production of their product goes up, companies pass that cost on to their customers. It is very simple economics. Their ideas only add up to a higher price for gasoline. And who does that help? The only group of people that I can think of is the government bureaucracy that receives the tax dollars.

If we want to reduce the price of gasoline, the United States should send the world market a signal that we intend to produce more crude oil. That will reduce prices slightly. We also need to continue our research into alternative fuels, some of which are already in production, such as ethanol. Your state and federal governments are already spending billions of dollars on alternative fuel research. We do not need to raise taxes on oil or gasoline to fund these efforts.

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Web Wise Kids

We have heard a lot lately about the safety of young people on the Internet. With the development of “chat rooms” and websites where teens can post personal information, the ability of on-line predators to contact or perhaps even stalk young children exists and must be prevented.

A group called Web Wise Kids is developing programs to educate children about how to stay safe on the Internet. They have recently developed a computer game called “Mirror Image” that tells the story of two young girls and how they help law enforcement catch someone who is physically stalking them, as well as harassing them on-line.

We should all take steps to protect our kids on the Internet. I would like to thank my colleague, Senator Liz Figueroa, for providing me with information on Web Wise Kids.

For more information you can go to: www.webwisekids.org.

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Eastern Sierra Wilderness Designation

Congressman Howard “Buck McKeon has intruded a bill designating approximately 40,000 acres in the eastern Sierra region as a wilderness area. The bill is strongly supported by local officials in Mono and Inyo counties that are directly affected. Congressman McKeon believes that enactment of this legislation will protect these lands and allow access to the thousands of tourists and recreational users that visit the areas annually.

The bill (H.R. 5149) adds 39,680 acres to the Hoover Wilderness Area and 640 acres to the Emigrant Wilderness area. It also designated 24 miles of the Amargosa River to the National Wild and Scenic River System. These designations allow the communities in the region to develop summer and winter tourist attractions, including 11,000 acres of prime snowmobiling terrain. It also provides financial assistance to local law enforcement agencies to enforce the snowmobile usage areas.

I offer my congratulations to Congressman McKeon for spearheading this effort. If you have questions or comments you can contact Congressman McKeon at (661) 254-2111.

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Quotes Of The Week

“The only difference between a tax man and a taxidermist is that the taxidermist leaves the skin.” - Mark Twain

“The inherent vice of capitalism is the unequal sharing of the blessings. The inherent blessing of socialism is the equal sharing of misery.” - Winston Churchill

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