State of the States 2010: Schwarzenegger Focuses on Budget, Tax Reform

By Mikel Chavers

California Gov. Arnold Schwarzenegger may have used an interesting story about his household pets—a pig and a pony working together to break into the food container—to demonstrate teamwork, but he focused his state of the state address on budget and taxes.

Although there’s still more hardship to come “the worst is over for California’s economy,” Schwarzenegger said Jan. 6. “Our economy is well-positioned to take advantage of the future.”

With that, the defining word this year is priorities, he said. And his priorities include reforming the budget system and the tax system as well as creating jobs.

The state faces a $19.9 billion deficit, and $13.3 billion of it is for the upcoming budget year, Schwarzenegger said. What does that mean for the state? “We face additional cuts,” he said.
“What can we say at this point except the truth—that we have no choice?”

Schwarzenegger did vow to protect K-12 education from more budget cuts on the horizon.

But beyond the cuts something else has to be done, he said.

“Our economy is 21st century and our tax system is 20th century—it is stuck in the wrong century,” Schwarzenegger said. “Our economy is diverse whereas our tax system is not.” The governor urged the legislature to work together to reform the budget and tax system, saying state tax collections won’t rebound until at least 2013.

“We must begin work on those tax reforms because we simply cannot wait for the rich to bounce back,” he said. “The budget crisis is our Katrina.”

He mentioned several best practices including performance-based budgeting and creating a rainy day fund. Schwarzenegger is also pushing a constitutional amendment that would bar the state from spending more on corrections than on education.

In the coming year, Schwarzenegger will also introduce a $500 million jobs package to train up to 140,000 workers and create 100,000 jobs.

He also wants to streamline the permitting process for construction projects and wants to propose a homebuyer’s tax credit offering up to $10,000 for purchase of new or existing homes. California is still thinking green as well and Schwarzenegger wants to exempt green technology and manufacturing equipment from the states sales tax.

“That too means jobs.”