Play Live Radio
Next Up:
Available On Air Stations

Income Tax Deadline May Help Lawmakers Deal With Deficit

Income Tax Deadline To Help Lawmakers Deal With Deficit
The California income tax deadline is this week, but how will this revenue info. help lawmakers deal with the budget deficit? We're joined on Morning Edition by nonpartisan Sacramento political consultant Leo McElroy.

California's income tax deadline is just two days away, and the revenue may help lawmakers deal with the state's $20 billion budget deficit. We're joined on Morning Edition by nonpartisan Sacramento political consultant Leo McElroy. Revenue forecasts predict over $1 billion more than originally anticipated, Leo. Why do think this will only make a small dent in the deficit?

LEO MCELROY: Well, in the first place, the surprise of people at the legislature that there's actually good news for a change is pretty startling, but the question is: How optimistic were they in doing their budget projections to begin with? The returns are up from where they were expected to be, but whether they were up enough to make much of a dent in our nearly $20 billion deficit is pretty unlikely. We're looking at an increase of about a billion and a half -- maybe moving toward two. So that still leaves a lot of gap in there. The other problem is that they're faced with a really ugly political conundrum, and that is that a Stanford study just showed that the public employees' pension plans in California are severely underfunded. That they've been operating with unrealistic returns expectations, and that if you put realistic standards on them, they're way under where they need to be, leaving the legislature faced with either having to deal with that problem, too, by cutting benefits or increasing pension payments. Neither one of which looks like a very good solution, particularly since the public employee unions are big supporters of the Democrats who dominate the legislature. It's an ugly situation, and it's enough bad news to blunt the good news about the income tax returns.

PAMELA DAVIS: Now short sale legislation has been celebrated by the real estate industry. Are there any guaranteeds that revenue will go up now?

MCELROY: There are no guarantees at all, ever, in these situations where you're doing a little pump priming, and that's exactly what the state is doing, is laying out money in the hope that a small expenditure -- relatively small -- is going to have a major effect on the economy by getting people to either stay in their homes or buy homes. And the real estate industry is welcoming this. They could use some good news, but the problem is that at this point it's money going out, not money coming back in, in the hope that it will turn the economy around. And as we know with the federal bailout programs, there's never a guarantee that those are going to absolutely work the way they were expected to.

DWANE BROWN: Yeah, speaking of money going out, Leo, big hopes for high speed rail service, largely though dependent on bond sales. How will we pay for it?

MCELROY: Well, that's a good question, because as the treasurer's office will tell you, bond sales are pretty uncertain right now. California does not have great bond ratings, and in fact we've been downgraded a couple of times, and it may get pretty tough to sell these. So here you are with a plan that, in the long run, could be really good for us. It could increase green energy in California, it could make transportation easier, it could cut air pollution, it could create a lot of jobs...but it's got to be paid for upfront, and bond buyers are a lot more cautious than they used to be, and the treasurer's office has been pretty open about saying that they're not sure whether they can sell these or not, and if they do: How much debt is going to be created by an expanded interest rate to try to make them attractive? Down the road, could be scary.

DAVIS: Sacramento political consultant Leo McElroy. Leo, thanks for joining us this morning.

MCELROY: You bet.