New state budget shortage threatens rural programs

Issue Date: November 12, 2008

By Kate Campbell
Assistant Editor

The global financial meltdown is sinking California's economy and capsizing its hard-fought 2008-09 budget--signed just two months ago. The emerging shortfall for this fiscal year is now projected at more than $11 billion.

To rescue the situation, Gov. Arnold Schwarzenegger has called a special legislative session and has laid out an action plan that includes $4.7 billion in tax increases and $4.5 billion in budget cuts. Several proposed cuts could affect programs serving farmers, ranchers and rural Californians.

"Everyone acknowledges that the current fiscal crisis is extraordinary and poses significant challenges to all of us," said California Farm Bureau Federation Administrator Rich Matteis. "The current situation calls for both careful analysis and well-considered decisions."

As budget-balancing decisions are made, Matteis said, "Farm Bureau will remain vigilant and engaged in developing solutions that ensure we're all working towards an adjusted budget that is fair to all."

The governor's proposed budget cuts include the permanent elimination of state support for the Williamson Act, a program that protects more than half of California's 30 million acres of farmland from development pressure. The savings to the state budget would be $34.7 million, stopping payments to 54 counties that participate in the conservation program.

"We understand the seriousness of California's financial situation, as well as the economic strains across the world," Farm Bureau Director of Taxation and Land Use John Gamper said. "Our concern with the proposal to permanently eliminate the Williamson Act, however, is that it's an invaluable, cost-effective tool for protecting an important resource."

The state payments help counties to offer lower property taxes to landowners who agree to maintain their land in agricultural production. Gamper stressed that rural counties cannot afford to continue to offer the Williamson Act program without the state helping backfill the forgone property tax revenue.

"The Williamson Act program is crucial to the viability of many farms and ranches," Gamper said. "That makes it vital for maintaining the food supply for our state and nation. The subventions from the state can be a significant contributor to rural county coffers, yet it is only .036 of 1 percent of the state's currently approved budget."

He points out that this newest budget crisis isn't the first time Williamson Act funds have been singled out for cuts. In budget negotiations earlier this year, the farmland conservation program was reduced 10 percent and the entire program has been proposed for elimination before.

Gamper said the administration may see the Williamson Act as a good bargaining tool for finding budget compromises with rural legislators in other parts of the budget.

"Whatever the reason, we cannot create more farmland once it's gone and the Williamson Act has proven to be one of the most effective resource conservation tools in state history," Gamper said.

If the counties decide to withdraw from the program, land use experts say more land will be subdivided for homesites, many in critical watershed areas, thus putting the environment at further risk and driving up the cost of rural fire protection.

Also on the chopping block is funding for rural crime prevention programs, which would cut another $3.7 million from next year's budget.

"Our members in the San Joaquin Valley and Central Coast rely on rural crime detectives to help prevent and investigate a wide range of criminal activity," said Noelle Cremers, Farm Bureau director of natural resources and commodities. "Farmers and ranchers have been facing a metal theft epidemic and the rural crime detectives funded by this program have been on the front lines combating these thefts. After all the effort that the Legislature and Gov. Schwarzenegger put into addressing metal theft, it's surprising that he is now proposing to cut the program that has focused on combating the issue."

Other proposed budget adjustments that would impact businesses, including agricultural operations:

• A temporary three-year increase in the state sales tax, from 5.25 percent to 6.75 percent.
• Effective Feb. 1, 2009, the sales and use tax rate will be applied to veterinary services, as well as to a host of other previously untaxed services.
• Vehicle registration fees would increase by $12. This would be on top of the $11 fee increase already approved in the 2008-09 budget.

In addition, California's rising unemployment, now at about 7.7 percent, has placed additional strain on the Unemployment Insurance Trust Fund. The financing system for the fund is more than 20 years old and, while benefits have increased, contributions have remained the same. The governor said that without action, the fund is projected to be insolvent beginning in 2009.

"Farm and ranch employers help pay for the unemployment insurance system, in part because they benefit from a more stable work force, and we are very interested in seeing the fund's insolvency issue resolved," said Bryan Little, chief operating officer for the Farm Employers Labor Service.

He said that will require "a more reasonable way" of financing the system.

"The sooner we can arrive at that solution the more secure our workers, our communities and our food supply will be," he said.

Little said inability to address the unemployment insurance fund's deficit will trigger a loan from the federal government to cover the shortfall. That loan will include interest payments, which by law cannot be paid for from the state's General Fund. Both payment of interest and principal will have to come from unemployment insurance tax revenue, which employers pay.

"The upshot is that employers will end up paying more, sooner or later," Little said. "The question is whether we can work out a better system that will benefit workers and employers alike."

The overall budget plan Schwarzeneg­ger outlined last week will serve as the starting point in negotiations with the Democratic and Republican leaders of the state Legislature. The Legislature has until Nov. 30, when legislators' current terms end, to address the deepening crisis. If the Legislature doesn't agree on budget corrections by then, the legislative session will end and a new session will begin on Dec. 1. Another special legislative session to address the budget shortfall could be called after that.

"In the six weeks since I signed our last budget the mortgage crisis has deepened, unemployment has increased and the stock market has lost almost 20 percent of its value," Schwarzenegger said in a prepared statement.

"We have drastic problems that require drastic and immediate action--we must stop the bleeding right now," Schwarzenegger said.

(Kate Campbell is a reporter for Ag Alert. She may be contacted at kcampbell@cfbf.com.)

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