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Honeymoon's over: finances top list of concerns for state.

In his waning hours as governor, Gray Davis replaced two-term California Board of Accountancy member Michael Schneider with two new appointments--sole practitioner Olga Martinez, CPA and Ruben Davila, CPA, a USC professor of accounting with a litigation practice.

Both were appointed in time to attend the Nov. 14 board meeting.

Enter the New Governor

Almost as soon as he relaxed his arm from the swearing in, Gov. Arnold Schwarzenegger lifted a pen to sign an executive order that stopped all regulations that had not yet taken effect.

He also called for a review of all regulations adopted since 1999 to ensure that the fiscal analyses of impacts on business were appropriately completed.

The CBA had been working on a regulatory package that was one hour from becoming effective when it received notice of the executive order.

The affected regulations help clarify and make specific the statutes on work paper retention, documentation and reportable events. CalCPA is working with the CBA and governor's office to get the regulations adopted since the statutes that were enacted are confusing, overly broad and in some instances call for licensees to report confidential client financial information to the CBA.

Additionally, the proposed regulations contain the specific implementing language necessary to allow California CPA candidates to sit for the computerized exam. If California fails to enact the regulations in time, exam candidates could be at a disadvantage.

Special Legislative Session

Tempers were flaring shortly after the new governor assumed office. Political pundits were calling it the shortest honeymoon on record for any governor.

Gov. Schwarzenegger called the Legislature into special session to deal with several issues, including workers' compensation reform; spending plans to address the state's fiscal crisis; placing a $15 billion bond issue on the March ballot; and repealing Davis' bill that would have provided driver's licenses to illegal immigrants.

The driver's license issue was resolved quickly, but not without emotional appeals from supporters and a commitment from Schwarzenegger to discuss the issue further.

The state's fiscal issues proved to be much more difficult to address. Some Democrats insist that raising taxes is the only way to solve the fiscal crises, while some Republicans are insisting that allowing the $15 billion bond issue to be placed on the ballot will just encourage future fiscal irresponsibility.

Schwarzenegger asked that the Legislature adopt some kind of spending cap to avoid future deficit spending.

These issues were adamantly opposed by public employee unions, groups dependent on government funding, public education and those who think that the entire issue of government financing should be placed on the ballot and give Californians the choice of making cuts, borrowing money or raising taxes.

California already has borrowed the $15 billion in a series of short-term notes that have a relatively high interest rate. Adoption of a bond issue could actually result in cost savings over time if investors are convinced that California has sufficiently addressed its current and future fiscal issues to provide a dependable source of revenue for those bonds.

Proposition 56

Ballots in California promise to become even more complex as more issues go directly to the people for resolution.

Signatures are being gathered for 23 initiatives; two propositions have qualified for the March 2 ballot; one has qualified for the Nov. 2 ballot; and 14 initiatives are being reviewed by the attorney general prior to circulation (signature gathering).

Of immediate interest to the business community is Proposition 56, which will appear on the March ballot. The proposition permits the Legislature to enact budget and budget-related tax and appropriation bills with a 55 percent vote of the Legislature rather than the two-thirds vote currently required.

Reapportionment has made virtually every district the property of one party or another. This has left the state with a permanent split of 48 Democrats and 32 Republicans in the Assembly, and 25 Democrats and 15 Republicans in the Senate.

If passed by the voters, Proposition 56 would mean that a budget approval or a new tax passage would only need 44 votes in the Assembly and 22 in the Senate.

Proponents believe the two-thirds requirement allows the minority party to hold up the budget and this measure would break that logjam.

Also included in the proposition is a requirement that the Legislature and governor permanently lose their salary and expenses for each day the budget is late and that the Legislature stay in session until the budget is passed.

The measure also would require that 25 percent of specific state revenue increases--up to 5 percent of the general fund--be deposited in a reserve fund which cannot be used to increase state spending.

While this portion of the initiative should be attractive to voters, the overall impact could be devastating to a state that already is unable to adequately fund its spending programs.

Opponents include most business groups, industry associations and taxpayer rights groups who argue that the initiative is an ill-disguised attempt to make it easier to raise taxes.

The California Chamber of Commerce is referring to Proposition 56 as "the Blank Check Initiative," while supporters--including the AARP, public employees, Common Cause and public hospitals and schools--are calling it the "Budget Accountability Act." These groups say the initiative would end budget stalemates and increase accountability.

Bruce C. Allen is CalCPA's director of government relations.
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Title Annotation:GovernmentRelations
Author:Allen, Bruce C.
Publication:California CPA
Geographic Code:1U9CA
Date:Jan 1, 2004
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