May 19 Special Election Key to California Budget

Prop. 1A caps future state spending, increases the state's rainy day fund and extends temporary taxes being used to balance the budget in the upcoming fiscal year. Prop. 1B provides $9.3 billion in new school funding starting in 2011, but only if Prop. 1A also passes. Prop. 1C allows the state to borrow up to $5 billion against future lottery revenues for the 2009-2010 budget. Prop. 1D moves $600 million in tobacco tax money to the general fund and Prop. 1E does the same for $450 million previously earmarked for mental health services. Prop. 1F prohibits government officials from having their wages increased in deficit years.

The measures were part of the compromise legislative leaders reached with Schwarzenegger in February, and both sides apparently feel compromised. The state Democratic Party will only endorse three of the measures (1B, 1C, 1F) because a majority of delegates failed to vote in favor of the other three at the party's annual convention last week. One week earlier, state Republican Party officials voted to oppose all six.

Regardless of the outcome of the May vote, the Legislature will be revisiting the budget issue this summer. Assuming all measures pass, the state still faces an $8 billion deficit in the new fiscal year beginning July 1. If some fail, especially the lottery measure, the deficit for the upcoming fiscal year will skyrocket.

Less quantifiable is the impact California's budget mess will have on commercial real estate. It's hard to know about job growth opportunities the state never heard about because of its unenviable situation, says Colliers San Francisco SVP and managing director Scott Harper.

"It's a distraction in the sense that companies considering launching or expanding their operations here are hearing a tone coming out of Sacramento that is not positive," says Colliers San Francisco SVP and managing director Scott Harper. "That's not good for the business climate, but I can't pinpoint where it has kept companies from growing further."

It's not only the state facing budget woes. San Francisco's budget deficit next year is projected to be $438 million and could reach nearly $750 million in 2011 assuming it maintains current levels of public services and civil employees and property taxes growth doesn't pick up again very quickly, according to a report released Tuesday.Property tax revenues, after years of 11% growth, are now growing at 1%, a pace not expected to accelerate anytime soon.

Meanwhile, Oakland city leaders are trying to cover an $83 million deficit in the coming fiscal year and in San Jose the projected budget deficit is at $62 million and rising. In each case hundreds of city jobs as well as facilities and services are at risk.