California’s budget deficit has a direct impact on the operation of Dublin and other cities throughout the state. The state budget deficit is currently projected to be $28B through mid-2012. The general fund budget is down 15% over the past three years to roughly $86B due to reduced income tax receipts related to high unemployment and reduced property values. While California’s economy is bigger than Russia’s, it also has the largest deficit and lowest credit rating of all states in the Union. In response to these danger signs, newly-elected California Governor Jerry Brown has proposed a three-step approach to solving California’s fiscal crisis. The governor is expected to be making a hard sell in his State of the State address before the State Legislature this afternoon.

The first step is to pass the proposed spending cuts in California’s legislature. Governor Brown’s proposed cuts include eliminating redevelopment agencies, cutting $1.4B from the state’s higher education system, slashing the take-home pay of six California public employee unions by 8-10%, reducing state health and welfare program budgets by $3.2B. While redevelopment agencies have been given credit for success stories like the revitalization of Livermore’s Downtown District, California’s chief budget analyst Mac Taylor has indicated that redevelopment agencies do very little to stimulate California’s economy overall. The dissolution of Livermore’s redevelopment agency would sound the death knell for its proposed 2,000 seat regional theater.

Next, Brown will appeal to the public in a special election and campaign for a five-year extension to the “temporary” income, vehicle, and sales tax hikes from a few years ago that were supposed to expire in 2010. The last step, which would be the easiest with the passage of Proposition 25, is to get the California legislature to pass the 2011-2012 budget with the cuts and tax increases combined.

“We believe the governor’s proposal is a very good starting point for the Legislature,” Taylor said at a news conference. The governor’s proposal includes “substantial spending reductions in almost all major areas, and we think that’s going to be necessary if we’re going to have a chance to have balance in this budget.”

Governor Brown has so far spared the budgets of K-12 public schools; however, if the five-year extensions on the “temporary” tax increases fail to pass in the upcoming special election, Governor Brown may have to make up the difference by slashing K-12 funding in 2011-2012. Given that former Governor Schwarzenegger went 0 for 4 on special election causes, many across the state are already bracing for the worst.

Many special interest groups are using California’s fiscal crisis as an opportunity to profit. The California Online Poker Association, for example, estimates that online poker operations in California could yield upwards of $100M per year in gambling taxes within just five years, if its member online casinos are allowed to operate in California. Given the financial hole California is in, the promise of such tax revenue is looking more attractive in the State Capitol.

Governor Brown has vowed to not use special gimmicks or borrowing to balance the budget; however, if voters shun the notion of extending the tax hikes, Governor Brown may be forced to cut K-12 public school funding. Governor Brown has promised that the incremental tax revenue will go to the counties and cities, if the tax hike extensions are passed. Still, if the tax hike extensions are not passed, cities and counties will be forced to deal with even larger budget deficits that could result in attempts to get parcel and other local tax measures passed.

The City of Pleasanton and Pleasanton Unified School District are now looking to the voters for revenue enhancement opportunities. The City of Dublin and Dublin Unified School District both explored the option of putting new tax measures on this past November’s ballot, but both aborted their efforts early once they found little public support for additional taxes. How successful would new local tax measures be, if Governor Brown needs to cut local funding even further?

Voters, pick your poison.