Looking a Gift Horse in the Mouth

March 18, 2009

In a near-party-line vote, the Assembly turned down billions of federal dollars for the unemployed Monday. A bare-bones version of a bill to bring California’s Unemployment Insurance (UI) system into compliance with the American Recovery and Reinvestment Act – and help the state’s long-term unemployed – was defeated by a single vote. The bill in question would have enabled jobless Californians to receive an estimated $2.5 billion to $3 billion for Extended Benefits – with the state on the tab only for what the Assembly Floor analysis estimates as “likely minor” costs of payments for workers laid off by the state and schools.

This vote, absent future action, means that workers who run out of both their regular UI benefits, a maximum of 26 weeks, and special federal “emergency” benefits, up to 33 additional weeks, and are still out of work will miss out on up to 20 more weeks of benefits. The National Employment Law Project projects that more than 168,000 unemployed Californians will be in that boat by June. The Legislature’s action also means that local communities will miss out on the economic impact that billions of federal UI dollars would have as the unemployed use their benefits to buy groceries and pay their mortgages.

– Vicky Lovell

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The “Determinators” Discuss the Budget Trigger

March 17, 2009

State Treasurer Bill Lockyer and Finance Director Mike Genest – whom Lockyer referred to as the “determinators” – held a public hearing this morning at the state Capitol on the $10 billion federal funds “trigger” that the Legislature wrote into the 2009-10 budget agreement. The CBP’s executive director, Jean Ross, was one of many concerned Californians who testified at the hearing. Her testimony recapped points made in a letter to Lockyer and Genest, who are charged with deciding whether California will receive sufficient federal funds by June 2010 to eliminate, or trigger off, $948 million in cuts and a $1.8 billion personal income tax increase. Lockyer and Genest did not make a decision at today’s hearing. A final decision is likely to come at a second public hearing later this month.

– Scott Graves

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What’s Wrong With This Picture? Part 2

March 12, 2009

A while back, we blogged on the impact of the change in personal income tax rates included as part of the tax changes in the recent budget agreement. Our colleagues at the Institute on Taxation and Economic Policy have modeled the impact of the full tax package on Californians at various income levels. The verdict? The lowest-income Californians will pay the largest share of their incomes toward the tax increase, while the wealthiest will pay the least.

Moreover, the disparity between the impact on the lowest- and highest-income Californians is even wider than that for California’s state and local taxes as a whole, with the poorest fifth of the state’s taxpayers paying more than twice as large a share of their income for the added taxes as the wealthiest 1 percent.

And again, it is worth noting that not everyone will pay higher taxes as a result of the recent budget agreement. The budget included three temporary and one permanent, and very large, tax cuts that will complicate future years’ budgets by cutting state revenues by more than $1.5 billion per year at full implementation. But more on that later.

– Jean Ross

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The LAO Opines on Budget Trigger as Key Meeting Nears

March 11, 2009

Yesterday, the Legislative Analyst’s Office (LAO) issued its analysis of the federal economic recovery bill. The LAO estimates that California will receive a total of $31.5 billion in “state aid” – meaning additional federal funds for state programs – during the current and next two federal fiscal years. This estimate is lower than the CBP’s estimate, which exceeds $50 billion, for a couple of reasons. First, we tallied federal dollars that will flow to California’s residents and local governments as well as to the state government. This includes $1.8 billion to increase the number of families who qualify for the federal Child Tax Credit in 2009 and 2010, and $1.5 billion for increased nutritional benefits through the Supplemental Nutrition Assistance Program (formerly the Food Stamp Program). Second, we included funds that will benefit California and Californians both before and after the LAO’s cut-off date.

The LAO also waded into the budget trigger issue that we’ve blogged about. The LAO reached a conclusion that, at first glance, is similar to the Department of Finance’s position. However, the LAO also notes that the trigger language is “open to interpretation.” Specifically, the wording “raises such questions as whether $10 billion must actually be used to offset state General Fund costs, or whether this requirement would be satisfied if funds of this amount were identified that theoretically could be used in this way.”

We can only hope that Director of Finance Michael Genest and State Treasurer Bill Lockyer keep this point firmly in mind when they hold their public hearing on the trigger on Tuesday, March 17, at 10 a.m. in the state Capitol, Room 4203.

– Scott Graves

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Treasurer Shines a Light on the Trigger

March 6, 2009

We previously blogged about the budget trigger provision in the 2009-10 budget agreement, which will prevent certain cuts and a tax increase from taking effect if the state gets sufficient federal funds from the economic recovery bill. An initial estimate from the Department of Finance (DOF) indicated that California would not achieve that threshold, but the DOF has not publicly released its methodology. Now the DOF methodology has seen the light of day thanks to State Treasurer Bill Lockyer, who has posted it to his website.

– Scott Graves


1 Comment | State Budget, State Taxes | Permalink
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