March Madness in California

March 26, 2012

After considerable negotiations, the number of tax measures headed to the November ballot has shrunk by one.  On March 14, Governor Brown and the California Federation of Teachers announced a compromise revenue initiative that will likely go to the voters this fall. The compromise slightly alters the Governor’s original proposal, although it preserves a combination of income and sales tax increases. Furthermore, the compromise initiative is consistent with both the Governor and the California Federation of Teachers’ approach of having the wealthiest Californians pay the majority of the tax revenues. More than three-quarters (78.8 percent ) of revenues raised by the compromise initiative would be paid by the top 1 percent of California taxpayers, a group that has experienced tremendous growth in incomes and takes home, on average, $1.7 million annually. The largely progressive tax increase of the hybrid initiative is aligned with the overall trend in income growth over the past two decades: the inflation-adjusted incomes of the top 1 percent increased by 50 percent between 1987 and 2009, while the incomes of the bottom 80 percent of Californians decreased. By limiting the impact on low-income individuals, who would see an average annual tax increase of only $24, the compromise measure relies primarily on the wealthiest Californians to provide necessary funding for our schools and other core public structures.

– Samar Lichtenstein

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Governor Acts on Key Bills

October 10, 2011

Governor Brown completed action this weekend on the roughly 600 bills that the Legislature sent him before adjourning last month. The Governor signed a significant budget-related bill, SB 202 (Hancock), which moves a state spending cap measure from the June 2012 primary election ballot to the November 2014 general election ballot. The spending cap measure – ACA 4 – was placed on the ballot as part of the October 2010 budget agreement. SB 202 also requires future initiatives and referenda to be placed on November general election ballots.

The Governor also signed AB 6 (Fuentes), which eliminates the fingerprinting requirement for CalFresh – formerly food stamp – applicants, although not for CalWORKs welfare-to-work applicants. AB 6 also cuts red tape by shifting from a quarterly to a six-month reporting system for CalFresh and CalWORKs recipients. These changes, which the CBP recommended back in 2009, are expected to increase program efficiencies and boost the CalFresh participation rate, which ranks near the bottom among the 50 states’ food assistance programs. Unfortunately, the Governor vetoed AB 1182 (Hernández), which would have further simplified CalWORKs by eliminating California’s restrictive “vehicle asset test.” Families who apply for CalWORKs generally cannot have a car worth more than $4,650, a limit that has not been adjusted since the mid-1990s. California has one of the strictest limits in the nation despite the fact that Californians rely heavily on their cars to get to work, and in today’s market a car worth less than $4,650 is not likely to be very reliable, to say the least. Let’s hope the Legislature gives the Governor an opportunity to reconsider his veto next year.

– Scott Graves

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New Report Shows Strong Support for Local Tax Measures

May 24, 2011

With California continuing to reel from the impact of the Great Recession, voters’ support for public services during tough economic times was put to the test last November when nearly 200 local tax and general obligation (GO) bond measures appeared on ballots across the state. The results? Voters passed 116 (59.5 percent) of the 195 proposals, according to a new report from the California Debt and Investment Advisory Commission (CDIAC).  In fact, a majority of the measures that voters approved (56.9 percent) required a supermajority vote of either 55 percent or two-thirds in order to take effect. The report shows that:

  • Voters approved nearly three-quarters (73.1 percent) of the 67 GO bond measures on local ballots, most of which will fund K-12 and community college construction projects. It’s not surprising that nearly all of the local bond measures proposed and approved in 2010 are related to education: bonds for educational purposes can be authorized with a 55 percent vote of the people, whereas other local bonds must meet a much tougher two-thirds vote threshold. Furthermore, it’s worth noting that local GO bonds, unlike state bonds, are repaid out of an increased property tax rate. Therefore, when voters approve a local GO bond, they are voting to raise their property taxes.
  • Voters passed nearly two-thirds (64.1 percent) of the 78 “general purpose” tax measures on local ballots, including sales, business license, and hotel/motel taxes. General purpose tax revenues may be used for any governmental purpose and require only a simple majority vote to take effect.
  • Voters supported more than one-third (34.0 percent) of the 50 “special purpose” tax measures in November 2010, primarily to fund education and emergency services. Forty-nine of those measures were local tax proposals, which require a two-thirds vote in order to take effect. One special purpose tax measure – Proposition 21, which would have imposed a vehicle license surcharge to support state parks – appeared on the statewide ballot but failed to receive the required majority vote. CDIAC notes that nearly 80 percent of the special purpose tax measures on the November 2010 ballot received at least a simple majority of the votes cast, although only those that met the two-thirds threshold required for local measures took effect.

Some Californians were more willing than others to approve tax and bond measures, according to the report. Voters in the San Francisco Bay Area and in the Los Angeles region – Los Angeles, Orange, and Ventura counties – approved more than two-thirds of the measures that appeared on their local ballots (68.5 percent and 68.0 percent, respectively). In contrast, San Diego/Inland Empire voters approved slightly less than half (47.4 percent) of the measures on their local ballots. Voters in the Central Valley were the least receptive toward tax and bond proposals, approving just 39.4 percent of the measures on their local ballots.

One of the key sticking points in the 2011-12 state budget debate is whether to ask California voters to extend, for a few more years, temporary taxes enacted in 2009 that expire this year. Despite some regional differences, results from the November 2010 ballot suggest that voters are more willing to support revenues to help close the state’s remaining $9.6 billion budget gap than the debate playing out in the state Capitol would suggest.

– Scott Graves

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Dark of Night Tax Deal To See the Light of Day

February 10, 2010

Late last week, press reports noted that an initiative to repeal the September 2008 and February 2009 “dark-of-night” tax deals would be going forward. We’ve since independently confirmed reports that the California Teachers Association plans to gather signatures to restore California’s corporate tax laws to where they were prior to the midnight mischief.

A June 2009 CBP Brief documents the impact of the massive tax breaks that would go to a handful of the state’s largest and most profitable corporations under the two sets of changes. Repeal of these tax breaks would increase revenues by an estimated $600 million in 2010-11, rising to $1.7 billion in 2011-12, the first year the dark-of-night tax breaks would be fully in effect. While that wouldn’t solve the state’s budget woes, the additional money would provide much needed funds that could be used to offset spending reductions in the Governor’s Proposed Budget. In 2010-11, for example, the additional $600 million would be enough to “buy out” the Governor’s proposed reductions to CalWORKs’ cash assistance grants, reimbursement rates for child care providers, the Healthy Families Program, and programs that provide assistance to legal immigrants. The $1.7 billion cost of the tax breaks at full implementation approximately equals the combined savings from the Governor’s proposed 2010-11 cut to funding for schools and community colleges and student aid plus the state’s savings from elimination of the Healthy Families Program.

We’ve said it before and we’ll say it here again before a new budget is inked into law. Budgets are about values and choices. And this one offers voters a particularly stark choice. And last, but not least, regardless of the ultimate outcome on election day, should the proposed measure qualify for the ballot, these tax breaks may get the one thing they didn’t get prior to enactment: A public hearing. That’s because the Legislature is required to hold a hearing on measures headed to the voters.

–Jean Ross

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No Free Lunch

November 12, 2009

Bond measures often succeed at the polls, and it’s easy to see why. They require only a simple majority vote; generally – but not always – pay for infrastructure, such as schools and highways; and appear to be “free money” since voters aren’t asked to raise taxes in order to repay the bondholders. In reality, there’s no free lunch. Debt service (principal plus interest on bonds) becomes a new General Fund obligation paid out of the same limited revenues that also fund services that enhance the quality of life for all Californians – everything from K-12 and higher education to in-home care for low-income seniors and people with disabilities.

A recent report by State Treasurer Bill Lockyer shines a spotlight on this issue. The report shows that debt service on voter-approved bonds (including those that are projected to be approved and sold over the next two decades) will consume a rising share of the state budget. The report projects that the state’s “debt ratio” – debt service as a share of revenues – will increase from 6.71 percent in 2009-10 to 10.16 percent in 2014-15. The debt ratio is projected to remain above 10 percent through 2020-21 before gradually declining to 9.18 percent in 2027-28. These debt ratios reflect fairly conservative estimates of state economic growth, and thus could be lower if the state’s economy outperforms the Treasurer’s expectations. On the other hand, the state’s debt ratios could be higher than projected if economic growth turns out to be weaker than the Treasurer assumes.

To sum up: Within a few years, more than 10 cents out of every General Fund dollar could be used to pay debt service – the highest proportion in the state’s history – leaving fewer resources to pay for programs and services that sustained deep cuts this year and that face the prospect of more cuts in 2010.

The fact that debt service could increasingly crowd out spending for vital public services makes us apprehensive about the water deal recently reached between the Legislature and the Governor. The deal includes an $11.14 billion bond measure that would be entirely repaid out of the General Fund if the voters approve it in November 2010. Anticipating this outcome, the Treasurer’s report states that “further increasing the General Fund’s debt burden, especially in the next three difficult budgets, would require cutting even deeper into crucial services already reeling from billions of dollars in reductions.” Instead, the Treasurer makes a case for “user-funding for most water system improvements … both as a matter of equity and fiscal prudence.”

– Scott Graves

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