California fiscal analyst projects large surpluses

California's budget is on track for multibillion dollar surpluses in the coming years, the Legislature's nonpartisan fiscal analyst said Wednesday in an upbeat assessment of the state's fiscal picture.

An improving economy and continuing revenue from voter-approved tax increases in 2012 have left state finances in strong shape, Legislative Analyst Mac Taylor wrote in his office's five-year fiscal outlook released this morning.

The state is projected to have a $5.6 billion reserve by June 2015. Taylor, though, offered a note of caution in the report, the second-straight rosy review of state finances after years of red-ink warnings.

"Despite the large surplus that we project over the forecast period, the state's continued fiscal recovery is dependent on a number of assumptions that may not come to pass," he wrote.

Taylor projected annual surpluses to grow more slowly after the 2016-17 budget year, as tax increases from Proposition 30, Gov. Jerry Brown's ballot initiative last year to raise taxes, phase out. The impact will be felt over several years, however, and Taylor told reporters "you don't have one really dramatic year in which revenues fall off."

The revenue forecast remains highly dependent on capital gains. Taylor said the market "is not out of line like it was in the dot com boom."

Brown has taken steps in recent weeks to temper spending expectations ahead of the release of his annual spending plan in January, and his administration continued to urge caution Wednesday.

"Recent history reminds us painfully of what happens when the state makes ongoing spending commitments based on what turn out to be one-time spikes in capital gains," Michael Cohen, Brown's director of finance, said in a prepared statement. "We're pleased that the analyst's report shares the governor's view that discipline remains the right course of action. The focus must continue to be on paying down the state's accumulated budgetary debt and maintaining a prudent reserve to ensure that we do not return to the days of $26 billion deficits."

Read more here: http://blogs.sacbee.com/capitolalertlatest/2013/11/california-fiscal-analyst-projects-large-surpluses.html#storylink=cpy

Read more here: http://blogs.sacbee.com/capitolalertlatest/2013/11/california-fiscal-analyst-projects-large-surpluses.html#storylink=cpy

Sales Taxes Set to Rise in Many California Cities

For money-minded shoppers, it could be a great weekend to buy a car, stock up on gardening tools, maybe spring for a new washer/dryer or even a few pair of designer jeans.

That's because starting Monday, a blizzard ofsales tax hikes kicks in for more than 20 cities and counties statewide, including Sacramento city.

For recession-ravaged municipalities from Carmel to Culver City, the sales tax increases – which range mostly from a quarter- to a half-cent on every dollar of sales – are intended to boost revenues. In Sacramento, the bump – from 8 to 8.5 percent – is estimated to bring in an additional $28 million a year. The increases have businesses retooling, tax groups fuming and consumers paying up.

"We get customers grumbling about it when they buy a big-ticket item. But there's not much they can do about it," said Jay Joseph, general manager of Manuel Joseph Appliance Center on Northgate Boulevard.

On a $1,000 refrigerator, for instance, the new Sacramento city rate will mean an extra $5 in sales taxes.

"It won't have a huge impact, only because people are accustomed to the increases. In the whole scheme of things, it's not a lot of money," said Joseph.

For bigger-ticket items, there's more to pay, obviously. On a $25,000 Ford Escape, for instance, Sacramento buyers will pay an additional $125 in sales tax. (With vehicles, sales tax is based on the owner's registration address, not where the dealership is located.)

"I'm not worried about it," said Downtown Ford general sales manager Kit Kinne, who said an extra $125 would hardly be noticed. "Most people are financing their cars so the difference in payments over 60 to 72 months is negligible."

Nevertheless, it causes some head-scratching for businesses, especially those that have multiple locations in different cities.

It means that Macy's in Downtown Plaza will charge a different rate than Macy's in Sunrise Mall.

For the State Board of Equalization, which oversees the new rates, it's a simple calculation. "A retailer selling goods at a store must charge the sales tax rate for the jurisdiction in which that store is located, regardless of where the customer resides," said BOE spokesman Jaime Garza in an email.

At the Filco Appliance Superstore on Fulton Avenue, owner Tony Saca said the new sales tax jump probably won't be noticed by customers coming in to replace a worn-out washer, dryer or refrigerator. "We are a necessity item, so I doubt it will affect us. If their refrigerator is dead, they don't care. They have to bite the bullet and pay it."

But tax watchdog groups aren't happy about the prospect. "We think it's bad news in that we already have a very slow economic turnaround," said David Kline, spokesman for the California Taxpayers Association. "The forecast is for very slow growth in California's economy. More sales taxes will certainly not help."

Coupled with the Proposition 30 statewide sales tax that added a quarter-cent starting Jan. 1, plus the return of a 2 percent federal payroll tax, consumers are definitely paying more taxes than they did a year ago.

"You add it all up and it's more money out of your pocket," said Kline. "People may decide to postpone purchases or not make them at all. It calls for people to tighten up their budgets."

It also creates a confusing mix of tax rates across California. According to the BOE, 19 cities increased their sales tax, effective April 1. Three counties – Marin, San Mateo and Santa Clara – upped theirs.

In addition, a handful of cities extended the expiration date of existing sales tax increases. In Salinas and Williams (Colusa County), voters pushed them out indefinitely. In Trinidad, inHumboldt County, the current tax rate was extended to 2017. The longest extension was in Fresno County, which stretched its rate out to 2029.

But come Monday, if it's any consolation, be happy you're not living in Los Angeles County's La Mirada. Voters there approved a 10 percent sales tax, one of the highest anywhere in California.

via the Sacramento Bee

Read more here: http://www.sacbee.com/2013/03/30/5303828/sales-taxes-set-to-rise-in-many.html#storylink=cpy

Jerry Brown Creates California Surplus Miracle, But Can It Last?

Something close to a civic miracle seems to have occurred—at least on the surface.

California has long been synonymous with budget deficits so deep that it looked like the Golden State would inevitably be our Greece—beautiful and bankrupt.

But Gov. Jerry Brown announced that his state has suddenly projected a surplus of $851 million. Two years ago, when Brown came back into office, the state had a $25.4 billion deficit, a Sisyphean problem Governor Arnold struggled with unsuccessfully all last decade.

This reversal of fortune raises a lot of questions. What caused California’s budget turnaround? Is it sustainable? And finally, could there be a national lesson here as Washington tries to confront deficits and debt?

The top-line takeaway is that a balanced deficit-reduction approach seems to have worked in the Golden State. When he entered office in 2011, Brown proposed billion-dollar-plus cuts in welfare and Medi-Cal, as well as $500 billion from the UC system.

All told, his initial proposed budget was almost $20 billion less than Governor Schwarzenegger’s 2008–09 budget, which clocked in at $103 billion. Democrats and unions howled, and Brown’s ultimate budget was less austere than originally advertised, but deep cuts were enacted.

Crucially, Brown also took on the unpopular task of raising taxes—winning a 2012 ballot fight sonorously known as Proposition 30 and 39—that raised sales taxes and closed business tax loopholes. Next year, the combined new revenues are expected to exceed $5.8 billion.

The final factor is an improving economy—always the decisive X factor in deficit-reduction efforts. California’s economy is improving slowly, but the shift from the pit of the Great Recession moved the numbers in the right direction.

The result of increased tax revenues and spending cuts is that—at least for now—a projected deficit has been turned into a surplus.

This is good news. But not everyone is happy. And the numbers do sidestep a deeper problem.

Remember, deficits and debt are different things. Projected year-to-year deficits are comparatively easy to close, especially on the back of an improving economy. But out-of-control debt is ultimately what drags you down.

The Los Angeles Times offered a front-page reality check, under the headline “Debt a Cloud Over State’s Future,” pointing out the inconvenient fact that California “has accumulated a crushing load of debt for retiree pensions and healthcare now totaling more than taxpayers spend each year on all state programs combined.” Ouch.

Brown’s budget does begin to pay down the debt, but the outstanding amount dwarfs the pay-down. Of course, that hasn’t stopped liberal activists from demanding more money be spent immediately on social services, under the banner of “investment.”

Moreover, there are real questions about whether the increased tax burden—especially on the wealthy—will end up eroding the state’s tax base in the near future.

“There’s some doubt that high income taxpayers won’t either move to Nevada—or some other low or no-income tax state—or find other ways, such as delaying realization of cap gains, to avoid hefty new surtaxes—especially since their federal taxes are also increasing,” emails the Sacramento Bee’s Dan Walters. “California’s marginal income tax rate (federal plus state) is now highest in U.S. at highest level, about 52 percent.”

But Walters acknowledges that Brown’s budget miracle is more or less legitimate, at least for now. “It’s mostly new revenue from sales and income tax hike approved by voters in November with a dash of economic recovery and a smidgen of creative bookkeeping such as slowing down some debt repayment and assuming renewal of a tax on health care providers to trigger some federal aid,” Walters’ continues. “But overall it’s mostly the new taxes.”

Other Golden State observers take an even more skeptical view. “There is a reason Gov. Brown is known as Governor Moonbeam,” says KABC’s center-right John Phillips. “Structural deficits are everywhere, the nonpartisan Legislative Analyst’s Office says there’s still a $1.9 billion budget deficit, and rich people can’t cross the state line fast enough—taking revenues down almost 11 percent since the passage of his Prop 30 tax hikes with them. On the plus side, hey, we’re not Detroit!”

The Rust Belt does have problems that make California’s cyclical deficits and deep legislative dysfunction seem comparatively easy to solve. But Jerry Brown deserves credit for pulling off at least short-term success in a state budget situation that had many experts calling impossible to solve. In the near term, the deficit turned surplus highlights the improving national economic environment.

It also provides a compelling object lesson for advocates of a “balanced approach” for reducing deficits, like President Obama & Co. Contrary to conservative talking points about how revenue is not a legitimate part of deficit-reduction solutions—instead, it’s all spending cuts all the time—California’s recent example shows that increased tax rates can help rapidly reduce deficits. Moreover, especially compared with much of Europe, the Obama administration’s decision not to simply pursue a path of deep austerity cuts seems to have been the wiser path, at least for now.

But conservatives could have the last laugh if the wealthiest Californians decide to flee the state for comparatively low-tax climes, like a sun-baked Gérard Depardieu.

Bottom line: This fight ain’t over. But at least for the moment, Jerry Brown’s balanced if painful plan to turn deep deficits into a modest surplus deserves study. It offers a rare glimpse of good news in the relentlessly bleak world of state budget. Whether it is sustainable remains to be seen.

via the Daily Beast