Another Prop. 30 income tax increase now aiming for 2016

A group of health and youth advocates on Monday introduced a ballot initiative to expand and make permanent the Proposition 30 income tax increases on the state’s highest earners.

The proposal, led by the California Hospital Association, the Service Employees International Union-United Healthcare Workers West and Common Sense Kids Action, is the second tax measure aiming for next year’s ballot that would extend the 2012 income tax increase.

Similar to Proposition 30, the latest measure would increase taxes on couples earning at least $580,000 annually. Those taxes were set to expire at the end of 2018. It also would impose even higher income tax rates for so-called “super-earner” couples that make more than $2 million a year.

Half of the estimated $10 billion a year in annual revenues would go to K-14 education; 40 percent to California’s Medi-Cal program for low-income people; and the remainder to prekindergarten and early childhood development programs. And it calls for a “rainy day” budget reserve modeled on last fall’s Proposition 2.

California has more kids living in poverty and greater income inequality than virtually any other state, Jim Steyer of Common Sense Kids Action said in a statement announcing the tax increase. Steyer said the measure asks the wealthiest to “pay a little more so we can make the investments every California kid needs to have a great start in life.”

Money from the Invest in California’s Children Act could go to any number of health care-related programs, including to reimburse physicians and other health care workers, who see Medi-Cal patients or to replace a tax on managed-care organizations that expires June 30.

The move creates the potential for another tax-hike clash between well-heeled and well-connected interest groups operating across the state. In 2012, Proposition 30 championed by Gov. Jerry Brown appeared on the same ballot as the unsuccessful Proposition 38 tax hike supported largely by Molly Munger.

It’s unclear whether Brown, who is termed out in 2018, will get involved this time. He said repeatedly that his 2012 tax measure was temporary and should remain so.

Last week, the coalition including the California Teachers Association, Service Employees International Union, and other public safety and public employees’ unions, introduced their version of a Proposition 30 income-tax extension that would run through 2030. The estimated $7 billion to $9 billion in annual proceeds would be deposited into an account for K-14 schools.

That campaign is being run by Gale Kaufman, who at the time stressed its temporary nature along with its promise to help maintain a balanced budget, and to prevent deep cuts to programs affecting students, seniors, working families and health care.

Both measures would allow the sales tax increase in Proposition 30 to expire in 2016.

The measure unveiled Monday is being guided by the SCN Strategies team led by Ace Smith, who ran the original Proposition 30 campaign and Brown’s gubernatorial campaigns. Its proponents stressed the need for sustained education and heath care funding given the state’s crowded classrooms and its near-bottom rankings on Medicaid spending.

If both measures qualify for the ballot and pass, the one with the most votes would prevail.







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Via: http://www.sacbee.com/news/politics-government/capitol-alert/article35998542.html

Agreement on California business property tax bill blows up

It wasn't exactly a chorus of Kumbaya, but a few weeks ago, two lobbyists who have battled each other for decades over property tax policy sat together at a legislative hearing to praise a compromise bill.

Lenny Goldberg, who represents the California Tax Reform Association, praised the bill, which would alter the circumstances under which commercial property could be reassessed for tax purposes, as a "step forward."

"I get a little nervous sitting here with Rex Hime," Goldberg told the Assembly committee considering Assembly Bill 2372, referring to the president of the California Business Properties Association. "He and I have been at it for many, many years." Hime nodded in agreement.

However, when the bill, having passed the Assembly, reached the Senate Governance and Finance Committee on Wednesday, Goldberg pulled his support, saying in a letter to the measure's author, Assemblyman Tom Ammiano, D-San Francisco, that it "does not provide real reform" and would allow business owners to escape reassessment with "slightly more sophisticated steps."

Under current law, adopted after Proposition 13 passed in 1978, business property is reassessed only when it changes ownership in one transaction. Goldberg and other critics have argued that it allows business deals to be structured in ways that avoid reassessment, mostly by never having more than 50 percent to be changed in any one transaction.

AB 2372, hammered out in weeks of private negotiations, says that property can be revalued for taxation when 90 percent changes ownership in a three-year period. It's backed by many business organizations as a way of staving off a long-threatened ballot measure that would create a complete "split roll" that treats business and residential property differently for tax purposes.

"We supported it as a means of opening up the discussion which we have always sought," Goldberg said in an email after Wednesday's hearing and committee approval, "but not as meaningful reform.

"Our concern is that, like many bills in the legislature, it projects the image of reform, allowing business to say, 'we closed the loopholes,' rather than the substance, since it in effect grandfathers in the thousands of properties which have changed ownership without reassessment."

Goldberg complained in his letter to Ammiano that his bill's change should apply retroactively to previous transactions that met its qualifications for reassessment. He also complained about amendments on the Assembly floor made after the hearing at which he appeared with Hime.

Goldberg's pullback drives a wedge between him and Ammiano, who has also been a long-standing champion of changing tax assessments on business property. Whether the split is fatal will depend on what happens when the bill hits the Senate Appropriations Committee and, perhaps, the Senate floor.

Were it to fail in those two venues, back in the Assembly or at Gov. Jerry Brown's hands, the long-pending issue might, indeed, find its way onto the ballot in a split roll initiative.

In a related action, the Assembly Revenue and Tax Committee rejected another business property tax bill, one aimed at making it easier to impose higher parcel taxes on commercial property.

The measure, Senate Bill 1021, would allow local school districts to impose higher parcel taxes on business than it did on residential property. Under current law, parcel taxes must be equal amounts on each parcel regardless of size or value.

SB 1021, carried by Sen. Lois Wolk, D-Davis, won Senate approval but faced stiff opposition from theCalifornia Chamber of Commerce, which labeled it a "job killer," and other business groups, leading to rejection in the Assembly committee.

Wolk introduced the bill after a court ruled a differential parcel tax imposed by one school district to be illegal.

PHOTO: Lenny Goldberg is the executive director of the California Tax Reform Association. Photo courtesy of Lenny Goldberg

Read more here: http://blogs.sacbee.com/capitolalertlatest/2014/06/agreement-on-business-property-tax-bill-blows-up.html#storylink=cpy

California Senate Committee Stands up to Big Oil, Passes SB 1017

 The California State Senate Committee on Education stood up to the big money of Big Oil and took a step forward in the fight to end California’s status as the only oil and gas producing state in the nation to not tax the extraction of energy resources. SB 1017 could raise more than 2 billion dollars for California’s underfunded public universities and community colleges, devastated health and human services programs, and state parks.

Check out www.BigOilBeacon.com to see how Big Oil tries to buy big influence in Sacramento. Let’s end Big Oil’s free ride by passing SB 1017!

via: http://www.california-partnership.org/2014/04/24/california-senate-committee-stands-up-to-big-oil-passes-sb-1017/

California Sells $2 Billion in Debt as Taxes Roll In

California, the most-indebted U.S. state, began a $2 billion tax-exempt general-obligation bond sale as income taxes, which account for 63 percent of revenue, outpace projections.

The state, which plans to raise $1.25 billion for capital projects and $750 million for refinancing debt, is taking orders from individual investors today. Sales to institutions such as mutual funds and final pricing will take place tomorrow, said Tom Dresslar, a spokesman for Treasurer Bill Lockyer.

California’s second general-obligation sale this year comes as individual income-tax payments have exceeded both projections and 2012 levels before the April 15 filing deadline, according to figures compiled by Controller John Chiang. 

California debt is becoming safer as the state economy rebounds and Governor Jerry Brown and lawmakers reduce long-term obligations, said John Ceffalio, municipal credit analyst for New York-based AllianceBernstein Holding LP (AB), manager of $443 billion in assets.

“For this fiscal year to date, it looks solid and is running above estimates,” Ceffalio said of California revenue. “There’s always a chance of an April surprise on one side or the other. Long-term, there’s always a chance of volatility owing to the progressive nature of California’s income tax.”

Preliminary Yields

California is offering bonds maturing in October 2023 to individual investors at a preliminary yield of 2.33 percent, according to a person with direct knowledge of the sale. That’s about 0.5 percentage point more than the interest rate on benchmark 10-year munis, similar to the spread on California’s borrowing last month, data compiled by Bloomberg show.

In the March offer, Lockyer had to raise yields on some bonds with longer maturities amid a slump in state and local debt. Yields on 20-year securities rose to 3.57 percent from 3.39 percent as a 10-day rally in the Dow Jones Industrial Average depressed the bond market.

Munis have become more attractive to investors since then, even as volume remains high as issuers take advantage of low borrowing costs to refinance, said Michael Schroeder, president and chief investment officer of Naples, Florida-based Wasmer Schroeder & Co., which manages $3.5 billion in local bonds.

“This is a better time to bring a deal,” Schroeder said by telephone. “Cal paper has performed well. There’s a higher demand for it with the higher income taxes.”

Tax Vote

California voters in November raised income-tax rates on individuals earning $250,000 or more, with levies on incomes of $1 million or more increasing 3 percentage points, to 13.3 percent.

Brown, a Democrat who backed the tax increases to fund education, said in January that California would have an $851 million budget surplus at the end of June, its first in more than a decade.

Through Feb. 28, California’s income-tax collections for the year that began July 1 exceeded projections by $4.5 billion, according to figures from Chiang’s office. As of April 5, state income-tax payments exceeded 2012 levels by almost $10 billion, or 29 percent, according to Chiang’s office.

While the trend is encouraging, investors continue to view California debt with caution, Schroeder said. The volatility of income-tax receipts in California was exacerbated by the increases on the highest earners and by one-time events such as the initial stock offering byFacebook Inc. (FB) in May, he said.

“We tend to place some significance on those numbers,” Schroeder said of the income taxes, “but you have to look at the overall picture of what is behind those numbers.”

via Bloomberg

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

High-Yield in California Gives Governments Bonanza

California’s rebounding finances are drawing investors to the riskiest debt of the world’s ninth- largest economy, buoying prospects for a revival in bond sales by its blight-fighting organizations.

The successor to the San Francisco Redevelopment Agency sold $123 million of debt last week, a year after lawmakers abolished the issuers. The offer marked the first new bonds to back a redevelopment project since all of the more than 400 authorities were eliminated as part of steps to balance the state budget. The securities are unrated, placing them among the most default-prone local obligations.

With the state poised for its first surplus in almost a decade and muni yields close to 47-year lows, some investors are turning to riskier California bonds. U.S. high-yield local bonds have gained 1.3 percent this year, double the investment-grade return, Standard & Poor’s data show. Debt of former redevelopment agencies is also rallying, fueling demand for San Francisco’s sale and raising prospects other cities may follow.

“People are more comfortable that this type of debt is going to pay,” said Bill Black, Oakbrook Terrace, Illinois- based co-manager of the $7.3 billion Invesco High Yield Municipal Fund, which bought some of the issue. “There’s also a demand for high-yield debt, particularly in California.”

Boats Lifted

The most-populous state had its bond rating raised by S&P last week for the first time since 2006 as the revenue outlook improves for the home to companies such as Apple Inc. and Facebook Inc. The fourth-biggest crude oil producer among states has also seen home values rise more than the national average in the past year, according to Zillow Inc. data.

Under California’s redevelopment program, municipalities formed taxing authorities that issued bonds to improve blighted areas and repaid them with levies on property values enhanced by the projects. The local authorities had nearly $30 billion in debt as of June 30, 2010, the state controller said.

Governor Jerry Brown, a 74-year-old Democrat, and legislators eliminated the agencies effective Feb. 1, 2012, to divert about $1 billion to schools. Brown signed a bill last year clarifyingthat cities and counties taking on obligations of the former agencies could issue debt to fulfill contracts with developers.

Rail Yards

San Francisco’s agency had entered into a contract to redevelop rail yards, according to a staffreport to the oversight board of the successor agency. The project includes housing, a medical center, a police station, offices and biomedical laboratories. It represents $9 billion in new investment in the city, according to the report.

The issuer last week was the Successor Agency to the San Francisco City & County Redevelopment Agency. The tax-exempt securities included bonds maturing in August 2022 and priced to yield 3.54 percent, data compiled by Bloomberg show. The yield was about 1.9 percentage points higher than on AAA munis, Bloomberg Valuation data show.

The sale may open the door to other cities, Black said.

“From an investor’s perspective we feel that the sale was successful and should be conducive for more debt sales with issuers that are in a similar position,” he said in an e-mail.

Risk Judgement

Still, unrated bonds are riskier than most local borrowings. About 4 percent of such munis are in default, compared with 0.1 percent of rated bonds, said Matt Fabian, managing director of Municipal Market Advisors in Concord, Massachusetts. About 92 percent of munis are rated, he said.

For investors willing to take the risk, the extra yield is appealing given the rally in lower-rated local debt. Ten-year securities rated BBB, or two levels above junk, yield about one percentage point above top-rated munis, close to the smallest difference since 2008, data compiled by Bloomberg show.

Holders of securities issued by redevelopment agencies before their elimination are benefiting from a rally in California debt.

Federally taxable San Jose redevelopment bonds maturing in August 2035 traded this week at an average yield of about 5.95 percent, data compiled by Bloomberg show. That was about 2.9 percentage points more than similar-maturity Treasuries, according to BVAL analysis.

The difference is down from about 3.5 percentage points early last year. Moody’s Investors Service rates the bonds one level below investment grade.

Reimbursement Funds

Last week’s offer will reimburse the developer for public improvements such as streets and utilities. Unlike redevelopment bonds repaid through taxes on enhanced property values, the San Francisco debt is funded through three special districts that have been collecting taxes on property since 2002.

Such entities are common in California and levy taxes based on the size of parcels rather than assessed value, said Catherine Reilly, manager of the San Francisco project. The three San Francisco districts will collect taxes on properties until 2050 or the improvements are paid off, whichever comes first, Reilly said in a telephone interview.

Investors probably were reassured by the familiar repayment mechanism, Reilly said. At the same time, she said a limited number of cities and counties will be able to replicate San Francisco’s model. Under California’s tax-limiting Proposition 13, two-thirds of residents within the proposed area must vote to form such a district.

In trading yesterday, yields on benchmark munis due in 10 years were little changed at 1.83 percent after the biggest weekly jump since December, Bloomberg Valuation data show.

via Bloomberg

As Healthy Families Deficit Rises, Tax Pressure Rises With It

The Healthy Families program has run out of money, according to state health officials. The deficit currently stands at almost $100 million and will keep rising every month, accordding to Janette Casillas, executive director of the Managed Risk Medical Insurance Board, which oversees Healthy Families.

Gov. Jerry Brown's administration is pursuing two ideas for refilling the coffers: reinstitution of a recently expired tax on managed care organizations and an appropriation bill if the MCO tax isn't revived.

"The Healthy Families Program budget shortfall [is currently estimated] at $33 million general fund," Casillas said. That figure does not include $15 million the state has used from the general fund to help make Healthy Families ends meet, Casillas said. The sum of those two figures -- $48 million -- represents half of what the state is missing. California's share of Healthy Families funding is matched by the federal government so the state is almost $100 million short.

That amount -- reflecting a shortfall of less than two months -- will increase, Casillas said.
Health plans serving Healthy Families need to wait for payment until the deficiency is resolved, said Diana Dooley, state Secretary of Health and Human Services.

"We have a deficiency process every year," Dooley said. "They will be paid, as happens whenever there's a deficiency. Ultimately, they will be paid."

Healthy Families, California's Children's Health Insurance Program, serves 860,000 children. The state is shifting beneficiaries from Healthy Families to Medi-Cal managed care plans and eventually intends to eliminate Healthy Families. The deficit does not affect the transition or the program's beneficiaries.

Since 2009, the Healthy Families program has relied on some of its funding from the MCO tax, which expired despite the Brown administration's effort last year to reinstitute it.
"It has to do with a failure to extend the MCO tax," Dooley said. "So now there will be a deficiency that will be met through the deficiency process."

That could be a sticky process because of the complexity of reinstituting the MCO tax.
Numerical, Political Hurdles in Reinstating Tax reinstating a managed care tax requires a two-thirds vote in the Legislature, which will require Republican support if the governor can't line up every Democratic vote in the supermajority Legislature. Ironically, Republican lawmakers four years ago were fully behind the MCO tax to support Healthy Families, but support has eroded because the state is phasing out the program.

A tax on managed care companies still could pass -- assuming it has the support of the health plans -- but there seems to be some political arm-wrestling in Sacramento over how the money from that tax would be spent.

Patrick Johnston, president and CEO of the California Association of Health Plans, said insurers could support reinstating the MCO tax, but he hoped it would augment coverage and not just go into the existing Medi-Cal fund.

"The state owes the plans, and we expect the plans will be paid for covering children in Healthy Families," Johnston said.

"The state has a cash flow problem, and we expect the state to resolve it and that the plans will get paid. I mean, it's clearly not a dispute about the plans being owed," he said. "So now the state has the option of internal borrowing or seeking a supplemental appropriation."
Internal borrowing is an unlikely fix, Casillas said.

"We would refer to this as a need for a supplemental appropriation," Casillas said. "Borrowing internally was not an option for us, although that was explored. Collectively, we had explored the possibilities or options, given that the MCO tax expired and was not reinstituted. It is apparent we will need a supplemental appropriation, where a bill goes to the Legislature and asks for X amount of money."

Casillas pointed out that MRMIB is stuck in an unusual position because the state's budget relies on an extension of the MCO tax, but those dollars aren't coming into Healthy Families. Basically, part of the Healthy Families budget is funded with money that doesn't exist, once the MCO tax expired.

Measuring the shortfall is made more complicated by the transition of children from Healthy Families to Medi-Cal managed care plans. Enrollment will decline every month, so the monthly additional deficiency must be determined based on changing numbers of enrollees.
"It's very odd that I find myself -- that the program finds itself -- in this position," Casillas said. "We will have to figure out each month and see how that deficiency is growing, even though it's growing off a declining enrollment base."

Health Plans Can Wait Johnston said health plans will wait for the state to resolve its deficiency.

"Just like with anyone else, timely payment is better than late payment," he said. "But the health plans have contracts with the state to provide services, and we'll count on the state honoring its obligation to pay according to the contracts. What the state does internally to manage its cash flow is its problem."

Johnston likened it to selling a car, where the seller doesn't ask how the buyer is going to come up with payment. "Whether you get it from checking or savings is your decision-making process. My expectation is that you'll make the payment. I mean, you don't turn to me and say, 'How do you think I should get the money?'"

The real question is whether the governor can muster the political capital to reinstitute the MCO tax. When the Healthy Families program was in financial trouble in 2009 and was about to restrict enrollment, the health plans were the ones that came up with the idea of the MCO tax, Casillas said.

The state likely needs health plan support to make the reinstatement of the MCO tax palatable to Republicans. However, the health plans association has ideas about how the money should be spent that may differ from the Brown administration's.

All of that makes a bit of a political minefield, so Johnston paused from the discussion, to carefully consider his words.

"We will await further guidance," he finally said.

Health Plan Backing According to Johnston, health plans would support reinstatement of the MCO tax as long as it all doesn't go in the general Medi-Cal pot, but is spent at least in part on beefing up services for seniors and the disabled.

"We would consider a renewal of the MCO tax to supplement the Medi-Cal program and contribute to its long-term integrity," Johnston said. "Medi-Cal is underfunded in many areas, including seniors and persons with disabilities, so a tax on Medi-Cal plans that would draw down federal funds should use the money to supplement and not supplant existing funding.
"
Although the Brown administration has not said publicly where it wants the MCO money to go, Johnston said the state is considering putting all the money from the MCO tax into the general Medi-Cal fund and he doesn't think that's right.

"A tax on Medi-Cal plans must meet the task of being used for Medi-Cal programs, and we think this added money should augment existing funds to fund particular areas that have struggled, most recently the transfer of elderly and frail beneficiaries to Medi-Cal managed care programs will need additional support," Johnston said.

"Health plans have not opposed the MCO tax, but where the money goes always matters," he said. "We would hope that our voice would matter."
The deadline for resolving the issue is June 15, assuming the budget is passed on time.

Message from National Women's Law Center: Tax Family Credits

For millions of low- and middle- income Americans, tax season can mean extra money in their pockets. Claiming tax credits — including the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), and Child and Dependent Care Tax Credit (CDCTC) — can provide thousands of dollars for vulnerable women and families struggling to make ends meet. The EITC alone is worth up to $5,891. But women and their families can't claim these credits if they don't know about them. 

Families can start filing their 2012 as early as January 30, so there's no time to lose. Today, on EITC Awareness Day, help us spread the word to make sure families know about available tax credits. Our new and improved Tax Credits Outreach Resources make it easier than ever for advocates to spread the word about these credits. 

Our new resources include:

• State-specific outreach fliers in English and Spanish (and some in Vietnamese and Mandarin Chinese)
• Our Toolkit for Advocates, with a sample:
• Newsletter
• Letter to the Editor
• PSA script
• Press release
• Social Media tools
• List of what to bring to free tax preparation sites
• Fact sheets on tax credits for families and tax information for domestic violence advocates
• A link to sign up to become an NWLC Community Partner

If you work or volunteer with families that are likely eligible for tax credits and/or in a program that supports children and families, you can help get the word out! Simply hanging fliers in classrooms, hallways, and offices, sending them home with young children, or encouraging employers to send fliers enclosed with W-2 forms could make a difference for the families you work with. Be sure to let us know how you're spreading the word about tax credits, or if there's anything we can do to help, by emailing Amy Qualliotine at aqualliotine@nwlc.org. 

via National Women's Law Center 

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

BUDGET: Brown wants cuts, higher taxes

via Press Enterprise

BY JIM MILLER

SACRAMENTO BUREAU

jmiller@pe.com

SACRAMENTO — Programs for the poor and sick take the brunt of $4.2billion in spending cuts proposed Thursday by Gov. Jerry Brown in a budget that hinges on voters approving higher taxes this fall.

Another $5.4 billion in reductions would be imposed if voters reject Brown’s planned November ballot measure to temporarily increase the sales tax and raise income taxes on the wealthy. School funding would be slashed by more than $4.8billion, equivalent to cutting the school year by three weeks.

“This is not nice stuff, but that’s what it takes to balance the budget, and that’s assuming we get our tax revenues,” Brown told reporters at the Capitol, calling on lawmakers to act on some of the cuts by March.
2012-13 state budget
The $94.3 billion general fund plan closes an estimated $9.2 billion shortfall through June 2013. That is significantly less than a nearly $13billion gap projected in November by the Legislature’s nonpartisan fiscal analyst. Brown said his plan will help end the chronic shortfalls once and for all.

“We've cut the structural deficit substantially, and we now have the possibility of eliminating over the next couple of years the deficits that have plagued California,” Brown said. He spoke at a hastily called news conference after aides mistakenly posted the budget on the Internet, five days before its scheduled release.

Brown’s proposal changes the state’s welfare-to-work program known as CalWORKS. People who do not meet federal requirements of looking for work could be dropped from the program after two years, down from four. The plan reduces child aid for people in CalWORKS from $463 to $392 monthly.

In addition, the number of state child care slots for low-income working families would be reduced from 363,400 to 292,900. In-home assistance for the infirm and elderly also would be cut.
“How can the governor be cutting time limits and assistance for poor families to go to work when we have 11 percent unemployment and people cannot find jobs?” said Mike Herald of the Western Center on Law and Poverty.

Senate President Pro Tem Darrell Steinberg, D-Sacramento, said his house will wait before considering the cuts sought by Brown. The state’s revenue picture seems to be improving, he said.
“If that trend continues even slightly, we may avoid the need to make the kinds of cuts the governor now suggests,” Steinberg said.

INLAND IMPACT

Inland welfare officials reacted warily to the governor’s proposal.

“The initial concept is good, but it is a question of how are they achieving the savings of $1 billion?” said Susan Loew, director of public social services for Riverside County. “And how will that impact the customers we are serving today?”

Between 11,000 and 12,000 families are enrolled in CalWORKS in Riverside County.
“The way the grants have been cut continuously over the last few years, many families are struggling,” she said. “This is the safety net. There is nothing below this.”

San Bernardino County served 51,163 people in the CalWORKS program in June, according to the county’s annual social services report.

That number has increased because of the economic recession, officials said. Further funding challenges will only decrease services as more people seek help, said Kevin Mahany, director of advocacy services at St. Mary Medical Center in Apple Valley.

“What we are seeing is people who are for the very first time having to go to the food bank or the homeless shelter or the welfare office,” Mahany said.

In Riverside County, about 18,000 people participate in the In-Home Supportive Services program. About 13,000 of those would be affected by the governor’s plan to reduce services for recipients who live with someone else. In San Bernardino County, the corresponding numbers are 20,500 and 14,300, respectively, according to the California Association of Public Authorities.

SCHOOLS EYE BALLOT

Brown has proposed a November ballot initiative that would raise the income tax on those making $250,000 or more a year and increase the state sales tax by a half cent. The higher taxes would raise about $7 billion a year and expire in 2017.

Inland school officials welcomed the prospect of more K-12 revenue after several years of reduced or frozen funding.

Yet districts would have to tear up their budgets midyear if Brown’s tax measure fails at the ballot box.

“Local school districts must again build and adopt their budgets based on uncertain state revenue estimates — and again without the legal ability to reduce their costs midyear if needed,” said Riverside County Superintendent of Schools Kenneth M. Young. “This is a very poor way of dealing with the state’s continuing budget crisis.”

Mike Fine, deputy superintendent for business services in Riverside Unified School District, said shortening the year would require additional legislation as well as negotiations with teachers and school employees unions.

“I believe the governor’s trying to do the right thing,” Fine said.

But schools’ options are limited, he said. “Our class sizes are already at the maximum. Our staff has been cut to the bone.”

Murrieta Valley Unified School District Superintendent Stan Scheer said the district already faces an $11 million shortfall in 2012-13. “We don’t have any wiggle room if this thing doesn’t pass,” he said of the governor’s tax measure.

Similarly, the San Bernardino County superintendent of schools office is advising districts to have a backup plan in case voters reject the tax increases.

“There’s no way districts can make that kind of cuts once the school year is under way,” said Ted Alejandre, assistant superintendent in the county office. “The advice we’re giving districts is to have contingency plans in place.”

Assemblyman Kevin Jeffries, R-Lake Elsinore, said he liked parts of the governor’s plan. But he criticized what he called the governor’s “tax and hammer” approach.

“He is effectively saying to the taxpayers that we are going to continue spending more than we take in — so you either give me more of your money or I’m going to cut what you cherish most,” Jeffries said.

Contributing to this report: Staff writers Dug Begley, dbegley@pe.com; Dayna Straehley, dstraehley@pe.com; and Michelle L. Klampe, mklampe@pe.com. Also contributing: The Associated Press.