CalARVC’s Lobbyist Reports the Latest on California’s Budget

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December 7, 2011 by   - () Leave a Comment

Editor's Note: The following "California State Budget Update" was prepared by Don Gilbert, Mike Robson and Trent Smith and appears in this week's "Wednesday Morning Coffee Talk & Updates," an e-newsletter published by the California Association of RV Parks and Campgrounds (CalARVC).

December 5, 2011

As we have previously reported, the 2011–2012 State Budget adopted in June relied on $4 billion in previously unanticipated revenue to achieve balance. If these revenues do not materialize, then a series of cuts will be triggered in order to balance the budget. A revenue forecast recently released by the Legislative Analyst’s Office concluded that virtually none of the $4 billion in revenues will materialize as anticipated. This $4 billion deficit in the current fiscal year combined with the projected deficit for the coming fiscal year will result in a $12.8 billion deficit over the next nineteen months.

In anticipation of this deficit, a number of tax raising ballot initiatives – including one filed by Gov. Brown – have been proposed and are aiming for a spot on the November 2012 ballot. While it is unlikely that all of these measures will find their way to the ballot, a handful that enjoy the backing of wealthy interests have at least some chance of making it. Below is a summary of the proposals.

Governor’s Proposal

The governor has proposed the imposition of a half-cent sales tax increase starting in 2013. Additionally, his proposal would increase taxes for high income earners as follows (amounts double for joint filers):

  • 1% at $250,000.
  • 1.5% between $300,000 and $500,000.
  • 2%  above $500,000.

The governor’s proposal – which is backed by Democrats and organized labor – would generate roughly $7 billion a year and expire in 2016.

Think Long

An initiative has also been filed by the Think Long Committee. The Think Long Committee is funded by billionaire Nicolas Berggruen and is made up of a collection of business executives and politicians. Think Long’s proposal lowers personal income tax rates across the board and amends the tax code to include only two rates as follows (for joint filers):

  • 2% for $45,000 – $95,000.
  • 7.5% for more than $95,000.

The initiative also maintains the 1% surcharge for those earning more than $1 million annually and reduces the corporate tax from 8.4% to 7%. A critical element of the plan is the imposition of a 5% sales tax on services that would be phased in over four years. It is anticipated that the initiative would bring in $10 billion annually with most of the revenue going to education and to paying down state debt.

Molly Munger and PTA

This initiative titled “Our Children, Our Future: Local Schools and Early Education Investment Act” is backed by the state PTA and the wealthy Molly Munger whose brother helped finance the initiatives which created the Citizen’s Redistricting Commission. The initiative imposes a sliding scale income tax increase. The burden of the tax increase would fall more heavily on high income earners under this initiative. The $10 billion in anticipated revenue that would be derived from this initiative would be used to fund K-12 education. The tax increase would sunset after 12 years.

The California Clean Energy Jobs Act

Backed by billionaire hedge fund manager Tom Steyer, this initiative makes single sales factor apportionment mandatory for determining a company’s income for tax purposes. Under current law, firms may choose to calculate income using a three factor formula based on property, payroll and sales or to use sales only. Three factor apportionment places in-state companies at a competitive disadvantage to out-of-state companies and provides little incentive to locate a business in California. By making single sales factor apportionment mandatory, the state would gain roughly $1 billion in revenue annually. The initiative would direct just over half of this money towards energy efficiency and clean energy production.

California Funding Restoration Act

This initiative – backed by the California Federation of Teachers and the progressive Courage Campaign – imposes tax increases on those earning more than $1 million annually as follows:

  • 3% increase for those earning more than $1 million.
  • 5%t increase for those earning more than $2 million.

The initiative would bring in $6 billion annually. These revenues would be used to fund K-12 and higher education.

Recent polls have shown that in light of recent budget cuts, there is some support for tax increases among voters. That is especially true when new revenues are tied to funding for education. However, Californians have rejected the last seven tax increases put before them. Moreover, there is a tendency of California voters to vote No when presented with multiple similar measures. Because of this, there is a belief that any tax measure that makes it to the ballot would be in jeopardy if too many others also qualified. We believe the governor will make every effort to “clear the field” so that his tax proposal will be the only measure before voters.

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