A better approach would be to fold in services but cut the sales tax rate deeply enough to make the shift revenue-neutral, thus aligning it with the economy, providing tax relief to low-income families and allowing revenues to grow with consumer spending.
““We’re on the cusp of evolutionary change related to pensions. What we’re seeing is a clear indicator that courts are willing to treat pension beneficiaries as ahead of creditors,” says Thomas McLoughlin, head of municipal fixed income at UBS Wealth Management Americas. High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/9f5e7590-fec6-11e4-94c8-00144feabdc0.html#ixzz3b5ipxnKs ”That will transform the risk parameters for municipal finance. For years muni analysts looked at idiosyncratic credit risk, but now we are looking at a systemic risk related to pensions. It’s a really important trend we have to incorporate into our analysis. We have to focus far more on this in the future.””
The battle lines in the annual tug-of-war over the state budget became clear on Monday evening, when legislative analysts said there would be $1.1 billion more revenue available for discretionary spending than Gov. Jerry Brown has estimated.
Under the LAO outlook, the balance in the Special Fund for Economic Uncertainties (SFEU), the state’s traditional reserve account, is $2.258 billion at the end of 2015-16 under the Governor’s policies, compared to the $1.113 billion under the administration’s estimates. This means that, under the LAO estimates, there would be $1.1 billion more of discretionary resources available for the 2015-16 state budget than indicated under the May Revision estimates.
During the recession, welfare programs in California lost about $15 billion according to Peter Woiwode of the California Partnership, a group that advocates for the state’s poor.
The loudest demand is expanding early childhood services, particularly subsidized child care for the working poor. It might be said that Democrats are drawing a line in the sandbox on the issue and may make it the stickiest issue in final budget negotiations.
“In a landmark case before the Third District Court of Appeal, the California Air Resources Board (ARB) recently argued for creation of an unprecedented tax doctrine that could raise billions of dollars in new revenues. The ARB described the new revenue not as a tax or a fee (or any other recognized revenue-raising mechanism), but as a “byproduct” of a regulatory program.”
But tucked away on one of the final pages of the 104-page summary of the spending plan was a surprising revelation: Not only will the budget survive when Proposition 30’s temporary taxes are phased out, but general fund revenues are also expected to continue climbing.
“Those who rationalize California’s persistently low levels of academic achievement, as measured by graduation rates and national test scores – especially the California Teachers Association – usually blame a supposed lack of money. . . What makes the rationale even weaker is that graduation rates show absolutely no correlation with spending, and that syndrome is most evident in viewing California vis-à-vis archrival Texas. “
There’s no justification for continuing to sock the highest income earners — the people who can most easily move to a low-tax state — when Sacramento is wallowing in surplus money.
“Early next week, we plan to release our multiyear budget outlook that will include our assessment of the Governor’s revenue and spending estimates. Tentatively, our revenue estimates are a few billion dollars higher than the administration’s new estimates for the 2015-16 fiscal year. Our initial calculations suggest that most of these higher revenues will be consumed by higher spending requirements for schools and community colleges under Proposition 98 and higher budget reserve and debt payment requirements under Proposition 2. Our revenue estimates would, however, leave the Legislature with more money for additional reserves, debt payments, or new budget commitments. . . . We are clearly on the upward slope of the state’s revenue roller coaster. But just as the state’s revenue picture has improved significantly over just a few months, it can just as easily reverse course with a stock market or economic downturn. There is little indication that such a downturn will occur soon, but as we discussed in our November Fiscal Outlook, such slumps can occur with little warning. Restraint in approving new ongoing programs is key to preventing an unsustainable spending base. . . . If the Legislature adopts our revenue estimates, we advise caution in committing to new ongoing spending programs or tax reductions.”
Current gas-tax revenue covers only about $2.3 billion of the state’s $8 billion in annual highway repair needs, Brown’s plan notes, and so there’s $5.7 billion each year in deferred maintenance.
The governor immediately mentioned his reservations around a proposal by Sen. Bob Hertzberg to impose a sales tax on professional services such as accounting and advertising.
“We have to learn from history and not keep repeating our mistakes,” Gov. Jerry Brown said Thursday as he unveiled a revised 2015-16 budget. “While there are few signs of immediate contraction, another recession is on the way,” he told the Legislature. “We just don’t know when.”
Gov. Jerry Brown, who got nailed for parking in a yellow zone, is pushing an amnesty program for millions of California drivers caught in what he called a “hellhole of desperation” from spiraling legal fines and fees.