ARTICLE
The two most striking things about Gov. Gavin Newsom’s revised state budget proposal is the immense size and surplus of money. If approved by the Legislature in June, this would be the first state budget to crack $300 billion — $300.6 billion to be exact. It’s striking to me, at least, because when I worked in the state legislature in the mid-1990s, the state budget was just under $90 billion, which is less than the surplus in this year’s proposed budget. The amount of money this year is the never-dreamed-of tax surplus of $97.5 billion projected by July 2023. Yes, that’s nearly $100 billion over what the state needs to fund what it planned. It begs the question: What are the real options for the Governor and Legislature to return some of those funds to the taxpayer? A short answer: “Only” $49 billion is discretionary money. The lion’s share of the rest legally must go to schools — $37 billion." This is a common divide between the Democratic legislative leaders who have a different belief in a rebate to the upper-middle class and wealthy — the top 10% of earners — who supplied 81% of the income taxes to be “rebated,” and whether they deserve to get any of their money back. The legislative leaders think the dollars should be sent to the 90% who paid in just 19% to the state coffers on the belief that they need the money more than the wealthiest California taxpayer. The Governor originally proposed mailing $400 to every car owner to provide gas price relief. Now, he’s planning to exclude drivers of “expensive” cars — the definition to be negotiated with legislators. However, the legislative leaders don’t want to return any money based on car ownership. Newsom thinks $11 billion should go to vehicle owners. It’s part of an $18-billion “broad-based relief” package that includes rental assistance, utility payments, medical insurance subsidies and childcare help for low-income families. The governor also proposes to sock away a few billion in savings and repay some debt. And he’s adding more to infrastructure projects, but not nearly enough based on the easier choices to give the windfall money to lower-income workers and families. The leaders in Sacramento have taken on many more costly tasks to address the growth of California in the past fifty years. Federal Medicaid was enacted in 1965 and that became Medi-Cal, which provides healthcare for low-income Californians. Roughly one-third of the population is covered. And Newsom intends to extend coverage to the last group of poor people not currently eligible: immigrants between the ages of 26 and 49 living here undocumented. California is “on the path to being the first state to have universal healthcare,” Newsom stated in announcing his budget revision last Friday. He has budgeted $53 billion in state money for Medi-Cal. In the past fifty years, the state government also is much more responsible for financing schools and local governments because Proposition 13 shrank property tax revenue. Proposition 13 was overwhelmingly approved by voters in 1978, when home property tax assessments were rising through the roof. For us older policy wonks, then-Gov. Jerry Brown and the Democratic-controlled Legislature did not respond and failed to agree on property tax relief while holding onto a roughly $5 billion surplus that state Treasurer Jesse Unruh famously called “obscene.” The state budget then was $18.7 billion. Finding ways to take taxpayers’ money and direct it to programs and people that they believe need the funds the most is the challenge. And in some expenditures, the accountability is questionable without monitoring whether the dollars are wasted. That responsibility falls to the State Auditor or the State Controller after the expenditure has failed to address the need or the project — there are dozens of examples over the years but I will refrain for now from highlighting the obvious — just think EDD and the DMV or the overrun cost of the bullet train. In this era, the governor and legislative leaders are in sync but don’t challenge each other and get little substance done beyond writing big checks. And Republicans are ignored. In his budget news conference, Newsom touched on two issues — presumed to be politically untouchable — that he’d like to reform. However, it seems that no governor or legislature will strike an accord to reform them. 1) California Environmental Quality Act, is often used to block housing projects with frivolous lawsuits and at times a negotiation tool for labor agreements. He even acknowledged, “I criticize not CEQA, but the abuse of CEQA,” he said. “I’ve been on the receiving end of CEQA abuse in my private life.” 2) The other issue is tax reform. California’s outdated system is unreliable and unsteady in times of boom and bust because it leans too heavily on wealthier Californians and their capital gains. Income tax rates should be lowered and the sales tax broadened to services. “We should reform the tax system because of the volatility,” Newsom said. “A lot of states tax services, and we don’t.” Reforming the income tax system and replacing some of the taxes with a tax on services is not a novel idea. It has been bandied about for decades. California’s current income tax system was modified in 1935 during the Great Depression. Over the years, there have been “attempts” to reform the system and a number of studies and reports outlining the options and possibilities. Senator Robert Hertzberg (D-San Fernando Valley) who is termed out at the end of 2022 (and a candidate for LA County Supervisor) introduced a tax reform bill in 2015. The legislation never made it out of the state Senate. You can read about it on the Senator’s web page from 2015: https://sd18.senate.ca.gov/news/stories?page=29. Shortly after getting elected as California State Controller, Betty Yee (who is also termed out at the end of 2022) commissioned a report entitled, California State Controller, Betty T. Yee & the Controller’s Council of Economic Advisors on Tax Reform. A puzzling statement in the report’s introduction tells a reminder story of times past: “Our broken tax system is a common conversation topic, yet comprehensive reform has been elusive and politically unpalatable. Resurgent revenues after the Great Recession have lulled many into complacency about the need to prepare for future economic downturns. However, look closely and the signals are there: California’s economic outlook is dimming and operating deficits are at risk of growing. Even if the state could weather the next downturn with new revenue and budget cuts, the fiscal imbalance will persist until we dig deep into structural changes.” You can read the full report here: https://www.sco.ca.gov/Files-EO/Comprehensive_Tax_Reform_in_California_A_Contextual_Framework_06_16.pdf The summary analysis — with a $300.6 billion state budget proposal slated for a June 15th legislative approval, tax reform is just a conversation for another day. The focus in the next 30 days and into the summer months is not about reform and more about how the Governor and the Democratic-controlled legislature divide the money pie for Californians.
The two most striking things about Gov. Gavin Newsom’s revised state budget proposal is the immense size and surplus of money. If approved by the Legislature in June, this would be the first state budget to crack $300 billion — $300.6 billion to be exact.
It’s striking to me, at least, because when I worked in the state legislature in the mid-1990s, the state budget was just under $90 billion, which is less than the surplus in this year’s proposed budget.
The amount of money this year is the never-dreamed-of tax surplus of $97.5 billion projected by July 2023. Yes, that’s nearly $100 billion over what the state needs to fund what it planned. It begs the question: What are the real options for the Governor and Legislature to return some of those funds to the taxpayer?
A short answer: “Only” $49 billion is discretionary money. The lion’s share of the rest legally must go to schools — $37 billion."
This is a common divide between the Democratic legislative leaders who have a different belief in a rebate to the upper-middle class and wealthy — the top 10% of earners — who supplied 81% of the income taxes to be “rebated,” and whether they deserve to get any of their money back.
The legislative leaders think the dollars should be sent to the 90% who paid in just 19% to the state coffers on the belief that they need the money more than the wealthiest California taxpayer.
The Governor originally proposed mailing $400 to every car owner to provide gas price relief. Now, he’s planning to exclude drivers of “expensive” cars — the definition to be negotiated with legislators. However, the legislative leaders don’t want to return any money based on car ownership.
Newsom thinks $11 billion should go to vehicle owners. It’s part of an $18-billion “broad-based relief” package that includes rental assistance, utility payments, medical insurance subsidies and childcare help for low-income families. The governor also proposes to sock away a few billion in savings and repay some debt. And he’s adding more to infrastructure projects, but not nearly enough based on the easier choices to give the windfall money to lower-income workers and families.
The leaders in Sacramento have taken on many more costly tasks to address the growth of California in the past fifty years.
Federal Medicaid was enacted in 1965 and that became Medi-Cal, which provides healthcare for low-income Californians. Roughly one-third of the population is covered. And Newsom intends to extend coverage to the last group of poor people not currently eligible: immigrants between the ages of 26 and 49 living here undocumented. California is “on the path to being the first state to have universal healthcare,” Newsom stated in announcing his budget revision last Friday.
He has budgeted $53 billion in state money for Medi-Cal. In the past fifty years, the state government also is much more responsible for financing schools and local governments because Proposition 13 shrank property tax revenue.
Proposition 13 was overwhelmingly approved by voters in 1978, when home property tax assessments were rising through the roof. For us older policy wonks, then-Gov. Jerry Brown and the Democratic-controlled Legislature did not respond and failed to agree on property tax relief while holding onto a roughly $5 billion surplus that state Treasurer Jesse Unruh famously called “obscene.” The state budget then was $18.7 billion.
Finding ways to take taxpayers’ money and direct it to programs and people that they believe need the funds the most is the challenge. And in some expenditures, the accountability is questionable without monitoring whether the dollars are wasted. That responsibility falls to the State Auditor or the State Controller after the expenditure has failed to address the need or the project — there are dozens of examples over the years but I will refrain for now from highlighting the obvious — just think EDD and the DMV or the overrun cost of the bullet train. In this era, the governor and legislative leaders are in sync but don’t challenge each other and get little substance done beyond writing big checks. And Republicans are ignored.
In his budget news conference, Newsom touched on two issues — presumed to be politically untouchable — that he’d like to reform. However, it seems that no governor or legislature will strike an accord to reform them.
1) California Environmental Quality Act, is often used to block housing projects with frivolous lawsuits and at times a negotiation tool for labor agreements. He even acknowledged, “I criticize not CEQA, but the abuse of CEQA,” he said. “I’ve been on the receiving end of CEQA abuse in my private life.”
2) The other issue is tax reform. California’s outdated system is unreliable and unsteady in times of boom and bust because it leans too heavily on wealthier Californians and their capital gains. Income tax rates should be lowered and the sales tax broadened to services.
“We should reform the tax system because of the volatility,” Newsom said. “A lot of states tax services, and we don’t.” Reforming the income tax system and replacing some of the taxes with a tax on services is not a novel idea. It has been bandied about for decades.
California’s current income tax system was modified in 1935 during the Great Depression. Over the years, there have been “attempts” to reform the system and a number of studies and reports outlining the options and possibilities. Senator Robert Hertzberg (D-San Fernando Valley) who is termed out at the end of 2022 (and a candidate for LA County Supervisor) introduced a tax reform bill in 2015. The legislation never made it out of the state Senate. You can read about it on the Senator’s web page from 2015: https://sd18.senate.ca.gov/news/stories?page=29.
Shortly after getting elected as California State Controller, Betty Yee (who is also termed out at the end of 2022) commissioned a report entitled, California State Controller, Betty T. Yee & the Controller’s Council of Economic Advisors on Tax Reform. A puzzling statement in the report’s introduction tells a reminder story of times past: “Our broken tax system is a common conversation topic, yet comprehensive reform has been elusive and politically unpalatable. Resurgent revenues after the Great Recession have lulled many into complacency about the need to prepare for future economic downturns. However, look closely and the signals are there: California’s economic outlook is dimming and operating deficits are at risk of growing. Even if the state could weather the next downturn with new revenue and budget cuts, the fiscal imbalance will persist until we dig deep into structural changes.” You can read the full report here: https://www.sco.ca.gov/Files-EO/Comprehensive_Tax_Reform_in_California_A_Contextual_Framework_06_16.pdf
The summary analysis — with a $300.6 billion state budget proposal slated for a June 15th legislative approval, tax reform is just a conversation for another day. The focus in the next 30 days and into the summer months is not about reform and more about how the Governor and the Democratic-controlled legislature divide the money pie for Californians.