CA Budget & Fiscal Policy is Unsustainable

May Revise 2017While the governor’s leadership has been the key to keeping California in the black and paying down debt, the Legislature continues to grow permanent spending based on an increasingly volatile revenue stream. The Legislature’s highest priority for environmental policy is sustainability. Yet today their highest priority for budget and fiscal policy is unsustainability.

Since the economic recovery began in 2010, taxpayers and the business community have grown the General Fund by $41 billion and special funds by $28 billion, representing an overall revenue increase of $69 billion or 63 percent. In addition, we have also grown local property tax revenues for Prop. 98 more than $10 billion, which is equal to a 72 percent increase.

While California is already the highest taxed state in the nation, the Legislature introduced bills to authorize more than $370 billion in new taxes and fees in 2017 — more than double the state revenues contained in the budget bill.  For example:

  • During this same period in 2017, state funding for K-12 education is set to grow $17 billion, or roughly 50 percent, while state employee pension and health benefit payments are set to nearly double to more than $14 billion.
  • There also is considerable growth in spending for health care and social services expansion.  Since 2009-10, Medi-Cal spending has increased by $9 billion in the General Fund and by $64 billion in state and federal funds.  California is committed, even under existing federal law, to picking up an increasing share of the federal portion.
  • In 2022, the hastily approved minimum wage increase of 2015 will be at full implementation, impacting General Fund costs by $3 billion and all funds by $10 billion.
  • The series of labor agreements approved this year-to-date commit the state to another $4 billion in permanent spending increases.

The passage of these spending priorities required the state to pass $5 billion in new taxes to fund critically needed road and infrastructure repair. Now it is time to prioritize major structural reforms that create long-term economic stability before another recession occurs, the impacts of which could be even more devastating than what we witnessed during the economic downturns in either 2001 or 2008. We must work towards a budget that better protects all Californians and our economy for our long-term future.

resident, California Business Roundtable

This piece was originally published by Fox and Hounds Daily

A Continuing Dependence On High Income Taxpayers

In releasing his proposed budget last week, Governor Brown warned of over reliance on the “volatile personal income tax which, as history shows us, drops precipitously in time of recession.” He further cautioned that changes in the income of a relatively small group of taxpayers can have a significant impact on state revenues.”

He’s not exaggerating. As California’s economy has recovered, it’s gotten more crowded at the top. The share of taxes being paid on ever higher income tax collections is concentrating even more the share of taxes on upper income taxpayers. This trend has accelerated since 2012’s Proposition 30 tax increase.

According to recently-released, but still dated, statistics from Franchise Tax Board, state income tax filers with more than $200,000 adjusted gross income increased their share of overall tax payments in 2012 to 67%, up from 59% in 2010. (This share is slightly lower than record 71% in 2013, due to unusual shifting of capital gains income to the 2012 tax year because of federal tax rate changes.)

The economy has only improved since 2012, so the steeply progressive income tax doubtlessly has pushed this tax burden even higher. With capital gains receipts at record levels, it is likely that upper-income taxpayers will again pay north of 70 percent of the state’s income tax this year.

At the same time, the income tax has become the overwhelming source for the state’s General Fund. This year income taxes account for 67.6 percent of all general revenues – a record high dependence on this revenue source. Translation: little more than 800,000 taxpayers (out of 39 million residents) will account directly for 47% of all General Fund revenues.

Tying state finances to such a small number of upper income earners is very risky. As the Governor warned, what goes up inevitably will come back down. This trend underscores the wisdom of California voters in adopting the Proposition 2 rainy day reserve in 2012, to hedge against further downturns. Lawmakers should do their part by keeping a tight rein on spending and improving the state’s investment climate.

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This piece was originally published by Fox and Hounds Daily

resident of the California Foundation for Commerce and Education.

New eClaim System Makes It Easier to Reclaim Your Property From CA Government

California’s chief fiscal officer is making it easier to reclaim private property held by the state.

State Controller Betty T. Yee announced earlier this month an expansion of the eClaim feature for the state’s unclaimed property program. Property owners will now be eligible to submit their claims for property valued up to $5,000 using the controller’s streamlined paperless electronic claim process.

“The eClaim process is simple, efficient, and can be completed in a couple of minutes,” Yee said in a press release. “An increased threshold of $5,000 will allow many more Californians to claim lost or forgotten property online and quickly receive a check in the mail.”

Unclaimed Property: Your Money Held by the State

Under state law, when there’s been no activity on an account for three years, financial institutions are obliged to report this unclaimed property to the California Controller’s Office. In turn, the controller holds the funds until it is claimed by the owner. The most common types of unclaimed properties are bank accounts, stocks, bonds, uncashed checks, wages, life insurance benefits and safe deposit box contents.

Among the biggest problems facing the state’s unclaimed property program: a lack of public awareness about where people can find their old property. Most people don’t realize they’re owed money from a forgotten insurance settlement or an abandoned stock dividend.

However, for those owners aware of the program, obtaining the necessary paperwork to prove ownership can be costly and time-consuming. Many find the hassle of paperwork not worth a small dollar amount.

Unclaimed Property: eClaim created by Chiang

To address the paperwork hassle problem, in January 2014, then-Controller John Chiang created the eClaim feature to expedite the return process for properties valued at less than $500. Later that year, Chaing increased the value to $1,000. In total, more than 315,000 properties have been returned through the Controller’s eClaim feature.

Screen Shot 2015-11-20 at 10.35.42 AMThe state currently holds more than $8 billion in unclaimed property that rightfully belongs to more than 32 million people and businesses. More than three-quarters of unclaimed properties are estimated to be eligible for the new expanded eClaim feature. Yee says that by increasing the threshold to $5,000, she’ll be able to return another $9.4 million per year.

Among those who could benefit from the eClaim feature is billionaire hedge fund manager turned environmental activist Tom Steyer. The former hedge fund manager has three unclaimed properties, each valued at less than $50, dating back to his time as founder of the San Francisco-basedFarallon Capital Management.

LAO Report: State Can Do More

For decades, the state has made it difficult for owners to obtain their property. From 1990-2007, state law prohibited the Controller’s office from contacting approximately 80 percent of owners.

Earlier this year, the state Legislative Analyst’s Office released a report critical of the state’s unclaimed property system. The state could do a better job of finding owners, the report concluded, instead of passively waiting for the cash to be claimed.

It also argued that the state has a conflict of interest in managing the program.

“In particular, because property not reunited with owners becomes state General Fund revenue, the unclaimed property law creates an incentive for the state to reunite less property with owners,” the report found. “Now generating over $400 million in annual revenue, unclaimed property is the state General Fund’s fifth-largest revenue source. This has created tension between two opposing program identities — unclaimed property as a consumer protection program and as a source of General Fund revenue.”

Unclaimed Property: How to Search for Unclaimed Property

To find out if you have unclaimed property held by the state, go to www.claimit.ca.gov.

Originally published by CalWatchdog.com