The Prop. 30 Tax Hike Should Retire on Schedule

No matter how high taxes are increased, it’s never enough for public officials and bureaucrats who live off taxpayer funded paychecks.  According to these people, there is always one more dollar that is needed to make government “whole.”  And being made “whole” in California means maintaining the highest paid government employees in all 50 states.

So it should come as no surprise that the tax-and-spend interests have already begun banging the drum and shaking the tambourine on behalf of extending Proposition 30, the “temporary” tax increase approved by voters in 2012.  Proposition 30 imposed the highest income tax rate in America.  It also bumped up the sales tax – a tax that hits lower income families particularly hard — to tops in the nation.

The sales tax component of Proposition 30 is set to expire at the end of 2016 and the higher income tax rate will sunset in 2018, so those who feed off taxes are starting to panic.

During the last year, some lawmakers resisted putting Proposition 2 on the November ballot because it required the establishment of a rainy day fund to tide government over through lean times.   These Sacramento politicians were concerned that if it passed, and the state had money in the bank, it would be more difficult to make the case that the Proposition 30 taxes should be made permanent.

State schools chief Tom Torlakson came out for the extension of Proposition 30 long ago, and we are now seeing the head of one of the state’s two major teachers unions, the California Federation of Teachers, calling for its continuation while maintaining it is not enough.

Of course, it’s never enough.

Writing in the Sacramento Bee, teachers union president Joshua Pechthalt attempts to make the case that the temporary tax hike should be extended.  He justifies his position by claiming California is thriving and upper income individuals, unfazed by the higher taxes, are happy to stay and pay.

Not so fast.

While Pechthalt believes things are fine now that our economy is supposedly in a “recovery,” working families aren’t seeing it. Our unemployment rate is the third highest in the nation and the US Census puts our supplemental poverty ranking at worst in the country.

Pechthalt’s evidence that Proposition 30 has not impacted high income individuals seems to be that wealthier communities, like Beverly Hills, have not become ghost towns.

Objective real estate reports from Nevada and other low or no income tax states make it clear that California has indeed lost many upper income taxpayers because of Proposition 30.  The Wall Street Journal reported that “many Californians have arrived [in Nevada] in the wake of Proposition 30.  Passed at the end of 2012, the measure hiked personal income and sales taxes.”  The San Francisco Chronicle published a piece in January of this year entitled “State leaders closely watch migrating millionaires” noting that “whether you sympathize or not, millionaires’ migrating out of California has serious consequences to the state’s bottom line and is something state leaders are watching closely.”

The other problem with the union leader’s thesis is that we simply don’t know how many of California’s high earners decided to absorb the confiscatory tax rates for a couple of years knowing that they would eventually expire.  If made permanent, the existing millionaire out-migration could very well turn into a torrent.

So, instead of asking whether we should make Proposition 30’s temporary tax hikes permanent, a better question would be whether those tax hikes were needed at all or, better yet, did they inflict more harm than good?  There is compelling evidence that California would today be grabbing a bigger slice of the national economic recovery had it not passed Proposition 30 at all.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

This article was originally published by the Howard Jarvis Taxpayers Association.

Don’t Break This Tax Promise

Voters passed Prop 30 as a temporary tax measure to avoid automatic cuts but now there is talk to extend it. Monday, December 1, 2014

Voters are right to be wary of “temporary” tax hikes, and California’s Proposition 30, which passed in 2012, is no exception. Democratic lawmakers are already talking about the possibility of an extension of the tax increase, either through legislative action or in the form of a 2016 ballot measure.

California fell into a significant budget deficit on the heels of the Great Recession. Between 2007 and 2008, state revenues fell by $25 billion, mostly due to decreases in personal income, corporate and other taxes. Social programs, K-12 and higher education were all headed for drastic cuts, so Gov. Jerry Brown helped place Proposition 30, or the Schools and Local Public Safety Protection Act, on the ballot.

The measure was a 0.25 statewide sales tax increase and an income tax increase for individuals making over $250,000 annually – set to expire in 2016 and 2018, respectively. If Proposition 30 had not passed, there would have been automatic “trigger cuts” to K-12, higher education and public safety. To be specific, K-12 funding would have been cut by $5.4 billion, the University of California and California state systems would have lost $500 million, and there would have been a $1 billion cut to public safety services.

After thoughtful consideration, the Valley Industry & Commerce Association decided to support Proposition 30 to avoid those devastating cuts, largely because of the measure’s sunset provisions. The measure passed with 55 percent of the voters’ approval.

Proposition 30’s passage stabilized school funding for the first time since the Great Recession, and prevented thousands of teacher layoffs. The Legislature balanced its budget after years of instability, and without cutting programs. Gov. Brown proposed a budget with a projected surplus of over $5 billion, and the year-to-year gaps between state spending and revenues have been erased for the time being.

Proposition 30 has wholly done its job, a rare outcome for tax increases. Recently, California’s nonpartisan Legislative Analyst’s Office reported that the expiration of temporary tax hikes over the next several years would not result in a ‘fiscal cliff’ as some have feared. Thanks to an economy reliably on the rebound, the state will be able to weather the major loss in tax revenue – Proposition 30 raised an extra $6 billion a year.

The Legislative Analyst’s Office also estimates that the state will have $4.2 billion in reserves at the start of the next fiscal year, which will begin in July. Proposition 2, which voters passed on Nov. 4, requires that $2 billion of that money be deposited into California’s savings account. A large chunk of the state’s surplus will be spent on public education, which should assuage any worries about schools running into trouble once Proposition 30 expires.

Gov. Brown, whose efforts got Proposition 30 placed on the ballot back in 2012, has indicated that when he said the tax hikes were temporary, he meant it. Still, there has been buzz from some Democrats – notably from Superintendent of Public Instruction Tom Torlakson and Senator Mark Leno. Sacramento Councilman-turned-Assemblymember Kevin McCarty has called Proposition 30 a “tourniquet,” and supports making the measure permanent.

With a huge budget surplus, a positive outlook from the Legislative Analyst’s Office, and Gov. Brown in favor of his own effort expiring, why are some legislators already campaigning for Proposition 30’s extension? Considering the electorate’s general skepticism toward tax increases, shouldn’t it be easier to find funding for education and public safety in our now-flush budget? It doesn’t seem like it would require much creativity.

VICA believes that temporary tax hikes should remain temporary. Extending Proposition 30 sets a dangerous precedent for tax increases, and is unfair to voters and Californians in general.

Stuart Waldman is president of the Valley Industry and Commerce Association; a business advocacy organization based in Sherman Oaks that represents employers throughout the Los Angeles County region at the local, state and federal levels of government.

This article was originally published on Fox and Hounds Daily

Californians Vote for More Taxes and More Borrowing

It has been argued that California’s voters defy their political stereotype when it comes to taxes. California’s property tax revolt in 1978 resulted in the passage of the historic Prop. 13, which limits property tax increases to 2 percent per year. As recently as 2009, California’s Legislature joined with Gov. Schwarzenegger to place Propositions 1A through 1E on the state ballot. All of them would have raised taxes, and all of them were defeated by voters.

That was then.

In 2012 Californians voted to raise sales and income taxes through Proposition 30, which supposedly was designed to collect an additional $6 billion per year to fund public education. And while 2014 did not include major new tax proposals on the state ballot, in cities, counties and school districts throughout California, tax and bond proposals were placed before voters. Most of them passed.

In the June 2014 primary, 47 local bond measures were proposed, with 36 of them passing. Also in June, 44 local tax increases were proposed, and 36 of them passed. That was just a warm-up for the November 2014 election, where 118 local bonds – most of them for public education – were proposed, along with a staggering 171 local tax increases. At last count, 72 of the bond proposals were passed, 15 were defeated, and 31 remain too close to call. Of the 171 local tax proposals, 98 were passed, 45 were defeated, and 28 are still too close to call.

These local tax proposals are necessary to meet runaway employee compensation costs, especially for pensions. These local bond measures are largely to fund deferred maintenance, activities that might have been funded through operations budgets if it weren’t for excessive compensation and benefit costs.

In Stanton, a city where local firefighters average $221,000 per year in pay and benefits, and local sheriffs average $112,000 per year in pay and benefits, a 1 percent increase to the local sales tax was approved by 54 percent of the voters. In Palo Alto, where the local firefighters “only” receive pay and benefits that average $181,000 per year, and the local police officers earn pay and benefits averaging $164,000 per year, a 2 percent increase in their hotel tax was approved by 75 percent of voters.

In California in 2014, based on returns so far, if a local city or county wants to raise taxes, there is a 72 percent chance voters will approve them. If a school district wants to borrow money – over $11 billion just this November – there is an 81 percent chance voters will approve them. And if the proponents of more taxes and borrowing are unlucky, they can always try again the next election. The odds are in their favor.

Local taxes and borrowing matter. California has relatively decentralized governance. Of the roughly $430 billion in estimated state and local spending in California for the fiscal year ending 6-30-2015, only $107 billion of that is state government spending. Estimating total state and local government debt in California is nearly impossible because the largest single borrower, K-12 school districts, have not submitted their financials to the State Controller for consolidation since 2002. But a California Policy Center study from April 2013 estimated total state debt from all sources at $132 billion, whereas the same study estimated total local government debt in California at over $250 billion. That estimate relied on 2011 and 2012 data, grossly underestimated K-12 bond debt, and did not include any unfunded liabilities for pension and retirement healthcare.

When it comes to taxes, borrowing, and overspending, most of the action in California is at the local level. And there should be no question that current spending levels are financially unsustainable. If all California’s state and local pension systems had to do was account for their liabilities according to the same rules that have governed private sector pension plans for years, California’s state and local debt – including unfunded liabilities – would be well over $1 trillion. Moreover, such reforms – playing by the same rules as the private sector – would grossly increase the ongoing normal cost to funding pensions for state and local government employees.

Sooner or later California’s taxpayers are going to wake up. Because the Government Accounting Standards Board, Moody’s Investor Services, and eventually the U.S. Congress, are being compelled by financial reality to enact reforms to pension and retirement healthcare accounting, asset management, and funding. Once government entities have to follow the same rules as the private sector, spending will skyrocket or services will be scuttled. What we’ve seen so far, grievous though it may be, is nothing compared to what is to come.

There is an alternative. A bipartisan will to defeat government unions by an awakened populace. It may take a few more years, but it is inevitable – the hidden agenda behind all of these tax increases and new borrowings will be plain for all to see.

Ed Ring is the executive director of the California Policy Center.

Higher UC tuition hikes — for what purpose?

Last week, on a post-election panel presented by Capitol Weekly, I raised the issue of potential tax increases being contemplated by public unions and other groups in the next election and said that one of the reasons more revenue was sought was to cover pension obligations.

A union representative on the panel scoffed that pensions were “yesterday’s news.”

Actually, pensions were that day’s news if you read accounts about the University of California’s request that tuition be raised by 5 percent a year for a five year period.

The chief reason for the tuition increase appears to be retirement costs.

According to the Sacramento Bee,  U.C. Chief Financial Officer Nathan Brostrom cited retirement costs in explaining the need for tuition hikes. This is how the Bee put it: “Brostrom emphasized that UC feels it is not getting what was promised to the university with the Proposition 30 tax hikes, which increased revenues by 8 percent, and that it could avoid raising tuition if the state helped fund its retiree costs.” (My emphasis.)

How can you read that without concluding that the money is for retirement costs?

Squeezing

Like other government budgets, pension costs are squeezing the college budgets like a boa constrictor. When pro-tax advocates talk about the need for more money to pay for services, we should ask for a list of how that money will be spent and how much will be used to offset pension costs.

Higher education costs do seem out of control, rising 100 percent in the last decade. The debt burden on student loans is unconscionable and should be dealt with, starting with an examination of student loan interest rates.

What are the other costs driving up costs of higher education?

Before tuition is raised, the Regents should audit the system to see what is driving the cost.

But let’s not hide from pensions’ sizable role in any budget debate.

That is not yesterday’s news. It is today’s news and tomorrow’s news until some reforms come to be.

This article was originally published on CalWatchdog.com