Will California Voters Approve $3.6 Billion Per Year in New Taxes?

October 22, 2018 By Edward Ring 11 Comments

VotedWith the 2018 general election a few weeks away, it’s time to review just how many tax increases are on state and local ballots in California. And while media attention focuses on the statewide tax measures, even bigger money is represented by the sum of hundreds of proposed local tax increases.

Every election cycle, the California Taxpayers Association (CalTax) produces a list of local tax and bond proposals. After every election, they provide information as to how many were approved by voters and how many failed. Using CalTax data, it can be seen that in November 2016, California’s local voters approved 181 bonds, mostly for school construction, totalling an incredible $32.3 billion. Annual payments on these bonds will cost California’s taxpayers an estimated $2.1 billion per year. At the same time, local voters approved 159 new tax measures, mostly increases to local sales taxes and parcel taxes, adding another $2.9 billion in annual payments.

If you add up all the voter approved new taxes in November 2016, state and local, you have to include not only $5 billion in new local taxes and payments on local bonds per year, you also have to add the voter approved statewide measures. That would include Prop. 51, adding yet another $9 billion in school bonds (estimated payments $585 million per year), and Prop. 55, the extension of the “temporary” increase to state income taxes on personal incomes over $250,000 per year (estimated collections, between $4 billion and $9 billion per year), and Prop. 56, the $2.00 tax increase per pack of cigarettes (estimated collections just over $1 billion per year).

Before turning to 2018, it’s important to also note that in 2016 the Democrats recovered their two-thirds majority in the state legislature, meaning they could pass new taxes without voter approval. And in 2017, that’s exactly what they did, adding twelve cents per gallon to the already high state taxes on gasoline and increasing vehicle registration fees. Voila, another $5.4 billion per year in taxes on Californians.

When considering how California’s proposed new taxes will fare with voters in November, history is a good indicator. In November 2016, ninety-four percent of local bond measures were passed by voters, and seventy-one percent of new local taxes were approved. Similarly, this past spring, in the primary elections of 2018, California’s voters approved eighty-three percent of local bond measures ($200 million per year in annual payments), and sixty-five percent of new local taxes ($228 million in new taxes per year). Statewide, Californians approved a $4 billion “water” bond (Prop. 68), which equates to another $260 million per year in annual payments.

Which brings us to November 2018. The table below shows 125 new local bonds are proposed. If they are all approved by voters, that will add another $1.2 billion in annual payments. In addition, 259 new local taxes are proposed, which if approved will total another $1.6 billion in annual payments. This time, along with the perennial hikes to sales taxes and parcel taxes, the other popular new mode of taxation is marijuana, with 73 of California’s cities and counties proposing to cash in on sales of recreational cannabis.

California’s Local Tax and Bond Proposals – November 2018

If historical trends apply this time, California’s voters will likely approve four-fifths (or more) of the local bond measures, and two-thirds (or more) of the local tax increases. This will equate to roughly $2 billion in new taxes and payments on bonds per year. And then there are the statewide initiatives.

On California’s November ballot there are four bond proposals, totaling $16.4 billion in additional borrowing. Prop. 1 issues $4 billion in bonds for housing programs and veterans’ home loans. Prop. 2 sells future revenue from the millionaire’s tax for $2 to guarantee $2 billion in bonds for homelessness prevention housing – that’s tax revenue that has to be made up somewhere else, so yes, it counts. Prop. 3 issues a whopping $8.9 billion in bonds for water-related infrastructure and environmental projects. And Prop. 4 issues $1.5 billion in bonds for children’s hospitals. Total payments on these bonds? Another $1.1 billion per year.

To summarize, in 2016, voters approved new taxes and payments on bonds (not including the $4 to $9 billion per year in “millionaire” taxes that were not new, but were continued by the passage of Prop. 56) totaling $6.5 billion per year. In the 2018 June primary, California’s voters approved another nearly $700 million in new taxes and payments on bonds. And this November, voters have the opportunity to approve (or reject), $3.6 billion per year in new taxes and bond payments.

For the children. For education. For safety. For safe drinking water. The list goes on, and the stories are compelling. But here’s the problem: Even if all of the 2018 tax and bond payments are approved, and those payments are added to the payments on new taxes and bonds already approved in Nov. 2016 and June 2018, the total is “only” $10 billion. Why “only”? Because the estimated payments on public employee pensions in California are estimated to increase from $31 billion in 2018 to $59 billion in 2024, and that is the “normal” scenario, not one reflecting the impact of a major correction in the value of stocks, bonds, and real estate.

Money is fungible. When more tax revenues go to pension funds, vital publicly funded programs are either defunded or new taxes are imposed to keep them alive. Similarly, when more tax revenues go to pension funds, maintenance projects that might have been funded using operating budgets, suddenly become capital projects requiring debt financing.

Californians may expect a deluge of new tax and bond proposals for many years to come.

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Locals Governments Seek New Levies Despite $4 Billion Property Tax Surge

October 19, 2018 By Dan Walters 11 Comments

taxesLocal government officials throughout the state got some very good financial news when county tax assessors toted up changes in taxable property values for their 2018-19 budgets.

The state’s uber-strong real estate market generated a 6.51 percent increase in those values, adding another $374 billion to the property tax rolls and pushing the total to $6.1 trillion.

That increase, three times the rate of inflation, translates into $4-plus billion more in revenue for cities, counties and other local governments. While schools also receive property taxes, they don’t directly benefit from the increase because of how state aid is structured.

The big winners are cities because, unlike counties and schools, they are almost totally dependent on local taxes and fees to finance their budgets. San Francisco, which is both a city and a county, reported the state’s strongest assessed valuation gain, 10.35 percent.

The very strong growth in property tax revenue, however, raises a pithy question: Why then are so many local governments, cities especially, complaining that they can’t balance their budgets unless local voters raise taxes?

There are 254 local tax increases on the November ballot – sales taxes, parcel taxes, utility taxes and hotel/motel taxes, mostly – according to the California Taxpayers Association, 65 percent more than there were four years ago.

The reason is that even with strong property tax gains, local governments’ pension costs are growing faster than revenues, thus putting the squeeze on their budgets.

Cities have been hit the hardest by increases in mandatory payments to the California Public Employees Retirement System (CalPERS) as it tries to shrink its large “unfunded liability.” City officials have repeatedly complained about the specter of insolvency if pension payments continue to grow and the League of California Cities has labeled the situation “unsustainable.”

With very rare exceptions, however, officials who place the tax increases on the ballot will not publicly say the extra revenue is needed to offset rising pension costs. Officials believe that telling the truth would make voters less likely to vote for the new taxes. It could also make employee unions less likely to provide money for tax campaigns.

Rather, on the advice of high-priced consultants, they say the money is needed for popular police and fire services and parks.

Unfortunately, most local news media are carelessly complicit in this conspiracy of silence, tending to accept the official reasons at face value, rather than analyze them critically. That’s true even though data about what revenue the new taxes would generate and projections of pension costs are readily available.

Over the weekend, for instance, the Sacramento Bee published a long article about proposed tax increases in Central Valley cities, quoting officials about what they hoped to do with the extra revenue, including Sacramento Mayor Darrell Steinberg, who called his one-cent sales tax hike a “game changer.”

However, the article only tersely mentioned pensions as something brought up by unnamed “critics,” even though the city’s own budget complains about pension costs and data indicate that the new taxes would largely go to pensions.

The Santa Cruz Sentinel, in a similar piece about new hotel/motel tax proposals in its region, took the opposite – and more responsible – tack by delving into how pensions are straining local budgets and driving tax hikes.

The Sentinel’s article, unfortunately, is a very rare exception. Otherwise, local officials and local media seem to believe that ignorance will be blissful.

 is a columnist for CALmatters

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Local Governments Rigging Elections — Again

October 25, 2016 By Jon Coupal 3 Comments

Voting boothWith all the state and local taxes on the November ballot, one would think that government at all levels in California was starved for revenue. But even a cursory review of the Golden State’s “tax machine” reveals that the tax burden is already too heavy for many to bear. California has the highest income rate in America (likely to be extended for another 12 years) and the highest state sales tax rate. And despite Prop. 13, our per capita property tax collections ranks no lower than 14th in the nation.

In the June primary, voters already passed 29 out of 40 local tax increases. But those taxes register as barely a blip compared to the earthquake confronting voters in less than three weeks. According to the California Taxpayers Association, there are 228 local tax measures representing a cumulative tax increase of more than $3 billion per year, along with 193 bonds (more than $30 billion’s worth) that would dramatically increase annual property taxes.

After the June primary, this column observed that the high rate of passage reflected not so much a love for higher taxes as it did the fact that the tax raisers have become experts at gaming the system to pass tax and bond measures. Highly paid political consultants tell local officials not to publicize tax elections to the entire community, but to target only their supporters. This means running stealth elections, communicating (in the case of school bonds) with only administrators and construction firms who are always more than willing to finance political campaigns and, of course, public employee unions who never met a tax they didn’t like.

The strategies that the pro-taxers employ to extract money from an unsuspecting citizenry are endless. For example, many school boards, cities and counties do all they can to time elections so that potential opponents have inadequate time to mobilize. The ultimate goal is to prevent an opposition argument from even appearing in the ballot pamphlet. On countless occasions, taxpayer advocates have been blindsided by proposed tax increases because they were only afforded a few precious days to submit an argument. And when it is too late, there are few legal remedies.

The ultimate insult to taxpayers, of course, is when local governments use public dollars to engage in political advocacy to influence an election. In theory, it is illegal for officials to use public resources (including public funds) to urge a vote for or against a political issue. But, in practice, it happens all the time. Two weeks ago, both the Howard Jarvis Taxpayers Association and the Central Coast Taxpayers Association filed a complaint with the Fair Political Practices Commission alleging campaign reporting violations of the Political Reform Act by the County of San Luis Obispo, the San Luis Obispo Council of Governments (SLOCOG) and the Yes on Measure J Committee, a group pushing a local transportation tax. These government entities have spent nearly a quarter of a million taxpayer dollars on promotional materials and government employee and contractor compensation supporting Measure J.

As the November election draws near, the complaints about government interference in elections have ramped up dramatically. In Sacramento, the Sacramento City Unified School District used “robocalls” to contact thousands of parents with “important information” about the benefits of a parcel tax as well as statewide Proposition 55. According to theSacramento Bee, the district sent the scripted messages recorded by five district trustees through its automated telephone message distribution system, explaining how the two tax measures would raise money for school programs and services that otherwise could be slashed. (This despite the fact that education spending in California has exploded since 2010).

Such communications are neither information nor balanced. They are always one-sided puff pieces designed solely to extract yes votes from uninformed voters.

California voters need to be alert to the lies, distortions and illegal expenditures of taxpayer dollars when considering any request for higher taxes. Yes, government services require public dollars. But before voting yes on any tax increase, ask yourself why is it that other states have markedly better public services without the high price tag.

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 piece was originally published by HJTA.org

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CA Tax Board Owes Millions to Overcharged Taxpayers

August 8, 2015 By Dave Roberts 9 Comments

TaxesThe California Franchise Tax Board potentially owes millions of dollars to 27,000 taxpayers who were overcharged interest after applying overpayments from one year to estimated tax payments in the following year. Due to FTB interest miscalculations going back nearly two decades, many more taxpayers may have been overcharged. But they’ll never be reimbursed due to the expiration of the statute of limitations.

How Much is Owed?

The FTB is trying to figure out exactly how much money is owed to about 24,000 individual tax filers and 3,000 businesses still eligible for refunds, and what it will cost the agency to process those claims, FTB Filing Division Chief Anne Miller told the board at its July 21 meeting:

These two interest calculations may impact a limited number of individuals and business entities that meet a set of specific and rare criteria. The criteria are centered primarily around overpayments being transferred or refunded from one particular tax year followed by an additional tax assessment on that same tax year. As a result, our systems may have overcharged interest.

Due to the complexity of the calculations, it’s been quite a challenge for us to determine the fiscal impacts. We estimate that if work was to be done manually on each of these individual accounts, it could take three hours per account. We have enlisted the help of our experts in the Economics and Statistical Research Bureau to help us with these calculations because they are so complex.

About 1,000 of the individual taxpayers are owed for more than one year, placing the total adjustments around 28,000. That equates to 40 FTB staffers working for a year to do the calculations, based on three hours per adjustment if an automated solution isn’t found.

“[W]e believe the adjustments could range from a very minor amount (a few dollars) to thousands of dollars for each account,” said the FTB in its Aug. 3 Tax News. The total amount owed could be in the millions of dollars, according to the California Taxpayers Association, which brought the problem to the attention of FTB management in March.

“CalTax is aware of millions of dollars in miscalculated interest based on what a limited number of taxpayers have told us,” said Gina Rodriquez, CalTax vice president for state tax policy. She continued:

In one case, the FTB overcharged interest by $1 million, and in another case $2 million.

In some of the cases that were reported to us, taxpayers asked the FTB to adjust the interest before their cases went final, i.e., before the taxpayer’s protest, appeal or settlement went final. Taxpayers who had already paid and subsequently discovered the error had to file refund claims to get the interest back if they already paid their assessments. In all cases reported to us, the FTB made the adjustment for the interest miscalculation without any argument, as they knew their calculations were wrong.

When I met with FTB management in the spring to discuss this issue, the FTB acknowledged that their computer system cannot properly calculate interest for taxpayers that fall into the two affected categories.

Origins of Miscalculation

The main category of miscalculation, potentially affecting 26,000 taxpayers, dates back to a lawsuit that May Department Stores Company won in 1996 against the United States for miscalculation of interest on the company’s tax underpayments a decade earlier. The IRS issued a notice in 1997 acquiescing to the court decision.

The complexity of the situation is evident on an FTB web page, which explains that you may be owed a refund under the May Department Stores ruling if:

  • You filed an amended return for additional tax or received a deficiency assessment after the original return was filed for the same tax year, and
  • On the original return, you elected an overpayment transfer to the subsequent year’s estimate tax, and
  • On the subsequent year, the required first quarter estimate payment was less than the requested overpayment transfer amount. The maximum amount of the adjustment is one year of interest on the additional tax or deficiency amount.

The other miscalculation category, known as “corporation interest netting,” may affect about 1,000 businesses that have made a previous refund or payment transfer, then filed a subsequent deficiency or amended return for additional tax with interest for the same tax year.

Thus far fewer of those overcharged are aware that they are owed money. “We’ve received three written requests for interest adjustments as well as a few visits to our website,” Miller told the board. “But our contact center has not reported any phone calls on this issue.”

Time Running Out

The clock is ticking on taxpayers who want to receive refunds. The statute of limitations runs out four years from the date the return was filed if it was filed within the extension period, or one year from the date a payment was made.

FTB plans to avoid this situation in the future. “In order to better serve taxpayers who may qualify for the interest computation adjustments, we have trained our staff to proactively identify cases that meet this criteria as well as put procedures in place to ensure that cases that do meet the criteria proactively receive proper treatment,” said Miller.

Betty YeeFTB Chairwoman Betty Yee, who is also the state controller, was appreciative of Miller’s work. “Thank you for really responding with such a strong focus on just initially identifying the universe [of affected taxpayers], which I know was quite complex,” said Yee. “And now to try to put a fiscal impact around what’s been identified. We look forward to getting that information in September.”

In her capacity as state controller, Yee directed the FTB on April 8 to review the interest miscalculations. “These rulings deal with complex interest calculations that affect very few taxpayers. However, these taxpayers are entitled to receive refunds of allowed overpaid interest,” Yee said. “As chair of the FTB, I work to ensure the rights of taxpayers are protected.”

FTB Board Member Jerome Horton said, “I want to thank the department for being proactive on this and engaging. It’s very important. As always we have stepped up and done so.”

Miller is scheduled to provide an update at the board’s next meeting on Sept. 22.

Originally published by CalWatchdog.com

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