Gov. Brown’s May Revise Shows No Need for Gas Tax Increase

The first takeaway from Gov. Jerry Brown’s May Revision of his budget for 2018-19 is that California didn’t need that $5.5 billion yearly gas-tax increase the Legislature passed last year. The proposal shows we have $8 billion in revenues in excess of projections.

In one area I persistently agree with Gov. Brown, “Despite strong fiscal health in the short term, the risks to the long-term health of the state budget continue to mount.” Unfortunately, according to the governor’s budget revision, we have $291 billion in long-term costs and the Legislature has done little to fix the state’s fundamental problems.

In his budget announcement and press conference, Brown emphasized the volatility of tax revenues, especially capital gains-tax revenues, shown in this chart:

moorlach-graphic

And he emphasized we’re overdue for a recession. Of course, he didn’t mention it has been President Trump’s economic policies – tax cuts and regulation reform – that have lifted the national economy above the sub-par performance of the Obama administration.

“How you ride the tiger is what we now face,” he said. “It’s going up, but when it goes down, a lot of these programs will be cut. Life is very giddy at the peaks.” No doubt, he is right. But he also ignored most of the reasons for this volatility even as he pointed out the Rainy Day fund will be filled at $13 billion, though he estimated that an impending economic storm would require resources closer to $60 billion. That’s a budget hole expected in the next recession, which could be $30 billion a year for two years. In such a scenario, the Rainy Day Fund would provide just 22 percent of that potential revenue shortage.

I see a much bigger danger. Taxes are so high in this state. To survive the next recession, companies will flee to states with much lower taxes. Because of the state’s punishing taxes, including then-Gov. Arnold Schwarzenegger’s $13 billion tax increase in 2009, our state’s economy crashed hard. Unemployment soared to double-digits and was exceeded only by the rates in Michigan and Nevada. It may happen again.

The period of rising revenues we’re now enjoying should be used to reduce our already committed liabilities and the overall tax burden.

Of course, having increased taxes last year – not just the gas tax, but the cap-and-trade tax Brown pushed through, estimated at $2.2 billion a year – Brown wasn’t about to suggest cutting taxes. It will be up to the voters to repeal the gas tax this November.

Given that the rising tax revenues won’t be returned to the taxpayers who worked so hard to earn them, the governor at least is proposing spending the money on some true needs. I have worked up a list of options, below, of 15 one-time spending recommendations that should be prioritized. But first let me recognize three of Brown’s proposals that have some overlap to my suggestions:

  • $2 billion for infrastructure: “The proposal will target these funds to the universities, courts, state facilities and flood control. Investments are also proposed for high-priority capital expenditures.”
  • $359 million for homelessness. His proposal notes more funding will begin to flow “from a bond and a fee on real estate transactions” passed last year – another tax that I opposed and don’t believe we need. This money would be a “bridge” until these funds are spent.
  • $312 million for mental health “for enhanced early detection of mental health problems and the education of mental health professionals.” The budget proposal also would put the $2 billion “No Place Like Home” initiative funding on the ballot “to accelerate the delivery of housing projects to serve the mentally ill.”

My proposals include prefunding the $2 billion for No Place Like Home, which will be paid back with the bond proceeds.

I’d also like to help out cities and counties with their pensions by injecting several billion dollars directed to their unfunded liabilities in lieu of taxpayer rebates. In his press conference, Brown unfortunately answered, when that question was raised, “A lot of cities signed up for pensions they can’t afford. The state can’t step into the shoes of the cities and counties. They’re going to have to handle that.”

Again, he’s largely right. And he’s actually putting his legal resources and political chits behind the overturning of the so-called “California Rule,” which ratchets up pension costs with no ability for governments to correct costs at the front end, leading them to fiscal ruin at the back end.

Because of that, we’ve got cities and counties laying off police and fire simply because their pension costs are so high. And the cities and counties can’t raise their tax base more than 2 cents on the sales tax. Current leaders in our cities and counties weren’t the ones who spiked pensions decades ago, but the California Legislature made it really easy.

Sacramento is renowned for taking funds from cities and counties during recessions. Giving something back to them would be a noble thing to do.

The state also has a backlog of rape kits. Not only is that unfair to the victims, but after catching the Golden State Killer, how many more predators could we catch and prosecute?

We also need to harden power lines across the state. If this state wants to emphasize electric cars, we’re going to be sending a whole lot more electricity around, which means more wildfires unless the power lines are put underground.

Compared to his January proposal, the governor’s May Revise only tinkered with education funding. But we could use more funding for career technical education. A lot of kids don’t want to go to college, but could have successful careers in the trades or other vocations. They should be afforded the training opportunities just as much as those we send to our elite institutions.

Finally, this budget largely is a stopgap getting the governor beyond his tenure in office. He said he wanted to leave it in good shape for his successor. But so much more needs to be done, especially in improving the state’s harsh anti-business fiscal policies, shoring up pensions, fixing long-neglected infrastructure and reducing the housing and homelessness crises.

Below is a list of my 15 policy proposals for spending the $8 billion in excess revenues. It is largely in priority order. And if the state wins the litigation for the No Place Like Home bond dollars, or it is approved by the voters on the ballot in November, then that money could be cycled into any of the remaining priorities.

Priority Description Amount
1 No Place Like Home Prefunding of approved bonding $2,000,000,000
2 Provide funding to 482 cities to be appropriated to their pension liabilities $482,000,000
3 Provide funding to 58 counties to be appropriated to their pension liabilities $580,000,000
4 Provide matching funds for city pension liabilities $964,000,000
5 Provide matching funds for county pension liabilities $1,160,000,000
6 Fully fund bringing current the Rape Kit testing backlog $12,500,000
7 Fund Armed Prohibited Persons System (APPS) gun holder backlog $12,500,000
8 Hardening of electric power lines around state $1,168,000,000
9 Oroville Dam state water project conveyance levee repairs $100,000,000
10 Temperance Flat construction $250,000,000
11 Refund the Fire Tax $471,000,000
12 Continue Career Technical Education Funding at prior level $200,000,000
13 Renters’ Tax Credit increase $300,000,000
14 Opioid treatment and prevention task force $100,000,000
15 Water Tax off-set $200,000,000
$8,000,000,000

This article was originally published by the Flash Report

Jerry Brown to Leave Office With $13.5 Billion Rainy Day Fund

California Gov. Jerry Brown has submitted his May revised 2018-2019 budget, which indicates he will leave office in January with the maximum $13.5 billion rainy-day fund.

Brown, a liberal Democrat, has complained that no politician should face the type of catastrophic financial crisis he inherited when he returned at age 72 on January 3, 2011 for his third term as the state’s chief executive officer.

At the time, outgoing Republican Gov. Arnold Schwarzenegger’s finance department was forecasting a $28.5 billion deficit over the next 18 months and California had been already been downgraded by to the lowest credit rating of any state in the nation.

Most political observers thought Brown might be the worst possible California governor for the crisis, given that after being termed out of office after eight years in 1983, he left newly elected Republican Gov. George Deukmejian with what was considered at the time a hellacious budget deficit of $1.5 billion. …

Click here to read the full article from Breitbart.com/California

California is collecting so much of your money it can’t save it all

California’s swelling budget reserves are approaching a point where the state by law can’t save any more money ‑ but don’t expect a tax rebate.

The state is quickly filling up its so-called rainy day fund, the budget stabilization account voters created in 2014 when they passed an initiative that forced lawmakers to save money in flush years. Gov. Jerry Brown’s budget proposal puts the state on pace to fill it with $13.5 billion by July 1, 2019, but the milestone could come even sooner.

By law, the fund can only hold 10 percent of the state’s projected general fund revenue as a hedge against the cuts that would come in a recession. Any additional revenue has to be spent on infrastructure.

If the revenue keeps pouring in, Legislative Analyst Mac Taylor told senators earlier this month they’ll have a lot of options. The money “will be there for you do whatever you want to do with it, build reserves, tax cut, whatever you want to do.”

But, in one of those only-in-California budget formulas, filling the rainy day fund presents a different kind of problem for legislators. …

Click here to read the full article from the Sacramento Bee

Ballot Initiative Amended to Target State Rainy Day Fund

Sponsors of an extension of the Proposition 30 top income tax rates amended their ballot initiative this week, slightly parting the curtain on the skirmishes yet to come.

Recently I wrote of a clever provision buried in the original proposal. Sponsors aim to continue the tax hikes on the upper incomes for another dozen years. But they also slipped in a clause prohibiting the deposit of any revenues from these taxes into the new rainy day reserve. In other words, the Legislature can spend all the money from billions in new taxes as if those revenues are locked in stone and never subject to the business cycle.

The upshot would be to undermine the newly-adopted budget cushion, notably touted by Gov. Brown in 2014, and risk deep spending cuts or even higher taxes when the state suffers its next, inevitable downturn.

The newly-amended version of the measure tweaks this provision – clarifying that it would not take effect until 2019, the year the Proposition 30 taxes would have otherwise expired. Without that change, the measure would likely have been interpreted to prohibit deposit of surplus revenues from the current Prop. 30 taxes into the rainy day reserve.

Why make this change? The answer may be just two words: Gov. Brown. Undermining the rainy day reserve as early as 2016 might have brought down his wrath on the ballot proposal (the governor has not yet stated a position on the measure). Poking the governor in the nose is usually bad politics. Proponents – mainly the California Teachers Association – might also calculate the governor may be less motivated to defend his rainy day reserve if the blade is shivved after he leaves office in 2019.

Originally published by Fox and Hounds Daily

resident of the California Foundation for Commerce and Education

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