California County News

Winter Slump: Controller’s Revenue Update; $165.2 Million Below Projections

Although the governor only just announced his budget for 2012-13, its numbers are already falling below expectations. Controller John Chiang, who released December’s cash update, notes that revenues came in $165.2 million below the latest projections contained in the Governor’s proposed budget. In comparison to the 2011 Budget Act, December revenues were $1.4 billion below estimates. Chiang commented:

“While we saw positive numbers in November, December’s totals failed to meet even the latest revenue projections. Coupled with higher spending tied to unrealized cost savings, these latest revenue figures create growing concern that legislative action may be needed in the near future to ensure that the State can meet its payment obligations.”

There was one bright spot: December’s sales tax totals came in above estimates by $17 million (1.1 percent). Still, personal income taxes were $69.8 million down (-1.4 percent), and corporate taxes also dropped by $19.5 million (-1.4 percent). Hope is on the horizon though, as the Controller notes, “The balance of holiday sales tax receipts will be seen in late January and early February.” As for local governments, and specifically counties, it’s a good sign that sales tax revenues are up, which translates to higher revenues for realignment and since vehicle license registrations have also increased, funds for realignment will also receive another boost.

See December’s financial statement here.

Summary analysis is available here.

Revenues Outlined in Guv’s Tax Plan Disputed by LAO

Governor Brown is doing all he can to hype his tax initiative, which he has proposed in order to raise $7 billion annually in revenues. When he announced his budget, Brown stated he was really committed to paying back the wall of debt and eliminating the deficit, which he argues could be accomplished through the approval of his measure. Then the governor laid out the threats, noting that he would be forced to pull additional trigger cuts if the initiative does not succeed. The Administration’s new budget is a $92.6 billion spending plan and experts have called it the largest ransom note in California political history due to the consequences that have been outlined if Brown doesn’t get his way on the initiative.

However, it’s now been revealed that the LAO and the Department of Finance don’t see eye-to-eye on the amount of revenues the tax proposal will actually generate. According to the LAO’s analysis, the initiative would only raise $4.8 billion, which is $2.1 billion less than what the governor has put forth. The discrepancy in numbers is notable because it could mean deeper cuts or the need for even more revenues. In a joint letter, Legislative Analyst Marc Taylor comments, “The volatility described above makes it difficult to forecast this measure's state revenue gains from high-income taxpayers. As a result, the estimates from our two offices of this measure's annual revenue increases vary."

If the governor’s initiative does in fact take in less revenue than projected by the Administration, it could undercut his promises to CSAC. Brown recently convinced CSAC to drop its own initiative, which was a competing plan that sought to secure funding for realignment. One of the governor’s points of persuasion was that his initiative would have a broader coalition of support and raise more revenue.

On the topic of local government, the governor also made a few comments during his press conference about the release of his budget. He outlined that he wishes to expand realignment and commented, “We should be giving more discretion to cities, counties, and school districts [...] local democracy is as responsive and vigorous as state democracy.”
 
The governor was also asked about redevelopment and he reiterated previous statements made by administration officials. But he did note, “I understand concerns about economic development.” The governor went on to say he cut out redevelopment because the state is short of money, not because he dislikes RDAs. He posited that other services simply must trump the need for redevelopment and that the money has to come from somewhere, noting the state was in a box.

If you haven’t seen it, you can read the governor’s budget here.

Concerns about Double-Taxation Remain as Rural Fire Fee is Revised

The much-hated rural fire fee is back in the news, as a new draft was recently released with several new provisions. The state Board of Forestry and Fire Protection will hold a hearing on January 11th to determine if the latest incarnation will move forward. As a refresher, property owners who fall under State Responsibility Areas (SRA) will have to dole out $150 annually and additional stipulations are sure to enrage critics. For instance, the fee will be $300 if a parcel of land has two single-family homes on it and duplexes will also be subject to the $150 fee. The governor also rejected a smaller fee that was proposed, which would have been $90 due to a series of credits.

There were also previously concerns that jails or hospitals would be charged extra due to ambiguously worded provisions, but new changes state that these types of buildings will be charged the same $150 fee.

Despite strong objections from local government leaders, the administration is sticking to its guns, with Brown commenting that “To me it’s just simple. People need to share the burden of the benefits they receive. That’s the principle.” However, CSAC has called the fee "double-taxation without any additional benefit" for communities that already support local fire stations. The Half Moon Bay reports on how rural residents regard the fee due to concerns about double taxation:

“La Honda stays relatively moist even during the hot summer months and hasn't experienced a major forest fire in over 50 years. Nonetheless, local homeowners agree to pay 1 percent of their property taxes to support the La Honda Fire Brigade, a volunteer fire department that derives most of its annual budget from donations and fundraising. The same goes for Kings Mountain, where residents for decades have held a successful annual art fair to raise money for the local fire station. [A resident] points out a $150 state surcharge would be more than double what he annually pays through taxes and donations for local fire protection.”

Reportedly the fees could take full effect by April. Expect legal challenges, as has been the case with many aspects of the state budget. Taxpayers may be less-than-pleased to hear that of the millions collected, over $3 million will go to the State Board of Equalization as a fee for doing the billing. We relayed previously that while the California Board of Forestry and Fire Protection originally revised the fee structure so that rural residents could only be charged a maximum of $90, new appointees to the Board allowed the ultimate fee amount to go higher, as the board was restocked with Brown appointees. The governor took issue with the lowered fee back in August because the Administration and legislators are relying on the revenue for the patched up state budget.

A fact sheet on Cal Fire’s coverage across the state can be seen here.

Pulling the Trigger: Guv Announces Cuts and New Revenue Forecast; $980 Million in Cuts

The fate of the much-maligned trigger cuts was announced by Governor Brown and state finance officials when they released an updated version of the state’s revenue forecast Tuesday, and all eyes fell on the update as the predictor of the extent to which mid-year cuts will impact a range of programs and services. Outlining the options before the state, Brown commented, “You either cut or you tax. There’s no other way.” While there were fears that K-12 schools would face major cuts, in fact the reductions slated for education will be far less than anticipated and instead higher education and child care will be among the components that will have slashed funds. According to the Department of Finance, the state’s revenues are $2.2 billion below projections. Cutting to the chase, the state will impose $980 million in mid-year trigger cuts.

You can watch Governor Brown’s press conference on the budget here.

Notably, the figures presented by the Department of Finance were far rosier than the estimates of the Legislative Analyst’s Office, as the LAO stated California would fall $3.7 billion short on revenues and that far more would have to be cut January 1st. However, state officials have pointed to strong November sales taxes and higher revenues as factors that have softened the blow on the trigger cuts. The Department of Finance’s report on the revenue forecast states the following:

• "Personal income tax revenues are estimated to be $1.529 billion higher. High-income wages and salaries were stronger in 2011 and 2012 than previously estimated.  Proprietor’s income is also estimated to be higher.  However, capital gains are mixed: estimated to be slightly lower in 2011 and slightly higher in 2012;
• Sales tax revenues are estimated to be $232 million lower, primarily due to the result of the delay in implementation of use tax collection changes, a lower projection of inflation, and a higher projection of unemployment; and,
• Corporation tax revenues are estimated to be $467 million higher, primarily because of a higher corporate profits forecast.
• This net increase in the state’s biggest three tax sources was insufficient to fully offset the $4 billion in unallocated revenues described above"

 

Outlined below are some of the cuts that will take effect in 2012:

• $100 million to the University of California.
• $100 million to California State University.
• $100 million to developmental services.
• $100 million to In-Home Supportive Services.
• $72 million in increased charges to counties for young offenders sent to state prison.
• $30 million to Community Colleges.
• $23 million to child care programs.
• $16 million to local libraries.
• $60 million miscellaneous.

You can read the full report here. For those hoping that the Legislature will rally around a last-minute effort to prevent the trigger cuts, relying on the abilities or efficacy of Sacramento is sure to end in disappointment.

State Revenues Beat Projections in November; Guv Threatens More Cuts if His Initiative Fails

The latest cash update from State Controller John Chiang did have some good news: the state’s revenues during the month of November were $497.7 million above projections outlined in the state budget. That being said, Chiang was quick to point out that total year-to-date general fund revenues are still behind the budget's estimates by $1 billion.

The Controller commented the following: “While November's totals came in 9 percent above projections, they did not erase the fact that we are still running $1 billion behind in revenues and $2 billion ahead in expenditures. Regardless of whether midyear cuts are enacted next week, the Legislature faces a tremendous fiscal challenge when it returns to session next month."

The combined current year cash deficit stands at $21.5 billion and the State ended last fiscal year with a cash deficit of $8.2 billion. For the month of November, it was primarily income tax revenues that helped boost revenues above projections, as the state took in $531.4 million, or 19.6 percent, more than expected.

Read the Controller’s November financial statement here. Summary analysis can be found here.

You’ll recall that budget figures are particularly important this December because the Department of Finance will release its report to determine how much the state has to cut. The Bee reports on the following important point about November’s figures:

“The Legislative Analyst Office's Jason Sisney said the strong November income tax figures were largely due to fewer refunds paid out rather than improvements in the economy. If so, the November total doesn't necessarily foretell greater revenue for California through the rest of the fiscal year, which means the state may still be on track for a significant round of midyear cuts.”

In other budget news, while midyear cuts appear likely, the state could face another round of automatic cuts if the governor doesn’t get his way, according to the administration. Brown recently launched an initiative that would raise taxes and the governor has said if voters reject it, then the state should prepare for even more cuts to address the shortfall. The governor commented, “We’re going to balance the budget. We’ll propose cuts and the taxes, and if the taxes don’t materialize, I will propose we have trigger cuts that go into effect immediately.”

Republicans have criticized the governor’s threat and suggested he is holding taxpayers hostage.

Guv Launches Tax Hike Initiative as Taxpayer Groups Counter w/ Spending-Cap Proposal

This week Governor Brown officially announced the launch of his proposal to raise taxes with the Schools and Local Public Safety Protection Act of 2012, as the initiative has now been officially filed with the Attorney General's Office. You’ll recall that the measure would raise $7 billion annually by taxing the rich and hiking the sales tax by half a cent (and both of these tax hikes would expire at the end of 2016).

The text of the measure emphasizes repeatedly that funding will support education as well as realignment, i.e. public safety. The measure states, “This measure gives constitutional protection to the shift of local public safety programs from state to local control and the shift of state revenues to local government to pay for those programs. It guarantees that schools are not harmed by providing even more funding than schools would have received without the shift.”

To corral support around this initiative, the governor also released “An Open Letter to the People of California.” The letter states: “The stark truth is that without new tax revenues, we will have no other choice but to make deeper and more damaging cuts to schools, universities, public safety, and our courts.” The governor also explains that he is resorting to an initiative because he does not want to get bogged down by partisan gridlock and that the stakes are too high.  You can read the full letter here.

And in response to the governor’s tax proposal, the California Taxpayers Association, Howard Jarvis Taxpayers Association and Small Business Action Committee have filed an initiative of their own that would cap state spending.  The Bee reports the following on the proposal:

“The proposal would reconfigure the Gann Limit, a 1979 spending restriction established on the heels of tax-limiting Proposition 13. Voters later softened the limit, and the state is now $17 billion below the spending cap. […] In years where tax revenues are greater than the limit, the state would first have to pay down debt and then divide up to $2 billion between schools and a rainy-day fund. If money is left over, the state would return money to taxpayers.”

Jon Coupal from the Howard Jarvis Taxpayers Assoc. wrote the following description of the measure over at the Flash Report: “The measure will limit annual state appropriations to the prior year's level (adjusted for cost of living and population growth), require surplus revenue to first be spent on debt service and strengthen the two-thirds vote requirement for legislative passage of laws that authorize or raise new or higher taxes. The measure will give voters the choice they deserve. I firmly believe voters want Sacramento to prioritize spending and live within our means – once and for all.”

Take Your Pick: Tax Plans Aplenty as Guv Announces Plan for Initiative; 4 Other Proposals

It looks like it’s official that the Governor will stick to his guns and once again try to find support for an increase in taxes, but this time he will take the initiative route. After Republicans refused to support any tax increases earlier this year, the governor has been forced to take his plans directly to the voters through a signature-gathering campaign. After all, you’d be hard-pressed to find anyone at this point who believes a bipartisan tax deal is likely in 2012. Details of the governor’s plan were slated to be released on Friday, but then the Administration apparently changed its mind and the specifics will come out on Monday. But what’s the gist of Brown’s proposal? Essentially he wants to raise $7 billion annually by taxing the rich and hiking the sales tax by half a cent. Both of these tax hikes would expire at the end of 2016. The “rich” would be defined reportedly as those earning more than $250,000 for individuals and $500,000 for joint filers. The Bee reports:

“The Democratic governor crafted his November 2012 initiative with legislative leaders and major labor unions behind closed doors, relying on polls showing voters may be willing to tax the wealthy and pay more for schools.”

But the governor isn’t the only one setting his sights on tax increases, as there are now 4 other efforts in the works as well. To keep you in the know, here’s a quick rundown on what else is out there:

1. CA Federation of Teachers: This outfit is proposing to tax the wealthy also; namely, those earning more than $1 million would see their income taxes go up so that schools would receive more funding. This proposal is projected to raise $6 billion

2. Californians for Clean Energy and Jobs: In an attempt to raise $1.1 billion, out-of-state companies would see their corporate taxes increase so that clean energy projects could be funded.

3. Think Long Committee: This proposal has a few components; one, raise taxes on out-of-state firms; two, extend the sales tax; three, reduce income and corporate taxes. This would reportedly raise $10 billion.

4. Molly Munger’s proposal: In order to rake in $10 billion, this civil rights advocate is getting behind a plan that would raise income taxes for most Californians (except the poor). The funds would go toward education, preschools and early-childhood development programs.

Concerns have already been raised that with 5 tax plans floating, voters may be less receptive or that the different proposals will cancel each other out. Californians traditionally turn down measures that involve taxes, as the Chronicle reports that “Voters have rejected the last seven tax-raising measures put before them, and history shows that when Californians see similar-sounding measures on the ballot, they vote no on all of them.”

Getting Our Fair Share? CBP Tracks Federal Spending in CA in New Report

Curious about just how many federal dollars are spent in California? Well, the California Budget Project — a nonpartisan/nonprofit organization seeking fiscal reforms to benefit low and moderate income Californians — has done the research for you in a new report that tracks federal spending, which accounts for more than one-third of the state’s budget. Around 15 cents out of every federal dollar spent through the state budget goes to California’s public schools and universities and over 50 cents out of every federal dollar spent through the state budget supports health and human services for children, seniors, and many other Californians. The CBP points out that Californians received $333.8 billion in federal dollars both through and outside of the state budget in FFY 2010. Notably, social security accounts for nearly one-fifth of federal spending here in California. Here are some other figures and highlights from the CBP’s report:

• "An estimated three-quarters – roughly $240 billion – of the more than $330 billion in federal dollars spent in California in FFY 2010 went directly to individuals, businesses, and others without passing through the state budget
• More than one-fifth (23.6 percent) of federal dollars spent in California in FFY 2010 were provided as grants through federal agencies, including the Department of Education, the Department of Transportation, and the Department of Health and Human Services
• More than one out of six federal dollars (17.2 percent) went to businesses that provide goods and services to the federal government, including defense contractors.
• The federal government provided nearly $50 billion for health and human services programs in 2010-11; Nearly three-quarters (73.5 percent) of these funds – an estimated $36.4 billion – supported the Medi-Cal Program
• $272.9 million for drug abuse prevention, treatment, and recovery programs for approximately 300,000 Californians through the Department of Alcohol and Drug Programs
• The federal government provided $5.0 billion for transportation programs in 2010-11 – more than 5 cents out of every federal dollar spent through the state budget"

Key questions about federal spending in the Golden State concerns whether we get our fair share. Not according to the figures: California had 11.9 percent of the US population in FFY 2010, but accounted for 10.2 percent of federal expenditures; in addition, California’s share of federal dollars amounted to $8,960 per capita, well below the national per capita level of $10,460.

You can read the CBP’s full report here.

Pulling the Trigger: Mid-Year Cuts Likely as LAO Reports St Will Face a Deficit of $13 Billion

The state Finance Department and Controller John Chiang have already had their say about the state’s revenue forecast and troubling fiscal outlook and now the Legislative Analyst's Office has released its take on the numbers, which are garnering so much attention because the status of the state’s shortfall will affect the likelihood of dreaded trigger cuts. As a refresher, Chiang reported the state has a gap of $1.5 billion in revenues and soon after the Finance Department said the state was $1.3 billion behind projections. Under the budget, it was estimated that the state would take in $88.5 billion in revenues, but the LAO has concluded revenues will only amount to $84.8 billion, which means the numbers will be $3.7 billion short of the $4 billion officials were hoping to receive in order to close the budget and avoid mid-year cuts. The revenue shortfall is supposed to translate into $2 billion in trigger cuts to various state programs, but while the governor’s administration is now acknowledging that some cuts will be necessary, they are not committing to a precise number and will gather further details come December. On December 15th the Department of Finance will release its final revenue projections, and its report will play a major factor in deciding cuts.

Overall the LAO has posited that the state's deficit will be nearly $13 billion through June 2013. The report concisely states: “The remaining work of eliminating the state's persistent, annual deficit will require more difficult cuts in expenditures and/or increases in revenues.”

In response to the LAO’s projections, Controller Chiang released the following statement:

“Today’s news is no surprise.  Our economy’s sluggish growth means a tax windfall is unlikely, and not a penny of the estimated $4 billion has been collected to date. The Governor and lawmakers were smart to backstop their hopeful budget projections with mid-year cuts, but they may not have gone far enough.  Today’s report tracks with the troublesome pattern we have seen in the State’s receipts and spending, which could mean a cash-flow problem in California’s near future.”

The LAO’s outlook has also reenergized debate about how the state should tackle its deficit, with Democratic leaders calling for tax hikes and Republicans unsurprisingly disagreeing with that assessment and criticizing the shaky budget that Democrats passed on their own. You can read the LAO’s full report here.

Finally, the LAO released the following video to explain the conclusions it reached:

Download Video as MP4

 

OC’s Payback Time: Tax Take-Back Faces Backlash from State and School Officials

We relayed recently that the Orange County Board of Supervisors basically told the state to drop dead when it came to grabbing $48 million from the County's coffers as a way to balance the state budget. Supervisors decided to fight back over the funds rather than let the state’s plans create layoffs and major cutbacks, so the county announced its plans to hold onto $73.5 million in local property taxes that are supposed to go toward public schools (the county contends the state will be required to backfill the reduction in local revenue due to a mandate). Supervisor John Moorlach stuck to his guns in a post on his blog about the county’s decision and wrote the following:

“The taxpayers of the OC are due the entire $73.5 million. We must keep our $49.5 million and we rightfully deserve the additional $24 million. The schools must be backfilled by the State. The State has to figure out how to come up with the $73.5 million. Had the Legislature and the Governor simply left the OC alone, it would have been $24 million ahead. Now we have to wait and see how Sacramento responds to our having informed them that we are following the law.”

The so-called "response" that OC is getting could be better characterized as backlash. So what about that claim that funding for schools will be guaranteed anyways? Here’s what H.D. Palmer, deputy director of the state Department of Finance, had to say about it, according to the Voice of OC:

“While the redirection of property tax revenue available from K-12 school districts in Orange County would be automatically backfilled with state general fund, the loss of property tax revenue available to community college districts would not. General apportionment funding for K-12 schools is continuously appropriated, and the state general fund makes up the difference between the amount of property tax revenue received by a school district and the ‘revenue limit’ it is entitled to by state statute. However, the state general-fund portion of community college revenue limits is appropriated each year in the budget act. Orange County's decision to redirect property taxes from schools will result in a funding reduction to community colleges unless the Legislature acts to backfill the money.”

The state has already announced that it is considering its legal options in light of Orange County’s decision. So it would appear a legal challenge is likely since the state argues the move is illegal. But the county has countered that it has accounted for legal issues by verifying the options with a private law firm in addition to the legal research that was conducted by county counsel.

But William M. Habermehl, superintendent of the Orange County Department of Education, is certainly not pleased by the county’s decision either. Habermehl fears the state will not make up the difference and commented, “I find it very disconcerting and almost a slap in the face. How can we assume the State of California with the financial difficulties it has will have the money to pay?” More on the response of school officials can be found at the OC Register.