California Proposition 30 – The $50B Tax Hike

by Jack Lee

UPDATE: Also before the voters is Measure E, “Shall the voters authorize the sale of $78,000,000 in general obligation bonds for a Local Chico School Facility Improvement Measure?” Whole lotta spendin goin on…

The Howard Jarvis folks, Assemblyman Dan Logue and George Runner, State Board of Equalization, were in Chico recently to discuss the new fire tax and our Statewide propositions coming up in Nov. and I thought this would be a good time to do a follow up on those conversations while its still fresh in my mind.

As you know, we’ve got 6 of propositions to consider and they’re all very serious and will directly impact our lives financially, so let’s take a look at just one for now and really get into it, then we’ll pick up the others later.

Before we dig, we should briefly touch on the political climate or backdrop facing the propositions. California is a state in decline, suffering from the Great Recession and this is compounded by poor leadership. This part is seen in wasteful allocations of state revenues, layers of red tape for businesses, and a failure to address our massive bureaucracy with all it’s lavish salaries and unsustainable pension benefits. California is a victim of it’s progressives in power, this is a man-made disaster that is forcing out businesses and jobs.

The polling says people have no confidence in our legislature, and we gave legislators the lowest rating in our history, just a little over 12% approval. Revolutions have started with better numbers than that! Is it any surprise that that not one tax increase put before the people has been approved since 2006?

The democrats run this state and their impassioned pleas for more money are falling on deaf ears, but they don’t understand why – they just don’t get it? The answer is simple, taxpayers won’t support the continuation of the waste. It would be like giving more drugs to an addict and hoping for an improved outcome.

The people want to see the legislature get their house in order before we start talking tax hikes, even if its for worthy projects. This is tough love, but it also begs the question, do they really need more of our money? Shouldn’t the bureaucrats be able to scrimp by on the $87 billion dollars they will receive from us in 2012?

Now comes proposition 30 authored by Gov. Brown. Well address Prop 38 later, its a competing proposition sponsored by Molly Munger, a wealthy L.A. lawyer who ponied up the largest share of donor money. Both bills are advertised to raise money for our failing schools.

Prop 30 Summary:

• Increases personal income tax on annual earnings over $250,000 for seven years.
• Increases sales and use tax by cent for four years.
• Allocates temporary tax revenues 89% to K-12 schools and 11% to community colleges.
• Bars use of funds for administrative costs, but provides local school governing boards discretion to decide, in open meetings and subject to annual audit, how funds are to be spent.
• Guarantees funding for public safety services realigned from state to local governments.

Guarantees funding for public safety and schools – where have we heard that before?
How many times has the money from a proposition or bond been diverted to completely unintended pockets? The word guaranteed is used a little too casually in Sacramento for it to carry much weight with the voters now. Fool me once shame on you, fool me a dozen more times and you get a 12% approval rating!

The money expected to be generated by Prop 30 has already been built into the state budget (there’s wishful thinking for you), so if the initiative does not pass it will trigger mandatory cuts and the democrats have no one to blame but themselves.

If it passes it will raise $6Bn annually for the education budget. But, what it does not do is provide for any new funding or improvements on anything. It is simply a back fill to replace what the state has cut from the existing budget. The California Association of School Boards agrees there will no new funding.

CSBA leaders said they “want to make it clear to the public that the governor’s initiative does not provide new funding for schools. Instead, it bolsters the General Fund with new revenue.”

“Under the governor’s plan, schools would get back some of the billions of dollars that were redirected away from them and used to shore up the state’s funding gap in the last budgetary cycle,”

Speaking of the budget, we already spend over half of our total budget on education. That equals roughly $4150 per individual tax payer. And what has that bought us, even during the peak spending year of 2007 when schools were fully funded? In 2009 California was ranked very low in education, according to a report by the California Faculty Association. We were ranked 49th out of 50 states.

We’re pouring a lot of your tax money into a failing system and to prop it up, we’ve already given them guaranteed funding and they blew it. Remember Proposition 98? It passed in 1988 and it was amended in 1990 by Proposition 111. It provides a minimum funding guarantee for school districts, community college districts, and other state agencies that provide direct elementary and secondary instructional programs for kindergarten through grade 14 (K-14).

The guarantee is based upon prior-year Proposition 98 appropriations, a cost-of-living index, population estimates, changes in per capita personal income, estimated General Fund tax proceeds and various other formulas and tests that result in the calculation of an amount that is required to be appropriated by the State for K-14 education. The guarantee varies from year to year and throughout the stages of a fiscal year’s budget (from the initial Governor’s Budget proposal to actual expenditures) as the various factors change.

The state’s share of the guarantee is derived by subtracting local property tax revenues (the local share of the guarantee) from the total guarantee amount. Proposition 98’s share of overall General Fund tax proceeds averages about 43 percent. As a percentage of new (additional) General Fund tax revenues, Proposition 98 gets approximately 54 percent, depending upon the factors and tests.

K-12 schools and community colleges $47.6 billion for the 2011-12 year. We anticipate spending in 2012 to equal about $47Bn or 54% of the state budget.

Most states are spending less on education, it’s just an economic reality due to the failures in our nation’s recovery. Obama’s plans are hurting our most important investment – education.

New data from the Center on Budget and Policy Priorities (CBPP) indicates that during 2013, 26 states will spend less per pupil than the year before. Thirty-five states are spending at levels lower than those prior to the recession, with Alaska, Washington and Alabama cutting the most dollars out of the spending budget (more than $200 per student).

Other states, such as Arizona and Oklahoma have reduced per-student spending by 20 percent since 2008, and 17 other states have decreased spending by 10 percent within the last four years. Times are tough all over folks, but especially so in California where we make it so tough on families and businesses.

Prop 30 will raise the state sales tax which is already the highest in the nation. It will raise personal income tax on many people, making California the highest in state income tax. Many of those affected own small businesses and this can only result if the costs being passed on to the consumers or it will encourage small businesses to relocate out of state and this will impact jobs. California’s unemployment rate is about 10.5% and that’s bad, however the underemployment rate is over 20%. In Butte County we are over 12% unemployment.

Does anyone believe this is the right time to pressure families and businesses with a tax hike when we already pay the highest in the nation?

Proposition 30 is polling about 50% and that is not where you want to be going into the last lap before an election. Chances are Prop 30 will go down, despite the millions in ads the unions like the California Teachers Association is spending. The No side has hardly spent a thing, a few hundred thousand.

Here’s the summary on NO for Prop 30:

• Raises sales and income taxes on ALL Californians as much as $50 billion dollars over the next seven years
• Doesn’t guarantee ANY new funding for schools
• Destroys small business and kills jobs
• Includes NO reform