On May 14, 2007, Gov. Arnold Schwarzenegger revealed his May Revision (to the FY07-08 Budget) to the state legislature. The governor understands very well the challenges of maintaining a strong economy for California and that to do so means we must retain and attract business to our state. He also understands that California is one of the most expensive states in which to do business and we must do our best to keep from increasing the costs of doing business. To increase taxes at this time, when a significant number of businesses are already outsourcing their operations to other states and countries, would be potentially devastating for our economy. To allow the structural deficit to push double digits again would be disastrous to our overall credit rating, thus further increasing the cost of borrowing. The revision does not raise taxes and it reduces the structural deficit to approximately $1.4 billion, an amazing accomplishment considering that when he first took office the projected structural deficit for the FY07-08 period was $16.5 billion. There are those who will criticize the governor’s methods of reducing the deficit and avoiding new taxes but the fact remains the plan does it without raising taxes or making significant program cuts and still fully funds Proposition 98 and K-12 education with $68.6 billion; continues to provide significant funding for health and human resources, law enforcement, public safety, transportation, prison reform, higher education, undergraduate nursing scholarships and air quality; fully funds Medi-Cal and “Healthy Families,” and sets aside $1.6 billion to pre-pay the economic recovery bonds in addition to paying the required $1.5 billion payment that would normally be due. Perhaps the most publicized complaint about the budget is that it appears, to some, to reduce certain transportation funding. Los Angeles County Metropolitan Transit Authority officials claim that they will be impacted with $230 million in cuts next year and transit advocates say the governor’s budget cuts about $1.3 billion from public transportation statewide. The administration contends that the budget does not cut public transportation at all and the state finance department said the public transit budget will actually increase by approximately $1.2 billion next year. Hearing these statements one can’t help but wonder who is correct. It seems that who is correct is a matter of interpretation. The funds that are in question are known as “Gas Tax Spillover” funds. The Transportation Act of 1971 created a statewide funding program for local public transportation services and facilities. One feature of this act involved the lowering of the state’s sales tax rate by one-quarter of a percent and extended the sales tax to gasoline, which had not been previously subject to sales tax. This action was intended to be revenue neutral, but the cct provided that any excess revenues to the state from this change would be transferred to the public transportation account. The Board of Equalization and the Department of Finance are charged each year with determining the spillover: the difference between (a) a 5 percent state sales tax applied to all taxable goods except gasoline, and (b) a four-and-three-quarter percent state sales tax applied to all taxable goods including gasoline. Basically, the spillover results when gasoline prices increase at a faster rate than all other taxable items. With the unprecedented spike in gasoline prices we have been experiencing, there are significant amounts of revenue in the spillover. Neither the traffic congestion relief program nor Proposition 42 has any impact on the spillover. The FY07-08 budget revision proposes to give public transportation some additional responsibilities to be paid for by the spillover revenues. It proposes to redirect spillover revenues, estimated at over $1.1 billion as follows: – $627 million to Home-to-School Transportation (currently a responsibility of Proposition 98 funds). – $340 million to Transportation General Obligation Bond debt service (to help reduce the state’s structural deficit). – $144 million to Developmental Services Regional Center Transportation Does the redirection of these “spillover” revenues constitute cuts in public transportation? I think not! I have chosen the following “Job Killer” bill to profile this month: – SB 464: This bill authored by Senator Sheila Kuehl, forces property owners to stay in business regardless of economic circumstances. Existing law generally prohibits public entities from adopting a statute, ordinance or regulation to compel the owner of residential real property to offer, or to continue to offer, residential property for rent or lease. This bill applies those preemption provisions only to owners of residential property who have owned the property for at least three years and who acquired ownership after March 27, 2007. This bill could discourage construction and investment in rental housing which would result in the loss of jobs. Status: Passed Senate Judiciary Committee, April 9, 2007. Currently in Senate Appropriations Committee. Gregory N. Lippe, CPA, is managing partner of the Woodland Hills-based CPA firm of Lippe, Hellie, Hoffer & Allison, LLP and vice-chair of the Valley Industry and Commerce Association (VICA).
No New Taxes in Governor’s Budget Plan