Money trail

Jan 12, 2012

The state budget blueprint proposed by Gov. Brown has big problems, and even if voters in November approve his tax package to generate new revenue, numerous issues remain.


From the Mercury News' Steve Harmon: "The nonpartisan Legislative Analyst's Office on Wednesday questioned whether Gov. Jerry Brown has put more state programs at risk of further cuts by projecting overly optimistic tax revenues."


"Mac Taylor, the legislative analyst, also suggested that the Legislature should consider providing more certainty to schools, which will be on tenterhooks through the year waiting to see whether they can avoid the nearly $5 billion in cuts that would be "triggered" if voters reject Brown's November tax-hike initiative."


"Taylor said the governor, who released his $92.6 billion budget last week, is counting on taxes from investments by the wealthy that might not materialize."


"What we're concerned about is that his capital gains assumption is a little bit optimistic," Taylor said at a news conference unveiling the LAO report. "We've looked historically, we've considered what's happening in housing, which is fairly stagnant, we've looked at projections of where we think the (stock) market will be, and we do get considerably lower numbers from capital gains."


One big problem in California budgeting is the reliance on revenues derived from capital gains. Bloomberg's Michael Marois and James Nash tell the tale.


"The potential for California (STOCA1) to see a tax windfall from a Facebook Inc. public stock offering this year demonstrates how much the state relies on capital-gains taxes, a volatile revenue stream that hampers its credit rating."


"Menlo Park, California-based Facebook, the world’s most- used social-networking site, is considering the largest initial public offering for anInternet company on record, a person familiar with the plans said last year. Estimated at $10 billion, the offering would make instant millionaires of company employees and require the state to adjust its revenue forecast to reflect additional capital-gains taxes they’d pay, the state’s legislative analyst said yesterday."


"That kind of unanticipated boost shows the boom-and-bust cycle that capital gains taxes often inflict on California’s budget. In fact, capital-gains tax revenue as a percentage of the state’s general fund plummeted from 12 percent to just 3 percent between 2007 and 2009 as investors pulled away from the stock market, a decline of $9.3 billion, according to state finance department figures."


The uncertainty and volatility of income-tax revenues has placed the state in a precarious position, reports Alisen Boada in Capitol Weekly.


"Gov. Brown’s latest budget reflects California’s risky, roller-coaster reliance on uncertain revenues generated by wealthy taxpayers. And there’s no immediate end in sight, given that the governor wants voters’ permission to raise those taxes further in November."

"That assessment from the Legislature’s nonpartisan fiscal adviser is at the heart of its analysis of the governor’s draft budget for the 2012-13 fiscal year which he hastily unveiled last week amid a staff mix-up. The year begins July 1."

“Already, California's budget is dependent on volatile income tax payments by the state's wealthiest individuals,” the Legislative Analyst noted. “The top 1 percent of PIT (personal income tax) filers pay around 40 percent of state income taxes, the General Fund's dominant funding source.”


Major casualties of the 2011-12 budget include redevelopment agencies, which were set up to use local tax dollars to finance civic improvements and reduce blight. In Los Angeles, the coty council voted to walk away from its agency, which it has controlled for decades. The LAT's David Zahniser has the story.


"The vote came one day after the city’s financial analysts warned that the budget, which is already in dire shape, could face more than $109 million in costs if it took responsibility for redevelopment, which is being eliminated statewide. “The reality of the situation is the CRA [Community Redevelopment Agency] as we know it is dead,” said Council President Herb Wesson. “And I think it’s time for us to take it off of the machine.”


The vote took place despite opposition from union officials, affordable housing advocates and lobbyists for real estate interests. Councilman Richard Alarcon voted against the move, saying the council should use “every minute” of the next two days reviewing the legal issues.


“We should fight for these employees. We should fight for these projects. We should fight in court if necessary,” he said.


"Under the state law that killed redevelopment, each local government must decide whether to become a so-called “successor” to its redevelopment agency. With L.A. no longer in play, the County Board of Supervisors could decide to do so."


Well, the economy may be weak, redevelopment agencies crumbling and the budget in dire straits, but here's some happy economic news: The number of millionaires increased sharply last year in California. The Bee's Dan Walters tells the tale.


"There were 10,000 taxpayers in the million-dollar income club during the 2009 tax year – just one-third of 1 percent of all returns – but that number jumped 27 percent to more than 13,000 for 2010, based on tax returns filed in 2011."


"The millionaires reported adjusted gross incomes of $22.4 billion in 2009, an average of $2.2 million each. In 2010, the total jumped 30.2 percent to $29.1 billion, with the average remaining virtually unchanged."


"Those increases were by far the largest of any income group, the FTB said, while that group's share of all adjusted gross income increased from 3.7 percent in 2009 to 4.5 percent in 2010, and its share of taxes jumped from 9.5 percent to 11 percent."

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