Outlook Still Grim Until Structural Reforms Are Made

Greg Lucas took a look at tax receipts for the first week of April, and the news is gloomy.

In 2008, not exactly a boom year either, $703,166 in personal income taxes was paid in the first eight days of the month.

During the first eight days of April 2009, $456,227 came over the transom.

By April 30 2008, nearly $12.9 billion in personal income tax revenue was collected.

This year, Governor’s Schwarzenegger’s Department of Finance predicts a monthly total of only $8.9 billion in personal income tax receipts.

If the first week is any indicator, revenues may not even meet that lowered expectation.

Lucas surmises that the $8 billion revenue gap for 2010 announced by the Legislative Analyst a few weeks back could potentially double, based on these returns and the possibility of losing particular ballot measures in the May 19 special election. I don't think there's any question that the legislature will return in June to something over a $10 billion gap to deal with. And as we know, Zed Hollingsworth and the even Yachtier Yacht Party will want to fill that with cuts to already emaciated state services.

(as a side note, I love that there are almost 200 entries in a Google search for "Zed Hollingsworth." Memewatch!)

But in fact, there are ways to deal with these problems, even in a down economy, that make the most sense for the vast majority of Californians. The Commission on the 21st Century Economy released their latest set of reports today, and what jumped out at me was their report on the potential of a split roll property tax, which would keep residential rates at current levels while modifying those for commercial and industrial properties, and as a result, California could see a $7.5 billion dollar annual boost to their budget bottom line. Obviously, the typical doomsayers like the Chamber of Commerce will come out and call this a "job-killer" and cite the negative impacts on the economy, but considering that even in these rough economic times, corporate businesses just got a $1.5 billion dollar tax CUT, I don't take their concerns seriously. They have cried poor for decades, and as a result the state has suffered deeply. While carve-outs for local small businesses may be part of a solution, having commercial property taxes frozen in amber has led to municipalities literally passing the cup to fund services.

The City of Orinda wants your help, and your donation is tax deductible.

There are no bake sales in the works, but Mayor Sue Severson plans to solicit donations for extras the City Council does not want to pay for out of the general fund.

Donations could pay for events such as Orinda in Action Day, or they could pay for public art such as the popular frog sculpture in the downtown fountain without draining the city's general fund, Severson said.

"Our budget is so minimal and we have very little flexibility in what we're able to do," she said.

The city's roads and drains need more than $100 million in repairs the city can't afford.

And Orinda's average income in 2000 was $132,531. Imagine the needs of the cities at or below the poverty line.

We cannot survive as a state with this kind of inequity. The state must be freed from these artificial bonds and allowed to address needs properly in the way every other state in the union can.

Property Values - The Next Huge Wave Of Revenue Losses

The enactment of Prop. 13 in 1978 prohibited commercial and residential property taxes from rising as property values rose. Curiously (actually not so curiously), it did not prohibit them from falling should values fall. And as property values crater year-over-year in the housing implosion, homeowners and businesses have the ability to reassess. They have every right to do so under the law. But this is going to bankrupt California cities.

Assessors in Los Angeles, Riverside and San Bernardino counties are forecasting the first drops in property tax collections in more than a decade, presaging reduced revenues for many cash-strapped local governments.

Until now, property tax revenues had been a relatively stable source of money for cities amid a recession that has dramatically reduced sales tax intake, particularly from car dealers.

Even with the decline in home values, the property tax base in five Southland counties grew last year thanks to continuing sales and the completion of construction begun during the 2003-2006 building boom. But assessors in those counties said they have reduced the value of more than half a million properties and expect to make deeper cuts to their rolls by the summer.

This is bad news for local governments that have been relying on property tax proceeds to help make up the shortfall from reduced incomes and spending in their areas. Already, cities and counties across California have been freezing jobs, imposing work furloughs and pay cuts, postponing repairs and reducing some public services.

The reason Prop. 13 is such a disaster is that property taxes are a stable revenue source no matter what the economic climate. Unless a massive housing bubble bursts and prices collapse. Just to show you how big this is, the county assessor in Los Angeles is predicting a 1% decline in the property tax base. That comes out to ELEVEN BILLION DOLLARS. The drop in San Bernardino County, one of the ground zero sites of the housing crisis, is predicted to be much greater, nearly 6%. I can only imagine what the number is in the Central Valley, which lawmakers want declared an economic disaster area.

When you keep in mind that property taxes fund a great deal of municipal education, you can see what a major problem this is. And without structural change, not one that's fixable.

Tax Cheats

Turns out that John and Cindy McCain are the same kind of irresponsible conservatives who are so unpatriotic they don't believe the country (and in this case, this state) is worth paying for.

When you're poor, it can be hard to pay the bills. When you're rich, it's hard to keep track of all the bills that need paying. It's a lesson Cindy McCain learned the hard way when NEWSWEEK raised questions about an overdue property-tax bill on a La Jolla, Calif., property owned by a trust that she oversees. Mrs. McCain is a beer heiress with an estimated $100 million fortune and, along with her husband, she owns at least seven properties, including condos in California and Arizona.

San Diego County officials, it turns out, have been sending out tax notices on the La Jolla property, an oceanfront condo, for four years without receiving a response. County records show the bills, which were mailed to a Phoenix address associated with Mrs. McCain's trust, were returned by the post office. According to a McCain campaign aide, who requested anonymity when discussing a private matter, an elderly aunt of Mrs. McCain's lives in the condo, and the bank that manages the trust has not been receiving tax bills on the property. Shortly after NEWSWEEK inquired about the matter, the McCain aide e-mailed a receipt dated Friday, June 27, confirming payment by the trust to San Diego County in the amount of $6,744.42. County officials say the trust still owes an additional $1,742 for this year, an amount that is overdue and will go into default July 1. Told of the outstanding $1,742, the aide said: "The trust has paid all bills shown owing as of today and will pay all other bills due."

Keep in mind, California Republicans want this type of tax-dodging for those who can most easily afford it to be the LAW. They think it's perfectly fine for wealthy yacht and private plane owners to avoid their taxes.

There's also the question of whether people, who are so ridiculously wealthy that they forget about properties where their relatives are living for four years, can be credibly seen to be at all in touch with the concerns of the average American.

The California Report

Here are a few tidbits on this GOTV weekend!

• Obviously everyone is going to be working hard for their causes and candidates, so it may be a little quiet around here. I'll be out walking all day tomorrow. Oh, and don't vote for the racist guy, Bill Johnson, as a Judge of the Superior Court (Office number 125) in LA County.

• Yesterday was the deadline for bills to get passed out of their chamber of origin, and the Assembly passed major subprime mortgage legislation, without help from Republicans (6 of them abstained despite being seated right in the chamber). This bill has some good homeowner assistance elements that will allow people to restructure their financing before foreclosure. A mortgage bill has also passed the State Senate, so some form of legislation will hopefully get to the governor post haste.

• One of the biggest problems with the housing crisis is that, as home sale prices lower, homeowners are reassessing their value and getting their property tax lowered, decreasing state revenue yet more.

• Sticking in the shiv before riding off into the sunset, Fabian Nuñez writes a puzzling op-ed in the Sacramento Bee approving of the Governor's horrible idea to borrow against future lottery revenue. Considering that the only sustainable solution to the permanent crisis mode that we have in our budget is to reorganize the tax structure instead of constantly borrowing, I have no idea why any Democrat would veer so far off message and undermine the new Speaker's ability to move forward. What's more, lotteries are regressive taxes on the poor.

• One spot where there will be a lot of action on Tuesday is in Ventura County, where Democrats now outnumber Republicans and which could have contested elections in the Assembly, Senate and US Congress. However, the LA Times shows its political acumen by writing:

One of the more closely watched contests on Tuesday will be the Democratic primary in the 24th Congressional District. Insurance agent Mary Pallant of Oak Park; Marta Jorgensen, a Solvang educator; and Oxnard businesswoman Jill Martinez are running.

Marta Jorgensen quit the race over a month ago and endorsed Martinez. Way to go, LAT.

• Excellent news out of Los Angeles: there's been a $1 million dollar settlement with Hollywood Presbyterian Medical Center for their dumping homeless patients on Skid Row. They will also be monitored by a US Attorney for five years. This unethical practice has reached a reasonable conclusion. Hollywood Presbyterian deserved punishment.

• Trying to get rid of marijuana grow houses in Arcata is like trying to get rid of the Pacific Ocean on the California coast.

Enjoy!