David R. Doerr,
principal contributor
Ronald W. Roach, editor
Vol. XII, No. 21
June 7, 1999
The California Assembly last week approved tax incentives for the entertainment industry and agreed to repeal the sales tax on newspapers, moving bills halfway through the legislative process. Last Friday was the deadline for Assembly bills to pass to the Senate.
Advancing to the Senate on a 60-10 vote of the Assembly was AB 484 (Kuehl), creating a two-year tax credit of 10 percent of labor costs on television and motion picture productions that cost $5 million or less to produce.
The author, Sheila James Kuehl, said the bill is designed to stem job and revenue losses from "runaway production" in California. Between 1996 and 1997, according to testimony before the Assembly Select Committee on Arts and Entertainment, California's economy lost $1.2 billion as production locations in Canada and other areas were chosen because of labor subsidies and other perks, such as chauffeur service.
The Assembly also approved AB 358 (Wildman), providing an income tax credit for individuals or corporations equal to 10 percent of wages and salaries paid in the production of a motion picture or television show costing less than $5 million that is produced entirely in California. The credit would apply to those hired after next January 1.
The newspaper tax repeal (AB 1077) cleared the Assembly on a 68-5 vote as the author, Dennis Cardoza, declared, "We shouldn't be taxing freedom of speech."
The bill is at least the third legislative effort to totally repeal the tax on newspapers that was enacted in 1991 when the state faced a more than $14 billion deficit.
It would restore the sales tax exemption to about 100 newspapers in the state, ranging from low-circulation papers that publish twice a week to the state's major metropolitan dailies. The state collects $26.9 million a year from the tax.
"California shouldn't be in the business of taxing information," declared Mr. Cardoza at a news conference held last Tuesday, hours before the floor vote. He said the exemption for newspapers was removed in 1991, along with exemptions for candy and snacks, bottled water and bunker fuel. Exemptions were restored for all except newspapers published more than 60 times a year.
Newspaper publishers have complained that other mediums with which they compete, including the Internet and television, are not subject to the same tax. Bill Lynch, publisher of a 12,000-circulation, twice-weekly paper in Sonoma, said the tax "cuts into our bottom line, so it's just a direct tax on coverage of community news." He said he could use the money to hire an extra reporter. Tom Erickson of the Turlock Journal said he would like to hire another reporter with tax savings, and then compete on a level field, tax-wise, with weeklies in his circulation area.
Later, on the Assembly floor, Member Howard Kaloogian spoke against the bill, saying he doubts publishers will pass on the tax reduction to readers. He called the bill "corporate welfare of the worst kind ... that will not produce jobs in this area."
A supporter of the bill, Assemblymember Tom McClintock, countered that the repeal was "long overdue." He called it a tax "of the worst possible sort. The power to tax is the power to destroy."
Another measure that drew lengthy debate before passage off the Assembly floor last week was AB 1220 (Romero), a labor-sponsored bill requiring the Franchise Tax Board to publish specific information on companies that claim one or more of a variety of hiring and sales tax credits. The author, Gloria Romero, said there was no opposition from business organizations to the bill which had been narrowed to exempt companies with less than $5 million in annual sales - or 95 percent of the states' businesses.
A 42-24 vote sent the bill to the Senate, although one critic, Assemblymember Bill Campbell, called it a "headache to taxpayers."
Ms. Romero said the bill is intended to provide information that policymakers need to decide which tax credits are working so they can be continued and which are not working so they can be fixed. In response to a question, she said she knew of no problem with an investment tax credit or enterprise zone credit, but without information, "we're not even cognizant that it may not be working."
Companies would have to disclose such information as numbers of full-time employees, wage levels and health-care benefits so it can be determined whether high-quality jobs are being created as a result of the tax incentives.
It was also noted that several other states require the gathering of such information and seem to do better than California in competition for federal "empowerment zone" grants.
In other Assembly floor action last week:
The state Senate last week approved legislation backed by Governor Gray Davis that is intended to encourage investments in small businesses by making permanent a 50 percent exclusion from the tax on specified capital gains.
A 33-1 vote sent SB 30 (Peace) to the Assembly as the Legislature considered hundreds of bills that had to pass their house of origin by last Friday. Senator Steve Peace's bill applies to stock held for at least five years in a small business, defined as a company with gross assets of $50 million or less. The bill removes the December 31, 1998 sunset date for the exclusion on small business stock that had been purchased between that date and August 10, 1993.
Governor Davis cited SB 30 as part of his revised state budget proposal last month. The fiscal impact on the state would range from $3 million in 2003-04 to $44 million by 2005-06, according to Senate Revenue and Taxation Committee staff.
The bill also requires the Franchise Tax Board and the Department of Finance to study taxation of corporate dividends. The agencies would recommend legislation aimed at "ending or ameliorating the effects of double taxation of corporate dividends, recognizing the distinctions between the state and federal income tax systems."
In other Senate floor action:
CALIFORNIA BUDGET. Senate and Assembly budget conferees began meeting last week, starting the process of hammering out compromises between versions of the proposed $80 billion state budget. Last Tuesday was expected to be "Members' Day" before the six-member conference committee, the traditional time for legislators to line up and plead for district ("pork barrel") projects. No longer will this process ("It was an anachronism," said Senate Budget Chair Steve Peace) be done in public, however, because of the time it took and newspaper coverage that sometimes irreverently described legislators groveling for pet projects. Members submitted written requests, enough to fill three binders. Senator Richard Polanco had 60 written requests, according to the Los Angeles Times. They ranged from $1 million for a police museum in L.A. to $200,000 for commemorative seals at the state Capitol honoring California's Native American, Spanish and Mexican heritages.
PREVAILING WAGE. Delivering for his organized labor supporters, Governor Gray Davis on June 1 signed SB 16 (Burton), encasing in statute the method for calculating the general prevailing wage for public works contracts. The method in SB 16 inflates by millions of dollars the costs of building public infrastructure in California by requiring higher wages than would occur if the state were to follow the prevailing wage methodology used by the federal government and nearly all other states.
BOE ADOPTS UTILITY VALUES. Total value of energy, communications (telephone, cellular and cable television) and railroad companies set by the State Board of Equalization on May 27: $66,136,487,566. Board-adopted penalties added nearly $11.7 million to the total. The largest, in terms of property value, are Pacific Gas & Electric (more than $16.7 billion) and Pacific Bell (nearly $15.7 billion). More than 400 companies, large and small, make up the roster of state-assessed properties.
TAKASUGI WON'T RUN. Former Assembly Revenue and Taxation Committee Chair Nao Takasugi says he will not run for the 19th District state Senate seat next year. Mr. Takasugi, who left the Assembly last year because of term limits after suffering a heart attack and quintuple-bypass surgery, said last Tuesday the state Senate is not in his plans. The former Oxnard mayor, a Republican, says he wants to spend more time with his family. He has not decided who he will support in the Senate race. Republican Assemblyman Tom McClintock has announced he is seeking the office held by Republican Cathie Wright, who cannot seek re-election because of term limits.
BURBANK EYES INTERNET REVENUE. According to a recent report in the Daily News of Los Angeles, city officials in Burbank are trying to organize other local governments to lobby for ways to tax electronic commerce. City Councilman Bob Kramer says local merchants can't compete with sales on the Internet. "We want to protect our sales tax base ... " he said, speaking as the council received a report recommending a lobbying effort to protect the sales-tax base. Three-year federal and state moratoriums on new taxes on Internet sales have been enacted by Congress and the California Legislature. The state's Internet Tax Freedom Act took effect last January 1. The federal three-year clock began running last fall.
CONNELL FOR MAYOR? State Controller Kathleen Connell may be testing the waters for a campaign for mayor of Los Angeles. The election isn't until the spring of 2001, but Mayor Richard Riordan isn't running again. Bud Lembke, co-publisher of Political Pulse newsletter, reports in the May 28 issue that Dr. Connell discussed the mayor's race in a May 20 conference call with "big-time" consultants who have advised President Bill Clinton and Vice President Al Gore, and a Washington, D.C.-based pollster. The controller's press secretary, Byron Tucker, said "business leaders and activists" have asked Dr. Connell to run for mayor, but the election is in 2001 and she is concentrating on her controller duties.
DAVIS SIGNS GEOTHERMAL INCENTIVE BILL. Governor Gray Davis on May 26 signed SB 133 (Kelley), providing a property tax rebate to a company operating a geothermal energy plant in Imperial County. The bill creates a capital investment incentive program similar to that which was crafted for Intel's expansion in Placer County. Under the program, the property owner pays taxes on only the first $150 million of the property's value.
S.F. BUDGET GROWS. Mayor Willie Brown last week submitted a $4.2 billion budget to the San Francisco Board of Supervisors, including a plan to hire 1,392 new city employees. It would raise spending by 7.7 percent. The city-county already has over 26,000 employees. As reported by the San Francisco Chronicle, the proposal drew the ire of Supervisor Leland Yee, chair of the board's Finance and Labor Committee, who said, "Just because times are flush doesn't mean we should increase the workforce. The mayor should present some evidence that our current employees are working at full efficiency." Mayor Brown defended his proposal, wondering why anyone would oppose more police officers, bus drivers and mechanics, and workers at the new air terminal. "The numbers aren't very big," he said.
PROPERTY TAXES CLIMB. Recovering home prices mean property tax jolts for thousands of Californians who enjoyed lower taxes when real estate prices dropped earlier in the 1990s. Of course, those who had tax breaks before had been cautioned that they would be temporary. Still, many don't understand that home values, to account for their decline, now can go up more than the 2 percent annual increase allowed by Proposition 13 of 1978. In Los Angeles County, the assessor reviewed 366,000 parcels whose owners had successfully petitioned for reductions in 1990. About 35 percent of those have increased in value - by a total of nearly $9 billion in the past year, reported the Los Angeles Times. Those 129,300 properties with increased taxes compare to only 3,700 that had higher taxes last year from a review of 362,000 parcels.
SACRAMENTO'S BIGGER BUDGET. A $242 million budget - up 9 percent - has been proposed by Sacramento City Manager Bob Thomas for the fiscal year starting July 1. The Sacramento Bee called it the "most muscular and activist city budget in nearly a decade." Mr. Thomas wants to spend $500,000 on an economic development department with six new staffers. The economic upturn has boosted city revenues, but Mr. Thomas cautions that, after a decade of belt-tightening, there is "pent-up demand" for spending that "far exceeds the (budget's) capacity." The City Council is considering utility rate increases.
SAN DIEGO "FEEL-GOOD" BUDGET. First elected in 1993, San Diego City Councilmember Christine Kehoe says the 1999-2000 budget for the city is the "first feel-good budget we've looked at in years - I think since I've been here." The $2.2 billion budget was proposed last week by City Manager Michael Uberuaga. It would more than double spending on roads and hire 10 new police officers to focus on speeding and other traffic violations. The city's general fund for the year starting July 1 would increase from $576 million to $612 million. Revenues from property taxes are expected to increase 11 percent. The sales tax should bring in 6 percent more, while hotel-room taxes provide 8 percent more. The motor vehicle license fee revenue is projected to go up 4 percent. Mr. Uberuaga said the city no longer has to sell surplus land to balance the budget. Emphasis on better streets and public safety is a step in the right direction, said Mayor Susan Golding.
VISTA BUDGET OUTLOOK IS ROSY. Vista City Manager Rita Geldert has proposed a $41.3 million operating budget for the coming fiscal year, compared to $48.5 million this year. The city in northern San Diego County would hire 10 new employees, which would bring the city's full-time payroll to 267. That's the level it was four years ago when the city laid off 17 people and eliminated 25 positions. The first year of the two-year budget plan calls for a 5.6 percent increase. The second year, a 2.3 percent hike would boost spending by just over $1 million.
GILROY'S BUDGET STILL UNBALANCED. A proposed 1999-2000 budget for Gilroy, the garlic capital of the world, still shows spending exceeding income. Projected expenditures total $22.8 million. Revenues are estimated at $20.9 million, leaving a gap to be covered by the city's reserves. According to City Administrator Joe Baksa, "we continue to be very lean on the administrative side." The city is counting on new economic development, Mr. Baksa said.
FRESNO MAYOR SUBMITS BUDGET. A $588 million budget for the city of Fresno, with no new taxes, was submitted to the city council by Mayor Jim Patterson. While the spending plan is smaller than this year's $625 million budget, this is due to a new accounting system, moving items off the general fund, and the reduction of payments on capital projects.
LOBBYIST SPENDING. Setting a record, $292.6 million was spent on lobbying activities during the 1997-98 two-year session of the California Legislature, according to a report from Secretary of State Bill Jones. This is $26 million more than the previous two-year cycle. As usual, the lobbying category with the deepest pockets - spending taxpayer dollars - is government. Counties, cities, special districts and other forms of government operations spent $43,853,295 on lobbying, more than $11 million above the runner-up health industry.
TAX $$$ @ WORK. The Joint Legislative Audit Committee in Sacramento has voted to investigate why part of the Century Freeway in Downey (Los Angeles County) was constructed over a shallow aquifer that has undermined the freeway. The committee on April 20 decided to spend $87,750 on the probe by state Auditor Kurt Sjoberg. The Los Angeles Times has reported that internal Caltrans reports showed warnings were ignored that the shallow groundwater table could damage a 3.5-mile stretch of the state's newest and most expensive freeway.
GOLDEN FLEECE. The San Diego County Taxpayers Association's annual
"Golden Fleece" award - symbolic of the biggest waste
of taxpayer money last year in the San Diego region - went to
the failed proposition to raise taxes for library construction.
Association Director Scott Barnett said library
backers cost taxpayers $1.7 million by putting Proposition L on
a special ballot this year instead of a regular election ballot
in 1998. With that money, Mr. Barnett said, a new library probably
could have been built. The taxpayer group supported L, but, according
to Mr. Barnett, questioned the timing of the election. City Councilwoman
Judy McCarty, a champion of L, said library backers
decided to go for a special election instead of competing with
other measures, such as a ballpark proposal and funds for school
repairs, on last year's June and November ballots. "We've
got to take our lumps," she said of the Golden Fleece award.
"We lost the election and that's the price you pay."
The association, at its April 15 dinner, also issued "Golden
Watchdog" awards, including one to the county of San Diego
for eliminating business fees, a move that actually saved more
than $1 million a year.
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June 6-9 Location: |
FEDERATION OF TAX ADMINISTRATORS ANNUAL
MEETING Milwaukee Hilton, Milwaukee, Wisconsin |
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June 8 Location: |
FTB SYMPOSIUM ON INTERCOMPANY TRANSACTIONS
REGULATIONS Room 1040, 9645 Butterfield Way, Sacramento, at 9:30 a.m. |