This article is from Cal-Tax Digest, published
by the California Taxpayers' Association.
Cal-Tax Home Page | About Cal-Tax | Subscribe

In his second state budget, Governor Gray Davis kept his primary focus on improving the performance of students throughout California. The budget again invests significant additional resources in educational programs designed to promote achievement. These investments are directed at rewarding student performance, recruiting and training new teachers, and providing schools with the tools and technology to meet California's higher expectations for education.

The budget includes significant initiatives in the areas of public safety, focusing on efforts to keep parolees from committing more crimes and returning to prison, increasing services for the mentally ill who are at risk of becoming involved in the criminal justice system, and grants to local law enforcement to purchase high technology equipment.

In transportation, the budget takes a "use-it-or-lose-it" approach to ensure that badly needed projects are not delayed while federal, state and local funds sit idle.

The budget increases services for California's seniors with initiatives to help them remain at home and live independent lives in their community, and to ensure that nursing homes deliver quality care.

The budget also makes significant investments in the new economy, in the form of carefully targeted tax breaks, and includes prudent reserves for future uncertainties.

The opportunity to make these important new investments is provided by California's remarkable economic expansion. Personal income continues to surge, and will top $1 trillion for the first time this year. Inflation is minimal. Unemployment is at a 30-year low.

There is little doubt that California is now a leading force in the nation's long economic upturn. The state has by far the largest concentration of high-technology industries and jobs anywhere in the world. Even major threats to California exports, including a major economic downturn in Asia and a currency crisis in South America, haven't slowed our economic juggernaut. Continued, unexpected growth in the stock market has caused a surge in capital gains, and kept tax revenues significantly above forecasted levels.

But this increasing volatility in revenues also signals the need for caution when committing to ongoing spending programs, and the governor has wisely chosen to split new revenues between one-time and ongoing programs.

In addition to his significant new investments in education, transportation, public safety, health care and environmental protection, Governor Davis has proposed the following carefully targeted tax relief:

• A phased-in increase in the percentage of losses that business can carry forward to subsequent years.
• A $500 tax credit for taxpayers who are or who care for the elderly in their homes.
• A state sales tax exemption for qualified investment in rural areas.
• A $1,000 credit for each new employee who is hired by a small employer to perform aerospace work.
• A personal income and bank and corporation tax credit to encourage expansion of biomass generation.
• A personal income tax exclusion for graduate school expenses paid by an employer.
• An increase in the alternative incremental research and development credit.
• A one-time personal income and bank and corporation tax credit for land donated for conservation purposes.
• A permanent increase in the amount of low-income housing credits.

The governor's budget is a good one for the times - education first and foremost, health care, transportation and public safety, and wise investments to ensure the ongoing vitality of California's economy, which makes everything else possible.