David R. Doerr, principal contributor
Ronald W. Roach, editor
As the temperature climbs to the century mark in Sacramento, denizens of the Capitol know it's time for the Legislature's annual budget ritual. Last week, the Senate Budget Committee began the festivities by approving a budget bill (SB 89, Alquist) that the Wilson administration will not find to its liking.
Senate Democrats last Tuesday pushed out of committee, without Republican votes, a budget plan that is $500 million out of balance and is not predicated on passage of Governor Pete Wilson's proposed 15 percent tax cut.
Democratic leaders were planning to consider SB 89 on the Senate floor last Thursday after Caltaxletter went to press.
The Senate Democrats' $58.5 billion budget bill also rejects sizeable welfare cuts proposed by Governor Wilson. It increases school support by $95 per student above the level in the governor's budget. It also gives $88 million more to higher education than the administration proposed.
One amendment added to the budget bill prior to its approval by the committee would allow counties to test recipients of welfare and food stamps for drug or alcohol abuse. Those testing positive would be required to undergo treatment or lose their grants for two years.
Senator Steve Peace, who proposed the amendment, said that when he was campaigning door-to-door he found a welfare mother shooting heroin with her kids lying on the floor. He said he and his staff took appropriate action.
On the other side of the Capitol, the Assembly Budget Committee Wednesday afternoon sent a budget bill (AB 111, Vasconcellos) more to the liking of Republicans to the floor "without recommendation." Democrats defeated a Republican motion to report the bill out with a "do-pass recommendation."
Because the committee is evenly divided between Republicans and Democrats, the committee was unable to agree to many changes to the governor's original proposal. "It is pretty much the governor's budget," Committee Chair John Vasconcellos said.
During consideration of the bill, both Republicans and Democrats offered a number of amendments. Most were defeated on 10-10 votes.
However, several Democrats joined Republicans in adding to the budget a provision requiring a 5 percent across-the-board cut for all state agencies' administrative costs.
Rumors on what happens next are a dime a dozen in the Capitol. It is unclear whether two-thirds of the members of either house will vote for a budget. Further, there is speculation that, due to the partisan standoff in the Assembly, the budget conference committee may be expanded from six to eight members. This would permit the Assembly to appoint two members from each party. Informed sources also indicate that if the conference committee is expanded to eight, the Senate would include Independent Senator Quentin Kopp of San Francisco on the conference committee.
Meanwhile, the Claremont Institute for the Study of Statesmanship and Political Philosophy called for budget reductions that would conserve $11.7 billion.
Former Assemblyman Tom McClintock, director of economic and regulatory affairs for Claremont's Golden State Center for Policy Studies, listed 217 budget items to reduce or eliminate.
The document, entitled "A Citizens' Guide to the State Budget Mess," identifies 85 budget sections that have had extraordinary growth in administrative overhead or in overall program delivery costs.
Mr. McClintock noted, for example, that the Franchise Tax Board and the Department of Corporations are each increasing their budgets 25 percent over two years. Also cited was the governor's Secretary for Child Development and Education, a 1,032 percent increase in two years. He called the office duplicative of the State Department of Education. Rolling back these and 82 others to 1993-94 levels of funding would save more than $4 billion, Mr. McClintock said.
He also proposed that the Legislative Counsel, hired by the Legislature, be considered part of the Legislature's budget. It was made separate to give the Legislature more spending room under Proposition 140's ceiling. This would mean fewer "joke" bills -- each costing taxpayers thousands of dollars, according to Mr. McClintock, because their costs would be at the expense of their own office budgets. "Joke" bills this year included measures that would make poverty a crime and reduce the voting age to 14, he added.
A reporter at the Capitol news conference asked Mr. McClintock if he was getting tired of making budget-cutting an annual crusade, with little to show for six years of media events and press releases. The unsuccessful 1994 Republican candidate for state controller responded that bits and pieces of his proposals have won favor each year. Little by little, he said, the ideas gain credibility, serious consideration and approval. He cited several examples that have been adopted, such as a freeze on welfare cost-of-living adjustments. There is greater hope this year because of what he called a "sea change" from last fall's elections.
Assemblyman Howard Kaloogian promised to try to amend the Assembly version of the budget bill with the institute's list of 217 changes. He was not predicting success, though, and made comparisons to his flat tax constitutional amendment (ACA 29 ) as an idea that needs time to soak in. Mr. Kaloogian said that he does not see the flat tax proposal passing either the Assembly or the Senate in 1995, but he vowed that it will be approved by voters as an initiative on the November 1996 statewide ballot.
Breaking a major precedent, the Senate has approved legislation authorizing an added sales tax on a specific commodity -- gasoline. SB 877 (Alquist), which was approved 24-14 on May 25, authorizes the Bay Area Metropolitan Transportation Commission to impose an additional sales tax on gasoline, not to exceed 10 cents per gallon, in the San Francisco Bay Area. The tax would be effective if approved by a majority vote of the region's voters.
According to the Bay Area Rapid Transit District (BART), the region faces significant unfunded transportation needs in the next 20 years, including an estimated $1 billion to operate public transit services.
Cal-Tax is opposed to SB 877, because, among other reasons, singling out a product for a higher sales tax rate is unfair, complicates tax administration and sets a precedent for other products.
Last fall, California voters overwhelmingly rejected a statewide initiative imposing a 4 percent sales tax on gasoline.
Voting against SB 877 were Senators Haynes, Hurtt, Johannessen, Johnson, Kelley, Leonard, Leslie, Lewis, Monteith, Mountjoy, Peace, Rogers, Russell and Wright.
Other Senate developments:
Proponents said that in the first year of an election (such as the water's-edge unitary apportionment election) there is confusion among taxpayers and tax administrators alike. In the first year of the water's-edge election, the Franchise Tax Board's instructions did not clearly indicate that a copy of the water's-edge contract must be attached to the return, although the law so required.
During last year's grace period for corrections, the FTB granted relief to 15 firms that failed to file correct water's-edge election forms, but who had paid taxes timely and filed timely returns clearly showing they intended to file a water's-edge return.
Last week was not a good week for San Francisco Assessor Doris Ward. The San Francisco Chronicle, in two front-page stories, castigated the assessor's office as "a bureaucratic wasteland that short-changes the city of millions of desperately needed tax dollars each year, maintaining a climate of ineptitude made worse by an administrator who often does not even come to work." However, a major part of the criticism appears to stem from an unhappiness by some that the city is not getting as much revenue as they would like because the assessor is adjusting values downward to reflect the decline in real estate markets.
The Chronicle, citing comments from city employees, said that Ms. Ward, the only African-American assessor in the country, comes to the office only sporadically. The Chronicle assigned a reporter and photographer to follow Ms. Ward around for one week.
According to the paper, "One day, Ward left her Financial District apartment in a city car at 1:45 p.m., went shopping at SAKS' department store and visited a nearby weight salon. She arrived at work at 3:30 p.m.
"Another day, she went to work at 9:00 a.m., left at 12:15 p.m. for a luncheon and never returned.
"On the fifth day, she went to a political breakfast and a Black History Month Luncheon and never set foot in the office.
"Under city rules, Ward's use of a city car for personal business is improper. The car, in addition, is parked at Ward's apartment complex at an annual cost to the city of more than $1,500."
The paper also said the assessor's office has become technologically obsolete. According to KPMG Peat Marwick, the property tax roll data in San Francisco is maintained on an outdated information system that is based on 1960s technology.
In addition, the paper said the office is losing as much as $25 million a year due to failure to properly value properties.
However, much of the text of the articles appears to reflect unhappiness by some that the assessor has been reflecting a decline in real estate values in her assessments. For example, Assessment Appeals Board member Peter Fatooh, who the paper characterized as Ms. Ward's leading critic, is quoted as asking why a taxpayer was seeking a value reduction when the taxpayer was satisfied with a higher value a year earlier.
A representative of the assessor's office told Mr. Fatooh, "According to law, what a property is worth in late 1991 has nothing to do with what it is worth in March of 1993."
Mr. Fatooh responded, "That may be true literally, but in the real world that is only 12 months' difference!"
Ms. Ward defended her operations during her three-year tenure, stating she found long-term neglect when she took over and had to deal with declining real estate values and an unusually large number of assessment appeals. She also insisted she is devoting adequate time to her job and says she often works at home.
Ms. Ward last year named former State Board of Equalization Assessment Standards Chief Verne Walton to the $91,000 per-year post of chief assistant assessor. Those who know Mr. Walton's reputation will find comments that the assessor's office is "giving the store away" to be disingenuous.
Defenders of Ms. Ward include Robert Reese, the only certified appraiser on the appeal board. He said, "The criticism of Ms. Ward is unfair ... the prospective is narrow. It is difficult to appraise in San Francisco because the property is not standardized."
Mark Ong, head of valuation services for the San Francisco office of Arthur Andersen, said, "Property owners have a right to get a break. It is unfortunate that falling values hit the municipality hard, but it hits owners hard too. They have the burden of lost value, so they are looking for any relief they can legally get, and that includes an assessment reduction."
After meeting with Ms. Ward, San Francisco Mayor Frank Jordan said, "There are two sides to every story, and Doris Ward now needs to respond on her side. She is an elected official, and I want to give her the support she needs to do her job."
Ms. Ward said the meeting with the mayor went well. She also defended the time she devotes to the job, saying she is an elected official with a 24-hour-a-day job. She said she does not have vacation or sick leave.
After an afternoon-long series of roll-call votes, the Assembly Appropriations Committee completed action Wednesday on 149 bills on its "suspense file." Legislation supported by Cal-Tax to equalize the interest rate on sales tax underpayments and overpayments (AB 1189, Takasugi) was approved.
At present, the interest on refunds is only 4 percent, while the interest charged on underpayments is 11 percent.
The committee also approved AB 1253 (Campbell), providing a 15-percent tax credit to employers for the costs of funding a workplace literacy program; AB 521 (Harvey), classifying "ostriches" as a food for sales tax purposes; and AB 1081 (Hannigan), converting the West Sacramento "program area" into an enterprise zone.
The committee turned down AB 299 (Rainey), establishing an optional formula for taxing Subchapter S corporations; and SB 1931 (Sweeney), reducing the administrative costs the State Board of Equalization may charge localities for administering local sales taxes.
The latest Orange County Register poll shows support eroding for Measure R, the proposal to increase the county's sales tax by 0.5 percent to assist the county in emerging from bankruptcy. A late May poll found 37 percent in favor of the tax increase and 49 percent opposed, with the rest undecided. A late March poll found 48 percent in favor and 45 percent against.
Even worse news for proponents is the poll's finding that those most likely to vote are opposing Measure R by a 52 percent to 35 percent margin.
Other poll findings:
Stu Mollrich, a consultant leading the "Yes on R" effort, said voters are angry about the bankruptcy but that does not mean the tax increase will fail. He said the campaign's polling shows a closer race.
Views of elected officials in Orange County appear to mirror the feelings of the electorate. A Los Angeles Times survey found slightly more than one-third favoring Measure R, with 44 percent opposed. School board members tend to favor Measure R, but elected city officials are opposed. Only 18 percent of mayors and city councilmembers were in favor with 63 percent opposed.
Irvine Mayor Michael Ward said, "I see Measure R as a status quo tax. Until the county does some real restructuring, budget cutting, privatizing, the selling of assets ... I would not support the tax increase."
Laguna Niguel Councilwoman Janet Godfrey said, "I would not trust them with my tax money or much else."
Newly appointed county Treasurer John Moorlach said he is voting "no" because "if we raise taxes even higher here, you will see the business recruiters from other states circling like vultures." Mr. Moorlach questioned the promises made by the county to other local governments to repay them 100 percent for their losses in the investment pool. He argued that the various pool participants should be treated individually. He noted some pool participants had funds in the pool for a matter of weeks and did not have the same degree of loss. "Why not give everyone back the value of their own individual portfolio in December?" he asked.
On the other side of the issue, Sheriff Brad Gates said, "The easy way out is to vote 'no.' In my view personally, it is an irresponsible position." Mr. Gates has been campaigning hard for Measure R.
University of California-Irvine Professor Mark Baldassare said the fact that many local officials are opposing the tax will make it much more difficult to pass. "Orange County voters have more confidence in their city officials than their county officials," he said.
Other Orange County developments:
Judge Ryan concluded the pool did not fit the narrow requirements for filing municipal bankruptcy under Chapter 9. He ruled the pool was neither a municipality nor a public agency.
Observers believe the decision will not affect the court-approved payout plan to cities and schools.
On July 1, the combined state-local sales tax rate in Stanislaus County will increase by 0.125 percent to 7.375 percent. The rate increase stems from recent voter approval of a 0.125 percent Stanislaus County Library Transactions and Use Tax.
The complicated 7.375 percent tax rate exists nowhere else in California. The State Board of Equalization has issued a sales tax reimbursement table for transactions up to $120.
Despite budget cuts described as "systematically dismantling" the office, Plumas County Assessor Ernie Eaton is doing a good job in getting out a quality assessment roll, according to a recent State Board of Equalization assessment practices survey.
From 1987-88 to 1994-95, the assessor's office has lost five of 12 positions. According to Mr. Eaton, the county is planning further budget cuts for the 1995-96 year. He says, "The outlook on this situation is bleak and unless something is done at the state level to guarantee a minimum level of funding for local tax administration systems, the situation can only get worse."
Yet, the BOE reported in its survey that "the assessor had been able to absorb these losses and still timely produce a quality assessment roll. This has been due to good management practices, increased technology, and a competent and knowledgeable staff."
The BOE is urging the county to review private uses of county fairground property to find taxable possessory interests and to establish a tracking system for all possessory interest accounts so that reappraisable events will be recognized.
The Center for State and Local Taxation at the University of California-Davis has scheduled its fifth annual "Summer Institute" for July 24-28 on the campus. According to Steven Sheffrin, director of the center, the Summer Institute is not all nose to the grindstone. An excursion to the Napa Valley for a winery tour and dinner is included in the $1,295 tuition.
The first day of the institute is devoted to an overview of tax principles. On subsequent days, participants will attend classes either on sales tax or corporate income tax subjects.
Mr. Sheffrin urges interested parties to pre-register early as enrollment is limited.
Fish Habitat Restoration Tax Credit. AB 1550 (Sher) has been amended to increase the size of the tax credit for salmon and steelhead trout habitat restoration from $500,000 to $1,000,000.
Dividends. SB 249 (Alquist) has been amended to conform to federal law relating to modifications of income from the discharge of indebtedness; disallowance of a deduction for certain high-wage employees; denial of a deduction for specified travel expenses; modification of the deduction for interest expenses; increase in the recovery period for non-residential real property depreciation; modifications to computions of income and deductions for partnerships, and treatment of payments to retired or deceased partners and additional amounts for corporate underpayment of taxes.
These items were added to the bill to offset the revenue loss caused by providing a flat 75 percent foreign dividend exclusion and repealing the interest offset against exempt foreign dividends for water's-edge taxpayers.
Computer Donation Tax Credit. SB 405 (Haynes) has been amended to provide a $50 tax credit for each computer donated to public or private school. The bill also allows a 55 percent (up to $100) of amounts contributed for upgrades and repairs of computers.
June 5: SENATE APPROPRIATIONS COMMITTEE MEETING
Location: Room 4203, State Capitol, at 9:30 a.m.
Subject: Among bills scheduled are SB 14 (Thompson), the Democrats' tax-cut proposal; SB 657 (Maddy), Cal-Tax's omnibus property tax reform bill, and SB 1149, establishing IRA-like medical savings accounts.
June 7: SENATE REVENUE AND TAXATION COMMITTEE MEETING
Location: Room 3191, State Capitol at 1:30 p.m.
Subjects: Bills scheduled to be heard include SB 706 (Maddy), the governor's proposed 15 percent tax cut, and AB 1672 (Takasugi), relating to the diesel fuel tax.
June 7: ASSEMBLY APPROPRIATIONS COMMITTEE HEARING
Location: Room 4202, State Capitol, at 9:00 a.m.
Subjects: On the committee's calendar are 21 tax bills, including AB 917 (Cunneen), increasing the research and development tax credit for selected industries, and AB 1055 (Caldera), increasing the number of authorized assessment appeals boards.