June 1, 1996
Vol. 37, No. 10
June 1, 1996
Vol. 37, No. 10
Commentary
It is welcome news that flowed from Governor Pete Wilson's announcement of how much the state has to spend in his May revision of the proposed 1996-97 state budget. The governor proposed increases in funding for public education, including smaller class sizes, that were widely, and deservedly, applauded.
He also reiterated his call for a 15% reduction in personal and business income taxes, phased in at 5% a year. It is embodied in legislation (AB 2033 by Assemblyman Jim Brulte). This Assembly-approved bill has met rejection in the state Senate despite an amendment that would suspend the tax cut if revenues fail to sustain school funding at guaranteed levels.
Defeat of AB 2033 does not end the tax debate in Sacramento. There will be further negotiations, including discussions of specific tax incentives for businesses. Across-the-board relief from taxpayers' heavy burden of supporting government with one-third or more of incomes deserves broad-based support. It is needed to reinforce California's ability to withstand the next recession without harmful tax increases.
Taxpayers throughout California should be concerned about efforts in Sacramento to take the economic recovery dividend, as the governor calls it, and spend all of it on more government.
To avoid future budget deficits, policy makers must recognize the state's boom-and-bust economic cycles. During periods of prosperity, revenue growth at the state level can be dramatic.
However, these spikes in revenue, if used to increase the spending base, will over commit the state during an entire economic cycle. Spikes in revenue cannot be sustained over the long haul. When the economy begins to recede, there is a sharp reduction in revenue.
In the 1980s, California revenues spiraled upward during a prospering economy. But, looking at the entire decade as well as the first half of the 1990s, California's finances were on quite a roller coaster ride. State revenues grew 13.8% in 1988-89 for example, and only 1.38% in 1990-91, while spending went from 7.6% in 1991-92 to minus 5.49% in 1992-93.
When the recession struck in 1990-91, a massive tax increase was passed to close a record $14 billion gap between spending and revenues.
Reality is that there will always be booms and busts. Over obligating tax dollars during good times with additional unplanned spending that expands the base of a continuing program simply cannot be sustained during bad times.
Just as a successful farmer would say it is unwise to eat all the seed corn, if all the surplus is consumed by government without plowing some back into the economy, the state is guaranteed a deficit in the next recession.
There were only two Republicans on the nine-member Senate Revenue and Taxation Committee, so the Assembly-approved bill (AB 2033) was essentially dead on arrival.
Assemblyman Jim Brulte, author of this bill and a similar measure sponsored by the Republican governor that died in the same committee last year, said after the 2-6 vote:
"You'd have to be an ostrich to believe there is going to be an across-the-board 15 percent tax cut this year." He also said predicted "some kind of tax reduction this year. The chances that personal-income taxpayers will get a reduction now are probably slim."
Wilson and Brulte vowed to continue to work for tax relief through special Senate-Assembly conference committee meetings later this year.
Senate Democrats, led by Senate President Pro Tem Bill Lockyer, have held firm that the only tax measures they will support will be targeted to specific industries. They want it shown that tax incentives pay off with job creation. Such a bill engineered by Lockyer, including off-setting tax increases, was vetoed by the governor last year.
Wilson said, "By siding with the special interests of big government and labor, the Senate Democrats missed the single best opportunity this year to provide tax relief to the millions of hard-working California taxpayers."
Proponents, including the California Manufacturers Association's Bill Campbell, noted that only two states have higher corporate income taxes than California, and only seven states are above California in personal income tax rates.
Cal-Tax's Steve Kroes testified that there are underlying problems with measuring tax burden as a percentage of income, which ranks California 23rd in the nation. "Almost all of the high-income states rank lower in that survey. Of 10 highest-income states, California ranks third. Many of the states ranking above us are there simply because they have very low incomes," Kroes said.
Phased in at 5 percent a year, the tax cut would be worth $550 million in the fiscal year starting July 1, increasing to $1.9 billion the next year, and to $3.4 billion in the third year.
Senator Dan Boatwright said the Legislature and Wilson have approved substantial tax relief for business since 1991, including an investment tax credit for manufacturers. It is time, he said, to invest in state infrastructure such as schools and prisons. Further, Boatwright said he had received no correspondence from CEOs of businesses saying they need the tax cut.
Brulte said he had agreed to an amendment to suspend the tax cut if California's economic growth could not sustain it and maintain Proposition 98 levels of school funding. This promised amendment enabled him to get the bill out of the Assembly. However, State Schools Chief Delaine Eastin still opposed the bill, saying future Legislatures would not be bound by actions of the current Legislature.
Voting against the bill were the chair, Lucy Killea, a former Democrat and now an independent, and Quentin Kopp, another independent and former Democrat. Milton Marks, Nicholas Petris and Mike Thompson joined Boatwright as Democrats against the bill. Senators Rob Hurtt and Ross Johnson voted in favor.
This ratio is one good computer of the quality to run "windows" programs for every 73 students in K-12 public schools in Los Angeles County. This is a particular black eye for California because its high-tech industry ranks among the best in the world in computer development. Yet, counting older models, many of them broken or inadequate, California ranks 45th among states in computers-to-students ratio.
There are 380,000 computers for 5.3 million K-12 students in California public schools, a 13.9 to 1 ratio. The recent survey by the Los Angeles County Office of Education found only one computer was a "386" or "Mac LC" model for every 73 students.
"That is one for every two classrooms. This is unacceptable!" Wilson told the gathering of government, business and education representatives on May 23. The Sacramento luncheon was the second of six "pep rally" events scheduled this spring around the state to promote the Detwiler Foundation Computers for Schools Program.
"By the end of 1998, California will be in the top 10%" of the states in computers-per-students, she said, matter-of-factly.
Wilson said schools should receive at least 75,000 good, working computers annually from 100% participation of the largest 250 companies in California. The business community discards about 1.5 million computers a year in the state. If only 10% are donated, and half of them are good enough, the net is 75,000 computers.
It was clear to government, business and education representatives at the luncheon, hosted by Bank of America, Intel and Pacific Bell, that the Computers for Schools Program is doing more than just producing good vibrations in its first 18 months. It also appears to be a snowballing success story.
It is, said William Rains, the warden at Folsom State Prison, a "win-win" program. He read a letter from school children thanking inmates for refurbishing their computer. Rains also cited comments from prison staff and inmates that the opportunity to work on computers is the most meaningful work experience they have seen in the California penal system.
Following the warden to the rostrum, James Barnes of Pacific Telesis Group said the program is a "win-win-win" opportunity. Barnes, a former school board president, is first vice chair of the California Taxpayers' Association.
Pacific Telesis is a major contributor of used computers to the Detwiler program. Barnes noted that besides children and prisoners, businesses will benefit from the fruits of such a program: well-trained future employees.
"It is kind of frustrating living in California (with all its high-tech industries) and "like the cobbler's children, they have no shoes," Barnes said. "This program makes sense. It is win-win-win. Let's do it!"
Taxpayers are also winners in the Computers in Schools Program, said Cal-Tax President Larry McCarthy. It would be "enormously difficult" for taxpayers to provide new computers in classrooms, he said. (As Cal-Tax News reported last May 15, in another article on school computers, the state Department of Education has estimated that it would cost $3.5 billion to install a 1.5 million-computer system in 7,500 schools. Providing two computers and one printer per classroom, the hardware alone would run $1 billion.)
The La Jolla-based Detwiler Foundation grew out of John Detwiler's experience in 1991. As the owner of a securities firm, he donated a computer to a school in San Diego County. He witnessed first-hand how useful it was for both the teacher and the children. Daughter Diana Detwiler, working at an investment bank, told her parents of excess computers at the bank that could be contributed to schools.
John, wife Carolyn and daughter Diana (executive director of the program) now devote 40-hour weeks to the program.
It features a "matching challenge." For each two working computers a school receives from other sources, the Detwiler program provides a refurbished computer, loaded with software, and with a one-year guarantee that it will be fixed or replaced if it breaks.
The program has placed 20,000 computers in schools, making it the largest source of computers for K-12 schools in the state, Diana Detwiler said. She said that companies are donating three-year-old computers that are a "huge improvement" for schools that purchased or obtained computers up to 12 years ago.
"Our goal is to be first in the nation," John Detwiler said. "Since it is attainable, nothing less is satisfactory."
Wilson said her husband's recent state budget proposals include $50,000 per school that can be used for computers in classrooms, or just about any school improvement as long as the money does not go into teacher salaries.
State Finance Director Craig Brown, also at the luncheon, cited the governor's $387 million school improvement proposal. There was a $10 million state budget augmentation last summer that was designed to put more computers in classrooms.
With legislative approval and enough advocacy at the local level, Brown said schools would have plenty of money for computers.
Thirteen prisons are now involved in the refurbishing program. As of May 16, more than 8,100 computers have been prepared by inmates for delivery to schools, said J.P. Tremblay, an assistant secretary of the Youth and Adult Correctional Agency.
John Detwiler said computers are being refurbished at 52 locations, including community colleges, vocational centers, prisons and California Youth Authority facilities.
A gift of 1,000 chips from Intel has inmates at the Solano County prison upgrading computers all the way to Pentium, he added. Also, he said that starting in June the program will take only "386" models or better. Up to now, 286's have been accepted.
Diana Detwiler said the program goal is to refurbish 450,000 donated computers over three years. Along with computers schools buy and those that they receive as donations from other sources, California can be Number One, she said. At this time, Wyoming, at 6.4 to 1, has the best student-to-computer ratio among the states.
Last year, California ranked 48th. It moved up three notches on the strength of 20,000 computers provided by the Detwiler program, she said. "Without our program, we would be treading water, and, barring massive amounts of money, we would be just maintaining what we have now."
For additional information on the program, call (800) 939-6000, or visit the home page on World Wide Web at http://www.detwiler.org.
The association presents a six-point plan for more affordable prisons:
To incarcerate the state's most violent offenders, the new Level 5 facilities would provide state-of-the-art cells, control rooms, electronic controls, guard towers and "super max" perimeters.
San Quentin has been downgraded to a Level 2 facilities, and substantial operational costs could be saved by moving death row to a newer Level 4 facility, such as Corcoran.
The Senate on May 30 approved its version of the $63-billion state budget. The 36-1 vote followed less than 45 minutes of discussion, with senators saving their ammunition for the conference committee product.
On the Assembly side, however, several hours were needed to gain bare-majority approval, 41-32, of its budget bill.
When the conference committee report hits the floors, perhaps before the June 15 constitutional deadline, two-thirds votes of approval will be needed in each house.
The Senate budget would spend $1.3 billion more than Governor Pete Wilson proposed, including $520 million for a renters' tax credit.
Balancing the budget this year "should be a slam dunk," said Senate Budget Committee Chair Mike Thompson.
The Senate Revenue and Taxation Committee has already defeated the governor's proposed 15% across-the-board income tax rate reductions for individuals and corporations. However, the governor and Assembly Republicans indicated that they would continue to pursue such a tax cut during budget negotiations.
The Assembly budget bill was approved after Republicans defeated Democrat attempts to include the renters' credit.
The Senate bill, controlled by Democrats, rejects the governor's proposed 4.5% welfare reduction and also reduces spending on prisons. It provides a 4% pay hike for state employees.
Senate Republican Leader Rob Hurtt predicted that budget hangups are more likely to be caused by minority Assembly Democrats. "The roles are reversed, and they can be real sticklers over there," he said.
Senate President Pro Tem Bill Lockyer said there are not high barriers to a compromise budget, but he said he would go to war over any move by Southern California legislators to raid $400 million in Bay Area toll-bridge collections to use on seismic retrofit projects around the state.
"We will be here until Christmas," he said, if there are continued efforts to raid voter-approved local taxes.
Taxes, fees and assessments seem to be dominating headlines and discussions in Los Angeles, where the City Council is looking at placing a police protection tax on the November ballot.
Also, a parks assessment is in the wind, creating controversy last month when 826,000 notices went to property owners. For parks and recreation, the city is considering a tax on every property in the city that would bring in $25 million over 30 years. The intent is to seek voter approval, but the notices left property owners in the dark on that score, and phones at the Department of Recreation and Parks rang off the hook.
The amount of assessment would vary depending on type, value and location of property, but city officials say the levy on a typical residence would be $18.45 a year.
Public hearings are scheduled June 4 and July 9.
City Councilman Nate Holden says he believes the notices were illegal because they were printed two weeks before the council's decision to go ahead with an assessment district. "A certain arrogance has taken over at the expense of the taxpayers," he said.
The sprawling Los Angeles Community College District, meanwhile, plans to assess each property within its boundaries about $12 a year - without voter approval.
And there are the additional fees in Mayor Richard Riordan's 1996-97 budget plans, which include a $10 increase in parking tickets. The City Council has added a $4 to $6 per-dwelling monthly sanitation equipment charge.
The council also has expressed support for a new property assessment or tax to expand the police force.
Riordan, who has vowed to put more cops on the beat without raising taxes, would rather pay for the expansion with surplus airport revenues.
A 52-12 vote sent AB 2563, by Jan Goldsmith, to the Senate.
The bill provides that no convict may file a civil action or proceeding without first obtaining permission of the presiding judge or designee. Inmates also would be required to pay the full filing fee ($180) rather than the reduced $3 fee currently paid by inmates.
Goldsmith said inmates' lawsuits in 1995-96 cost California more than $25 million, with the vast majority of claims "utterly without merit." He said one inmate sued the state because he received a broken cookie for lunch, an action that cost the state $4,500. The state attorney general has 51 attorneys, costing taxpayers $10 million, assigned to defending the state against prisoner claims.
The agreement approved May 28 by U.S. District Court Judge Garland Burrell provides additional vacation time for employees who had difficulty cashing the warrants, or had to spend at least $25 to cash them.
They would get up to 3.5 vacation days for each IOU received, up to seven days. More than 100,000 state employees were paid with IOUs during the two-month stalemate. Several employees sued, as well as representatives of 17,000 employees.
Those no longer in state service could qualify for up to $980 in damages, or $140 per vacation day.
The suit contended that the issuance of IOUs violated the federal Fair Labor Standards Act. Wilson did not admit to wrongdoing.
A cost to the state cannot be estimated, according to attorneys for both sides, because it is not known how many employees will qualify. Those who make more than $5,000 a month, as well as attorneys, teachers and physicians, are excluded from the settlement.
Sean Walsh, spokesman for the governor, said the settlement was a "huge, huge victory for California taxpayers. It means that money that otherwise might have gone to government workers who suffered no harm can now go to our schools and roads."
The November ballot initiative "would not only stack the deck against hard-working Californians, it would devastate the way this state does business," said Kirk West, president of the California Chamber of Commerce.
He said the initiative hurts local governments, schools and private firms by "virtually guaranteeing that all types of projects could only be designed by state-employed engineers.
The initiative is sponsored by the union of state-employed engineers that has been fighting Wilson Administration efforts to increase contracting with private companies to perform engineering services.
Also in the coalition are the Consulting Engineers and Land Surveyors of California, whose executive director, Paul Meyer, said the initiative would require the state to hire thousands of employees, even if they have no work to do.
The Coalition for Adequate School Housing's Mamie Starr said the initiative would slow the process of school construction by forcing all proposed projects to go before the state controller for approval.
In all, revenues from programs administered by the BOE increased 4.8%, yielding $28 billion in 1994-95 for state and local governments. The state portion represents 38.8% of all state revenue for that year.
The report noted a few cases in which employees received more than $100,000 on top of their regular salaries.
In one case, a firefighter who lives outside California worked 12 straight 24-hour shifts for the city, then took off 46 days in a row.
The newspaper, in an editorial, noted that the City Council has at least started addressing the problem by hiring a consultant to review the Fire Department's budget.
Hiring more firefighters may be part of the solution, said The Times, but "until (the departments) get a budget increase, they need to manage their forces in a more economical fashion. That includes overtime, but within reason. The taxpaying public cannot stomach these sorts of paychecks."
It had been the only regularly used hearing room in the Capitol where actions could not be monitored by the media and other interested parties unable to be physically present. The powerful Rules Committee often determines fates of legislation by assigning bills to one committee over another.
After Proposition 13 passed in 1978, then-Speaker McCarthy and Brown, then chair of the Assembly Revenue and Taxation Committee, made sure that San Francisco city-county gained a larger share of property tax revenues, while other areas, such as San Diego, were shortchanged. San Diego even sued to try to change the formula.
With Brown now mayor of San Francisco and McCarthy retired from service in the Legislature and as lieutenant governor, San Francisco lacked the clout to defeat a bill by Assemblyman Bernie Richter of Chico to take $87 million from San Francisco and give it to other counties. It passed the Assembly 43-27, and faces an uncertain Senate future.
Richter's Butte County would get $3 million, while San Diego County would receive the most, $13.2 million.
Forty other counties would share in the shift.
The bill would distribute property tax revenues based on population.
Arthur Hall, senior economist for the foundation, cited the figures in March 20 testimony before the House Ways and Means Committee. He used historical data from the Internal Revenue Service and the Office of Management and Budget, and an hourly cost of $42.4 derived by averaging the average labor cost of both the IRS and the accounting firm of Price-Waterhouse.
Historically, two-thirds of the compliance cost, or $150.6 billion, is borne by the business sector, Hall reported.
"Based on my calculations," Hall said, "at least 70% of the total cost of federal tax compliance is due to the income tax, indicating that businesses will pay an estimated $105.4 billion in 1996 to comply with the federal income tax. For businesses, that figure is up from an estimated $83.3 billion in 1992 (70% of $119 billion), the latest year for which complete income tax revenue data is available."
A 41-28 bare-majority vote sent AB 2640 to the Senate.
The bill would eliminate a tax upon a tax, said Pringle, who introduced the measure as a result of spiraling gasoline prices.
Cunneen said such tax credits are needed to "nurture our strengths" in high-tech development. He noted that the R&D credit was cited by Intel in its 1993 decision to build a plant at Folsom that provided thousands of jobs.
Cal-Tax supports the need to increase the tax credit to help California compete for jobs with other states.
In a letter to Assembly Appropriations Committee members, Chief Tax Consultant David R. Doerr wrote: "When California enacted its tax credit in 1986, an 8% credit was competitive with other states' credits. Since that time, however, other states and other nations, with which California competes for businesses with heavy emphasis on research and development, have been improving upon our 8% rate. California needs to raise its rate to remain competitive."
To wit:
Amendments sought by the Los Angeles delegation to the Legislature to add to the state budget bill funding to open at least part of the jail were tabled on the Assembly floor.
The Board of Supervisors on May 28 directed Sheriff Sherman Block to seek renters for any of three closed jails. If either public or private agencies would rent the facilities to house state or federal prisoners, the revenues could be used to help open the Twin Towers, the supervisors reasoned.
The $373-million downtown Twin Towers was completed last fall, but the county lacks the $100 million needed to operate it annually.
Meanwhile, as part of its series "Breakdown Behind Bars: Turbulent Times in L.A. County Jails," the Los Angeles Times has suggested that pay raises for sheriff's deputies should be considered part of the problem.
Sheriff Block has closed four jails since 1993, with inmates returning to the streets at faster rates. Since January 1990, sheriff's employees have received six salary increases totaling 24%.
According to The Times, Block was not actively involved in those pay raise issues, but did not oppose them, either. The county spends $170 million more each year for salaries and employee benefits for 13,000 sheriff's employees than in fiscal year 1990-91, the newspaper reported.
Fred Ramirez, sheriff's budget director, said county officials "made a mistake when they negotiated those contracts because we couldn't afford them."
After 33 general meetings, Chair William Hauck of Sacramento declared on May 28 that its work was over. "The commission has done what it can do," he said.
Hauck said he would not support pending legislation to extend the commission's life beyond midnight June 30 - legislation that was not winning supporters among the majority Republican caucus in the Assembly.
"It is now important to let the legislative process proceed," Hauck added.
As reported in the Los Angeles Times and Sacramento Bee, the CCRC's final meeting included unsuccessful efforts by recent appointees of new Assembly Speaker Curt Pringle and Governor Pete Wilson to roll back previous commission decisions.
An 11-6 vote rejected a motion by a Pringle appointee, Steven Frates, a San Diego Democrat, to rescind the plan that could lead to consolidations of local governments and additional taxing authority.
Another 11-6 vote turned down an effort by a Wilson appointee, Joel Fox, president of the Howard Jarvis Taxpayers Association, to reverse CCRC action making it easier to raise property-related taxes.
Fox wanted the commission to adopt a new government financing system that would leave property tax revenues with local governments and give the state nearly all proceeds from the sales tax.
Constitutional amendments containing the CCRC's recommendations are awaiting action in the Senate and Assembly. The proposals would eliminate some state constitutional offices, increase the number of years legislators can hold office, and make it easier to pass state budget bills.
According to a report in The San Diego Union-Tribune, Bob Glaser and his lawyer, Jeff Schwartz, may have to pay as much as $20,000 to reimburse the city and Service America, which sells food and drinks at San Diego Jack Murphy Stadium.
Glaser, an attorney and political consultant, complained that women were using the men's restroom at the stadium during an Elton John-Billy Joel concert last year.
Huff said it was only the second time in her five years on the bench that she granted sanctions against a party in a lawsuit. Eugene Gordon, chief deputy city attorney, sought the sanctions. He said it was not very common to gain sanctions in federal court.
Glaser said his civil rights and right to privacy were violated because he was unable to relieve himself "in front of women in the men's bathroom" during the concert. Long lines at restrooms for women had caused women to use the men's facilities.
Gordon said the city's costs were about $5,000. Service America - sued by Glaser because the beer he drank caused him to have to go to the bathroom - may be awarded close to $15,000, a company attorney said.
ANTHONY L. SMITH Chairman LARRY McCARTHY President REBECCA K. TAYLOR Senior Vice President CAROL ROSS EVANS Vice President DAVID R. DOERR Chief Tax Consultant STEPHEN J. KROES Director of Research JOYCE SHOWALTER Director - Corporate Relations RON ROACH Editor
Cal-Tax News (ISSN 0008-0543) is published semi-monthly except monthly in August and December, by the California Taxpayers' Association, 921 11th Street, Suite 800, Sacramento, CA 95814. Subscriptions are $59 a year. Second Class postage paid at Sacramento, CA.
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