Prop 1A – Southwest California Legislative Council summary

You may be aware that the Southwest Riverside County Association of Realtors has been a supporting Partner of the Southwest California Legislative Council since its inception. The SCLC, a coalition of Southwest California Chambers of Commerce, Legislative Representatives and business representatives – advocate on behalf of Southwest County Businesses. Each of you, as working Realtors, is the owner of your own business. The SCLC has proven to be an effective lobbyist for local concerns and we have a great dialogue with our local Legislators.

Today the SCLC posted recommendations on the Proposition votes upcoming in May. CAR has not yet taken positions on the ballot propositions and, since they are not primarily real estate related, they may not.

This is the summary of Prop 1A. The committee took a position to ‘oppose’ Prop 1A.

Special Election: May 19, 2009 Ballot Propositions 1A – 1F

Presentation

Jeremy Madison Harris

Legislative Counsel

Summary

1. Proposition 1A aims to stabilize long-term budget spending by limiting spending based on 10-year revenue trends. It also creates a Budget Stabilization Fund, better known as a “Rainy Day” fund, forcing the State of California to save when the economy is prospering and therefore can be used when the economy declines.

Background

If Proposition 1A passes, tax increases approved in the State Budget signed by the Governor in February 2009, would be extended for one or two additional years depending on a particular tax increase.

1. The following tax increase extensions will only go into effect if Proposition 1A passes:

1. 1. The sales tax increase of 1 % would be extended for one year through 2011 – 2012.
   2. The Vehicle License Fee (VLF) tax increase would be extended for two years through 2012 – 2013.
   3. The personal income tax-related increases would be extended for two more years, through the 2012 tax year.

1. It is estimated that State tax revenues would increase by about $16 billion from 2010 – 2011 through 2012 – 2013.

1. If Proposition 1A does not pass, beginning April 1, 2009, the:

1. 1. State sales and use tax will still increase by 1% as mandated by law and will expire fiscal year 2010-2011.
   2. VLF will increase on May 19, 2009 and will expire fiscal year 2010 – 2011.
   3. Personal income tax would set to expire after the 2011 tax year.

1. Places a “spending cap” on state spending based on the previous 10 year revenue trend.

1. Proposition 1A increases savings in the Budget Stabilization Fund from 5% to 12.5% of General Fund revenues. 

1. Proposition 58 (2004) which created the Budget Stabilization Account/Budget Stabilization Fund would be renamed the Budget Stabilization Fund under Proposition 1A.

1. The Budget Stabilization Fund will require:

1. 1. Each year, 3 percent of estimated General Fund state revenues are transferred into the BSF.
   2. The Governor, however, can stop the transfer in any year by issuing an executive order.

For instance, the transfer this year was stopped due to the state’s budget problems.

1. 1. Similarly, it is expected that the transfers will be suspended over the next few years as the state continues to face budget problems.
   2. In addition, the annual transfers are not made once the balance of the Budget Stabilization Fund reaches a specified “target”—the higher amount of $8 billion or 5 percent of revenues (currently about $5 billion).
   3. By passing a law, the state can transfer funds out of the Budget Stabilization Fund and use the funds for any purpose. (Currently, this is accomplished through the annual budget act, which allows transfers out of the Budget Stabilization Fund each year.)

1. Under Proposition 1A, money can only be taken out of the Budget Stabilization Fund when there is a true budget deficit or an emergency.

1. Circumstances in which the Governor may stop a transfer to the rainy-day fund would be limited.

1. 1. Beginning in the 2011‑12 fiscal year, the Governor could only stop a rainy-day fund transfer in years when the state did not have enough revenues to pay for state spending equal to the prior year’s level of spending grown for changes in population and inflation.

1. Once the Budget Stabilization Fund reaches 12.5% any revenue above and beyond this can only be spent on one-time expenditures, such as infrastructure projects or to pay off other debts.

1. Proposition 1A is tied to Proposition 1B, a promise to fund education at $9.3billion beginning in 2011-2012 fiscal year.

1. If Proposition 1B also passes, the state would divert 1.5 percent of annual General Fund revenues beginning in 2011 – 2012 to make supplemental payments for education.

1. These payments would be made until a total of $9.3 billion had been spent, likely in five or six years. These payments cannot be suspended.

Arguments in Support

1. Proposition 1A will prevent the peaks and valleys that result in tax increases and deep cuts to schools, public safety and other vital services duet to a mandated spending cap.

1. It will now provide for funding stability for key services like education, public safety, and healthcare.

Arguments in Opposition

1. A spending cap may limit what Government can pay for including the expansion of crucial funding for public programs and services such as education and public safety.

1. The overall strategy included Proposition 1A, which is tied to Proposition 1B, is a promise to schools that they will receive $9.3 billion beginning in 2011 – 2012. This was to discourage teachers unions from opposing the spending limit.

Supporting

California Chamber of Commerce

California Fire Chiefs Association

California Police Chiefs Association

California Senior Advocates League

Central California Hispanic Chamber of Commerce

Former Assembly Speaker Pro Tempore Fred Keeley

Former Secretary of State Bill Jones

Los Angeles Sheriff Lee Baca

National Tax Limitation Committee

The California Taxpayers Association

Opposing

Howard Jarvis Taxpayers Association

Southwest California Legislative Council

Some of the rationale to oppose:

• • The very notion of ‘temporary’ taxes
  • The myth of a true and enforceable spending cap
  • Still doesn’t oblige the state to address some core issues