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California’s new governor, Gavin Newsom, delivered an inaugural address earlier this week that accurately reflected the mentality of his supporters. Triumphalist, defiant, and filled with grand plans. But are these plans grand, or grandiose? Will Governor Newsom try to deliver everything he promised during his campaign, and if so, can California’s state government really deliver to 40 million residents universal preschool, free community college, and single payer health care for everyone? It’s reasonable to assume that to execute all of these projects would cost hundreds – plural – of billions per year. Where will this money come from?
While California’s budget outlook currently offers a surplus in excess of $10 billion, that is an order of magnitude less than what it will cost to do what Newsom is planning. And this surplus, while genuine, is the result of an extraordinary, unsustainable surge in income tax payments by wealthy people. California’s tax revenues are highly dependent on collections from the top one-percent of earners, and over the past few years, the top one-percent has been doing very, very well. Can this go on?
To illustrate just how unusually swollen California’s current state tax revenues have gotten, compare state tax collections in FYE 6/30/2017 (our most recent available data) to seven years earlier, in 2010. Back in 2010, California was in the grip of the great recession. Total state tax revenue was $94 billion, and $44 billion of that was from personal income taxes. Skip to FYE 6/30/2017, and total state tax revenue was $148 billion, and $86 billion was from personal income taxes. This means that 80 percent of the increase in state tax revenue over the seven years through 6/30/2017 was represented by the increase is collections from individual taxpayers, which doubled.
It isn’t hard to figure out why this happened. Between 2010 and 2017 the tech heavy NASDAQ tripled in value, from 2,092 to 6,153. In that same period, Silicon Valley’s big three tech stocks all quadrupled. Adjusting for splits, Apple shares went from $35 to $144, Facebook opened in May 2012 at $38, and went up to $150, Google moved from $216 to $908.
While California’s tech industry was booming over the past decade, California real estate boomed in parallel. In June 2010 the median home price in California was $335,000; by June 2017 it had jumped to $502,000. Along the California coast, median home prices have gone much higher. Santa Clara County now has a median home price of $1.3 million, double what it was less than a decade ago.
As people sell their overpriced homes to move inland or out-of-state, and as tech workers cash out their burgeoning stock options, hundreds of billions of capital gains generate tens of billions in state tax revenue. But can homes continue to double in value every six or seven years? Can tech stocks continue to quadruple in value every six or seven years? Apparently Gavin Newsom thinks they can. Reality may beg to differ.
Just a Slowdown in Capital Gains Will Cause Tax Revenue to Crash
The problem with Gavin Newsom’s grand plans is that it won’t take a downturn in asset values to sink them. All that has to happen to throw California’s state budget into the red is for these asset values to stop going up. Just a plateauing of their value – which, by the way, we’ve been witnessing over the past six months – will wreak havoc on state and local government budgets in California.
The reasons for this are clear enough. Wealthy people, making a lot of money, pay the lion’s share of state income taxes, and state income taxes constitute the lion’s share of state revenues. Returning to the 2017 fiscal year, of the $86 billion collected in state income taxes, $28 billion was from only 70,437 filers, all of them making over $1.0 million in that year. Another $7.3 billion came from 131,120 filers who made between a half-million and one million in that year. And since making over $200,000 in income in one year is still considered doing very, very well, it’s noteworthy that another 807,000 of those filers ponied up another $15.1 billion in FYE 6/30/2017.
There is an obvious conclusion here: if people are no longer making killings in capital gains on their sales of stock and real estate, California’s tax revenues will instantly decline by $20 billion, if not much more. And it won’t even take a slump in asset prices to cause this, just a leveling off.
Debt, Unfunded Pension Liabilities, Neglected Infrastructure
When considering how weakening tax revenues in California will impact the ability of the state and local governments to cope with existing debt, it’s hard to know where to begin. To get an idea of the scope of this problem, the California Policy Center just released an analysis of California’s total state and local government debt. As shown on the table, California’s total state and local government debt as of 6/30/2017 is over $1.5 trillion. More than half of it, $846 billion, is in the form of unfunded pension liabilities.
Calculating pension liabilities is a complex process, with controversy surrounding what assumptions are valid. In basic terms, a pension liability is the amount of money that must be on hand today, in order for withdrawals on that amount – plus investment earnings on that amount as it declines – to eventually pay all future pensions earned to-date for all active and retired participants in the fund. Put another way, a pension liability is the present value of all pension benefits – earned so far – that must be paid out in the future. The amount by which the total pension liability exceeds the actual amount of assets invested in a fund is referred to as the unfunded liability.
The controversy over what is an accurate estimate of a pension liability arises due to the extreme sensitivity that number has to how much the fund managers think they can earn. Using the official projection which is typically around 7.0 percent per year, the official pension liability for all of California’s government pension funds is “only” $316 billion. But Moody’s, the credit rating agency, discounts pension liabilities with the Citigroup Pension Liability Index (CPLI), which is based on high grade corporate bond yields. In June 2017, it was 3.87 percent, and using that rate, CPC analysts estimated the unfunded liability for California’s state and local employee pension systems at $846 billion. Using the methodology offered by the prestigious Stanford Institute for Economic Policy Research, California’s unfunded pension debt is even higher, at $1.26 trillion.
Where pension liabilities move from controversial theories to decidedly non-academic real world consequences, however, is in the budget busting realm of how much California’s government agencies have to pay these funds each year. California’s public sector employers contributed an estimated $31 billion to the pension systems in 2018. Extrapolating from officially announced pension rate hikes from CalPERS, California’s largest pension system, by 2024 those payments are projected to increase to $59 billion. And these aggressive increases the pension systems are requiring are a reflection more of their crackdown on the terms of the “catch up” payments employers must make to reduce the unfunded liability than on a reduction to their expected real rate of return.
Huge unfunded pension liabilities are another reason, equally significant, as to why California’s state budget is extraordinarily vulnerable to economic downturns. If assets stop appreciating, not only will income tax revenue plummet. At the same time, expenses will go up, because pension funds will demand far higher annual contributions to make up the shortfall in investment earnings.
A cautionary overview of the economic challenges facing California’s state government would not be complete without mentioning the neglected infrastructure in the state. For decades, this vast state, with nearly 40 million residents, has been falling behind in infrastructure maintenance. The American Society of Civil Engineers assigns poor grades to California’s infrastructure. They rate over 1,300 bridges in California as “structurally deficient,” and 678 of California’s dams are “high hazard.” They estimate $44 billion needs to be spent to bring drinking water infrastructure up to modern standards, and $26 billion on wastewater infrastructure. They estimate over 50 percent of California’s roads are in “poor condition.” In every category – aviation, bridges, dams, drinking water, wastewater, hazardous waste, the energy grid, inland waterways, levees, ports, public parks, roads, rail, transit, and schools, California is behind. The fix? Literally hundreds of additional billions.
What Governor Newsom might consider is refocusing California’s state budget priorities on areas where the state already faces daunting financial challenges, rather than acquiescing to the utopian fever dreams of his constituency and his colleagues.
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Over the last several years, this column has exposed multiple instances of government entities using taxpayer dollars for political advocacy, a practice that is illegal under both state and federal law. Because progress in stopping these violations has been difficult, taxpayers will be pleased to hear that on December 20th, California’s campaign watchdog agency, the Fair Political Practices Commission, conducted a hearing on illegal activity by the Bay Area Rapid Transit District (BART).
The FPPC stated that BART used public funds to pay for a campaign of “YouTube videos, social media posts, and text messages to promote Measure RR, which authorized BART to issue $3.5 billion in general obligation bonds.” Under California law, spending money on a political campaign to pass the bond measure caused BART to qualify as an “independent expenditure committee” and required it to file campaign finance reports, but the transit agency ignored the requirement.
“BART failed to timely file two late independent expenditure reports in the 90-day period preceding the November 8, 2016 General Election; failed to timely file a semi-annual campaign statement for the period covering July 1, 2016 through December 31, 2016; and failed to include a proper disclosure statement in its electronic media advertisements,” the FPPC said.
The FPPC imposed a fine of $7,500, which critics of BART, including Senator Steve Glazer, rightfully complained was inadequate and no deterrent to future misconduct with taxpayer funds. In fact, the minimal fines may incentivize illegal activity because the ROI (return on investment) is frequently in the millions, if not billions, of dollars. Not only that, because the fines themselves are paid with taxpayer dollars, there are rarely any real-world consequences imposed on public officials who misappropriate public funds for political advocacy.
But things may be different now. In addition to imposing the fine on BART, the FPPC also directed its staff to prepare a letter to the California Attorney General and local District Attorneys asking for criminal prosecution of these cases.
It’s about time.
The Free Speech clauses of the federal and state Constitutions prohibit the use of governmentally compelled monetary contributions (including taxes) to support or oppose political campaigns because “Such contributions are a form of speech, and compelled speech offends the First Amendment.” Smith v. U.C. Regents (1993) 4 Cal.4th 843, 852.
Moreover, “use of the public treasury to mount an election campaign which attempts to influence the resolution of issues which our Constitution leaves to the ‘free election’ of the people (see Const., art. II, § 2) … presents a serious threat to the integrity of the electoral process.” Stanson v. Mott (1976) 17 Cal.3d 206, 218.
While taxpayer organizations have been successful in several lawsuits challenging these illegal expenditures, they haven’t fully deterred lawbreaking by the state or local governments. The recommendation of the FPPC to prosecute these cases under criminal statutes could be just the shock that public officials need to bring them into compliance.
The FPPC letter in the BART case could also prove to be a real headache for Los Angeles County. In March of 2017, the county placed Measure H, a sales tax hike, on the ballot. The County’s use of nearly a million dollars of public funds for the political campaign unquestionably crossed the line into political advocacy and the FPPC found probable cause to charge L.A. County, as well as the individual members of the Board of Supervisors, with 15 counts of campaign finance violations.
Taxpayers are hopeful that California’s Attorney General and District Attorneys take the FPPC letter recommending criminal prosecution seriously. Much lip service is paid to protecting the integrity of California’s election process. Here’s an opportunity for those charged with enforcing the law to do something meaningful to protect both election integrity as well as taxpayer dollars which should never be spent taking sides in election contests.
Jon Coupal is president of the Howard Jarvis Taxpayers Association.
In December of 2018, the California Supreme Court will hear arguments in what is generally referred to as the Cal Fire pension case. The ruling could potentially overturn what is commonly referred to as the “California Rule.” The current interpretation of the rule is that pension benefits, once increased, cannot be reduced for existing employees even for future years of service without the agency providing a benefit of equal value to the employee.
What reforms would become possible if the Supreme Court rules that changes for future years of service are not protected by the California Rule?
To demonstrate how this ruling could be a game changer and open the door to pension reform for nearly every city and county in California, this article uses the potential savings for various reform options for the County of Sonoma.
It should be noted that any changes to the pension system if there is a favorable ruling by the court would need to be made by the governing body of each agency and if they refuse to act, could also be made by the taxpayers through the voter initiative process.
Current Situation in Sonoma County
The pension system for Sonoma County employees was founded in 1945 and up until 1993 was a sustainable and affordable system that paid career employees 2% per year of service. This would mean, for example, that after a 35 year career a retiree would collect a pension equal to 70% of their final base salary. Sonoma County employees are also eligible to receive Social Security benefits. Over the first 48 years until 1993, the pension system had accrued $355 million in total pension liabilities (money owed to retirees and earned to date by current employees).
But then, due to a series of illegal pension increases back to the date people were hired in 1998, 2003, 2004 and 2006, pensions for employees with only 30 years of employment jumped (including “spiking”) to 96% of their gross pay. After the first increase, the liability had doubled from the 1993 $355 million amount to $793 million in 1999. The liability doubled again in 9 years and hit $1.9 billion in 2009. Last year, in 2017 the pension liability reached $3.34 billion, a staggering 941% growth over 24 years.
The Growth of Sonoma County’s Pension Liability
To pay off the soaring liability, Sonoma County issued pension obligation bonds in 1994, 2003 and 2010 totaling $597 million dollars of principal. Paying off the bonds with interest will cost taxpayers $1.2 billion on top of their normal pension contributions. Currently, the County owes $650 million in principal and interest on the bonds that will cost them an average of $43 million per year until 2030.
In addition, the County’s contribution to the pension system (including debt service on the pension obligation bonds) has grown from $8 million in 1998 to $117 million in 2017. In other words, we have a serious math problem on our hands. While tax revenues have been growing at 3% per year, pension and healthcare costs have grown by 19%. Something has to give. In Sonoma County we have two choices, do nothing and pay higher taxes for fewer services, or, if possible (depending on the outcome of the Supreme Court case), reform our pension system to make it more equitable for taxpayers and more secure for employees and retirees.
So far, money has been taken from our roads and infrastructure maintenance budgets and the County has borrowed $597 million to pay for pensions. Soon, more and more money is going to come from cuts to fire and police protection, and services for those to in need. The retroactive pension increases not properly funded have essentially created a debt generation engine that sticks our children and grandchildren with enormous debt for services received in the past.
The Pension Increases May Have Been Illegal
In 2012 responding to a complaint I filed, the Sonoma County Civil Grand Jury could not find any evidence that the County followed the law when pensions were increased. The California Government Code in Section 7507 requires that the public be notified of the future annual cost of the increase. However, records show that all of the retroactive pension increases were enacted without determining the future annual costs and the public was never notified. This is a serious issue since public notification is the only protection taxpayers have. In addition, documents uncovered by New Sonoma indicate that the agreement was for the General employees to pay 100% of the past and future cost of the increase and Safety employees to pay 50% of the cost. This requirement was never enforced by the Sonoma County Retirement Association as it should have, so the vast majority of the costs for the benefit increases have been illegally borne by the County’s taxpayers.
These same increases were enacted at the state and local level from 1999 to 2008 for almost every public agency throughout the state. Cursory investigations of other cities conducted by the California Policy Center and Civil Grand Jury’s in Marin and Sutter county found similar violations at every agency investigated. A lawsuit is currently under appeal that would void illegal increases back to the date they were enacted which would in Sonoma County’s case save taxpayers $1.2 billion over the years ahead. But even if this case fails, other reform options may be available soon as a result of a favorable supreme court ruling. Here they are:
1. Cap the Employer Contribution
A lot of problems could be fixed at the governance level if employees felt the impact of growing unfunded liabilities. As long as the current situation of the employer/taxpayer covering 100% of the unfunded liability and debt service on the bonds exists, the problem will continue to grow and reforms will be minimal because all actuarial losses fall on the taxpayer.
Capping the employer contribution at 15% of salary (still 5 times what private sector employers contribute to retirement funds for their employees) would cut pension costs in Sonoma County from $117 million to $55.4 million, a savings to the county of $61.6 million per year. And as pension costs increase over the years ahead, the employees will pay all the costs associated with the growth.
2. Split All Pension Costs 50/50 Between the County and Employees
Currently the employer contribution is 19% of payroll. The current pension bond debt service, all paid for by the employer, is 11.3% of payroll. The current employee contribution is 11.6% of payroll. Therefore Sonoma County’s total pension costs in 2017 were 42% of payroll.
Capping employer contributions at 50% of pension costs or 21% of payroll would save the county $50 million per year, a cost that would be borne by employees in additional pension contributions.
3. Provide an Opt Out for Employees to a 401k Plan
Instead of forcing employees to contribute 21% of their take-home pay to their pension, a 401k option could be created.
Existing employees could be provided with the option of moving the present value of their future pension benefit into a 401k account and opting out of the defined benefit pension system. Going forward, the County could provide them with a 10% of base salary 401k contribution which the employee could match for a 20% contribution. Then, if the employee wanted to turn their account balance into a defined benefit for life, they could purchase an annuity upon retirement using their 401k funds.
Studies show young people entering the workforce prefer the portability of a 401k plan because they don’t see themselves in the same career their entire lives. Defined benefit pension funds also punish folks who leave the system early and highly reward those that stay because they are back loaded by design.
A lot of folks might also choose this option because they may be worried about the soundness of their pension plan, which in Sonoma County’s case, they should be.
4. Improve Pension Board Governance
Require a majority of non pension fund members on the Sonoma County Employee Retirement Association (SCERA) board or move the servicing of the fund, if possible to a private entity because of the conflicts of interest that exist when board members are also part of the pension system.
5. Establish Greater Transparency
Establish a COIN Ordinance to require the County Supervisors to hire an outside negotiator during contract negotiations and to provide the public with the cost impact of any changes to the citizens ahead of approval.
6. Mandate Public/Private Pay Equity
Require the County to perform a prevailing wage study and offer new County hires salaries that are similar to what Sonoma County residents earn in the private sector for work requiring comparable education and skills.
7. Return Spending Authority to Voters
Require voter approval of any pension obligation bonds, and require voter approval of any increases to pension formulas or increases to salaries in excess of inflation.
6. Eliminate Conflicts of Interest
Do not allow elected officials to be members of the pension system due to the obvious conflict of interest.
7. Improve Public Oversight
Create a permanent Citizens Advisory Committee on Pensions that would provide an annual study of the pension system and track the success of pension reform efforts and provide recommendations to the Board of Supervisors. All reports prepared by the committee will be posted on the Committee’s webpage on the County’s website. The committee would have the power to perform accounting and regulatory compliance audits of the Sonoma County Retirement Association, investigate any evidence of illegal acts, and recommend appropriate remedies to the Board of Supervisors. A description of any violations and any committee recommendations will be posted on the Committee’s webpage on the County’s website.
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Ken Churchill has over 40 years of business and financial management experience as founder, CEO and CFO of a solar energy company and environmental consulting firm. In 2012 after discovering the county illegally increased pensions without the required public notification of the cost he founded New Sonoma, and organization of financial experts and citizens to investigate the increase and inform the public. Information on New Sonoma and their findings and court case can be found at www.newsonoma.org.
In October 2016, in a coordinated act of terrorism that received fleeting attention from the press, environmentalist activists broke into remote flow stations and turned off the valves on pipelines carrying crude oil from Canada into the United States. Working simultaneously in Washington, Montana, Minnesota, and North Dakota, the eco-terrorists disrupted pipelines that together transport 2.8 million barrels of oil per day, approximately 15 percent of U.S. consumption. The pretext for this action was to protest the alleged “catastrophe” of global warming.
These are the foot soldiers of environmental extremism. These are the minions whose militancy receives nods and winks from opportunistic politicians and “green” investors who make climate alarmism the currency of their political and commercial success.
More recently, and far more tragic, are the latest round of California wildfires that have consumed nearly a quarter million acres, killed at least 87 people, and caused damages estimated in excess of $10 billion.
Opinions vary regarding how much of this disaster could have been avoided, but nobody disputes that more could have been done. Everyone agrees, for example, that overall, aggressive fire suppression has been a mistake. Most everyone agrees that good prevention measures include forest thinning (especially around power lines), selective logging, controlled burns, and power line upgrades. And everyone agrees that residents in fire prone areas need to create defensible space and fire-harden their homes.
Opinions also vary as to whether or not environmentalists stood in the way of these prevention measures. In a blistering critique published earlier this week on the California-focused Flash Report, investigative journalist Katy Grimes cataloged the negligence resulting from environmentalist overreach.
U.S. Representative Tom McClintock, whose Northern California district includes the Yosemite Valley and the Tahoe National Forest, told Grimes that the U.S. Forest Service 40 years ago departed from “well-established and time-tested forest management practices.”
“We replaced these sound management practices with what can only be described as a doctrine of benign neglect,” McClintock explained. “Ponderous, byzantine laws and regulations administered by a growing cadre of ideological zealots in our land management agencies promised to ‘save the environment.’ The advocates of this doctrine have dominated our law, our policies, our courts and our federal agencies ever since.”
All of this lends credence to Interior Secretary Ryan Zinke’s fresh allegations of forest mismanagement. But what really matters is what happens next.
Institutionalized Environmental Extremism
California’s 2018 wildfires have been unusually severe, but they were not historic firsts. This year’s unprecedented level of destruction and deaths are the result of home building in fire prone areas, and not because of wildfires of unprecedented scope. And while the four-year drought that ended in 2016 left a legacy of dead trees and brush, it was forest mismanagement that left those forests overly vulnerable to droughts in the first place.
Based on these facts, smart policy responses would be first to reform forest management regulations to expedite public and privately funded projects to reduce the severity of future wildfires, and second, to streamline the permit process to allow the quick reconstruction of new, fire-hardened homes.
But neither outcome is likely, and the reason should come as no surprise—we are asked to believe that it’s not observable failures in policy and leadership that caused all this destruction and death, it’s “man-made climate change.”
Governor Jerry Brown is a convenient boogeyman for climate realists, since his climate alarmism is as unrelenting as it is hyperbolic. But Brown is just one of the stars in an out-of-control environmental movement that is institutionalized in California’s legislature, courts, mass media, schools, and corporations.
Fighting climate change is the imperative, beyond debate, that justified the Golden State passing laws and regulations such as California Environmental Quality Act, the Global Warming Solutions Act of 2006, the Sustainable Communities and Climate Protection Act of 2008, and numerous others at the state and local level. They make it nearly impossible to build affordable homes, develop energy, or construct reservoirs, aqueducts, desalination plants, nuclear power plants, pipelines, freeways, or any other essential infrastructure that requires so much as a scratch in the ground.
Expect tepid progress on new preventive measures, in a state so mired in regulations and litigation that for every dollar spent paying heavy equipment operators and loggers to do real work, twice that much or more will go to pay consultants, attorneys, and public bureaucrats. Expect “climate change” to be used as a pretext for more “smart growth,” which translates into “stack and pack,” whereby people will be herded out of rural areas through punishing financial disincentives and forced into densely populated urban areas, where they can join the scores of thousands of refugees that California is welcoming from all over the world.
Ruling Class Hypocrisy
Never forget, according to the conventional wisdom as prescribed by California’s elites, if you don’t like it, you are a climate change “denier,” a “xenophobe,” and a “racist.”
California’s elites enjoy their gated communities, while the migrants who cut their grass and clean their floors go home to subsidized accessory dwelling units in the backyards of the so-called middle class whose taxes pay for it all. They are hypocrites.
But it is these elites who are the real deniers.
They pretend that natural disasters are “man-made,” so they can drive up the cost of living and reap the profits when the companies they invest in sell fewer products and services for more money in a rationed, anti-competitive environment.
They pretend this is sustainable; that wind farms and solar batteries can supply adequate power to teeming masses crammed into power-sipping, “smart growth” high rises. But they’re tragically wrong.
Here the militant environmentalists offer a reality check. Cutting through their predictable, authoritarian, psychotically intolerant rants that incorporate every leftist shibboleth imaginable, the “Deep Green Resistance” website offers a remarkably lucid and fact-based debunking of “green technology and renewable energy.” Their solution, is to “create a life-centered resistance movement that will dismantle industrial civilization by any means necessary.”
These deep green militants want to “destroy industrial civilization.” At their core, they are misanthropic nihilists—but at least they’re honest. By contrast, California’s stylish elites are driving humanity in slow motion towards this same dire future, cloaked in denial, veiled coercion, and utopian fantasies.
This is the issue that underlies the California wildfires, what causes them and what to do about them. What is a “sustainable” civilization? One that embraces human settlements, has faith in human ingenuity, and aspires to make all humans prosperous enough to care about the environment, everywhere? Or one that demands Draconian limits on human settlement, with no expectation that innovation can provide solutions we can’t currently imagine, and condemns humans to police-state rationing of everything we produce and consume?
That is the stark choice that underlies the current consensus of California’s elites, backed up by dangerous and growing cadres of fanatical militants.
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In this season of Thanksgiving, taxpayers in California have reason to pause when asked for what they are thankful. Considering the costly plans of the newly elected Legislature and governor, taxpayers may be most grateful for the fact that the state hasn’t yet built a wall encircling the state to keep them from leaving.
After 2017, when lawmakers enacted new taxes including a $5.2 billion annual tax hike on gasoline, diesel and vehicle registration, as well as a new tax on recorded documents, 2018 saw every effort by the Legislature to increase taxes defeated by advocates for taxpayers.
We are grateful that the first-ever tax on drinking water was defeated.
We are grateful that the tax on fireworks was defeated, and that the effort to revive the “snack tax” was not successful.
We are grateful that the proposal to put a sales tax on services was shelved.
We are grateful that nearly a million voters signed petitions to repeal the gas and car tax. Of course, the bad news is that the gas tax repeal was given a new title by Attorney General Xavier Becerra that removed the words “gas tax repeal” from the ballot, deceiving voters.
Further disappointments for taxpayers in November’s election results include progressives winning supermajorities in both the Assembly and the state Senate. California’s one-party government can now pass tax increases without the need of even a single vote from the opposition party. This surely increases the probability that taxpayers will be steamrolled by all the tax increases that were defeated in 2018 being resurrected in 2019.
An even bigger threat may appear in the form of proposed constitutional amendments emanating from the Legislature.
Supermajorities in both houses allow the party in power to place these on the ballot, again without the need of a single Republican vote. Once on the ballot, the measures need only a simple majority to pass.
While Proposition 13 remains very popular, taxpayers advocates could be stretched to the limit if confronted with multiple anti-taxpayer constitutional amendment proposals. In the last decade, these have been stopped before clearing both houses of the Legislature. But now, the following proposals are likely to make an unwelcome encore in the Capitol: Lowering the vote threshold at the local level for passing bonds and parcel taxes from two-thirds, as required by Prop. 13, to 55 percent or even less; imposing higher property taxes on businesses; bringing back the estate and gift tax; restricting the ability of homeowners to transfer their Proposition 13 base-year value to a new residence; and weakening Proposition 218, the Right to Vote on Taxes Act, which limits the extent to which local governments can impose various fees, charges and assessments on property.
Given the list of costly promises made during the election campaign, on top of the massive unfunded pension liability that already burdened the state, higher taxes are a near certainty in the next two years. Californians currently pay some of the highest state and local taxes in the nation, but it isn’t nearly enough to keep up with the spending of the politicians who have been elected to run the government.
Still, California taxpayers can be grateful this Thanksgiving that they still have the power of the initiative and the recall. If they can keep it.
Jon Coupal is president of the Howard Jarvis Taxpayers Association.