September 11, 2012
Taxation and Government Finance Committee
Legislative Committee
The following is for study only and has NOT been approved by the Taxation and Government Finance Committee, Legislative or Executive Committees or the Board of Directors.
Issue:
What position should C.A.R. take on the upcoming Proposition 30 ballot measure?
Action:
Required, if C.A.R. wants to take a position on Proposition 30 which will be on the November 2012 ballot.
Options:
1. FOR: This ballot measure is consistent with C.A.R. policy and its passage could be beneficial to the real estate industry.
2. AGAINST: This ballot measure conflicts with C.A.R. policy and its passage could have a harmful effect on the real estate industry.
3. NEUTRAL: This ballot measure may be real estate related, but C.A.R. has chosen not to take a position.
4. NOT REAL ESTATE RELATED: This ballot measure may be significant, but is deemed to not be related to property or real estate transactions.
Discussion
Summary: C.A.R. was approached by the Administration arguing that Proposition 30 is real estate related because, if the initiative is not approved, school funding is put at risk.
According to the Official Title and Summary prepared by the Attorney General, Proposition 30:
- Increases personal income tax on annual earnings over $250,000 for seven years.
- Increases sales and use tax by 1/4 cent for four years.
- Allocates temporary tax revenues 89% to K-12 schools and 11% to community colleges.
- Bars use of funds for administrative costs, but provides local school governing boards discretion to decide, in open meetings and subject to annual audit, how funds are to be spent.
- Guarantees funding for public safety services realigned from state to local governments. [In other words, the state would be required to continue providing the tax revenues redirected in 2011 (or equivalent funds) to local governments to pay for the public safety programs transferred in the 2011 realignment.]
The current marginal tax rate for individual earning over $250,000 is 9.3 percent. However, individuals earning over $1 million pay an additional 1% to fund mental health services. Proposition 30 would increase the marginal tax rate for individuals earning $250,000 to $300,000 by 1%, $300,000 to $500,000 by 2%, and over $500,000 by 3%.
Under the California Constitution, the state must reimburse local governments when it imposes new responsibilities on local governments. Proposition 30 provides that no reimbursement is required for the public safety responsibilities transferred to local governments in 2011. In addition, the state has reimbursed local governments for costs relating to complying with the Ralph M. Brown Act (also known as the Open Meeting Act) such as the costs of preparing and posting agendas for local government meetings. Proposition 30 would end state reimbursement for these costs.
The summary of the Legislative Analyst’s estimate of the net state and local government impact in the Official Title and Summary is as follows:
- Additional state tax revenues of about $6 billion annually from 2012-13 through 2016-17. Smaller amounts of additional revenue would be available in 2011-12, 2017-18, and 2018-19.
- These additional revenues would be available to fund programs in the state budget. Spending reductions of about $6 billion in 2012-13, mainly to education programs, would not take effect.
The Legislative Analyst notes that, "The revenues raised by this measure could be subject to multibillion-dollar swings - either above or below the revenues projected…. This is because the vast majority of additional revenue is from the PIT [Personal Income Tax] rate increase on higher incomes, which is volatile and difficult to predict."
Proposition 38, also on the November 2012 ballot, also proposes to increase income tax revenue. A chart comparing Proposition 30 and 38 prepared by the Legislative Analyst follows at the end of your packet.
Pro: The ballot pamphlet argument in favor of Proposition 30 states that the initiative prevents deep school cuts, guarantees local public safety funding, and helps balance the budget. With regard to the tax increases, the proponents make the following points: only the highest-income earners pay more income taxes, all new revenue is temporary, money goes into a special account the legislature can’t touch, and the proposition provides for mandatory audits.
Con: The ballot pamphlet argument against Proposition 30 states that politicians "can take existing money for schools and use it for other purposes and then replace that money with money from the new taxes …. Prop. 30 does not guarantee one penny of new [i.e., additional] funding for schools.” The opponents also argue that “nothing in Prop. 30 reforms our education system to cut waste, eliminate bureaucracy or cut administrative overhead."
NOTE:
C.A.R.'s Board of Directors, at its October 1993 meetings, voted to take "NO POSITION" on Proposition 172 of 1993, known as the Local Public Safety Protection and Improvement Act of 1993, which was approved by the voters. This proposition increased the state sales tax by 1/2 cent beginning January 1, 1994, for the purposes of funding local public safety such as police, sheriffs, fire, and corrections.
C.A.R.'s Board of Directors, at its October 2004 meetings, voted to take a "NOT REAL ESTATE RELATED" position on Proposition 63 of 2004, known as the Mental Health Services Expansion, Funding. Tax on Personal Incomes Above $1 Million, which was approved by the voters. This proposition establishes a state personal income tax surcharge of 1% on taxpayers with annual taxable incomes of more than $1 million. Funds resulting from the surcharge are used to expand county mental health services for mentally ill children, adults, seniors.
Proposition 82 of 2006, which was rejected by the voters, was included on the June Primary Election Ballot and qualified too late to be included in the January Board of Directors Meeting Materials. Historically, C.A.R. has concluded on similar measures (e.g., PROPOSITION 63 of 2004) that they are "NOT REAL ESTATE RELATED." Between C.A.R. business meetings, Proposition 82 was considered by the Taxation and Legislative Committees which concluded that it was not appropriate to take it up with the C.A.R. Leadership team. This proposition would have created a voluntary preschool education program that would be made available for all 4-year olds born after June 5, 2006. This program would be funded by a 1.7% tax on individual income over $400,000, and couples income over $800,000.
Proposition 30: Temporary Taxes to Fund Education. Guaranteed Local Public Safety Funding. Initiative Constitutional Amendment.
Position: ___ FOR ___ AGAINST ___ NEUTRAL ___NOT REAL ESTATE RELATED
