Cell phones have emergency alert apps that will shriek and buzz loudly enough to wake you up at night if there’s an earthquake or wildfire. It’s a good thing there’s no app to warn of impending tax increases. Nobody in California would get any sleep.
The state government is in the middle of what it calls the “budget process.” It’s more process than budget. The governor makes a proposal in January and revises it in May, and then state lawmakers write and pass a budget by the legal deadline in June, because if they don’t, they don’t get paid. But it’s not the real budget. There is no real budget. Instead, there’s an open-ended process of “trailer bills,” which are backroom deals quickly amended into blank bills passed earlier.
Yes, the California Legislature passes blank bills. Stacks of them, every year.
With a budget process like this, it shouldn’t surprise anybody that we don’t even know whether the budget is in deficit or surplus. In January, the non-partisan Legislative Analyst’s Office guessed that the budget “remains roughly balanced.” But this was achieved by declaring a budget emergency and raiding the “rainy day” fund. The state has used “about half of the Budget Stabilization Account,” the LAO reported.
The basic problem, according to the LAO, is that “revenues have not caught up with expenditures” and “expenditure growth exceeds estimated revenue growth.”
In other words, the state government is spending money it doesn’t have. Yet.
This is why the emergency app on your phone would be blaring like an air-raid siren to warn you of impending tax increases.
One of the wildest proposals for tax hikes was floated at a recent meeting of the state Board of Equalization, the agency that oversees property tax assessments. The board invited a law professor to explain how the Legislature could pass laws to get more money out of property owners without voter approval.
Currently, increases in property taxes are limited by the 1978 initiative, Proposition 13, which caps increases in the assessed (taxable) value of property at no more than 2% per year until there’s a change of ownership. Prop. 13 also cut the tax rate to a flat 1%, though it allows a slightly higher rate to pay off voter-approved debt.
Because Prop. 13 was a constitutional amendment, it can’t be undone by a vote of the Legislature. However, the presentation viewed by the Board of Equalization suggested that the Legislature could get around this hurdle by passing laws to impose “income tax increases on those whose property taxes are far too low relative to income.” It also suggested “a tax on unbuilt parcels.”
That should certainly set off alarms.
And so should this: two major sources of government revenue are set to expire in 2030, and planning is quietly underway to figure out how to renew them. One is the “temporary” income tax increase on earnings above $250,000 that was on the 2012 ballot as Proposition 30. It was a “citizens’ initiative,” but to help it pass, Gov. Jerry Brown threatened voters that if it didn’t, there would be apocalyptic cuts to education. In 2016, special interests funded another initiative to extend the “temporary” tax increase until 2030. Voters approved it.
Would a majority of voters say yes a third time? State lawmakers can renew the tax increase themselves, but it will take a two-thirds vote of the legislature.
That also applies to the second expiring revenue source, the cap-and-trade program. Though it’s supposedly not a tax, it’s close enough that a judge might strike it down if the legislature passed a bill to renew the program with less than the two-thirds vote the constitution requires for tax increases.
Cap-and-trade, run by the California Air Resources Board, is a program aimed at reducing greenhouse gas emissions by collecting billions of dollars from selling “allowances” to “emit.” These extra costs raise the price of gasoline, electricity and everything.
This month, the Legislative Analyst’s Office reported that cap-and-trade is adding “about 23 cents to each gallon of retail gasoline sold in California” and could add as much as 74 cents per gallon in the future.
Cap-and-trade has collected roughly $31 billion for the state treasury’s slushy “Greenhouse Gas Reduction Fund” since the program’s start in 2006. If it continues, the LAO estimates it will bring in between $70 billion and $260 billion (in 2025 dollars) by 2045. If the Legislature does not renew cap-and-trade, that money stays in your wallet instead. You can call your representatives now and let them know what you think. Look them up at findyourrep.legislature.ca.gov.
California is facing projected budget deficits in the next three fiscal years estimated between $15 billion and $30 billion annually. But instead of recognizing that it’s time to cut spending, the Legislature is considering Assembly Constitutional Amendment 1, a measure that would actually erode a legal limit on spending growth that voters put into the constitution with an initiative in 1979.
The governor won’t even cut spending for the ridiculous high-speed rail project, insisting that it would be “reckless” to stop now, just as we “enter” the track-laying “phase.”
Where is the money to continue this escapade? Nobody knows. Right now, high-speed rail is funded with 25% of the money from the cap-and-trade program, another reason that some in the state government will try anything to keep that program going, no matter how much it raises the cost of living in California.
The solution to California’s budget problems won’t be found in schemes to raise income taxes or make energy more expensive. The answer is a change in tax, energy and regulatory policies to promote strong private-sector economic growth: more people making more money and paying lower taxes. California can’t thrive by relying on soak-the-rich taxes and federal bailouts.
And speaking of the federal government, the national debt is up to $36.8 trillion, and Congress is busy erasing the DOGE savings with new spending.
Every phone in the country should be shrieking an alert over that.
Write [email protected] and follow her on X @Susan_Shelley
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