California tax revenues are soaring. What does it mean?
It’s the good news that California’s political establishment — Democratic politicians and their allies in public-employee labor unions — prefer not to acknowledge.
The official line from the establishment is that California’s schools, local governments and state programs are being financially starved.
The drumbeat of impoverishment is clearly aimed at persuading Californians, particularly voters, that vital services can be rescued from imminent collapse only by raising taxes.
One such tax increase — making it easier to levy property taxes on commercial land and buildings — is already on the 2020 ballot. Another — raising income taxes again on those at the top of the economic ladder — is being drafted by education groups.
Hundreds of local tax increases, sales taxes mostly, have been placed before voters in the past couple of election cycles, and more are being planned for 2020.
However, the reality is at odds with the propaganda.
California state and local coffers are bulging with additional revenue, thanks largely to a still-vibrant economy.
Last week, the state Department of Finance closed the books on 2018-19 revenue and reported that the state collected $144.8 billion, $1 billion more than it had anticipated just weeks earlier, and $2 billion-plus more than the 2018-19 budget had originally forecast.
It’s also a whopping 71.5% more than the state was collecting a decade ago, far outpacing both population growth and inflation.
The state has enough money to max out its reserve funds and provide several billion dollars in extra cash to offset schools’ rising pension costs.
Per-pupil spending on K-12 schools has risen by at least 50% in recent years as they collected their constitutionally mandated share of that rising revenue and benefited from ever-rising property tax revenue.
Speaking of which, the official line goes something like this: When voters passed Proposition 13, the historic property tax limit law, in 1978, they hammered schools and local governments unmercifully.
Once again, the reality is at odds with the propaganda.
By imposing a 1% cap on taxing real property values (plus voter-approved bonds), rolling back taxable values to 1976 levels and limiting future increases to 2% per year, Proposition 13 did immediately and sharply reduce revenue. In fact, the measure cut it from $10.3 billion a year to $5 billion.
Since then, however, property tax revenue has steadily climbed, thanks to that automatic 2% annual raise, new construction and the reassessment of homes and commercial properties when they change hands.
California’s county tax assessors have just closed out their rolls of taxable property for the 2019-20 fiscal year, and once again they are sharply higher, led by soaring property values in the booming San Francisco Bay Area.
Overall, taxable property values are up by more than 6% to about $6.5 trillion, which will translate into about $75 billion in revenue. On average, property tax revenue has increased by more than 7% a year since 1978, and overall revenue has expanded 15-fold since then.
So if California’s state and local governments are enjoying sharp increases in revenue, why is the political establishment complaining about an income/outgo squeeze that must be relieved by taxing even more?
The answer is found on the outgo side. Local governments and schools are seeing their pension costs skyrocket, thanks to some really bad pension-fund management over the last couple of decades, while state officials are beset by demands from their political allies for higher spending on a wide variety of education and social welfare programs.
Politically, it’s easier to say yes to taxes than to say no to spending.