Budget goes to Governor

By CMTA Staff

Capitol Update, Sept. 17, 2008 Share this on FacebookTweet thisEmail this to a friend

Both houses of the California State Legislature agreed to a compromise budget early Tuesday morning, marking the beginning of the end to the longest budget stalemate in California state history. By the afternoon, Governor Arnold Schwarzenegger announced his intention to veto it, saying it just "kicks the can down the alley" and continues to ignore California’s structural budget problems. He also that should the legislature override his veto and refuse to work out a real solution, he will veto all legislation sent to him at the end of session (almost 1000 bills).
The legislature must now return to consider whether to renew negotiations or attempt to override the veto. A 2/3 vote of both houses would be needed for the override, the same number that was needed to pass the budget in the first place.

The key components of interest to manufacturers include:

  •   No new taxes or tax increases
  •   Technically no borrowing
  •   Securitization of future lottery revenues (requires voter approval)
  •   Redevelopment Agency (RDA) extensions to local governments in exchange for percentage
  •   Includes some of the budget reforms requested by the Governor and Republicans
  •   Retains the $9 billion in cuts to health and Social Services in the Democrat’s proposal
  •   Adds $1.3 billion more to the education budget than was in the Governor’s "May Revise"

    Tax Credit Reduction
  •   Reduces to 50 percent all business credits (including Research & Development and Enterprise Zones), but allows for full unitary group sharing for business credits after two years.
  •   Suspends Net Operating Loss credits.  Full federal conformity after two years.
  •   Requires the payment of sales taxes for luxury yachts purchased out of state.

    Tax Credit Implementation   
  •   Film Production

    Revenue Accelerations
  •   Creates a new tax amnesty program
  •   Requires limited liability corporations to pre-pay their fees usually not due until the next year (estimated at $360 million)
  •   Requires businesses and individuals to make bigger estimated tax payments sooner, 60 percent of taxes to be paid in the first half of the year rather than 50 percent (estimated at $1.3 billion). 
  •   Withholding of state taxes at the workplace would increase by ten percent for families with two wage-earners and for all taxpayers with incomes from investments.  (The state can use the extra $1.5 billion to reduce the budget gap but will have to give refunds later.)
  •   Those who earn more than $1 million and have a big jump in income will be required to pay taxes sooner rather than using an existing longer payment option.

    Budget Reforms
  •   $2 billion in reserves (rainy day fund)
  •   Provides Governor the authority to make midyear cuts in spending during tough fiscal years 
  •   Sets aside additional revenues during economic boom years
  •   No spending cap

    Non-Fiscal Business Issues
  •   Wage and hour fix for high-tech industry
  •   No meal and rest reform or other non-fiscal related regulatory/business issues are addressed in the budget

    The changes to the lottery, rainy day fund, and the Governor's midyear cut authority will need voter approval.
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