State revenue picture looking brighter, but more taxes on the horizon

By CMTA Staff

Capitol Update, Nov. 21, 2014 Share this on FacebookTweet thisEmail this to a friend

As the skies have opened in Sacramento to provide some much needed water, a recent analysis by the Legislative Analyst’s Office (LAO) projects that the State of California will end the year with a deluge of unexpected revenue and California K-12 schools and community colleges stand to benefit significantly under Proposition 98, but even in the face of such prosperity a number of proposed tax increases are expected over the next couple years.

According to the 2014-15 State Budget passed in June of this year, the Governor projected total revenue of $105 billion. However, actual revenues have exceeded year-to-date projections by more than $1 billion and that trend is expected to continue through June 2015 resulting in $2 billion above expectations for the 2014-15 Fiscal Year. The primary beneficiaries are California schools and community colleges that will receive an additional minimum guarantee of the vast majority of the higher than expected revenue.

The LAO also projects moderate growth in tax revenue over the next several years as economic recovery continues at its current modest pace even when accounting for the expiration of part of the Proposition 30 temporary tax increase.

While Governor Brown has committed to not pursue extension of Prop. 30’s temporary taxes, a number of outside groups are expected to pick up the baton with calls for new tax increases totaling as much as $22 billion, including an already announced $2.00 per pack increase in the tobacco tax. CMTA staff have learned about a number of tax increases set to be introduced in the State Legislature in the coming session, but staff expect that it is far more likely those proposed increases will have to pursue the initiative route and collect signatures. (For the political numbers geeks out there, the record low turnout in the recent gubernatorial election significantly lowered the required number of valid signatures to a little over 500,000, making it easier to qualify initiatives.)

On the menu of proposed tax increases are a number of old favorites, including split-roll property, oil severance, income, and sales taxes, so CMTA expects a busy legislative session in 2015-16 and a very costly and contentious fight on the ballot in November 2016. All of those proposed taxes impact manufacturers right at the bottom line and stand to make California less competitive for manufacturers and their products more expensive than out-of-state and international competitors.

The tax picture is not all bad news as the partial Sales and Use Tax exemption supported by CMTA for the purchase of manufacturing equipment is in effect and available for manufacturers to help offset costs related to investments in California. Additionally, the California Competes tax credit program has $100 million remaining for the 2014-15 fiscal year with application periods beginning in early January and March. 

Capitol updates archive 989898989