ShareThisThe volatility of California's tax revenue -- booming one year, plummeting the next -- plagues the state budget.
The volatility, born of the state's reliance on personal income taxes from a relative handful of high-income Californians, is the underlying factor in revising the current state budget to close a whopping deficit.
Gov. Arnold Schwarzenegger and Democratic legislators are wrangling over how to apply the state's ultra-complex school finance law in an era of declining revenue. Democrats want guarantees that shortfalls in school financing will be fully restored in the years ahead, but Schwarzenegger is unwilling to provide restoration money beyond one year without a constitutional amendment.
The state expects revenue this year to be $10-plus billion lower than two years ago, even though increases in sales and income tax rates, approved in February, were supposed to raise revenue by that much -- a stark effect of the recession's impact on wealthy Californians' tax bills.
The flip side has been that when the state's economy is booming, revenue from those few high-earners skyrocket, encouraging politicians to spend like there's no tomorrow.
Smoothing out the revenue stream, or smoothing out how taxes are spent, has been kicking around the Capitol for years. Schwarzenegger has tried, and failed, to persuade voters to adopt a "rainy-day fund" in which to park extra money during up-years. The latest rejection occurred just two months ago.
Meanwhile, he and legislative leaders appointed a blue-ribbon commission, chaired by businessman Gerald Parsky, to recommend ways to reduce volatility.
The commission missed one deadline for action on April 15. Thursday, during a meeting in San Francisco, its members declared that they can't meet another deadline of July 31. They will now ask for another extension while attempting to merge competing proposals from the commission's liberal and conservative wings into something approaching unanimity.
At Parsky's urging, the commission had been concentrating on flattening out the income tax, shifting more of the burden from the affluent to the middle class, replacing the sales tax with a "net receipts tax" similar to European-style value-added taxes and eliminating corporate income taxes. But liberals objected to the shift and floated a "blue plan" retaining the income tax's progressivity.
Finally, after several hours of discussion, the commission agreed to consider elements of both, including a simpler income tax, a "split roll" that would eliminate Proposition 13's property tax limits for commercial property, a "rainy-day" reserve similar to Schwarzenegger's oft-rejected proposal, a new "carbon tax" on fuel of as much as 18 cents a gallon and either a net receipts tax or a revised sales tax that would apply to services as well as hard goods.
However, it's just a concept with weeks, if not months, of discussion to follow. "It can't be done by July 31," Parsky said.
(E-mail Dan Walters at dwalters(at)sacbee.com. Back columns, www.sacbee.com/walters. Distributed by Scripps Howard News Service, www.scrippsnews.com.)
Column. Must credit Sacramento Bee
