Notes from Taxifornia

Notes from Taxifornia

Last week, as millions of Californians filed their tax returns on the delayed July 15 tax deadline, there was good and bad news on the tax increase front in Taxifornia. 

Split Roll Tax Increase Campaign Based on Class Warfare

I wrote last month that how the 2020-21 state budget deal, reliant on trigger cuts and phantom increased federal funding, was setting the stage to push for Proposition 15, the split roll property tax measure on the November ballot.  It would be an $11 billion annual tax hike, if passed.

Now, we’re seeing the first signs of how the campaign will be waged.  A report commissioned by Proposition 15’s proponents authored by Tim Gage, Department of Finance for recalled Gov. Gray Davis, argues that 10 percent of landlords will pay 92 percent of Prop. 15’s property tax increases.

With poverty and inequality at the top of the 2020 political agenda, expect the campaign to focus on businesses that supposedly “aren’t paying their fair share.”  But, as NFIB’s John Kabateck told KQED Radio, “what (opponents) fail to mention is that the majority of small business owners, upwards of 80%, rent their property. That cost is passed on directly from property owners,” he said.

Given this, Prop. 15’s property tax hikes could be another costly burden for many businesses struggling to stay open during the COVID-19-fueled recession.  As PRI’s Breaking Down Barriers to Opportunity shows, embracing entrepreneurship is one of the most important things that policymakers could do to help Californians climb the economic ladder.  Higher property tax passed on to small businesses through higher rents could make it harder for Californians to start or expand a small business. 

Sacramento Scraps Transportation Tax Increase

Sacramento County taxpayers won a victory last week when the Sacramento Transportation Authority voted to scrap a proposed $8 billion, half-cent sales tax increase measure from the November ballot.

The county has many unmet transportation needs.  A February 2019 report found the county spends $35 million a year on road maintenance, but really requires an $87 million annual expenditure to keep roads in “good” conditions, in addition to a $700 million road improvement backlog.

So, why did Sacramento leaders decide to scrap the tax measure?  Overtaxed voters are in no mood to approve higher taxes right now.  The Sacramento Bee reports that a county-commissioned poll found  just 62 percent supported the measure, short of the two-thirds vote required for passage.

Perhaps voters were expressing their unhappiness with the “road diet” that PRI’s Kerry Jackson has written about, where politicians are taking tax dollars intended for transportation infrastructure and spend them on other priorities.

But this could be a temporary victory.  Last year, I wrote about the Assembly Democrat #Build2020 proposal to lower the threshold to approve local tax increases for general obligation bonds and special taxes for affordable housing and infrastructure projects.  Expect to see a renewed push by lawmakers in the coming year to make it easier to pass the kind of transportation tax measures just scrapped in Sacramento.

Even Tax-Loving San Francisco Blocks Sales Tax Increase

Tax measures are even having trouble getting on the ballot in San Francisco, which seemingly has never met a tax increase it didn’t like.  Last week, two supervisors blocked a 1/8 cent sales tax increase measure from the November ballot.

According to the San Francisco Chronicle, the measure would “pump $100 million a year into Caltrain, which lost 95 percent of its riders when COVID-19 engulfed the region.”

Before you start thinking that San Francisco politicians have suddenly become taxfighters, think again.  The Chronicle reports that the two supervisors who blocked the tax increase are critical of Caltrain’s governance model and are using the tax increase as leverage to win their desired policy changes.

And the tax may still have another chance this week as another supervisor plans to try a last-minute effort to place the measure on the ballot.

Just imagine the funds the state would have to support public transportation systems like Caltrain, which carry significant ridership in more normal times, if it wasn’t doubling down on what my colleague Kerry Jackson calls “the train that’s still going nowhere” – high speed rail.

Tim Anaya is the Pacific Research Institute’s senior director of communications and the Sacramento office.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.