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February 18, 2004 - The current level of abusive tax shelters (ATS) activity—and its potential for future expansion—raises significant administrative challenges for FTB and for the continued viability of the state's revenue system. The use of ATSs not only results in significant immediate term revenue losses to California—in the hundreds of millions of dollars annually—but can also result in declining compliance by an increasing number of taxpayers over the longer term. While the Legislature has taken important steps to curtail the use of ATSs, it may want to consider additional measures in this regard. This discussion provides an overview of the ATS phenomenon, addresses the impacts of such shelters on the state, and suggests measures the Legislature may want to consider to address the ATS problem.
February 18, 2004 - Similar to the 1990s, the budget proposes to shift $1.3 billion of property taxes from local governments to K-14 districts and reduce state education spending by an equal amount. In our view, the Legislature should use its authority over this tax for the overall betterment of local government, not as a state rainy day fund. Accordingly, we recommend the Legislature reject this proposal. If the Legislature chooses to review proposals to reduce local taxes, we offer guidelines for this process and outline an alternative budget reduction consistent with these guidelines. While this alternative also represents an undesirable intrusion into local finance, it would have fewer negative effects.
February 18, 2004 - The basic budget problem currently facing the state involves an unfunded gap of slightly over $17 billion. Most of this—$15 billion—represents an ongoing projected structural imbalance between current-law revenues and expenditures in 2004-05 and beyond. A key element of the Governor's plan is the assumed approval of a $15 billion economic recovery bond on the March 2004 statewide ballot to pay off the accumulated 2002-03 budget deficit and help address the remaining budget shortfall. Our own evaluation of the proposal indicates that even if all of its elements were adopted, 2004-05 would end with a General Fund deficit of $0.8 billion. We further project that an ongoing General Fund structural deficit of close to $7 billion would exist beyond the budget year, absent corrective action.
February 18, 2004 - The U.S. and California economies are entering 2004 with significant momentum which we believe will continue through the budget year. The one major exception to the generally upbeat economic picture is employment growth, which continues to lag despite major gains in consumer and business spending and output in the economy. The lack of job growth has not held back the recovery so far, but continued softness in this key area could undermine consumer and business confidence, spending, and ultimately at some point in the future, the overall economic expansion.
February 18, 2004 - 2003-04 Forecast: We forecast that General Fund revenues and transfers will total $74.1 billion in the current year, a $2.8 billion (3.9 percent) increase from 2002-03. This is down $491 million from the budget forecast, of which $477 million is related to our lower estimate of personal income tax (PIT) revenues. 2004-05 Forecast: We forecast that revenues and transfers will total $75.9 billion in 2004-05, a $1.7 billion (2.4 percent) increase from the current year. This is down about $525 million from the new budget's projection, primarily reflecting the ongoing effects of the current-year reduction in PIT receipts.
February 6, 2004 - Presented to the Assembly Select Committee on Biotechnology
January 22, 2004 - Presented to the Little Hoover Commission
December 30, 2003 - The value of the EZC program is quite dependent on the goals that the Legislature wishes to achieve. Available evidence generally indicates that EZ incentives have little if any impact on the creation of new economic activity or employment. On the other hand, EZ incentives do appear to be effective in increasing economic activity within smaller geographic areas—such as within metropolitan regions.
November 30, 2003 - Economic theory suggests that without some form of subsidy, overall research and development (R&D) spending in society would be lower than the economically optimal level. A strong case can be made that such a subsidy is appropriate at the federal level. However, we are not aware of economic evidence which, on balance, justifies a state credit in addition to the federal credit.
November 14, 2003 - According to our projections, the state is facing a year-end shortfall of $10.2 billion in 2004-05 assuming the vehicle license fee (VLF) rate increase remains in effect, and substantially more if the rate is rolled back and the state resumes backfill payments to localities. Over the longer term, absent corrective actions, the state faces annual current-law operating deficits that remain over $9 billion through the end of the forecast period—and $14 billion if the VLF rate is rolled back.
October 23, 2003 - The Legislature was faced with addressing an enormous two-year General Fund budget shortfall in developing the state's spending plan for 2003-04. We discuss the factors underlying this shortfall, describe the key actions taken to address it, and provide detail on the adopted budget package.
February 19, 2003 - Cigarette smuggling and related tax evasion is a current concern in California, as well as in many other states. In view of the administration's proposal to more than double cigarette excise taxes, the incentives for such evasion are likely to increase. This analysis presents options the state could take to address this issue.
February 19, 2003 - The Governor is proposing an $8.3 billion total tax increase to fund his realignment program and reduce the General Fund's budget shortfall. This proposal would raise the sales and use tax by one percentage point ($4.6 billion), establish 10 percent and 11 percent high-income tax brackets ($2.6 billion), and raise the cigarette tax by $1.10 per pack ($1.2 billion).