January 28, 2021 - The Governor’s budget proposes several changes to taxation to support businesses. Two key factors for evaluating these proposals are: (1) which level of government would forgo revenue; and (2) which businesses would receive assistance. Based on these criteria and others, we recommend that the Legislature prioritize expansion of the Main Street credit, explore alternative structures for an elective S Corporation tax, and reject the proposed one-time expansions of the CAEATFA exclusion and California Competes.
February 7, 2022 - In this post, we analyze the Governor's proposal to waive business filing fees for new business entities in 2022-23.
March 6, 2019 - The 2017 federal Tax Cuts and Jobs Act made significant changes to federal tax laws. Generally, the federal tax changes reduced tax rates and broadened the tax base (what is subject to tax). Because the state’s income tax laws closely refer to large portions of federal law, many of those changes created new differences between federal and state taxes. State law currently does not adopt—or conform to—any of the federal changes made in 2017. This report assesses the arguments for and against conforming to ten of those major changes. (Five of these conformity provisions are included in the Governor's proposal.)
May 20, 2020 - The May Revision includes a number of revenue-related proposals. This post describes these proposals and offers our initial comments and recommendations. We also offer alternative revenue options that the Legislature could consider.
March 15, 2018 - In this report, we explain how the existing credit works and why so few taxpayers are claiming it. Then we describe and comment on the administration’s California Hiring Credit proposal, which would improve upon the existing credit in some respects. We conclude with some options for making more fundamental changes to the credit.
March 30, 2020 - California Competes is an economic development tax incentive program that allows the administration to negotiate tax credit agreements with individual companies that agree to meet multiyear hiring and investment targets. In this report we provide background information about the California Competes program and the changes that the Legislature made in 2018. Next, we describe the effects of these changes on the program in 2018‑19, the first year of their implementation. We then assess how the changes have affected the administration of the California Competes program and consider whether it is more or less effective than before. Lastly, looking forward, we suggest working to find ways to expand the pool of qualified applicants and advise the Legislature to continue its oversight of the program.
October 5, 2020 - The 2020‑21 budget package included several tax policy changes. Overall, the budget package assumes these changes will result in a net revenue increase of about $4 billion in 2020‑21. Starting in 2023‑24, the net effect of these changes are expected to reduce revenues below what they otherwise would have been.
October 30, 2002 - We review and assess the effectiveness and appropriateness of the Manufacturers’ Investment Credit.
December 18, 2020 - To help address the state’s large budget deficit as estimated in June 2020, the 2020-21 budget package deferred a substantial amount of General Fund payments to schools and the California Community Colleges (CCC). In this post, we (1) provide background on community college cash flow and cash management, (2) describe the community college deferrals included in the state’s 2020-21 budget package, (3) explain how the CCC Chancellor’s Office is implementing these deferrals, (4) discuss how community college districts are responding, and (5) present options for the Legislature to consider, particularly given the improved budget outlook.
November 20, 2019 - This report examines how the Proposition 98 minimum guarantee might change over the coming years. The report has five parts. First, we explain the formulas that determine the minimum guarantee. We then explain how our estimates of Proposition 98 funding in 2018‑19 and 2019‑20 differ from the estimates included in the June 2019 budget plan. Next, we estimate the 2020‑21 guarantee. Fourth, we explain how the minimum guarantee could change through 2023‑24 under two possible economic scenarios. Finally, we identify the amount of funding that would be available for new spending commitments in the upcoming year and describe some issues for the Legislature to consider as it prepares to allocate this funding.
In addition to this report, you can find the main California's Fiscal Outlook report along with a collection of other fiscal outlook material on our fiscal outlook budget page.
March 15, 2019 - California requires banks, insurance companies, and many other businesses (called “holders”) to report and transfer to the state personal property considered abandoned by owners—this is called unclaimed property. Holder compliance with unclaimed property law is very low—likely around 1 percent. To address this problem, the Governor’s budget proposes allocating resources to the State Controller's Office (SCO) for more audits of potential holders. We agree with the Governor’s goal to increase holder compliance. However, the scale of SCO’s audits cannot address the vast holder under-compliance rate. To try to significantly increase holder compliance, this report presents policy options for legislative consideration.
January 13, 2020 - This report presents our office’s initial assessment of the Governor’s budget. We estimate the Governor had a $6 billion surplus to allocate to discretionary purposes in 2020-21. The Governor allocates most of the surplus toward one-time purposes, including maintaining a positive year-end balance in the state’s discretionary reserve. Under the administration’s estimates, total reserves would reach $20.5 billion at the end of 2020-21—this represents a $1.7 billion increase from the 2019-20 enacted level. California continues to enjoy a healthy fiscal situation. Despite its positive near-term picture, the budget’s multiyear outlook is subject to considerable uncertainty. In addition to describing the condition of the budget under the Governor’s proposal, this report discusses tools the Legislature can use to mitigate against these heightened risks.
January 20, 2020: Upon further review, one item included in the original version of Appendix Figure 3 on discretionary on health spending should not have been included (specfically, use of the Medi-Cal drug rebate fund to offset General Fund costs). Removing this item—which reduces General Fund spending—from the list of discretionary choices made in the Governor’s budget increases our calculation of the surplus to $6 billion. The document is updated to reflect these changes.
Update 1/24/20: Adjusted Judicial Branch items in Appendix Figure 1 to reflect ongoing spending.
May 14, 2018 - In this report, we analyze the 2018-19 May Revision education proposals. We first provide an overview of Proposition 98 funding and then focus on the Governor’s major proposals for K‑12 education, child care and preschool, community colleges, universities, and student financial aid. In the pages that follow, we offer many specific recommendations for the Legislature to consider. Our package of recommendations includes adopting some proposals, modifying others in certain ways, rejecting others but inviting better proposals next year, and rejecting some proposals in their entirety.
February 19, 1997 - The Governor's Corporate Tax Reduction Proposal