THIS ARTICLE HAS BEEN CORRECTED REGARDING A STATEMENT ABOUT $21 BILLION IN TAX REVENUE THAT COULD BE AVAILABLE UNDER A DIFFERENT TAX STRUCTURE.
LAKEPORT – California has a long way to go before it's out of the depths of the current recession, a situation made more critical by needs for reform at the state level.
That was the message fro Betty T. Yee, chair of the California Board of Equalization, who visited Lake County and held a roundtable discussion with local residents and community leaders on March 10.
About 20 people attended the meeting – including Supervisors Jim Comstock and Denise Rushing – held in the board chambers at the Lake County Courthouse in Lakeport.
It was the first time in a few years that Yee has visited with local constituents in her First District region, which includes 21 counties – including Lake County – and stretching from Santa Barbara north to Del Norte County.
The reason for the long time between visits, she said, was that the Board of Equalization's budget also was cut. The board didn't implement furloughs but cut expenses elsewhere, including constituent visits.
During the hour-and-a-half-long discussion, Yee touched on numerous issues regarding state government, from its current dysfunction to the economy and the need to reform the tax code, with billions in tax loopholes hurting the state's fiscal health.
“Right now there is no sense of urgency about looking at reform,” she said.
She added, however, that there is a potential bright spot regarding the state's budget, explaining that the new Assembly speaker, John Pérez, has expressed interest in bringing the process out into the open, no longer leaving it to the “Big Five” – a group which includes the governor, Assembly speaker and Senate president pro tem, and minority leaders from both houses of the Legislature, according to the state Department of Finance.
California has been hit particularly hard by the recession. Since the recession began in December of 2007, the job gains California made over the previous 10 years have been wiped out – with 1.4 million jobs lost, she said.
Yee said that this past December, 56 percent of adults in California had jobs, the lowest employment number in 33 years, giving rise to a group of chronically unemployed people. “The job market is just not cracking open with the jobs opportunities for many of them,” she said.
At the same time, government is making cuts, and Yee said there is a “mismatch” in terms of how those cuts are being made. “The budget that we are dealing with right now looks to really decimate the social safety net,” she said, noting those cuts will lead to more job losses.
In January, the state's revenues came in above the governor's projections by almost $1.4 million, but Yee said there are “a lot of anomalies” with those numbers, and the state is far from emerging from the woods.
The state's financial picture will become clearer in April, when tax filings are made, she said.
Some economic sectors are reporting modest gains, said Yee, pointing to high tech companies in the Silicon Valley that are starting to hire again, and hiring at the state's ports. Economists aren't predicting sustained recovery will start until the end of the calendar year.
“My guess is, we're still shoveling, we haven't hit rock bottom yet,” she said.
Yee said Sacramento is a “little bit unnerving” because of what she deemed a state of denial in the Legislature when it comes to responding to the increase in demand for public services. “The reality is, the needs are there.”
With the state not stepping up to address those needs, Yee said the county – as the provider of last resort – will be saddled with the responsibility.
“We're very concerned about that,” said County Administrative Officer Kelly Cox.
Yee said the number of families relying on public assistance has skyrocketed. The food stamp benefit has increased by more than 905,000 people since October 2007, more than a 40-percent increase. The number of children enrolled in Healthy Families increased by 97,000 between between 2007 and 2009, and Gov. Arnold Schwarzenegger is proposing eliminating that program or scaling it back.
Californians enrolling in Medicaid also is increasing, but Yee dispelled the myth that Californians on Medicaid spend more money than their counterparts in other states. Quite the contrary – she said they cost the least of all 50 states.
In addition, there are 87,000 additional families on CalWorks, the biggest increase since welfare reform was enacted in 1996, she said.
“California is not alone, every state is facing this,” said Yee, noting that California's sheer numbers make the problem look larger.
Yee said some of the state's tax policies have exacerbated its budget problems. “It is absolutely, absolutely broken,” she said.
In particular, she pointed to corporate income tax breaks. Yee said if the state's corporations had to pay the same tax share in 2007 as they had to in 1981, the state would be $8.3 billion ahead. “Our corporate tax proceeds have really declined since that time.”
In addition, the state's sales tax yield is declining as the state moves from a goods-based to a services-based economy. At this time, the state is not taxing services, Yee said.
Then there is the issue of Internet shopping. Yee said “e-tailers” like Amazon and others have aggressively and consciously developed a business model to skirt California's tax rules, which Yee called “outright arrogant.”
She said that the sales tax base is shrinking. As an example, she said that there would be an additional yield of $21 billion in the state’s sales tax if taxable purchases accounted for the same share of personal income in 2008-09 as they did in 1966-67.
Challenges still ahead
County Assessor-Recorder Doug Wacker, who met with Yee before the community meeting, said 2010 is the first year that Lake County is scheduled to see a negative inflationary value in its property tax rolls. From 1999 on the county had a lot of developments, including vineyards, and geothermal valuations also added to the increase.
Cox noted that those geothermal valuations are still going up, and offset declines in other areas.
Information Wacker shared at the meeting included charts showing the change in Lake County's tax roll value, which rose from $3.1 billion in the 1998-99 fiscal year to $6.8 billion in 2009-10.
In 2006-07, the property tax roll's valuation grew by nearly 15 percent, but in 2009-10 it's at 0.08 percent.
Wacker's office has had 10,530 reassessment cases in 2009-10, a number that has nearly doubled over the last 10 years. In 2007-08 the assessor-recorder's office had only 1,973 reassessments.
Trustee deeds from foreclosures were up to 768 in 2009; the previous high since 1994 was 317 in 1996.
The high number of trustee deeds also is changing valuations and rolling them backward, he said, which is something they haven't seen since Proposition 13 in the 1970s. When the market does come back, the properties won't return to those previous factored bases, but will be lower.
Wacker, who noted that it will be interesting to see how things will shake out in the next four to five years, said that from Jan. 1 to March 10 his office has seen 146 trustee deeds, about 45 more than the same time the previous year.
Cox said the county is facing other revenue issues in addition to dropping property tax, including revenue tied to construction, sales tax and transient occupancy tax, which took a hit with the closure of Konocti Harbor Resort & Spa. Cox estimated that the county will get about half of the TOT it has received in recent years.
Interest also had been a major source of revenue for the county's general fund. Cox said the county previously had been bringing in $1.8 million a year in interest, now it receives about $200,000 annually.
Add to that the fact that the state and federal governments are taking more money from local governments. “It's been like this perfect storm of everything hitting us at once,” said Cox.
Cox said Lake County has always had a structurally balanced budget. Even so, “There's only so much that we can handle with those kinds of revenue losses.”
Yee, noting that she doesn't think there will be new tax increases across the state, said in terms of the raid on local governments, the state has hit the bottom and there's no more to get.
Any cuts in the social safety net – which she said make no sense to her – will be on the backs of counties, and will devastate families. If cuts to Healthy Families go through, Yee said about 1,900 Lake County children would be impacted.
There is now exploration of increasing state level taxes, such as through a statewide admissions tax to various events, with some proceeds going back to local governments. Yee said there also is discussion of local income tax and vehicle license fees.
Then there is the issue of legalizing marijuana, which she said is getting interest from both sides of the legislative aisle because of the widespread belief that taxation of the drug will help bolster the state's economy.
Yee said she's been working on the marijuana issue and considering what a regulatory framework would look like.
There are many questions that haven't been worked out, such as whether to exempt marijuana for medical use from taxes, and if marijuana would be taxed like cigarettes. Yee said the Board of Equalization has an internal task force looking at these questions in preparation for reaching out to the community for input.
Based on what happens in November – with a marijuana legalization proposition approved for the statewide ballot – the state will have to figure out how to proceed. Yee noted that the federal government is “not on board” with the proposal.
If a proposed excise tax is placed on marijuana, it is expected to generate as much as $1.4 billion annually, said Yee, noting that once it becomes legalized, the street prices will drop but consumption is likely to increase.
Cox asked Yee about Indian gaming money that has been set aside to distribute to local jurisdictions to mitigate impacts of casinos. This year the Legislature didn't appropriate those funds. “That money is still sitting there somewhere in a fund,” said Cox, who is afraid the state is going to try to grab it.
He also voiced concern about the state taking redevelopment money and suggested that pension reform was critical. Yee said a pension reform discussion likely won't happen in the near term.
Yee said there is a new project being tested on a pilot basis which requires lobbyists to pay registration fees. Lobbyists work the halls of government and hand out checks, preventing many attempts at taxation reforms. “That's what we're working against,” said Yee.
A fundamental reform in Yee's opinion is restoring local authority. Ever since Proposition 13 passed, its practical impact was to shift decision making from local governments to Sacramento, she said.
As a result, “I really don't know how you all do you jobs here,” said Yee, explaining that local government is saddled with all of the responsibility but little of the authority.
Cox agreed. “Our hands are really tied. We have very little flexibility.”
He told Yee that many small local businesses are struggling, and the county is working to use local vendors. Cox asked what the state can do to help many of these businesses, some of which are “on the brink.”
“If they go under then we've really had it,” he said.
Yee said she shares that concern. Lake County businesses are serviced by the Board of Equalization's Santa Rosa office, and from the fourth quarter of 2008 forward she said there has been a surge in the small business caseload.
She said her office works with businesses to create payment plans and, for those that inherit tax liabilities, find ways to satisfy those obligations.
In addition, Yee encourages people to visit her Web site and check out the small business toolkits to be found there: www.boe.ca.gov/members/yee/tabview_Toolkits.htm .
Yee said she foresees more challenges ahead, with commercial foreclosures expected to soon skyrocket and international investors expected to step forward. “There's going to be a little bit of chaos in that market with outside investors coming in.”
Looking ahead at the state's fiscal health, she said she foresees five to six more years of difficulty.
Following the meeting, Yee told Lake County News that the common thread she's seeing with the state government's approach to finances is to rely on local governments, and there's no sense of urgency in getting its financial house in order. Right now, they're looking at how to fill the budget gap between now and June 30.
She said everyone is hoping for a “May surprise” in which revenues would come in ahead of projections.
E-mail Elizabeth Larson at
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