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This State Budget is a Massive Corporate Boondoggle That Kicks California's Fiscal Future into a Ditch On The Side Of the Road

By Bill Lockyer
Treasurer
State of California

This budget doesn’t even kick the can down the road. Instead, it kicks California’s fiscal future into a ditch on the side of the road. It’s compromise in the worst sense: It compromises our ability to give our kids better schools, provide our families better health care and make our communities more livable. It’s the most irresponsible budget of the past half-century.

The plan contains several elements that constitute fiscal folly. But the most offensive provide multi-billion dollar handouts to big business in the form of permanent tax breaks. This giveaway makes the budget a massive corporate boondoggle that does nothing to fix our structural deficit and, in fact, will make it substantially worse.

The attempt to strengthen the rainy-day fund is commendable. But the reserve will be a mirage until the structural gap between revenues and expenditures is closed. This budget, by playing year-round Santa Claus to wealthy corporations, pushes that goal further into a dim future. There were alternative, more responsible ways to deal with taxes, ways that wouldn’t bust tomorrow’s budgets. The failure to pursue those options is disheartening and a disservice to the public.

The first tax break lets corporations, when they lose money in any given year, obtain refunds on taxes they paid in prior years. Businesses often suffer losses when the economy turns sour, just as California’s families do. When the economy’s bad, the resulting revenue decline also puts the State in a fiscal hole.

So under this budget, the State will be cutting refund checks for corporate behemoths while it’s cutting services for people. When fully implemented, this so-called “carry-back” provision – rejected many times by the Legislature – will cost the State more than $500 million, every year, forever.

The second provision allows corporations, for the first time ever in California, to transfer state tax credits among affiliates. Currently, businesses receive state tax credits only when they engage in a business activity that the Legislature has decided serves a good public purpose and which is directly associated with the credit. The budget guts this sensible policy. It allows big corporations to transfer tax credits among their affiliates.

Say, for example, an affiliate conducts a credit-eligible activity. But it isn’t paying any taxes, so it can’t use the credits. Under the budget provisions, this affiliate could transfer the credits to another affiliate, which could use them to reduce its taxes, even though it was not engaged in an activity associated with the credit. Worse, the affiliate could operate a business that is completely contrary to the public interest, like selling cigarettes.

This provision amounts to a giant tax shelter for wealthy corporations. It easily will cost the state $385 million to $600 million every year, and untold billions over the long haul.

These tax provisions also affect enterprise zone tax credits. The Legislature created this program to encourage businesses to locate and create jobs in economically-disadvantaged communities. The budget undermines the entire purpose of the program by allowing enterprise-zone businesses to transfer tax credits they don’t use to affiliates outside the zone.

Currently, there are $768 million worth of unused enterprise zone tax credits in California. It’s likely a good portion of those credits will be shifted to businesses outside these areas if this budget becomes law. This is another tax shelter that will drain more revenues and further weaken the state’s fiscal health.

The revenue-loss estimates are based largely on figures provided by the Franchise Tax Board.

It’s time political leaders stopped talking about reforming the budget process, and fixing the State’s structural deficit, and started doing something about it. We need to radically change how we budget – how we plan, how we prioritize, how we raise money, how we spend it and how we adopt the budget. The words have become hollow. It’s time to act.

Bill Lockyer is the elected Treasurer for the State of California. From 1999-2006, he served as California Attorney General. Before then, Lockyer served for 25 years in the California Legislature, culminating his career with a stint as Senate President pro Tempore. In that leadership position, he crafted agreements to balance the state budget and reform government programs to make them run more efficiently and effectively for taxpayers.

Posted on September 19, 2008

Comments

I agree! We need experienced, reliable people to put together a responsible budget. It is something that does need to be fixed, and there is no time like the present. We need to have a responsible, experienced Governor as a leader. No one respects our present leader because he has shown his true colors, he just not governor material. This don't make him a bad guy, just a bad governor. Get him outta there!!

Posted by: James at September 19, 2008 04:09 PM

It is a simple solution--tax income over $500,000 per individual with a 0.33% increase, stop providing free tax-credits to corporations that don't even pay taxes, tax business that uses oversea write-offs and takes away ca. jobs, provide adequate funding for education to put ca. in the 25Th position of all states not at the near-bottom, like it is now.
Pass SB840 (Sen. Kuehl's bill).
Allow municipalities to take over foreclosed properties and use for low housing and require all lending institutions to use the fed bailout to allow homeowners re-negotiate their bad loans at the current market value and at the current interest rate. Provide funding for mass transportation. In case of shortfall, raise sales tax 0.25% until the economy recovers.

Posted by: Barry Rulnick at September 19, 2008 04:15 PM

Barry,
Tax, Tax, Tax. Yea thats the ticket. You must be related to the King of England, just a few hundred years to late.

Posted by: Jeff at September 19, 2008 04:37 PM

Jeff--Gut,cut, cut, and take the jobs and home of the workers of ca. Then, reward the corporations for polluting the environment, taking jobs overseas, and making poor investment choices by borrowing money and having terrorists controlling our debt and bailing out companies. Socialize wall street and screw the working class.

Posted by: barryrulnick at September 20, 2008 08:16 AM

Why do jobs move, TAXES! Hello! You want more taxes and more jobs will move. Talk about screwing the working class? The working class pays more taxes in Caifornia than any other state. CA is #1 in taxes!

Posted by: Jeff at September 20, 2008 11:15 PM

There you go again. Repeat this big lie long enough and maybe some people will believe it. There is simply no factual justification for this myth. You can find anecdotes—and there are many to the contrary. Look at the analysis of the data.

We ran an article last year: Claim of California Jobs Moving Out of State Shown by Study to be a Myth

Here is a bit of what we had to say:
"Hostile Business Climate" and "Job Killer" Frames Don't Match Reality of Economic Data

“The Public Policy Institute of California (PPIC) has released a blockbuster 165 page report that carefully goes through all the economic numbers and debunks the idea that businesses have been leaving the state because of a hostile business climate. This is an in depth report based on a comprehensive database of virtually every business that employed California workers at any point from 1992 to 2004.

“The study looks at the years of 1992 through 2004 and shows that California has not had a mass exodus of businesses. Most of the business relocations have occurred within California, usually to an adjacent county where land prices are cheaper. There is the usual ebb and flow of businesses in and out of California but are replaced by new businesses that move into California or start here.

“In the words of the study: "[T]he small number of California jobs moving to other states due to business relocation is relatively inconsequential—about 11,000 jobs per year out of more than 18 million (.06 percent). Business births, deaths, contractions, and expansions have a much greater effect on employment."”

Posted by: Frank D. Russo at September 21, 2008 12:06 PM

OK, your right. Business owner's love it when taxes are raised. Heck, corporations look for the most expensive states to business in and move there. Wow, was I wrong. Toyota, Honda and Nissan all build plants where taxes were high.
Sure CA creates jobs (Burger joints) we need manufacturing jobs and I feel we are not going to attract them with higher taxes.

Posted by: Jeff at September 21, 2008 06:12 PM

There are so many tax loopholes for corporations that some pay none at all--Enron never paid taxes.
Chase bought WAMU for pennies on the dollar. Two weeks ago, the CEO of Wells Fargo said that he felt like a a little kid in a candy store with all the fire sales. In the meantime the CEO of WAMU got over $30 million for his three weeks of work. The former CEO of WAMU got over $40 million in salary, bonuses, and severance pay for screwing the company. The CEO's need to be made accountable for their failed choices that put their company in default. We bailout Chrysler and they take the money and sell it to Germany. Kuwait and Iraq are sitting with surpluses of billions of dollars and have not paid any money to the US for war reparations. People trying to get health care in US on their own find out they are denied for having a mole, took an anti-depressant 30 years ago, etc. By giving tax incentives for businesses that create and keep jobs in Ca., allowing people to renegotiate their home loans to stay in their homes and give the lender any profits made from selling the home within a given time frame, and taking care of the infrastructure and transportation system, securing our ports and borders with matching federal funds, our economy will recover but it will cost money. The people making over $500,000 should have their tax
increased by just 0.33% and the sales tax by just 0.25% will help. It will not solve all the problems. No Californian that works hard and needs help with health care, trying to keep their home should not be left behind.

Posted by: Barry Rulnick at September 30, 2008 06:03 PM

Posted by: Barry Rulnick at September 30, 2008 06:04 PM

Posted by: Barry Rulnick at September 30, 2008 06:05 PM

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