State and Local Fiscal Fortunes

For an interesting blog post on state/local revenue volatility by two economists at the Federal Reserve Bank of Atlanta, see here.  Altig and Robertson provide a brief discussion of my recent paper, "The Federal Role in State Tax Reform" in which I note the following: "Through various inducements and limitations embedded in federal law, the federal government has stacked the deck in favor of state revenue volatility, unwittingly exacerbating the subnational fiscal crises that it is then called upon to mitigate through bailouts and general fiscal relief."

Gauging the Revenue Effects of a Split-Roll Property Tax

One of the most common proposals for reforming California's Proposition 13 is the introduction of a "split-roll" property tax.  The term "split-roll" means different things to different people, but in the context of reforming Prop 13 the term is typically used to describe a system in which commercial/industrial property (but not residential property) is periodically reassessed at market value.  A useful source of data for evaluating the revenue effects of such a change is the annual memorandum prepared by the California Board of Equalization in order to determine compliance with 4-R Act requirements.  These memos show (1) the total statewide assessed valuation of commercial/industrial property, and (2) the total statewide fair market value of commercial/industrial property.  It is interesting (though not particularly surprising) to show how much the latter figure has changed over the past three years, while the former has stayed pretty much the same.  These are the figures (in 000s) from the three most recent memos, with links to each year's memo:

2007-08 Roll: $1,215,997,953 (assessed value) and $2,250,986,523 (market value)
2008-09 Roll: $1,275,373,832 (assessed value) and $2,075,614,788 (market value)
2009-10 Roll: $1,280,309,309 (assessed value) and $1,627,633,442 (market value)

Notice the sharp downward trend in market values and the steady (but modest) upward climb in assessed values--this is the operation of Prop 13 in a down real estate market.  As market value approaches assessed value, not only do the revenue consequences of moving to a split-roll change, but the politics of such proposals could change as well.  Food for thought...

New Field Poll on Proposition 13

A new Field Poll has been released showing broad continuing support for Proposition 13, California’s famous tax limitation initiative. The main "headline" item from this poll is that "by a greater than two to one margin (63% to 29%) voters say that if Prop 13 were up for a vote again today they would endorse it."  Those two figures are impressively close to the for/against split of 65% to 35% reflected in the actual vote on Proposition 13 in June 1978.  If our taste in music had that kind of durability, we'd all still be listening to the Bee Gees. Pretty impressive. Night Fever aside, there is one disappointing feature of this latest report, which claims to reveal "stronger opposition to a split roll property tax than in any previous Field Poll conducted since Prop 13 was approved."  The report indicates that 50 percent of respondents disapproved of a "split roll" property tax in which "business and commercial property owners would be taxed at a higher rate than owners of residential property" (41 percent approved).  But of course a split roll property tax need not involve a higher rate on business property-- in fact, as I and others have advocated, it might make the most sense (both economically and politically) to eliminate the acquisition value feature of Prop 13 for commercial/industrial property (and replace it with a system of periodic reassessment to market value) but combine that reform with a lower rate for commercial/industrial property.  It would've been useful to have some sense of how voters would feel about that type of reform instead of the split-roll caricature that was actually presented in the poll.

California Senate Plays Hardball with Amazon

I'll need to dig into this a bit more, but according to this Sacramento Bee article it appears that the California Senate is considering a legislative strategy ("gut and amend") that would insulate the new nexus legislation from Amazon's referendum efforts.  Stay tuned...

Amazon's Spending on ABx1 28 Repeal

As reported in today's Los Angeles Times and numerous other sources, Amazon.com LLC has contributed an additional $2,250,000 to "More Jobs Not Taxes" (MJNT) to gather signatures to put its "Repeal ABx1 28" referendum on the ballot.  This new contribution puts Amazon's total spending on the campaign over $5 million since mid-July.  MJNT is preparing to do battle against SWMS ("Stand With Main Street"), which has adopted this line as its catchy motto: "Working to close the anti-small business online sales tax loophole."  That effort arguably began in 1992 with Justice Byron White's concurring/dissenting opinion in Quill-- "Also very questionable is the rationality of perpetuating a rule that creates an interstate tax shelter for one form of business -- mail order sellers -- but no countervailing advantage for its competitors. If the Commerce Clause was intended to put businesses on an even playing field, the majority's rule is hardly a way to achieve that goal."  Indeed.

Dramamine for State Revenue Volatility

Today's Wall Street Journal features an article titled "As Investors Get Bit, States Feel Pain" on page A2.  Among other things, the piece discusses the potential implications of recent declines in the stock market for state budgets, especially in those states-- like California, New York, New Jersey, Connecticut and Massachusetts-- that rely heavily on taxes from investment income.  The short answer: not good.  Things were starting to look better during the first half of the year, but not so much in recent weeks. The article notes that as of July 1 the Dow was up 8.7 percent year the year, but as of Friday was down 6.6 percent for 2011.  These large swings are one of the main factors underlying state revenue volatility-- or "The Price of Taxing the Rich" as Robert Frank put it in a March article in the WSJ.  They're also a major factor behind the increasing difficulty of providing accurate revenue forecasting at the state level, as discussed in this excellent Pew/Rockefeller Report.  Today's article quotes a spokesman for California Department of Finance on how to cope with revenue volatility: "The only thing we've learned since late June is that you should keep a bottle of Dramamine at your desk."

Who Pays the California Use Tax?

As reported earlier today in the Sacramento Bee, The California Board of Equalization has just released a 4-page review of use tax compliance behavior for 2009.  The "use tax" is the tax that one owes on out-of-state purchases (most of which are completed online these days through retailers like Amazon.com).  The BOE report reveals that a whopping 0.42% (i.e., less than one-half of one percent) comply with the California use tax.  Curiously, the report shows "exceptionally high" use tax participation rates in Santa Clara County, where 2.35% of taxpayers paid use tax in 2009.  You're in trouble when 2.35% compliance counts as "exceptionally high."

California Denies Property Tax Exemption to (Some) Non-Profits Serving Principally Non-Residents

An interesting piece from the New York Times on California's denial of property tax exemptions in the case of certain non-profits that principally serve non-residents.  The U.S. Supreme Court's 1997 decision in Camps Newfound/Owatonna v. Harrison is likely to be relevant to the resolution of this dispute.

Mayor Villaraigosa Proposes Prop 13 Reforms

Yesterday's Air Talk with Larry Mantle on KPCC here in Los Angeles featured a panel of Lenny Goldberg of the California Tax Reform Association, Jon Coupal of the Howard Jarvis Taxpayers Association, and myself.  The chief focus of the discussion was the suggestion by the Mayor that Prop 13 should be modified to allow for the introduction of a "split-roll" property tax under which commercial and industrial property would be taxed according to its fair market value, periodically assessed.  Under Prop 13, all real property--both residential and non-residential-- is taxed according to its acquisition value.  There is an abundance of good academic work on split-roll property taxes, including an especially good piece summarizing the economic arguments for a split-roll in California by Steven Sheffrin at Tulane (formerly at UC Davis) titled Economic Aspects of a Split-Roll Property Tax.  Governor Brown, who of course was governor when Prop 13 passed in June 1978, has indicated that he is not interested.

A SALT Blog Experiment

I've created this new blog principally to share information with the students enrolled in my course, State and Local Taxation, at the UCLA School of Law during the fall semester of the 2011-12 academic year.  Enjoy-