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Ronald Reagan Presidential Library
Digital Library Collections
This is a PDF of a folder from our textual collections.
Collection: Reagan, Ronald: Gubernatorial Papers,
1966-74: Press Unit
Folder Title: Issues - Tax Reform
(4 of 5)
Box: P32
To see more digitized collections visit:
https://reaganlibrary.gov/archives/digital-library
To see all Ronald Reagan Presidential Library inventories visit:
https://reaganlibrary.gov/document-collection
Contact a reference archivist at: [email protected]
Citation Guidelines: https://reaganlibrary.gov/citing
National Archives Catalogue: https://catalog.archives.gov/
Tax Retorm
FROM THE OFFICE OF:
FOR IMMEDIATE RELEASE
ASSEMBLYMAN WILLIAM T. BAGLEY
ROOM 2188, STATE CAPITOL
PRESS CONFERENCE COMMENTS
SACRAMENTO, CALIFORNIA 95814
(916) 445-8492
10 a.m. FRIDAY, OCT. 15, 1971
"The State's cash-flow crisis demands the immediate attention
of the Legislature, and I am today offering a vehicle for all of
us to board for a quick and painless solution to the problems
caused by the past economic down turn. Amendments will be prepared
and printed by Monday to my AB 185, which is presently in the Senate
Revenue and Taxation Committee and which is set for hearing next
Wednesday.
"This move has the full support of Governor Reagan who has been
in continuing communication with us. At the same time I have con-
sulted Republican and Democratic legislators in the Senate and
sense a sentiment on their part to move quickly toward balancing
the budget and solving the cash-flow problem.
"Essentially, the bill will provide budget balancing monies
($336 million), immediate further authorization for revenue
anticipation notes, a flow of cash from withholding commencing in
January 1972 to cover these notes, and enough additional monies
($120 million) to make existing property tax relief provisions
more workable and equitable.
"We would:
Expand the Senior Citizens Property Tax Assistance
Program pursuant to SB 137, Carrell;
Provide equibable reimbursement to local government for
the existing Open Space Program (Williamson Act) and for the
inventory tax exemption losses;
Continue the present 30% inventory exemption.
- more -
BAGLEY PRESS CONFERENCE -- FRIDAY, OCTOBER 15, 1971
Page 2
"The program would be financed by a modest business tax increase,
loophole closing, and by a new 11% income tax bracket plus the
institution of 'withholding.' Other than for an additional 3 cent
tax on cigarettes (this proposal is subject to change) the average
citizens pays no extra tax.
"This program is obviously not a full-blown tax reform measure,
but it includes two of the three major components of 'tax reform.'
First, we plug loopholes, and secondly, we provide for more elasticity
of our tax structure by more reliance upon the income tax. The third
component, a massive shift away from the residential property tax, is
deferred but we also do not tap major State revenue sources which
are needed to finance such a shift. This is left for further
discussion between the executive and legislative brances this year,
or for later resolution in reference to the school equalization
picture which itself may require more than one billion dollars of
state money.
"For the past two months, the legislature has been tiptoeing
on a fiscal precipice. It is time that California's citizens are
shown that the three branches of government, including the Legis-
lature can work together."
Attached is a outline of the program.
EXPENDITURES*
1971-72
1972-73
1973-74
Retain the existing business inventory
exemption at 30%
--
$
67
$ 76
Actual reimbursement to local govern-
ment for the business inventory
exemption
23
23
27
Provide for local reimbursement for the
California Land Conservation Act
(Williamson Act)
I
13
15
Expand the Senior Citizens Property Tax
Assistance Program (SB 137, Carrell)
----
16
17
Budget Balancing
336
330
330
Totals
$ 359
$ 449
$ 465
REVENUE*
1971-72
1972-73
1973-74
Increase the Bank and Corporation
Tax by 1/2% (January 1, 1971)
$ 52
$ 45
$ 49
Inheritance Tax Conformity
(January 1, 1972)
-
66
68
Increase the tax on cigarettes by
3¢, commencing June 1, 1972
-
57
57
Federal Conformity including a 2.5%
minimum tax on income preferences;
depletion on oil and gas at 22%
45
50
59
Place an 11% bracket on 1973 personal
income
-
15
55
Establish a system of withholding,
including a 15% credit in the 1971
income year (50% forgiveness); less
an allocation of $200 million in
Capital Outlay Funds for higher edu-
cation, park acquisition programs, and
local school district safety
270
210
175
Sub-Totals
$ 367
$ 443
$ 463
Interaction
$ 2
$ 3
$ 3
Administrative Costs
- 7
+ 4
+ 4
Totals
$ 362
$ 450
$ 470
* Figures are in millions
PRESS CONFERENCE OF WILLIAM T. BAGLEY, HOUSTON I.
FLOURNOY AND KEN HALL
HELD OCTOBER 15, 1971
Reported by
Beverly Toms, CSR
(This rough transcript of the press conference is transcribed
as rapidly as possible. after the conference, and no corrections are
made add there is no guaranty of absolute accuracy.)
o0o
MR. FLOURNOY: I'd like to read the statement with regard
to this package.
(Whereupon Houston I. Flournoy read a statement dated
October 15, 1971.)
MR. BAGLEY: I guess I can go ahead with the -- at least
the scribbling draft of the handout which will arrive momentarily.
Perhaps it is Bob Moretti that's running the mimeographs. We do
have an attachment which will be the program and as soon as that
arrives everybody will have one. In the meantime at least let
me give you an idea of our thinking in this regard. Our little
handout will say:
(Whereupon Assemblyman Bagley read a statement dated
October 15, 1971.)
And that's why I'm offering the program.
Q
Will you explain the loophole closing?
ASSEMBLYMAN BAGLEY: Yes. I assume by now you have
a copy of the handout plus an attachment. Let me see, do you have
the attachment in the package of the handout?
Q
Yes.
ASSEMBLYMAN BAGLEY: All right. I don't, but that's all
right.
(Laughter)
ASSEMBLYMAN BAGLEY: Loophole closing, you know, first of
all is a matter of degree, and a matter of semantics. The program
as we have it -- first of all, by adopting withholding obviously
closes a loophole. Those tax dropouts, those who escape taxation u
under the income tax now will have obviously been covered by with-
holding. Secondly, we have two measures of what you might call
classic loophole closing. One is a reduction of the oil depletion
allowance to 22 per cent. That's federal conformity, but it does
reduce the depletion allowance. Number 2, of much more significance,
is a proposed two and a half per cent minimum income tax on what is
called preferential income. Preferential income is that income
upon which you do not pay normal income tax. Accelerated deprecias,
tion, depletion gain, if you will, and Items such as that. Here we
use the federal formula after the first $30,000 of so-called prefer-
ential income, then regardless of what other taxes you pay, you pay
an additional two and ahhalf per cent on that type of income.
Incidentall, on oil alone the reduction from 27 and a half per cent
to 22 per cent on the depletion allowance raises seven million
dollars. The total oil depletion loophole, if you will, is only
25 million so you can't solve the fiscal problems of the state by
abolishing depletion. The depletion in that sense -- the issue
is something of a political sop. Everybody throws it out and hopes
it sops something up, but it doesn't. It doesn't create enough
money. Nonetheless, the loophole should be closed to some extent,
to the extent politically possible in Sacramento.
The first seven million we get from a depletion allowance
cut to 22 per cent. The minimum income tax itself at two and a half
cents -- two and anhalf per cent raises another twenty million
dollars from general preferential income sources, seven of which
is from the oil industry. So when you combine a 22 per cent
depletion allowance with a two and a half per cent oil -- not
oil, but minimum income tax provision, you get approximately 15
million dollars out of the 25 million which is the total loophole
now in existence. So we have in effect out the depletion allowance
in half by this proposal.
Q
What about capital gains?
ASSEMBLYMAN BAGLEY: This program was tailored very frankly
to some of the wishes and some of the desires of the Senate Reverue
and Tax Committee, and hopefully the Senate Finance Committee. I
have discussed, as I mentioned in the formal statement, some of the
components with Democratic and Republican Senators. I have said,
and I want to say right now out loud, I would hope to, in effect,
become a catalyst to achieve a consensus among the Senate committee
members SO that when I hand this program to you or hand it to them
I'm not saying take it or leave it, I'm saying please, committee
members, help us balance the budget. Helputs achieve a consensus.
And on that score, it is my understanding throughout the -- this
year that the various programs and there have been three or four
that have come before the Senate Revenue and Taxatinn Committee, a
-2-
significant number of members of that committee, number one, don't
want a massive program. That's why the Moretti-Gonsalves package,
even if it did pass our house, would never get through in my humble
opinion, Senate Revenue and Tax Committee.
Number two, significant
numbers of the members of the Senateocommittees involved don't want
to hit, if you will, capital gains. Be we have tailored the program
to suit what I read as their wishes. Now, if they fell me differ-
ently, of course, we will expand the capital gain coverage.
0
Mr. Bagley, what income level does that -- the increase --
<<
ASSEMBLYMAN BAGLEY: The 11 per cent bracket.
0
Where does that come in?
MR. FLOURNOY: 28.
2
28,000?
ASSEMBLYMAN BAGLEY: 28,000 for a family, a joint return
of 28,000. In other words, above 28,000 married couple, you would
tax instead of at a ten per cent maximum, you tax 11 per cent.
o
Does that include two kids?
ASSEMBLYMAN BAGLEY: That's -- yes, Hugh says that is
taxable income, which means the gross income might be upwards of
37 or 38,000. Perhaps Ken Hall ought to at least add, before we
into
go xxx further questions, add the sentiments of the Department of
Finance add the Administration.
MR. HALL: My statement is short. As Bill has mentioned,
the Governor is adding his endorsement to AB 185. Our tax reform
discussions of some two weeks had two aims. One was to try and
provide lasting property tax relief to California sitizens. And the
second was to provide a means of meeting California's fisaal crisis.
We are no longer able to ensure to the people of California that we
will be able to successfully deliver property tax reform during this
legislative session. It is still necessary, however, that the state
enact withholding January 1, 1972, have authority to sell revenue
anticipation notes, and raise revenue to the extent of 130 million
dollars. AB 185 meets each of these objectives and thus the
administration is adding his endorsement.
Q
Mr. Hall, is it fair to say then that -- or draw the con-
clusion from your statement that the Governor has given up about
giving property tax relief this year?
MR. HALL:
No, I think we have to recognize that the task
of trying to provide property tax relief in the limited amount of
-3-
time left in this legislative session is a Herculean effort. I think
all of you also recognize that the discussions broke on some
philosophical differences. The ability to be able to bridge those
philosophical differences in the short amount of time left is some-
thing that we cannot ensure will happen and so consequently we feel
that this bill becomes essential. If it is possible to provide
this -- meeting the fiscal crisis as well as property tax reform
during this legislative session, we will be happy to join in that
effort.
Q
Will somebody explain this withholding provision here?
What does it mean, less an allocation of 200 million in capital
outlay?
ASSEMBLYMAN BAGLEY: All right.
Q
What's 50 per cent credit and 50 per cent forgiveness?
ASEEMBLYMAN BAGLEY: In very round figures, when you
institute withholdibg in January, the period of overlapping
collection is obviously from January till April 15, and that over-
lapping period -- it is not double taxation, we have all explained,
you are collecting for different years which happen to be collected
at the same time, for three and a half months. During that over-
lapping period there is an excess, a one-time revenue, if you will,
of around 500 to 550 million dollars. The attempt or the proposal
attempts to forgive approximately 50 per cent of that ono-time
revenue -- it is just mechanically impossible to forgive exactly
15 per cent, you have to -- you'd have to have people calculating
something like 17.7 per cent of their income tax and the mistake
ratio goes up horrendously if that were asked for, and that's
literally true, and that's why we adopted 15 per cent rather than
17.7 or 18.2, whatever it is. So the 15 per cent -- approximates
a 15 per cent credit on a full-year's tax, approximates 50 per cent
of the overlap of the three and a half month period. You figure
that out, it does work out arithmetically, so the other 50 per cent
is forgiven, is credited.
The allocation of 200 million for capital outlay is a usage
of almost all of the 50 per cent which is not forgiven. So we are
not using other than in the first year for reasons I'll get into --
we are not using the one-time windfall to balance the budget on an
on-going basis. That isn't responsible, because you -- it is -- it
just simply couldn't continue it. So the vast amount of the non-
-4-
forgiven one-time revenue is put into a special capital outlay fund.
This provision is already in my AB 184, which is lodged still in the
Assembly Revenue and Tax Committee, that's why we are starting
on the Senate side with AB 185, and the breakdown is approximately --
and the figures have changed a little bit in three areas. We would
have a five-year fund created for capital outlay for higher educa-
tion of something in the neighborhood of a hundred million dollars.
Another 50 million or 45, depending on the formulas that are still
being written for coastline acquisition and for park acquisition.
Now, that's 50 million bucks of interest-free money for conservation.
That's the biggest conservation measure that's been introduced or
has a chance of passage this year, incidentally, and lastly, approxi-
mately 50 million dollars for local capital assistance to schools
subject to the Field act. The Field Act, the earthquake Safety
act requires major construction by 1975. Now, this would provide
50 million dollars for that purpose. So there is your capital
outlay fund.
2
Now, does that come out of the 270 million, that 200;million,
which leaves 70 million?
MR. FLOURNOY: No, that is over and above.
ASSEMBLYMAN BAGLEY: No.
8
So the whole thing raises 470 million?
ASSEMBLYMAN BAGLEY: Plus, of course, the forgiveness.
You see, there are -- there is four -- but let me just simplify it
by saying there are two major components of withholding revenue
raising. One is this dverlapping collection which is,nin round
figures, 500 million dollars. And then there is approximately 200
million of on-going revenue that you pick up because you are taxing
the economy at an earlier date. You are not taxing 14 months after
the money is earned. You are picking up money from those who don't
otherwise pay and that's in the magnitude of about 50 million dollars
if I recall. And you are also taxing to some minor extent people
who don't file for a refund. And that is 18 or 20 million dollars.
Q
What does the 270 represent?
ASSEMBLYMAN BAGLEY: The 270 represents, in round figures,
about 200 million dollars of on-going revenue.
Q
Well, then, what's the other 70?
ASSEMBLYMAN BAGLEY: The other 70 is, in large part, the
over-collection -- the over withholding that takes place in the first
-5-
year.
8
O. K., so the windfall is 200 million, is that right?
ASSEMBLYMAN BAGLEY: The one-time windfall is 200 million
and that is devoted to capital outlay.
Q
Bill, can you give us the total figure that you generate
with the withholding and then break it down again, because I think --
ASSEMBLYMAN BAGLEY: All right.
Q
You generate 550 million?
ASSEMBLYMAN BAGLEY: You generate -- let's say 550 million,
from an overlapping collection, but we are crediting half of that.
8
Stop right there, if you will, just to clarify it. You are
collecting 550 million dollars.
ASSEMBLYMAN BAGLEY: You are not collecting, you would
collect.
Q
You would collect. And from your overlap that's your
winfall
figure. In addition to that you are getting 270 million
in on-going --
ASSEMBLYMAN BAGLEY: Additional revenue. In addition to that
you get -- in a normal year, about 200 in on-going revenues. The
first year you get this balloon that you really have to pay back
because you have the overpayment over withholding and then refunds
later.
Q
Right, so you are actually talking --
ASSEMBLYMAN BAGLEY: It is not this simple.
(Laughter)
0
You are actually talking about -- you are talking about
then a total of something like, in the first year, of something
like 800 million dollars?
ASSEMBLYMAN BAGLEY:
W 11, except you are not collecting
the amount, that's forgiven. You are talking --
8
True, but I mean the total figure, including your forgive-
ness, you are talking about something like 800. It would be
generated the first yeartthrough the imposition of withholding if
you didn't give some of it back.
ASSEMBLYMAN BAGLEY: You collect approximately 470, but if
you added to that 180 or 200, that is forgiven, then yes, you are
up in the magnitude of 600. But you are nottcollecting it. The
one half of the windfall. So you can't say the total magnitude is
600 thousand dollars -- 600 million. All right, I've done it,
-6-
I'll try it again.
D
You are collecting it, but you are giving it back in a
different fashion, you are taking that money from people's pay
checks and you are giving it back when they pay their April 15 tax.
MR. FDOURNOY: Except for the fact that they haven't given
you the money for the April 15 liability yet. That comes in a
lump so that by knocking the credit on that it is money the state
never gets. Because that is -- they are paying it on the '71 year
liability.
WISSEMBLYMAN BAGLEY:
Someone owes a thousand dollars on
their April income tax, there will be a line item credit, 15 per
cent.
Q
Minus 15 per cent?
ASSEMBLYMAN BAGLEY: You subtract 150.
I
The 15 per cent credit means that your '71 tax liability
is reduced by 15 per cent
ASSEMBLYMAN BAGLEY: Right. That is correct. That
amounts to approximately one half of the collections during three
and ahalf months, 15 per cent of one year is approximately 50 per
cent of three months.
8
Have you had any conversations with Speaker Moretti or any
of the Democrats?
ASSEMBLYMAN BAGLEY: I' have. I talked to Bob Moretti
two or three times on this subject, in the last week. I told him,
for example, on Wednesday, that we were going to do this on Friday.
I've spoken to him last Friday, I spoke to him again on Wednesday.
I spoke to his staff, Bill Hauck, after Bob M.retti rejected my
suggestion I went and lobbied the staff a little bit, and my sugges-
tion was this, that even though we recognize the necessity and he
does, too, of balancing the budget and even though we . e going
ahead with this program, I have urged him to tone down, to temper
down the magnitude of the Gonsalves-Moretti bill and to beef up
the expenditure control language and even without a general agree-
ment, even without trying to meet again with the senate forces,
because these forces aren't necessarily in parity with the Assembly
Democratic forces-- that if he would tone down and change his bill
more commensurate with the Governor's accommodations during the
course of our discussions, that I would think he would then be able
-7-
to move his bill out of the -- out of the Assembly, if, for example,
the Governor were neutral. And I've said, "Bob, why don't you do
that, you want to move a bill and see what happens to it in the
Senate. Put it down within the realm of reason where we can --
some of us can vote for it." He has said, no, he's not going to do
that.
I hope he changes his mind.
Q
Are you saying then that you don't think this particular
program that you are offering today has any chance?
A
Oh, no.
8
He's going to have to come up with an alternative?
A
Oh, no, no. I am saying his one billion three hundred or
one billion five hundred, if it does change, depending upon the
various accommodations that we have tried to make for each other --
I'm saying his massive program cannot pass the Assembly without
his changing it to at leastmeet most of the objections of the
administration and of the Assembly Republicans. Now, that being
the case, his -- he will certainly run a bill and will go through,
if you'll pardon the expression, a partisan charade. I said
charade and it came out Schrade once. A partisan charade on the
floor next week. And you'll -- you've all been through that
exercise where we each get up and make dumb speeches about who's at
fault. Now, that charade we are going to go through probably next
week. In the meantime this package can and I predict will get
bi-partisan support in the Senate and willmowe. Now, once it
passes the Senate, let's say two weeks from now, maybe with some
changes that the committees want, but certainly within the parameters,
within the magnitude that we have indicated, then it is up for grabs
on the Senate floor, for a direct vote on the Assembly floor, for
a direct vote on concurrence. And that's when the Assembly Democrats
have to decide do they want to balance bhe budget or do they want
to vote no, because a conference committee, and go through this
whole routine again. I think they'd better think long and hard
before they decide to kill a budget balancing mechanism which also
supplies a few bucks to pay for tax anticipation notes that we have
got outstanding.
VOICE: Any more questions? Thanks.
8
How would you classify that last one?
ASSEMBLYMAN BAGLEY: A charade.
000
-8-
EM
JJ
TAX PROGRAM (AB 185, Bagley)
BW
EXPENDITURES
Press
I. Business Inventories
This program stabilizes the property tax exemption
for business inventories at 30% Present law provides
for an exemption of 30% of inventories for 1970 and
1971 and a 15% exemption for each year thereafter.
For 1971-72 and each year thereafter, the reimburse-
ment to local government for the inventory exemption
will be on a cost basis, rather than on a fixed amount
as in present law.
Business inventory taxation has long been viewed as
undesirable. Studies by the Assembly Committee on
Revenue and Taxation, National Tax Association and
recently by the Advisory Commission on Intergovernmental
Relations have all condemned this tax for several reasons:
1. Inventory taxes place California at a definite dis-
advantage in competing with other states for new industries
and jobs. California needs both.
2. Inventory taxes cause an annual slow-down in business
activity prior to March 1 that causes a loss in warehouse
occupancy in California, fewer goods available to con-
sumers, loss in business income and jobs, and loss in
tax revenue to state and local government.
3. Inventory taxes are inequitable. They produce serious
tax inequities between businesses requiring inventories
and those that do not, and even a disparity of tax burdens
between businesses requiring inventories due to differences
in turnover, seasonal fluctuations, etc.
4. Inventory taxes hinder the efficient operation of free
markets and reduce income from other tax sources.
5. Inventory taxes are regressive. They are passed on to
the consumer and are imposed on such items as food, medicine,
clothing, etc.
- 1 -
Compliments of
WILLIAM T. BAGLEY
Marin-Sonoma Assemblyman
II. OPEN SPACE REIMBURSEMENTS
Implementations of the Land Conservation Act by counties
has resulted in a reduction of assessed valuations in a
number of local government jurisdictions.
Losses of tax revenue to local government due to this Act
will be reimbursed in the following manner under AB 185
(Bagley):
Schools:
School districts, where the assessed value per ADA adjusted
by inflation has declined, will receive reimbursement by
computing:
-the difference between the adjusted assessed value
of land in the district prior to the implementation
of the Conservation Act and the current assessed
value of land in the district
-and applying that portion of the tax rate in the
district in excess of the following rates against the
computed loss of assessed value of land in the district:
Elementary
$2.00
High School
$1.10
Junior College
.25
Counties:
Counties will be reimbursed on a per acre basis as follows:
50¢ per acre for non-prime land of more than local
importance
$1.50 per acre for prime land
$3.00 per acre for prime land within 1 mile of a
boundary of an incorporated community of 1,500
registered voters.
Since the State is reimbursing counties and schools for the
loss of revenue, cancellation payments made to counties
under existing law will be transmitted by the county to the
State. The State also has the authority to ask for judicial
enforcement of the contract between the land owner and the
county.
This measure provides for a 3-cent "revenue adjustment
factor" for local school districts to adjust for open-
space valuation changes.
- 2 -
III.
SENIOR CITIZENS
This program increases the benefits of the senior citizens'
property tax assistance as follows:
1. Special assessments are considered property taxes for
purposes of assistance.
2. Claimants will no longer have to submit proof of pay-
ment of the property taxes but rather will submit
proof of liability by means of the tax bill.
3. The age of eligibility is reduced from 65 to 62.
4.
The rate schedule is changed as follows to substantially
liberalize the reimbursements at all income levels and
to provide some assistance at higher levels of income:
REFUND OF TAXES PAID FOR FIRST $7,500
OF ASSESSED VALUE
Income
Proposed
Present %
Level
% Refund
Refund
$ 1,000
96 %
95%
1,500
92
75
2,000
92
55
2,500
88
35
3,000
80
15
3,500
70
4,000
60
4,500
52
---
5,000
45
5,500
38
6,000
32
6,500
26
--
7,000
21
7,500
16
8,000
12
8,500
8
9,000
6
9,500
5
--
10,000
4
Present provisions include a lower schedule of reimburse-
ments, an eligible age of 65, payments on the first $5,000
of assessed value, the exclusion of special assessments
from property taxes in determining the amount of refund,
and the submission of proof of payment of the taxes before
refund is made.
Low income senior citizens merit special consideration for
property tax relief.
They are retired and now living on a much reduced income
stream and cannot afford the property tax payments which
they could meet when they were employed. They are generally
on a fixed income or one that does not keep pace with the
increases in cost of living.
IV. CAPITAL OUTLAY
1. $150,000,000 is set aside for capital outlay as follows:
80,000,000 for higher education
40,000,000 for conservation and beaches and parks
25,000,000 for local school earthquake safety
2. The $150 million must be spent in 1971-72 through
1974-75, and must be in excess of a maintenance of
the current Capital Outlay effort of the $75 million
during the same years.
3. If the $150 million is not spent, the state sales tax
rate is reduced by 1/2 cent for 1975.
V. BUDGET
AB 185 (Bagley) provides $337 million for budget balancing
purposes for the 1971-72 fiscal year. Since the Legislative
Analyst has estimated that approximately $310 million will be
needed to balance the budget, this is an adequate figure for
this fiscal year.
This measure also provides $355 million for the 1972-73
fiscal year. The Legislative Analyst estimates 1972-73
expenditures to be $340 million.
- 4 -
REVENUE
I. Personal Income Tax
This program proposes several major changes and numerous
minor changes to the Personal Income Tax Law.
A. Withholding - The pay-as-you-go method of collecting
personal income taxes will begin on January 1, 1972.
The one-time revenues received through this stepped up
collection method will be used to finance the existing
$310 million budget deficit as well as to provide $150
million for state capital outlay projects.
Specifically, the withholding program:
1. Begins withholding of state personal income taxes
beginning January 1, 1972, and requires quarterly
estimates if a person has $1,000 or more in income
subject to tax from other than wages and salaries.
2. Repeals the present October prepayment of one-half
of the previous year's income tax paid.
3. Allows the Franchise Tax Board to contract with the
Department of Human Resources for the collection of
payroll withholding from employers.
4. Provides a 20% tax credit for 1971 income taxes.
Withholding is a procedure for collecting state income tax
when income is earned, by withholding the tax from wages
and by quarterly estimates, similar to federal law.
Beginning on January 1, 1972, most wage earners will be
subject to withholding in their regular payroll period.
If the amount withheld by an employer is more than $50 per
month, the employer will remit to the State, on a monthly
basis; if less than $50, the remittance will be required
on a quarterly basis.
For persons with more than $1,000 income from sources
other than salaries and wages, a quarterly declaration
and payment of estimated tax will be required on April 15, 1972.
The second payment is due June 15 and the other on
September 15 and January 15 of the following year.
B. New Tax Rate - An additional tax rate of 11% of the
taxable income above $31,000 (joint return) will be
levied on income earned during 1973 and subsequent
income years.
- 5 -
C. Long Term Capital Gains - Under present law, one-half
of all capital gains held 6 months or more are not subject
to income tax. Under this program, this exemption will
be reduced as follows:
Holding Period
Percent Taxable
0 - 1 year
100%
1 - 5 years
65%
5 years and above
50%
D. Oil and Gas Depletion - Limited to 22%
The present state law percentage depletion rate for an oil
or gas well is 27.5% of the gross income from the property.
The federal rate is 22% and this bill would reduce the rate
to conform with this figure. It is noted that the rate of
depletion is related solely to the value of production.
E. Tax on Tax-Preference Income - A tax at 2½ on preferential
income (income not subject to income tax) which is in excess
of $30,000 is proposed.
Preferential income includes:
1. Excess investment interest
2. Capital gains - excluded portion
3. Stock Options
4. Accelerated depreciation on real property
5. Personalty subject to net lease
6. Excess amortization
7. Depletion
F. Military Pay Exclusion - Limits $1,000 exclusion to
military personnel on extended active duty.
A reservist as well as an individual on active duty with the
armed forces receives the $1,000 military exclusion. This
proposal would remove the reservist from the special benefit.
G. Federal Conformity - Many of the federal provisions
included in the Tax Reform Act of 1969 are included in this
proposal.
II. BANK AND CORPORATION TAX LAW
This program makes the following changes:
A. The tax rate on net income is increased from 7% to 7.6%
for income earned in 1972 and thereafter.
B. Oil and Gas Depletion - Parallel provisions to the
Personal Income Tax Law are proposed.
C. Minimum Tax - Similar provisions to the Personal Income
Tax Law are proposed with the following two exceptions:
6 -
1. Capital gains are treated as ordinary income for
corporations, so they are not a source of tax preference.
2. Bad Debt Deductions of Financial Institutions - excess
amounts of deduction are included as a tax preference item.
D. Federal Conformity - Many of the federal provisions included
in the Tax Reform Act of 1969 are included in this proposal.
E. Bank and Corporation Tax Payments are accelerated.
F. The minimum Bank and Corporation Tax is raised from
$100 to $200.
III. INHERITANCE TAX
In 1970 the federal government reduced the time for filing
an estate tax return from 15 to 9 months after the date of
decedent's death. This proposal would conform California
law to this 9 month filing period by reducing our existing
period from 24 to 9 months.
Secondly, these provisions eliminate the 5% discount that
currently law provides if the return is filed and the tax
paid within 6 months of the date of death.
Under existing law, estates have 2 years from date of
death to pay the inheritance tax, or 5% discount is allowed
on the tax due of payment is made within 6 months.
- 7 -
NON-FISCAL PROVISIONS
1. Extends the power to issue and redeem tax anticipation
needs by 3 months.
2. Requires legislative analyst analysis of initiatives to
include increases or decreases of both revenues and cost
to state and local governments. The analysis is to show
the fiscal effects for the first year and for the year
when the last of any delayed provisions go into effect.
3. Includes the provisions of AB 1264 which extends the wel-
fare property tax exemption until 1981 to property owned by
non-profit organizations which is used for preservations of
nature, open space lands used for recreation or scenic
beauty and open to the general public subject to reservable
restriction.
4. Sales tax prepayment date changed from 25th of the month to
the 20th.
5. Occupancy tax (hotel-motel) transferred without change from
Government Code to a new part on local taxes in Revenue and
Taxation Code.
6. Requires monthly reports by counties now submitted to Dept.
of Social Welfare on welfare caseload and expenditures to be
submitted to Department of Finance and Legislative Analyst.
7. Application for homeowner's exemption is to be mailed to
everyone who received that exemption in the previous year
and to persons buying homes between March 1 and December 31
of the prior year.
8. Tax bills are now required to itemize either the tax rate
or dollar amount for county, city, educational purposes and
special districts. In addition, the tax bill shall show the
amount of tax that would have been paid without the benefit
of the homeowners' exemption and with the benefit of that
exemption.
9. A notice of the existence of the senior citizens' property
tax assistance law will accompany the homeowner's exemption
application and tax bills.
- 8 -
AB 185 (Bagley), as amended by the Conference Committee on December 1, 1971
EXPENDITURES
1971-72
1972-73
1973-74
-- Retain the existing business
inventory exemption at 30%
--
$ 67
$ 76
---- Actual reimbursement to local
government for the business
inventory exemption
$ 21
23
27
-- Provide for local reimbursement for
the California Land Conservation
Act (Williamson Act)
--
13
15
-- Expand the Senior Citizens Property
Tax Assistance Program to $10,000
income and age 62
--
46
50
-- Budget Balancing (The Department of
Finance figures on the budget deficit
are $300 million in 1971-72, $330 in
1972-73, and $330 in 1973-74
$310
$340
$340
TOTALS
$331
$489
$508
REVENUE
-- Increase the Bank and Corporation
Tax to 7.6% (January 1, 1972)
$ 18
$ 50
$ 54
-- Inheritance Tax Conformity
(January 1, 1972)
--
66
68
- Decrease Oil and Gas Depletion to 22%
7
5
5
-- Accelerate Corporate Payments (January 1,
1973)
9
24
3
-- Increase minimum franchise rate from
$100 to $200 (January 1, 1972)
5
7
7
--- Place an 11% bracket on 1973 personal
income
|
15
50
-- Limit capital gains (January 1, 1972)
--
37
42
-- Provide for a minimum income tax @ 2½
31
29
32
--- Other Federal Conformity
11
15
21
-- Enact withholding, with 50% forgive-
ness; $150 million in Capital Outlay
$650
Funds for higher education, park
-215
acquisition programs, and school
-150
district safety
270
220
175
Interaction
1
17
12
Administrative Costs
-6
-7
-6
Interest Savings
5
10
10
REVENUE TOTALS
$351
$488
$473
AB 2109 (Hot Food/Candy)
7
16
17
$358
$504
$490
Excess
+27
+15
-18
Compliments of
WILLIAM T. BAGLEY
Marin-Sonoma Assemblyman
PRESS CONFERENCE OF GOVERNOR RONALD REAGAN
SENATORS JOHN HARMER, FRED MARLER and ROBERT LAGOMARSINO
and ASSEMBLYMEN WILLIAM BAGLEY, ROBERT MONAGAN and JOHN STULL
HELD MAY 17, 1972
Reported by
Bèverly D. Toms, CSR
(This rough transcript of the Governor's press conference is
furnished to the members of the Capitol press corps for their convenience
only. Because of the need to get it to the press as rapidly as
possible afterthe conference, no corrections are made and there is no
guaranty of absolute accuracy.)
ono
GOVERNOR REAGNN:
We are all here in connection with the
announcement that I am going to make, the legislative leadership
and those who are going to handle the piece of legislation that I am
here to announce.
(Whereupon Governor Reagan read release No. 300)
GOVERNOR REAGAN: Now, I think-you gentlemen wanted to add
anything to this before we have Ken go into the details of the tax --
SENATOR LAGOMARSINO: No, Governork only to add that I think --
I think this is a measure that is -- as you say, worth of consideration,
and the support by the legislature. It meets two of the biggest
problems we face, the issue of school finance and of course the issue
that we have had for many years, as you pointed out, of property tax
reform. And the thing that is very appealing to me about it is that
this is able to be done without increasing the income tax.
ASSEMBLYMAN BAGLEY: I might point out procedurally that since
we have ABe1000 which is a familiar number, the Moretti package, in
the Assembly, we want to stqrt this bill on its course in the Senate.
So that Senator Bob Lagomarsino -- and he and I were together a
couple of years ago, and I have Leroy again with me -- Senator Lagomar-
sino will be the main author of the bill to be introduced very shortly,
within days, in the Senate. I'll be the Assembly co-author. If
necessary, I got a couple of spot bills, too, but the whole point is
we will start in the Senate with this bill. Just by way of conclusion,
I have been on a Serrano kick now for a year or so urging that we meet
the mandate of Serrano, becaus it is perhaps the most important finance
government finance issue of the century, and all'I want to do, I really
mean this, is commend Governor Reagan for facing the reality of Serrano,
facing the realities of the unequal educational opportunity that is built
into our system now, and repairing that inequality, and I do commend
-1-
Governor Reagan for that, and I thank him for his leadership.
GOVERNOR REAGAN: Gentlemen, anyone else? Woll, you will all
have a chance at all of us here in just a few moments for questioning,
but first, and this might anticipate some of your questions, I'll ask
Ken Hall and Bill -- I appreciate those words, except I have to turn
and give the credit to my staff and the -- Verne Orr and Ken and all
of the people over in finance who have been working so hard on this
with legislative leadership help.
ASSEMBLYMAN BAGLEY: You want me to move, Kenny?
a
MR. HALL: I just want to try and run through a couple quick
concepts and then maybe cover the general questions with the Governor
and the principles, and then if you have detailed questions I'll be
happy to come back to those. The proposalsis a major property tax
reform proposal balanced upon two different issues. One attempting
to try and provide guaranteed and lasting property tax relief to
Californians beleaguered homeowners and others. And at the same time
to provide an equal educational opportunity program to California
school children. The educational portion is approximately 860 million
dollars of additional money, State support, for schools, of which
210 is a program increase for the poorest school districts. The
balance, 650 million dollars, is a roll back in the property tax
rate currently supporting local education. This will take the State
support to 50-50 sharing in terms of the basic educational program.
The details as to how it works is to take -- build upon the existing
foundation program and expand the support for -- expand the State
support from a present level of a guaranteed of 480 dollars per student
for the elementary school to $687. For a high school student, to
increase the support from the current level of $560 to a $900 level.
The typical school district in California would receive approximately
85 per cent additional state support. 95 per cent of California's
school children would receive additional State support.
The property tax relief portions are as we mentioned, $650
million rollback in the school property tax rate. Plus increasing
the homeowner's exemption to first $1250 effective with this December's
tax bills, and increasing $100 incrementally for a period of four years
to a total of $1550. Also for the property taxpayer to limit property
tax increases for the future to a vote of the local electorate, unlike
Watson which gives a limitation in terms of the property tax that the
voter has no option of going above this proposal, would give the option
of the local electorate to go above that level for cities, counties and
-2-
schools. A total of property tax relief, $650 on the roll back of
the rate, $242 for additional homeowners' exemptions, a total of
$829 million dollars worth of property tax relif within the proposal.
Incomettax relief in three different parts. $84 million for
renters in order to try and balance the sales tax indreases that
would be imposed upon them. Also increasing the singles exemption.
Singles credit from the current $25 to $35 andgive those who have had
household returns the potential -- the advantage of using and claiming
a credit for their first dependent. Replacement revenues are dedi-
cating $100 million dollars of State surplus that will be announced
tomorrow. A, dedicating that state surplus for property tax relief
rather than for additional spending for state services. Secondly,
the funding is from federal revenue sharing to the extent of $240
million dollars. When the question is raised as to the potential of
federal revenue sharing passing this legislative session, we think
the potential is excellent, but just in case there is a difficulty in
terms of adopting federal revenue sharing, there is a reserve fund
established of other surpluses in the state budget which would offset
the $240 million dollars worth of increase -- of revenues coming from
federal revenue sharing. If this reserve fund is not needed, because
of the advent of federal revenue sharing, then any reserves in this
surplus would be returned to the taxpayer in terms of an income tax
reduction.
The revenues in terms of tax increases do not include any type
of an income tax increase. Theyare a sales tax going up one per cent
effective next May; luxury tax increases on cigarettes and liquors,
5 cents per pack, 50 cents per gallon, and a gank and corporation tax
increase, 1.4 per cent.
Local government. As we mentioned, property taxes are limited
for cities, counties and school districts to a vote -- vote of electorate.
We are providing cities, counties and school districts with an
increase on additional revenue from the VLF. The Vehicle in Lieu Fee.
The Vehicle In Lieu Fee would be increased .85 per cent and would be
shared equally between the three jurisdictions, counties, cities and
schools. This would be the first time that schools will have partici-
pated in the VLF program. It is a tax on automobiles in lieu of
property tax, automobiles and trucks. At the same time it would
require the State of California to fully fund any new mandated or
increased programs that are mandated by the State of California, tTo
-3-
try and round out the package, the constitutional amendments, some of
which the Governor has mentioned, are three. One is to authorize a
carbon copy for the State income tax returns on -- of the federal tax.
The issue has been in front of the electorate in the past. There
are two -- two new features that we think are important in terms of
that electorate decision. One is the advent of withholding. We
feel that in part maybe the local electorate's changed their mind,
and secondly in the Mills revenue sharing bill the federal government
is proposing to check state income taxes with no administrative charge.
Secondly, that as you will note in your handouts, since the Governor
mentioned an option for the electroate to choose either a two-thirds
or majority vote for all tax increases, and third, we'd eliminate
basic aid for the highest school districts in compliance with Serrano.
Maybe- that kind of rounds out the package, Govenor, maybe someone has
some general questions that they can
to you and the legislature
and then I'll be happy to come back and respond to specific questions
at the conclusion of that.
a.
Governor, are we now talking about -- do you have -- are you
able to do this because you now have something like $350 million in
surplus? Is that what enables you to set aside $100 million in
surplus for -- one phase of this and then a reserve fund to make up
for --
GOVERNOR REAGAN: Well, now, I'm not going to jump the gun
on the Finance Department, which Tom will be reporting to the legisla-
ture. As nearly as we aan estimate what our situation is -- but I
can ohly tell you that I've been happier than I've been in a long
time. You know, we have been fighting desperately for years to get
government's expenditures to within the fremework of our present reven-
ues. We have occasionally had single time surpluses, single time
savings. Two instances in which we have rebated them by way of the
income tax, the last one this April because of the additional revenues
from the overlap of withholding. For the first time we now are
reasonably optimistic. Optimistic enough to see that -- two things
have happened. One is the -- evidently the President's programs are
working. In recent months the stimulation of the economy has gone
beyond our estimates of such things that reflect citizen confidence
such as the sales tax. But more important, if you will remember, last
year when we were being told over and over again that we needed $750
million dollars to balance the budget and we insisted we didn't, and
-4-
you will remember that we were constantly told that our estimates of
savings from welfare and Medi-Cal were exaggerated, and that we were
phonying them up simply to get the reforms passed, and we insisted that
not only were they not phony but that we honestly believed that WE were
being modest, that we were being conservative because if we were going
to be surprised we wanted to be surprised on the happy side. Well,
we were right in everything we said. We not only didn't need the
$750 million but our welfare and Medi-Cal reforms are producing as we
ourselves thought they would, far more in savings. We now believe that
we have enough of a view to know that some of those savings are going
to be ongoing. So, for the first time, not just suggesting a single
temporary rebate, we are able to commit $100 million dollars that we
know will be ongoing and we believe that there will be additional on-
going relief or surplus. And therefore if the federal revenue
sharing plan should go through the State's share over and above the
local and county and cities share -- the State's share would be around
$240 million. We are willing to commit that $240 million to this pro-
gram of tax relief. To guard against the possibility of Congress' unpre-
dictability and that they might not pass the revenue sharing we will
hold in trust the additional surplus funds that we are going to have
and use those in place of the -- the federal sharing if that should not
take place. If that does take place, we believe that we are going
to be in the position then to propose for the first time an across-the-
board reduction in the state income tax.
Q.
Governor, why did you change your position, though, as far as
you took the money from income taxpayers, but you are giving it back
to property taxpayers? Who may make up only 55 per cent of the income
taxpayers.
GOVERNOR REAGAN: Right.
Q.
40 per cent of renters, you know, you are not giving the renters
the same property tax, ongoing program.
GOVERNOR REAGAN:
A.
One of the outgrowths of all of our studies has been the fact
that the prorated share of the renter in paying property tax is only
about 30 per cent of what it is for the person who is provideng his own
home, and therefore they don't have the same property tax inequity,
the renter does not that the homeowmer has. So the need there is not
as great.
Q.
Gobernor, why did you wait so late in the session to present
this? They are supposed to wind up by June 39 or thereabouts.
-5-
GOVERNOR REAGAN:
Let me tell you, it wasn't a case of waiting.
It was a case that, as I told you, I guess, last week in the press
conference, that as we have gone on through these several years of
attempts and -- we started out with, as you know, quite complicated
programs, trying to cure every problem across the way that we could,
We have learned a lot, and what we learned revealed that the problem
was more complicated and the more we knew the harder the problem became.
We also faced, this year the fact that very much a major part of any
tax reform had to be the solution to the school financing. It was
ridiculous to talk about altering the tax structure and ignore Serrano
hanging over you. So this has been the result of an awful lot of
work and a lot of different proposals that we have debated and --
and burned the midnight oil on and turned down. And so finally I
just have to tell you this, this was as quick as we could come up with
something.
I would point out that the only other alternative to Watson
that the legislature has is really only being introduced -- well,
tomorrow, as a matter of fact.
Q.
Governor, this freezing of the tax rates, the '72-73 level,
isn't that more in the spirit of Watson than Serrano?
GOVERNOR REAGAN: Well, no, we feel that if Be are going to --
and we recognize that this is going to be -- not received joyously
by local government, it never has been, the idea of controls -- but
we are not keeping the controls in the hands of the state ourselves,
we are putting them in the hands of the people. But we believe
that by freezing for a brief period that it is only fair to the people
who from then on are going to have the responsibility and the right
to raise those property taxes, that they should have time to see
those bills come in and reflect this difference in the property tax.
See if the structure is working before someone should start trying
to induce them to go ahead and raise their own property tax.
ASSEMBLYMAN BAGLEY: The Watson initiative doesn't allow --
takes the right of the voter away. Cannot raise the local rate even
if he wants to enrich the program.
GOVERNOR
REAGAN: Fixed in the constitution.
ASSEMBLYMAN BAGLEY: That's the difference.
Q.
Governor, how do you accomplish this rollback of local property
taxes and which taxes will be done and who will decide that?
-6-
GOVERNOR REAGAN: Ken or somebody.
ASSEMBLYMAN BAGLEY: Let me try to indicate --
GOVERNOR REAGAN: Bill.
ASSEMBLYMAN BAGLEY: -- let me try to indicate, we are talking
about a rollback only in the school tax rates. We are talking about
a rollback in this -- in this sense. As the chart showed the present --
and let's take an elementary district. The present elementary district
guarantee is a program of only $355. That goes up to $687. Let's
take a district that is now spending $1,000 but has an assessed valua-
tion that's low enough to -- to benefit from the increased state
monies, and let's assume that it gets a couple of hundred dollars
of new state monies out of the -- almost -- well, $210 million that
we have got per child. So what you do is to the extent that the
present district is above the foundation program, i.e. 687, and to
the extent of new money, they are forced to roll back their rates,
let's say, of $3.50 to $2.50 by the amount, if that's how it works out,
of the new state money. Those districts that are below the foundation
level now will not have to roll back. So we are rolling back those
districts that are -- have a high tax rate and have a program which
is above the foundation basis. However, you are not forcing program
rollback because you get an exact commensurate amount of money for the
rollback that is caused.
Q.
Well, now, just to pursue that a little bit further, if you
have an impoverished school district, as far as assessed value is
concerned, and they are taxing high to reach the minimum level, now,
so the state increases that guarantee of the minimum level, but that
school district still has to -- to stay up there, still has to maintain
its high property tax --
ASSEMBLYMAN BAGLEY: No, sir. No, sir, because the lower
the assessed valuatinn the more on those charts -- the more new state
money you are going to get and therefore the -- the more tax rate
reduction. But they will stall stay at their -- at their high rate
because that's what the people have voted. Not their high tax rate,
but their high expenditure rate.
B.
How far will this go to equalizing school property tax rates
betweenddistricts which now vary from $1.00 to $7.00?
ASSEMBLYMAN BAGLEY: The other way to answer it is that more
than 95 or 97 --
KEN HALL: 95.
-7-
ASSEMBLYMAN BAGLEY:
95 per cent of the districts of California
will be equalized. There will still be those few districts that have
the unique very high assessed valuation, which will be able to rely
upon that assessed valuation without any state monies. And that, we
maintain, is quote, unquote, substantial compliance with Serrano. And
we would say that if that's what the legislature enacts and when the
legislature finds a specific series of facts which will add up to a
basic foundation education and we make a finding that that is basic
education, then we go back to the courts. Then the court is on the
hook. Are they going to say, you didn't do enough, the whole system
is still unconstitutional, and risk the system blowing up in the
State's face? I don't think SO.
Q.
Can you identify those few districts?
ASSEMBLYMAN BAGLEY: Oh, I can't by name.
Q.
Is San Francisco one that has an urban factor in the program?
ASSEMBLYMAN BAGLEY: In addition to the monies we are talking
about the elementary district, for example, at 687, high school at 900,
all of the present categorical programs, compensatory ed, special ed.,
continue and are in addition to these monies because they are specially
budgeted programs.
a.
These 90 Oer cent -- 95 per cent that are equalized, is this
absolute equalization or is it --
ASSEMBLYMAN BAGLEY: Not in terms of dollars, because the
public in those various districts has voted a varying enrichment of
their
own
programs.
But 95 per cent of the districts will have the
basic foundation program or more. All of the basic foundation program.
Q.
What about tax overrides?
ASSEMBLYMAN BAGLEY: Well, we will eliminate all of the per-
missive overrides that presently skew education financing and provide
only for -- only for overrides permissive without a vote of the people
on
financing and earthquake safety. The
rest
of
the
present
override will be eliminated and everything abovetthe rate of spending,
not the tax rate, but the rate of spending, i.e. $1,000 a month, if
that's the present rate, from this point in the future will be subject
to a voter override with the exception that the State guarantees cost
of living whichi is not now the case.
Q.
Governor, the school district is bue one of the local govern-
mental agencies which use the property tax. Do you have any concern
that as the school property tax is rolled back that, say, county
-8-
supervisors may feel freer to raise their property tax?
GOVERNOR REAGAN: They are covered by this same voting provi-
sion. All property tax will require a vote of the people to increase
it.
This was the only way finally, after years of trying, that we
felt we could come down to a -- a system of control that would keep
the State's nose out of -- of actually dictating local policy. We
couldn't -- we couldn't find the control that applied to local govern-
ment without It being state dictating, so we gave the power to the
people and we figured that that was asdemocratic às you possibly could
get, democratic, small d.
Q.
Have you considered next year, instead of cutting back the --
cutting theincome taxes, of rolling back the sales tax?
GOVERNOR REAGAN: That what?
&
If you are able to cut some tax next year, had you considered
instead of -- you said you might -- you would aut the income taxes,
but did you consider instead rolling back the sales tax?
GOVERNOR REAGAN: I didn't close my mind to anything. But
we have found that with the people -- the one is, believe me, much
less popular than the other. All of our -- we haven't done this
blindly without trying to find out the feelings of the people, and
we have found out that there has been -- in just the last year or so
an increasing feeling about the income tax as compared to the property
tax.
Q.
Governor, what does Senator Bradley think about your program
this year?
GOVERNOR REAGAN: What's that?
Q.
Senator Bradley.
ASSEMBLYMAN BAGLEY: He likes sales tax.
GOVERNOR REAGAN: I don't know, I haven't had a chance to inter-
view him.
Q.
Governor Reagan, you indicated Mr. Moretti's bill is coming
up tomorrow in the Assembly. Now, you have some similarities here
between his bill and yours. What are the fundamental differences
as you see them?
GOVERNOR REAGAN: Fundamental differences from that -- that
he has no control. There is no way to keep property taxes after
the one time reduction or the first reduction from going right back on
up.
The second basic difference is that he has about two-thirds of
a billion dollars in tax increase in that bill, and where we are
reducing net income taxes by these changes in exemptions about $14
million dollars his bill increases the state income tax $800 million.
ASSEMBLYMAN BAGLEY:
And lastly, no Serrano solution proposed.
GOVERNOR REAGAN:
That's right, no Serrano solution proposed.
VOICE: Thank you, Governor.
Q.
As one of the previous questions indicated, a number of local
agencies depend on theproperty tax for revenue. Isn't this asking
for a -- a morass of ballot proposals every time some agency wants --
asks to raise the property tax?
GOVERNOR REAGAN: Well, as I say, we are giving them an
additional source of income that they haven't had with the Vehicle in
Lieu Tax. We have taken away once and for all that big sore spot
that has -- that has soured relations between state and local government
and that is the state mandating things on local government, without
providing the revenues. We have now -- we will now fix by law that
the state can't mandate anything additional on local government without
providing the revenut itself. So it would be us who would be faced
with the problem of funding revenues more than they are. I don't
think that -- you see, they still have, of course, the growth that
comes from increased assessment. There is no effort to try and say
that property has to stay the same value and that is -- that is an
appreciable growth for local government in its property tax revenues
every year. The building development and simply the added value
of these things. If any of you do have any special or specific or
technical questions, Ken will be very happy to stay after we return
to our duties here and answer yours on the details of the program.
Other than hhat, no one else has anything to offer for the good of
the community, thank you very much.
000
-10-
OFFICE OF GOVERNOR RONALD REAGAN
RELEASE: Immediate
Sacramento, California 95814
Ed Gray, Press Secretary
916-445-4571
5-17-72
#300
Governor Ronald Reagan today announced the details of a major tax
reform program he will propose to the legislature. In an opening
statement the governor said:
"In my State-of-the-State message to the legislature this year, I
said: 'the most urgent unfinished tasks before us involve our educationa
system, its financing and direction, and the equally important necessity
of providing comprehensive property tax relief for millions of over-
burdened California homeowners.'
"At that time, I warned, 'time is growning short. If we fail again
this year, the people may act themselves through the initiative process.
,
"I don't need to tell you that we now face that very prospect.
"The fact is, during the past three years this administration has
made repeated efforts to provide our beleaguered homeowners the relief
they have been demanding and have a right to expect. Two years ago, we
fell short of writing our program into law---by just one vote.
"No single issue before the legislature deserves a higher priority
than meeting and solving this problem in the current session.
"For this reason, I am today proposing a massive program to provide
substantial, lasting and guaranteed property tax relief in the years
ahead while, at the same time, insuring equal educational opportunity for
every child attending California's public schools.
"The program will provide total property tax relief amounting to
nearly 900 million dollars without raising income taxes. At the same
time, the program will enable us toachieve our long-sought goal of
providing 50-50 state-local financing of the basic educational program
in our schools in the years ahead.
"It not only provides a direct, across-the-board reduction in school
property tax rates of 650 million dollars, but also will add another
210 million dollars in new support for our poorest schools.
"It guarantees every child in California state educational support
of no less than 687 dollars at the elementary level and 900 dollars in
the high school grades---which means that no youngster will be deprived
of an adequate basic education simply because he lives in a poor school
district.
- 1 -
#300
"In all, the program provides added state support for 95 percent
of California's school children. The typical school district would
receive an 87 percent increase in state support, thereby effectively
reducing the current heavy reliance of our schools on local property taxes
"In reducing school property tax rates significantly, our program
requires that they cannot be increased for two years and thereafter
only by a majority vote of the people at the local level.
"We also are proposing a constitutional amendment which would give
Californians the right to decide at the ballot box whether the
legislature should be permitted to pass tax increases by only a simple
majority vote, or by a two-thirds majority. A simple majority is all
that is now required for the legislature to increase income taxes.
"The program we are proposing is the result of many weeks of study
and preparation backed by the experience of more than three years of
discussion and debate on the tax reform issue.
"It guarantees substantial and lasting homeowner tax relief by
incorporating the ironclad controls necessary to keep property taxes
from going up again unless the people themselves, the taxpayers, decide
to do so.
"At the same time, the program will provide countless California
school children a better chance to receive an improved basic education
no matter where they happen to live.
"I urge the legislature to give it the careful consideration it
deserves."
#######
Gray
FEATURES OF
PROPOSED TAX REFORM
1972
EXPENDITURES
Schools
Provides equalization funding for schools which focuses on
the concern of the California Supreme Court in the Serrano
decision.
Guarantees to all school districts $687 minimum program for
elementary children and $900 for high school children.
On the basis of current school expenditures would increase
state funding to approximately 50 percent of the foundation
program-50/50, state/local sharing on basic school costs.
Provides an across-th-board reduction in school property
tax rates of approximately $650 million.
Provides a cost-of-living factor for future school years
to assure that the state funding for the basic education
opportunity program remains 50/50, state/local support.
Provides added state funds to 95 percent of California's
school children.
The typical California school district would receive 87
percent more state support--thus reducing the school
property tax rate.
Rolls back the school property tax rate by $650 million for
required period of two years before they can again be raised.
Simplifies the school formula so that the layman is able to
understand the school finance formula.
Eliminates basic aid for high wealth school districts who
can maintain a quality education program.
Homeowner Relief
In addition to the property tax reduction under the revised
school formula, will provide to each homeowner an increase
in the homeowners' assessed value exemption of $500 to a
$1,250 total on their November, 1972 tax bills, $1,350
in 1973; $1,450 in 1974 and $1,550 in 1975.
Total property tax relief including the school tax rollback
$892 million.
-2-
Income Tax Relief:
Renters
Provides renter relief to those who pay income taxes
in the form of an income tax credit equal to that of
the sales tax. Relief on the following scale:
Joint
Single
less than $4,000 adjusted gross income
$30
$20
4,000 - 6,000
35
25
6,000 - 8,000
40
30
8,000 - 10,000
45
35
10,000 are 12,000
50
40
12,000 - 14,000
50
40
14,000 - 16,000
50
40
16,000 - 18,000
50
40
18,000 & over
Single Taxpayers and Head of Household
Reduces the progressiveness of the income tax on single
taxpayers and head of households by increasing the singles
credit to $35 and giving head of household the credit for
the first dependent.
Local Government
Provides for the first time that schools will be able to
share a part of the vehicle-in-lieu fee (tax on trucks,
autos and mobile homes in-lieu of property taxes).
Increase the VLF to 2.85 percent, a ratio equal to that
of the property tax, from the current 2.0 percent and
provides that cities, counties as well as schools share
equally on the .85 percent increase.
REVENUES
Sales Taxes
Increase the sales tax effective May 1, 1973 by one cent.
Total rate will be six cents and six and one-half cents
in "BART" counties.
Federal Revenue Sharing
On the basis that the Mills Revenue Sharing Bill has an
excellent chance of passage, uses the expected state portion
of $240 million as school equalization rather than for new
spending programs.
Establishes a reserve fund of state surplus reserves that
will be used to fund school equalization if Federal Revenue
Sharing is not adopted. If Revenue Sharing is adopted,
the surplus revenues will be returned as a reduction in
the income tax.
-3-
General Fund Surplus
Returns to the taxpayer, $100 million in the form of
property tax relief, savings as a result of Reagan
reforms and the improved economic climate.
Bank and Corporation Taxes
Increase the Bank and Corporation taxes 1.4 percent in
recognition of the property tax relief they receive in
the school formula.
Luxury Taxes
Increases cigarettes (5¢ per pack) and liquor (50¢ per
gallon) taxes.
EXPENDITURE CONTROLS
Expenditure Limits
Freezes tax rates at the 1972-73 level for all local agencies.
Rates may not be increased except by vote of the people.
Offers local constituency the option of raising their taxes
for local purposes. This same right is denied in the Watson
Initiative.
Requires the State to fully fund new or expanded state-
mandated programs.
CONSTITUTIONAL AMENDMENTS
Two-thirds Vote on all Tax Increases
Provide that the 1972 November ballot will include a
provision which requires all taxes to be the same,
either majority or two-thirds. The voter could vote
for either of the options and the provision with the
most votes becoming law. Proposals such as:
Vote for one of the following:
The provision for increasing state
taxes to be by majority vote of both
houses of the Legislature.
The provision for increasing state
taxes to be by two-thirds vote of
both houses of the Legislature.
-4-
Piggyback on Federal Income Taxes
Authorizes the Legislature to adopt a carbon copy
state income tax on the Federal return effective
January 1, 1974.
Recognizes that the Federal Revenue Sharing Bill offers
to collect state piggybacked income taxes at no charge.
Offers the option of a simplified state return.
Eliminate Basic Aid for Schools
Eliminate basic aid for wealthy school district.
Only 5 percent of California's school children
would receive less state support.
COMPARISON OF REAGAN PROPOSAL WITH AB 1000 (MORETTI)
(in millions of dollars)
Reagan
Moretti
Amount of property tax relief
892
708
Funds provided for school program 860 (thru a
500 (earmarked
proposed school
for future years)
reform)
Equalization of educational
210 (in fed-
No program
opportunity
eral revenue
sharing)
Increase in sales tax
585 - 1c
585 - 10
Increase in income tax
None! No
860 (hits
increase
middle income
taxpayers)
Increase in Bank & Corporation
125 - 1.4%
125 - 1.4%
Tax
Increase in luxury taxes
144
-0-
Relief for renters
84
210
Relief for single taxpayers &
head of household
13
-0-
Property Tax Limitation
Tight "lids"
None
guarantees relief
1972-73
1973-74
1974-75
1975-76
EXPENDITURES
Schools
Equal educational opportunity focusing on
Serrano and school rate rollback
:
860
926
995
Homeowners relief
Increase exemption from $750 to $1,250 in
1972-73; to $1,350 in 1973-74; to $1,450 in
1974-75 and $1,550 in 1975-76
232
242
269
298
Income Tax Relief
Renters
Provides sliding scale of credit on the
income tax of up to $40 for singles and
$50 for married.
--
84
87
89
Singles and head of household
Increase singles credit to $35 and give head
of household dependent credit, effective
January 1, 1973.
6
13
14
15
Expenditure Total
238
1,199
1,296
1,397
REVENUES
--Sales tax increase 1%, May 1, 1973
35
585
620
665
--Bank and Corporation up 1.4%, January 1, 1973
44
125
136
148
Cigarette tax up 5¢, December 1, 1972
62
118
119
120
-Distilled spirits up 50c, July 1, 1973
--
26
27
28
Total New Taxes
141
854
902
961
-Federal Revenue Sharing*
--
240
264
290
-State Surplus for Property Tax Relief
100
100
100
100
-Interaction
--
10
30
46
Revenue Total
241
1,204
1,296
1,397
LOCAL REVENUE SHARING
Increase vehicle-in-lieu from current 2.0%
to 2.85% and share increase equally between
--
schools, cities and counties.
103
120
126
*When revenue sharing is provided to California, any state surplus reserved to guarantee
equal educational opportunities will be returned to the taxpayers. If revenue sharing
is not forthcoming, as proposed, this surplus will be used instead for equalization aid to
improve education opportunities for children in poorest school districts.
GOVERNOR'S TAX PROGRAM
1973-74 IMPACT ON TYPICAL TAXPAYERS
HOMEOWNER
Property Tax
Adjusted
Increased
School*
Tax
Gross
Personal Income Tax
Sales Tax
Homeowners
Tax
After
Income
Current
Proposed
Change
Current
Proposed
Change
Current
Exemption
Reduction
Reductions
Change
Total Change
Married - 2 Children
$ 5,000
$
0
$
0
$ 0
$ 100
$ 132
+$22
$ 356
$66
$ 34
$ 256
-$100
-$ 78
7,500
4
4
0
155
186
+31
438
66
40
332
-100
-75
10,000
43
45
+2
195
234
+39
557
66
49
442
-115
-74
15,000
200
203
+3
265
318
+53
804
66
68
670
-134
-78
20,000
406
412
+6
310
361
+60
1,048
66
86
896
-152
-86
25,000
686
693
+7
345
414
+69
1,328
66
107
1,155
-173
-97
50,000
2,914
2,931
+17
445
534
+89
2,290
66
179
2,045
-245
-139
100,000
7,534
7,559
+25
1,045
1,254
+209
4,778
66
366
4,346
-432
-198
*Based on statewide average reduction
GOVERNOR'S TAX PROGRAM
1973-74 IMPACT ON TYPICAL TAXPAYERS
HOMEOWNER
Adjusted
Gross
Property Tax
Income
Increased
School*
Tax
Personal Income Tax
Sales Tax
Homeowners
Tax
After
Single
Current
Proposed
Change
Current
Proposed
Change
Current
Exemption
Reduction
Reductions
Change
Total Change
$ 5,000
$
40
$
30
-$10
$100
$120
+$20
$ 323
$66
$ 31
$ 226
-$ 97
-$ 87
7,500
102
95
-7
140
168
+28
455
66
42
347
-108
-87
10,000
205
199
-6
175
210
+35
550
66
48
436
-114
-85
15,000
512
509
-3
235
282
+47
867
66
73
728
-139
--95
20,000
904
905
+1
275
330
+55
1,107
66
90
951
-156
-100
25,000
1,432
1,435
+3
305
366
+61
1,420
66
114
1,240
-180
-116
50,000
3,654
3,664
+10
390
468
+78
2,458
66
192
2,200
-258
-170
100,000
8,120
8,140
+20
920
1,104
+184
5,117
66
391
4,660
-457
-253
*Based on statewide average reduction.
5/11/72 - BD
GOVERNOR'S TAX PROGRAM
1973-74 IMPACT ON TYPICAL TAXPAYERS
RENTER
Adjusted
Gross
Personal Income Tax
Sales Tax
Income
Current
Proposed*
Change
Current
Proposed
Change
Renter Credit
Total Change
Married
-
2 Children
$
$
$
$
$
$
$
$
7,500
4
4
0
155
186
+31
-$ 4
+27
10,000
64
64
0
195
234
+39
-50
-11
15,000
200
198
-2
265
318
+53
-50
+1
20,000
406
402
-4
301
361
+60
-50
+6
25,000
686
681
-5
345
414
+69
-50
+14
50,000
2,914
2,904
-10
445
534
+89
-50
+29
100,000
7,534
7,511
-23
1,045
1,254
+209
-50
+136
i
*Does not include renter credit
HIGH SCHOOL RELIEF
(Guaranteed State Support of $900
Per Pupil @ $1.03 tax rate)
$900
(Support
Per
Student
ADA)
$560
Proposed state Support
Present State SUPPLIER
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
Assessed Valuation Per Student
50-50 State-Local Sharing on Foundation Program Increase
ELEMENTARY SCHOOL RELIEF
(Guaranteed State Support of $687
Per Pupil @ $1.60 tax rate)
$687
(Support
Per
Student
ADA)
$480
Present State Support
PTOPORAT State SIGNATURE
10,000
20,000
30,000
38,167
Assessed Valuation Per Student
50-50 State-Local Sharing on Foundation Program Increase
GOVERNOR'S TAX PROGRAM
1973-74 IMPACT ON TYPICAL TAXPAYERS
RENTER
Adjusted
Gross
Personal Income Tax
Sales Tax
Income
Current
Proposed*
Change
Current
Proposed
Change
Renter Credit
Total Change
Single
$
$
$
$
$
$
+$
$
$
7,500
102
91
-11
140
168
+28
-30
-13
10,000
205
193
-12
175
210
+35
-40
-17
15,000
512
498
-14
235
282
+47
-40
-7
20,000
904
888
-16
275
330
+55
-40
-1
25,000
1,436
1,419
-17
305
366
+61
-40
+4
50,000
3,654
3,635
-19
390
468
+78
-40
+19
100,000
8,120
8,090
-30
920
1,104
+184
-40
+114
*Does not include renter credit.
5/11/72 - BD
EXPENDITURES
1971-72
1972-73
1973-74
1974-75
(Millions)
/
Homeowner exemption per schedule--
duplexes, apartments, co-ops., etc.,
$1,500 flat exemption
$484
$506
$524
$567
Business inventory-30 percent full
reimbursement for 1971-72, 50 percent
thereafter
22
173
197
224
Senior citizens relief to $5,000 and age 62
-
9
10
11
Renter relief--$50 credit on personal income
tax
85
97
102
107
Superior court costs
30
32
33
35
County welfare--60 percent of cost over
25c/$100
87
106
128
153
Open space--$1.50 prime, 50c nonprime
12
13
15
17
TOTAL EXPENDITURES
$720
$936
$1,009
$1,114
REVENUE
Sales tax--0.5 percent effective July 1971
$205
$255
$275
$290
Increase bank and corporation tax to 7.5
percent on 1971 income and to 8.0 percent
50
on 1974 income
53
42
100
105
Conformity
Personal income tax
12
12
12
14
Bank and corporation tax
3
4
7
10
Inheritance tax
15
93
38
31
Gift
3
2
2
3
Depletion
7
5
5
5
(+40)
(+116)
(+64)
(+63)
Personal income tax
420
534
560
620
Withholding, less 35 percent forgiveness
417
512
598
649
Increase rates to 11 and 12 percent, 1972
income year; 13 percent, 1973 income year
Squeeze brackets to $1,250/2,500, 1972
income year; 1st bracket $2,000 and $4,000
Capital gains--1971 income year
Administrative cost
-6
-7
-6
-6
Interaction
15
25
28
33
TOTAL REVENUE
$727
$965
$1,021
$1,105
724
943
009
1134
Excess of Revenue over Expenditure
$7
$29
+$12
$9
+4
+7
0
+20
Conected as of 5/11/71 5/24/71
HOMEOWNERS' TAX RELIEF
The establishment of a program to provide homeowners' property tax
relief has been and continues to be a major concern of this Administration.
The initial relief provided an exemption from taxation of $750 of the assessed
value of the dwelling. This program will broaden that exemption to provide
approximately a one-third reduction in property taxes for the average homeowner.
Under this proposal, the average resident will receive direct relief of
approximately $240.
In order to provide a more equitable distribution of the exemption,
the percentage relief to persons owning and occupying single-family homes will
be distributed in accordance with a schedule based on the assessed value of
the dwelling. This is in lieu of either a flat exemption or a flat exemption
plus some percentage. Owner-occupiers of multiple dwelling units--duplexes,
apartment buildings, condominiums, cooperative housing projects, etc., will
receive a flat exemption of $1,500.
The following schedule shows the percentage of assessed value which
would be exempt from property taxes for single-family homes and the estimated
number of homes at each assessed value level.
Percentage
reduction in
Number of
Market value
Assessed value
property tax
residents
$0-$4,300
$0-$1,000
100
19,000
4,301- 6,400
1,001- 1,500
90
28,000
.6,401- 8,600
1,501- 2,000
80
42,000
8,601-10,700
2,001- 2,500
70
75,000
10,701-12,800
2,501- 3,000
60
92,000
12,801-15,000
3,001- 3,500
55
111,000
15,001-17,100
3,501- 4,000
49
184,000
17,101-19,200
4,001- 4,500
44
223,000
19,201-21,400
4,501- 5,000
40
237,000
21,401-23,500
5,001- 5,500
37
262,000
23,501-25,700
5,501- 6,000
34
237,000
25,701-27,800
6,001- 6,500
32
184,000
27,801-29,900
6,501- 7,000
30
139,000
29,901-32,100
7,001- 7,500
28
134,000
32,101-34,200
7,501- 8,000
27
128,000
34,201-36,300
8,001- 8,500
26
120,000
36,301-38,500
8,501- 9,000
25
100,000
38,501-40,600
9,001- 9,500
24
75,000
40,601-42,700
9,501-10,000
23
56,000
42,701-44,900
10,001-10,500
22
47,000
44,901-47,000
10,501-11,000
21
42,000
47,001 and over
11,001 and over
20
276,000
EXPENDITURES FOR HOMEOWNERS' RELIEF
(Millions)
1971-72
1972-73
1973-74
1974-75
$484
$506
$524
$567
-2-
VETERANS' EXEMPTION REIMBURSEMENT
Qualified veterans with assets under $5,000 may receive a $1,000
exemption on the assessed valuation.
This form of property tax relief is absorbed by local government and
has the effect of eroding the tax base.
Since the Tax Reform Program proposes an exemption in excess of the
$1,000, veterans would shift to the higher exemption. The net effect of these
changes would be a windfall to local government for 1971-72 at approximately
$44.2 million. This would be distributed on the following basis:
In millions
Distributions
$16.6
Counties and special districts
23.0
Schools
4.6
Cities
An estimated county-by-county distribution is shown on page 18.
-3-
BUSINESS INVENTORY RELIEF
California businesses face a major discriminatory tax--a property tax
on business inventories. Currently, business is relieved of 30 percent of the
business inventory tax and the relief, if no action is taken by the Legislature,
will be reduced to 15 percent in 1972-73. The relief provided at the 30 percent
level does not fully reimburse local jurisdictions for their full revenue loss
which is estimated at approximately $22,000,000 in 1971-72.
The Tax Reform Program will provide for full reimbursement to local
jurisdictions at the 30 percent level for 1971-72. The amount of exemption,
which will be fully reimbursed, will increase to 50 percent in 1972-73 and
thereafter. The full reimbursement for business inventory revenue loss for
counties in 1971-72 is shown on page 18.
EXPENDITURES FOR BUSINESS INVENTORY RELIEF
(Millions)
1971-72
1972-73
1973-74
1974-75
$22
$173
$197
$224
-4-
SENIOR CITIZENS' RELIEF
California's senior citizens who live on a fixed income are the
hardest hit of any of our constituents by the property tax.
Currently, those senior citizens 65 and over who have an annual
income of $3,350 or less may receive a partial reimbursement of their
property tax payment by filing with the Franchise Tax Board. Under the
proposed Reform Program, the income limitation would be raised from $3,500
to $5,000; the amount of relief would be increased and the minimum age for
filing would be reduced to 62.
The following table compares the proposed change with the current
law for selected income.
Current
Proposed
benefit
benefit
Income
(Percent)
(Percent)
$1,000
95
100
1,500
75
100
2,000
55
85
2,500
35
70
3,000
15
55
3,500
-
40
4,000
--
25
4,500
-
12
5,000
--
2
EXPENDITURES FOR SENIOR CITIZENS' RELIEF
(Millions)
1971-72
1972-73
1973-74
1974-75
-
$9
$10
$11
-5-
RENTERS' RELIEF
The program provides property tax relief for renters. Each renter
who files an income tax return will receive $50 as a credit against his tax.
If he owes less than $50, his entire income tax will be removed. This relief
is in addition to the double standard deduction for renters which was provided
in 1968.
EXPENDITURES FOR RENTER RELIEF
(Millions)
1971-72
1972-73
1973-74
1974-75
$85
$97
$102
$107
-6-
RELIEF FOR SUPERIOR COURT COSTS
Currently, county taxpayers pay all superior court operating costs
except for the State sharing in a portion of the costs of judges' salaries and
retirement plans. We are proposing that the State assume, in addition to the
above costs, a share of the operating costs of the superior courts, thereby
reducing the counties' cost burdens.
The operating costs for the superior courts in the 1969-70 fiscal
year were approximately $30 million. This plan would allocate $30 million to
counties based on the Controller's report of expenditures for 1969-70. This
will establish a base allocation level. Additional amounts may be appropriated
by the Legislature in the future and will be based on workload as measured by
the Judicial Council.
Distribution of the state reimbursement to counties for superior
courts is shown on page 18.
EXPENDITURES FOR SUPERIOR COURT LOADS
(Millions)
1971-72
1972-73
1973-74
1974-75
$30
$32
$33
$35
-7-
COUNTY REIMBURSEMENT OF EXCESSIVE.
WELFARE COSTS
The program will establish a more equitable county cost-sharing
formula by requiring the State to assume 60 percent of each county's share of
the basic welfare grant in excess of the revenue generated by a tax rate of
25c per $100 of assessed value. The increased state share will aid in equaliz-
ing the welfare burden among the counties by requiring the State to share in
welfare cost in counties where the burden is excessive.
This reimbursement is separate from any welfare reform package
currently being considered by the Legislature. An estimate of the welfare
reimbursement for 1971-72 by county, based on current law, is shown on page 19.
EXPENDITURES FOR WELFARE COSTS
(Millions)
1971-72
1972-73
1973-74
1974-75
$87
$106
$128
$153
-8-
OPEN SPACE
The Williamson Land Conservation Act was passed by the Legislature to
preserve agriculture and other open space lands. Under the Act, local govern-
ment land owners enter into agreements to commit the land to open space which is
then valued and taxed under those provisions. The net effect of this type of
agreement is to reduce the taxes which normally would be imposed on the covered
land.
In those counties where open space agreements have been reached, the
balance of the property taxpayers have been carrying the burden of conservation.
In order to relieve this burden, reimbursement will be made to local government
for land under contract at the rate of $1.50 per acre for prime land and $.50
per acre for nonprime land for each major local jurisdiction involved (cities,
counties, and school districts).
In order to control the State's obligation over time, the following
limits will be placed on the program:
1. No jurisdiction will receive more through reimbursement than
it would receive under normal taxation.
2. Growth in state expenditures after the base year will be
limited to a 10 percent increase. If the demand exceeds
that rate, the funds for new contracts will be prorated.
It is estimated that the initial base cost of this program for lands
under contract prior to December 31, 1971, will be $12 million. The growth of
the program will be limited to 10 percent.
An estimate of the distribution of the county reimbursement is shown
on page 19.
EXPENDITURES FOR OPEN SPACE
(Millions)
1971-72
1972-73
1973-74
1974-75
$12
$13
$15
$17
-9-
SALES TAX
The state sales tax will be increased from 4.0 percent to 4.5 percent
of all taxable transactions on July 1, 1971, increasing the total sales tax to
5.5 percent.
Although some may consider that the sales tax is a regressive tax,
recent studies done by outstanding academic institutions indicate that due to
the exemptions of food, housing, gasoline, and prescription drugs, the sales
tax is proportional (i.e., neither regressive nor progressive).
For some areas of the State, such as BART district counties, total
sales tax will be 6.0 percent.
REVENUE FROM SALES TAX
(Millions)
1971-72
1972-73
1973-74
1974-75
$205
$255
$275
$290
5/11/71
-10-
BANK AND CORPORATION TAX
The current bank and corporation tax rate is 7 percent. The proposed
and 1973
program would increase the rate to 7.5 percent for the 1971 and 1972 income
1
years and to 8 percent for the 1974 income year and thereafter. As the bank
and corporation tax is deductible in computing the Federal income tax, approxi-
mately 48 percent of the tax increase will be passed on to the Federal Government.
The rate on banks and other financial institutions will not be
increased above the current 4 percent. Therefore, the maximum tax rates on
1974
these institutions will be 12 percent for 1973.
REVENUE FROM BANK AND CORPORATION TAX
(Millions)
1971-72
1972-73
1973-74
1974-75
$53
$42
$100
$105
$ 50
-11-
CONFORMITY TO FEDERAL TAX CHANGES' OF
1969 AND 1970
A variety of changes in the California income and inheritance tax
laws are made in order to conform California laws with Federal laws. The
conformity provisions are generally those included in the 1969 Federal Tax
Reform Act and the 1970 revision. A partial listing is as follows:
Foster children
Lump-sum distributions
Moving expenses
Fines, bribes, treble damages
Excess investment interest
Accelerated depreciation
Unlimited charitable contributions
Stock as indebtedness
Installment method of reporting gains
Oil and gas depletion reduced to 22 percent
Mineral production (carved-out) payments
Charitable contributions of estates and trusts
Accumulation trusts
Original issue discount to be included in basis
Income averaging
Minimum tax of 1.5 percent of the amount of tax preference
income exceeding the sum of $30,000, state income tax
paid, and operating loss
Repeals discovery depletion
Rather than attempt to explain each provision here, we will be happy
to provide explanatory material on request.
The largest increase comes from conforming the inheritance tax pay-
ment schedule. This will require payment of taxes due within nine months of
date of death rather than 24 months provided currently. In addition, the 5
percent discount now allowed for payment of this tax within six months of
death will be eliminated.
REVENUE FROM ALL CONFORMITY ITEMS
(Millions)
1971-72
1972-73
1973-74
1974-75
$40
$116
$64
$63
-12-
PERSONAL INCOME TAX
Changes are made in personal income tax for the following:
Revenue effect
1971-72
1. Imposition of withholding with full forgiveness
(35%) as of January 1, 1972.
+$270 million
2. Narrow income brackets (amount between taxing
brackets) from current $1,500 for single returns
to $1,250 and from $3,000 for joint returns to-
$2,500. Will not add new income tax payees. 10
+75 million
be implimented 1973.
3. Changes capital gains taxation from current 50
percent taxation after six months to:
+25 million
Holding period
Amount taxed
0 - 1 year
100%
1 - 2 years
80%
2 - 5 years
65%
5 -10 years
50%
over 10 years
40%
4. Adding rates of 11 percent and 12 percent on 1972
income and 13 percent on 1973 income as compared
to the current maximum of 10 percent.
+50 million
These changes in the income tax will bring California into
closer proximity to the income tax rates of other states in 1973.
California as ranked with
all other income tax states
Income
Current law
Proposed
$5,000
35**
35
10,000
35
34
15,000
32
30
20,000
25
22
50,000
7
x6
Even with these proposed revisions, California's income tax is less burdensome
than most other states for all persons with income of $20,000 or less.
*Based on a recent study of 37 income tax states.
**Tied with two other states for last place.
5/11/71
-13-
EXPENDITURE CONTROL
The proposal includes a program to put an expenditure limit on
counties and school districts (which collect 85 percent of the property taxes)
to guarantee that property taxes will not increase after the State finances
both a direct reduction in taxes and an increased subvention program. School
district expenditures would be adjusted annually by a factor based on average
daily attendance and the cost of living (Consumer Price Index). General county
expenditures would be adjusted annually by the changes in population and the
cost of living. Additionally, the county budgets for welfare would include a
factor for the welfare caseload and the state relief of local property taxes
for welfare. Above these levels, the expenditure levels could only be increased
by a vote of the people.
Mechanically, expenditure limits are effective devices to insure that
property tax rates are kept under control. When schools or counties can only
expend a fixed amount of money, if more state money is spent in such programs,
the local share must drop correspondingly. This automatically precludes the
ability of local government to use property tax relief money for additional
spending and, in fact, forces local government to use property tax relief money
to reduce taxes.
Although cities do not get any direct property tax relief funds from
this program, it is proposed to tighten the ability of such jurisdictions to
raise property taxes. As cities in almost all cases are subject to property
tax rate limits, the program reinforces these limits by allowing local
referendum of any new permissive tax rate overrides allowed cities.
-14-
The proposed figures noted as expenditures by the State in the synopsis
page do not include savings as a result of expenditure controls. State expendi-
ture figures for such items as homeowners' exemption, business inventory, and
county welfare would be decreased by limited increases in local tax rates.
These "savings," however, in order to avoid any question of an underestimate of
expenditures are not identified in decreased state costs.
-15-
GOVERNOR'S TAX PROGRAM
Impact on Homeowners
(1972 income year)
197 3
Change in
Change in
Adjusted
Change in
Change in
property
Total
Federal
Net
gross income
income tax
sales tax
tax
change
income tax
change
Married homeowner with two children
$7,500
$0
$16
-$136-5145
-S120-5132
-
-
-$120
-$132
10,000
9
20
-143,-158
-114-129
$22
$25
-92
-104
15,000
26 26
26
-158-172
-106-120
23 26
-83
-94
20,000
59.60
31
-177-191
-87-100
22 25
-65
- 75
25,000
104/05 105
34
-197-212
-59-74
17
21
-42 -53 -
30,000
183184 184
37
-213-228
7
-7
22
5 -5
50,000
520524
44
-343-365
221203
99-91
122
112
Single
$7,500
$15
$14
-$144-5156
-$115-$127
-
-$115 -5127
10,000
-33.34
18
-151-161
-100-109
$24524
-76
-83
15,000
8687
24
-149-162
-39-51
11 14
-28
-37
20,000
158160
28
-177-191
<9-3
-31
6
-2
M
S
25,000
257259
31
-207-222
81
-31-26
50
42
30,000
353356
32
-288-307
97 81
-39 -32
58 49
50,000
687.670
37
-424-449
300 278
-150-139
150 39
5/11/71
-16-
GOVERNOR'S TAX PROGRAM
Impact on Homeowners
(1972 income year)
Change in
Change in
Adjusted
Change in
Change in
property
Total
Federal
Net
gross income
income tax
sales tax
tax
change
income tax
change
Married homeowner with two children
$7,500
$0
$16
-$136
-$120
-
-$120
10,000
9
20
-143
-114
$22
-92
15,000
26
26
-158
-106
23
-83
20,000
59
31
-177
-87
22
-65
25,000
104
34
-197
-59
17
-42
30,000
183
37
-213
7
- 2
5
50,000
520
44
-343
221
-99
122
Single
$7,500
$15
$14
-$144
-$115
-
-$115
10,000
33
18
-151
-100
$24
-76
15,000
86
24
-149
-39
11
-28
20,000
158
28
-177
9
-3
6
25,000
257
31
-207
81
-31
50
30,000
353
32
-288
97
-39
58
50,000
687
37
-424
300
-150
150
onthisone
5/11/71
-16-
GOVERNOR'S TAX PROGRAM
Impact on Renters
(1972 income tax)
3
Change in
income
tax
(Before
Change in
Adjusted
renter
Change in
Renter
Total
Federal
Net
gross income
credit)
sales tax
credit
change
income tax
change
Married with two children
$7,500
$0
$16
-$4
$12
-
$12
10,000
5
20
-50
-25
-
-25
15,000
18
26
-50
-6
$1
-5
20,000
48
31
-50
29
-7
22
25,000
88
34
-50
72
-20
52
30,000
161
37
-50
148
-47
101
50,000
480
44
-50
474
-213
261
Single
$7,500
$15
$14
-$15-50
$14-21
-
$14-21
10,000
24
18
-24 -50
18-8
-
18-8
15,000
71
24
-50
45
-$12
33
20,000
137
28
-50
115
-36
79
25,000
233
31
-50
214
-81
133
30,000
319
32
-50
301
-120
181
50,000
635
37
-50
622
-311
311
5/11/71
-17-
County
1971-72 tax rate
exemption
relief
Court subvent.
Alameda
$12.91
$2,475,900
$1,322,000
$1,448,500
Alpine
5.15
500
-
7,000
Amador
6.83
30,500
6,000
7,000
Butte
9.46
301,000
165,000
131,500
Calaveras
7.49
43,300
2,000
6,000
Colusa
7.05
15,900
49,000
20,500
Contra Costa
13.25
1,678,500
981,000
473,500
Del Norte
10.15
53,600
19,000
16,000
E1 Dorado
9.38
142,600
5,000
21,000
Fresno
10.60
1,217,800
288,000
332,000
Glenn
7.65
31,100
13,000
20,500
Humboldt
10.09
291,700
57,000
47,500
Imperial
11.37
205,500
23,000
78,000
Inyo
8.34
30,000
2,000
12,000
Kern
10.42
1,033,600
65,000
479,500
Kings
10.76
164,800
56,000
99,000
Lake
6.84
51,600
1,000
14,000
Lassen
9.33
65,100
3,000
16,500
Los Angeles
11.86
13,129,600
8,429,000
14,051,500
Madera
8.63
97,200
12,000
52,000
Marin
11.94
197,300
76,000
300,000
Mariposa
5.44
11,700
1,000
14,000
Mendocino
9.61
138,200
72,000
127,500
Merced
10.54
263,800
77,000
77,000
Modoc
8.04
17,700
4,000
15,500
Mono
6.13
4,600
1,000
8,500
Monterey
9.71
375,800
107,000
233,500
Napa
11.13
267,600
15,000
71,500
Nevada
7.29
71,400
11,000
19,500
Orange
9.91
2,721,700
1,835,000
1,369,500
Placer
8.93
208,600
33,000
52,000
Plumas
6.40
27,600
1,000
37,000
Riverside
10.83
1,126,900
369,000
655,500
Sacramento
13.71
2,371,300
896,000
944,000
San Benito
7.13
14,700
7,000
12,000
San Bernardino
11.46
2,127,400
469,000
1,037,500
San Diego
10.88
3,760,500
1,178,000
1,981,500
San Francisco
13.52
968,900
493,000
1,507,500
San Joaquin
12.16
859,100
374,000
245,500
San Luis Obispo
10.92
244,200
19,000
100,500
San Mateo
11.27
913,800
781,000
708,500
Santa Barbara
11.49
459,400
135,000
451,500
Santa Clara
11.69
2,026,200
1,428,000
1,254,500
Santa Cruz
10.91
273,900
102,000
105,000
Shasta
8.29
224,200
23,000
58,000
Sierra
6.29
4,800
1,000
10,500
Siskiyou
8.53
112,000
8,000
79,500
Solano
9.97
436,400
69,000
53,500
Sonoma
11.12
513,700
215,000
183,000
Stanislaus
13.04
748,400
527,000
214,000
Sutter
7.83
57,600
93,000
33,000
Tehama
8.50
78,200
8,000
11,000
Trinity
7.90
18,400
7,000
17,000
Tulare
9.54
364,500
111,000
38,500
Tuolumne
9.24
69,000
4,000
17,500
Ventura
10.82
803,200
297,000
433,500
Yolo
10.72
185,500
108,000
149,500
Yuba
11.39
107,000
47,000
39,000
$11.45
$44,235,000
$21,500,000
$30,000,000
-18-
welfare
Open space
County
subvention
subvention
govt. relief
of tax rate
Alameda
$5,149,000
$140,000
$10,545,400
.36
Alpine
-
-
7,500
.10
Amador
-
65,000
108,500
.18
Butte
460,000
124,000
1,181,500
.42
Calaveras
-
90,000
141,300
.17
Colusa
-
-
85,400
.10
Contra Costa
2,032,000
47,000
5,212,000
.30
Del Norte
63,000
-
151,600
.37
El Dorado
17,000
218,000
403,600
.20
Fresno
3,495,000
2,381,000
7,713,800
.76
Glenn
-
-
64,600
.08
Humboldt
459,000
-
855,200
.33
Imperial
545,000
-
851,500
.43
Inyo
-
-
44,000
.06
Kern
1,252,000
2,697,000
5,527,100
.51
Kings
503,000
888,000
1,710,800
1.06
Lake
55,000
34,000
155,600
.15
Lassen
44,000
-
128,600
.34
Los Angeles
39,114,000
-
74,714,100
.38
Madera
365,000
336,000
862,200
.55
Marin
140,000
146,000
859,300
.13
Mariposa
-
-
26,700
.08
Mendocino
259,000
39,000
635,700
.41
Merced
758,000
-
1,175,800
.43
Modoc
-
-
37,200
.11
Mono
-
-
14,100
.03
Monterey
368,000
538,000
1,622,300
.24
Napa
164,000
91,000
609,100
.33
Nevada
41,000
-
142,900
.14
Orange
-
128,000
6,054,200
.15
Placer
201,000
118,000
612,600
.23
Plumas
-
-
65,600
.07
Riverside
1,911,000
82,000
4,144,400
.33
Sacramento
4,843,000
181,000
9,235,300
.75
San Benito
-
489,000
522,700
.65
San Bernardino
3,134,000
9,000
6,776,900
.40
San Diego
3,005,000
24,000
9,949,000
.33
San Francisco
6,246,000
-
9,215,400
.39
San Joaquin
2,186,000
253,000
3,917,600
.53
San Luis Obispo
358,000
40,000
761,700
.25
San Mateo
-
49,000
2,452,300
.13
Santa Barbara
411,000
332,000
1,788,900
.25
Santa Clara
2,081,000
285,000
7,074,700
.23
Santa Cruz
247,000
7,000
735,900
.21
Shasta
467,000
18,000
790,200
.29
Sierra
-
-
16,300
.14
Siskiyou
50,000
81,000
330,500
.33
Solano
792,000
402,000
1,752,900
.44
Sonoma
1,229,000
270,000
2,410,700
.46
Stanislaus
1,878,000
224,000
3,591,400
.91
Sutter
65,000
-
248,600
.15
Tehama
48,000
212,000
357,200
.34
Trinity
-
-
42,400
.15
Tulare
1,823,000
770,000
3,107,000
.61
Tuolumne
43,000
162,000
295,500
.34
Ventura
-
41,000
1,574,700
.14
Yolo
328,000
446,000
1,217,000
.47
Yuba
329,000
-
522,000
.62
$86,958,000
$12,457,000
$195,151,000
.35
-19-
Q.
Governor, Mr. Brown, the Secretary 01 state, says visat me's
discovered a federal audit which indicates waste and mismanagement,
according to him, on the part of Medi-Cal -- Medicare carriers.
He claims that they are making duplicate payments and paying lobbyists
and trips for executives, this kind of thing, with federal funds.
Do you have any knowledge that there is any similar kind of problem
with the administration of Medi0Cal by the same carriers or other
carriers?
A.
No, he's -- again, he's talking about a federal program and
something that's been found by federal auditors and he just confirms
what I've said before. The farther up you go into echelons of
government the more extravagant government gets, the more inefficient
it gets and I've had the same criticism of a great many federal
programs, if you'll just check back on the transcriptoof these press
conferences.
Press Conforence 2-8-D
Q.
Are you pretty sure then there is no similar kind of thing
going on at the state level?
A.
No, I will say this, wherever government is concerned there
is no way to totally eliminate the sins of bureaucracy. It is a
constant watch, wwe are constantly on guard and yet no matter how
well you do that job you always are going to be able to find the
kind of inafficiencies that creep in where government is concerned.
All I can tell you is that I don't know of any government body that
has been more concerned with this or more on the watch, or has
eliminated more of them than this administration and we are going to
keep on trying.
Q.
Are you increasing your watchfulness or planning an investi-
gation or anything as a result of what Mr. Brown has revealed?
A.
If you will take this up with Medi-Cal and Dr. Brian, I
think you'll probably -- most alert where this is concerned is Dr.
Brian and his department.
Q.
In other words, you are satisfied?
A.
I'll never be satisfied but I am satisfied that we are doing
our utmost and no one has been able to do any better. Young lady
and then you.
Q.
Governor, in Mr. Orr's report did he make any mention of the
illegal use of state owned automobiles by division employees?
A. No, and I -- I'm aware of that particularccharge, too, Let me
just say this, and about that whenever it's brought to our attention,
this is -- has been an ongoing problem, I guess, with government as
long as there's been an automobile. And it has been of particular
concern to us to this administration with our cut, squeeze and trim
philosophy. We found there was -- there was a great laxity, a
great looseness that had been guitt into government when we came here
about the use of state-owned automobiles and it is an omgoing thing.
It is one of those things that you can't just slap down a rule and
say it once and think that that cures the problem. We are constantly
monitoring and constantly checking anc constantly finding that as soon
as you turn your back a laxness creeps in. Thereaare certain
employees that are officially given the right to take their cars
home because in the nature of their work they take -- they take off
from their home to go to their duties. And yet out of this
then grows this report that they are using the cars for other things
and we find that many times a carelessness does creep in, but all I
can tell you is again, I don't know of any administration that works
harder on this but we are aware after five years that you are going
to have to keep working on it, you are going to have to keep watching
it every second. RR:Press conference 2-872
To: Agency Secretaries and
Governor's Staff
From: Ed Thomas
Deputy Cabinet Assistant
CABINET MEETING, TUESDAY, APRIL 11, 1972
Decision:
R 72-19
ACA 16 (Foran)
Recommendation: The Administration should
support ACA 16, which would revise the State
Constitution so that revenues from motor
vehicle fuel tax can be used for costs of
public transit (but not of operations
thereof) and for control of motor vehicle
pollution.
Decision: Disapproved by the Governor.
Business and Transportation and the Department
of Public Works were given permission to oppose
the Assembly Constitution Amendment. Everyone
elso would remain neutral. If issue is placed
on the ballot, then our position will be
reviewed.
R 72-23
Solid Waste Management
Recommendation: The Administration should seek
an amendment to SB 5 and corresponding language
in the enabling legislation of the Department of
Environmental Protection, providing that the
solid waste functions established by SB 5 shall be
absorbed into the Department of Environmental
Protection on January 1, 1974, providing the DEP
becomes law prior to that date.
Decision: Approved by the Governor.
BT 72-6
The Use of Boards and Commissions
Recommendation: The Administration's previously
endorsed objective of eliminating unnecessary
boards and commissions should be reaffirmed and
given new emphasis by implementing immediate
selective controls.
Decision: Approved by the Governor. The two
following recommendations were approved for
immediate implementation:
1. Set up and maintain an updated central
public record of all plural bodies, their life
expectancy, duties, estimated annual cost to
the taxpayer. The Executive Assistant to the
Governor shall determine where and to whom the
function shall be designated.
CABINET OKR ISSUE MEMO
CONSIDERATION 1
DISCUSSION
2
DECISION
3
X
:
Governor Ronald Reagan
DATE: April 10, 1972
FROM: Business & Transportation Agency
CONTROL NO.: BT 72-6
SIGNED
BY:
Frank J. Walton Mchanden
Secretary of Business and Transportation
SUBJECT:
The Use of Boards and Commissions
ISSUE:
Should the Administration's previously endorsed objective of
eliminating unnecessary boards and commissions be reaffirmed
and given new emphasis by implementing immediate selective
controls?
CONCLUSION: Yes.
RECOMMENDATIONS:
Set up and maintain in the Governor's Office an updated
central public record of all plural bodies, their life
expectancy, duties, estimated annual cost to the taxpayer.
(Such a record would allow a check against the creation
of other plural bodies with overlapping or conflicting
responsibilities.)
standardize the names of plural bodies and staff titles
(as the opportunity arises) defining: boards, commissions,
councils, committees, etc.
Charge the Little Hoover Commission with the ongoing
responsibility of examining at least every two years the
composition of, duties of, and continued need for each
plural body; and making recommendations to the Governor
and the Legislature.
Direct department heads to reexamine the need for every
board, commission, or advisory committee under their
jurisdiction, and to report to Cabinet through Agencies
not later than June 1, 1972, their specific recommendations.
For uniform evaluation, one of the following alternatives
for action should be indicated:
Abolish,
Reduce in size,
Consolidate,
Retain with a restated charge and mandate,
Retain as constituted showing necessity of
function and dates of establishment.
FACTS AND DISCUSSION:
With improved communications and counterchecks in the govern-
mental process, the disadvantages of many of the growing number
of plural bodies outweigh the advantages.
Lines of authority between plural bodies and departments tend
to overlap.
Part-time plural bodies tend to be dominated by the staff.
Plural bodies tend to acquire "immortality" despite completing
the purpose for which they were formed.
OFFICE OF THE GOVERNOR
RELEASE: WEDNESDAY P.Ms.
Sacramento, California
May 10, 1972
Contact:
Ed Gray
445-4571
5-9-72
PLEASE GUARD AGAINST PREMATURE
RELEASE
EXCERPTS OF REMARKS BY GOVERNOR RONALD REAGAN
CHANNEL CITY CLUB
Santa Barbara, California
May 10, 1972
It is difficult for the average citizen to keep up on all the things
going on in Sacramento. And I certainly could not cover every subject
in the brief time I have with you today. But maybe that is what is
wrong---we are looking at all the trees and not seeing the forest. Cut
through all the debates, the negotiations, the different bills and the
opposing programs you read about in the newspapers and hear about on
television and radio and it all boils down to a difference with regard to
philosophy. What do we expect of government and how much freedom are we
willing to sacrifice in order to have government delivery of social
services plus protection against even ourselves from an all-seeing eye in
state and national capitols?
When I went to Sacramento 5½¹₂ years ago, I had the old-fashioned idea
that government ought to live within its income and not spend money it
does not have (and cannot get without adding to the citizen's tax burden)
That really is not such a radically new concept. The State Constitution
requires that we have a balanced budget and the governor's job is to
make sure we do.
After working through six budgets, I am a little older, a little
wiser and still a few votes short in the legislature. But I still feel
that government (particularly at the federal level) is too big and tries
to do things that it shouldn't.
Allocating the state's resources is not a game of monopoly with play
money. Those revenue figures in the budget are real dollars---and they
came out of somebody's pocket. It is your money that is being spent.
And we feel we have an obligation to see that we get 100 cents of value
from every dollar.
This involves setting priorities, taking care of the necessities
first and then taking a hard look at all other spending programs--to see
if we can't save a few dollars here and there by reforming some program
or even eliminating unnecessary activities.
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Channel City Club
There is no question but that when you look at government that way,
you run into controversy. Too many people, especially in government,
feel that the nearest thing to eternal life we will ever see on this
earth is a government program.
Then add to this those who sincerely believe that some particular
program is the answer to man's greatest problem and must have top
priority even if it means closing the parks which brings out those who
believe the parks are the answer to man's greatest problem and you wind
up with both groups unhappy about the way you divided up the money.
In fact, if I might paraphrase Abraham Lincoln, some people say they
are not getting enough of the state budget some of the time and some
complain they are not getting enough all of the time. And I hear from
both most of the time.
What many citizens do not hear often enough is the basic
philosophical difference between our opposing views of government.
I hear young people say "There is no difference between the parties
or the politicians holding office."
It is time we awaken to the fact that two approaches to government
are at work in the land and they are vastly different.
When our administration arrived in Sacramento, the state budget was
second largest in the nation. Only the federal budget was larger, and
we were adding thousands of new state employees each year. Now we are
fourth in budget---behind New York State and New York City.
There are 1500 fewer full-time civil service employees than when we
started. We have abolished 29 boards and commissions, and implemented
hundreds of cost-savings suggestions. One of these involved the simple
idea of one-way bridge tolls. Instead of collecting the one-way toll at
each end of a bridge, the toll attendants now collect the round-trip toll
at one end...a step that means less equipment and fewer toll-takers. One
result of this kind of innovation has been a direct return to the taxpaye:
We have reduced bridge tolls a total of eleven times.
From the very first, we heard a chorus of voices claiming you cannot
operate government like a private business. Reducing outgo to match
income was called a pinch-penny approach that would not work. Fortunately
we were all so inexperienced we did not know all the things you cannot do.
So, it worked. And because it worked, government is not pinching so many
of the commuter's pennies in bridge tolls.
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Channel City Club
Then there was the problem of welfare. The rolls were going up at
the rate of 40,000 people a month. The cost of this alone threatened
to bankrupt the state---and yet, the most needy of our people were not
getting as much as they really needed to keep body and soul together;
partly because of a fantastic array of abuses which found some people
with incomes of $12,000 to $16,000 a year claiming- and getting
welfare. California was sending checks to people who chose to live in
other states and even other countries. We were sending one check to a
man who lived in Russia.
We started implementing administrative parts of a reform program 14
months ago. Now we are paying the truly needy 30 percent more than we
were able to before but instead of adding 40,000 peoplea month to the
welfare rolls, we now have 133,600 fewer welfare recipients than we had
in March of last year.
Those reforms have saved the people of California $388 million this
year and an estimated $708 million in the year to come.
Some die-hard critics accused us of shifting welfare costs to the
counties. As a matter of fact, a number of counties this year are
reporting a surplus in their welfare programs. Los Angeles County is
considering a reduction in the property tax as a result of their savings.
Some citizens are confused when they hear about cost savings we have
made at the state level and yet, they are still receiving higher tax
bills. One reason for the confusion is the intricacies of government
bookkeeping.
The mini-tax reform we passed a few months ago, for example, include
a $46 million increase in the state-financed Senior Citizens Property Tax
Relief Program. As a result of this program, our senior citizens will be
paying $46 million less in local property taxes this year than they did
last year. These reductions range from a 32 percent cash rebate up to
more than 90 percent for those senior citizens in the lowest income
brackets. Yet, this direct tax relief shows up in our budget as a
spending program for the state.
This year, we submitted the state budget in two parts. We hope to
give a clearer idea of where your tax dollars are going. Almost two-
thirds (some $4.9 billion) of this year's budget is for local assistance-
programs financed in whole or part by the state but carried out at the
local level. The other one-third is the actual cost of running state
government.
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Channel City Club
That mini-tax program offers a classic example of the opposing views
of government that I mentioned.
I am sure most of you have heard of the so-called "windfall the
money available as a result of the state's change to the withholding
method of collecting state income taxes. We took the position that we
should return all of this windfall to the people who paid it---the
taxpayers. Others wanted to spend it. That was one of the prolonged
discussions we had during the debate on tax reform. The result was a
compromise.
Each of you who filed an income tax return this past April 15
received a 20 percent tax credit on your 1971 state income taxes. Part
of the remainder of the windfall has been earmarked for one-time spending
on specific capital construction projects. They include such things as
$35 million for park and beach development, $30 million to help our
schools conform to earthquake safety standards, $80 million for higher
education construction programs.
In spite of the fact that this was one-time money, there were those
who would have used it to start on-going programs which, of course, would
have required a tax increase for the second year's cost, the third year
and on into the future.
Debate over "to spend or not to spend" has led to a few charges and
counter charges and a lot of misunderstanding.
Perhaps you recall the excitement a few months ago when the National
Education Association alleged that California had "slipped" to 31st in
the amount of money being spent per capita on public schools. Somehow
this did not seem consistent with the fact that our teachers are among
the highest paid and we educate the highest percent of our youth in
public schools of any major state in the Union. When we saw their
statistics, we challenged them. And what do you know? The NEA discovere
a slight error. California somehow jumped from 31st to 16th. We question
even that so-called ranking because they apparently did not count some
items of aid in California that were counted in other states. But even
while this correction was being made, one of our legislators rushed to
the floor to demand that we appropriate enough money to be first in
spending. Not one word about where we rank in quality or whether more
money would result in better education. What if we really are 16th in
spending, but maybe in the top ten in quality? State aid to schools
during this administration has increased by 54 percent, while enrollment
has gone up 12.7.
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Channel City Club
The fact is, that we have actually had enrollment declines in the
lower eight grades. Now, we know that this does not mean some schools
do not need more assistance. They do. The present method of
distributing state financial support is out of date and inflexible.
And we have been trying to get a more realistic system. Some districts
with a low tax base have a high tax rate and yet still have difficulty
financing a minimum educational program. Other districts located in
areas of high industrial concentrations find themselves able to finance
an expensive education program with a low tax rate.
We have been trying to get a more realistic system. While we are on
the subject of education finance, there is a little confusion about our
support of higher education. Right now, higher education is getting more
money than it has ever received. State aid to the University of Californ
has gone from $240 million per year when we took over to $376 million.
That is a 56.8 percent increase for a 35.4 percent increase in
enrollment. The state colleges have had a 121 percent increase in
funding.
State support for community colleges has increased from $71 million
to $214 million. That is a 201 percent increase in state aid for an
enrollment increase of only 82 percent.
The fact is---we have never cut any educational budget only
budget requests but then you cut the budget request of every department
every year.
Just to wind up this subject, there is one other area of education
where we have tried to do more--the Scholarship and Loan Program. It
has gone from $4.7 million to $28 million, and believe me this is an
increase I actually enjoy---and you should, too. I would like to read
you a letter one student sent to a newspaper.
"This grant has meant a new life for me, for it enabled me to
continue with my studies. It has meant a new stage of learning for me.
This grant has made me realize there are people who really care about
needy students I want to express my appreciation to the State
Scholarship and Loan Commission for awarding me this grant and for making
school possible for me."
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Channel City Club
I have never been an advocate of expanding government at the
state level or anywhere else. But this year, at the risk of destroying
my image, we are recommending some expansion in the area of protecting
California's environment. We have asked the legislature to create a
Department of Environmental Protection to incorporate solid waste
management with our air and water pollution control programs.
These are inter-related problems. If you burn garbage, you may be
contributing to air pollution. If you dump it at sea, it becomes a water
pollution problem. We feel all the different programs to protect and
enhance the environment must be coordinated to be effective. The only wa
to do this is to have all these programs in the same agency.
We also have recommended a State Power Plant Siting Council
so
that environmental safeguards can be assured in locating the electrical
energy plants we will need to meet our power needs in the years ahead.
In short, reform also means reorganization to do a better job for
the people of California.
This is a business-like approach to government. It is a creative
approach, a conservative approach. Certainly, it means saving money if
possible. It involves measuring the dimensions of a problem and then
applying our resources most effectively to resolve that problem. We
think that is what the people sent us to Sacramento to do to solve the
problems of our society at the least possible cost to the taxpayers.
Part of this philosophical nose to nose contest rages around the
practice of medicine. On one hand are those who think a gigantic take
over by government is the only answer. Some of us still think we can
deliver health care within the framework of free enterprise. The most
affluent people in our society can meet their own medical needs. The
least affluent have Medi-Cal.
But in the middle are about 17½ million working citizens of our
state. More than 85 percent of them have some kind of private medical
insurance, usually through their jobs. Such plans take care of their
basic medical costs. But few people can afford the cost of one kind of
illness the kind that is not covered by medical insurance, the
catastrophic illness that goes on for years at great cost the kind that
turns a wage-earning family into a family dependent on welfare.
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Channel City Club
We have proposed a state program to meet this need, at a cost of
$3 per month per wage-earner. It is called the California Health
Security Plan. It is designed only to augment private health plans
and provide insurance against financial disaster in case of catastrophic
illness.
For $36 a year every family can have protection against catastrophic
illness or injury for the entire family. There is no health insurance
covering this and no working citizen can afford the cost.
Another so-called health program has been introduced in Sacramento
this year. It would cost---by the author's own estimate. some $7.5
billion a year---or just about the same amount of money as our entire
state budget this year. Our own experts feel the cost would be closer
to $10 billion. Somehow government medical programs always cost more
than the initial estimates. This would be funded by a 3 percent payroll
tax and a 9 percent tax on the employer.
Using the old math or the new, that amounts to a 12 percent levy on
a $10,000 income that comes to about $100 a month as opposed to our $3
a month proposal.
But the big difference is philosophical. We are attempting in our
program to meet a part of the medical problem that is not now being
solved the area of the catastrophic illness. The other plan involves
having government just take over all medical programs wiping out a
private insurance industry that is meeting the basic health needs of
85 percent of the people and substituting compulsory government
insurance at a fantastically higher price.
######
(NOTE: Since Governor Reagan speaks from notes, there may be changes in,
or additions to, the above quotes. However, the governor will
stand by the above quotes).
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