Ask the Scholar
Document scope · 1 page
Scholar
Ask about this object, its catalog metadata, its source description, or the page inventory.
For page-specific OCR and visual context, open one of the page chats.
Scholar Source Context
Document identity
localId
118565080
label
[Proposition One] - Examination of Governoräó»s State Expenditure Limitation Program, 04/30/1973 (2 of 2)
core
doc
dtoType
document
citationUrl
pageCount
1
Source metadata
id
118565080
contentType
document
title
[Proposition One] - Examination of Governoräó»s State Expenditure Limitation Program, 04/30/1973 (2 of 2)
citationUrl
identifierLocal
840
collections
Ronald Reagan's Governor's Papers of the Press Unit
Reports
thumbnailUrl
largeImageUrl
imageCount
1
hasImages
yes
source
import
hasTranscription
no
Source extras
naId
118565080
coverageEndDate
logicalDate
1975-12-31
year
1975
coverageStartDate
logicalDate
1967-01-01
year
1967
levelOfDescription
fileUnit
recordType
description
ocrSource
nara-archive
Single page context
seq
1
pageIndex
0
type
document
mediaId
48a1fbf5b9d3ecc4
ocrText
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: [Proposition One] - Examination of
Governor's State Expenditure Limitation Program,
04/30/1973 (2 of 2)
Box: P38
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/
Part 3. Reimbursements to Local Government for State Mandates
I. Basic Rules
Section 8 of Article 29 prohibits the state from mandating to local
government a new program or an increased level of service under an existing
program until an appropriation has been made to pay the cost of performing
the mandate. This provision applies to school districts as well as to cities,
counties, and other special districts. Because the prohibition applies to
"State" mandates, it probably applies to executive regulations as well as
to statutes. The prohibition applies to any mandate made after the effective
date of Article 29.
If this prohibition applies to executive regulations as well as to
statutes, then no executive regulation mandating a cost on local government
can become effective until the Legislature has made an appropriation to pay
the cost. This is a change from Chapter 1406 of 1972 (SB 90), which requires
the state to pay the costs resulting from mandates in executive regulations
but does not require an appropriation before an executive regulation becomes
effective.
As an exception to the general rule requiring state reimbursement to
local government, Section 8 excludes state mandates determined by the
Legislature to be applicable generally to persons, associations, or corporations,
as well as to local government. It is likely that this exception will enable
the Legislature to exclude from the reimbursement requirement some of the
orders of quasi-legislative bodies such as the Public Utilities Commission,
the State Water Resources Control Board, or Regional Air Pollution Control
Boards. This exception is a substantial change from Chapter 1406 of 1972 (SB 90),
which requires the state to reimburse local governments for the cost of a state
-54-
mandate whether or not the mandate applies to private entities as well as to
public entities. The exception holds the potential for becoming a major
loophole in the reimbursement requirement. If a bill or executive regulation
is drafted to apply to private entities as well as to public entities, Article
29 does not require the state to reimburse the public entities for mandated
costs.
Article 29 omits the following two reimbursement provisions included in
Chapter 1406 of 1972 (SB 90): (1) SB 90 requires the state to reimburse local
government for the actual loss of property tax revenue caused by any classifi-
cation or exemption of property enacted after January 1, 1973; (2) SB 90 requires
the state to reimburse cities and counties for sales or use tax exemptions
enacted after January 1, 1973.
The reimbursement requirements in Article 29 contain two major flaws:
(1) In many instances, mandates cannot be defined and their cost cannot
be measured with satisfactory precision. In many instances, to make even
imprecise estimates is a costly enterprise both for the state and for local
government.
(2) If the Legislature or the Governor, or both, do not carry out
the reimbursement requirement, or, because of the difficulties of definition
and measurement, cannot do so, the only possible remedy for local government
will be through the courts. It is conceivable that the courts will be able
to provide a remedy if the State chooses not to carry out the reimbursement
requirement, but such a procedure will be awkward even if it succeeds, for it
will require the judicial branch of government to order the other two branches
of government to tax and to spend - a responsibility not ordinarily thought of
as belonging to the judiciary. It is not, however, probable that the courts
will be any more successful than the Legislature at solving the problem
-55-
of defining and measuring state mandates that do not lend themselves to
definition and measurement. In that situation, additional costs will accrue
to local government without reimbursement from the state. Article 29 recognizes
the inevitability of this consequence by excluding new crimes and changes in
the definition of a crime from the reimbursement requirement. It is certain
that other subjects of state mandate will present problems as difficult as
those presented by criminal mandates.
II. Operational Provisions
Section 8 sets forth four specific directives for the Legislature to
follow in enacting statutes to implement the reimbursement requirement:
1. If a local government is voluntarily performing a function prior
to the time the state mandates its performance, the state must nevertheless
reimburse for the mandated cost.
2. Workload increases under an existing program will be excluded from
the reimbursement requirement. A possible example is a mandate regarding
the number or salary of court personnel.
3. The implementation of statutes existing on the effective date of
Article 29 will be excluded from the reimbursement requirement.
4. Statutes defining a new crime or changing the definition of any
existing crime will be excluded from the reimbursement requirement.
-56-
Part 4. Income Tax Reductions and Exemption.
Unless the Legislature, by a two-thirds vote, provides otherwise, Article
29 provides for (1) a one-time reduction of up to 20 percent of personal income
tax, (2) an ongoing reduction of 7.5 percent of personal income tax, and (3) a
personal income tax exemption for single persons having an income of less than
$4,000 and married couples having an income of less than $8,000.
I. The Twenty Percent, One-Time Credit.
Section 2 (b) of Article 29 requires the Controller, on the effective
date of Article 29, to determine the amount of the surplus in the General Fund
for the 1972-73 fiscal year and to designate "such portion of the surplus as
is necessary and available" to pay for a one-time income tax credit of up to
20 percent of personal income taxes. The precise percentage of the credit will
be determined by the Director of the Department of Finance, based on the amount
of the 1972-73 surplus. If, prior to the effective date of Article 29, the
Legislature enacts a personal income tax credit of up to 20 percent to dispose
of the 1972-73 surplus, that fulfills this requirement of Article 29.
Given these provisions, the Legislature could dispose of the 1972-73
surplus by postponing the effective date of the 1¢ sales tax increase scheduled
for June 1, 1973. If the postponement is for a year or more, the state surplus
will be insufficient to fund the 20 percent one-time income tax credit. Moreover,
postponing the sales tax increase has the long-term effect of reducing the base
upon which the expenditure limitation in Article 29 is calculated. Article 29
provides that the 20 percent, one-time reduction of the income tax is not sub-
tracted from 1973-74 revenues for the purpose of calculating che expenditure
limitation. Any postponement of the sales tax increase, on the other hand
(including the Governor's proposal on this subject), will reduce 1973-74 revenues
for the purpose of calculating the expenditure limitation. A reduction of the
-57-
11
expenditure limitation in 1974-75, the first year of its operation, will be carried
forward in all subsequent calculations of the expenditure limitation under the
declining percentage formula.
The 20 percent, one-time credit against tax liability will not be applicable
to tax liability arising from capital gains, from tax preference income, or from
estates and trusts. If Article 29 is effective in 1973, the credit will be ef-
fective with respect to the 1973 taxable year; if Article 29 is effective in 1974,
the credit will be effective with respect to the 1974 taxable year.
Section 2 (b) (3) requires the Legislature to implement the 20 percent,
one-time refund with respect to (1) nonresident taxpayers, (2) fiscal year tax-
payers and (3) the order of computing the various credits in the personal income
tax law. If Article 29 is enacted in 1973, it will be necessary for the Legislature
to carry out this directive in time for the Franchise Tax Board to prepare returns
for filing by April, 1974. If the Legislature is in recess from September 15, 1973,
to January 6, 1974, it might become necessary to call a special session of the
Legislature to carry out this directive of Article 29. No special session will be
necessary, however, if the Legislature enacts an appropriate statute prior to the
proposed September 15, 1973, recess.
The Department of Finance estimates the revenue loss from this provision
will be $355 million in 1973-74 if it is effective in 1973 or $400 million in
1974-75 if it is effective in 1974.
II. The 7.5 Percent, Ongoing Credit
Section 4 (b) of Article 29 provides that state personal income tax liability
shall be reduced by a 7.5 percent credit, unless the Legislature, by a two-thirds
vote, provides otherwise. Unlike the 20 percent, one-time credit, this ongoing
credit will be applicable to tax liability arising from capital gains, from tax
preference income, or from estates and trusts. If Article 29 is enacted in 1973,
-58-
this credit will be effective in the 1974 taxable year, and thereafter; if Article
29 is enacted in 1974, this credit will be effective in the 1975 taxable year and
thereafter.
The Department of Finance estimates the revenue loss from this provision,
if it is effective in 1973, at $65 million in 1973-74 and $190 million in 1974-75.
III. Income Tax Exemption.
Article 29 provides that the following persons shall bear no state income
tax: (1) single individuals whose adjusted gross income is less than $4,000; (2)
married couples and heads-of-households whose adjusted gross income is less than
/5
$8,000.
In Article 29, this exemption appears both in the provisions dealing with
the 20 percent credit and in the provisions dealing with the 7.5 percent ongoing
credit. In the latter section, the language makes clear that the exemption
applies only to state taxation and would not necessarily apply to a local income
tax. In the former section, the language does not restrict the exemption to state
taxation, but the context of the language leads to that conclusion. Therefore,
whether this exemption applies to any local income tax that may be authorized is
a question to be resolved.
The Department of Finance estimates the revenue loss from this provision
will be $7 million in 1973-74 and $5 million in 1974-75 if it is effective in 1973.
The department estimates that this exemption will move approximately 300,000 returns
from a tax liability status to a no tax liability status. The Department of Finance
estimates that about 100,000 of these are returns filed by single taxpayers, about
150,000 are returns filed by married taxpayers, and about 50,000 are returns filed
by head-of-household taxpayers.
/5
This exemption also applies to the tax on tax preference income. Thus
a taxpayer with a low or a negative adjusted gross income will not have
to pay the two percent tax on such items as capital gains income, de-
pletion allowances, and special depreciation allowances.
-59-
III. Income Tax Rate Freeze
Section 4 (b) of Article 29 provides that, for the 1974 taxable year and
thereafter, tax rates in the personal income tax law will be frozen at the rates
in effect on January 1, 1973. But Section 4 (b) goes on to say that this pro-
vision can be modified by a two-thirds vote of the Legislature. Thus, Article 29
does not freeze into the Constitution income tax rates at their January 1, 1973,
level.
-60-
"
Part 5. Change in Voting Requirements on Revenue Measures
Article 29 revises the present constitutional rules governing the passage
of laws affecting state taxation.
Present law authorizes the Legislature to change the rate or base of a
tax by a majority vote, except measures (1) imposing a tax on banks and corporations,
or (2) changing the rate of the gross premiums tax on insurers, either of which must
be enacted by a two-thirds vote. Also, changes in constitutional provisions regard-
ing taxation require both a two-thirds vote of the Legislature and a majority vote
of the electorate. Under the present system, the Legislature, for example, can
change sales and income tax rates by a majority vote, can enact sales tax exemp-
tions and income tax deductions by a majority vote, and can authorize local govern-
ment to impose a sales tax or a personal income tax by a majority vote.
Article 29 provides as follows:
1. The imposition of any new tax by the Legislature will require a two-
thirds vote.
2. Changing the rate or base of any state tax will require a two-thirds
vote. This provision will apply not only to tax increases but also to tax exemp-
tions and tax deductions. Changing the payment date of any tax will continue to
require a majority vote.
3. No local government (including school districts) may impose an income
tax unless the Legislature authorizes the tax by a two-thirds vote. This change
increases the vote requirement from a majority to two-thirds and settles the legal
question whether charter cities have the power to impose income taxes.
4. Tax refunds or reductions by appropriation out of the Tax Surplus Fund
(see above, 35 ) may be enacted by a majority vote. This provision modifies the
present constitutional requirement that appropriations require a two-thirds vote.
-61-
Part 6. Possible Shift of Costs From the State to Local Government.
A strong possibility exists that Article 29 will have the effect of shift-
ing government costs from the state taxpayer to the local taxpayer and in partic-
ular to the local property and sales taxpayer.
This possibility arises from the following factors:
1. If Article 29 operates as its authors intend, the rate of growth of
state expenditures will be slowed, and, because two-thirds of the state budget is
local assistance, it will become necessary to reduce growth in that part of the
budget. We have pointed out the legal difficulty which Section 9(a) may pose in
this regard. Despite that difficulty, it will be impossible to fund reductions of
the magnitude required by Article 29 from State Operations and Capital Outlay.
If the Legislature does curtail growth in the local assistance budget, costs will
be shifted to local government and will result in increased tax rates or in the
imposition of new taxes.
2. By a four-fifths vote of the governing board, Article 29 authorizes any
local government unit to increase property taxes over the limit provided in Article
29. That power is not negated by the fact that such an increase expires after two
years unless it is approved by the electorate; the tax can be renewed at any time
by another four-fifths vote. Nor is that power negated by the fact that it is
conditioned upon the existence of an Emergency Situation, for the declaration of
an Emergency Situation is within the discretion of the local governing body. As
we have pointed out above, this is a loosening of the maximum tax rate provisions
enacted in Chapter 1406 of 1973 (SB 90).
3. The electorate, by a majority vote, may approve local increases in
property tax rates, and will be more inclined to do so if state funding of desired
services is reduced or eliminated.
-62-
4. The Legislature may interpret broadly the power granted in Article 29
to authorize an increase in local property tax rates in "circumstances creating
hardship for individual local entities."
5. Qualifications, exceptions, and inherent flaws in the requirement that
the state reimburse local government for state mandated costs probably will lead
to increased local costs.
6. Article 29 authorizes the Legislature by a majority vote to authorize
increases in the local sales tax rate. Article 29 requires a two-thirds vote by
the Legislature to authorize a local income tax.
-63-
Chapter 4
Estimated Reduction in State Expenditures if the
Governor's Limitation Plan Had Been Adopted in 1966
Last February we were asked to make a preliminary estimate of the
financial implications of this limitation plan, assuming it had been approved
by the voters at the November 1966 election, and had become operative starting
with the 1967-68 Budget. At that time we only had the Governor's press release
as the basis for making this estimate (the actual wording of the initiative was
not available until March 30, 1973) and there were uncertainties over the
composition of the so-called $9.8 billion revenue base. Based on this limited
information, we concluded that the adoption of this program would have resulted
in a $3 billion, or 31 percent, reduction in 1973-74 state revenues.
Since that time the Governor's office has reduced the tax limit base
from $9.8 billion to $9.3 billion. In addition, we have reduced it another
$.3 billion to $9.0 billion based on a Legislative Counsel's opinion as to
the status of income to the Veterans' Farm and Home Loan Building Fund. Also,
we have followed the wording of the initiative and have excluded $215 million
in federal revenue sharing proceeds which will be used to support local
schools, and $93 million of other receipts, such as fishing and hunting licenses,
beach and park fees, and intergovernmental transfers. We have also excluded
$230 million of school expenditures (SB 90) from the expenditure limit, because
Section 10-a of the initiative provides that state funds used to roll back
property tax rates are exempt from the limitation.
After making these adjustments, we now conclude that if this limitation
had been adopted in 1966, 1973-74 expenditures would have to be reduced
by $2,351 million, or 25.5 percent. Had it not been for the adoption of federal
revenue sharing, this reduction would have totaled $2,582 million. Table
10 summarizes our calculations and findings.
-64-
Table 10
Derivation of Revenue Control Limitation and Expenditure Reductions Required
1967-68 to 1973-74
(In Millions)
Limitation
California
Total
Personal
Special
Federal Revenue Sharing
Avail-
Existing
Expenditure
Fiscal Year
Income/1
Percentage
Amount
Adjustments
And Other Excluded Items
able
Expenditures
Reduction Required
1966-67
$ 65,156
6.22%
$4,052
$ 67
$4,119
$4,192
:
1967-68
69,936
6.14
4,294
$+194/2
52
4,540
4,734
$ 194
1968-69
76,867
6.06
4,658
+8/3
86
4,752
5,353
601
1969-70
83,192
5.98
4,975
+16/3
95
5,086
6,075
989
1970-71
88,825
5.90
5,241
96
5,337
6,341
1,004
1971-72
94,118
5.82
5,478
+170/2
98
5,746
6,696
950
1972-73
102,220
5.74
5,867
326
6,193
7,542
1,349
1973-74
111,535
5.66
6,313
+230
303
6,846
9,197
2,351
Income for calendar year in which the fiscal year commences.
/2 To repay prior year borrowings.
13
Between June 1 and August 31, 1969 an additional one cent per gallon tax on gasoline and diesel fuel was imposed to
finance repairs to roads that were damaged by severe floods early in 1969. (See pages A-43 and A-44 of the 1970-71
Governor's Budget.)
/4 Refer to Section 10(a) of the Governor's Initiative.
The limitation would be increased by $230 million for property tax relief in school programs, authorized under
er 1406 (SB 90) Statutes of 1972.
-65-
The starting point for calculating this limitation was the $4,052
million in state revenues for 1966-67 (Column 4 in Table 10). This amount
was then divided by the $65,156 million personal income figure for calendar
1966, which produced a percentage of 6.22. This base percentage was then
reduced in each successive year, starting with 1967-68, by 8/100 of one
percent. This percentage reduction, using a lower base, is comparable to
the proposed 10/100 of one percent reduction contained in the initiative.
In calculating the expenditure reductions for each fiscal year,
starting with 1967-68, we followed the procedure of first deducting new
programs that were enacted during the year, and if this were not sufficient,
then pro rata reductions were made in controllable (Budget Act) expenditures.
For example, in 1967-68, actual expenditures (after all adjustments, including
the "Emergency Fund" payback of the 1966-67 carryover deficit) would have
exceeded the limitation by $194 million. Therefore, it would not have been
possible within this limitation to enact the $168 million increase in school
funds pursuant to AB 272 (Chapter 1209, Statutes of 1967). Because this
reduction, by itself, would not have been sufficient, the new cigarette tax
revenue sharing program for cities and counties was reduced from $46 million
to $20 million.
In 1968-69, actual expenditures would have been $601 million above
the limitation, thus necessitating the following program reductions or
eliminations:
-66-
Millions
1. Eliminate senior citizens' property tax relief
$ - 8
2. Eliminate the $70 homeowners' rebate!
-176
3. Eliminate all of city and county shared
cigarette tax revenues
- 70
4. Eliminate higher education program increases for
scholarships and student loans
- 3
5. Eliminate second year expenditures for increased
school aid (AB 272 - 1967 Session)
-164
6. Reduce budget act appropriations
-180
Total reductions
$ -601
/1
Even though this program was approved by the voters, it was funded
out of the proceeds of SB 556, the Governor's 1967 Tax Program,
which could not have been enacted under this limitation.
In subsequent years, the same procedure was followed to ascertain
which programs would have to be reduced or eliminated. Table 12 summarizes
the results for 1973-74, and they indicate that state support for local
education would be cut by 30.4 percent, higher education expenditures would
be reduced by 15.7 percent, and the entire property tax relief program,
including the homeowners' exemption, renters' relief, senior citizens' relief,
and the business inventory exemption would be eliminated. About two-thirds of
the required reductions (Table 11) would occur in statutory programs, by
preventing their enactment.
-67-
11
Table 11
Comparisons Between Existing Expenditures
and Total Reductions Required by the
Governor's Limitation
1973-74 Data
Existing Expenditures
Total Reductions
Amount
Amount
(millions)
Percent
(millions)
Percent
Fixed by Constitution
$1,398
15.2%
$ 277
11.8%
Fixed by Statute
4,094
44.5
1,559
66.3
Authorized by
Budget Act
3,705
40.3
515
21.9
Total
$9,197
100.0%
$2,351
100.0%
-68-
Table 12
Summary of 1973-74 Program Reductions
Required to Meet Expenditure Limitation
(In Millions)
Estimated
Required
Percentage
Program
Expenditures
Reduction
Reduction
Education
$2,435
$ 740/1
30.4%
Higher Education
851
134
15.7
Social Welfare
859
125
14.6
Department of Health
963
147
15.3
Corrections and Youth Authority
213
27
12.7
Property Tax Relief
979
979
100
Shared Revenue
737
76
11.5
Debt Service
175
0
0
Public Works
501
0
0
Salary Increase
226
0
0
Nongovernmental Cost Funds
160
0
0
Other
1,098
123
11.2
Total Estimated Expenditure
$9,197
Total Expenditure Reduction
Required
$2,351
Percentage Reduction
Required
25.5%
/1
This reduction does not include the $230 million in Chapter 1406, Statutes
of 1972 (SB 90) which will be used to reduce school property tax rates,
because such an expenditure is exempt from the state tax limitation,
(Section 10a).
-69-
Table 13 contains the details on each program reduction, using
1973-74 Budget estimates. The reductions are divided among (1) Budget Act,
(2) statutory, and (3) constitutional changes. The last category relates to
the homeowners' exemption and it would not, have been possible to fund this
program within the expenditure limitations.
-70-
Table 13
Detail of 1973-74 Program Reductions
Program
Millions
1. EDUCATION
Statutory:
Increased school financing (SB 90, Chapter 1406, Statutes of 1972) $224
Increased basic aid (AB 606, Chapter 784, Statutes of 1969)
)
468
Increased basic aid and aid to low wealth school districts
(AB 272, Chapter 1209, Statutes of 1967)
Budget Act:
New or Increased Programs:
Increase in Miller-Unruh and Children's Centers program
18
Unspecified further reductions
30
Total Education Reductions
$740
Percentage Reduction
30.4%
2. HIGHER EDUCATION
Budget Act:
New or Increased Programs:
Increase in scholarship programs
$ 18
New programs--includes college opportunity grants ($6.0 million)
Medical School Contract program ($1.0 million), New Graduate
Fellowship program ($1.1 million), Occupational Training
Grants ($0.6 million), and Special Clinical Intern programs
($0.5 million)
9
New Economic Opportunity Programs:
Community Colleges
5
State University and Colleges
4
State University and Colleges Innovation program
2
Unspecified further reductions
96
Total Higher Education Reductions
$134
Percentage Reduction
15.7%
-71-
Program
Millions
3. SOCIAL WELFARE
Statutory:
Exempts $7.50 of income of adult aid recipient (AB 1712,
Chapter 1520, Statutes of 1970)
$ 13
Welfare Reform Act--AFDC cost of living increase (SB 796,
Chapter 578, Statutes of 1971)
15
Provides $2 grant increase (SB 90, Chapter 1406, Statutes
of 1972)
12
Changed BHI sharing ratio (AB 2089, Chapter 1371, Statutes
of 1972)
7
Potential HR 1 cost
42
Budget Act:
New or Increased Programs:
Established Out-of-Home Care program (SB 999, Chapter 660,
Statutes of 1969)
22
Unspecified further reductions
14
Total Social Welfare Reduction
$125
Percentage Reduction
14.6%
4. DEPARTMENT OF HEALTH
Budget Act:
New or Increased Programs:
Short-Doyle--revises cost sharing formula from 75/25 to
90/10 (AB 1454, Chapter 989, Statutes of 1968)
$ 37
Unspecified further reductions
110
Total Department of Health Reduction
$ 147
Percentage Reduction
15.3%
5. DEPARTMENTS OF CORRECTIONS AND THE YOUTH AUTHORITY
Budget Act:
New or Increased Programs:
Increase security staffing (408 positions) and psychiatric
staffing (80 positions) in 1972-73 budget
" $ 2
-72-
Program
Millions
Unspecified further reductions
$ 25
Total Corrections and Youth Authority Reduction
$ 27
Percentage Reduction
12.7%
6. PROPERTY TAX RELIEF
Constitutional:
New Programs:
Homeowners' Property Tax Relief ($750 exemption)
$277
Statutory:
New Programs:
Senior Citizens', Business Inventory, Open Space, Renters',
and Homeowners (that part above $750 constitutional
702
exemption)
Total Property Tax Relief Reduction
$979
Percentage Reduction
100%
7. SHARED REVENUES
Statutory:
Cigarette Tax apportionments (SB 556, Chapter 963, Statutes
of 1967)
$ 76
Total Shared Revenue Reduction
$ 76
Percentage Reduction
11.5%
8. OTHER (CATEGORY)
Budget Act - Unspecified Programs:
$123
Total "Other" Reductions
$123
Percentage Reduction
11.2%
Grand Total Reduction
$2,351
Total Percentage Reduction
25.5%
-73-
State Expenditures 1967-68 to 1973-74
(In Millions)
Actual
Estimated
Propose
1967-68
1968-69
1969-70
1970-71
1971-72
1972-73
1973-7
Education
Fixed by Constitution
$
853
$ 889
$
889
$
941
$
941
$
943
$ 946
Fixed by Statute
412
430
536
513
538
668
1,216
Budget Act
138
169
177
193
119
227
27:
Subtotal
$ 1,403
$ 1,488
$ 1,602
$ 1,647
$ 1,598
$ 1,838
$ 2,435
Higher Education
Budget Act
$ 444
$ 542
$ 630
$
662
$ 675
$ 799
$ 851
Debt Service
Fixed by Constitution
$
121
$
123
$
132
$
141
$ 159
$
171
$ 175
Social Welfare
Fixed by Statute
$ 394
$
457
$ 520
$
642
$
657
$
625
$ 680
Budget Act
29
32
76
83
94
161
137
Potential HR 1 Cost
- -
--
- -
--
--
--
42
Subtotal
$ 423
489
596
725
751
786
859
Medical Assistance
Budget Act
$ 208/1
$
324
$
388
$
484
$ 504
$ 594
)
)
Mental Hygiene
$ 961
Budget Act
$ 217
$ 235
$ 268
$
292
$
306
$ 264
}
Corrections and
Youth Authority
Budget Act
$ 130
$ 145
$
162
$
171
$ 182
$ 208
$
213
Property Tax Relief
Fixed by Constitution
---
$
176
$ 200
$
218
$
232
$ 243
$ 277
Fixed by Statute
---
8
57
99
130
206
702
Subtotal
--
$ 184
$ 257
$
317
$
362
$ 449
$ 979
Shared Revenues
Fixed by Statute
$ 545
$
567
$ 595
$
629
$
667
$
701
$ 737
Public Works
Fixed by Statute
$ 426
$
512
$ 572
$
486
$
459
$ 518
$ 501
Salary Increases
Budget Act
$ /3
$ 13
$ /3
$ 13
$ /3
$ 13
$ 226
Other
Fixed by Statute
$
34
$
34
$
38
$
33
$
36
$
69
$
56
Budget Act
532
624
735
626
675
994
1,042
Subtotal
$ 566
$ 658
$ 773
$ 659
$ 711
$ 1,063
$ 1,098
Total Governmental Cost
Funds
$ 4,484
$ 5,267
$ 5,975
$ 6,213
$ 6,374
$ 7,391
$ 9,037
Nongovernmental Cost Funds
56
86
100
128
152
151
160
Overall Total
$ 4,540
/4
$ 5,353
$ 6,075
$ 6,341
$ 6,526 /4
$ 7,542
$ 9,197
/1 Medical assistance was fixed by statute through 1967-68.
/4 Does not include repayment
12 Department of Health.
of carryover debt.
13 Distributed to various programs 1967-68 to 1972-73.
-74-
The details on existing expenditures are shown in Table 14. These
data were used as the starting point to calculate the impact of the Governor's
limitation program, and is inserted herein as a reference source. The repay-
ment of carryover borrowings in 1967-68 and 1971-72 were added to these totals
when computing the required expenditure reductions in Table 10.
-75-
Chapter 5
Projected Impact of the Governor's
Limitation on Future State Budgets,
1974-75 to 1977-78
Introduction
To make this analysis of future impact, we first projected personal
income and state revenues under existing law. Second, we made workload
projections of existing expenditure programs. Third, we compared these
workload expenditure projections with the Governor's limitation plan to
determine the magnitudes, by year, of the reductions that would be required
in these workload budgets.
These calculations are based on the law as it exists on April 30, 1973.
If the Governor's legislative program (SB 238) to return the current year's
General Fund surplus is enacted, and still contains the postponement of the
sales tax during 1973-74, then this action will reduce the tax limitation
base for 1973-74 and all subsequent years. Other future legislation
could likewise affect these calculations.
Personal Income Projection
The starting point for estimating revenues is a reliable projection
of personal incomes. To obtain this, we contracted with Professor Donald
Ratajczak of the UCLA Business Forecasting Project because his work at UCLA
has demonstrated a high degree of accuracy in forecasting economic results
over the last several years. The basic assumptions which are incorporated
into his five-year forecast of California income include the following:
1. Growth in population is estimated at 1.2 percent in 1973,
rising to 1.5 percent in 1976, and then dropping slightly to 1.4 percent in
1977.
-76-
2. Consumer price increases are estimated to increase at a 5.0
percent rate during 1973, dropping to a 4.5 percent rate in 1974, and then
growing about 3.0 percent annually thereafter.
3. Employment is projected to increase from 8.6 million in 1973
to 9.5 million in 1977. The rate of growth is expected to decline in 1974,
then accelerate in 1975 and 1976, and stabilize at about 222,000 new jobs
in 1977.
4. The unemployment rate is forecast at 5.4 percent for the current
year, declining gradually to 4.8 percent by 1977.
Professor Ratajczak forecasts that California personal income will
total $111.6 billion in 1973, a 9.4 percent increase over 1972. He projects
that personal income will increase by 7.5 percent in 1974, over 8 percent
in 1975 and 1976, and 6.5 percent in 1977. These variations in growth rates
are attributable to a combination of the high inflationary rates during 1973
and 1974, which will have a lagged impact on wage increases during the next
two years, and an anticipated slowdown in the 1974 economy. Details of these
personal income and employment growth estimates are contained in Appendix G.
Revenue Projections - Existing Law
Our revenue projections generally are based on the elasticity
relationship of individual taxes to the growth in personal income. These
relationships were obtained by examining revenues, adjusted for law changes,
over the ten-year period, 1963 to 1972, and then relating changes in
population, aggregate income, and per capita income.
Our revenue projections, including both General and Special Funds,
are contained in Table 15, and they indicate an average four-year growth
rate of 8.3 percent, which is slightly higher than the 7.7 percent average increase
in personal incomes. This table also indicates that current state revenues,
-77-
plus federal revenue sharing proceeds, will exceed projected workload
expenditures, thereby producing current surpluses from $82 million in
1974-75, to $366 million in 1976-77, and then declining to $197 million
in 1977-78, if the federal revenue sharing program terminates.
Table 15
Projection of State Expenditures and Revenues
Under Existing Law - General and Special Funds
(Nongovernmental Cost Funds Excluded)
(In Millions)
Estimated
Federal
Total
Estimated
State
Revenue
Available
State
Current
Year
Revenues
Sharing
Revenues
Expenditures
Surplus
1973-74
$ 8,949
$210
$ 9,159
$ 9,037
$122
1974-75
9,660
215
9,875
9,793
82
1975-76
10,518
220
10,738
10,523
215
1976-77
11,498
170
11,668
11,302
366
1977-78
12,318
-
12,318
12,121
197
Revenue Projections : Governor's Program
Table 16 illustrates the possible effect of the Governor's limitation on
state revenues over the next four budget years starting with 1974-75. These
estimates show the exclusions and tax credits provided by the initiative,
and also contain the nongovernmental cost fund receipts specified as being
subject to the limitation. This table indicates that net revenues will be
below the limitation in 1974-75 (due to the tax credits), exceed it by $129
million in 1975-76, and this excess, which will be transferred to the Tax
Surplus Fund, will grow to $573 million in 1977-78.
-78-
Table 16
Effect of Governor's Limitation Plan on State Revenues
For Period 1973-74 Through 1977-78
(In Millions)
Less
Amount
Estimated
Less Revenue
Plus Non-
Personal
/1
Net Revenues
State
Transferred
State Revenues
Not Subject
Gov't Cost
Income
Subject To
Revenue
To Tax
Year
Under Existing Law
To Limitation
Fund Receipts
Tax Credit
Limitation
Limit
Surplus Fund
1973-74
$ 8,949
-$ 93
$160
-$ 72
$ 8,944
$ --
$ --
1974-75
9,660
- 100
170
- 195
9,535
9,575
--
1975-76
10,518
- 108
180
- 216
10,374
10,245
129
1976-77
11,498
- 117
190
- 248
11,323
10,981
342
1977-78
12,318
- 125
200
- 275
12,118
11,545
573
/1
Credit of 7½ percent of personal income tax liability for married taxpayers with incomes of $8,000 and above
and single taxpayers with incomes of $4,000 and above, plus 100 percent credit for taxpayers
with incomes below those levels.
-79-
Workload Expenditure Projection to 1977-78
Expenditure projections to 1977-78 indicate that state costs will increase
between seven percent and eight percent per year to finance programs on a work-
load basis.
Table 17 shows total expenditures, including nongovernmental cost funds,
increasing from $9,197 million in 1973-74, to $12,323 million in 1977-78. The
separate program categories are anticipated to grow at divergent rates based
on demographic and workload factors. It was assumed in preparing these
projections, that there will be a continuation of strong economic activity
during this period with a gradual tapering off becoming more apparent by 1977-78.
It is emphasized that these are workload projections. There are a number
of impending variables that could change these assumptions. For instance, in
the social welfare category, potential state costs resulting from HR 1
(P.L. 92-603) are estimated at $84 million per year after 1973-74 (this is
about the mid-point of a range of possible costs). Federal cuts in grants-in-
aid, about which full information is not yet available, could also affect
state costs.
The anticipated 1977-78 expenditure level (including an estimated $202
million in the nongovernmental cost funds category) is distributed by program
and also by type of expenditure including: (1) those programs or program portions
in which expenditures are fixed by the Constitution; (2) those fixed by con-
tinuing statutory authority, and (3) those subject to the Budget Act or other
legislation each year. A breakout of the totals for each of these categories
follows:
1977-78 Expenditures
(Millions)
Fixed by Constitution
$ 1,504
Fixed by Statute (including nongovernmental cost
funds and potential HR 1 cost)
5,306
Budget Act
5,513
Total
$12,323
-80-
Expenditure
Projection 1973-74 to 1977-78
Workload Basis
(In Millions)
Projection
1973-74
1974-75
1975-76
1976-77
1977-78
Factor
Education
Fixed by Constitution
$ 946
$ 952
$ 958
$ 964
$ 970
$ +6 mil./1
Fixed by Statute
1,216
1,316
1,424
1,541
1,667
8.2%
Budget Act
273
289
306
324
343
6%
Subtotal
$ 2,435
$ 2,557
$ 2,688
$ 2,829
$ 2,980
Higher Education
Budget Act
$
851
$ 906
$ 965
$ 1,028
$ 1,095
6.5%
Debt Service
Fixed by Constitution
$
175
$
186
$
197
$ 209
$
222
6%
Social Welfare
Fixed by Statute
$ 680
$ 734
$ 793
$ 856
$ 924
8%
Budget Act
137
148
160
173
187
Potential HR 1 Cost
42
84
84
84
84
Subtotal
$ 859
$ 966
$1,037
$1,113
$1,195
8.6%
Department of Health
Budget Act
$ 963
$ 1,040
$ 1,123
$1,235
$1,375
Various
Corrections and Youth Authority
Budget Act
$ 213
$ 226
$ 239
$ 254
$ 269
6%
Property Tax Relief
Fixed by Constitution
$
277
$ 285
$ 294
$ 303
$ 312
)
Various
Fixed by Statute
702
756
786
820
853 )
Subtotal
$ 979
$ 1,041
$ 1,080
$ 1,123
$ 1,165
Shared Revenues
Fixed by Statute
$
737
$
774
$ 812
$
852
$
894
5%
Public Works
Fixed by Statute
$
501
$ 526
$ 552
$ 580
$
609
5%
Salary Increases
Budget Act
$ 226
$
346
$ 473
$
584
$
678
(Yearly increases)
(120)
(127)
(111)
(94)
Various
New Legislation
--
$
50
$
100
$ 150
$ 200
$+50 mil./
Other
Fixed by Statute
$
56
$
60
$
64
$
68
$
73
)
7%
Budget Act
1,042
1,115
1,193
1,277
1,366 )
Subtotal
$ 1,098
$ 1,175
$ 1,257
$ 1,345
$ 1,439
Total Governmental Cost Funds
$ 9,037
$ 9,793
$10,523
$11,302
$12,121
7.6%
Nongovernmental Cost Funds
$ 160
170
180
191
202
6%
Overall Total
$ 9,197
$ 9,963
$10,703
$11,493
$12,323
7.6%
-81-
11 Amount per year.
The major impact of expenditure reductions, which would be required
if the Governor's limitation is approved, most likely would fall in the
Budget Act category since changes in law or the Constitution would be
required in the other categories. Because certain programs such as higher
education, corrections and youth authority, and the Department of Health are
funded entirely from the Budget Act or other special legislation, most
pressure for reductions could therefore be expected in these programs.
Derivation of the Expenditure Control Limitation
Table 19 and 19A show two derivations of the Governor's expenditure
limitation using our estimates of personal income. In each case, we started
by using the Governor's revenue estimate of $9,309 million in 1973-74 (Table 9
in Chapter 3), and then excluding $293 million of income to the Veterans' Farm
and Home Loan Fund because the Legislative Counsel states that these receipts
are not in the limitation base. Table 19 used the net figure of $9,016 million,
and the estimate is based on the law as it exists today (April 30, 1973).
In Table 19A, we made an additional deduction for the possible future
enactment of the Governor's legislative program (SB 238 and AB 148), which
among other changes would postpone the sales tax increase to January 1, 1974,
thus reducing 1973-74 revenues by $317 million. Under this condition, the
Governor's limitation base would be $8,699 million in 1973-74, which is 7.79
percent of California personal income.
The initiative provides that state expenditures can be financed by
certain excluded revenues (fish and game licenses, park and recreation fees,
intergovernmental transfers), and by federal revenue sharing proceeds. There-
fore, these amounts ($93 million and $210 million) were added to the limitation
bases, and the totals were then compared to our estimates of workload expenditures.
Table 18 summarizes the budgetary reductions that would have to be
made. During 1974-75, for example, workload expenditures would have to be
-82-
reduced by either $79 million (Table 19) or $420 million (Table 19A). By
1977-78, when federal revenue sharing proceeds (under existing law) will not
be available to partially offset the impact of this initiative, the reductions
will be either $672 million (Table 19) or $1,099 million (Table 19A). If
federal revenue sharing is continued beyond calendar 1976, then there is a
possibility these latter reductions could be reduced by about $200 million a
year.
This material indicates that:
1. It would appear to be imprudent for the Legislature to enact the
Governor's program (SB 238 in its present form) to return the
current surplus to the taxpayers, or any other measure (such as
changes in revenue accruals) which significantly reduces the
initiative's 1973-74 limitation base, because such actions will
magnify expenditure reductions in the future, to the point of
impracticality.
2. State expenditures will be reduced to the 7.0 percent of personal
income level much faster than the Governor predicted. His report
indicated that it would take about 15 years to reach the initiative's
goal. Our estimates indicate that this "goal" will be reached
in either the eighth (Table 19A) or the 11th (Table 19) year, which
means that expenditures will decline faster than the Governor
anticipated.
-83-
Table 18
Required Reductions in State Expenditures if the
Governor's Limitation Plan is Adopted
(In Millions)
With the
Without
Enactment
Year
SB 238
of SB 238
1974-75
-$ 79
-$ $ 420
1975-76
- 141
- 510
1976-77
- 240
- 641
1977-78
- 672
- 1,099
-84-
Table 19
Derivation of the Governor's Limitation and Resulting Reductions in Expenditures,
Without SB 238
1973-74 to 1977-78
(In Millions)
Total
California
Governor's
Federal
Other
Available
Estimated
Expenditure
Personal
Limitation
Revenue
Excluded
For
Workload
Reductions
Fiscal Year
Income /1
Percentage
Amount
Sharing
Revenues
Expenditure
Expenditures
Required
1973-74
$111,616
8.078
$ 9,016
$210
$ 93
$ 9,319
$ 9,197
--
1974-75
120,018
7.978
9,575
215
94
9,884
9,963
$ 79
1975-76
130,045
7.878
10,245
220
97
10,562
10,703
141
1976-77
141,180
7.778
10,981
170
102
11,253
11,493
240
1977-78
150,367
7.678
11,545
--
106
11,651
12,323
672
/1 Income for calendar year in which the fiscal year commences.
-85-
Table 19A
Derivation of the Governor's Limitation and Resulting Reductions in Expenditures
With the Enactment of SB 238
1973-74 to 1977-78
(In Millions)
Total
California
Governor's
Federal
Other
Available
Estimated
Expenditure
Personal
Limitation
Revenue
Excluded
For
Workload
Reductions
Fiscal Year
Income
Percentage
Amount
Sharing
Revenues
Expenditure
Expenditure
Required
1973-74
$111,616
7.794
$ 8,699
$210
$ 93
$ 9,002
$ 9,197
$ --
1974-75
120,018
7.694
9,234
215
94
9,543
9,963
420
1975-76
130,045
7.594
9,876
220
97
10,193
10,703
510
1976-77
141,180
7.494
10,580
170
102
10,852
11,493
641
1977-78
150,367
7.394
11,118
:
106
11,224
12,323
1,099
/1
Income for calendar year in which the fiscal year commences.
-86-
Table 19 showed that $11,651 million would be the total amount
available for expenditure in 1977-78. Subtracting this amount from estimated
workload expenditures indicates a $672 million or 5.5 percent reduction.
Of the total expenditures, the Budget Act category will account for
$5,513 million, and the remainder consists of constitutional and statutory
fixed costs. Most of the pressure for budgetary reductions will be centered
in the Budget Act category. If all the reductions were made in this category,
then the percentages would be 12.2 percent without SB 238, and 19.9 percent
with the enactment of the Governor's tax surplus refund program.
Table 20 compares the reductions, by program, that would be required
during 1977-78 in Budget Act workload expenditures if the Governor's initiative
is adopted.
Table 20
Estimated Reduction in 1977-78
Budget Act Expenditures
From the Enactment of the
Governor's Limitation
(In Millions)
Workload
Required Reductions
Program
Expenditures
Without SB 238
With SB 238
Higher Education
$1,095
-$133
-$219
Department of Health
1,375
- 168
- 274
Corrections & Youth
Authority
269
- 33
- 54
Local Education
343
- 42
- 68
Social Welfare
187
- 23
- 37
Other
2,244
- 273
- 447
Total
$5,513
-$672
-$1,099
/1
Budget Act portion.
/2
Includes salary increases, new legislation and also various state agencies
such as Highway Patrol, Motor Vehicles, etc., partly or wholly funded in
the Budget Act category.
-87-
Appendix page 1
APPENDIX A
Table A
Comparison of State Taxes and Revenues in the
Governor's Budget VS. Those Used by the Governor's Office to
Estimate the Tax Burden on Californians
1969-70 Data in Millions
Governor's
In Governor's
Office Tax
Sources
Budget (a)
Burden Estimate
Difference
I.
Major Taxes and Licenses
$5,409
$5,410
+$ 1
II. Other Revenues
Corporate License Fees
$
7
$
3
Public Utility Fees
5
2
Occupational Licenses
30
48
Hunting and Fishing Licenses
14
14
Beach and Park Charges
6
9
Agricultural Fees
12
20
Hospital Charges
83
80
Rents and Royalties
29
42
Fines and Penalties
23
24
Interest Earnings
81
173
Sale of Property
5
21
Other
38
126
Total Other Revenues
$ 333
$ 562
+$229
11
Table A (Continued)
Governor's
In Governor's
Office Tax
Sources
Budget (a)
Burden Estimate Difference
III. Nonbudget Funds
A. Current Charges
Higher Education Auxiliary
Enterprises
$ 89
Other Education Charges
116
Highway Toll and Other Charges
54
Donations (mainly to U.C.)
31
Subtotal
$ 290
B. Employee and Insurance Trust Income
1. Employees Retirement
Employee Contribution
$ 376
Local Government Contribution
189
Earnings on Investments
268
2. Unemployment Compensation
Employer Contributions
$ 531
Earnings on Investments
60
3. Workmen's Compensation
Employer Contributions
$ 105
Earnings on Investments
13
4. Other Insurance Trust Activities
312
Subtotal Insurance Trust
Income
$ 0
$1,854
Total Nonbudget Funds
$ 0
$2,144
+$2,144
Totals
$5,742
$8,116
+$2,374
(a) Actual collections for 1969-70 as shown in Schedule 2 on page B-2 of the
Governor's 1971-72 Budget.
APPENDIX B
Appendix page 3
Table B
State Government "Revenues" Collected from "Californians"
1969-70 Data
Sources
Millions
1. General (Retail) Sales Tax
$1,757
2. Selected Sales Taxes
Motor vehicle fuel
$673
Alcoholic beverage
106
Cigarettes
235
Insurance tax
135
Motor vehicle truck tax
23
Horseracing fees
60
Agricultural and marketing fees
20
Total Selected Sales Taxes
1,252
3. Individual Income Tax
1,151
4. Corporation Income Tax
588
5. Licenses
Motor vehicle registration fees
$259
Motor vehicle operators' fees
12
Corporation license fees
3
Public utility fees
2
Alcoholic beverage licenses
20
Occupational and business licenses
48
Hunting and fishing licenses
14
Other licenses
1
Total License Fees
359
6.
Property Taxes
Motor vehicle in lieu taxes
$230
Private car tax
4
Total Property Taxes
234
7.
Other Revenues
(a) Current Charges
Higher education auxiliary enterprises $ 89
Other higher education charges
112
Other education charges
4
Highway toll charges
41
Other highway charges
13
Hospital charges
80
Natural resource charges
11
Forestry and park charges
9
Other charges
87
Subtotal Current Charges
$446
(b) Miscellaneous General Revenue
Sale of property
$ 21
Interest earnings
173
Fines and forfeits
24
Rents and royalties
42
Appendix page 4
Table B (Continued)
Sources
Millions
Donations
$ 31
Miscellaneous general revenue
26
Subtotal - Miscellaneous General
Revenue
$317
(c) Death and Gift Taxes
157
(d) Severance Taxes
1
Total Other Revenue
921
8. Employee and Insurance Trust Income
(a) Employees' Retirement
Employee contributions
$376
Local government contributions
189
Earnings on investments
268
(b) Unemployment Compensation
Employer contributions
$531
Earnings on investments
60
(c) Workmens' Compensation
Employer contributions
$105
Earnings on investments
13
(d) Other Insurance Trust Activities
Contributions
$305
Earnings on investments
7
Total Employee and Insurance Trust Income
1,854
Total State Government "Revenues"
$8,116
California Personal Income in Calendar 1969
$83,192
Governor's Definition of "State Revenues" as a Percent of
California Personal Income
9.76%
Sources:
Revenue categories are from Table 1, page 32 of the Governor's
March 12, 1973 report on "Revenue Control and Tax Reduction".
Details of revenues in each category are from the U. S. Department
of Commerce, Bureau of the Census report State Government Finances
in 1970", pp 19 to 26.
APPENDIX C
Appendix page 5
Table C
Local Government "Revenues" Collected From "Californians"
1969-70 Data in Millions
Sources
Millions
1. Local Property Taxes
$4,998
2. Other Taxes
Retail sales
$431
Public utility taxes
37
Other sales taxes
54
Licenses, permits and other taxes
143
Total Other Taxes
665
3. Charges and Miscellaneous Revenue
Airports
$ 65
Miscellaneous commercial activities
46
School lunches
133
Other school receipts
38
Higher education receipts
30
Hospital charges
431
Highways
16
Housing and urban renewal
30
Parking facilities
16
Parks and recreation
60
Sewage charges
68
Water transportation terminals
51
Other miscellaneous charges
60
Special assessments
172
Sale of property
77
Interest earnings
45
Miscellaneous other revenue (fines, for-
feits)
287
Donations, insurance adjustments
200
Total Charges and Miscellaneous Revenue
1,825
Total Local Government "Revenue"
$7,488
California Personal Income in Calendar 1969
$83,192
Governor's Definition of "Local Revenue" as a Percent of
California Personal Income
9.00%
Sources:
Revenue categories are from Table 1, page 31 of the Governor's March 12,
1973 report on "Revenue Control and Tax Reduction".
Details on revenues in each category are from the U. S. Bureau of the
Census. The "Charge and Miscellaneous Revenue" data was obtained by
phone.
APPENDIX D
Appendix
page
Table D
Federal "Revenues" Collected From "Californians"
1969-70 Estimates
Sources
Millions
1. Individual Income Taxes and Insurance Trust Revenues
$13,408 (a)
2. Excise Taxes
Alcoholic beverage
$505
Gasoline
345 (d)
Motor vehicle, parts, etc.
46
Telephone, telegraph
218
Transportation
25
Sugar
12
Diesel and other oils
43
Others
5
Total Excise Taxes
1,199 (b)
3. Corporation Income
3,637 (c)
4. Estate and Gift
439
5. Customs
269 (c)
6.
Other Revenues
Postal receipts
$685
Natural resources
251
Sale of agricultural products
97
Other current charges
230
Sale of property
38
Interest earnings
204
Other miscellaneous revenue
434
Other taxes
100
Motor vehicle fuel taxes
418 (d)
Other sales and gross receipt taxes
175 (d)
Total Other Revenue
2,632 (d)
Total "Federal Revenue" From "Californians"
$21,584
California Personal Income in Calendar 1969
$83,192
Governor's Definition of "Federal Revenues" II as a Percent of
California Personal Income
25.94%
Sources:
Revenue categories from Table 1, page 33 of the Governor's March 12,
1973 report on "Revenue Control and Tax Reduction".
Details on revenues in each category were supplied by Mr. Charles Hobbs
of the Governor's Office.
Appendix page
Table D (Continued)
(a) Estimated by the Governor's Office. About $9 billion of the total
represents personal income taxes. There is an element of double
counting in this category because part ($124 million) of the receipts
consists of state and local government employer contributions to
OASDI. Also, the total is probably overstated by about $1 billion
because only half of the personal income tax refunds were deducted
from gross collections.
(b) California Statistical Abstract for 1971, page 142.
(c) Estimated by Governor's Office by prorating national collections
based on California's ratio of personal income in 1969 - which was
11.0786 percent of the national total.
(d) Estimated by Governor's Office by prorating national collections
based on California's ratio of personal income. There may be a
double counting of motor vehicle fuel and other gross receipt taxes
in both this category and in the excise tax category.
APPENDIX t
GERALD Ross ADAMS
DAVID D. ALVES
BERNARD CZESLA
MARTIN L. ANDERSON
CHIEF DEPUTY
CHARLES C. ASBILL
Legislative Countel
JAMES L. ASHFORD
J. GOULD
JERRY L. BASSETT
OWEN K. KUNS
EDWARD RICHARD COHEN
RAY H. WHITAKER
JOHN CORZINE
BEN E. DALE
KENT L. DECHAMBEAU
CLINTON J. DEWITT
ERNEST H. KUNZI
of California
JERALD S. DICK
STANLEY M. LOURIMORE
ROBERT CULLEN DUFFY
SHERWIN C. MACKENZIE, JR.
LAWRENCE H. FEIN
ANN M. MACKEY
JOHN FOSSETTE
EDWARD F. NOWAK
HARVEY J. FOSTER
EDWARD K. PURCELL
ROBERT D. GRONKE
PRINCIPAL DEPUTIES
JAMES W. HEINZER
THOMAS R. HEUER
3021 STATE CAPITOL
GEORGE H. MURPHY
L. DOUGLAS KINNEY
SACRAMENTO 95814
VICTOR KOZIELSKI
DANIEL LOUIS
110 STATE BUILDING
JAMES A. MARSALA
Los ANGELES 90012
EUGENE W. MCCABE
PETER F. MELNICOE
MIRKO A. MILICEVICH
TRACY O. POWELL, 11
MARGUERITE ROTH
MARY SHAW
Sacramento, California
BOX K. SIMMONS
RUSSELL L. SPARLING
April 24, 1973
JOHN I. STUDESAKER
BRIAN L. WALKUP
THOMAS D. WHERAN
DAVID E. WHITTINGTON
JIMMIE WIAG
CHRISTOPHER ZIRKLE
DEPUTIES
Mr. A. Alan Post
Legislative Analyst
925 L Street, Suite 650
Sacramento, California 95814
Governor's Tax and Expenditure Limitation
Initiative
#7466
Dear Mr. Post:
QUESTION
Are loan repayments and interest paid to the
Veterans' Farm and Home Building Funds "fees" within the
meaning of Section 16 (b) (3) of the so-called Governor's
Tax and Expenditure Limitation Initiative, so that the
Legislature might by statute designate them as excluded
state revenues?
OPINION
In our opinion, such payments do not fall within
the definition of "state tax revenue" and would not be
considered as such by the courts.
ANALYSIS
Subdivision (a) of Section 16, as contained therein,
first defines "state tax revenue" as including various
revenues of the state, but excepts "excluded state revenues"
from the definition. "Excluded state revenues" are defined
in subdivision (b) of such section as including various
receipts, and fees.
Appendix page 9
Appendix E Continued
Mr. A. Alan Post - p. 2 - #7466
Subdivision (a) of this particular section provides,
in part, as follows:
"(a) 'State Tax Revenue' means the revenue
of the State from every tax, fee, penalty, receipt
and other monetary exaction, interest in connection
therewith
except Excluded State Revenues
=
...
However, notwithstanding these definitions, we
do not think that the payments in question constitute
"revenues," tax or otherwise. Consider, for example, the
following definitions:
"The word 'revenue' is used in many senses.
It is, like thousands of words in our language,
ambiguous in meaning, the significance of which
can only properly be determined by the words
with which it is connected. Let it be conceded
that the usual and ordinary meaning of the word,
when used alone, is 'net income, - that which
remains of the annual income of property after
deducting from gross receipts the expenses
incurred in producing the gross income, - still
we must resort to the context to find the sense
in which it is used in the writing presented for
interpretation. If the context indicates a meaning
different from its ordinary and popular signifi-
cation, we must adopt the meaning so indicated;
that is, indicated by the words of the statute
or instrument in which it is used. " (Bates V.
Porter (1887), 74 Cal. 224, 240, with emphasis
added.)
"
The term 'revenue' is
...
'the
income which a state collects and receives
into its treasury, and is appropriated for
the payment of its expenses. 111 (Public Market
Company of Portland V. City of Portland (1942,
Oregon), 130 P. 2d 624, 644, with emphasis
again added.)
II
A debt is a sum of money due by
contract, express or implied. A tax is a charge
upon persons or property to raise money for
public purposes. (Perry V. Washburn (1862), 20
Cal. 318, 350).
Appendix page 10
Appendix E Continued
Mr. A. Alan Post - p. 3 - #7466
"
While 'fees' in some cases have been
held to include salaries, there is a distinction
in that 'fees' ordinarily constitute payment for
particular services performed, while 'salaries'
constitute fixed compensation for continuous
services over a period of time. " (County of San
Diego V. Milotz (1956), 46 Cal. 2d 761, 769,
with citations omitted.)
"Exaction
the act cr process of exacting:
compulsion to furnish: a levying especially by
force of various dues and fees
" (Webster's.)
Since the payments by the veterans under the
Veterans' Farm and Home Purchase Act of 1943 are merely
a return to the state of the funds that it has "loaned"
to them from bond proceeds and these same funds are
ultimately used to repay the bonds, the payments do not
represent income in the ordinary sense, as defined above,
in the sense of any new money coming into the state
treasury by virtue of the transactions. Thus, we think
the courts in construing subdivision (a) of Section 16
would not consider the payments in question as revenue.
For example, Chapter 3 (commencing with Section 16430)
of Part 2 of Division 4 of Title 2 of the Government Code pro-
vides for the investment of the state's surplus money. Under
this chapter, the state could, as an illustration, invest
"X" million dollars in United States bonds (Secs. 16430,
16480.1, Gov. C.). When the "X" million dollars is returned
with interest, the state would, in effect, be receiving a
return of its own money with the earnings thereon.
If each such return is held to be "state tax revenue,"
this would seem to be contrary to the purpose of the initiative,
which is to limit and reduce state taxes. In other words,
if the state invested revenues pending their expenditure, the
same revenues would be counted the second time when the
investments were returned. Such a construction would be
absurd.
Further, even assuming that the payments from veterans
in question are considered to be revenue within the meaning
of the initiative, it should be noted that the program for
veterans is financed by the sale of general obligation
bonds of the state (see, for example, Proposition 1, Ballot
Pamphlet, Primary Election, June 6, 1972). The proceeds
from such sales are used to assist veterans to acquire
Appendix page 11
Appendix E Continued
Mr. A. Alan Post - p. 4 - #7466
farms and homes under the Veterans' Farm and Home Purchase
Act of 1943. Such act is provided for in Article 3 (commencing
with Section 984) of Chapter 6 of Division 4 of the Military
and Veterans Code.
Generally speaking, under the act, the Department
of Veterans Affairs acquires a farm or home for a veteran,
or arranges with a veteran for the construction of a dwelling
house or other improvement for a farm or home for him; and in
either case contracts with the veteran for the sale of the
farm or home to him subject to conditions requiring the pay-
ment by him to the department of the purchase price plus
interest (Secs. 986.2, 986.3, 986.4, 986.5, 986.6, 986.9,
and 987, M.& V.C.).
With respect to these transactions, Section 986.9
of the Military and Veterans Code provides, in part, as
follows:
"986.9. The department shall then enter
into a contract with the veteran for the sale
of the property to the veteran
"
Thus, technically speaking, we are here discussing
the sale of property by a department of state government to a
private party.
If this interpretation is adopted, we do not overlook
the fact that the eighth clause of paragraph (1) of subdivision
(b) of Section 16 in the initiative would provide that
"excluded state revenues" means the following receipts:
" (viii) proceeds from the sale of real and
personal property
=
However, we do not think the "sales" would be con-
sidered as the sale of property since in Eisley V. Mohan
(1948), 31 Cal. 2d 637, the California Supreme Court held
that property purchased by a veteran was not exempt from
property taxation as property of the state and stated,
at page 643:
II
For tax purposes, then, the security
title is not considered to be property, and it
necessarily follows that the vendee in possession
of the land under an executory contract is for
all purposes the owner and the vendor retains
mere legal title. = (With citations omitted and
emphasis added. )
Appendix page 12
Appendix E Continued
Mr. A. Alan Post - p. 5 - #7466
Under the reasoning in Eisley V. Mohan, it could
be urged that the Department of Veterans Affairs--despite
the intricacies of the transaction--makes "loans" to veterans,
rather than "selling" them property.
Considered as "loans," the veteran must repay
the principal of the loan, with interest. The repayment
of the principal to the state constitutes a return of the
funds "loaned" to the veteran.
In view of the above, it is our opinion that neither
the principal nor the interest paid to the Department of
Veterans Affairs under the Veterans' Farm and Home Purchase
Act of 1943 will be deemed to be "state tax revenue" within
the meaning of the initiative, if the measure is adopted.
Very truly yours,
George H. Murphy
Legislative Counsel
By Russell C. Spacling
Russell L. Sparling
Principal Deputy
RLS: db
ATTORNEY GENERAL
Appendix page 13
DIVISION OF ADMINISTRATION
CHARLES A. BARRETT
APPENDIX F
SANFORD N. GRUSKIN
CHIEF DEPUTY ATTORNEY GENERAL
CHIEF ASSISTANT ATTORNEY GENERAL
DIVISION OF SPECIAL OPERATIONS
EDWARD A. HINZ, JR.
OFFICE OF THE ATTORNEY GENERAL
CHIEF ASSISTANT ATTORNEY GENERAL
DIVISION OF CRIMINAL LAW
Department of Justice
WILEY W. MANUEL
CHIEF ASSISTANT ATTORNEY GENERAL
ROOM 500. WELLS FARGO BANK BUILDING
DIVISION OF CIVIL LAW
FIFTH STREET AND CAPITOL MALL. SACRAMENTO 95814
April 2, 1973
FILED
In the office of the Secretary of State
of the State of Celifornia
Honorable Edmund G. Brown, Jr.
APR3 1973
Secretary of State
Secretary of State
117 State Capitol
Sacramento, California 95814
Deputy Secretary of State
Dear Sir:
TAX AND EXPENDITURE LIMITATIONS
Initiative Constitutional Amendment
Pursuant to the provisions of section 3507 of the Elections
Code, you are hereby informed that on this day we mailed
to Mr. Norman Topping, as proponent, the following title
and summary:
TAX AND EXPENDITURE LIMITATIONS. Initiative
Constitutional Amendment. Limits State expenditures;
restricts use of defined surplus revenue to tax
reductions, refunds, or emergencies. Eliminates
personal income tax for lower income persons;
reduces others' 1973 or 1974 tax up to 20%, from
surplus, and subsequent year rates 7½. Requires
two-thirds legislative vote for new or changed
State taxes. Limits local property tax rates except
school districts'. Requires State funding of new
programs mandated to local governments. Provides
for tax and expenditure limit adjustments when
functions transferred. Contains special indebtedness
obligation provisions. Allows local tax rate and
expenditure limit increases upon voter approval. If
the proposed initiative is adopted undefined addi-
tional financing from State sources in the approximate
amount of Five Hundred Sixty Eight Thousand dollars
($568,000) on a one-time basis and Two Hundred Thirty
Six Thousand dollars ($236,000) annually thereafter
will be required for State administrative costs.
Appendix F Continued
Office of the Secretary of State
State Capitol
Edmund G. Brown Jr.
(916) 445-6371
Sacramento, California 95814
CALIFORNIA
April 3, 1973
TO THE COUNTY CLERKS AND REGISTRARS OF VOTERS:
Pursuant to Section 3507 of the Elections Code, there is transmitted
herewith a copy of the Title and Summary prepared by the Attorney General
on a proposed Initiative Measure entitled:
TAX AND EXPENDITURE LIMITATIONS
INITIATIVE--CONSTITUTIONAL AMENDMENT
Circulating and Filing Schedule:
1. Minimum signatures required: 520,806
2. Official Summary Date
4-2-73
3. Deadline to circulate and file sections of Original Petition. 7-2-73*
4. First date to circulate sections of Supplemental Petition
7-3-73
IF INITIAL FILING WAS MADE ON 7/2. OTHERWISE, FIRST DATE WILL
BE THE DAY FOLLOWING THE INITIAL FILING.
5. Deadline to transmit your certificate as to number of valid. 7-23-73*
signatures on Original Petition IF INITIAL FILING WAS MADE ON
7/2. OTHERWISE, DEADLINE WILL BE THE 20TH DAY AFTER THE INITIAL
FILING.
6. Deadline to file sections of Supplemental Petition IF YOUR
9-4-73*
INITIAL CERTIFICATION WAS DATED 7/23. OTHERWISE, THE DEADLINE
WILL BE THE 40TH DAY AFTER THE DATE OF YOUR INITIAL CERTIFICATION.
7. Deadline to transmit your certificate as to the number of
9-14-73
valid signatures on Supplemental Petition IF SUPPLEMENTAL
PETITION WAS FILED ON 9/4. OTHERWISE, THE DEADLINE WILL BE
THE 10TH DAY AFTER THE SUPPLEMENTAL FILING.
*Date adjusted for official deadlines which fall on Saturday, Sunday or
holidays.
Appendix paye 10
Appendix F Continued
8. The proponent of the above-named measure is:
Mr. Norman Topping
P O Box 225
Sacramento, CA 95802
Attention: John Diepenbrock
Mr. Norman Topping
100 South Plymouth Blvd.
Los Angeles, CA 90004
Edward arnold
Edward Arnold Jr.
Elections Assistant
EA:jay
Appendix page 16
Appendix F Continued
To Honorable Secretary of State of California:
The undersigned hereby proposes that the Constitution of the State of
California be amended by adding Article XXIX and petitions the Secretary of
State to submit this proposal to the electors of California for adoption. The
text of the proposed measure is as follows:
"The People of the State of California do enact as
follows:
"The Constitution of the State of California is
amended by adding Article XXIX, to read:
ARTICLE XXIX
REVENUE CONTROL AND TAX REDUCTION
Section 1. Declaration of Purpose.
The people of the State of California declare it is in the best interests of
the State to effect an orderly reduction of their tax burden, without shifting costs
to local government, by enacting this Constitutional provision to:
(a)
Limit and reduce State taxes,
(b)
Provide for refunds to the taxpayers of surplus State revenues,
(c)
Limit Local Entity property tax rates,
(d)
Establish funding procedures for Emergency Situations, and
(e)
Require voter approval of taxes which exceed the limits set
forth in this Article.
Appendix page 17
Appendix F Continued
Section 2. State Tax Revenue Limit; Tax Surplus Fund; 20% Tax Refund.
(a)
There is a State Tax Revenue Limit determined as provided in
this Article.
(1)
If State Tax Revenues for any fiscal year exceed the
State Tax Revenue Limit for that fiscal year, the excess
shall be transferred to the Tax Surplus Fund, which is
hereby established.
(2)
The Tax Surplus Fund shall be used only for one or more
of the following purposes:
(1)
For tax refunds or reductions;
(ii)
For approved Emergency Situation appropriations
under Section 6 of this Article.
(3)
The Legislature shall minimize accumulations within the
Tax Surplus Fund by making periodic tax refunds or
reductions as permitted by this Article.
(b)
On the effective date of this Article, the Controller shall
determine the amount of surplus in the General Fund as of
the end of fiscal year 1972-73 and shall designate such
portion of the surplus as is necessary and available to
effect the refund of subdivision (b) (1) hereof.
(1)
The surplus 50 designated shall be utilized for a refund
by means of a credit of 20% of personal income taxes fer
the calendar year 1973, excluding taxes on capital gains
on assets held for more than one year, items of tax pref-
erence, estates and trusts, or in such lesser percentage
as the Director of the Department of Finance shall certify
is available for such refund. Single individuals whose
adjusted gross income is less than $4,000.00 and married
couples and heads of households whose adjusted gross
income is less than $8,000.00 shall bear no personal
Income tax. If this Article is effective on or before Dec-
ember 31, 1973, then this paragraph shall apply to the 1973
taxable year. If this Article becomes effective after Dec-
ember 31, 1973, then this Section shall apply to the 1974
taxable year.
(2)
If, prior to the effective date of this Article, a statute
is enacted providing the refund as set forth in subdivision
(b) (1) of this Section, such statute shall be deemed
compliance with the requirements of this subdivi on (b)
to the extent such refund is provided.
Appendix F Continued
(3)
The Legislature shall, by statute, implement the tax
refund required by subdivision (b) (1) as to application
to non-resident and fiscal year taxpayers and as to
credits in computing liability.
(4)
State Tax Revenue for purposes of computing the State
Tax Revenue Limit as here defined shall not be reduced
by refunds made pursuant to this subdivision (b).
Section 3. Appropriation Limit.
No appropriation shall cause an expenditure during any fiscal year of
State Tax Revenues for that fiscal year in excess of the State Tax Revenue Limit
for that fiscal year, other than for tax refunds or, pursuant to Section 6 of this
Article, for Emergency Situations. Subject only to such exceptions, any such
expenditure in excess of the State Tax Revenue Limit is prohibited. The Legis-
lature shall, prior to any other appropriation, first make provision for the payment
of the principal and interest on the indebtedness of the State.
Section 4. State Tax Adjustments; Personal Income Tax Reduction.
(a)
The imposition of any new tax or the change in the rate or base
of any tax by the Legislature shall be by statute passed by
roll-call vote entered in the journal, two-thirds of the member-
ship of each house concurring, except for tax refunds or
reductions by appropriations specifically declared to be out
of the Tax Surplus Fund which shall be by statute passed by
a vote of the majority of the membership of each house.
(b)
For 1974 and thereafter, the State personal income tax liability
of taxpayers shall be determined at rates no higher than those
in effect on January 1, 1973, less a credit of 7½. Single indi-
viduals whose adjusted gross income is less than $4,000.00 and
married couples and heads of households whose adjusted gross
Income is less than $8,000.00 shall bear no State personal
income tax. The logislature shall, by statute, implement the
tax reduction required by this Section as to application to non-
Appendix paye
Appendix F Continued
resident and fiscal year taxpayers and as to credits in computing
liability. The provisions of this subdivision (b) may bc modified
by statute passed by roll-call vote entered in the journal, two-
thirds of the membership of each house concurring. If this Article
becomes effective after December 31, 1973, then this subdivision
shall apply to 1975 and thereafter instead of 1974 and thereafter.
Section 5. State Tax Revenue Limit Adjustment by Election.
The State Tax Revenue Limit may be increased or decreased by a desig-
nated dollar amount by a majority vote of the people at a Statewide election
approving a measure placed on the ballot by the Legislature by a roll-call vote
entered into the journal, two-thirds of the membership of each house concurring,
or placed on the ballot as an initiative statute pursuant to Article IV of this
Constitution, A measure so approved shall take effect the day after the election,
unless the measure provides otherwise.
Section 6. Emergency Fund and Emergency Appropriations.
(a)
A Special Emergency Fund of not more than 0.2% of the State
Personal Income shall be established and maintained by the
Legislature. Money appropriated to the Special Emergency
Fund shall be from State Tax Revenues and shall be subject
to the State Tax Revenue Limit.
(b)
Upon the Governor's declaration of an Emergency Situation
and the exhaustion of such emergency funds as may be avail-
able from the Federal Government, the Legislature may make
appropriations to meet the Emergency Situation from the
Special Emergency Fund or, if that Fund is exhausted, either
from the Tax Surplus Fund or from State Tax Revenues derived
from a specific tax increase or a specific new tax designated
for the Emergency Situation and enacted in accordance with
Section 4 of this Article. Any tax so enacted shall remain in
effect no longer than two years, unless its continuation is
approved by is majority of the votes cast for and against its
continuance at a Statewide election.
Appendix page 20
Appendix F Continued
Section 7. Local Taxes.
(a)
The Maximum Property Tax Rates of each Local Entity are set
at the rates levied for the fiscal year 1971-72 or for the fiscal
year 1972-73, whichever is the higher. The Maximum Property
Tax Rates for a Local Entity created after the effective date of
this Article shall be established by the electorate of the Local
Entity at the time of its creation.
(b)
To permit adjustment of the Maximum Property Tax Rates set
in subdivision (a) of this Section, the Legislature shall enact
statutes, within the general intent of this Article, to permit:
(1)
Maximum Property Tax Rates to be increased or decreased
to reflect cost variations due to cost-of-living or population
changes not offset by assessed valuation changes or to
allow for other special circumstances creating hardship
for individual Local Entities.
(2)
Maximum Property Tax Rates to be increased or decreased
when authorized by the electorate of the Local Entity, or
if there is no electorate, then as provided by the Legis-
lature.
(3)
Maximum Property Tax Rates to be increased by a four-
fifths vote of the governing board of a Local Entity, to
secure revenue to defray the costs of an Emergency
Situation affecting the Local Entity, but any such
Increase shall remain in effect no longer than two years,
unless its continuation is approved by the Local
Entity's electorate.
(c)
All property taxable by Local Entities and School Districts,
except personal property specially classified for the purpose
of assessment and taxation pursuant to the provisions of
Section 14 of Article XIII of this Constitution, shall be
assessed at a uniform percentage of full value established by
the Legislature. If that percentage is any figure other than
twenty-five, the maximum rates prescribed in subdivisions
(a) and (b) of this Section shall be converted into new
maximums by multiplying them by twenty-five and dividing
them by the new assessment percentage. Full value, as
used herein, means fair market value or such other standard
of value as is required or authorized under this Constitution.
(d)
No Local Entity or School District shall impose, levy or
collect any tax upon or measured by income, or any part
thereof, except as authorized by the Legislature by a statute
Appendix F Continued
passed by a roll-call vote entered in the journal, two-thirds
of the membership of each house concurring. This subdivision
(d) shall not be construed to prohibit the imposition, levy or
collection of any otherwise authorized license tax upon a
business measured by or according to gross receipts.
Section 8. Protection of Local Entities and School Districts from State-
Imposed Costs.
(a)
After the effective date of this Article, no new program, or
increase in level of service under an existing program, shall
be mandated to Local Entities or School Districts by the State
until an appropriation has been made to pay to the Local Entities
or School Districts the costs of the mandated program or service,
but no appropriation for payments to Local Entities or School
Districts shall be required if such program or increase in level
of service under a program is determined by the Legislature to
be applicable generally to private entities or individuals, as
well as to Local Entities or School Districts,
(b)
The Legislature shall enact statutes to establish procedures
for implementing this Section consistent with the following
principles and directives:
(1)
The performance of functions or services not required to
be performed prior to a mandate to the Local Entity or
School District shall be considered a new program or
increase in level of service.
(2)
The increased workload under an existing program, the
implementation of statutes existing at the effective date
of this Article or the definition of a new crime or change
in the definition of an existing crime by statute shall
not be considered a mandated new program or a mandated
increase in level of service.
Section 9. Maintenance of Local Property Tax Relief.
(a)
If the State reduces local property tax relief by decreasing the
specific unit amount, rate or percentage established by statute
for payments made under formula to Local Entities or School
Districts from that in effect upon the effective date of this
Article, the State Tax Revenue Limit shall be decreased by an
Appendix F Continued
amount equivalent to the decrease in payments to Local Entities
or School Districts.
(b)
The adjustment to the State Tax Revenue Limit required by this
Section shall be made in the first fiscal year of the decrease of
payment described in subdivision (a) of this Section. Such
adjustment shall remain in effect for each subsequent fiscal
year.
Section 10. Adjustments for Program and Cost Transfers.
To maintain a balance between the tax burden and the cost of specific
government programs at the State and local level, and to further accomplish the
purposes of this Article, the Legislature shall enact statutes consistent with the
following principles and directives:
(a)
If the Legislature enacts a specific property tax relief measure
funded by State Tax Revenues or if, by order of any court, the
costs of a program are transferred from Local Entities or School
Districts to the State, the State Tax Revenue Limit may be
increased, providing the Maximum Property Tax Rates of affected
Local Entities or the then existing tax rates of affected School
Districts are commensurately decreased.
(b)
If the costs of a program are transferred from the State or Local
Entities or School Districts to the Federal Government, the
State Revenue Limit or the Maximum Tax Rates of affected
Local Entities or the then existing tax rates of affected School
Districts shall bc commensurately decreased.
(c)
If the costs of a program are transferred to or imposed on
existing or newly created Local Entities by Federal Law or
the order of any court, the Maximum Property Tax Rates of
affected Local Entities may be commensurately increased,
pursuant to such specific conditions of State approval in
each case as the Legislature may impose.
(d)
If the costs of a program are transferred between existing or
newly created Local Entities or School Districts, the Maximum
Property Tax Rates or the then existing tax rates of each shall
be commensurately adjusted.
Appendix F Continued
(e)
If Federal taxes are reduced on condition that the State increase
expenditures by an amount equivalent to the Federal reduction,
the State Tax Revenue Limit may be increased by such amount.
(f)
The adjustments required by this Section of the State Tax
Revenue Limit, the Maximum Property Tax Rates or the then
existing tax rates in the case of School Districts shall be
made in the first fiscal year of transfer or operation. Such
adjustment shall remain in effect for each subsequent fiscal
year
Section 11. Economic Estimates Commission.
(a)
There shall be an Economic Estimates Commission consisting
of the State Controller; the Director of the Department of
Finance or an appointee of the Governor as designated by him;
and a designee appointed by the Legislature who is not a
member of the Legislature, selected in a manner provided by
the Joint Rules of the Legislature. The Commission shall act
by a vote of two-thirds of its membership. The Commission
Chairman shall be designated by the Governor. The Commis-
sion shall utilize the resources of existing State agencies in
carrying out its duties.
(b)
The Commission shall determine and publish, prior to April 1
of each year, the State Tax Revenue Limit for the following
fiscal year by making and publishing all necessary estimates
and calculations as provided in this Article. If this Amendment
is not effective prior to April 1, 1974, the Commission shall
determine the State Tax Revenue Limit for fiscal year 1974-75
as soon after enactment as it can act. If it does not act prior
to July 1, 1974, the State Tax Revenue Limit for fiscal year
1974-75 shall be the amount of the State Tax Revenue as here
defined for fiscal year 1973-74. The Commission shall also
determine and publish such estimates of the State Tax Revenue
Limit as are necessary for the orderly and proper development
of State budgets. If the Commission does not act to determine
the State Tax Revenue Limit before July 1 of a fiscal year, the
State Tax Revenue Limit for that fiscal year shall remain the
same as for the previous fiscal year.
Section 12. Computation of State Tax Revenue Limit.
(a)
The State Tax Revenue Limit for a fiscal year shall be computed
as the dollar sum of
Appendix page 24
Appendix F Continued
(1)
the greater of the following:
(i)
The dollar amount derived by multiplying together
the State Tax Revenue Limit Income Quotient for
the specified fiscal year and the State Personal
Income for the calendar year in which the specified
fiscal year commences; or
(11) The dollar amount derived by multiplying together
the State Tax Revenue Limit Population-Inflation
Quotient, the State Population for the calendar
year in which the specified fiscal year commences
and the Consumer Price Index; plus
(2)
the dollar amount increase or decrease to the State Tax
Revenue Limit authorized for that fiscal year pursuant
to Sections 5, 9 and 10 of this Article.
(b)
Beginning with the fiscal year 1989-90, or with a fiscal year
in which the State Tax Revenue Limit Income Quotient is no
greater than 0. 0700, the Legislature, by statute passed by
roll-call vote entered in the journal, two-thirds of the member-
ship of each house concurring, may terminate further reduction
in the State Tax Revenue Limit Income Quotient. Thereafter,
the State Tax Revenue Limit Income Quotient shall be maintained
at the level reached in the fiscal year in which such statute is
enacted; however, annual reductions may be reinstated by
statute passed by roll-call vote, two-thirds of the membership
of each house concurring.
(c)
If the statistical series used to determine the Consumer Price
Index, State Personal Income and State Population, as defined
in Section 16 of this Article, are recomputed by or succeeded
by new series reported by the United States Department of
Commerce or the United States Department of Labor or a suc-
cessor agency of the United States Government, the State Tax
Revenue Limit Income Quotient or State Tax Revenue Limit
Population-Inílation Quotient shall be re-derived in accordance
with the recomputation or new series, and the re-derived
quotient shall be used in computing the State Tax Revenue
Limit for the fiscal year succeeding the fiscal year in which
the quotient was re-derived.
Section 13. Bonds and Pensions.
(a)
Nothing in Section 3 or in any other provision of this Article
shall limit the taxes levied or otherwise to be levied or
appropriations made for the payment or discharge of any
Indebtedness of the State and the interest thereon heretofore
or hereafter authorized by vote of the electors, or State notes
or other securities issued in anticipation of the collection of
taxes, and all bonds or other indebtedness of the State shall
be payable from taxes of any kind or character which may be
levied by the State without limitation of rate or amount.
(b)
Nothing herein contained shall limit any indebtedness or
liability of Local Entities or School Districts which has been
duly authorized by a vote of the electors thereof. All taxes
or assessments required to be levied or collected for the
payment of indebtedness so incurred may be levied upon all
property subject to taxation or special assessment by the
Local Entities or School Districts without limit as to rate or
amount, and the Maximum Property Tax Rates applicable
herein shall not apply to the payment of indebtedness so
incurred, The Maximum Property Tax Rates applicable to
Local Entities shall not be applicable to obligations to levy
taxes under the Improvement Bond Act of 1915 or to the authority
of Local Entities or School Districts to levy and collect taxes
to pay for Local Entities or School Districts retirement and
pension benefits pursuant to laws which have been, or may
in the future be, approved by the voters.
Section 14. Severability.
If any portion, section, subdivision or clause of this Article, or the
application thereof to any entity, person or circumstance, be declared uncon-
stitutional or held invalid or deemed unenforceable for any reason, the remaining
portions of this Article and the application of such portions to other entities,
persons or circumstances, shall not be affected thereby.
Section 15. Implementing Statutes.
(a)
The Legislature, by statute, shall establish procedures for
elections required by this Article, shall appropriate funds for
any Statewide special election called pursuant to this Article
and shall enact any other statutes necessary to carry out the
provisions of this Article.
(b)
The Legislature, by statute, may determine the fund or funds
from which transfers to the Tax Surplus Fund, as established
by subdivision (a) of Section 2 of this Article, shall be made,
unless this Constitution restricts the use of a designated fund
to other specified purposes. In the absence of statutory pro-
visions, transfer to the Tax Surplus Fund shall be from the
State General Fund.
Section 16. Definitions,
(a)
"State Tax Revenue" means the revenue of the State from every
tax, fee, penalty, receipt and other monetary exaction,
Interest in connection therewith, and any transfer out of the
Tax Surplus Fund other than for
tax refund, except
Excluded State Revenues are not part of State Tax Revenues.
(b)
"Excluded State Revenues" means
(1)
The following receipts:
(i)
intergovernmental transfer payments;
(ii)
contributions and deposits to, receipts of, income
of and proceeds of capital transactions of
Employment Trust Funds;
(iii) revenue derived from a specific tax levied as
permitted in Section 6 to the extent such revenue
Is used to meet an Emergency Situation;
(lv) proceeds from the sale or issuance of State bonds
or notes;
(v)
grants and contract income for projects or research
sponsored and funded by non-governmental agencies;
(vi) internal fund transfers such as inter-fund or inter-
agency transfers, revenue, reimbursements, abate-
ments, advances, loans, repayment of loans;
(vii) proceeds from the sale of investments and the
redemption of matured securities;
(viii) proceeds from the sale of real and personal property;
(ix) gifts, donations, bequests to the State;
(x)
endowment income;
(xi) service fees and charges derived from projects
which are financed by revenue bonds secured
solely by the revenue of such projects to the
extent that such fees and charges are used for
the payment of principal and interest on such bonds;
(2)
The following fees:
Appendix t continued
(i)
proceeds from the activities of the University of
California and the State University and College
System, including, but not limited to, student
tuition and fees and post-secondary education
Income derived from housing, parking, food
service, student union fees, book stores or
similar enterprises;
(II)
non-commercial fish and game fees, assessments
and other revenues;
(111) service or use fees levied by the Department of
Parks and Recreation;
(Iv)
income from environmental license plates;
(v)
revenue derived from State-owned parking lots
and garages;
(3)
Fees which meet all of the following criteria:
(i)
the service or product for which the fee is paid is
generally available from a non-State source, or the
fee is collected solely to regulate a non-commercial,
non-professional, non-criminal activity other than
those referred to in Article XXVI;
(II)
the fee collected is used to defray all or part of the
costs of the State in providing the service;
(iii) the payer of the fee receives the benefit derived
from payment of the fee; and
(iv)
are designated by statute as Excluded State Revenues.
(c)
"Intergovernmental Transfer Payments" means dollar amounts
received by the State of California from the Federal Government
or any Local Entity or School District except those taxes, fees
and penalties imposed by the State and collected by the Local
Entity or School District for the State.
(d)
"Employment Trust Funds" means the Unemployment Fund,
Unemployment Administration Fund, Unemployment Compensation
Disability Fund, Old Age and Survivors Insurance Revolving Fund,
Uninsured Employers Fund, State Compensation Insurance Fund,
State Employees Contingency Reserve Fund; and the Public
Employees Retirement Fund, Teachers Retirement Fund, Judges
Retirement Fund, Legislators Retirement Fund and other similar
retirement funds.
(c)
"Expenditure. = As used herein, an expenditure occurs at the
time and to the extent that a valid obligation against an appro-
priation is created. l'or the purpose of capital outlay in con-
nection with this Article, a valid obligation shall be considered
to have been incurred when the Legislature appropriates the funds.
(f)
"Emergency Situation" means an extraordinary occurrence re-
quiring unanticipated and Immediate expenditures to preserve
the health and safety of the people.
(g)
"Maximum Property Tax Rates" means the property tax rate or
rates and ad valorem special assessment rate or rates for any
Local Entity.
(h)
"Local Entity" means any city, county, city and county,
chartered city, chartered county, chartered city and county,
taxing zone, special district or other unit of government
encompassing an area less than the entire State, or any
Statewide district, or any combination thereof in existence
on the effective date of this Article or any such entity estab-
lished thereafter. Local Entity does not include a School
District.
(1)
"School Districts" means the entities specified as parts of
the Public School System in Article IX, Section 6, of this
Constitution and includes Community Colleges but does
not include the State University and College System.
(j)
"Estimated State Tax Revenues" means the dollar amount of
State Tax Revenues as estimated by the Economic Estimates
Commission.
(k)
"State Personal Income" means the estimate made by the
Economic Estimates Commission of the dollar amount that
will be reported as Total Income by Persons for the State of
California for the specified calendar year by the United States
Department of Commerce or successor agency in its official
publications.
(1)
"State Tax Revenue Limit Income Quotient" means:
(1)
For the fiscal year 1974-75, the number derived by:
(i)
Dividing the sum of Estimated State Tax Revenues
for the fiscal year 1973-74 by the State Personal
Income for the calendar year 1973, and
(ii)
Subtracting 0.001.
(2)
For each fiscal year succeeding the fiscal year 1974-75,
the number derived by:
(i)
Dividing the State Tax Revenue Limit for the previous
fiscal year by the State Personal Income for the
previous calendar year, and
(ii)
Subtracting 0.001.
Appendix page 29
Appendix F Continued
(m)
"State Population" means the estimate made by the Economic
Estimates Commission of the number that will be reported as
Total Population of the State of California for the specified
calendar year by the United States Department of Commerce
or successor agency in its official publications.
(n)
"Consumer Price Index" means the number reported as the
Consumer Price Index for the United States (Base Year 1967
= 100) by the United States Department of Labor, or successor
agency of the United States Government, for the most current
month in its latest official publication.
(o)
"State Tax Revenue Limit Population-Inflation Quotient" means
the number derived by dividing:
(1)
The Estimated State Tax Revenue for the fiscal year
1973-74 by
(2)
The State Population for the calendar year 1973 as
multiplied by the Consumer Price Index available to
the Economic Estimates Commission et the time 11
computes the State Tax Revenue Limit for fiscal year
1974-75.
APPENDIX PAGE 30
OUR ESTIMATE OF CALIFORNIA PERSONAL INCOME
1/
(in millions)
Percent
Percent
Percent
Percent
Percent
Percen
By Component
1972
Change
1973
Change
1974
Change
1975
Change
1976
Change
1977
Change
Wages and Salaries
$ 68,518
9.5
$ 75,820
10.7
$ 81,981
8.1
$ 89,822
9.6
$ 98,619
9.8
$105,549
7.0
Other Labor Income
4,014
13.4
4,435
10.5
4,790
8.0
5,145
7.4
5,587
8.6
6,001
7.4
Proprietors' Income
7,715
6.8
8,194
6.2
8,518
4.0
8,967
5.3
9,535
6.3
9,986
4.7
Farm
1,248
5.1
1,320
5.8
1,335
1.1
1,360
1.9
1,433
5.4
1,536
7.2
Other
6,467
7.1
6,874
6.3
7,183
4.5
7,607
5.9
8,102
6.5
8,450
4.3
Property Income
13,518
4.3
14,535
7.5
15,480
6.5
16,300
5.3
17,083
4.8
17,851
4.5
Transfer Payments
12,576
8.3
13,905
10.6
15,183
9.2
16,402
8.0
17,632
7.5
18,955
7.5
Less: Contributions
for Social
Insurance
4,286
12.7
5,273
23.0
5,934
12.5
6,591
11.1
7,276
10.4
7,975
9.6
Total California
Personal Income
$102,055
8.4
$111,616
9.4
$120,018
7.5
$130,045
8.4
$141,180
8.6
$150,367
6.5
1/
Prepared by Professor Donald Ratajczak, of the UCLA Business Forecasting Project.
APPENDIX PAGE 31
Legislative Analyst
Prepared by Professor Donald Ratajczak.
April 27, 1973
OUR ESTIMATES OF CALIFORNIA EMPLOYMENT AND LABOR FORCE
(In Thousands)
%
%
%
%
%
%
1972
Change
1973
Change
1974
Change
1975
Change
1976
Change
1977
Change
Civilian Labor Force
8830
2.6
9057
2.6
9236
2.0
9426
2.1
9714
3.1
9963
2.6
Unemployment
516
-13.9
487
-5.6
503
3.3
464
-7.8
454
-2.2
481
5.9
Unemployment Rate
5.8%
--
5.4%
--
5.4%
--
4.9%
--
4.7%
--
4.8%
--
Civilian Employment
8314
3.8
8570
3.1
8733
1.9
8962
2.6
9260
3.3
9482
2.4
Nonagricultural
Wage and Salary
7229
4.5
7482
3.5
7641
2.1
7871
3.0
8168
3.8
8390
2.7
Mining
29
-3.3
31
6.3
31
:
31
--
31
--
31
--
Construction
324
7.3
321
-0.9
307
-4.4
300
-2.3
299
-0.3
300
0.3
Manufacturing
1531
4.0
1600
4.5
1626
1.6
1682
3.4
1748
3.9
1770
1.3
Aerospace
454
3.2
473
4.2
473
--
485
2.5
504
3.9
509
1.0
Transportation,
Communications,
and Utilities
457
0.9
465
1.8
468
0.6
471
0.6
479
1.7
481
0.4
Trade
1628
5.1
1688
3.7
1724
2.1
1778
3.1
1842
3.6
1892
2.7
Finance
407
5.4
428
5.2
448
4.6
471
5.1
497
5.6
518
4.3
Services
1359
6.3
1414
4.0
1461
3.3
1518
3.9
1598
5.3
1664
4.1
Federal Government
317
-0.5
318
0.4
317
-0.3
321
1.3
330
2.8
340
3.0
State & Local Govt.
1178
4.3
1217
3.3
1259
3.5
1299
3.2
1344
3.5
1394
3.7
Other Nonagricultural
806
0.5
811
0.7
817
0.7
821
0.5
825
0.5
828
0.4
Agriculture
279
-2.8
277
-0.6
275
-0.7
270
-1.9
267
-1.3
264
-1.1