California Goes Its Own Way

During the final year of the historic governorship of Jerry Brown, California charted its own course. State lawmakers introduced legislation to resist federal changes on multiple policy fronts, including tax policies, and California began a new era of state tax administration with the creation of new agencies. The year culminated with the election of a new governor and lawmakers who exemplified California’s shift to a more progressive philosophy.

Beyond the politics of resistance, California continued its unprecedented economic expansion, with Governor Brown signing a record $199.6 billion budget and the Legislature creating two new surplus accounts that allowed California to set aside $19 billion for future economic declines -- a legacy achievement long championed by the outgoing governor and supported by taxpayers. Despite the economic prosperity, record surpluses and a 66 percent increase in K-14 education spending since 2012, California taxpayers still faced significant tax threats both statewide and locally.

In 2018, the California Legislature proposed taxes and fees that would have cumulatively cost taxpayers $273 billion, according to the Tax Watch report released by the nonpartisan California Tax Foundation. The two largest proposals – one to fund a single-payer style healthcare system and another to tax services used by businesses – were defeated by CalTax but remain prominent threats moving ahead.

The biggest threat facing taxpayers is a split-roll property tax measure that qualified for the 2020 ballot in September and would cost taxpayers billions of dollars annually while eroding Proposition 13 protections.

On the 40th anniversary of Proposition 13’s passage, the California Tax Foundation released a report detailing the benefits of this historic tax relief measure by researching property tax data from counties. The report dispels common myths spread by split-roll activists.

Additionally, CalTax engaged coalition partners and built a public education website to inform the electorate of the substantial negative consequences of a split-roll system.

Taxpayers from around the country gathered at the Sacramento Convention Center on March 20 for CalTax’s 92nd Annual Meeting and participated in discussions revolving around the theme of “A Year of Major Change.”

“While this is a year of major change, one constant is that CalTax is always on the front lines, fighting for taxpayers,” CalTax President and CEO Teresa Casazza said in what would be her final address to members, as later in the year she announced her retirement. As the new year began, Casazza was succeeded by President Robert Gutierrez, who had been serving as CalTax’s director of state and local finance.

At the beginning of 2018, a state senator was recalled following his vote for the gas tax, a gas tax repeal initiative qualified for the ballot and proponents of strengthening Propositions 13 and 26 submitted more than 1 million signatures to qualify the Taxpayer Transparency and Fairness Initiative for the ballot to strengthen the definition of a tax for state and local governments. However, the Taxpayer Transparency and Fairness Initiative was pulled off the ballot by its sponsors following a legislative deal, the gas tax repeal was resoundingly defeated by voters in November, and voters approved 408 of the 516 local tax and bond measures placed before them during the year. In the Legislature, the recall of one Democratic senator was overshadowed after voters gave the Democrats significant supermajorities in both houses in the November elections.

In June, the U.S. Supreme Court injected uncertainty into the sales tax structure when it overturned a longtime precedent in its ruling in South Dakota v. Wayfair Inc.

In November, voters elected Lieutenant Governor Gavin Newsom to become California’s 40th governor. Newsom campaigned on a platform of healthcare for all, “cradle to college” services for the next generation, the construction of affordable housing and an expansion of anti-poverty programs. He pledged to deliver on the promises through bold and innovative strategies, but details of the plans have yet to be revealed.

As we begin 2019, many questions remain. What will be Governor Newsom’s top priority? How will expansive programs be financed? How will tax agencies continue to establish themselves moving forward? Will moderate Democrats maintain a significant voice in the Legislature?

The answers to these questions and many more will be revealed in the year ahead.

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