Proposition 30: Temporary Taxes to Fund Education. Guaranteed Local Public Safety Funding.

The Question

Should the California Constitution be amended to (a) temporarily increase sales and personal income tax rates; (b) guarantee certain revenue transfers to local governments; and (c) eliminate state funding of certain mandates to local governments? 

The Situation

Temporary Taxes: The state General Fund’s three largest revenue sources are the sales tax, the personal income tax (PIT), and the corporate income tax. Prop 30’s temporary tax increases, described below, are already part of the state's 2012-13 budget, together with mandatory spending reductions ("trigger cuts") if it fails to pass.

Revenue Transfers: In 2011, several programs were transferred from the state to local governments, including certain prison, parole and substance abuse treatment programs, together with annual revenue transfers to local governments of approximately $6 billion.

The Proposal

Prop 30 would increase the sales tax rate by one-quarter cent (0.25%) for calendar years 2013-2016.  It would also increase the maximum 9.3% PIT rate in stages up to 12.3% (on incomes of $500,000 for single filers, $1,000,000 for joint filers) for calendar years 2012-2018. The existing additional 1% tax applicable to annual income over $1 million (with the revenue dedicated to mental health services) would continue to apply. The new revenues would provide generally unrestricted K-14 educational funding, and also benefit the General Fund.

Prop 30 would require that the state continue to fund the 2011 transferred programs, and that this funding be excluded from the calculation of the revenues going to schools under the Prop 98 minimum education funding guarantee.

Finally, Prop 30 would eliminate the state’s normal reimbursements to local governments for the costs of certain open and public meeting requirements of the Brown Act.

Fiscal Effect

In years when both tax increases would be in effect (2012-13 through 2016-17), annual revenues would increase by approximately $6 billion; in other years the revenues would be lower due to the phasing in/out of the tax increases. Actual revenues could fluctuate significantly from these projections because they largely come from the PIT increases.

As noted, the 2012-13 budget already relies on the Prop 30 revenues to fund various state programs, including particularly K-14 educational funding.  Prop 30’s revenues would also be available to help fund the state budgets through 2018-19. Future actions of the Legislature and the Governor would determine the specific use of these funds.

If Prop 30 fails, the 2012-13 budget plan requires that the state’s spending be reduced by $6 billion, almost entirely in K-14 education and public universities. These reductions could result in shorter instructional years and lower community college enrollment, as well as greater deferral of Prop 98 funding for K-14 education.

It is not possible to determine the fiscal impact of the local government funding provisions, which would depend on future events.

A YES Vote Means

The state would increase personal income taxes on high-income taxpayers for seven years and sales taxes for four years. The new tax revenues would be available to fund programs in the state budget.

A NO Vote Means

The state would not increase personal income taxes or sales taxes. State spending reductions, primarily to education programs, would take effect in 2012-13.

Supporters Say

 

  • Prop 30 is the only initiative which protects school and safety funding and addresses the state’s chronic budget mess.                                     
  • Prop 30’s taxes are temporary, balanced and necessary for vital services.           

 

Opponents Say

 

  • Prop 30 is a shell game; there are no assurances that tax increases will actually benefit classrooms.
  • Politicians and special interests want to continue their out-of-control spending, but not make meaningful reforms.