“Four years ago, voters approved Proposition 30, which raised the income tax significantly on the wealthiest Californians and raised the sales tax a tiny bit on everyone,” Capital Public Radio recently recalled. “That quarter-of-a-cent increase equated to paying an additional $0.01 on a $4 coffee; $1 on a $400 television; and $100 on a $40,000 car.” But on Election Day 2016, that changed. “Voters extended Proposition 30’s income tax increases in [November’s] presidential election with Proposition 55 — but that initiative allowed the Prop. 30 sales tax hike to expire.”

The shift means California’s sales tax is the state’s only tax to be decreased this year, from 7.5 percent to 7.25 percent. As the U-T reported, “Some local jurisdictions tack on their own assessments, so residents in certain areas will still pay more than the statewide rate.” In certain parts of the state, like the San Francisco Bay Area, voters allowed substantial increases. 

From spending to taxing

Prop. 30 ushered in the so-called Schools and Local Public Safety Protection Act of 2012, as California voters threw their support behind increased spending on state education and benefits. “The act increased sales tax and income tax rates to help maintain funding levels for public schools and colleges and pay for programs for seniors and low-income families,” U-T San Diego noted. “The additional revenue also provided local governments with a constitutional guarantee of funding to comply with a new state law that shifted lower-level offenders from state prisons to county jails.”

Some municipalities, particularly in parts of the state that joined a Democrat-led initiative to hike minimum wages, opted to raise more funds. “Bay Area voters this year generously approved taxing themselves in large numbers — and they’ll feel the pinch at the cash register in 2017 as local sales taxes across Silicon Valley take effect even as a state tax expires,” according to the San Jose Mercury News. 

“As California cities struggle to fund basic city services like police, fire protection, libraries and parks, they’re increasingly turning to voters for help. And voters this year said ‘yes’ to tax hikes in at least eight Bay Area cities in exchange for fewer potholes, less traffic and more cops, including San Jose, Newark, Martinez and Pleasant Hill.”

Pension pinch

For years, public pension costs have steadily built pressure on Golden State cities. In some areas, the problem has become egregious: The city of El Monte, in Southern California, shelled out 28 percent of its general fund to pay retirement costs. “Among California’s 10 largest cities, only San Jose paid as much toward retirement costs relative to its general fund. Los Angeles spends 20 percent of its general fund on retirement costs,” the Los Angeles Times revealed. “El Monte’s outsize pension bill weighs heavily on the San Gabriel Valley city of 116,000, where half the residents were born outside the United States and a quarter live below the poverty line.” 

Meanwhile, CalPERS, the nation’s largest public pension fund, has struggled with its own imbalanced budgets. “CalPERS has 65 cents for every dollar that it needs to provide pension benefits for almost two million people,” Fox Business recently recalled. “CalPERS pension debt is roughly $164 billion and mostly likely will grow larger in coming years.” 

In an effort to come to grips with the problem, the fund reduced its forecasted return on investment from 7.5 to 7 percent. “It has been paying out $5 billion more a year in benefits than it’s receiving in contributions and investment returns, not a sustainable trend,” the Fresno Bee noted in an editorial. “With investment returns averaging 4.6 percent during the past decade, some experts urged CalPERS to reduce its forecast even more.” But that would risk pushing more California cities toward bankruptcy — or toward even higher local taxes. 

The controller’s office in August published an audit of the account that collects tax revenue generated from both a temporary tax on annual incomes of $250,000 or more and a quarter-cent sales tax and then disperses the funds to K-12 school districts, charter schools and community college districts.

With the exception of a $59.7 million accounting error the Department of Finance made when transferring funds (but is set to be corrected in an upcoming adjustment), the program was deemed to have used and accounted for the revenue appropriately.  

Still awake? Here’s some background

The Education Protection Account was created to ensure the money is used as intended — meaning to make it so lawmakers couldn’t raid education funds for other purposes — when voters approved Prop 30 in 2012. The audit was one of several accountability provisions.

The audit noted that the $59.7 million error did not affect funding to schools because of another law (Prop 98), which guarantees a certain level of education funding. The Department of Finance told the Controller’s office the error did not hurt schools because the Prop 98 guarantee was met through other accounts.

The fact that the guarantee was met regardless of the error raises questions about the need for Prop 30. But a spokesman for the Department of Finance said Prop 30 has “provided a direct benefit to schools” since it provided additional revenue streams and increased the amount of the Prop 98 contribution.

And while $59.7 million is a lot of money, it’s only a fraction of how revenue much Prop 30 has generated. Since its inception in 2012, it’s estimated to have generated around $31.2 billion.  

Why is CalWatchdog telling me this?

In April, CalWatchdog discovered the Education Protection Account had not been audited, despite the fact that voters are set to consider a 12-year extension in November (it’s now called Prop 55, and the extension is coming two years early).

Prop 55 would only extend the income tax provision, while the sales tax provision will expire in two years.

Why audit this obscure account and not how the schools are spending the money?

Auditing this account is important because it verifies that lawmakers (or anyone else for that matter) weren’t dipping into Prop 30 funds. The audit could also catch something like a $59.7 million accounting error.

And other audits have been done. There’s actually plenty of audits of the different school districts, charter schools and community college districts located on the controller’s website.

Isn’t more education funding a good thing? Seems like a no-brainer.

The Prop 30 and Prop 55 debate has never really been about the need for more education funding. Instead, it has to do with the source of the funding. 

Many experts, including Moody’s, Standard & Poor’s and Gov. Jerry Brown’s budget, argue the state is too reliant upon income tax revenue from top earners, mainly because of its volatility.

In fact, nearly half of the state’s revenue comes from the top one percent of earners (approximately 150,000 individual tax filings). Critics of Prop 30 and Prop 55 say these measures only perpetuate the problem.

Also, Prop 30 was billed as a temporary tax. But if it Prop 55 passes, it would extend the program until 2030, which critics say is not “temporary.”

Of course, if voters down Prop 55 in November, the program will expire in 2018. There would certainly be a loss of revenue for schools (and healthcare), but Brown said he’s prepared to proceed either way.  

But when it comes to Proposition 55, ignorance of its contents is not likely to be a problem for voters. The California Teachers Association and its allies are likely to spend $100 million or more on saturation TV and social media ads depicting the measure as crucial to the future of California public education.

Prop. 55 would extend for 12 years the temporary tax hikes on single people earning more than $263,000 and couples earning more than $526,000 that voters approved in 2012 (then at slightly lower income thresholds) as part of Proposition 30. Instead of sunsetting at the end of 2018, the income tax increase would continue through 2030. The $7 billion or more this is expected to generate annually would be earmarked for education. The temporary sales tax hike that voters also approved in 2012 will lapse at the end of this year.

Revenue recession took toll on teachers

This month, the CTA wrote a $10 million check to the Yes on 55 campaign, which now has a $28 million warchest. The CTA and the smaller but still powerful California Federation of Teachers are likely to write several more checks that size to try to avoid the headaches that public school teachers faced from 2008 to 2012 during California’s long revenue recession.

While the “step” increases in pay that teachers typically receive in 15 of their first 20 years on the job were largely protected, strapped school districts didn’t grant additional across-the-board pay hikes that many provided during recent tech bubbles that pumped up capital gains revenue for the state. They also pushed for teachers to pay more toward their benefits and in some cases accept layoffs that extended beyond the newly hired to those with several years of experience.

As the Legislative Analyst’s Office graphic above shows, education spending has strongly rebounded since 2012, helped by a new boom in Silicon Valley and Proposition 30’s adoption that year. But the CTA and the CFT share Gov. Jerry Brown’s skepticism that the current good times can last. After first insisting that the temporary tax hikes must be allowed to expire because that’s what voters were promised, Brown has been far less vocal on the topic in the wake of new forecasts from his Department of Finance that state deficits are likely in coming years without retention of the income-tax hike.

Since state coffers are the main source of K-12 funding, Prop. 55’s approval is crucial to maintaining teachers’ pay and benefits. In most school districts, compensation eats up more than 80 percent of general fund budgets.

But Prop. 55’s route to passage may be rougher than Prop. 30’s in 2012. The Sacramento Bee editorial page has already said that support for extending the tax hikes should be explicitly linked to reforms in teacher tenure and to teacher unions’ support for state-subsidized childcare for poor families.

Some state lawmakers may also try to leverage their support for Prop. 55. Led by Assemblywoman Shirley Weber, D-San Diego, they are unhappy with how 2013’s Local Control Funding Formula has been implemented. The measure was supposed to pump billions of dollars in extra funding to districts with large numbers of English-language learners and foster children so they could provide help specifically for such students.

But three years in, education reform groups say that’s not happening, citing the absence of evidence of additional help for either category of student. Last year, Superintendent of Public Instruction Tom Torlakson said the local control dollars could be used broadly for general pay raises, overruling a lower-ranking official.

Hernandez stripped of committee assignments

Good morning!

Speaker Anthony Rendon on Friday finally took action against a lawmaker accused of domestic violence by removing him from his committee assignments, which included a committee chairmanship.

The Paramount Democrat’s move follows a court order early Friday for Assemblyman Roger Hernández to stay away from his wife for three years from whom he is getting divorced, as well as a particularly harsh editorial by the Sacramento Bee that same day.

CalWatchdog has more.

In other news: 

• LA Weekly looks at how older Latinos may defeat this cycle’s movement to legalize pot. 
• Will Jerry Brown keep his promise that Prop. 30 — a temporary tax increase on top earnings — would be merely a stopgap measure? The Los Angeles Times has more.
• “California violent crime increased 10 percent last year, the first rise since 2012,” reports The Sacramento Bee.
• A porn actress speaks out about the upcoming ballot measure that would require condoms in porn (among other things), calling the measure “a trojan horse.” The Voice of San Diego has more. 
• One California congressman is calling for better relations between the United States and Russia and its president, Vladamir Putin. The San Jose Mercury News has more.  

Assembly:

• Gone ’til August 1.

Senate:

• Gone ’til August 1.

Gov. Brown:

• On vacation.

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New followers: @SocialRiverside @ChosenLawyers

Seventeen total. And while voters will read and learn more as the campaigns unfold between now and Election Day, here is a quick reference guide to get your bearings. 

Referendum to Overturn Ban on Single-Use Plastic Bags: This is as it sounds. In 2014, the Legislature passed a ban on single-use plastic bags. So a “yes” vote would uphold the ban. A “no” vote would overturn it.

To uphold the law would ban the use of single-use carryout bags, except for perishable items. It would also impose a fee of at least $.10 per paper bag or thicker plastic bag if the customer didn’t provide a reusable one. 

The ban actually died on the Assembly floor in 2014 three days before it passed. What changed? A deal was struck between the United Food and Commercial Workers Union and Safeway creating the $.10 fee, which will be kept by the grocer/retailer.

Plastic Bags, Part II: If the plastic bag ban is upheld by voters, this initiative would divert the $.10 fees for bags to a state fund to pay for environmental programs. This would be in lieu of the money going to the grocers.

Campaign Finance (Poll): This is basically just an elaborate poll. It’s a non-binding measure that allows voters through the ballot process to log their approval or disapproval of campaign finance law in the country.

A similar measure got tied up in court in 2014, as opponents called it a ploy to drive voter turnout. But in January, the state Supreme Court ruled it was allowable, and so here it is. 

Specifically at question is the 2010 Citizens United ruling where the U.S. Supreme Court allowed for corporations and labor unions to spend unlimited sums in support or opposition of a political candidate. 

Guns and Ammo: This is Lt. Gov. Gavin Newsom’s pet project. This would ban magazines of 11 rounds or more, require background checks for ammunition and require the state to share data in the FBI’s background check system, among other things.

However, a bill passed by the Legislature on Thursday but not signed yet by Gov. Jerry Brown would amend this ballot initiative (yes, it amends something that isn’t yet law) to further limit who can purchase ammunition to both persons whose data matches up with the Automated Firearms System and to those who have a ammunition purchase authorization. There are some exceptions. 

Naturally, this sidestep of Newsom to amend his measure ruffled his feathers, dragging him and Senate President Pro Tem Kevin de Leon, the bill’s sponsor, into a public disagreement. 

“This last-minute, anti-democratic, poison pill sneak attack makes you wonder if the Pro Tem cares about himself more than he cares about doing the right thing,” said Newsom spokesman Dan Newman, according to The Sacramento Bee. “Is he someone who truly respects the will of the voters and wants to reduce gun violence or is he merely a self-serving cynic completely consumed with petty personal grudges?”

Death Penalty Repeal: This repeals the death penalty as the maximum punishment for murder and replaces it with life without parole, applying retroactively to those already sentenced to death.

This has a provision mandating those who’ve been sentenced to life without parole to work, with 60 percent of their income possibly going towards restitution to victims. 

The Opposite of a Death Penalty Repeal: And for those who think the death penalty should stay as the ultimate sentence for murder, this measure would speed up the process by implementing a time limit on the lengthy appeals process, by assigning the superior court for the initial review and by limiting the number of successive petitions. 

Like the competing measure, this would impose a work requirement for restitution to victims.

Drug Pricing: This would set pharmaceutical prices for any state agency to be as low as what the U.S. Department of Veterans Affairs pays — the VA benefits from federally mandated cost controls.

According to KPCC, the measure would apply to “any program in which the state is the ultimate payer for a drug,” which includes: Medi-Cal fee-for-service plans, CalPERS (provides health benefits to current and retired state employees), prison inmates and people receiving AIDS drugs from the government.

Condoms in Porn: This may as well be called the Condoms In Porn Act, because it would require porn actors to wear condoms during the filming of sexual intercourse.

It also requires that producers provide testing and vaccinations for STDs. And for what it’s worth, producers would also have to post the condom requirements at the job site.

No Blank Checks Initiative: This would require any bond of $2 billion or more for a state project to go before the voters for approval.

As dull as that sounds, it could have a dramatic impact on Gov. Jerry Brown’s legacy, in that it would likely put funding for the bullet train and the twin tunnels water project up to a vote of the people. 

School Bond: This would authorize $9 billion in bonds for school construction and modernization, supported by a coalition of school districts and school developers. Pretty self-explanatory.

The measure failed to qualify in 2014, however, amid opposition from Gov. Jerry Brown, who said at the time local school construction was best left up to local control.

Earlier this year, Brown reiterated his opposition, calling the initiative a “blunderbuss effort that promotes sprawl and squanders money that would be far better spent in low-income communities,” according to EdSource.

FYI: Blunderbuss is a “blundering person,” according to Merriam-Webster. It’s also an old fashioned, muzzle-loading gun. 

Prop. 30 extension: This is a 12-year extension of Prop. 30, which was a seven-year temporary tax on earnings of more than $250,000 annually to bolster education funding, with the extension coming two years early.

Prop. 30 passed to stave of imminent sharp cuts in education. Now that the economy has recovered, proponents want to keep the money flowing and now hospitals want a cut too.

The extension would allow a quarter-cent sales tax that was part of Prop. 30 to expire, but would add up to $2 billion in funding per year for Medi-Cal, the state’s Medicaid program. 

As part of Prop. 30, the program was supposed to receive several layers of accountability, including a state-run audit of the fund that doles out the money to schools that still hasn’t happened. The controller’s office previously told CalWatchdog the audit would likely happen before voters have to decide.

California Legislature Transparency Act: The CLTA is a constitutional amendment requiring the Legislature to make available online the final version of a bill at least 72 hours prior to a vote on either the Assembly or Senate floor. It would also require all open legislative meetings be recorded with the videos posted online within 24 hours and would give permission to individuals to record and share their own videos of open meetings.

Assembly Speaker Anthony Rendon, D-Lakewood, is currently negotiating with CLTA proponents over changes proposed by the Legislature — but the negotiations are not going well. 

Multilingual Education: This would repeal most of Prop. 227, which in 1998 placed heavy restrictions on bilingual educations for English learners in favor of English-immersion education.

Why would voters overturn their prior decision? Education Week framed the debate well. Proponents argue new data shows the value of bilingual education, native English speakers would be allowed access to a bilingual education (if they choose), and because we live in a different world with rapidly changing demographics. 

Why would voters keep Prop. 227 on the books? Ron Unz, a former candidate for U.S. Senate and governor who pushed for Prop. 227, argued that an overall improvement over a year-period in standardized test scores shows Prop. 227 worked. And others would likely make a nativist argument: This is America, and residents should learn English. 

Medi-Cal Hospital Reimbursement: This one is a little confusing. The federal government contributes to the state’s health care program for low-income patients, called Medi-Cal. In order to get this money, the state has to contribute matching funds.

In 2009, the state passed a law taxing hospitals to help contribute to the state’s portion of the Medi-Cal funding to get the money from the feds. However, the state was diverting some of this money into the general fund.

So, this measure amends the state Constitution requiring these funds go to where they are intended.

It would require a two-thirds vote of the Legislature to amend the fee allocation program only when the changes would “amend or add provisions that further the purposes of the Act.” It would require voter approval to repeal or replace the program with a “similar statute imposing a tax, fee or assessment unless that similar statute is either.”

Sentencing overhaul:  Jerry Brown’s baby. After surviving a legal challenge and rumored sky-high signature collecting fees, this bill made it to the ballot just before the deadline. 

Brown’s measure would allow for some nonviolent felons to be paroled early in certain instances, require judges to hold hearings prior to determining whether to try juveniles as an adult, and develop a good behavior, parole-and-sentence credit system for prisoners. 

Marijuana Legalization: This would allow individuals, 21 and older, to transport and use up to an ounce of recreational pot. It would allow individuals to grow as many as six plants.

If approved, California would join Alaska, Colorado, Washington and Oregon in allowing recreational pot. 

Tobacco Tax: If this passes, smokers would pay a $2-per-pack tax on cigarettes, with a similar increase on other tobacco products and e-cigs containing nicotine. The money will go primarily to healthcare and anti-smoking/tobacco-related health programs.

Editors Note: The American Progressive Bag Alliance sponsored a media dinner hosted by Calwatchdog to discuss and debate the plastic bag ban with journalists in Southern California.

• Prop. 30 extension qualifies for ballot
• Kamala Harris under fire
• UC Regents discuss sexual harassment and violence in private
• Lawmakers carve out ex parte communications

Good morning! We’re told it’s California Day of the Teacher, so be sure to celebrate. 

Proponents of the 12-year extension of a “temporary” income tax on the top 2 percent of earners (Prop. 30) will announce today that the measure has collected the required signatures and will be on November’s ballot.

The measure is just rounding out an already crowded ballot. Last week, proponents of a transparency measure announced it had qualified for the ballot.  

The revenue will go primarily to bolster education funding, but will also contribute to Medi-Cal as well. 

The measure comes at a time when the state is wrestling with the fact that its budget is over-reliant on personal income tax. Critics say a Prop. 30 extension only perpetuates that problem. 

The Prop. 30 announcement will be in Sacramento at 12:30 p.m. 

In other news:

• The five top candidates for U.S. Senate met in the final debate of the primary, with four firing at frontrunner Kamala Harris, the Democratic Attorney General. The Los Angeles Times has more. 
• The UC Regents will discuss sexual violence and harassment on campus, particularly in response to an ongoing scandal at UC Berkeley, although critics say Wednesday’s closed-door meeting is just a way for the university system to “shield itself from embarrassment over the growing scandal,” reports The San Jose Mercury News. 
• And speaking of secrecy: “California generally bans private conversations, known as ex parte communication, between state agencies, boards or commissions and representatives of groups with pending cases before them,” writes The Sacramento Bee. “The intent of the law is to promote public transparency, create even playing fields and prevent the unfair influence of decision-makers. But over time, lawmakers have made nearly 15 exceptions to the rule.”

Also on the website: California pollution credits may expand to Brazil

Assembly:

• Packed Appropriations Committee hearing at 9 a.m.

Senate:

• Light committee schedule today, but the Governance and Finance Committee will hear a bill on the “Diaper Tax.” 

Gov. Brown:

• In Los Angeles today, speaking at the inaugural California-China Business Summit at 9:30 a.m.

Tips: matt@calwatchdog.com

Follow us: @calwatchdog @mflemingterp

New followers: @CalRoundtable @SocialNPasadena

Actually, nearly half of the state’s personal income tax revenue comes from the top 1 percent of earners — 150,000 individual tax returns. And personal income tax revenue is 65 percent of total revenue, which means the One Percent provides 33 percent of the state’s total revenue. 

Besides volatility of the revenue stream — the One Percent’s personal income comes largely from capital gains, which are generally tied to the stock market — what happens if a Mark Zuckerberg or a Larry Ellison — #6 and #7 on Forbes’ list of wealthiest people in the world — leaves the state?

In New Jersey, another top-heavy state, one billionaire relocated to Florida, leaving as much a $140 million hole in the budget. 

Few in California dispute the over-reliance on top earners is an issue. It’s in Gov. Jerry Brown’s budget summary and even the credit rating agencies Moody’s and Standard & Poor’s have warned against it. However, there is conflicting opinions of what needs to be done. 

There could be tax reform, but is that a flattening of the tax code? Or a shift to sales tax on services? Higher property taxes? Would the solution be revenue neutral, meaning tax increases in one area are offset with decreases elsewhere? And what are the new consequences that might come with new tax dependencies? 

What requires a frank discussion has so far drawn only whispers. Many on the left feel that while this is a problem, the state is on a good path, with reduced debt, a growing reserve fund, increased education spending and moves to address the state’s unfunded liabilities.

Republicans, on the other hand, lose sleep over the more than $400 billion in debt (including unfunded liabilities), the warnings from credit agencies and outside groups saying the state will falter in an economic downturn and a proposed 12-year extension of a “temporary” tax imposed on the wealthiest of residents that they see as only perpetuating the problem. 

“I’m very concerned about where we’re at today,” said Assembly Republican Leader Chad Mayes of Yucca Valley. “You’ve got a very few people paying a vast majority of the revenue collected by the state. That doesn’t put us in a very good spot.”

A downturn is coming likely sooner than later

It’s a question of when, not if, an economic downturn will occur. In Gov. Jerry Brown’s budget introduction released earlier this year, it warned that California is in “its seventh year of expansion, already two years longer than the average recovery.”

“While the timing is uncertain, the next recession is getting closer, and the state must begin to plan for it,” the introduction continued. “If new ongoing commitments are made now, then the severity of cuts will be far greater — even devastating — when the recession begins.”

Tax reform

As a starting point, both sides agree some kind of tax-code overhaul is necessary. However, that’s about where the agreement ends. 

Senate Budget Chairman Mark Leno told CalWatchdog the state is “to a certain degree overly dependent on the highest wage earners,” and suggested increasing the vehicle licensing fee (the “car tax”) because it’s more stable, although he conceded the toxicity of the issue makes it difficult. For example, Congressman Ted Lieu, when he was in the state Senate in 2012, pitched the idea of increasing the car tax, but relented only five days later after backlash from hundreds of constituents, including his wife.

Another idea Leno, the San Francisco Democrat, pitched was extending sales tax to services, to reflect a shift in the state’s economy away from manufacturing, which he again agreed was “a difficult conversation to have.” He lauded the efforts of Sen. Robert Hertzberg, D-Van Nuys, who is sponsoring legislation to do just that. 

David Wolfe, legislative director for the right-leaning Howard Jarvis Taxpayers Association, suggested a simplified tax code — not quite a flat tax rate, but close. Wolfe said with the proper analysis sales tax on services is an idea “worth considering,” but it would require cuts elsewhere for their support.

“Of course, the overall sales tax rate would need to be lowered in order to make it revenue neutral because the base is being broadened,” Wolfe said.

Additional burdens

There are a few programs that limit the state’s flexibility, even though the individual programs may be beneficial:

• Prop. 13 capped the rate property taxes could increase annually at two percent.  
• Prop. 98 requires that a large percentage of the state’s general fund be spent on education. 
• Prop. 2, also known as the Rainy Day Fund, sets aside a certain amount of money annually to buffer the budgetary effects of an economic downturn. However, even if fully funded it would only reserve 10 percent of the general fund tax revenues.

“While a full Rainy Day Fund might not eliminate the need for some spending reductions in case of a recession, saving now would allow the state to spend from its Rainy Day Fund later to soften the magnitude and length of any necessary cuts,” according to Brown’s budget explanation. 

Prop. 30 extension

It’s likely that voters will consider a 12-year extension to Prop. 30, which is a “temporary” tax on top earners and a quarter-cent sales tax increase.

It was approved during the last downturn primarily to avoid deep cuts in education. It is set to expire in two years, but proponents saw this campaign cycle as more favorable. 

The Prop. 30 extension only perpetuates the state’s over-reliance on personal income tax, said Carson Bruno, a research fellow at Stanford University’s Hoover Institution. 

“Prop. 30 doubles down on this problem by making the income taxes even more reliant on the highest earners,” Bruno said. 

Bruno agreed Prop. 30 expiring would leave a hole in the budget, but said legislators should have been preparing for this, as it was “temporary.”

“If they haven’t been doing that then that’s kind of irresponsible,” Bruno said.

Good morning.

A new report on the economic forecasts and past performances of the states casts a grim view of California’s outlook, but shows past performance has been more middle-of-the-road.

The study, by the right-leaning American Legislative Exchange Council, compiled 15 measures, like various tax rates, minimum wage and right-to-work status, to determine that California ranked 46 out of 50 in terms of economic outlook.

But the Golden State ranked 31st in economic performance, which was determined by cumulative growth (or loss) in GDP, non-farm payroll employment and absolute domestic migration. The latter dragged down the overall performance, as more than 1.2 million Americans left the state over a 10-year period — the second largest cumulative loss.

CalWatchdog has more.

In other news:

– Many in the state are already feeling the shock wave from the increase in the minimum wage, as businesses, labor advocates and political analysts have all begun to shift strategies and tactics as a result, reports CalWatchdog.

– The Voice of San Diego looks at how the increased minimum wage will affect nonprofits, which are put in an awkward position between supporting increased pay for low-wage workers and being forced to make cuts or pull in more cash.

– A solid majority of voters favor taxing the rich to fund health care and education, according to The San Jose Mercury News. Sixty-two percent of respondents to a recent Public Policy Institute of California poll suggested they favor a 12-year extension of Prop. 30, which increases income tax on earners of $250,000 or more to help pay for education and health care. Proponents are pushing to get the extension on the November ballot.

– More on the Prop. 30 extension here and here.

– CalPERS, the state’s pension fund for public employees, approved another round of rate increases, according to The Sacramento Bee. “The state’s contribution will increase by an estimated $602 million, to $5.4 billion a year. School districts will be charged an additional $342 million, to a total of nearly $1.7 billion a year,” The Bee writes.

Read more here: http://www.sacbee.com/news/business/article72973417.html#storylink=cpy

Assembly:

– In at 9. Several hearings.

Senate:

– In at 9. Lots of budget talk.

Gov. Brown:

– No public events scheduled, but according to the Gov. Brown’s office, he’s “left the state.” Brown is scheduled to attend a climate change event tomorrow in New York at the United Nations Headquarters.

Tips: matt@calwatchdog.com

Follow us: @calwatchdog @mflemingterp

New followers: @GPestt01 @LeslieFulbright

Photo credit: 401kcalculator.org

Proponents of a 12-year extension of a temporary tax used to bolster education funding may ask voters to consider the measure prior to a full vetting, with critics demanding accountability.

By law, the state Controller’s office is supposed to audit Proposition 30’s Education Protection fund, which doles out the funds according to a strict formula. Although the law gave no time requirement, the audit has not yet happened and isn’t projected to be complete until around a month before the November election, which one critic says shows a lack of transparency.

“Voters were told that Prop. 30 funds would be audited, and there is a presumption among the voters that that audit would be conducted in a timely manner,” said Jon Coupal, president of the Howard Jarvis Taxpayers Association. “And to be told that the audit … isn’t going to be completed until the month before the election is not exactly full transparency.”

History

Prop. 30, which passed in 2012, implemented a tax on incomes exceeding $250,000 and a quarter-cent sales tax, which were both used to stave off severe budget cuts to education and the general fund.

To quell concerns that the tax revenue would actually go to funding education and not some unrelated expense, the measure called for two levels of oversight: annual audits of spending by local agencies, like school districts, charter schools and community college districts, and a periodic audit of the state’s Education Protection Account.

The local audits are being completed, but no audit of the EPA has been performed to date, which the law says the Controller “shall” perform. To clarify, the local audits verify how schools are spending the money, while the EPA audit would verify how the state is spending the money.

When will the audit happen and is it necessary?

The controller’s office told CalWatchdog the audit would likely be completed by October. Assuming the initiative qualifies for the ballot, which it hasn’t yet, that is only a month before voters go to the polls.

Also, only the income tax provision, which expires in 2018, is part of the extension; the sales tax provision expires at the end of 2016 either way.

Proponents — primarily teacher unions and health care advocates — are asking for the extension two years early, making the timing of the audit more immediate. But they argue the audit is not necessary because two other Controller-prepared reports, both which look at the state’s finances in a general way, satisfy the requirement.

“We know how the money has been spent and the new measure has the same accountability requirements,” said Jennifer Wonnacott, spokeswoman for the measure’s committee, Californians for Protecting Public Education and Budget Stability, Sponsored by Teachers, Health Care Providers and Labor Organizations. “The law as written under Prop. 30 has been fulfilled by these two reports, so if the Controller goes above and beyond that that’s for their office to decide.”

The Controller’s office still believes an audit is required to ensure the state is adhering to the required 89/11 percent split between K-12 and community colleges, and is satisfying other funding requirements.

“While it’s reasonable to conclude that (the other reports) meets the Proposition 30 audit requirement, the State Controller’s Office still has a duty to monitor compliance and conduct whatever field audit we believe is necessary,” said John Hill, spokesman for the Controller’s office. “That’s why we plan to audit the EPA within the next six months.”

Is there even a problem?

Despite the dispute over whether another audit is required, everyone agrees that oversight of the program was warranted. After all, the extension has also included the auditing requirements. However, no one has suggested the money is being used improperly. In fact, an independent analyst suggests there’s little cause for concern.

“These rules are relatively straightforward and we don’t have any technical concerns at this point about the way the state is distributing the funds,” said Kenneth Kapphahn, an analyst with the independent Legislative Analyst’s Office.

Timing

The measure has not yet qualified for the November ballot, but it’s well-funded, making its chances good. Assuming it does qualify, voters may be forced to make a hasty decision. Coupal called on the Controller’s office to speed up the timeline, pointing to the fact that the measure passed four years ago, which gave ample time to perform the audit.

“We would urge the controller to expeditiously move on an audit and complete the audit at least three months prior to the election,” Coupal said.

A hospital association just pumped $12.5 million into an effort to extend a tax on top earners — a tax that’s provided billions of dollars in education funding since 2012.

In fact, the California Association of Hospitals and Health Systems quadrupled its investment from four years ago when Prop. 30 passed. So why do hospitals care so much about education funding?

Because there’s billions of dollars per year in health care funding at stake.

Health care funding

Since Prop. 30 passed — during an economic downturn when the state was confronted with sharp budget cuts — it has largely funded education with some money bolstering the general fund, which includes some health care programs.

But the 12-year extension vying for a spot on the November ballot — two years prior to the expiration date — would add up to $2 billion in funding per year for Medi-Cal, the state’s Medicaid program. The contributions to Medi-Cal would come once other funding requirements have been met (the Prop. 2 rainy-day fund requirement and the Prop. 98 minimum education funding requirement).

Prop. 30

Prop. 30 imposed a “temporary,” seven-year personal income tax increase on earnings of more than $250,000, and a quarter cent sales tax increase for four years.

Some of the revenue went to help balance the state budget, but most went to education funding — 89 percent to K-12 and 11 percent to community colleges.

The extension

The proposed extension allows the quarter cent sales tax to expire, but extends the income tax increase until 2030, securing funding far enough into the future “to provide long-term stability for our schools,” said Jennifer Wonnacott, spokeswoman for the “Yes” campaign.

“We still need this investment,” said Wonnacott. “This is about asking those who can afford to pay a little bit more to keep doing so for a little while longer.”

Big money

With the heavy early investment from the California Association of Hospitals and Health Systems — which only spent $2 million to help Prop. 30 pass in 2012 — this is shaping up to be one of the costliest battles this cycle.

Prop. 30 was a $135 million issue, one largely supported by the California Teachers Association ($11.4 million), Service Employees International Union ($10.7 million), Democratic State Central Committee of California ($5 million) and the American Federation of Teachers ($4.1 million).

In total, proponents spent $65.6 million to pass the measure. It has generated $13.1 billion in education funding since its passage, according to the state controller’s office.

The extension measure is again supported by the California Teachers Association and Service Employees International Union, which — along with the hospitals — forms a formidable alliance. The California Teachers Association and Service Employees International Union has already given $1.2 million on the effort.

While it won’t take a formal position unless the measure qualifies for the ballot, the Howard Jarvis Taxpayers Association will make this a top target if it does qualify — the measure has reached the 25 percent mark for required signatures as of Sunday.

Many political donors will also fight this measure. In 2012, Charles Munger Jr. contributed $35 million to the “No on 30” campaign in opposition to Prop. 30, according to Ballotpedia.

Timing

Instead of waiting until the next cycle when the Prop. 30 income tax provision expires, proponents are banking on a favorable turnout, as Democrats vote in larger percentages in presidential cycles than they do in midterms.

There had been competing Prop 30 extension proposals, but the efforts consolidated around this measure, said Wonnacott.