A California Government Finance Stabilization Proposal

Economists specializing in state and local government finance agree that the one major "structural" problem in California's government is Proposition 13. We rely too heavily on volatile tax sources like income, corporate, and sales taxes. A greater share of government funding needs to come from property taxes. Here's my California Government Finance Stabilization Proposal:

1. Use the the Corporation Tax single sales factor income allocation rules as proposed in Governor Brown's January 10, 2011 Budget.
2. Cut the current Personal Income Tax to generate a third less revenue, exclusive of the Proposition 63 1% rate (leaving it unchanged).
3. Keep the state sales and use tax rate at 5% (down from 6%) and effectively collect the use tax on out of state purchases on the Form 540.
4. Increase the Proposition 13 property tax rate from 1% of assessed value to 1½% of assessed value.
5. Restore and fund from property tax revenue the Williamson Act to conserve agricultural properties; place two-thirds of the remaining revenue derived from the 1½% rate in a state special fund to fund education, from pre-school to graduate school, and to fund health care and day care for infants, toddlers, and k-12 students; return the remaining revenue derived from the 1½% rate to the counties for distribution under the same formulas used previously, excluding  allocated to school districts, community college districts, and the Office of the County Superintendent of Schools.
6. Remove property other than owner-occupied residential property from the assessed value near-freeze of Proposition 13; for owner-occupied residential property, assessed value shall be determined as provided by existing law.
7. In the case of rental residential property, the assessed value should be tied to changes in tenants and rents paid by new tenants.
8. In the case of all non-residential property, the assessed value should be increased 10% a year until it is equal to market value.
9. Establish a spending ceiling for general fund and special funds (exclusive of federal funds, enterprise funds, and funds spent on Presidentially declared disasters) that is equal to fiscal year 1990-91 spending (the base spending year) adjusted as follows:
   • for spending other than spending for K-12 schools, community colleges, and prisons the base year adjusted by the cumulative change in the CPI and the cumulative change in population;
   • for K-12 school and community college spending, the base year adjusted by the cumulative change in the CPI and the change in the number of students attending all K-12 schools and community colleges;
   • for prison spending the base year adjusted by the cumulative change in the CPI and the change in the offender population; and
   • place any surplus revenue into a "rainy day fund" to be used in years when revenue fails to support spending within the ceiling.