California Tax Expenditure Accountability Act

URGENT--Please distribute this alert to your friends.

ACTION NEEDED: Send a letter to Governor Schwarzenegger in support of AB 2106 (Ridley-Thomas). Urge him to sign this bill, which would enact the California Tax Expenditure Accountability Act. See below for suggestions of points to make in your letter.

(Fax to 916-445-4633; the mailing address is The Honorable Arnold Schwarzenegger, Governor of California, State Capitol Building, Sacramento, CA 95814.)

THE SITUATION:

Tax expenditures, which are tax credits, exemptions, deductions, and other special tax breaks and incentives, represent funds that would otherwise be available in the state budget but are forgone, generally without any evaluation of their impact on the state. They are proposed with optimistic predictions of the economic or social benefits they will produce and tend to be kept in place with little review of whether they have had the promised results and who has benefited.

AB 2106 (Ridley-Thomas) would require the Department of Finance to make an annual tax expenditure report to the Legislature with more detailed, useful information than is currently required. The report would include a description of each sales, income, or corporate tax expenditure currently in effect, its original intent, the number and types of taxpayers that benefit, and an estimate of the revenue loss to the state (or, in the case of the sales tax, to local government).

Assemblymember Ridley-Thomas's intent is that the AB 2106 report should be used by the Legislative Analyst and legislative committees for further study and evaluation of selected tax expenditures. He proposes that the budget committee in each house should prioritize those tax expenditures compared to all regular state expenditures. If AB 2106 is signed into law, he will propose legislative rules to that effect in January, and the League will support him in that effort.

Governor Schwarzenegger is taking various steps to review government functions to improve the efficiency and accountability of government and to ferret out waste, fraud, and abuse. Review of our system of taxation and budgeting and justification of tax incentives and special breaks should be valuable parts of that review.

POINTS TO MAKE: Select from these ideas when you contact the Governor. Keep your letter short and to the point. Read the letter sent by LWV California.

• Tax expenditures are a significant share of state spending and also reduce revenue streams which flow to local governments, yet they remain largely hidden to both legislators and the general public. It's time to get information about them on the public agenda for open review.



• Fairness dictates that tax expenditures should contribute to tax equity, be in the interest of the general public and not just a specific group, and provide social benefits that significantly outweigh the increased tax burden to others.



• These special tax code provisions are called expenditures because they have the same effect as on-budget subsidies or rebates. The value, support for, and effectiveness of on-budget programs are evaluated during the budget process. The value and effectiveness of tax expenditure programs are rarely discussed when priorities for governmental spending are assessed.



• With California's ongoing budget difficulties, it is more important than ever for government to meet standards of efficiency, effectiveness, and accountability. All programs-tax expenditures as well as spending programs-must be required to meet those standards.



• Tax expenditures represent billions of dollars annually in foregone revenues that must be made up by higher tax rates or reductions in spending on government services, or borrowing.



• Evaluating tax breaks against program needs during the budget process would allow the state to maintain existing revenues and eliminate revenue losses from tax expenditures that are unfair or ineffective. Abusive loopholes have been identified and should be ended.



• By opening existing tax expenditure provisions to greater scrutiny, AB 2106 will be a step toward reform. Tax breaks should include a sunset date and evaluation, measurable goals and objectives, and provisions for recapture if any qualifying requirements are not met by the taxpayer.

LWVC STATE AND LOCAL FINANCES POSITIONS:

• The League supports measures to ensure revenues both sufficient and flexible enough to meet changing needs for state and local government services; and that contribute to a system of public finance which emphasizes equity and fair sharing of the tax burden as well as adequacy.
• Adequacy of revenue should be ensured by retention of existing sources of revenue with bases as broad as possible consistent with fairness.
• Tax expenditure measures should include provision for mandatory, periodic review and justification by the legislature.
• The League prefers tax expenditures which contribute to tax equity, are in the interest of the general public and not just a specific group, provide social benefits which significantly outweigh the increased tax burden to others, and simplify tax administration.

KEEP US INFORMED: We would be interested to know if you send a message to the Governor. Please tell us what action you have taken and what response, if any, you have received. Email LWVC Program Director/Advocate Trudy Schafer at tschafer@lwvc.org, or send to the address below.