The state's general fund is funded by several revenue sources, including sales tax and personal income tax. Currently, the average sales tax rate is around 8 percent. Typically, a portion of the sales tax revenues goes to the general fund while the rest is allocated to local governments. The personal income tax rates in California range from 1 percent to 9.3%. The sales tax and personal income tax contributed $76.4 billion during the 2010-11 fiscal year. Proposition 30 would increase the sales tax rate for four full years, from January 1, 2013 to December 31, 2016. The rate would be increased by one-quarter cent for every dollar of products purchased. The personal income tax rate would be increased from 2012 through 2018. As taxable income increases, the tax rate would increase.
The Legislative Analyst's office estimates that Proposition 30 could bring in around $6 billion for the years in which the sales tax and personal income tax increases are in effect. The LAO estimates that smaller revenue increases are likely in years when the higher tax rates are phased in (2011-12) and when the rates are phased out (2018-19). Revenues that come from upper-income taxpayers may fluctuate year to year as upper-income taxpayers tend to invest more in the stock market and the rise and fall of the economy. Because of this, revenues raised by Proposition 30 are not easily estimated.
The revenues generated by Proposition 30, when added to school funds guaranteed by California's Proposition 98 education mandate (see Proposition 98: a Primer [pdf] from the California Legislative Analysts Office, Feb. 2005) would potentially add billions of dollars each year for education. The measure requires that the new revenues would be deposited into the Education Protection Account (EPA). Of the new revenues, 89 percent would go to California schools and 11 percent to state community colleges. No school district would receive less than $200 in EPA funds per student and no community college district would receive less than $100 in EPA funds per student.
June Budget Plan
The Legislature and the Governor adopted a budget plan in June 2012 which would rely on voter approval of Proposition 30. Once the measure is approved, the budget plan allocates the resulting revenues to be spent on various state programs including a large portion allocated to pay for K-14 education expenses. The plan increases funding for schools and community colleges in 2012-13 by $6.6 billion over 2011-12. The majority of the increase would pay for educations costs from the previous year and delays in some education payments from this year.
The June plan would also limit spending in certain health and social services programs as well as lowering the amount of state employee compensation.
If Proposition 30 does not pass, the June plan requires that spending be reduced by $6 billion. $5.4 billion in K-14 education and $500 million for public universities would make up the bulk of the reduction. Overall, the failure of Proposition 30 would mean lower state revenues from 2012-2019.
Local Government Programs
Proposition 30 adds provisions to the state Constitiution involving the 2011 transfer of some programs from state to local government control. Specifically, Prop. 30 requires the state to continue to pay revenues previously directed to local governments in 2011, for the cost of transferred program responsibilities. Local governments would not be required to implement any newly created state laws which would increase the costs of adminitering programs from the 2011 transfer, unless the state provided money for the increased cost. Similarly, Prop. 30 requires the state to pay a portion of any costs that any court actions and/or changes in federal laws might put on programs from the 2011 transfer. The state would be relieved, however, for reimbursing local governments for any state mandates placed on them, as is now the case under state law. Finally, the existing law that requires states to reimburse local governments for the cost of open meeting procedures for public meetings, would be overturned.
What Happens if Voters Approve Both Proposition 30 and Proposition 38?
If provisions of two measures approved on the same statewide ballot conflict, the Constitution specifies that the provisions of the measure receiving more “yes” votes prevail. Proposition 30 and Proposition 38 on this statewide ballot both increase personal income tax (PIT) rates and, as such, could be viewed as conflicting. Proposition 30 and Proposition 38 both contain sections intended to clarify which provisions are to become effective if both measures pass:
• If Proposition 30 Receives More Yes Votes. Proposition 30 contains a section indicating that its provisions would prevail in their entirety and none of the provisions of any other measure increasing PIT rates—in this case Proposition 38—would go into effect.
• If Proposition 38 Receives More Yes Votes. Proposition 38 contains a section indicating that its provisions would prevail and the tax rate provisions of any other measure affecting sales or PIT rates—in this case Proposition 30—would not go into effect. Under this scenario, the spending reductions known as the “trigger cuts” would take effect as a result of Proposition 30’s tax increases not going into effect.
- California. California General Election Official Voter Information Guide. Sacramento: California Secretary of State Elections Division, 2012. Online.