How Should California Spend Nearly $2 Billion?

August 25, 2014

The state of California is poised to direct an estimated $1.8 billion over the next four years to new and expanded tax breaks for specific industries and businesses based on actions recently taken by state lawmakers, or actions pending and likely to be approved by state lawmakers in the coming days. These include:

  • Nearly $420 million in tax breaks for aerospace companies — specifically targeted to Lockheed Martin and Northrop Grumman — that are competing to build the next generation of stealth bombers, an incentive package approved by the state Legislature and signed into law by Governor Brown earlier this month;
  • Expansion of a state tax credit for film and TV production — from $100 million to $400 million annually — that is currently working its way through the Legislature; and
  • Efforts to lure Tesla Motors to build a new “gigafactory” in California, which are likely to include tax credits to help meet Tesla’s demands that state and local governments help pay for 10 percent (estimated at $500 million) of the cost of construction. The legislation, expected to emerge in the coming days, is also likely to exempt Tesla from some environmental (CEQA) requirements.

All told, these actions stand to commit the state to nearly $2 billion over the next four years in targeted tax breaks for business and industry.

We think that California would benefit more from investing this money in vital public systems and services. While we don’t question that state leaders should place a high priority on boosting employment and expanding opportunity, we do question whether these new and expanded credits and incentives are the best strategy for meeting those objectives. Consider just a few alternatives for the state’s $2 billion:

  • Phasing in a refundable state Earned Income Tax Credit (EITC) to further leverage the federal EITC, which would boost the incomes of working families most in need of assistance, raising thousands Californians out of poverty each year;
  • Continuing to restore the 110,000 subsidized child care and preschool slots (nearly one-quarter of the total) cut since 2007-08 that help working parents find and keep jobs and build a foundation for children’s success; and
  • Making a down payment on reinvesting in the economic engines that are the state’s higher education systems, for which state General Fund spending per student has declined significantly over the last three decades.

All of these alternatives, among others, are proven winners at helping working families to prosper, while the evidence on targeted tax breaks for businesses is mixed at best.

As state leaders clamor to give away tax credits to high-profile businesses and projects, we should all be asking the question “How should California spend nearly $2 billion?”

— Chris Hoene

Community College Students Pay Higher Fees To Support Film Tax Credit?

August 16, 2011

We frequently remind readers that budgets are all about our values and priorities, and the choices we make about how to use our collective resources as Californians. In light of growing concern over the national and state economies and their impact on revenues and projected long-term budget shortfalls, readers might find the Legislature’s rush to extend the film tax credit created by the 2009 “dark of night” budget deal a bit surprising. As Sacramento Bee columnist Dan Walters noted this morning, AB 1069 (Fuentes) which would extend the film tax credit from July 1, 2014, until July 1, 2019, is sailing through the Legislature.

While the higher fees community college students will pay this fall won’t directly pay the $104 million cost of this year’s film subsidies, which averaged $3.6 million for each of the 29 projects granted credits, the fee increase will cost students an amount almost equal to the 2011-12 price tag of the credit. That’s why we say budgets are about values and choices. The credit’s cost is also just about equal to the savings from reducing the time limit on CalWORKs’ cash assistance – 80 percent of which goes to children – from five to four years or enough to provide an additional $16.76 for each of the students in our public schools.

Recent research points to the high cost and limited effectiveness of film tax credits. That’s why Arizona, Arkansas, Idaho, Iowa, Kansas, Maine, Michigan, New Jersey, New Mexico, Washington State, and Wisconsin have all scaled back or eliminated subsidy programs. Lawmakers should avoid a rush to judgment and, at a minimum, should require a meaningful and independent review of the existing subsidy program before obligating the state to spend $100 million per year for an additional five years on an unproven program. With tight budgets expected as far as the eye can see, a dollar spent on a film tax credit means a dollar less for the programs and structures that Californians depend on.

— Jean Ross