Subject: Studies in the News 03-28 (April 30, 2003)

CALIFORNIA RESEARCH BUREAU
CALIFORNIA STATE LIBRARY
Studies in the News:
Revenue, Taxation and Budgeting Supplement

Contents This Week

Introductory Material ECONOMY
   Pension tax subsidies
GENERAL GOVERNMENT
   Proposed federal assistance to state and local governments
   Federal budget impact on states
   Tax incentives for charitable giving
   Homeland security grants
   Current reinvesting and spending demands
   City fiscal structures and land development
   Local government contract management
   Proposed Supplemental Security Income reductions
   Republican budget proposal
   Citizens' budget plan
   States' reactions to fiscal pressures
   Fiscal review of states
   Statewide procurement practices
   State lotteries and tax revenues
   State tax actions 2002
   Coping with deficits
   Stock options and alternative minimum tax
   NCSL tax policy handbook
   California's tax burden
   Proposed tax cuts on dividends
   Tax burdens on low-income families
   Federal tax cut analysis
   State tax collections and rates
   Tax principles workbook
   Tax credit for political contributions proposed
   Reaching agreement on a streamlined sales tax
PREVIOUSLY IN STUDIES IN THE NEWS
   Studies in the News, 03-20 (April 8, 2003)
   Studies in the News 03-23 (April 15, 2003)
   Studies in the News, 03-27 (April 25, 2003)
Introduction to Studies in the News

Studies in the News is a very current compilation of items significant to the Legislature and Governor's Office. It is created weekly by the State Library's Research Bureau to supplement the public policy debate in California’s Capitol. To help share the latest information with state policymakers, these reading lists are now being made accessible through the State Library’s website. This week's list of current articles in various public policy areas is presented below.

Service to State Employees:

  • When available, the URL for the full text of each item is provided.

  • Items in the State Library collection can be checked out to state officials and staff.

  • Access to all materials listed will be provided by the State Information Reference Center, either by e-mail to cslsirc@library.ca.gov or by calling 654-0261.

The following studies are currently on hand:

ECONOMY

SAVINGS & PENSIONS

Examining The New Portman-Cardin Legislation: Are Further Pension Tax Subsidies for High-Income Households Affordable or Sound as Pension Policy? By Peter Orszag. (Center on Budget and Policy Priorities, Washington, DC) April 21, 2003. 11 p.

Full Text at: www.cbpp.org/4-21-03tax.pdf

["Current tax benefits related to pensions accrue disproportionately to high-income households.... Lower- and middle-income families ... gain much less.... Most of the provisions that involve the largest revenue losses ... would provide additional tax subsidies to high-income individuals."]

[Request #S]

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GENERAL GOVERNMENT

FEDERAL AID

Altered States : How the Federal Government Can Ease the States’ Fiscal Crisis. By Max B. Sawicky, Economic Policy Institute. EPI Issue Brief #187. (The Institute, Washington, DC) February 26, 2003. 7 p.

Full Text at: www.epinet.org/Issuebriefs/ib187/ib187.pdf

["Balanced budget laws are compelling (state and local) governments to take actions - tax increases and spending cuts - that are a drag on national economic growth. The federal government can and should take steps to alleviate by providing temporary, general assistance to state and local governments."]

[Request #S7967]

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FEDERAL BUDGET

Congressional Budget Resolutions: A World Apart. By Federal Funds Information for States. FFIS Budget Brief, 03-04. (FFIS. Washington, DC) April 3, 2003. 9 p.

["This Budget Brief provides an overview of the House and Senate budget resolutions and their potential impact on states.... The Senate plan provides substantially less in tax reductions than the House version.... The House plan includes cuts in mandatory or entitlement programs.... Both bills would create a reserve fund to finance Medicare modernization and prescription drug coverage."]

[Request #S7943]

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Senate Charity, Aid, Recovery and Empowerment Act Increases Funding for Social Services Block Grant. By Federal Funds Information for States. FFIS Issue Brief, 03-16. (FFIS, Washington, DC) April 15, 2003. 3 p.

["The Senate passed the Charity, Aid, Recovery and Empowerment (CARE) Act.... The bill would establish a series of tax incentives to increase charitable giving. It also would increase funding for the Social Services Block Grant in fiscal years 2003 and 2004."]

[Request #S7946]

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Race to Recess Renders Resolution. By Federal Funds Information for States. FFIS Budget Brief, 03-05. (FFIS, Washington, DC) April 17, 2003. 7 p.

["This budget brief will focus on the homeland security grants and other issues affecting states and the potential impact of the budget resolution on federal grant programs."]

[Request #S7947]

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GOVERNMENT OPERATIONS

Highlights of a GAO Symposium: Addressing Key Challenges in an Intergovernmental Setting. By the U.S. General Accounting Office. GAO-03-365SP (The Office, Washington, DC) March 2003. 52 p.

Full Text at: www.gao.gov/new.items/d03365sp.pdf

["Federal, state, and local governments are facing an increasing range of daunting problems.... The following were identified as the most significant challenges: mismatch between current revenues and spending demands; intergovernmental financing of health care; current tax structures at all levels of government; and alignment between resources and responsibilities."]

[Request #S7948]

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LOCAL GOVERNMENT

City Fiscal Structures and Land Development. By Michael A. Pagano, College of Urban Planning and Public Affairs, University of Illinois at Chicago. Prepared for the Brookings Institution Center on Urban and Metropolitan Policy and CEOs for Cities (The Center, Washington, DC) April 2003. 32 p.

Full Text at: www.brookings.edu/dybdocroot/es/urban/publications/paganovacant.pdf

["This paper probes the relationship between cities' decisions regarding land redevelopment and their underlying fiscal capacity and revenue structures.... The case studies ... show that all kinds of cities share a common interest in undertaking land development to eliminate blight and enhance the urban core."]

[Request #S7949]

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"Contract-Management Capacity in Municipal and County Governments." By Trevor L. Brown and Matthew Potoski. IN: Public Administration Review, vol. 63, no. 2 (March/April 2003) pp. 153-163.

["Under pressure to do more with less, governments across the country have moved from direct service provision to providing services by contract.... We present analyses of data on municipal and county governments contracting activities that show how governments invest in contract-management capacity in response to several internal and external threats to effective contract performance."]

[Request #S7950]

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STATE BUDGET

Governor's 2003-04 Budget Proposes to Reduce Supplemental Security Income/State Supplementary Payment (SSI/SSP) Grants. By the California Budget Project (The Project, Sacramento, California) April 2003. 3 p.

Full Text at: www.cbp.org/2003/bb030414SSISSP.pdf

["Governor Davis' budget proposes to reduce ... (SSI/SSP) grants by 6.5 percent and suspend the ... State cost-of-living adjustments (COLAs). The reduction and COLA suspensions will result in General Fund savings of $1.1 billion."]

[Request #S7968]

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A Responsible Solution to the State Budget Crisis. 36 p.; charts. And Assembly Republicans Offer Responsible Budget Solution to Protect Classrooms, Taxpayers: Press Release. By the Assembly Republican Caucus, California Legislature. (The Caucus, Sacramento, California) April 30, 2003. 5 p.

["GOPers Offer State Budget; Assembly Members Would Roll Over Debt But Not Raise Taxes: The budget plan, the most specific proposal the Republicans have offered, calls for no tax increases but recommends paying off $10 billion in debt over five years with one-half cent of sales tax money that now goes to the state." San Francisco Chronicle (April 30, 2003) A1.]

[Request #S7969]

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Citizens' Budget 2003-05; A Ten-Point Plan to Balance the California Budget and Protect Quality-of-Life Priorities: Executive Summary. By Carl De Maio and others, the Performance Institute. (The Institute, Los Angeles, California)

Full Text at: http://www.rppi.org/calstatebudgetproposal.pdf

["The plan calls for a fundamental overhaul of most state programs, using proven management reforms that not only produce cost savings but also improve program performance. It implements well-documented innovations pioneered by other states that have demonstrated that state government can indeed do 'more with less.' Most importantly, it keeps California's commitment to investing in our children's education and maintains public health and social services."]

[Request #S7971]

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STATE BUDGETS

How Are States Responding to Fiscal Stress? By Kenneth Finegold and others, the Urban Institute. (The Institute, Washington, DC) March 2003. 8 p.

Full Text at: www.urban.org/UploadedPDF/310658_A-58.pdf

["According to this report, while most of their focus is on immediate pressures, ultimately states should examine long-term solutions to fiscal stress and enact policies that work in expansions and recessions. Part of that calculus needs to be a recognition that devolution changes the fiscal needs and cycles of states."]

[Request #S7944]

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2002 Tax And Budget Review and 2003 Budget Review. By Nicholas W. Jenny, Fiscal Studies Program, Nelson A. Rockefeller Institute of Government. State Fiscal Brief No. 66. (The Institute, Albany, New York) March 2003. 7 p.

["Revenues declined sharply while demands for state spending continued to increase.... In this brief, we define a significant tax change as one that increases or decreases a state's revenue by at least one percent of general fund expenditures....Most of the 15 states that increased taxes significantly stayed away from increases in major taxes such as personal income or general sales taxes."]

[Request #S7972]

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STATE FINANCES

Statewide Procurement Practices: Proposed Reforms Should Help Safeguard State Resources, but the Potential for Misuse Remains. By the California State Auditor, Bureau of State Audits. (The Bureau, Sacramento, California) April 9, 2003. 128 p.

Full Text at: www.bsa.ca.gov/bsa/pdfs/2002-112.pdf

["Several state departments failed to seek competitive bids or compare prices as required when buying goods and services, according to an audit ... and as a result may have cost taxpayers millions of dollars in unnecessary expenses.... The report did not specify how much money the state overspent but said departments make billions of dollars in purchases each year under special circumstances exempt from bidding mandates." Contra Costa Times (March 27, 2003) 1.]

[Request #S7952]

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STATE REVENUE

The Impact of State Lotteries on State Tax Revenues. By Stephen C. Fink and others, Vassar College. IN: State Tax Notes (March 31, 2003) pp. 1169-1172.

["This report analyzes panel data on lottery and nonlottery states for over 30 years in an attempt to determine the ways in which states' tax revenues change in response to lottery revenues."]

[Request #S7953]

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STATE TAXES

"State Tax Actions 2002." By Mandy Rafool, National Conference of State Legislatures. IN: State Tax Notes (April 7, 2003) pp. 59-84.

["The weakening fiscal conditions of a year ago were even more pronounced in 2002. States continued to report slower-than-expected revenue growth and expanding budget gaps. As a result, states raised taxes in 2002 for the first time since 1994. The net increase for fiscal 2003 was $9.1 billion, which equals 1.6 percent of 2001 tax collections."]

[Request #S7954]

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"Is the State Tax System Sick?" By Eugene Corrigan, State Tax Notes Advisory Board. IN: State Tax Notes (April 7, 2003) pp. 99-100.

["Virtually all governments in America today are hospital cases, only a little over two years after an election in which nearly all were declaring themselves to be in wonderful health. Now, they all need transfusions in the form of increased revenues in order to cope with horrendous deficits."]

[Request #S7955]

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"Another Bubble Burst: Stock Options and the California AMT." By Allen Prohofsky, California Franchise Tax Board. IN: State Tax Notes (March 24, 2003) pp. 1077-1081.

["The original purpose of the alternative minimum tax (AMT) was to prevent a small number of taxpayers with very high gross incomes from using tax preferences to avoid paying income taxes. As currently structured, however, the number of taxpayers owing federal AMT is projected to skyrocket. One recent estimate anticipates that 36 million taxpayers will be affected by AMT by 2010."]

[Request #S7956]

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TAXATION

Tax Policy Handbook for State Legislators. Second Edition. By the Fiscal Affairs Program, National Conference of State Legislatures. (NCSL, Denver, Colorado) April 2003. 68 p.

["This updated handbook provides 3-4 page evaluations of 10 major state tax sources, using criteria developed by a bipartisan group of legislators, legislative staff, and private and public sector representatives."]

[Request #S]

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Who Pays Taxes in California? By the California Budget Project. (The Project, Sacramento, California) April 2003. 3 p.

Full Text at: www.cbp.org/2003/030304whopaystaxes.pdf

["California's poorest families pay the most in taxes. The poorest fifth of State's non-elderly families, with an average income of $11,100, spent 11.3 percent of their income on state taxes in 2002. In comparison, the wealthiest 1 percent, with an average income of $1.6 million, spent 7.2 percent on state taxes."]

[Request #S7958]

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Exempting Corporate Dividends From Individual Income Taxes. By Joel Friedman and Robert Greenstein, Center on Budget and Policy Priorities. (The Center, Washington, DC) 2003. 21 p.

Full Text at: www.cbpp.org/1-6-03tax.pdf

["This proposal to cut taxes on certain dividends and capital gains raises a number of questions. It would do little to stimulate the economy in the near term. In addition, its high cost over the next decade and beyond would result in further damage to the federal budget, increasing deficits and thereby reducing national savings and imposing long-term costs on the economy."]

[Request #S7959]

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State Income Tax Burdens on Low-Income Families in 2002. By Nicholas Johnson and others. (Center on Budget and Policy Priorities, Washington, DC) April 11, 2003. 18 p.

Full Text at: www.cbpp.org/4-11-03sfp.pdf

["Despite years of tax-cutting at the state level, poor families in many states still face a substantial burden as they file personal income taxes.... Taxing the incomes of working-poor families runs counter to the efforts by policymakers ... to provide more assistance to families seeking to work their way out of poverty."]

[Request #S7960]

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The Administration's Tax Cut Blitz: Assessing the Message. By Robert Greenstein and Isaac Shapiro. And Administration's Economic Growth Claims Disputed. By the Center on Budget and Policy Priorities. (The Center, Washington, DC) April 17, 2003. Various pagings.

["The official estimates of the Joint Committee on Taxation show that fewer than six percent of the tax cuts ... would occur in the current fiscal year, which ends September 30. Only 21 percent of the tax cuts would occur by the end of the fiscal year 2004. Few economists believe that the elimination of tax cuts on dividends ... would provide a significant boost to the economy."]

Assessing the Message:
http://www.cbpp.org/4-17-03tax.pdf

Administration's Economic Growth Claims Disputed by Broad Range of Economists:
http://www.cbpp.org/4-17-03tax2.pdf

[Request #S7961]

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State Tax Collections and Rates. By David Hoffman. (The Tax Foundation, Washington, DC) March 2003. 12 p.

Full Text at: www.taxfoundation.org/SR121.pdf

["California ranks eighth-highest in state and local taxes per capita ... California's Proposition 13 ... has helped keep the state's tax burden down ... But the state's ranking has surged in recent years.... Lawmakers now are debating whether to raise a variety of fees and taxes to help erase a multibillion-dollar state budget deficit." Sacramento Bee (April 15, 2003) A1.]

[Request #S7962]

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Tax Principles Workbook: A Tool for Critiquing Tax and Fiscal Proposals and Systems. By Joint Venture (Joint Venture, San Jose, California) 2003. 34 p.

Full Text at: www.jointventure.org/taxpolicyworkbook/JVSVTaxWorkbook.pdf

["This workbook contains a tool to help policymakers and others analyze existing tax and fiscal structures and proposals to determine how well they satisfy the basic principles of good tax policy. The analysis requires the user to consider the purpose of the tax or proposal, how it works, its degree of fairness, and whether it will operate efficiently."]

[Request #S7963]

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Broadening the Base: The Case for a New Federal Tax Credit for Political Contributions. By David Rosenberg, American Enterprise Institute (The Institute, Washington, DC) 2002. 10 p.

Full Text at: www.aeipoliticalcorner.org/NO%20Articles/RosenbergReportIntro.pdf

["Tax Credit Proposed for Political Contributions: David Rosenberg makes a case for tax credits as an incentive to invigorate small donors and help balance the influence of big-money donors in the political process.... Individuals making $60,000 or less would get a tax credit to offset contributions to Congressional candidates. Married couples filing jointly with a household income of $120,000 or less would get a $400 credit." Roll Call (April 14, 2003) 1.]

[Request #S7964]

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"A Streamlined Sales Tax, and Evaluation Standards for Sales Tax Structure." By John L. Mikesell. IN: State Tax Notes (April 28, 2003) pp. 369-372.

["States were alarmed by the loss of sales tax revenue and the discrimination against local vendors caused by the inability to require no-physical-presence vendors (particularly those selling through the Internet) to register to collect tax on sales that would be taxable if made through local vendors.... A number of states will find that they must revise their sales tax laws in order to comply with the standards of the agreement.... In terms of fundamental tax policy, these revisions are worthwhile, even without the promise of bringing remote vendors into the system."]

[Request #S7966]

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PREVIOUSLY IN STUDIES IN THE NEWS
[This section links to items in Studies in the News since the last Revenue, Taxation and Budgeting Supplement.]

"General Government." IN: Studies in the News, 03-20 (April 8, 2003).

Full Text at: www.library.ca.gov/SITN/2003/0320.htm

[Includes: "Federal funding among states;" "House budget has power to cut programs;" "House and senate budgets;" and others.]

[Request #S7973]

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"General Government. IN: Studies in the News 03-23 (April 15, 2003).

Full Text at: www.library.ca.gov/SITN/2003/0323.htm

[Includes: "Local revenue measures passed by voters;" "States need tobacco money;" "State and local revenue systems;" and others.]

[Request #S7974]

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"General Government." IN: Studies in the News, 03-27 (April 25, 2003).

Full Text at: www.library.ca.gov/SITN/2003/0327.htm

[Includes: "California public policy bibliography;" "Profile of western states' economy;" "Inconsistent monetary policies;" "Competitive federal grants;" and others.]

[Request #S7975]

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