The California budget went from a record surplus to a deficit in one year. Why did that happen? This explainer gives the answer.
Get the news that matters to all Californians. Start every week informed.Gov. Gavin Newsom unveils his 2022-23 state budget with a record surplus in Sacramento on May 13, 2022. This year, California has a budget deficit. Photo by Rich Pedroncelli, AP Photo, a shocking figure coming at the end of a bruising COVID-19 pandemic.
Starting in the 2021 tax year, Californians who are shareholders of S Corps. or who have business partnerships could pay into a newly created tax, which effectively allows them to get income tax credits. This has shuffled what could have been income tax revenue into corporate tax revenue as far as the state is concerned, while allowing those individuals to get around federal deduction limits on state and local taxes passed in the Trump administration.
And the formula for determining the minimum level of K-14 education funding keeps changing as new requirements are added. For example, voters passedlast year, which guarantees an additional 1% of what Prop. 98 provides toward arts and music education. That's estimated to be an additional $941 million in this year's budget.There are a few ideas floating around to help stabilize general fund revenue through new taxes, or the modification of existing tax relief.
One solution to relieving the funding pressure put on the state's general fund to pay for K-14 education is by assessing taxes on most commercial and industrial properties based on market value, essentially removing the tax relief Prop. 13 offers them. This is called"split roll" and a recent attempt to have voters pass thisin 2020. If it passed at the time, large commercial and industrial entities could have provided an estimated $6.
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