Copyright© 2000 by School Services of California, Inc.
Governor Announces ¼-Cent Rollback in State Sales
Tax
Just a few weeks before Election Day, Governor Gray Davis announced that the "trigger" adopted as part of the sales tax increase of 1991 will be implemented this next year and that the state sales tax will be reduced on January 1, 2001, by one-quarter of one percent. He also indicated that the "trigger" reduction is only temporary-to be decided annually-since he is not convinced that state taxes should be permanently reduced.
The tax reduction will result in a $1.1 billion reduction in state income in 2001, but it is expected that the state will still have a very positive financial year. The state ended last fiscal year with a General Fund reserve in excess of 10% and the triggering of the sales tax reduction means that the Director of the Department of Finance is projecting at least a 4% reserve as of June 30, 2001, and into the foreseeable future.
The Governor's announcement seemed early in that state law does not require an indication by the Director of the Department of Finance until November 1. At his press conference on Tuesday, October 25, Governor Davis was peppered with questions regarding the political overtones in his timing and he finally conceded he is "following the law prematurely," but he didn't want to delay until November 1-so close to election day.
Proposition 98 revenues for K-14 are not likely to be impacted since it is still expected that next year's Proposition 98 minimum will be built off of "Test 2" calculations that are based on factors other than state revenues. Additionally, the Governor and the Legislature have been willing to exceed Proposition 98 obligations in recent years and there is no reason to expect a change of heart in fiscal year 2001-02 if state income continues to grow by leaps and bounds.
--Ken Hall