The UC Board of Regents has agendized an item at next week’s meeting that would put into place provisions that would raise student tuition and fees by 20.3 percent effective January 1, 2013 should the governor’s November tax measure not pass and the trigger cuts be implemented, with 250 million to be cut from the budget of the University of California.
The budget package adopted by the governor and the legislature includes a provision calling for UC to receive another $125.4 million in 2013-14 if the governor’s revenue-raising initiative on the November ballot is approved by the voters AND if the University does not increase its tuition and fees for 2012-13.
“It is clear the Governor and the Legislature have an interest in curbing the rapid rise in tuition and fees experienced by students and their parents during this fiscal crisis,” staff report to the agenda item says. “While these tuition and fee increases have been regrettable, they have been necessary in order to address a little more than one-third of the University’s budget gap since this most recent fiscal crisis started in 2008-09.”
The downside of the budget is the mandatory trigger cuts, however.
“In the event that the Governor’s revenue-raising initiative on the November ballot is not approved by the voters, the University will lose the $125.4 million tuition increase buyout funding and will be slated to receive an additional $250 million cut,” says the staff report to the agenda item.
“Until now, the combined effects of the State’s ongoing structural deficit and the ‘great recession’ have crippled California’s ability to address pressing financial needs of the State, including those of the University of California,” the staff report says.
UC and CSU are looking to conclude a multi-year funding agreement which would increase the base budget by six percent each year from 2013 until 2017. This would require fee increases of no more than six percent each year.
“This framework, if supported by the Legislature, holds the promise of financial stability and secures the University’s ability to plan for the future as opposed to reacting to continuous cuts of State support,” they write. “However, stable and consistent State funding for UC cannot be achieved without a stable fiscal situation for the State. The Governor has indicated that a multi-year funding framework is contingent on the passage of his November ballot initiative.”
In short, if the tax plan passes, UC and CSU will have the funding to continue without substantial fee increases for the next several years. If not, we are looking at a catastrophic event.
“The stakes are pretty clear,” UC spokesperson Steve Montiel said Tuesday. “If the initiative doesn’t pass, it would be a tough situation for the university and ultimately for the students.”
“It’s $375 million – obviously a huge hit,” Mr. Montiel added.
Claudia Magana, president of the University of California Students Association, believes that this should motivate students to support the governor’s tax initiative.
UC Regent support for the tax initiative is written into the same resolution that would lock in the fee increases should it fail.
“The students association plans to ramp up efforts to register students to vote this fall,” Ms. Magana said, as reported by the Associated Press.
“We want to educate students on what this vote means,” she said. “We’ll be doing everything in our power to make sure that it does pass.”
One of the big questions will be the impact on this community if the tax measure fails.
DJUSD stands to lose $7.5 million if the tax measure fails, which would be picked up by local taxpayers if the parcel tax measure on the ballot passes. But if both measures fail – a real possibility – DJUSD stands to have to make additional cuts to personnel.
Board President Susan Lovenburg told the Vanguard that it is unlikely the district would be able to function with another 60 teachers laid off and so the more likely scenario is the loss of 15 instructional days.
Meanwhile, UC students have already absorbed a number of tuition increases in the last few years. Last fall, students at UC Berkeley ended up rioting in protest, and UC Davis students occupying their Quad ended up being pepper sprayed and arrested.
Now the proposed fees could rise from $12,192 in 2011-12 to $14,670 in 2012-13. The impact could be catastrophic not only to this community but to the middle class and indeed the future of California.
The San Francisco Chronicle reports that recent studies have shown a decrease in middle-class students at UC. This is the group of students who do not qualify for financial aid and have been hardest hit by the soaring cost of education.
A report found that, while California’s middle class population has declined with the state’s economic recession, the decline throughout the university system has happened at a level almost twice the state’s declining rate.
The largest decrease has come from upper middle-income families with earnings of $99,000 – $149,000, which is a 6 percent decrease over the last 10 years. Students from middle-income families earning $55,000 – $99,000 has declined 3 percent in the same time frame.
The impact of these cuts will be enormous and not just to the student population, but to the community as a whole.
—David M. Greenwald reporting
Good piece David. I think you covered the key points. Thanks for including the reports on the drop of middle class students. One other related bit of data is the increase of student debt.
However, a final key point missing from this analysis is the state of the economy and its impact on graduating students. An education is worthless if it does not result in a good job. There are not enough good jobs. We are staring down the barrel of three Democrat-desired major tax increases that will hit job creators. Obamacare, the end of the Bush tax cuts and the Brown tax increase. These will all be considerations at the polls this November. And as I understand, we will see a barrage of ads funded by PACs drilling this exact point.
We are frankly in a social war between public sector employees living high off the hog, and the rest of the population that needs a job.
State prison guards consume 10% of the entire state employee budget; yet old Governor Moonbeam hasn’t moved an inch to make necessary cuts.
The number of federal employees has grown by 123,000, or 6.2%, under President Obama, according to the OMB.
In the past 11 years, total UC FTE personnel have increased 39 percent, from 109,500 to 152,400. This exceeds the increase in student growth.
From the office of the UC President: [quote]increases have been driven primarily by expansion in teaching hospitals, research activity and auxiliary enterprises, all of which are predominantly funded by non-state revenue[/quote]
There are a couple of problems with this CYA statement:
1. So why isn’t more of the non-state funding directed at in instruction/academics to offset the loss in state funding?
2. 74% of the personnel costs are for administrative employees. The costs of these departments increase in support of the expansion of these programs, but these costs are often buried in the general operating expense budgets.
In fact, administrative costs per student have continued to increase at UC. The clear finding is that costs for research have expanded at the expense of student tuition affordability at the same time state funding has dried up. Said another way, the UC has tilted its mission toward research and growing prestige and away from providing an affordable and quality education for students… especially undergraduates… at exactly the time when it should have been doing the opposite.
This all brings me to a conclusion that we have a serious market problem in higher education related to prestige over value. We need a revelation that the former is no longer attainable or useful in this time of constrained funding and hyper cost inflation, and a revolution to retool our entire higher learning system for focus on the latter. State-funded research universities will become a relic of the past. Instead, colleges that demand a mission of developing prestige through their research mission will need to find private funding sources (i.e., corporations and wealthy contributors) and the rest will need to shed this mission to focus instead on providing the absolute highest value (i.e., lowest cost/higher quality) education for students.
Would someone please tell us what Brown’s initiative is going to do about the problem of too much money continuing to go into huge comp, benefit, and retirement packages to the public unions that helped significantly to elect him to the Governorship? I dont see anything written that suggests to me that they are getting a haricut, not even a longish one.
[quote]1. So why isn’t more of the non-state funding directed at in instruction/academics to offset the loss in state funding? [/quote]
This is not done for precisely the reasons you identify a bit later in your commentary. The vast majority of non-state funding comes from extramural funding directed toward research. The biggest contributors of research funding are from federal agencies (NIH, NSF, etc.). Very little of this goes to instruction.
The increase in administrative personnel is a bit misleading, though. Since the Chancellor has instituted the “$1 billion campaign,” UC Davis has received many more dollars for its research (than in the past), so a lot of those new administrative and other positions are paid for by extramural research funds. Some of these positions are limited-time positions (1-3 year contracts, usually), so are completely tied to the extramural dollars.
I do agree with you on UC’s “mission tilt,” though.
Nothing, Mike. Brown is working on other plans for that. C’mon, Mike. Vote for the initiative. Do it for the kids.
K. Smith, What I stongly suspect, but am not in a good position to prove, is that much of the research expansion administrative costs are buried in the general operation budget which is paid for by state funding and tuition and fees charged to the students. For example, HR administrative costs. I could be wrong, but I doubt the UC system has a sophiticated enough cost-center bill-back accounting process to capture all the administrative services required to support non-state-funded research business.
Add a building to support a research project, and you need additional facilities and maintenance employees. You need more HR staff to handle the additional research employees. The list goes on. I suspect that the state and the students are supplementing the research costs in this way.
[quote]K. Smith, What I stongly suspect, but am not in a good position to prove, is that much of the research expansion administrative costs are buried in the general operation budget which is paid for by state funding and tuition and fees charged to the students. For example, HR administrative costs. I could be wrong, but I doubt the UC system has a sophiticated enough cost-center bill-back accounting process to capture all the administrative services required to support non-state-funded research business. [/quote]
Actually, the Extramural Accounting office does precisely what you are talking about. All effort committed by personnel working on research projects funded by extramural sources are accurately accounted for via a pretty complex system that does capture these costs. For example, if a Professor is working 10% effort on an NSF project, 30% on an NIH project, and the rest is just their normal UC appointment, the accounting system breaks down those costs accordingly.
This is so for all personnel who have any portion of their salary paid for by extramural funding sources (e.g. administrators who devote a percentage of their time overseeing a particular research project, grad students who work on projects, lab personnel, etc.).
Yes–you are right that there is likely some costs for HR, but with the newly developed “Shared Services Center,” these costs (from what I understand) have been greatly reduced, since redundant offices and personnel have been cut.
I think J. Boone has made a very perceptive analysis for someone not privy to the inner workings of UC. Yes in fact a large amount of state support (tax and increasingly tuition derived) is used to fund positions that directly or indirectly support research. This includes state funded staff that handle purchasing of items for research grants, do the often complex payroll for the grants, and lab staff that maintain instruments. Most of the square footage in most of the buildings on campus is devoted to research, and the people who fix and maintain all that are state-funded or work off recharges that are usually some form of state funds.
Beyond that he makes a very good point that the university internally is geared to work to maintain/increase its research visibility and prestige; whether we are accomplishing sound undergraduate teaching is secondary to that (although the university would always deny it). And its a very good question: can we afford 10 elite UC campuses that when you look closely are a very expensive and wasteful way to accomplish undergraduate as an afterthought to their true purpose.
make that “undergraduate education” in the last sentence
[quote]Most of the square footage in most of the buildings on campus is devoted to research, and the people who fix and maintain all that are state-funded or work off recharges that are usually some form of state funds. [/quote]
Certainly, this is true. A certain amount of overhead (or just “keeping on the lights”) goes to funding/maintaining everything that is done on campus, and that, of course, comes from the general operating budget.
Extramural projects, though, are also required to charge a certain amount for “indirect costs” (overhead, which goes to facilities and administration), which is a percentage of the total budget that is added for precisely the types of costs that both you and J. Boone have brought up.
Unfortunately, UCD’s overhead rate does not allow us to recover the totality of these costs.
[quote]And its a very good question: can we afford 10 elite UC campuses that when you look closely are a very expensive and wasteful way to accomplish undergraduate as an afterthought to their true purpose. [/quote]
Exactly. And this appears to me to be problematic, because these are all land-grant universities that were founded with a primary mission of undergraduate instruction.
[i]”with a primary mission of undergraduate instruction.”
[/i]
I always thought the UC had a dual mission of education and research, and that neither was primary.
[quote]I always thought the UC had a dual mission of education and research, and that neither was primary. [/quote]
Actually, three: teaching, research, and public service.
I was going way back to the original intent of land grant universities (which was for teaching), which has since morphed into this three-pronged mission.
[quote]The purpose of the land-grant colleges was:
without excluding other scientific and classical studies and including military tactic, to teach such branches of learning as are related to agriculture and the mechanic arts, in such manner as the legislatures of the States may respectively prescribe, in order to promote the liberal and practical education of the industrial classes in the several pursuits and professions in life.[4]
[/quote]
From: http://en.wikipedia.org/wiki/Morrill_Land-Grant_Colleges_Act
Here is the list of administrative departments at UCD. How much of their department budgets can be attributed to costs supporting the research business of UCD:
[img]http://www.cscdc.org/miscjeff/UCDDepartments.jpg[/img]
Great question JB.
Looking at your list I would say…over 1/2. Its hard to make anything other than a very rough guesstimate. But given the large amount of space devoted to research, the handling of large expenditures on extramural grants, the number of graduate students and researchers, and the fact that most profs spend more time on research than teaching, I think we could say that well more than 1/2 of the activity on the campus is geared towards research and hence the expense is as well.
As noted above we have indirect costs charged as a sort of tax on grants but these are capped and we can’t recover the actual cost of research.
It should also be noted that sometimes (often?) the star faculty get breaks to teach less and get subsidized by state $$ in their research. Keeping those folks here and happy is good for prestige but adds to costs. Another clash/disconnect between the research prestige factor and delivering anything close to an affordable education.
What follows is part of an email exchange I had with Mike Harrington a few days ago. In short, it lays out my thoughts on why Jerry Brown’s tax plan is the wrong approach to solving the state’s fiscal calamity:
We have 4 major budget problems in California and Jerry’s ballot plan addresses none of those four.
[b]First, the state has a total compensation problem.[/b] Direct labor costs eat up 47% of the budget (and 67% if you count the state money which goes directly to K-12 teachers and admins). Because of the pensions, health insurance costs, retiree medical care and in some cases high salaries (though in general this is not a big issue at the state level), the cost of labor compensation has been growing at more than double the sustainable level of growth. There are a large number of reforms that need to be done to fix this, among them pension reform, caps on how much the state pays as health costs rise, incentives for later retirement to lower retiree health costs and reducing the extremely generous amount of paid time off. But, alas, Brown ignores all of this.
[b]Second, we have a prison problem.[/b] It costs about $48,000 to house a prisoner in California. It costs half that in many other states. Aside from the fact that our sentencing laws put convicts away for far too long and the fact that we don’t help prisoners become productive citizens through better education and work-skills programs while they are incarcerated and thus they are so likely to wind up back in prison after getting out, we pay way too much money for the prison guards (CCPOA is a very powerful union with both Dems and Repubs) and we spend way too much on inmate health care. The obvious solution begins with outsourcing prisoners to cheaper states or private prisons. There are other reforms needed, but on a cost basis that is where we should begin.
[b]Third, there is a real and costly prevailing wage problem.[/b] Of the money the state spends on everything but K-12 education, higher education, direct labor costs and debt servicing, most of it goes to maintain public facilities (such as freeways and bridges and buildings) or to construct new public facilities. We pay more than twice as much in total comp for all labor associated with this expense than we would pay if all contractors were allowed to bid on projects, such as constructing a new school or repaving a highway or laying the pipes for a water project. Getting rid of prevailing wage would also benefit cities and counties. My guess is that the $98.5 million wastewater treatment plant would cost about $18 to $20 million less if we did not have to pay union wages and benefits and if the workers were not subject to work under union rules (which reduce productivity).
[b]And fourth, we have yet to overcome the recession problem.[/b] Our economy remains stuck in the doldrums. This is not Gov. Brown’s fault. It is not entirely President Obama’s fault. It is mostly due to our massively overbuilt housing sector and the resulting excess housing inventory in our state. For that reason, our unemployment remains very high and our tax revenues at all levels remain low.
Until most of the houses that have been constructed but not sold, the houses in foreclosure, the houses which should be in foreclosure, and the houses which are underwater are sold and recapitalized–that is, they are priced lower and bought by investors with plenty of cash who can hold them and put renters in them–California’s housing market will be anemic. That anemia will keep a lot of tradesmen out of work. It will keep banks from wanting to lend. It will harm retail sales. And in general it will keep our economy from recovering with vigor.
Brown’s plan is primarily to jack up the income tax on the wealthy. How does that solve our labor cost problem? Our prison cost problem? Our prevailing wage problem? Or our housing sector problem?
A sad fact is that many of the wealthiest Californians can move their income out of state pretty easily and not only avoid this tax hike, but avoid all income tax here. So it might not even raise much in net revenues.
I do think we need to pursue one major tax revenue reform: For all properties (residential and commercial) which have a fair-market value of $2 million or more, we need to get rid of Prop 13 for them and tax them at their fair market value.
If you take an office building with a fair-market value of $50 million which is now valued for tax purposes at $10 million, its property taxes owed would increase from $100,000 to $500,000 per year.
That kind of a tax change would not affect anyone of average or lower income. The investors who own office buildings and huge apartment complexes and the rich folks who live in $5 million mansions would not be able to avoid the tax by accounting tricks (which they easily can do with unearned income). I would implement this tax increase over a 5-year period, so it does not hit anyone all at once. In the example of the $50 million office building, its property tax would go up $80,000 per year until it reached $500,000. And from year 6 forward, the tax should be based on a full and fair-market value.
Otherwise, I am against any tax increases in California for the time being.
@J. Boone–Not sure of the percentages; that information does not seem to be easily obtainable. Part of those costs would be reimbursed through indirect cost allocations to these units (though, again, those percentages are often laughably low).
Here’s an interesting article about this issue:
http://www.aaup.org/AAUP/pubsres/academe/2011/ND/Feat/norr.htm
RICH: [i]”It is mostly due to our massively overbuilt housing sector and the resulting excess housing inventory in our state.”[/i]
Lest you think the housing market in Davis is on the rebound, I received some evidence in Monday’s mail that it is not. A postcard sent to me (and many others) from Coldwell Banker agent Johnny Brooks says that from 2009 to 2010 to 2011, the sales price of a square foot of a single family home in Davis fell from $279 to $277 to $259; and over the same period, the days each house sold was on the market increased from 56 days to 67 days.
Before seeing this data, I would have thought we bottomed out in 2009 and would have been on the upswing by 2011. That assumption was wrong.
If you want to see the postcard, click here ([url]http://1.bp.blogspot.com/-BkidG5Vaj84/T_3xQAPkW0I/AAAAAAAAAnM/eox57z5jlaQ/s1600/07-11-2012+02;28;28PM.JPG[/url]).
[img]http://1.bp.blogspot.com/-BkidG5Vaj84/T_3xQAPkW0I/AAAAAAAAAnM/eox57z5jlaQ/s1600/07-11-2012+02;28;28PM.JPG[/img]
Note: the average home price sold is also falling. However, I don’t think that figure is as reliable an indicator as the avg. price per sq. foot. What might distort that number is one year a lot of small homes could sell, and another year a lot of large homes might sell.
Ryan: OK, so Rich has shown us that Brown’s plan does nothing to assist the state’s structural fiscal problems. Ryan: you say vote for it, for the kids education. That’s a good point; I usually do. Basically, Brown is soaking those who can pay to pay for the education of those who are less able to pay for education. Maybe that is an OK policy position; I have to think about it. Increasing the general tax burden is tough on all. I’m still sucking air in the real estate side of things since the Great Recission hit in about 2007, and working to catch up.
Rich: my friend a residential appraiser with long time roots in Davis tells me that about 2 months ago, the Davis residential market turned upwards. Prices are up a bit, and there are multiple bidders on many properties that used to see little interest from buyers.
I think that the five govt entities whose payrolls feed and clothe most of Davis simply have to get their fiscal houses in order before we really see the local sizzle come back. We can talk about economic development all day long, but those govts have got to stabilize their jobs and payroll and see a comeback before you see the reflection in real estate and local business.
That’s one reason I am pushing so hard for the CC to get its house in order on employee comp.
Also, the Woodland Davis JPA project was just one big sucking hole in the local economy, pushed by Saylor and Souza for funding for their political careers; I think the facts are now clear to all that it’s our worst option, and West Sac or the Conaway Ranch options are better, but we still have a little more WAC and CC process to complete this Thursday night and next Tuesday before the way clears up.
BTW, I was very impressed with Brett Lee’s question about the expense of the longer process on that green business consultant. Until he asked, I had no idea they were looking at spending over $500,000 in overall consulting costs for that program.
I think a Varsity Theater panel discussion will do the same thing, at far less cost.
Rich: About a month ago I searched on housing prices on zillow.com for communities in the Sacramento area, and as of May 2012, Davis median price had retained a greater percentage of its value (72%) from its high point in Sept. 2005 than any other community in the Sacramento area, including Folsom (58%) and Granite Bay (61%).
I don’t argue that Davis housing is on the rebound, but it has had the potential to fall further when compared to other nearby communities:
Woodland: 46%
Winters: 50%
Dixon: 42%
Sacramento: 41%
Sacramento, Pocket neighborhood: 52%
Elk Grove: 45%
Folsom: 58%
Rocklin: 53%
Roseville: 55%
Granite Bay: 61%
Santa Cruz: 68%
Santa Barbara: 61%
[i]”Davis median price had retained a greater percentage of its value (72%) from its high point in Sept. 2005 than any other community in the Sacramento area …”[/i]
I would guess this is a function of three things:
1. Our housing market was not greatly overbuilt during the bubble. That is quite a different story from many of those other Sacramento area communities which had approved large new subdivisions. Had Covell Village been erected (I voted for it), it seems likely to me we would have had a much greater fall in prices than we have had;
2. Our unemployment rate among homeowners is probably lower than it is in other Sacramento area communities. The biggest drop in employment during this recession has been among carpenters, electricians, plumbers, roofers, drywallers, tile setters, masons, etc. who work in construction. Davis does not have a lot of these folks, and while many professionals who live here have lost work or lost income, most of them have likely had more opportunities to make money in a new job or in some other way, given their skill sets; and
3. The wealth of Davis residents not tied up in their homes is probably higher than in most other Sacramento area communities. Greater non-housing wealth may permit Davis homeowners to weather the storm a little more easily. That is, they are less likely to have to sell no matter what. So, even if they are upside down, they can hold on and wait. And they are less likely, even with a loss of income, to get foreclosed upon.
K. Smith, Great link.
I need to read it again, but it seems to confirm my suspicion.
[url]http://www.aaup.org/AAUP/pubsres/academe/2011/ND/Feat/norr.htm[/url]
I know I will hear from other blogging friends about the more obscure benefits that a prestigious research university provides undergraduates; however, I think there is a bit of irony in the drive of parents to have their kids attend schools deemed prestigious since it has contributed to hyper price inflation of a college education (from colleges responding by attempting to increase their prestige, and hence, driving up costs), and also has led to an inverse impact on post-degree job prospects resulting from probable business-impacting higher taxation to help fund education shortfalls.
You could say that these parents have been shooting themselves in the foot. Now to add insult to injury… after graduating with their $225,000 undergraduate degree from a prestigious UC, these kids have to move back in with mom and dad.
We have reached a point where a plumber, electrician and mason all have much better prospects to achieve prosperity than does a PHD… especially considering the PHD’s mound of student loan debt.
I did not know that September 2005 was the highwater mark in Davis real estate. I thought it came later. That said, it was on December 1, 2004 (in my column) that I suggested we were in an unsustainable housing bubble. Prices were rising at 20% and then 25% per year. I knew that could not go on much longer. It had the hallmarks of a mania.
The only person in town who publicly agreed with me was a courageous real estate appraiser named Lee Bartholomew. The reason his publicly stating that we were in a bubble took courage is because real estate developers have a strong incentive to hire apprasiers who are excessively optimistic. Anyone who is a realist does not get work. I know this from my own experience in real estate development. I hired appraisers for a dozen large projects. I knew which ones would error on the side of optimism and which ones would not.
I should note that I spoke with at least 15 real estate agents for that column, and none of them agreed we were in a bubble. They also have a financial incentive to be overly optimistic. It’s much harder to sell a house when you tell the prospective buyer, “Keep in mind that in 5 years this house will be worth half what the seller is asking, today.”
Rich, thanks for the great post on the shortcoming of the Brown tax plan. To add to your points, I would also summarize that this does nothing to address the long-term lack of fiscal viability with the State budget. If the Brown plan relies on the economy returning to pre-recession levels, his tax plan has the adverse impact. It is another kick of the can down the road. I care enough about our students to want to REALLY solve our school funding problems. This plan does not. In fact, it relieves pressure to do all of these other things that MUST be done.
I think your prop-13 plan is worth considering; but I would have to see a full impact analysis. I think this too would chase many jobs out of CA. Your case adds a $400,000 annual expense. That is $2 million hit over five years. A business won’t just consider that delta, it will consider the cost-benefit of relocation. This will be the straw that breaks the camel’s back for many.
[i]”The only person in town who publicly agreed with me was a courageous real estate appraiser named Lee Bartholomew”[/i]
Here is somebody that got it right on the national stage:
[url]http://www.youtube.com/watch?v=2I0QN-FYkpw[/url]
He made fools out of two of my economist heroes: Art Laffer and Ben Stein.
[quote]Mike Harrington: Basically, Brown is soaking those who can pay to pay for the education of those who are less able to pay for education. Maybe that is an OK policy position; I have to think about it. [/quote]
You are a confusing person. You don’t like Brown’s proposal, but you are quick to support raising local school taxes to over $900 per year. I think people are having a hard enough time affording the property taxes that they are currently paying. But you are all gung-ho “Do it for the kids!” I am way more likely to vote for Brown’s initiative than the local trigger bond.
“Would someone please tell us what Brown’s initiative is going to do about the problem of too much money continuing to go into huge comp, benefit, and retirement packages to the public unions that helped significantly to elect him to the Governorship?”
Did you see the article in yesterday’s Bee? The Field poll found 53% of respondents thought pensions were about right or too low. Only 37% thought they were too ample. However among Republicans 59% thought they were too generous. So it seems all this griping about taxes is really a Republican echo chamber.
Now back to reality. Californians think they can have all the services without any of the costs. The Governor has given them a choice vote higher taxes or face cuts to the area that he has kept as a sacred cow, education. State pensions are a small part of the problem. The big problem is the ongoing structural deficit. Griping about pensions is a distraction and only Republicans seem to be buying it.
JB: [i]I care enough about our students to want to REALLY solve our school funding problems. [/i]
Not as much as you want to denounce public schools as being crappy.
Here are some South Koreans (with their high standardized test scoring school system) who didn’t get your memo:
[quote]Korean Families Chase Their Dreams In The U.S. ([url]http://www.npr.org/2012/07/11/156377938/korean-families-chase-their-dreams-in-the-u-s[/url])
“Although the academics in Korea are more rigorous, there’s no creative mind there,” says Park, translating for Lee. “Everything’s rote memorization, and it’s purely academic — there’s no individual thought in their teaching.”[/quote]
I have run into some of these families in Davis schools from time to time.
Rich made some good points and added:
> I do think we need to pursue one major tax revenue
> reform: For all properties (residential and commercial)
> which have a fair-market value of $2 million or more,
> we need to get rid of Prop 13 for them and tax them
> at their fair market value.
The majority of property that would be hit with this tax increase would be family owned farm and ranch land and family owned small busines property. It would push a lot more business owners in to the red and out of business (and would push even more people on unemployment in the state)…
> If you take an office building with a fair-market
> value of $50 million which is now valued for tax
> purposes at $10 million, its property taxes owed
> would increase from $100,000 to $500,000 per year.
Prop. 13 passed in 1978 and rolled back values to what they were in 1975 and limited increases to 2% a year. If an office building is assessed at $10mm today that means that it was worth no more than $5mm back in 1975 (doing quick math in my head using the “rule of 72” where the value of something increasing by 2% a year will double in 36 years). We have had a lot of real estate appreciation in the past 36 years, but we don’t have many (if any) buildings that were worth $5mm in 1975 that have a fair market value of $50mm today. We are probably closer to 5x appreciation on average than 10x (which is what Rich might have been thinking if he forgot that even under prop 13 the assessed value keeps going up).
This plan would raise taxes on some property but let’s not forget (you can ask an appraiser friend) that getting rid of prop 13 would lower the value of EVERY property in California going forward that starts to get close to the $2mm cut off (and over time with inflation push almost every property out of Prop 13).
“Brown’s plan does nothing to assist the state’s structural fiscal problems. “
But Brown’s plan is not supposed to assist with the state’s structural problems, it’s supposed to provide the state with enough revenue so they don’t have to further make cuts to education.
David wrote:
> Brown’s plan is not supposed to assist with the
> state’s structural problems, it’s supposed to
> provide the state with enough revenue so they
> don’t have to further make cuts to education.
Or to put it another way it’s supposed to provide the state with enough revenue so they don’t have to make cuts to the pay of the $100K and $200K+ union members that supported him or get rid of things “we can’t live without” like the California Acupuncture Board, the California Horse Racing Board or California Athletic Comission (that makes sure every boxing and martial arts event in the state is “safe”)…
While all of that may be irritating, it’s not where the chunks of money are going. The big chunks are going to education, corrections, and social programs. Not going to defend some of that, but when you are dealing with billions of dollars, hundreds of thousands aren’t the cause.
David is correct, but there is that accumulative cost of employee pensions for the government employees required to provide all these obscure services. Also, note that “Other Spending” is the fifth largest bucket.
[img]http://www.cscdc.org/miscjeff/CASpending.jpg[/img]
[i]”But Brown’s plan is not supposed to assist with the state’s structural problems”[/i]
I think that is correct and validates the point that it is just more kicking of the can down the road.
In the Problem Management function of corporate IT, there is a “temporary” and “permanent” resolution to a problem. If a system is broken, to keep the business running before a permanent solution can be implemented, a temporary resolution (in some cases, a “work around”) will be put in place. However, the problem ticket is not closed until it can be confirmed that a permanent solution has been implemented.
If you think of a situation where only temporary solutions to problem are implemented, eventually you end up with a much bigger mess… a system that eventually cannot be maintained being held tother with so much virtual tape and bailing wire.
That is what we have with the California State budget. We have a broken system with no work being done for the required permanent structural changes we all know are required. We have political leaders shirking their responsibility for political reasons. Brown is failing on his promise to fix what is broken, and instead is going back to the same old state Democrat emotive political campaign cannard of “vote to tax yourself more or it will hurt the kids”.
So, let’s say we vote to tax ourselves more to save the kids from the idiots, fools and crooks that we have elected to lead this once great state. The idiots, fools and crooks live to lead another day, and the crisis is over… UNTIL THE NEXT TIME WE ARE OUT OF MONEY AGAIN!
AND… at the point we have even fewer options for tape and bailing wire to prop up our broken system.
When does this stop? When do we accept our medicine and demand a permanent solution to this mess? Why do we not see that the problems we are facing now that threatens the welfare of so many children today are a product of previous kicking the can down the road? Why do we not see that failing to address the fiscal structural issues now will only make it worse for their younger brothers and sisters?
We all know what the permanent solution is. It is trading the heartache of fewer state workers with the remaining employees forced to pay more for their benefits, and retire later… for the heartache of children having their already crappy education choices cut even further.
What really fries me is the fact that the Democrats in charge of this state have NOT taken advantage of the situation to do some real horse trading with the minority GOP party. A plan that would have a much better chance of being voted on would include much more state employee cuts and benefit reductions, plus some temporary tax increases. The message would be, we are going to incrementally shrink the size and cost of state government, and implement temporary emergency tax measures to fund the current shortfall in education services until the economy improves and our structure budget deficits are eliminated from the plan to shrink government expenses. However, what we have is a plan that is like all other plans before… using the human shield of child welfare to protect the gross pay and benefits going to the public employee unions who keep their favored Democrat politicians in office.
I say the quicker this whole damn mess implodes the better.
Vote NO on the Brown tax increase for the sake of the kids.
“I think that is correct and validates the point that it is just more kicking of the can down the road.”
Kicking the can down the road is not always a bad option.
First, I agree with you that we have to deal with some of the issues, in particular pensions (I also think changes to corrections are long overdue). I suspect we don’t agree on some/most/a lot of what needs to be done.
Second, at this point a big problem is simply the economy and therefore kicking the can down the road enables us to survive until the economy improves without further cuts to critical areas.
Kicking the can down the road is a problem when that is the only option being used.
On your point about the economy.
1. The structural problems existed before the Great Recession.
2. The economic situation in California and throughout much of the nation was false… propped up by a housing bubble that was clearly unsustainable. Prior to that it was a tech stock bubble that was clearly false and unsustainable. We will not see the economy improve with tax increases and a failure to invest enough in economic development. Europe is a mess. So is the rest of the world’s economy. We are years if not decades from the end of a correction.
IMO, By support the Brown tax increase, you are hanging on empty hope and risking the welfare of kids in future years where our problems are greater and our can kicking options depleted.
[quote]In 2009, Americans Paid Taxes At The Lowest Rate In 30 Years: CBO ([url]http://www.huffingtonpost.com/2012/07/11/american-tax-rate-2009_n_1665828.html?utm_hp_ref=business&icid=maing-grid7|main5|dl5|sec3_lnk1&pLid=178185[/url])
In 2009, Americans handed over the smallest percentage of their income to the government in 30 years. A major reason? Rich people paid less in taxes.
….
Why care about low tax rates? States with the highest personal income tax rates did a better job of weathering the economic turbulence of the 2000s than their counterparts with lower personal income tax rates, according to a recent report from the Institute on Taxation and Economic Policy. Food for thought .
[/quote]
States With Low Income Taxes Don’t Have Better Economic Growth: Study ([url]http://www.huffingtonpost.com/2012/06/26/states-low-income-tax_n_1627284.html[/url])
Rich Won’t Move Even If State Raises Income Taxes: Report ([url]http://www.huffingtonpost.com/2012/03/25/taxing-the-rich_n_1376085.html[/url])
JB: [i]That is what we have with the California State budget. We have a broken system with no work being done for the required permanent structural changes we all know are required. [/i]
I am having a hard time believing that anything in politics is permanent. I’ve seen a number of “permanent” changes not last very long. As a result I see your narrative as a false argument to justify the way that you want to vote. What “permanent” structural changes do you propose?
Jeff: [i]”What really fries me is the fact that the Democrats in charge of this state have NOT taken advantage of the situation to do some real horse trading with the minority GOP party. A plan that would have a much better chance of being voted on would include much more state employee cuts and benefit reductions, plus some temporary tax increases.”[/i]
I am unaware of a single Republican legislator presently serving who would vote for a tax increase of any kind, temporary or otherwise. “Horse trading” hasn’t been the hallmark of California Republicans for quite awhile.
[i]”What “permanent” structural changes do you propose?”[/i]
A balanced budget. Sustainable state finances. Prioritized services. Government we can afford.
Nice job posting articles from that balanced and fair Huffington Post resource wdf1. I don’t believe a thing coming from that crappy liberal propaganda site. Sorry.
Don, Republicans proposed a budget that did not include tax increases. However, the Democrats refused to accept cuts that could have been used for horse-trading for temporary tax increases.
[url]http://blogs.sacbee.com/capitolalertlatest/2012/03/republicans-propose-california-budget-with-state-worker-pay-cut.html[/url]
One more point relative to the ideological class wars and this notion that Dems can keep increases taxes with no economic consequences. It does not matter looking backward at stats; because they are all skewed by the past economic bubbles that popped.
The only thing that matters is the look forward. What will the impacts to CA economy be if taxes are raised? And, we are not just talking about the Brown tax increase. That would be incremental to the tax increases coming from Obamacare and other tax hits coming from Obama and Reid maneuvering to end the Bush tax cuts.
Where does CA rank it terms of taxation compared to other states? [url]http://www.caltax.org/research/calrank.html[/url]
Will wealthy CA residents flee? [url]http://www.caltax.org/homepage/010612_tax_policy.html[/url]
Upcoming California tax tsunami: [url]http://capoliticalnews.com/2012/07/06/californians-beware-massive-federal-and-state-taxes-increases-for-january-1-2013/[/url]
What will the Brown and Obama tax plans do to our CA economy? Here is an example of expected damage to CA economy from split-roll property tax:
[url]http://www.caltax.org/SplitRollFactSheet.pdf[/url]
JB: [i]A balanced budget. Sustainable state finances. Prioritized services. Government we can afford. [/i]
And many would argue that if the governor’s tax proposal passes, you get that.
JB: [i]Nice job posting articles from that balanced and fair Huffington Post resource wdf1. I don’t believe a thing coming from that crappy liberal propaganda site. Sorry. [/i]
And so does that mean anything you post is crappy conservative propaganda? Might be more productive to engage in critical thinking and argue the merits and of the studies instead of resorting to ad hominem comments. You’re usually better than this. Sorry.
wdf1, give me a break. Have you really paid any attention to Huffing Post? Do you really want to make the case that it is not severly left-biased? Even queen AH herself does not deny this.
I will make you a deal: I won’t post anything from Fox News, and you don’t post anything from HP… the site that makes my skin crawl. Sorry.
My links are all from non-partisan resources.
Brown’s plan does none of these things. It is only an emergency bill to PREVENT Dems from having to accept the cuts that will be required in the future and should happen now.
Jeff:
Which of WDF’s links do you consider inaccurate and why?
JB: [i]wdf1, give me a break. Have you really paid any attention to Huffing Post? Do you really want to make the case that it is not severly left-biased? Even queen AH herself does not deny this.
….
My links are all from non-partisan resources. [/i]
Huff Post articles cite sources that I would argue are non-partisan. But non-partisan these days to many seems to mean, “it supports my point of view” and partisan is code for “it disagrees with my point of view.”
Jeff; you’re citing the California Taxpayer’s association, I guess technically you can argue that they are “non-partisan” but only in the strictest sense of the word
Jeff: “Don, Republicans proposed a budget that did not include tax increases. However, the Democrats refused to accept cuts that could have been used for horse-trading for temporary tax increases.”
In 2011, Republicans in California wouldn’t even negotiate to allow tax increases to be on the ballot. Why would Brown, after spending weeks trying to negotiate with them about that, believe they would “horse-trade” for temporary tax increases? Can you point to [i]any[/i] evidence [i]any[/i]where that [i]any[/i] California Republican currently serving would accept [i]any[/i] tax increase of [i]any[/i] kind whatsoever? Brown in 2011 offered all kinds of cuts. And, in fact, has cut the budget quite a bit.
David: [i]”Which of WDF’s links do you consider inaccurate and why?”[/i]
There are several other resources that refute those conclusions.
You can cherry-pick data to come up with any conclusion you prefer. You know that. I prefer balanced sources that look at all the key data points and come to an objective conclusion. The Huffington Post is anathema to conservative data points. They just leave out big chunks of the argument to keep the left spin. It is not worth any of my time to respond to any of those articles unless they are editorials of other data/studies from reputable objective sources.
If wdf1 or Don or ??? can locate more reputable sources echoing these biased pieces from HP, I will be happy to respond.
Note that I did make a point that I don’t think there is tremendous value in looking back at historical trends for economic impacts resulting from state taxation levels. First, there is that chicken-egg argument. Did higher taxes cause higher growth and/or higher income levels, or did higher growth and/or higher income levels allow higher tax rates? Second, we had unsustainable bubbles since the Clinton years… growth and income were false because they were propped up by the tech stock and real estate Ponzi schemes. Third, the Great Recession has made the last half decade’s data un-reliable. Forth, we are in an unprecedented economic time… hyper global competition and global financial malaise… and US unemployment at Great Depression levels in many areas. Fifth, our deficits have hit record levels by orders of magnitude and the trends are for debt and obligations to exceed GDP in a few decades.
I have 850 California small business loans in my company portfolio. We work with these people almost every day. We also work to provide new financing to about 100 new CA small businesses every year. Many of these businesses that have not already gone under are hanging on by their fingernails. Just one more tax… One more regulation that costs them… One more hit to their confidence about the future. One more hit to their customers’ pocket and confidence. One more of any of these things and more will fail… and fewer will qualify for financing… and fewer will be motivated to start or expand.
All these tax increases are going to have devastating impacts on CA business. It will serve to keep unemployment high. It will cause wealthy people to relocate for tax avoidance reasons only. Meanwhile our public-sector unions continue to live like kings and queens and our kids face even more profound disappointment when the temporary money runs out and our unsolved financial problems bite again.
Don, “no-taxes” is a negotiating position for the GOP just like “no-cuts” is a negotiating position for the Dems. The Dems could have put more cuts on the table for GOP support for temporary tax relief to cover the hit from the recession. This has been the Dem political strategy. Offer nothing of interest to the GOP and then claim they are the party of no.
Most conservatives I know just want a damn balanced budget without long-term tax increases. We would support a plan to balance the budget that does not rely on too optimistic revenue projections and offers real cuts combined with short-term tax increases used to help bridge the recession gap and to pay down the deficit.
This solution means smaller and lest costly government. That means the unions don’t like it. That means the Democrats don’t like it. Hence, it does not make it to the negotiating table and so the GOP has no choice but to reject the Dem proposal.
Huffington Post is a news aggregator masquerading as a news source. I think Arianna Huffington is brilliant. She pays people to write little articles that link to other articles. I mostly ignore the verbiage surrounding the links, and just click on through to the links. There is no question the bias of HuffPost is liberal, just as the bias of Drudge Report is conservative. It is all in the links they choose. But you can always assess the sources yourself with one more click. For example, here is the study that was in the story wdf cited: [url]http://www.peri.umass.edu/fileadmin/pdf/published_study/Revenue_PERI_March5.pdf[/url]
[i]Don, “no-taxes” is a negotiating position for the GOP just like “no-cuts” is a negotiating position for the Dems. The Dems could have put more cuts on the table for GOP support for temporary tax relief to cover the hit from the recession. This has been the Dem political strategy. Offer nothing of interest to the GOP and then claim they are the party of no.
[/i]
Jeff, “no-taxes” is an absolute, non-negotiable position for California Republicans. It was in 2011, and it is now. In fact, you yourself have said it’s non-negotiable here on the Vanguard. Brown negotiated with Republicans in 2011 for weeks and weeks, offering lots of cuts, and got nowhere. What happened to the lone Republican who worked with Gov. Schwarzenegger to achieve a budget? How’d his career go? You think California Assembly or Senate Republicans will accept any tax increases under any circumstances? The state Republican party is a protest party, not a governance party, and has been for years.
I don’t get this. You blame Democrats for the widely advertised, rigidly upheld intransigence of Republicans, at both the state and federal levels. They are proud of their no-tax position. It is huge news when a single one bucks Grover Norquist. But somehow this is Democrats fault?
Here are some taxes that the Dems could have got GOP support for:
[quote]A foreclosure tax. Banks resold roughly 160,000 foreclosed homes in 2010, generating $40.8 billion. A temporary 5 percent surtax on those so-called real estate-owned (REO) re-sales would yield $2 billion.
A lawsuit tax. Nearly 1.4 million lawsuits are filed in California every year, according to California Citizens Against Lawsuit Abuse. A $250 “temporary” surtax on lawsuit filings, and 5% surtax on court-ordered financial judgments and out-of-court financial settlements would generate nearly $500 million in tax revenue. The fee could be waived for needful individuals claiming financial hardship.
A sex tax. California’s adult film industry, concentrated in the San Fernando Valley, generates $13 billion a year. The state’s gentlemen’s clubs and adult book stores generate another $1 billion or so. A 5% temporary surtax on all sex-related businesses here in the Golden State would yield roughly $700 million a year in new taxes.
A gambling tax. The California lottery generates roughly $3 billion a year in sales. A 5 percent surtax (50 cents on a $5 ticket) would generate $300 million in revenue. California’s horse racing industry boasts a pari-mutuel handle of nearly $4 billion. A temporary 5 percent surtax would generate $200 million. Gambling-related tax revenue would grow $500 million.
A marijuana tax. California’s estimated 500 legal marijuana dispensaries take in roughly $2 billion a year, according to a recent report by CNBC. A 5 percent temporary surtax would add $100 million in new taxes to state coffers.[/quote]
These five new “temporary” taxes would generate nearly $5 billion a year. They would be far more palatable to the Republican minority in Sacramento and would have populist appeal to the California electorate.
The GOP does not support tax increases for two primary reasons. We believe tax rates are already too high. We see a broken government that consistently spends more than it takes in. It is for practical reasons that the GOP does not support tax increases. However, the GOP also wants smaller government, balanced budgets and deficit elimination. If the Dems supported a plan for this that required temporary tax increases (those that could not be made permanent and the funds would be used only as a temporary recession bridge and to reduce the deficit… then they could at least split the GOP legislators to get some support.
The reason that this does not happen is that the Dems liberal base in CA would come unglued over the level of cuts required.
I know the left template is to wrap themselves in a shroud of victim-hood (those mean and nasty GOP bullies!) That is so laughable given that the state has been controlled by liberal Dems for decades. The bully is in control… and owns the complete steaming pile they have created, and will add to if Brown’s tax increase passes.
Jeff: [i]”Democrats refused to accept cuts that could have been used for horse-trading for temporary tax increases.”[/i]
Republicans won’t raise any taxes. You cut-and-paste some column from a conservative columnist in San Diego as proof that Republican lawmakers would accept a bunch of nonsensical taxes that have never been proposed by any bona fide legislator at any time? There is zero evidence that any legislator would actually support those taxes anyway. So the governor should be negotiating with op-ed columnists now?
Jeff: “I know the left template is to wrap themselves in a shroud of victim-hood (those mean and nasty GOP bullies!)”
No, California Dem’s have just given up trying to negotiate with people who won’t negotiate. Would you?
[url]http://www.nbcsandiego.com/blogs/prop-zero/Brown-Should-Have-Proposed-Tax-Hikes-That-Republicans-Can-Support-113362504.html[/url]
[b]”GOP Roadmap to Protect Classrooms and Taxpayers”[/b]
[url]http://cssrc.us/pubs/120329_JointBudgetLetter.pdf[/url]
[url]http://cssrc.us/pubs/120329_RepBudgetOptions.pdf[/url]
The Taxpayer Protection Pledge has been signed by 95% of GOP Congress people. Most of the GOP state legislature has signed this pledge. The pledge is for no new tax increases. I support that position. In fact, I demand that position like most Republicans and many moderates do. No tax increases unless they are true temporary investments to pay down the deficit (reduces interest expense and improves our credit rating which reduces our borrowing rates)
It also includes the following:
[quote]Elected officials who have taken the Pledge to taxpayers commit to oppose and vote against any effort to raise the federal income tax on individuals or employers. The pledge does not stand in the way of any tax decreases or revenue neutral changes to the income tax.[/quote]
In other words, the GOP members could support a tax increase if it could be established as at least revenue neutral. This could conceivable include a longer-term plan that balances the budget and pays down the deficit. A lower or eliminated deficit saves in interest expense (currently 4% of the state budget) and improves our credit rating to lower the cost of financing.
By agreeing to cuts that meet these longer-term savings goals, I would expect the Dems to get several state GOP reps to join for a supermajority vote to approve a temporary tax increase to bridge the funding shortfalls from the recession. The Dems would have to give up something to get that though. What they have to give up, they should be giving up… namely cuts to lower priority state programs and reductions in employee expense. They could do this to help save education funding which the GOP does not want to cut. The Dems will not do this. It would anger their union benefactors.
So, blame the Dems. There is room for agreement and compromise, but the Dems refuse to bend. You can whine all you want about the inflexibility for accepting tax increases, but there is room to negotiate as long these tax increases do not support increased spending.
JEFF: [i]”Prior to that it was a tech stock bubble that was clearly false and unsustainable.”[/i]
It is true that there was a large dot-com bubble and in its wake quality tech companies became overpriced and hence you are right to say that there was a tech bubble (which burst in 2000).
But if you think that the US economy has not produced a great amount of tech value over the last 35 years, you are wrong. There is not a tech sector in which the US has not been first and in most areas of tech the best companies are in the US.
This began (in a big way) in the late 1970s with huge growth in computer software development. But it was not until the post-1992 recovery that the markets came to understand that our tech companies were providing real value and were making much better products (though in many cases not yet great products). The tech revolution has never ended. The tech sector in the US continues to dominate the world. It is false to say this market value is false, even though it was for a time overpriced.
I am not prescient enough to know if the tech stocks are currently fairly priced or underpriced or too expensive. I’m sure there are some companies in each of these categories. But I am sure that tech will just keep getting better. It’s highly competitive and highly profitable for its leaders.
What is curious to me is that, while there are a small number of good tech companies based in other countries, the US continues to dominate every sector in a large way. It’s not the case that we produce the best engineers, the best biochemists, the best geneticists. Our top tech companies are usually staffed by foreign-born engineers. It’s also not the case that there is a dearth of VC money in Asia or Europe. It just seems to be the case that the style of leadership in the United States works much better when it comes to innovation in technology.
Of course, it’s a different story in some old industries here. With our union-dmoniated auto companies, for example, they tend to always be five steps behind the Japanese and the Europeans with new auto tech. Likewise, our steel sector is technologically behind. And as I pointed out in another thread, the US health sector, while ahead in adopting analytic technology is way behind in adopting modern information technology. (I think the latter problem is largely due to the lack of integration in our health sector, in contrast to the highly integrated systems in most other decent countries.)
[i]There is room for agreement and compromise, but the Dems refuse to bend. You can whine all you want about the inflexibility for accepting tax increases, but there is room to negotiate as long these tax increases do not support increased spending.[/i]
Clearly you live in a parallel universe. There will be no tax increases, but tax increases are acceptable so long as they are not tax increases, and no Republican has proposed any such tax increases, nor would they accept any proposed by Democrats, and if a Republican did break ranks he/she would be drummed out of the party.
So it’s the Democrats’ fault.
Got it.
RICH: [i]”I do think we need to pursue one major tax revenue reform: For all properties (residential and commercial) which have a fair-market value of $2 million or more, we need to get rid of Prop 13 for them and tax them at their fair market value.”[/i]
SOUTH OF THE TREMONT LINE: [i]”The majority of property that would be hit with this tax increase would be family owned farm and ranch land and family owned small busines property.”[/i]
As I envision fair market valuations, they would be made not on speculative value but on an income-basis. (The land owner should have the choice as to how his property is valued.) What that means is that if an owner-occupied farm is generating $350,000 per year in operating profits, its value is determined based on a discount rate. Say the market discount rate is 10%. That would mean that this farm (land + farm buildings) is worth $3,500,000 (that is, $350k/0.10).
Let’s say, for example purposes, this farm is currently valued at $2,200,000 (and it gets no Williamson Act discount). So it now pays a 1% property tax of $22,000. Under my post-13 scheme, its tax bill would go up to $35,000; and of course, that amount would be “expensed” from state and federal income taxes.
SOUTH: [i]”It would push a lot more business owners in to the red and out of business (and would push even more people on unemployment in the state) … “[/i]
No. As long as property is valued on an income basis, this would not happen. The risk is with speculative values for properties which real estate developers hope to urbanize. But, as you know, California has the Williamson Act, just for that purpose. That allows farmers to declare that they will preserve their land for farming or ranching, and they then pay a lower tax.
RICH: [i]”If you take an office building with a fair-market value of $50 million which is now valued for tax purposes at $10 million, its property taxes owed would increase from $100,000 to $500,000 per year.”[/i]
SOUTH: [i]”We have had a lot of real estate appreciation in the past 36 years, but we don’t have many (if any) buildings that were worth $5mm in 1975 that have a fair market value of $50mm today.”[/i]
Your 1975 value should be $4.8 million. And it has been 37 years. But never mind that. Everything depends on location. I am part of an ownership group of a building in China Basin in San Francisco. Back in 1975, China Basin was an industrial wasteland. A complete dump. But in the last 15 years, especially since the Giants baseball stadium was built there and since a thousand new software companies moved into the City and their employees needed housing nearby, land values and rents have skyroctted in that location. We have had the same thing happen in Emeryville since Pixar started there. In static circumstances, you are right that an 8.5% annual appreciation in rents (which is what you would need to get a $10 million building for tax purposes to be worth $100 million on a market-basis) is ridiculous. But in special circumstances, properties can inflate that much. I’ve seen it. (Note: I just used the figures as an example. I didn’t mean to suggest they were commonplace.)
SOUTH: [i]”This plan would raise taxes on some property but let’s not forget (you can ask an appraiser friend) that getting rid of prop 13 would lower the value of EVERY property in California going forward that starts to get close to the $2mm cut off (and over time with inflation push almost every property out of Prop 13).”[/i]
Insofar as that is true, we would have to ease it in over a range of values. It wouldn’t make sense, as you point out, to have a chasm, where on one side you are unharmed, and once your property goes up by $1, your tax bill skyrockets.
[i]”As long as property is valued on an income basis, this would not happen.”[/i]
Obviously, when a property is sold, it will have to be valued on its sale basis forthwith.
Rich: [i]”But if you think that the US economy has not produced a great amount of tech value over the last 35 years, you are wrong.”[/i]
Good point. Yes, there was legit growth in the tech sector that helped sustain our economy overall. That helped expand the IT industry which I started working in 1979… operating a $1 million IBM 360-145 mainframe with an astounding 4MB RAM and disk drives the size of commercial washing machines. Outside of that, I don’t see many clear indications of real growth. The tech stock bubble produced paper wealth that was leveraged for consumption. The same with the real estate bubble. These bubbles expanded domestic consumption which caused growth… but most of it was based on significantly overvalued assets. It would be an interesting excercize to go back and model the growth of our economy with assets priced at real levels. For example, tech stock companies with price-earning ratios closer to the pre-tech stock levels, and real estate appreciation closer to historical trends before CRA, Freddie and Fannie. My guess is that it would be fairly amemic.
Related to the REAL technology boom… it was this that was also responsible for the expansion of productivity which tended to reduce the number of jobs available. Despite the cries of outsourcing, it was technology advancement that was/is the biggest shedder of jobs in corporate America. The thinking was that we would retrain displaced workers to make and operate the technology. Unfortuneately, we didn’t reform our education system to handle the job. There are actually many unfilled jobs in the US for skilled equipment operators.
Jeff, speaking of the high tech industry and American excellence in it, I suggest you read Walter Isaacson’s recent biography called “Steve Jobs.” You’d be especially interested to read Jobs’s thoughts on education reform. They sound a lot like what you have advocated on other threads. Aside from that, Jobs was at once a very strange man and a great visionary and leader and somewhat of an a$shole and all in all a very interesting subject for a biography. Isaacson is an excellent storyteller.
Rich,
Thanks. I have that one on my long list of books to read. I am currently reading “September Hope: The American Side of a Bridge Too Far”… a fascinating story of a little reported WWII debacle that is a great story of leadership gone wrong and the consequence resulting in wasted American life. I just ordered the Jobs book for my iPad Kindle as next on the list.
I think Jobs was/is facinating. His history growing up. His management/leadership style. His author sister. I look forward to the book.
I think it is getting harder and harder for the US to exploit unique talents like his for our continued industrial expansion. It is also getting harder for people like him to find enough talented and skilled workers to help create the type of success that Apple has been. I do point to our education system as being both the great problem and the great opportunity.
Me: [i]”That helped expand the IT industry which I started working in 1979… operating a $1 million IBM 360-145 mainframe with an astounding 4MB RAM and disk drives the size of commercial washing machines”[/i]
I got that model number wrong. It was the IBM 360 model 40. The next generation I worked on was the IBM 370 model 145.
Here is the 360 computer room just like the one I worked in (yes, including the suit and tie):
[img]http://www.cscdc.org/miscjeff/IBM360402.jpg[/img]
We called it the “machine room” for a good reason. It ran 24×7 and required three shifts of computer operators.
Here is picture of the control panel:
[img]http://www.cscdc.org/miscjeff/IBM-360-ControlPanel.jpg[/img]
The lights on the panel were system memory registers. I got to the point where I could tell what batch jobs/programs were running based on the patterns on the register light displays.
One weird thing happened to me related to these register lights. Working the graveyard shift, I would sometimes have to call a programmer in the middle of the night because of a job crash. I started noticing a change to the pattern when I was talking on the phone. From my senses, it looked like the processing would slow down and the pattern would shift ad blink… but still match those general for the job that was running. The hair would rise on the back of my neck thinking that the computer was actually listening to my phone conversation. However, none of the other operators could confirm the same. I was thinking “HAL”.
One night working graveyard, I pushed the wrong button on the console… the [Power Off] button to the IBM 360 mainframe. This type of button would switch on release. I realized my mistake while pressing the button. It was about 2:00 AM in the morning. The batch process completed at about 7:00 AM, at which time we would re-IPL (“reboot”) the mainframe every morning. If released my finger from the button the computer would power off. Then between the power-on/IML/IPL process and restarting the production batch process, I would have fallen 2 hours behind. The IPL required about 30 minutes to complete… so releasing the button would be the entire bank I was working for would not have online mainframe service until 9:30 AM… 1.5 hours later than our service level commitment… a very big deal.
So, I held my finger on that button for five hours.
My boss came in right before the batch process ended. I told him what happened. He was laughing so hard seeing me reaching over the console table holding that button… under obvious signs of distress… that he didn’t even immediately recognize the enormity of the potential problem.
Two things happened after that. I got a raise.
We glued a cover over the switch. (The IBM 370 came with a factory cover.)
Jeff, LOL What a great story! I used to do my programs at U of MD on an IBM 360 and a Univac (can’t remember the number). You had to submit your programs on IBM cards stacked in a box. You would come back the next day, and if you were lucky your program might be ready. And to think we have more powerful computers now that sit in our laps!