How Stimulating Is the Budget’s Economic Stimulus Package?

Part of the budget package touted by lawmakers and Governor Schwarzenegger as the chicken salad of what would otherwise be a $42 billion pile of chicken scat, are 11 measures they say will buoy the state’s sagging economy, the eighth largest in the world.

The GOP governor rejected an $18 billion Democratic-backed spending proposal because it did not contain enough  to help kick start the economy.

One of the bills in the economic stimulus package approved along with the budget is SB 11 XX. It allows counties, principally Los Angeles, to continue to pay additional money to their superior court judges. A court ruling last fall held the extra payments unconstitutional. In Los Angeles, the payments are more than $46,000 above the $192,386 statewide base salary, including benefits, for judges. Another 19 counties also pay additional benefits but none nearly as generous.

It’s unclear from the bill how maintaining the higher salary levels for the county’s more than 420 superior court judges impacts the state economy.

Turning in numeric order to the other bills, SB 3 XX would modestly expand eligibility for the Carl Moyer Memorial Air Quality Standards Program, which gives grants to farmers to offset the cost of cleaning up their equipment’s emissions.

Another measure, SB 4 XX, expands the ability of the state to enter into so-called design-build contracts.

The traditional contracting method for public works projects is to contract for the architectural/engineering design then competitively bid to see who constructs the project. Design-build means a single contract for both is awarded to one bidder.

The theory is one bidder saves time and money in getting the project completed. The union representing Caltrans engineers has long opposed an expansion of design-build because its members are the designers of most Caltrans projects.

Under the new law, General Services, the department that lets contracts to build state buildings, the prison system and the courts are allowed to enter into a total of five design-build contracts.

Redevelopment agencies can do 10 such projects between now and 2016. Local transportation agencies can do five and Caltrans can do 10 between now and 2014. Ten is a fraction of their project volume. 

At the time the budget was passed, for example, 374 construction projects valued at $5.6 billion were about to be shut down. In the 2007-08 fiscal year, Caltrans delivered 294 projects, worth $3.3 billion.

Touted as a bill that offers employers great ease in providing employees with more flexible workweek schedules, AB 5 XX, puts into law some administrative rulings by the Industrial Welfare Commission regarding creation of flexible workweek schedules.

Right now, if an employer suggests it, employees of a division, department or other “work unit” can switch from the traditional 8-hours-a-day for five days with overtime after 8 hours workweek to an alternate one as long as two-thirds of the employees agree. Any alternate workweek must pay overtime for any day an employee works more than 10 hours.

This new law does not change the current system to allow, for instance, offering flexible hours to a single employee. It says an employer can offer employees a menu of different work schedule options when proposing an alternative workweek, a previous ruling made by the Industrial Welfare Commission. 

And it says that menu may include the traditional 8-hour day and the option of switching back and forth between options on a weekly basis, if the employer says its OK, again an existing rule created administratively but now put into statute.

SB 7 XX creates a 90-day foreclosure delay on owner-occupied homes where the first loan was recorded between January 1, 2003 and January 1, 2008, unless a financial institution that has a comprehensive loan modification program services the loan. The law goes away January 1, 2011.

Some environmental review of various projects would be relaxed under AB 8 XX.

This bill also contains the two-year delay in implementing the diesel emissions regulations and mandates more credits for reducing nitrogen emissions and greater levels of emissions from 2011 until 2013, previously reported here. 

As to environmental review, the sale of “as is” surplus state property is exempted. Permitting of transportation projects is speeded up. The bill affects 10 highway projects.

Rental car companies are allowed to pass through the increased vehicle license fees contained in the budget to consumers in SB 10 XX.

To entice persons to buy homes, a tax credit of the lesser of 5 percent of the purchase price or $10,000 is given to buyers of a previously unoccupied principal residence.

SB 15 XX requires the purchase must be made on or after March 1, 2009 and before March 1, 2010. The credit is parceled out in equal amounts over three years — $3,333 per year.

With potentially some impact on the economy, SB 12 XX allows money to be more easily spent to draw preliminary plans and buy property for new courthouse construction projects.

Logic suggests the $12.8 billion in temporary taxes is likely to have broader economic impact than the measures contained in the “economic stimulus package” combined.  

Not counted as part of the tax bill is SB 15 XXX which contains a series of tax credits, which will cost California $2.5 billion in lost income over the next five years.

Among the tax credits, is $3,000 to an employer who hires a new full-time employee during the tax year beginning January 1, 2009. The amount of the credit is pro-rated if the employee works less than 12 months of the tax year. 

The credit is only available to a business that has 20 or fewer employees on the first day of the taxable year. 

Once employers credit claims hit $400 million, no more credit is given. The Franchise Tax Board is supposed to regularly keep a tally of credits claimed. 

In the same bill, is a tax calculation change sought by Republicans, which some Democrats believe hurts businesses located in California and benefits multi-state businesses not located here.

Currently, multi-state businesses are taxed based on an average of its proportion of sales, property and payroll in California. For most businesses, the sales factor is double-weighted.

Under this new law, most multi-state businesses can determine what income is subject to taxation by California by choosing either the current method or just basing it on a percentage of sales.

Unlike the tax increases in the budget which are temporary, this change is permanent. It takes effect in 2011 and is expected to cost the state $700 million annually, eventually rising to $1.5 billion.

Businesses who derive more than 50 percent of their gross receipts from agriculture, mining or drilling, savings and loans, or banks and financial activities currently have their sales factor single-weighted. They would continue to use the three factors to determine state tax liability.

One category of California business whose taxes would be reduced by this change is those with lots of property and employees in California but with most of their sales outside the state.

And there is yet another credit for film production. This one allows the state Film Commission to dole out  $100 million of credit authorizations each year during the state fiscal year beginning July 1, 2009 through the fiscal year ending June 30, 2014. Ten percent is reserved for indie films.




Filed under: Budget and Economy

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