Failure to Repeal California Yacht Tax Loophole Mars Otherwise Bipartisan Day Dealing with California’s Budget Crisis

[courtesy of California Progress Report]

By Frank D. Russo

California legislative Democrats and Republicans joined in today and passed by large margins painful cuts in state spending to turn a $3.7 billion hole in this fiscal year’s spending ending in June into what may be a $1 billion reserve. Laws that require payments in health and human services, and in other areas were also revised that will reduce the problems for the next fiscal year from a deficit of about $15 billion to about 7 or 8 billion dollars.

The debate was fairly harmonious in the Assembly where the leadership of both parties and the members recognized that quick action needed to be taken to avoid insolvency. Most of the bills passed by large margins in the Senate as well—although the debate itself was more intense, personal, and partisan.

We are in very difficult times as a state. As early as next week, when the Legislative Analyst’s Office issues a new report, there may be more bad news and the combination of cuts and revenue enhancements that will need to be made is expected to increase once again as California’s economy and tax collections weaken. It is going to get even uglier.

The California Senate passed a repeal of a loophole that allows the multimillionaire purchasers of yachts and private planes from paying a sales or use tax. It passed 28 to 10—by just one vote above the minimum 27 votes—two-thirds of the 40 member body needed—with some Republican support. It failed in the Assembly, and will be coming up for a vote again next week.

This issue involves only $5 million of revenues for the current fiscal year—because it is nearly over. And it will help the state to collect $21 million in the 2008-09 year and an additional $11.8 million for cash strapped local governments who are being asked to share in cuts from the state and need the money. Still not a huge amount of money compared to what’s needed to plug the deficit and keep the state afloat.