State budget keeps key farm programs but taxes will rise

Issue Date: February 25, 2009

By Kate Campbell
Assistant Editor

After weeks of wrangling, the state finally patched the gaping hole in the current year's budget and adopted a budget for fiscal year 2009-10. The budget preserves key programs for California farmers, ranchers and rural communities.

Overall, the new budget cuts state spending by more than $14.1 billion and adds revenue increases of $11.1 billion, along with $11.5 billion in new borrowing. The plan should cover the combined $42 billion budget holes in fiscal years 2008-09 and 2009-10.

"Approving this budget in these tough economic times assisted leaders in making decisions such as imposing spending caps and establishing a reserve fund," California Farm Bureau Federation Administrator Rich Matteis said. "Our fiscal vulnerabilities must be addressed or we will find ourselves in the same place again in the future."

The deal struck last week includes funding for a number of programs important to farmers and ranchers, including $34.7 million for Williamson Act contracts. This popular program reimburses counties for costs associated with lowering property taxes on private agricultural land removed from development for 10- or 20-year contract periods.

More than 16 million acres of the state's farm and ranch lands are currently protected under the Williamson Act.

Eligibility requirements for the Carl Moyer Program also were changed to allow participation by more farmers and ranchers. The program provides incentive grants to replace fossil-fuel-burning engines to help reduce air pollution and meet clean air requirements.

Saying Farm Bureau is "very pleased" with changes to the Carl Moyer Program included in the budget deal, Cynthia Cory, CFBF environmental affairs director, noted that changing how cost effectiveness for replacing or upgrading off-road farm equipment is determined provides more flexibility and program access to the farming community.

Another key improvement in the program, she said, is eliminating the three-year time period between the application for funding and the regulatory compliance date.

Farm Bureau also is pleased to see that funding to small and rural county sheriffs will be continued, in addition to the full funding of the Rural Crime Prevention Programs, said Noelle Cremers, CFBF director of natural resources and commodities.

"Farmers continue to be impacted by rural crime and funding to aid these counties helps combat losses and protect small communities," Cremers said.

Funding for schools and community colleges took the biggest cuts at $8.6 billion, but the budget does include funding for vocational education programs, which help train California students for many skilled and science-based jobs, including those in agriculture.

Winegrape growers and wineries are relieved that a proposed "nickel-a-drink" tax was not included in the new state budget. Amador County winegrape grower and vintner Jim Spinetta said at first glance the tax didn't sound like it would have much impact.

"But when you do the math and figure that the excise tax on a ton of grapes currently is about $34 and then figure out that at a nickel a drink, the tax would total $251," said Spinetta, president of the Amador County Farm Bureau and a CFBF director. "That's a lot of money, especially when you consider that in many areas of the state, the per-ton price in 2007 for red winegrapes was $226."

Spinetta credits fast action on the part of the wine and grape sector for stopping what he calls an unfair tax. His advice to farmers and ranchers is to stay involved and work with the CFBF Farm Team to let legislators know what's at stake, to build coalitions with other agricultural and commodity groups, and to know the local media and be prepared to work with them.

"If we hadn't taken the time to educate our legislators and convince them to drop the nickel-a-drink tax, it would've cost the state's wine sector $1.5 billion," Spinetta said.

Matteis said the silver lining in the long and difficult budget negotiations is that the approved $11.5 billion in tax increases don't target narrow segments of the economy to generate all the additional revenue.

A number of tax hikes are in the works for California, including:

• A 1 cent increase in the state's general fund portion of the sales tax.
• An increase in the vehicle license fee, which is an in-lieu personal property tax on vehicles, from 0.5 percent to 1.15 percent.
• A bump up in personal income tax brackets by 0.125 to 0.25 percent, depending on the amount of federal stimulus revenue received by the state.

"This provision is for taxable years beginning on or after Jan. 1, 2009, through Dec. 31, 2010, unless extended," CFBF Director of Taxation and Land Use John Gamper said. "In addition, the state's alternative minimum tax will be either 7.25 percent or 7.125 percent."

Another aspect of the budget negotiations with potentially far-reaching implications is the creation of a "rainy day fund." This would be created by a complicated new cap on state spending and the shifting of any unanticipated revenue above the cap into a special Budget Stabilization Fund.

The proposed cap, however, will have to be approved by voters in May, Gamper said.

"The duration of the tax increases calculated to balance the budget for this fiscal year and next are tied to whether or not voters approve the spending cap and create the rainy day fund," he said.

"If they do, the new taxes will remain in effect for five years; otherwise, they would go away after two years, re-igniting budget problems. This provision was apparently added to provide a disincentive for pro-spending interest groups to try to defeat the spending cap at the ballot box," Gamper said.

Other government reforms included in the overall budget compromise that have the potential to be long-lasting improvements include eliminating pay raises for legislators when the state is operating in the red.

In the next statewide election on May 19, voters will be asked to approve borrowing against future state lottery revenues, as well as cutting mental health services and early-childhood education programs. In June 2010, voters will also be asked to consider adopting an open primary to reduce partisan gridlock.

(Kate Campbell is an assistant editor of Ag Alert. She may be contacted at kcampbell@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item. Top