$1.1 billion sales tax cut announced by Davis

The Associated Press
Thursday October 26, 2000

SACRAMENTO — Booming state budget reserves will force a $1.1 billion, quarter-cent cut in California’s sales tax next year, saving the typical family of four $120, Gov. Gray Davis said Wednesday. 

The cut will be the fourth and largest reduction in sales taxes in California history. 

“I believe this is an appropriate way to share with the taxpayers of this state some of the bounty they have bestowed on us,” the Democratic governor said at a Capitol news conference. 

The cut is required by a 1991 law that says sales taxes must be slashed a quarter percent when budget reserves exceed 4 percent of the state general fund for two straight fiscal years. 

California ended the last fiscal year with a reserve that ballooned to about 10 percent, and Davis said his Finance Department was projecting the reserve at the end of this fiscal year would also top 4 percent. 

The cut means the sales tax will vary from 7 percent to 8.25 percent next year depending on the county. Many counties have approved sales tax increases for projects such as transportation. 

The state Finance Department will have to make another reserve assessment next fall to determine if the cut continues beyond 2001. 

Davis credited the state’s booming economy and his veto of $5.1 billion in appropriations over the last two years for the cuts. 

The Legislature’s Republican leaders contended that former GOP Gov. Pete Wilson, who signed the 1991 law, should get credit for the cut. 

Republicans also claimed that the timing of Davis’ announcement was political because of the upcoming election. They said the cut should be made permanent. 

Davis said he was required to announce the cut by Nov. 1 and would have faced more criticism if he waited until then. He also said the state’s long-term economic picture was too uncertain to make the cut permanent. 

“I’m trying to chart a prudent course and keep us somewhere in the middle,” he said at a news conference. “I don’t want to jump the gun on spending; I don’t want to jump the gun on tax relief.” 

He said the sales tax cut would come on top of $3.5 billion in other tax cuts enacted as part of the current state budget. 

The quarter-cent cut will cost the state $1.099 billion next year, a savings for taxpayers of about $31 per person. 

Someone buying a $25,000 car would save $62.50 because of the cut, said Davis spokesman Steve Maviglio. 

Republicans noted that Davis threatened to veto a budget-related bill in June because it could have triggered the sales tax cut. 

Davis said that at that point it was not clear what the state’s budget picture would be. 

Asked if he should have supported more aid for local governments instead of allowing spending to build up, Davis said he had been generous in supporting cities and counties, mentioning his $5.7 billion transportation plan. 

“This is a balancing act,” he said. “Different people might arrive at different conclusions.” 

State Controller Kathleen Connell, a Democrat who is running for mayor of Los Angeles next year, said the sales tax reduction was “an automatic and symbolic tax cut..., nothing more.” 

“With California’s economy continuing to grow, we are in a position to make even deeper and more meaningful tax cuts,” she said.