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California To Delay Tax Refunds Due To Budget Crunch.

Although I don’t live in California or ever get a refund anymore, I would not be too thrilled with this:

California’s budget meltdown is about to hit home for millions of taxpayers awaiting their refunds and people who depend on the social safety net to survive, a top state finance official warned Friday. Controller John Chiang, who is responsible for managing the state’s cash flow, plans to delay $3.7 billion in payments starting next month in response to lawmakers’ failure to fix a projected $40 billion deficit through mid-2010. Among those who won’t get paid on time: taxpayers who file their returns early and are awaiting refunds; families who depend on welfare and aid for the aged, blind and disabled; and programs that serve developmentally disabled and mentally ill patients.

Sure, it’s not enough to not give people back their own money, but why not take away the money meant for the aged, blind, disabled, and mentally ill too…after all, if anyone doesn’t need help it’s definitely people who cannot help themselves. Meanwhile, the state plans on keeping a $2.5 billion cushion in their savings account and will continue to pay government employees (of course) with the tax dollars California residents are owed…and better yet may start offering IOU’s to people. Yes, the state of California is about to hand out IOU’s. I wonder if Schwarzenegger will write them out by hand?

For the 15 years I lived in Los Angeles there always seemed to be a budget crisis, but the people and the government never wanted to change the one thing I think that could have fixed it all – repealing Prop 13. Prop 13 became law in 1978 and set limits on property taxes, so that people living in million dollar mansions for a long time pay barely any real estate taxes compared to say someone who bought a reasonably priced house today:

Under Proposition 13, the annual real estate tax on a parcel of property is limited to 1% of its assessed value. This “assessed value,” however, may only be increased by a maximum of 2% per year, until and unless the property undergoes a change in ownership. At the time of the change in ownership the low assessed value may be reassessed to full current market value which will produce a new base year value for the property, but future assessments are likewise restricted to the 2% annual maximum increase of the new base year value.

My old boss, whose house cost $350K 15 years ago and is now worth $1.3 million, pays less taxes than people buying a much less expensive home today. This proposition supposedly reduced tax income by a whopping 57% in the state – money that should be going to pay for schools, roads, libraries, etc.. In fact, once that law was set, California’s ranking in nationwide education statistics plummeted – there wasn’t enough money to keep them at the top of the pile. There are consequences for such drastic tax reduction strategies, and this has contributed to California’s woes for a very long time.

So, is there any surprise in the fact that California is once again facing a budget crisis? Except this time they don’t even have enough money to pay you back your own money. What do you think of this plan by California?


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Comments (10)

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  1. TStrump says:

    Wow – I’ve never heard of such a thing.
    Can’t say that this has ever happened here in Canada.
    Our property taxes are quite low, too, but they just go out and borrow more money!

  2. david says:

    Property taxes can be low, if the government uses their money effectively. Too bad CA is so good at wasting what they do have!

  3. cwaltz says:

    There are reasonably priced houses in California? Last time I heard 3 bedroom houses with a small yard were running half a million. I lived in California while in the Navy for my last 6 years in the military. It was an incredibly expensive place to live. Electricity was through the roof(and it didn’t help that California didn’t want utility towers to unpristine the state), Motor Vehicle fees were also obscene(we weren’t officially residents so we managed to get past on that one too). The only things it had going for it was carne asada burritos, incredibly mild winters, and alot of stuff to do.

  4. david says:

    I know, I lived in Los Angeles for about 15 years. It is expensive, but $500K IS inexpensive when compared to most houses throughout CA.

  5. chris says:

    We bought our house in CA when prices were low, however we still consider the price high. Our taxes go up 2% every year regardless. We pay about $2700.00 property tax, which is ENOUGH!!! Or should I say more than enough. When the market was busy, our neighbors considered moving to a larger home to better suit their family and work needs. They looked into a house with one more bedroom and bath. The property taxes on that house, during that market would have been $1000.00 a month, on top of the house payment. Now, who, please tell me, could afford that cost in property tax? No one I know. The neighbors across the street purchased a few years ago and paid about $300,000.00 more for their house than we did. I imagine their taxes are around $5,000.00 a year – that is insanity. Plus, we sure don’t get our money’s worth from it. No, I would say we pay enough – too much in property taxes out here in CA. I could go into some of the reasons CA has money trouble and it DOES have to do with spending, however my views are conservative in nature and would draw ire.

  6. cwaltz says:

    Chris,

    Let me guess? Migration troubles and say it ain’t so. I hear that living next to another country means absolutely diddly and gives one no authority on the subject of said country. At least that was what I heard during the GE. Of course that could have been becaused Katie got her panties in a twist after Sarah took her ego down a notch.

  7. Jen says:

    Hi Madison, I love your site! I live in CA (goodness, I live in San Francisco!) and I’m bummed about the IOU’s. I guess I’m living in denial these days and hope that Sacramento will get their act together.

    But I just wanted to share why Prop 13 is still around. It was initially set up so that the elderly, on their set incomes via pension or Social Security, wouldn’t have the burden of paying higher taxes each year as their house appreciated. Can you imagine you’re 80 years old with a $50,000 tax bill? I’m not sure how they do it in other states so please enlighten me. Arnold will be getting a letter from me if it’s working elsewhere. LOL!

    I worked for a title company and the county only allows a onetime transfer from parent to child to keep the property tax so low. Eventually, the houses will be reassessed.

  8. david says:

    Hi Jen – This is David’s site, not Madisons My Dollar Plan. Also, it works almost everywhere else; it’s just that CA’s housing is absurd. It’s just structured incorrectly in CA, as my mom’s taxes go up every year, but her house doesnt double in value every 5 or 10 like McMansions in CA do, so she doesn’t get forced out of her house. If housing prices were stable in CA and houses actually cost what they were worth, there would not be an issue with having a normal tax structure that helps pay for the budget, schools, roads, etc.

  9. Jen says:

    Hi David! Sorry! I followed the link on my phone and because your colors are similar to Madison’s, I got confused. I love your site too – although when I try to follow on my phone by typing in the url, it brings me back to the same 1,019 Ways to Save Money article. That’s ok though!

    Yeah, I get jealous when I read the PF blogs about $100k – $200k mortgages! And especially living in San Francisco, which is a bubble upon itself. My grandma bought her house for $78k – in 1978!

    Would that be awesome if they could reset the housing market?!?

    I’m looking to go into nursing and I’m [] this close to moving out of the Bay Area – apparently there is no nursing shortage in CA as everyone comes to the state of milk and honey for $40/hr.

    Thanks for the blog!

  10. The bow is breaking and the ship is sinking. Still nobody lifts a finger to deal with the real problem: immigration. All kinds. Chain migration, illegal and legal immigration, taxes going up, taxpayers leaving the state, etc…

    http://paleoconservatist.blogspot.com/2008/05/solving-californias-budget-crisis.html

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