In These New Times

Global Economic Analysis

5th February, 2009

Mercury News is reporting Counties threaten tax revolt against California budget

California counties are throwing another wrinkle into the state’s cash crisis as Gov. Arnold Schwarzenegger and legislative leaders try to agree on a way to erase a $42 billion budget deficit.

Several counties are considering some form of tax revolt—either filing lawsuits or delaying tax payments to the state—because the governor has proposed withholding payments to them for as long as seven months in a move to preserve cash.

Local governments already are missing out because the state has imposed a 30-day payment delay to counties. That was part of a move by the state controller to delay refunds to taxpayers, money for college tuition-assistance programs and payments to state vendors.

The Riverside County Board of Supervisors authorized staff to file a lawsuit, while elected officials in Colusa County decided to impose a 30-day delay on sending any taxes and fees it collects to the state.

“We will have to shut the doors,” said Kim Dolbow-Vann, a supervisor in Colusa County, north of the state capital. “We don’t have the borrowing capacity” to backfill delayed payments.

Los Angeles County also is considering payment delays. County Supervisor Don Knabe said it’s important to know whether the state’s threat to withhold money is legal.

Schwarzenegger’s finance spokesman, H.D. Palmer, said it’s not clear whether the withholdings would have a significant effect on state government. Counties collect property taxes, which go to public schools.

Palmer suggested the state could in turn withhold sales tax revenue from the counties because the state needs to ensure it has enough cash throughout the year to pay its debt.

“We don’t put these proposals forward lightly,” Palmer said. “We will move heaven and earth to ensure that bond holders will be paid on schedule.”

Lovely. No one want to pay anyone while expecting to get paid. What a mess.