It begins April 1. The sales tax increases by 1 percent. It is the first of the $12.5 billion in tax increases contained in the budget signed into law February 20 to take effect.

With the tax hike, the average sales tax rate in California’s 58 counties is just short of 9 percent. Connecticut, for example, has a 6 percent sales tax. New York City, 8.375 percent.

The temporary tax lasts until July 1, 2012 – if Proposition 1A on the May 19 special election ballot passes. If voters reject the proposed spending limit, the tax ends a year earlier.

Between now and June 30, 2010 the increase will take $5.8 billion out of the pockets of Californians and deliver it to state government. Unlike, state income tax, sales tax is not deductible on federal taxes.

While all lawmakers – and probably the governor – will stipulate that the sales tax is the most regressive source of state revenue if business interests have to endure a tax increase it’s always better in their eyes if consumers pay it.

The sales tax is regressive because a family of four earning $40,000 per annum pays the same as more affluent Californians such as GOP gubernatorial wanna-bes Meg Whitman and Steve Poizner, for example. That family of four would pay significantly less in income taxes than the two former Silicon Valley executives.

Sales tax rates differ county-by-county. The Board of Equalization already shows what the new rates are on its website.

For example, Oakland, in Alameda County, will have a 9.75 percent sales tax rate. San Francisco, 9.5 percent. Car and major appliance purchases would be cheaper in, say, Quincy in Plumas County where the rate is 8.25 percent — the lowest in the state after the tax increase. The city of Los Angeles has a 9.25 percent rate.

Will Sonoma’s 9 percent rate lead more wine buyers to Napa or Lake counties at 8.75 percent?

Tracy, in San Joaquin County, has an 8.75 percent rate. A recent meeting of the Tracy City Council, included consideration of a plan to use $500,000 to give $500 gift cards to persons who buy cars in Tracy. Taxes on auto sales represent 20 percent of the city’s revenue stream, the Tracy Press reported March 24.

The city has yet to vault the legal hurdle of it being illegal to give away public funds.

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The record purchase of $6.5 billion in state bonds during the week of March 23 will allow California to continue, restart or begin construction on hundreds of public works projects, Schwarzenegger administration officials said March 30.

Of the $6.5 billion in bond proceeds – the largest transaction of its kind in the nation’s history — $3.8 billion will be used to address state cash flow needs, one of the functions of the Pooled Money Investment Account in which the bond proceeds are deposited.

In addition to smoothing the state’s cash flow spikes and troughs, the account also loans money to public works projects financed through bond sales so construction can continue while waiting for additional bond revenue in the future.

“The great news is we’re able to reopen that account thanks to the treasurer’s success in selling far more bonds than any one of us expected he would,” said Mike Genest, director of Gov. Arnold Schwarzenegger’s Department of Finance.

Budget issues and cash flow needs have prevented the state from selling any new general obligation bonds for nine months, idling many public works projects and postponing construction of others.

The projects cover the public works spectrum: highways, schools, levees, habitat restoration

Cash flow caused the state to halt construction in December of more than 5,400 projects, 270 projects were exempted. Genest said $1 billion of the bond money would be used to continue work on those.

Another $1 billion will pay off contractors stiffed by the state’s cash problems.

“We plan to pay for all the projects that are owed money,” Genest told reporters.

The remaining $700 million of the bond funds will be devoted to starting new projects, $400 million worth of them highway and congestion-relief related.

Caltrans director Will Kempton said the bond sale last week allows 98 projects, totaling $1.8 billion, to “continue unrestrained.”

That, he said, keeps more than 32,000 Californians working. The additional $400 million allows new projects to be constructed, Kempton said.

There are $349 million in projects “that can actually be awarded in a very short period of time,” Kempton said.

He said bidding on the projects would be completed within 60 days. It takes on average two-and-one-half months after awarding of a contract before actual construction beings, according to Caltrans.

At the last meeting of the board that administers the bond account, the Department of Finance was told to allocate $500 million to various projects including $29 million to the state’s high speed rail project.

The money allows California to compete for $8 billion in President Obama’s stimulus package earmarked for high-speed rail projects around the country.

“We think we can be very successful getting our share of that $8 billion,” Genest said.

While the increase in construction is positive, Genest said there were still plenty of projects on hold because of the state’s financial condition.  In conducting its triage, the state used early creation of jobs as its chief goal.  Second in priority were projects that required swift completion in order to avoid financial or legal penalties.

California last entered the bond market in June 2008, when it issued $1.5 billion of general obligation bonds.

State Treasurer Bill Lockyer said he plans to return to the bond market next month to sell a yet-to-be-determined amount.

Said Genest: “We have a need for more than anything he could possibly sell.”

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California’s Capitol has previously catalogued the daily tribulations suffered by lobbyists. 

The following is a recently sent alert, obtained by California’s Capitol, from the Washington D.C. law firm of Caplin & Drysdale:

“The Obama Administration issued a memorandum on March 20, 2009 to Executive Branch department and agency heads that imposes rules on government spending and financial assistance in connection with the American Recovery and Reinvestment Act of 2009, which has been commonly referred to as the stimulus package. 

“The stated objective of the lobbying provisions in these rules is to limit the influence of outside interests on departments and agencies with authority to commit or distribute stimulus funds. 

“In fact, one controversial provision included in the memorandum … significantly restricts the ability of registered federal lobbyists to communicate with government officials regarding particular grants or projects funded through the stimulus package. (Emphasis added.)

“Specifically, pursuant to the memorandum:

“Executive Branch department and agency officials are prohibited from considering the views of registered federal lobbyists regarding distribution of stimulus funds for “particular” projects, applications, or applicants unless the lobbyists’ views are expressed in writing. All written lobbyist communications must be publicly disclosed within three business days. 

“Executive Branch departments and agencies must adopt transparent, merit-based selection criteria for determining recipients of stimulus grants and financial assistance and take measures to avoid the undue influence of outside persons and entities on spending decisions. Stimulus funds may not be used for “imprudent projects” that fail to support the job creation and economic recovery goals of the Recovery Act such as casinos, aquariums, zoos, golf       courses, or swimming pools. Executive Branch departments and agencies should use their discretion to decline approval for imprudent projects. 

“The constitutionality of the lobbyist communications ban described … above is unclear, at best, but as written it means that lobbyists may not have verbal communications with Executive Branch officials about the expenditure of stimulus funds for specific projects or the receipt of stimulus funds by a particular entity. 

“Lobbyists may have general conversations with Executive Branch officials about government funding or policies, but the memo instructs Executive Branch officials participating in general conversations with lobbyists to document those communications and disclose them publicly within three business days.”  

(Editor’s Note: Bummer about the golf courses and the First Amendment.)

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Sacramento – In good news for public schools, federal recovery money for education should be enough to offset $2.4 billion in budget cuts, state Department of Finance officials said March 24.

The budget signed last month reduces state support for public schools by $2.4 billion in the fiscal year that begins July 1. Until March 24, there had been no acknowledgement by the Schwarzenegger administration, which receives the federal money, whether the stimulus dollars would total enough to avoid those cuts.

Lawmakers, the governor and state and local educators have been grappling over how best to spend the nearly $8 billion in federal recovery money for public education California is scheduled to receive over the next nine months.

Some legislators and their chief budget advisers want to hold back as much as $2.3 billion that would otherwise flow to schools to soften future state fiscal calamities that are expected to result from a steady drop in tax revenues and an increase in unemployment.

Echoing the sentiments of local school districts, State Superintendent of Public Instruction Jack O’Connell wants as much money as possible sent as quickly as possible to public schools.

“My chief goal is to ensure that California gets the full share of the federal recovery funds we are entitled to and that we get this money to schools as quickly as possible,” O’Connell said.

“My staff is working closely with the governor’s office to work out the fine points on how these monies will be delivered to our local education agencies.”

O’Connell favors giving schools $3 billion they can spend largely as they please and more than $2.3 billion earmarked for low-income and special needs students.

The $3 billion would more than offset the $2.4 billion in funding reductions schools face in the fiscal year beginning July 1 as a result of the state budget signed in February.

Districts have issued between 27,0000 and 29,000 pink slips to teachers in anticipation of next year’s cuts.

Department of Finance officials did not give a specific dollar amount public schools would receive in federal funds, only that it would cover the $2.4 billion in budget cuts.  

Gov. Arnold Schwarzenegger does not favor reserving money due schools to combat future state budget problems – a move opposed by California House members who supported the America Recovery and Reinvestment Act.

“We’re not going to let a lot of grass grow under our application when we receive it,” said H.D. Palmer, a spokesman for the finance department.

There are three main pots of federal money.

The biggest is the State Fiscal Stabilization Fund, which contains $4.87 billion to be shared between public schools, state universities, community colleges and the University of California.

Another pot sets aside just over $1.5 billion for low-income students, $383 million of which for grants to low-performing schools. The remainder of what’s called Title 1 money would be divvied up based on the number of low-income pupils in each district.

Urban districts would tend to benefit more from this pot. Fresno Unified, for example would receive $37.5 million. Los Angeles Unified, the second largest school district in the country with more than 700,00 pupils, would get $400 million. Oakland Unified $17 million.

Another $1.3 million is targeted for special education students.

Because of the size of their enrollment, urban districts would also get a larger chunk of these dollars. Oakland Unified would receive $13 million. San Diego City Unified would get $29 million. Los Angeles $168 million.

While how much each district receives in low income and special needs student money is easy to calculate based on enrollment, that’s not the case with the stabilization funds which are shared with higher education.

Schwarzenegger vetoed $500 million in spending for the University of California and California State University in the budget he signed in February. The GOP governor pledged the cuts would be restored using federal recovery money.

Local educators have contended that even with the governor’s $500 million in higher education vetoes there is at least $2.4 billion in stabilization funds available to erase the public school reductions imposed by the state budget. – a view echoed March 24 by the Schwarzenegger administration.

At a March 18 hearing to discuss the options presented by the federal education money, the Legislative Analyst’s Office, which offers lawmakers budget advice, recommended holding back the Title 1 and special needs student money for use later in lieu of state dollars to help balance the budget.

Some lawmakers support that idea but its unclear how much influence the Legislature will have on the dispersal of the federal dollars. The money comes directly to the governor’s office, which, in turn, sends it to the state Department of Education for distribution to individual districts. 

Rep. George Miller, chair of the House Education and Labor Committee, wrote Schwarzenegger and O’Connell on March 17, telling them the state should keep its hands off stabilization funds.

“It has been suggested that the state has some ability to intercept Stabilization Fund dollars. It does not and we would like to clarify that,” Miller wrote in a letter signed by 25 other Democratic members of California’s Congressional Delegation.

“It is the intent of Congress (Miller’s emphasis) that local educational agencies may determine how to use Stabilization Funds and that resources are allocated from the state to school districts and institutions of higher education as soon as possible.”

The federal largesse does come with some strings.

Districts are encouraged to use the low-income and special needs pupils money on one-time expenses such as increased teacher professional development, reading and math coaches, transition coordinators to help find jobs for disabled youths and improved data collection.

Money from the stabilization account, however, can be more broadly applied.

“Those would be the funds that could be used to pay salaries and avoid laying off teachers and other school personnel,” sand Andrea Ball, deputy superintendent for government affairs at the state Department of Education.

Both local districts and the state must report to the federal government on how the money was used and the results.

The state must submit quarterly reports on how stabilization funds were used. The reports must contain “financial information and information on the program.”

And there is an annual report on stabilization funds that must show how the funds were used, the estimated number of jobs created or saved, the estimated tax increases that were avoided and the state’s progress in meeting the promises it made when applying for the money.

Among the areas in which progress must be shown is, quoting largely from the Recovery Act:

Reducing inequities in the distribution of highly qualified teachers;

Implementing a state longitudinal data system;

Developing and implementing valid and reliable assessments for limited English proficient students;

Improving or enhancing the state academic content standards; and Ensuring support for the lowest performing schools.

The federal government has said applications for the education money should be available by March 31. Schwarzenegger has said he seeks receipt of the funds as quickly as possible.

But it could take up to one month for the Department of Education to sort out how much each district gets and report that to the state Controller who then would cut the checks.

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