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Expert: Prop 30 Could Make Schools 'Worse'

The proposition, designed to fund schools and public safety, may not provide long-term solutions, according to a UCLA economic forecast.

The passage of Proposition 30, which is aimed primarily at funding education, is hailed by some analysts as heralding the end of California's budget woes, but the tax measure is actually a "double-edged sword" that may not provide long-term solutions, according to a UCLA economic forecast released today.

The proposition, which boosts the sales tax by a quarter-cent and raises taxes on higher-income residents, represents an investment in education but fails to address long-term funding, "and it holds out the specter of making things worse rather than better," wrote UCLA Anderson School senior economist Jerry Nickelsburg.

Nickelsburg noted that a recent report by the state Legislative Analysts Office concluded that Proposition 30, combined with a continuing economic recovery and budget cuts, have led to the "possible end of a decade of acute state budget challenges."

But Nickelsburg said that while Prop 30 provides some "breathing room," it is not a sure-fire cure, and increased taxes always lead to some "disincentive effects."

"For example, higher income taxes may reduce the demand for living in California as individuals follow incentives to other locales," he wrote. "If that were the case then the appreciation rate of housing would decline and part of the increase in taxes would be borne by homeowners in a decrease in the value of their assets. This will impact property tax revenue as well."

Several local school districts including districts spoke out in support of the measure. Glendora Unified and Charter Oak Unified faced severe cuts if the measure had failed. Glendora Unified faced a $3.5 million cut to its budget, while Charter Oak would have taken a $2.5 million hit.

The long-term impacts of the sales tax hike are difficult to predict, Nickelsburg wrote, noting that previous tax rate changes have had mixed results. Overall, however, he said passage of the measure will not dramatically change earlier predictions about the state's economy over the next two years.

Proposition 30 could "decrease uncertainty and increase optimism about California as an investment locale," he wrote.

"We take the optimistic view here. Consequently, we have marginally lowered the forecast for 2013 from our September outlook, but kept 2014 as a year in which California growth will once again exceed the U.S."

On the national front, UCLA economists predicted that Congress and President Barack Obama would reach a compromise to avoid the so-called "fiscal cliff," brought on by the pending end of previously enacted tax cuts combined with automatic spending cuts.

Although the shape of a compromise remains unclear for now, the U.S. economy is still expected to see modest growth in the near-term -- with gross domestic project increasing 0.7 percent in the current quarter and at less than 2 percent during the first half of 2013, according to economists.

Looking into 2014, "we can visualize growth accelerating to a run rate in excess of 3 percent," UCLA senior economist David Shulman wrote in his section of the forecast.

"In this environment the unemployment rate will remain close to 8 percent in 2013, but decline to 7.2 percent by the end of 2014," he wrote. "Although this reduction in unemployment appears modest, we are forecasting job growth on the order of 160,000 a month in 2013 and 200,000 a month in 2014. Not great, but a small improvement from recent years."

Tom Adams December 06, 2012 at 06:38 PM
“Lower rates of taxation will stimulate economic activity and so raise the levels of personal and corporate income as to yield within a few years an increased – not a reduced – flow of revenues to the federal government.” – John F. Kennedy, Jan. 17, 1963, annual budget message to the Congress, fiscal year 1964
Dan Crandell December 07, 2012 at 11:40 PM
If JFK were alive he would not be a Democrat . In fact BHO would be his arch-enemy in politics.
Gayle M. Montgomery December 08, 2012 at 02:36 AM
Don't worry, Daniel, you only have to worry about Barack for another 4 years. We promise to give you a new object of your disdain in 4 years. Just lay your arguments out in a box, and you can recycle them then. LOL. Some things never change.
Gayle M. Montgomery December 08, 2012 at 02:38 AM
With all due respect, Tom, we had a far different economy in Kennedy's time. We were on the upside of WW II. We had not totally gone down the toilet hole in Viet Nam, and we did not have the volumes of subsequent, lengthy, very costly wars. The Boomers were but children, in most instances not just or barely graduated, and nowhere near ready to retire. It may be a lovely sentiment to express, but we need to take history in context.
Dan Crandell December 08, 2012 at 07:10 AM
@Gayle What is your four year plan with this man in the Presidency. He promised you "change" in '08 and again in '12. What did his reelection mean to you? What great change can we expect thru '16 ? Please don't be to shy to jump in here.

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