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Prop 30 May Be Double Edged Sword, Expert Says

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 Proposition 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 Pomona Unified, Claremont Unified and Bonita Unified school districts spoke out in support of the measure. All faced severe cuts if the measure had failed.

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."

Vito Spago December 06, 2012 at 04:14 PM
"May not provide long term solutions". You just figuring this out? But since you got Prop 30, no more school funding until the electorate forgets that that Prop 30 passed. I give it about 2 weeks before you can ask for more money again. Calif is going BK and all I have to do is move out of state.
Teri Felker December 06, 2012 at 04:26 PM
Once again California resisents have been scammed by the politicians. Does anyone think all these additional costs will do anything but give these idiots more money to waste? I've been around long enough to see the wreckage of both of Gov. Moonbeam's attempts at leading CA and I've seen what his dear old Dad (Edmund G. "Pat" Brown) did to us. As a native Californian I am appaled!!! I guess the citizens just don't care as long as they get their "free stuff". What will happen when all the people who "provide" are gone?
DB Clock December 07, 2012 at 06:03 PM
Teri, politicians=CTA. They're one and the same: http://articles.latimes.com/2012/aug/18/local/la-me-cta-20120819 Have you heard their radio ad? http://www.youtube.com/watch?v=PrgIHTySBwc The CTA wrote Prop 30. They knew from the start that $0.00 of those funds would reach our children. They even fooled many of their outstanding teacher-members!! Steal from my Kids CTA, SHAME ON YOU!
alan haskvitz January 19, 2013 at 04:39 AM
The article says it May be Double Edged Sword. The article is viewed by the above writers as the water glass is half-full and are apparently eager to spread blame to the representative democracy (the voters) that allowed this proposition to be passed. They have written that the people, their fellow citizens, have been duped. I see the Proposition differently as the article stated: "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." And this is bad?

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