Governor Vetoes AB 1951
The Bill Would Have Reduced Local Revenue by $2 Billion
September 22, 2022
Governor Gavin Newsom vetoed AB 1951 (Grayson), which would have reduced county and city revenues by more than $2 billion over five years by giving a full sales tax exemptions for manufacturing equipment. This is welcome news for CSAC and the broad coalition of local government organizations that opposed this measure (veto request).
The reductions in sales and use tax revenue would not only have been borne by the local agencies that provide direct services to the manufacturing facility benefitting from the exemption, but also every county in the state because of the statewide formulas for distributing the realignment funds that pay for health, human services, and public safety programs.
AB 1951 would have replaced the current partial manufacturing sales tax exemption with a full exemption until January 1, 2028, resulting in substantial revenue loss to local governments. Presuming no changes in taxpayer behavior, local governments would have lost an estimated $2 billion over five years, impacting crucial health, public safety, welfare, and transportation services.
Counties support California’s manufacturing industry generally and through local infrastructure incentives. However, as articulated by Governor Newsom in his veto message, “we cannot ask our local governments to bear this loss in revenue.” With the state tax receipts below expectations for the third month in a row and roughly $2 billion below projections for the fiscal year to date, Governor Newsom’s veto message cautioned against new spending commitments, such as this measure, which are not accounted for in the state budget.