State Senate Democrats Release Budget Ideas, Including $25 Billion Economic Recovery Fund
May 15, 2020
On Tuesday, Democrats from the California State Senate released a budget proposal with recommendations to address the economic fallout from the COVID-19 pandemic. The plan is headlined by two specific recommendations, one which would address renter-landlord stabilization and one to establish a new $25 billion Economic Recovery Fund.
They propose creating a $25 billion Economic Recovery Fund by selling taxpayers prepaid future tax vouchers from 2024 through 2033. Residents would be offered a slight discount to pay their future state income taxes now and, in exchange, would receive vouchers to lower their tax burden in the future. This program is estimated to reduce revenues by about $3 billion annually between 2024 and 2033, however, would allow the state to get cash upfront to invest in economic development like supporting small businesses, workforce development, clean-energy investments, wildfire prevention, homeless services, and school spending. The vouchers would be fully transferrable, allowing them to be traded like a bond or security.
The renter-landlord stabilization proposal would allow renters to receive immediate relief for unpaid rent by repaying past rents to the state over a 10-year period, without interest, beginning in 2024. Landlords would be incentivized to provide rent relief and a commitment not to evict tenants in exchange for tax credits equal to the value of the lost rents, spread equally over tax years 2024 through 2033. Like the tax vouchers in the other plan, these credits would be fully transferable, allowing the property owner to sell them to an outside investor and get cash immediately.
It remains to be seen how the Governor, the Assembly, and the public react to these proposals in light of the Governor’s May Revision released yesterday. No doubt many will see the tax voucher plan as preferable to deep cuts to state and local services, though the similarity to borrowing is sure to give pause to budget hawks. These conversations will take place between now and June 15, the Legislature’s constitutional deadline to pass a balance budget, if not beyond.