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From California Fiscal Stability and Tax Authority Changes Amid Political Race

How could the reduction of board powers and political rivalry affect the State of California?

Likely What happens if… A possibility worth considering, not a forecast.

State of California faces risks to funding and tax administration structure The State of California faces two distinct pressures stemming from the event. First, the legislature's reduction of the State Board of Equalization's powers in 2017 shifted most authority to appointed bureaucracies, fundamentally altering how the state administers taxes. Second, the performance of the State Controller’s Office, which is part of the state government, has been criticized for repeated delays in releasing annual financial reports, which has put the state’s federal funding and credit rating at risk.

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How it reaches State of California

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The facts so far

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  • In 2017, the California Legislature and Governor Jerry Brown greatly reduced the board’s powers with the passage of Assembly Bill 102.dailynews.com
  • Most powers of the State Board of Equalization were shifted to two new bureaucracies whose directors are appointed by the governor: the California Department of Tax and Fee Administration and the Office of Tax Appeals.dailynews.com
  • The late reports from the State Controller’s Office put both the state’s federal funding and its credit rating at risk.sfexaminer.com

Why it matters

The State of California, as the fourth-largest economy in the world, relies heavily on maintaining fiscal responsibility and investor confidence. The structural changes to its tax administration, combined with the operational risks highlighted by the State Controller’s Office, represent significant challenges to its financial stability and ability to manage its massive economy.

These issues are part of a larger political and administrative context. The State Board of Equalization was originally established in 1879 to equalize taxation among counties, but its authority has been diminished over time. The political rivalry between Malia Cohen and Herb Morgan is tied to the competence and transparency of the state's financial management, which is foundational to the state's overall fiscal health.

What we don't know yet

  • Will the State of California be able to mitigate the risk to its federal funding and credit rating?
  • How will the ongoing political competition affect the pace of financial system improvements within the state?

Is this still moving?

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What would change this answer

The State Controller’s Office successfully implements the long-in-progress financial-reporting system and achieves timely reporting, thenThe risk to the state’s federal funding and credit rating could be significantly reduced.
The legislature passes new legislation to restore or expand the powers of the State Board of Equalization, thenThe state's tax administration structure could become more decentralized and authoritative.

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