Brown's Plan to Stem CA Public Pension Costs Not Sufficient

From the LA Times regarding Gov. Jerry Brown's newly released plan to reduce public sector pension costs:

Even by the most ambitious forecasts, the plan Gov. Jerry Brown and fellow Democrats are championing to contain government worker pensions in California could leave state taxpayers awash in debt to public employees.
The governor's plan, announced Tuesday, is unlikely to save cities on the brink of bankruptcy. The relief his proposal would provide to the strained state budget is modest.
Analysts who study the issue say far more aggressive action — including reduction of benefits for hundreds of thousands of current employees left untouched by Brown's proposal — will be needed to get runaway retirement costs under control.
Taxpayers still face the prospect of major bailouts to cover retirement promises made to public employees whether lawmakers pass the plan as expected Friday or not.
...[E]very California household may be on the hook for roughly $23,000 for public retirements over the coming decades. Brown's plan might whittle that tab to $18,000.
"It doesn't solve the problem," said Joe Nation, a former Democratic assemblyman and professor of the practice of public policy at Stanford University. "We still have many, many miles to go."
Brown's negotiations with lawmakers resulted in a more modest plan focused on raising the public retirement age, limiting the annual sums collected by retirees whose jobs paid them six-figure salaries and tinkering with the formulas on which pensions are based.
The leaders' decision not to take any benefits away from workers already on the payroll, however, limited their ability to confront the soaring debt.
"You can't address these problems unless you address the existing liability," said David Crane, who advised former Gov. Arnold Schwarzenegger on pension issues.
"The only way to do that is to go after benefits for existing employees."
An exhaustive study last year by the Little Hoover Commission, an independent oversight agency that reports to the Legislature, warned that pension debt will continue to overwhelm government budgets if benefits for existing workers are not scaled back.
Making changes that affect only new employees, the commission's report said, "will not deliver savings for a generation, while pension costs are swelling now as baby boomers retire.... The promised benefits are unaffordable and leave taxpayers facing all the risk as the bill becomes due."

Draft Form 706 Released--Includes "Check the Box" Feature to Opt Out of Portability

From Bloomberg News:

IRS releases a draft version of the 2012 Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, that for the first time includes a check-the-box feature for executors to opt out of electing portability of a spouse's unused gift and estate tax exclusion amount. The draft includes a portability election section (Part 6) that reminds estate executors that to elect portability, they must simply complete and timely file the Form 706. If they are opting out, they must check a box saying the decedents do not want to pass on their unused estate and gift tax exclusion amount to their surviving spouses.

Homeowners See Jump in Property Taxes--what happened to prop 13?

Many California homeowners, while owning properties worth less than what they paid for, are at least getting some benefit by paying lower property taxes.

While many homeowners are familiar with Proposition 13 (which caps the tax assessed value on properties to a growth rate of no greater than 2%) they are most likely unfamiliar with Proposition 8 (the other one).  When Proposition 13 was passed in 1978, Proposition 8 was also passed. 

When your property declines in value, it is actually Proposition 8 which kicks in and allows you to claim a lower taxed assessed value on your property.  The tricky part is that once the housing market rebounds, the cap on Proposition 13 doesn't kick in until you reach a value essentially equal to your purchase price of the home.  In other words, if values rebound over night, the property's tax assessed value will be allowed to increase at more than the 2% rate until the purchase price value is met.  So surging home values could mean surging property taxes as well. 

While most homeowners are faced with depressed values, there are a few counties where property values are increasing and homeowners are getting assessed additional property taxes. For instance, some 37,000 residents in Santa Clara County received notice that their property taxes were increasing this year as a result of rebounding housing values:

"It's a double-edged sword,'' said Kreshel, a senior manager at eBay. "The value is going up and so are my property taxes, even though it's still below what I had to pay for it,'' she noted with a sigh. "It's part of being a homeowner.''

It is really only a matter of time before home values start to recover state-wide and homeowners realize that the property taxes will increase dramatically as result.

CA School District Borrows $100M, Will Pay Back $1B.

In a transaction that makes a pay day loan look frugal, a California School district borrowed $105 million over 40 years by selling "a bond so unusual that the State of Michigan outlawed it years ago". Taxpayers in the Poway school district will be on the hook for $1 billion--10X the amount originally borrowed.

In the bond deal, taxpayers were told that there would be no tax increases for 40 years.  In fact, there is no interest or principal due for the first 20 years, which means that all the payments will be due on the back end.  On top of that. the bonds are not callable and cannot be paid off early or refinanced.

The "bond costs will go towards new classroom and library computers, state-of-the-art wireless data systems with increased bandwidth, new voice and video alarm systems, green 'recyclable building materials,' and landscaping" as well as "new storm water drainage systems to comply with the Federal Clean Water Act".

Poway has only 34,000 students in its district and school administrator and teacher compensation eats up 85% of its annual budget.

Williamson Act Threatened in Fresno County

The Williamson Act, a unique property tax provision which allows certain farmlands to have a tax assessed value even less than their proposition 13 assessed value, will be cut back, and potentially even dropped in Fresno County.

Under the Williamson Act, farm land values for tax purposes were significantly reduced if the owner/farmers agreed to maintain the land as farmland and not sell out to developers.  In the past, while counties received less in property tax revenues for properties under the Williamson Act, the difference was made up by the the state. 

However, there are no longer state reimbursements which forces counties to either eat the difference or minimize the tax benefits under the act.  As a result, the Fresno County Board of Supervisor's recently announced that they plan to cut the tax benefit by approximately 10%, which means that many Fresno County farmers will see an increase in their property taxes. 

Gift Tax Appraisers--The Potential Bottleneck For Year End Gifts

Currently, federal law provides a lifetime gift tax exemption of $5.12 million, per person.  If Congress takes no action, beginning 2013, the exemption will drop to just $1 million.

Because of this impending change in the gift tax exemption, alot of estate planners are recommending that their clients make significant gifts of assets, real property and business interests to their children and grandchildren. 

However, appraisers, in particular those that specialize in valuation discounts for gifts of business interests, are getting swamped with requests.  Often the turn around time of one to two months is being doubled.  While a gift tax return for a 2012 gift won't be due until April of 2013, it is preferred to know that exact value of the gifted interest to maximize planning opportunities.