COVID-19 Local Government and School Recovery and Relief Act.
The implementation of AB 398 will have significant implications for state fiscal policies and the financial health of local governments. The funds collected through this tax will be used to alleviate the estimated $7 billion revenue shortfall projected for California cities over the next two fiscal years, which has affected essential services like police, fire protection, and educational resources. The bill allows all tax revenues to be continuously appropriated to ensure ongoing support for these entities, thus aiming to enhance their ability to respond to ongoing challenges presented by the pandemic.
Assembly Bill 398, also known as the COVID-19 Local Government and School Recovery and Relief Act, was introduced to address the financial challenges faced by local governments and schools due to the COVID-19 pandemic. The bill establishes a taxation mechanism that targets large businesses—defined as for-profit entities with more than 500 employees—imposing a tax of $275 per employee. This tax will be in effect from January 1, 2021, until December 1, 2026. The revenue generated from this tax is earmarked for a dedicated fund aimed at supporting local governments and K-12 school districts, which have experienced significant revenue shortfalls during the pandemic.
The sentiment surrounding AB 398 is mixed, reflecting both support and opposition among various stakeholders. Proponents argue that the bill is essential for safeguarding local services and schools amidst unprecedented economic challenges, viewing the tax as a necessary measure to stabilize funding amidst declining revenues due to COVID-19. Conversely, opponents express concerns regarding the burden it places on large businesses and the potential for negative impacts on employment and economic growth. The debate among legislators reflects broader tensions in balancing fiscal responsibility with the urgent needs of communities affected by the pandemic.
A notable point of contention regarding AB 398 is the two-thirds majority requirement for passage, due to the nature of the tax change specified in the California Constitution. This required approval reflects the contentious nature of imposing new taxes, particularly on large businesses. Critics counter that the bill may lead to complications in compliance and could disincentivize large employers from maintaining their workforce in California during a time when sustaining employment is critical for recovery. Overall, AB 398 encapsulates the challenges of navigating fiscal policy while addressing the immediate needs of local governance and education during an ongoing public health crisis.