SAN FRANCISCO (Reuters) – To prevent more fiscal turmoil, California needs a tax system that relies more on revenue from sales, including sales of services, than on its wealthy taxpayers’ income taxes, according to a new report.

State leaders are nearing a June 15 deadline for approving a state budget but remain divided over whether to extend temporary tax hikes, including one on the state sales tax, to help fill a roughly $10 billion gap — a near-term task crowding out debate about systemic fiscal challenges like the state’s volatile revenue.

“California could reduce its revenue volatility and improve its business climate by moving toward a greater reliance on consumption taxes — those based on goods or services consumed in the state rather than on income earned here,” according to the Public Policy Institute of California report.

“Revenue from a broad-based consumption tax would likely be more stable because consumption tends to fluctuate less than income,” the report added.

California’s sales tax applies to sales of tangible property, merchandise, fuel, food in restaurants and alcoholic beverages, and households pay about two-thirds of it.

While taxing services, which make up about two-thirds of U.S. economic activity, could help stabilize California’s revenue, its leaders will likely see the idea as radioactive.

That’s because proposals for taxing services poll poorly with the same voters who say the state’s budget woes make them — and many in Washington, on Wall Street and within the $2.9 trillion U.S. municipal debt market — anxious.

SAN FRANCISCO (Reuters) – California’s budget logjam could be broken as early as Friday when a draft of new voting districts gives lawmakers a sense of whether they will be safe bucking party lines.

The citizen-drawn redistricting draft, a plan intended to moderate state politics, comes out on Friday and the deadline for lawmakers to approve a budget is the following Wednesday.

There has been little movement in recent weeks toward a budget agreement, with Democrats resisting further spending cuts and Republicans opposing tax hike extensions, leaving a roughly $10 billion deficit for the state’s next fiscal year, which begins on July 1.

Lawmakers with an eye to appealing to voters in new competitive districts, and in a new primary election system, however, may be willing to break with their party’s lines in the state capital of Sacramento over the budget.

“You might have some legislators who find themselves in districts where they feel more comfortable making compromises,” said Allan Hoffenblum, publisher of the California Target Book, which tracks California’s budget.

Democratic Governor Jerry Brown has proposed additional spending cuts and a statewide vote on extending temporary tax increases to raise revenue to close the state’s budget shortfall and bolster its finances in future years.

Some Democratic lawmakers have been defying him on cuts and suggesting tax extensions be determined in the legislature and not by voters as Brown wants. Meanwhile, Republicans have been blocking a vote to advance his tax plan to the ballot.

SAN FRANCISCO (Reuters) – California’s treasurer

on Wednesday urged state pension funds to back shareholders pressing companies to disclose political spending, which many of his fellow Democrats expect to rise and be used against them in the 2012 election cycle.

The effort by State Treasurer Bill Lockyer comes as Democrats in Washington push back against the Supreme Court’s “Citizens United” decision last year. It allowed unlimited spending on political campaigns by corporations, labor unions and other groups.

Democrats say they were bombarded with millions of dollars worth of attack ads in congressional elections after the ruling. They fear more of the same, along with a fund-raising disadvantage to Republicans, who are traditionally allied with business interests.

In California, Democrats, who control the legislature and hold all constitutional offices, are concerned corporate money could fuel statewide initiatives, including ones aimed at reining in the political power of their union allies.

One such campaign aims to qualify a measure for next year’s ballot that would bar unions from automatically deducting funds from their members’ paychecks to use for political purposes.

Lockyer in a letter to the chair of the investment committee of the California Public Employees’ Retirement System said the Citizens United ruling had “opened the floodgates to unlimited corporate spending in political campaigns.”

SAN FRANCISCO (Reuters) – A second front has opened in California’s budget war as some of Governor Jerry Brown’s fellow Democrats rebel against parts of his plan to cut spending while Republicans stay firmly opposed to tax hikes.

Brown’s election in November and ongoing control of the legislature by Democrats held out the possibility of a break with a past of bitter partisan disputes and late spending plans that made the most populous U.S. state look ungovernable.

But Brown must now contend with both defiant Democrats and resistant Republicans as the legislature’s mid-June deadline for agreeing on a budget nears. That raises the possibility the state’s leaders may find themselves once again holding budget talks after the state’s new fiscal year begins on July 1.

California’s budgets have been signed into law before the start of the new fiscal year only five times over the past two decades.

“The chasm in California’s politics goes both ways,” said Larry Gerston, a political scientist at San Jose State University.

The politics of closing the rift are being closely watched in Washington, where the battered finances of state and local governments have become a major issue.

Investors in the $2.9 trillion U.S. municipal bond market also have a keen interest in how California’s leaders go about balancing its books, and how long it may take, because the state was the market’s biggest debt issuer last year.

SAN FRANCISCO (Reuters) – Public pension fund finances face a mixed outlook, with better investment returns and shrinking government work forces offset by smaller government payments, a study released on Tuesday said.

The report by the Boston College’s Center for Retirement Research comes as pension costs pose a top concern for state and local officials and investors in the $2.9 trillion municipal debt market.

State and local governments have been paying less of their annual required contributions to pension plans in recent years due to slumping revenue that threw budgets into disarray.

The study pegged the ratio of assets to liabilities for its sample of 126 state and local public pension plans at 77 percent last year, compared with 79 percent in 2009.

That means the plans last year had an estimated $2.7 trillion in assets, compared with $3.5 trillion in liabilities, or obligations they must meet.

The gap threatens to grow if government employers further reduce their financial support for public pension funds.

“In 2010, employer contributions equaled only 78 percent of the required payments,” the study said, noting that was down form 84 percent in 2009 and well below the 100 percent contribution level in 2001.

SAN FRANCISCO, May 24 (Reuters) – U.S. public pension fund finances face a mixed outlook, with better investment returns and shrinking government work forces offset by smaller government payments, a study released on Tuesday said.

The report by the Boston College’s Center for Retirement Research comes as pension costs pose a top concern for state and local officials and investors in the $2.9 trillion municipal debt market.

State and local governments have been paying less of their annual required contributions to pension plans in recent years due to slumping revenue that threw budgets into disarray.

The study pegged the ratio of assets to liabilities for its sample of 126 state and local public pension plans at 77 percent last year, compared with 79 percent in 2009.

That means the plans last year had an estimated $2.7 trillion in assets, compared with $3.5 trillion in liabilities, or obligations they must meet.

The gap threatens to grow if government employers further reduce their financial support for public pension funds.

“In 2010, employer contributions equaled only 78 percent of the required payments,” the study said, noting that was down form 84 percent in 2009 and well below the 100 percent contribution level in 2001.

SAN FRANCISCO, May 23 (Reuters) – California’s rich are getting richer — much to the relief of the state’s bookkeepers.

California still faces a $10 billion budget gap even after tens of billions of dollars in cuts in recent years, but its revenue has been gaining strength thanks to tax collections on capital gains posted on investments by its wealthiest residents.

“We think cap gains is what’s driving this train,” said H.D. Palmer, a spokesman for California’s finance department, whose bookkeepers help write budget plans for the government of the most populous U.S. state.

Governor Jerry Brown last week cut his budget gap forecast to $10 billion from $15 billion, citing the improving economy, and many analysts think he is too conservative on the state’s revenue outlook especially as technology companies go public.

Many see the state’s revenue improving faster than Brown does as capital gains rebound, potentially fueled by initial public offerings as last week’s LinkedIn Corp (LNKD.N: Quote, Profile, Research, Stock Buzz) IPO encourages more. Shares in the California-based networking website closed on Monday at $88.30, nearly double their $45 debut.

Brown’s task of balancing the state’s books has been made a bit easier in recent months as he noted in his recent revised state budget plan. It forecast improving revenue of $6.6 billion through the state’s next fiscal year.

Credit for the rise goes to the wealthy, who stoke California’s key source of revenue: personal income taxes.

SAN FRANCISCO, May 17 (Reuters) – Republican lawmakers in California may be enticed to step up budget talks with Governor Jerry Brown after his show of support for a spending cap.

While unveiling his revised budget plan on Monday, the Democratic governor said he was willing to back a referendum on a cap along with tax increases he wants lawmakers to put to voters.

Republicans in the legislature’s minority who have long pressed for a spending limit were caught off guard — and pleasantly so.

They dislike Brown’s call for extending tax increases to help tackle the state’s gap but acknowledged his nod for a spending cap was a bold gesture to get budget talks back on track with only a few weeks to go before the start of the state’s next fiscal year, on July 1.

“The governor, I think, truly sees the big picture,” said Republican state Senator Bob Huff, who had been in on budget talks with Brown. “I don’t agree with all his conclusions, but he does have a comprehensive picture of where we need to go.”

Republican Assemblyman Martin Garrick, one of his chamber’s leading advocates for a spending cap, said Brown’s statement was “encouraging.”

“The governor was taking a new position,” he said. “He previously did not seem enthusiastic.”

SACRAMENTO (Reuters) – California Governor Jerry Brown on Monday said the state’s economy was on the mend but that California still had a nearly $10 billion budget hole to close and insisted tax hikes were needed.

The Democrat said tax revenue this year and next would be $6.6 billion better than expected. But he stuck to the bulk of his proposals made earlier this year for hikes in sales and income taxes and more.

The most populous state and biggest municipal bond issuer cut several billion dollars in spending earlier this year. But politicians are at odds over whether extensions of tax hikes are required.

“The economy in California is looking pretty good … not as good as it’s been, but definitely on the mend. But we still have a $10 billion structural budget deficit and a wall of debt to come,” Brown said as he introduced the revised plan.

Brown proposed to use the unexpected bump in income taxes to scale back his tax hikes proposal and increase school funding by $3 billion. He offered more support to enterprise zones favored by local governments than in his earlier plan.

Brown said he still wants state voters to be given the opportunity to approve or reject his plan.

He gave nods to Republican calls for broader changes, saying the state needs a spending limit and that he would go forward with pension reform. But he declined to offer a “Plan B” budget plan composed only of spending cuts.

SAN FRANCISCO (Reuters) – California Governor Jerry Brown next week unveils a revised budget, and an unexpected jump in tax receipts may ease the state’s financial pain but throw a wrench into his plan for extending tax increases.

Brown will lay out his new plan to close a roughly $15 billion shortfall on May 16, and part of the solution will be a stronger tax collection forecast than in his original budget in January, based on strong April collections.

The recession, double-digit unemployment and the housing and stock market slumps sent personal income taxes, California’s key budget source, tumbling. Now those receipts are recovering.

“At this point almost everybody is assuming there will be a better revenue number,” said Mike Genest, a fiscal consultant and former director of finance for California’s government.

The good news won’t end California’s traditionally chaotic budget politics, however.

Brown and fellow Democrats who control the legislature had been planning to use the prospect of more spending cuts, especially to schools, to rally voters to demand Republicans support extensions of tax increases that expire by summer.

Republicans have enough votes to block tax measures and have been opposing tax extensions. They now say better-than-expected revenue should be put toward schools.