August 18, 2022

Over its proposed five-year shelf life, AB 1951 (Grayson) would reduce county and city revenues by a combined $2 billion by exempting the local share of sales tax for manufacturing companies that buy equipment. Manufacturing equipment purchases are already exempt from the state share of the sales tax, and they can get a full exemption through another state program (CAEATFA) for equipment under certain conditions.

While counties support California’s manufacturing industry generally and through local-option infrastructure incentives, AB 1951 would impose a one-size-fits-all approach and would have devastating consequences for local governments by eroding the sales and use tax base.

To the extent that the proposed sales tax exemption results in increased economic activity, the resulting tax benefits would largely be enjoyed by state revenues via increased personal income and corporation tax collections. However, reductions in sales and use tax revenue would not only be borne by the local agencies that provide direct services to the manufacturing facility benefiting from the exemption, but also every county in the state due to the statewide formulas for distributing realignment funds for health, human services, and behavioral health. Also, unlike CAEATFA, there is no safeguard preventing the equipment from replacing existing jobs.

AB 1951 reductions include:

• Over $289 million in Proposition 172 public safety funding for sheriffs, police, and district attorneys. Through its statewide formula, these revenue reductions would affect every county, regardless of where the equipment is purchased.
• Over $275 million for social services, family supports, and child poverty programs funded through 1991 Realignment at a time when many families are hurting due to the high cost of living and inflation. Like Prop. 172, these revenue reductions would affect every county, regardless of where the equipment is purchased.
• Millions of dollars from behavioral health programs funded through 1991 Realignment—again affecting every county—in the middle of a behavioral health and homelessness crisis and in the same year the state is putting huge new responsibilities on counties with CARE Courts.
• Over $750 million that supports public safety, roads, youth services, and provide services to unhoused residents through a reduction in revenue for voter-approved taxes for local communities.
• Over $672 million that funds core county and city services.

AB 1951 is currently pending on the Senate Floor where it could be taken up any day. If it passes the Senate, it will move back to the Assembly for concurrence.

Local governments—and counties in particular—would ultimately bear the responsibility of absorbing these cuts.

Counties are encouraged to contact their Legislators and urge a no vote against AB 1951.