David Gamage (Missouri-Columbia; Google Scholar) & Darien Shanske (UC-Davis; Google Scholar), Coping With California’s Deficit, Part 1: Borrowing and Taxes, 111 Tax Notes St. 823 (Mar. 18, 2024): 

In this installment of Academic Perspectives on SALT, Shanske and Gamage examine California’s projected budget deficit and possible solutions. California has a large budget deficit that is predicted to last for several years. In this two-part series, we will place California’s situation in context and propose solutions.

The state should use short-term borrowing to cover at least some of the cyclical shortfall. That the real revenue cycle is unlikely to neatly unfold over one traditional fiscal year should not change this conclusion. To that end, we will show how California can operationalize this simple insight despite the impression some may have that it cannot do so as a matter of law. In this article, we will explain how this borrowing might work. In the next article, we will explain why this borrowing should be legally permissible.

David Gamage (Missouri-Columbia; Google Scholar) & Darien Shanske (UC-Davis; Google Scholar), Coping With California’s Deficit, Part 2: Permissible Borrowing, 111 Tax Notes St. 903 (Mar. 25, 2024): 

In our previous article in this series, we explained that it makes sense for California to engage in short-term borrowing, backed by its reserves, to address the cyclical component of its projected budget deficit. We argued that once the state makes reasonable adjustments to spending and revenue to address its projected structural deficit, it should engage in a short-term cash flow borrowing — for, say, three years — backed by its reserves to address the remaining projected cyclical component of the deficit.

We also noted that California — like many other states — often uses internal borrowing as a kind of rough approximation of our preferred approach. We think this is reasonable, though we acknowledge that these strategies are ad hoc and often nontransparent; furthermore, their potential might not match the scale of the problem, nor its timing. It could be countered that states like California have no choice, because balanced budget rules require these types of solutions. We disagree and explain below why California can adopt our preferred approach of short-term borrowing backed by reserves.

Darien Shanske (UC-Davis; Google Scholar), When in a Hole . . . A (critical) Comment to the Office of Tax Appeals on the Proper Treatment of Foreign Dividends Under California Law: 

This comment letter argues that the opinion of the Office of Tax Appeals in Microsoft concerning the treatment of foreign dividends received by a water’s edge taxpayer is an incorrect interpretation of California law. Because the opinion is incorrect, it should not be made precedential. For the opinion at issue, see In the Matter of the Appeal of Microsoft Corporation and Subsidiaries, OTA Case No. 21037336.