Designer prices, not designer government

Posted: Oct 08, 2006 12:01 AM
Designer prices, not designer government

California voters should keep this news from the nonpartisan Legislative Analyst's Office in mind when they vote in November: State operating budget shortfalls under the spending plan are expected to reach "nearly $4 billion in 2007-08 and nearly $5 billion in 2008-09." Then voters should reject Propositions 86, 87 and 88, because the three measures would raise taxes without fixing the structural shortfall.

Good-government types call measures such as these "ballot-box budgeting" -- special interests cook up initiatives designed to appeal to voters because they dedicate spending to a pet cause. Voters believe that in approving these measures, they ensure that tax dollars will go to their preferred areas of spending -- as if they can get Designer Government. Wrong. Because these pet initiatives do not curb the automatic growth in off-the-rack programs, the state's general fund spending will continue to grow as each Designer Program widens the gap between what the state takes in and what it spends.

To fix the problem, Sacramento has to cut state spending or raise taxes that can go into the general fund. Having failed for legal and political reasons to cut the state budget, Gov. Arnold Schwarzenegger is crossing his fingers, in the apparent hope that economic growth or time will fill the hole in the state's finances. If there's a downturn, a big tax increase during hard economic times could be in California's future.

These three measures would only make things worse.

Proposition 86 would raise the state excise tax on cigarettes by $2.60 per pack. The California Legislative Analyst's Office estimates it will raise $2.1 billion in 2007-2008, with revenues declining thereafter. The measure would create a new Designer Fund, the Tobacco Tax of 2006 Trust Fund, to pay for emergency services, health care for children and anti-smoking campaigns.

Yes, some smokers would quit and some would smoke less -- a good thing, to be sure -- but other smokers would be more likely to buy cigarettes on the black market or out of state. That could cut into state receipts by gouging the poorest taxpayers. As noted, this measure "hits the poor harder than the rich, because the poor are, on average, far likelier to smoke."

I was surprised when a doctor showed up at The Chronicle Editorial Board meeting as an opponent of Prop. 86. Neurologist Susan Hansen of Mountain View, Calif., said she supported Prop. 86 in August, but when she looked into a provision that exempts hospitals from some anti-trust law, she determined that Prop. 86 would give hospitals too much economic clout and make it easier for them to overbill patients. That turned her against Prop. 86, she said, because it would affect "my ability to practice medicine."

Proposition 87 reflects the latest Hollywood fad -- a Richie Rich bankrolls a measure that dictates how the state should spend billions, while creating a petty fiefdom for the backers. You saw it with Proposition 71, the stem-cell measure. Now Hollywood biggie Stephen Bing has promised to plunk down $40 million to entice voters to spend $4 billion on research and tax credits to boost alternative energy use.

The mechanism? Taxing someone else (oil producers) while borrowing the money to pay for new spending by issuing bonds. The power? No surprise, it will go to a new Designer Authority (the California Energy Alternatives Program Authority) with a Designer Board spending the pot.

The hype: You won't pay, as Prop. 87 prohibits oil producers from passing on the new tax. California oil producers will pay. Nonsense. Raise the price of extracting oil and some shops will shut down. As the legislative analyst noted, if voters raise the cost of extracting California crude, at some point state refiners will buy out-of-state oil. There will be less oil, and it will cost refiners more. You're dreaming if you think that won't drive up the cost of gasoline.

This measure even comes with Hollywood accounting. The legislative analyst noted that Prop. 87's wording on tax rates "could be interpreted in two different ways." That's like two sets of books. While the measure promises to burn through $4 billion over time, voters won't know if the new tax will bring in $225 million or some $485 million annually. Voters should not approve of a measure whose authors could not be bothered to draft its language clearly.

Proposition 88 would create a statewide parcel tax of $50 per property to raise more money for schools -- but it is so flawed that even the California Teachers Association cannot support it. When the CTA says that a new tax for schools is bad policy, you know it's really, really bad.

Vote no, no, no. I understand the temptation to vote for measures that sound good or look good. But when millions of dollars are levied and spent because they look good, voters end up with a pricey mix of designer accessories that don't necessarily work together. Meanwhile, the state isn't keeping up with its monthly payments. Responsible adults make sure they can meet their usual bills first.