California groups jockey to put tax hikes on ballot

Reuters News
Posted: Nov 30, 2011 3:13 PM
California groups jockey to put tax hikes on ballot

By Jim Christie

SAN FRANCISCO (Reuters) - With California Governor Jerry Brown making little progress in his efforts to solve the state's intractable budget problems, a number of private groups are maneuvering to put new tax measures to the voters next November.

One initiative, backed by billionaire Nicolas Berggruen and a bipartisan group of business and civic leaders, would radically overhaul the state's tax code by taxing services and cutting income tax rates. Berggruen has pledged $20 million to the effort.

Another proposal, by Molly Munger, the daughter of Warren Buffett's business partner, would rely on income tax increases to raise some $10 billion in new revenue. Buffett has been a vocal proponent of higher taxes on the rich, though he is not involved in Molly Munger's effort.

A third proposal by a state teacher's union and other labor groups would add a 1 percent surcharge on incomes above $1 million. Still other groups are mulling targeted tax hikes on out-of-state companies and oil production in California.

Brown, a Democrat, also is expected to put forward a ballot initiative to raise taxes.

The initiatives would circumvent the legislature, where a two-thirds vote is needed to hike taxes. The legislature's minority Republicans have blocked efforts to raise taxes, including a bid by Brown earlier this year.

Only a simple majority vote is needed to enact a statewide tax ballot measure.

California has long struggled to balance its budget, and like many other states has been forced to slash spending dramatically in recent years as the recession and the housing meltdown sharply lowered revenue.

The debate over new taxes is intensifying now that it has become clear tax revenues for the year will be well below the optimistic forecasts that were part of the state budget deal last summer.

The Legislative Analyst's Office, a state budget watchdog agency, recently said $3.7 billion of the $4 billion in added revenue forecast in the budget will not materialize.


While the state needs more revenue if it is to avoid yet more cutbacks - the state has already chopped its budget by 17 percent to $85.9 billion over the past three years - it's far from certain voters will go along.

Residents of the most populous U.S. state have a long history of mandating minimum levels of funding for key services such as schools, but refusing to back the taxes needed to pay for them. School spending per student is now among the lowest of any state in the country, and California's vaunted university system has been forced to increase tuition drastically and cut services.

Political analysts also say that multiple tax measures will reduce the odds of voters approving any of them. "They could be sailing into a huge mess if everybody goes into next year with their own tax increase," said Tony Quinn, co-editor of the California Target Book, which tracks state races.

But proponents of the various measures say they can't wait any longer if they are to have a chance next fall.

They need to gather at least half a million signatures from voters to qualify simple initiatives for the ballot, and face a higher hurdle for measures proposing changes to the state constitution, within 150 days of California's secretary of state giving them the go-ahead to gather the signatures. Then proponents will need to put together extensive organizing and fundraising efforts for their respective campaigns.

"We couldn't wait for the governor," said Joshua Pechthalt, president of the California Federation of Teachers. "It's getting late in the game."

The 100,000-strong teachers union is expected to unveil its tax measure as soon as Friday.

Berggruen's Think Long Committee for California is expected to put forward the details of its ballot proposal by year-end.

The group, which includes former Governor Gray Davis, Google Inc Executive Chairman Eric Schmidt, Los Angeles philanthropist and KB Home founder Eli Broad and two former U.S. secretaries of state, George Shultz and Condoleezza Rice, has proposed a drastic overhaul of the tax code to bring long-term stability to state finances.

California is heavily dependent on income taxes, and revenues spike when its wealthy taxpayers are flush with capital gains. When an economic downturn cuts into those gains, revenue shrinks dramatically.

The Think Long Committee proposes to cut income tax rates while adding a sales tax on services - with an exemption for education and medical services - to broaden the tax base. Such a shift may be too much change for voters to endorse, especially if it's competing with other measures.

"You put a whole bunch of complicated things on the ballot and voters just throw up their hands," Quinn said. "If you only had one, and it had broad-based support and you could convince voters the money would go to things they favor, then you could get it through. But I think you would have a hard time with competing ballot measures."

Dean Vogel, head of the 325,000-member California Teachers Association, an influential union in favor of raising revenue, especially for education spending, agrees: "What's in the best interest of everybody is that we get behind one thing."

(Editing by Jonathan Weber and Eric Beech)