The Commission on the 21st Century Economy stepped out of the way of an on-coming political train and sought an extension to finish its work. Originally scheduled to bring recommendations on tax structure reform to the governor and legislature by April 15, commission members acknowledged that the May 19 special election will directly affect their mission.
Proposition 1A on the ballot will establish a spending limit but at the same time extend for up to two years some of the taxes recently passed by the legislature in the budget deal. As I suggested in a previous Fox and Hounds Daily commentary, the commission’s report of possible changes to the tax system might be used in the campaign for Proposition 1A. Alternatively, the voters’ decision on Proposition 1A would alter the debate on what tax changes the commission might recommend.
Commission Chairman Gerald Parsky said in light of the Special Election he would request that the governor and legislative leaders extend the commission until after the May election if the other commissioners agreed. Parsky’s recommendation received unanimous support.
Parsky said it would be difficult to make recommendations on tax changes until the voters had their say and he did not want the commission’s recommendations to be used “inappropriately” in a campaign.
In explaining Proposition 1A and its effects to the commission, Director of Finance Mike Genest suggested that the commission could not come up with meaningful revenue reforms “if we don’t know if the budget reform is enacted.” Genest called Prop 1A a “game-changer” for the commission.
UC Berkeley Law School Dean and Commissioner Chris Edley declared that the commission was “agnostic on 1A” and wanted to make it clear that the Commission was not seeking a postponement to win adoption of the measure.
The commissioners debated whether the final report should be issued in June or July but no conclusion was reached. However, the delay would allow for extra public meetings to be added to the commission’s schedule.
During Genest’s presentation, Parsky asked if the state’s budget problems would be fixed should Prop 1A pass. Genest acknowledged that 1A would address the volatility in the tax system but still left unanswered would be big issues such as the relationship of the current tax system to the modern economy. Genest argued that it was necessary to “improve the business climate to turn the tide.”
Genest said in addressing the budget deficit, his department put every option they could think of in front of the governor. He said if the current plan failed at the Special Election there was no back-up. He said his department would come up with something but he didn’t want to think of how difficult it would be.
To show the complexity and pitfalls of changing the tax system, commission staff prepared different scenarios and presented them to the commissioners. For example, taxing food and medicine would raise $5.2 billion and would allow the sales tax rate to drop 0.8% to stay revenue neutral. Taxing legal and financial services along with health care and education and other personal services would bring in $21 billion and allow the tax rate to drop 2.3% to be revenue neutral.
Commissioners did not indicate what they considered viable, but I can tell you a few audience members winced at thinking about adding a tax on top of their child’s college tuition!
The next commission meeting, no longer the last, will be at UC Davis on April 9.