Author: Joel Fox

Two lawsuits have been filed challenging the governor’s vetoes of nearly $500-million in spending when he signed the budget. If either lawsuit succeeds, where will the replacement money come from to keep the budget whole (at least on paper)? Even though the lawsuits are recently filed, and the governor’s lawyers say they will fail, legislators and staff are already at work searching for dollars.

Legislators, who argue the vetoes hurt the poor, are focusing on a regressive tax that studies show fall mostly on the poor – a tobacco tax. In fact, the argument that the poor suffer most from the tobacco tax goes back to the beginning of the country. The future president, James Madison, led the opposition to a general tobacco tax as reported in the Annals of Congress on May 2, 1794:

The governor is serious about tax reform. This is legacy stuff. The call for a special session to deal with the recommendations from the Commission on the 21st Century Economy indicates how important this matter is to him.

Given the wide ranging changes to the tax system that could – emphasize could – come from the commission, it is probably a smart move to dedicate a special session to discuss the tax proposals.

One wonders if the legislature, or the commission for that matter, has enough information to calculate the outcomes of the more complex tax proposals or combination of proposals.

For business people and the general taxpayer, the simple question that will be asked is: How do these tax changes affect me?

In one TV ad, California legislators are portrayed as monkeys. In another, California is depicted as a chewed up apple (What, not an Orange?) Then there’s the time worn lipstick on a pig — more on that later. All the ads were created for the Nevada Development Authority with the first to be aired today on Los Angeles television in a quest to lure California businesses across the border.

You can view the ads here.

The effort received a grand kick-off yesterday with Las Vegas Mayor Oscar Goodman in attendance. The Nevada folks made no bones about shooting California when it’s down. But then they had plenty to aim at. All the ads play the siren song to businesses of lower taxes, fewer regulations, lower workers comp costs and a friendlier business climate in Nevada. The ads specifically tout no corporate income taxes, no personal income taxes, and lower workers comp. The message for businesses, including small businesses: If you stay in California, “Kiss Your Assets Goodbye.”

Yesterday on this site, Joe Mathews argued that conservatives and Republicans were not adhering to the philosophy of one of their guiding lights, Nobel prize-winning economist Milton Friedman, by resisting any change to Proposition 13. Mathews stated that Friedman would prefer cuts in income or sales taxes rather than property taxes.

It is true that Friedman believed that property taxes would be reflected in the housing cost and that the cost of the house would be adjusted according to the amount of property tax that had to be paid on the property. However, this economic theory did not take into effect uncontrolled property taxes on property that was not on the market.

The Services Employees International Union Local 1000 announced 74-percent of their voting members authorized union leaders to call a strike. While the Local President Yvonne Walker said the strike vote was about a lack of contract, the suspicion here is that pay cuts through mandatory furlough days held great sway with those who voted for a strike. How a potential strike would play with California private sector workers suffering about 11% unemployment is not a sure thing. Me thinks if a strike occurs it would not go over too well with the general public ….

One wonders what’s on the mind of Attorney General Jerry Brown these days with some of the current political news. Brown, as governor, boosted public employees collective bargaining rights. How would he stand against the empowered public employees and their strike threats and battles over pension reform, which must be tackled by the next governor? Given that Brown is paddling that canoe of his toward the middle recently, while needing to curry favor with the public workers for a gubernatorial run, his position on public employees issues should be interesting ….

With the state taking local government revenue to balance its budget, the door flew open for California Forward’s plan to re-energize local governments. The organization, funded by major foundations to produce solutions to California’s governance problems, will soon present ideas to devolve power and responsibility to the locals. Regardless if the local governments are successful with a lawsuit to return the funds, the time is ripe for the devolution plan to go forward said Bob Hertzberg, the former Assembly Speaker and co-chair of California Forward.

And, he believes because of the budget deal, which will put the squeeze on local governments, voters will be paying attention.

I caught up to the peripatetic Hertzberg on a plane ready to fly between Washington, DC and New York but his focus, as usual, was on California.

Governor Arnold Schwarzenegger wielded his veto pen to find $489 million more in cuts before signing the budget. The governor argued that he needed to create a half-billion dollar reserve, small by any standards for an $84 billion budget. The legislature had presented him with a negative reserve when it passed the budget.

Among the vetoed cuts was an additional $6.2 million to the state park system. On top of earlier reductions to the parks budget, approximately 100 of the state’s 279 parks will close after Labor Day.

It is possible some parks will not be shuttered if sponsors or partners step forward from local governments or the private sector. But corporate sponsors might force the park system and environmentalists to swallow hard in accepting such a deal. Bearing signs such as Calaveras Big Trees State Park brought to you by Blank Corporation (fill in the blank with your favorite example) may be hard for some to take. However, under such circumstances, the park would remain open.

Assembly Majority Leader Alberto Torrico is making a valiant effort to save up to 5,000 jobs that may be lost if Toyota closes down its New United Motor Manufacturing Inc., (NUMMI for short) based in Fremont.

That’s on one hand. But on the other hand, Torrico is jeopardizing thousands of jobs in the oil industry by pushing a measure to create a 9.9% oil severance tax and funnel the money to California’s public colleges and universities.

In an effort to keep the Toyota jobs in Fremont, the bill co-authored by Torrico would exempt auto plants from sales tax on improvements and refurbishing the manufacturing plant. But, his oil severance tax bill is sure to discourage drilling in the state and lead to a depressing ripple effect in jobs related to the oil industry either directly or indirectly to those servicing the industry and its workers.. Never mind the problems for consumers of increased gasoline costs and importing more foreign oil.

The Commission on the 21st Century Economy decided to ask the governor to move forward the due date of their final report 45 days to September 15th. The move was made to allow time to study the complex proposals before the commission as well as consider a number of alternatives. The complexity of what is being considered, a major overhaul of the tax code, was first intended to be completed April 15; then moved to July 31; now perhaps to September 15. That may not be the final date.

One of the reasons more time is needed to consider proposals before the commission is because the commission is considering a new kind of tax – a Business Net Receipts Tax, which is a type of value added tax.

The intricacies of the proposal raised many questions and lots of explanation from commission and government agency staff members at the meeting in San Francisco yesterday. It will be hard for the layman to get their hands around the tax proposals that tax wonks and experts grappled with during the course of the commission hearing.