Will the Special Election Force an Extension for the Tax Commission?
The Commission on the 21st Century Economy, which is studying a potential restructuring of California’s tax system, is required to report its recommendations to the governor and legislature on April 15th. Beginning work in January, many observers questioned the ability of the committee to get anything done in such a short timeframe considering the complexity of the mandate — studying the current tax system and a slew of possible changes— and making recommendations for change in less than four months time.
The commission intended to keep to its schedule but politics may intervene.
Since the commission began its work in January, the big story out of Sacramento has been the budget resolution. The voters in a May 19 special election must approve portions of the budget deal, more than a month after the tax commission report is due. Given that the major issue on the special election ballot has to do with continuing taxes for two more years if the spending limit measure is passed, the commission’s report would reverberate through the special election one month later.
Kotkin: Dysfunctional California; Dysfunctional L.A.
Urban scholar Joel Kotkin of Chapman University takes turns laying into what he describes as a dysfunctional California in a Newsweek article; then goes after a dysfunctional Los Angeles in a Forbes magazine article.
While Kotkin offers some hope that California can rebound from its paralysis as it has in the past from down periods, this time through the efforts of individual entrepreneurs, he says Los Angeles’s hope rides in getting rid of Mayor Antonio Villaraigosa, whom he gives low marks.
Read the Newsweek piece on California, “Death of the Dream,” by clicking here.
Read the Forbes piece, “The Decline of Los Angeles,” by clicking here.
Summit Considers Constitutional Convention
The main issue many of those who attended the California Constitutional Convention Summit yesterday in Sacramento had on their minds was eliminating the two-thirds vote to pass the budget and raise taxes. That item came up over and over from Lt. Governor John Garamendi to panelists to members of the audience.
Of course, a simple amendment to the constitution can change the two-thirds vote, a constitutional convention is not needed to do that. The question that was not answered at the meeting spearheaded by the Bay Area Council and hosted by a number of organizations: Is there a need for a California constitutional convention?
Presumably, the 400 or so attendees to the conference thought so, or were at least curious about the possibilities. Of course, the meeting was held in Sacramento, which is a “company town” involved with government. There seemed to be a lack of political diversity in the room. However, Bay Area Council president Jim Wunderman promised to extend the exploratory effort and reach out to other parts of the state and other points of view.
Say It Ain’t So, Joe.
Joe Mathews–you can’t possibly believe that without the two-thirds vote requirement to raise taxes, California taxpayers would not be buried under even more taxes than they already are. Just because the state is in difficult shape living under a two-thirds vote requirement doesn’t mean it wouldn’t be in worse shape without it.
Yesterday, Mathews took on my column of last week in which I defended the two-thirds vote against coming challenges. My point was to focus the two-thirds vote argument on raising taxes.
A two-thirds vote for the budget would allow the majority party to set priorities. If this debate were simply about the budget my concern would not be as high. But we all know that the goal to create more programs and grow government can’t simply be accomplished by budget votes. The power to tax is essential to the goal setting and that’s what this debate comes down to.
They’re Coming After the Two-Thirds Vote
In a hallway press conference after the budget deal passed the Senate, President Pro Tem Darrell Steinberg said, “We need to take the two-thirds supermajority to the ballot.”
Steinberg is not the only one declaring the two-thirds vote must be lowered in the shadow the difficult budget debate. Former Senator John Burton said if he is elected to head the state Democratic Party his first priority will be to end the two-thirds vote to pass the budget.
But, those opposed to the two-thirds vote requirement will not just go after the two-thirds vote on the budget. They will also go after the two-thirds vote law to raise taxes.
Consider the budget that was just passed. Those seeking tax increases would still need a two-thirds vote to raise taxes even if there were a majority vote budget rule in place. The majority would not have tried to solve the budget problem without taxes. So the goal is clear. Ultimately, the plan will be to knock down the two-thirds vote to pass taxes.
An Ugly Budget. What Now?
A few quick notes as the budget just passed and undoubtedly will have been signed by Governor Schwarzenegger by the time you read this.
There will be a backlash against the taxes … but not as much as would had occurred if the 12-cent a gallon gas tax was left in the package. This tax would hit people hard. It is good that it is gone.
However, raising the income tax just plays into the problem the state has suffered all along – a tax system heavily reliant on high-end income taxpayers. The tax system is subject to great volatility and raising the income tax only exacerbates the problem.
There were many gains in this package for Republicans, but it will take time for the message to get out to the rank and file. Among the pluses is a spending limit and rainy day fund that should keep year to year spending increases in check. Also, the idea that local school districts will have greater control over money sent from the state was an important victory. A tax credit for small businesses creating jobs is another plus in the package. The question is, who will deliver the message if the party apparatus is focused on the tax increases?
Time for Change Begins Now
With new Republican Senate leadership installed overnight, no one can be certain which way the budget negotiations will go.
Under Dennis Hollingsworth’s new leadership, the Senate Republicans may search for short-term fixes to the budget rather than the 18-month fix included in the current package. Senate President Pro Tem Darrell Steinberg said he is not prepared to renegotiate. And, some Senate Republicans who did not vote for the leadership change may still come around to vote for the budget package on the table. But, even if the current package of cuts and tax increases becomes law, it would only be a temporary fix to a long-term problem.
One principal point that all involved in the budget question should remember is that resolving the budget crisis is only the first step in a long journey to restructure California’s government. Even in the current budget package, taxes and many cuts are temporary. That means that over the course of five years, at most, a government plan for the 21st century must be put in place. Those hoping that the interim will allow the economy to bounce back so we can return to business as usual are making a big mistake.
Abel’s To Do List
Seeking the final Republican senate vote necessary to pass the stalled budget, attention has turned to Senator Abel Maldonado of Santa Maria and what might motivate him to vote for the budget package. Uncharacteristically for the usual way budget negotiations are done, Maldonado did not, to anyone’s knowledge, ask for a benefit for his senate district or a government job for himself or anyone else. Instead, he listed four items he said would improve governance in California.
Abel’s To Do List consists of the following:
- An Open Primary in which voters can choose any candidate running during a primary election regardless of political party.
- Stop paying lawmakers if the budget is not passed on time.
- Ban legislative pay raises and per diem increases in years the state budget is running a deficit.
- Remove pork spending from the current spending package.
Maldonado indicated that while all four measures were important government reforms he was not demanding that all four become part of the budget package.
What’s Plan B?
If the current budget plan fails to pass, what’s Plan B?
First, a word about the taxes in the current proposal. I believe there will be a backlash against the amount of taxes if this measure passes. It happens every time. After Ronald Reagan signed the tax increase at the beginning of his governorship, he was booed for three minutes when he threw out the opening pitch at the Oakland A’s first game of the team’s first season in California. Reagan commented on the booing: “I can certainly hear that a helluva lot of you paid your taxes.”
The one thing that was done differently this time from the Reagan tax hikes is that these taxes are temporary. However, I believe the taxes will slow the economy and will not bring in the anticipated revenues that have been projected.
How Good a Spending Limit?
Throughout the budget negotiations, Republicans were set on achieving a spending limit to prevent the crazy rollercoaster budget ride from paralyzing the state again. Despite fierce opposition from some Democratic legislators, public employee unions, and interest groups that support greater spending, a limit is part of the final package.
Specific details on the limit are not widely known, but someone with knowledge of the negotiations confirmed details of the limit so we can get a sense on how well it might work.
The limit is based on a 10-year revenue trend line. The budget limit for any fiscal year will be set using a mathematical formula that uses data points from the previous 10 years of actual revenues. Any revenues above the limit will be transferred into a rainy day fund. That fund will also receive an annual transfer of three percent of the general fund. Half of that general fund transfer will be used to repay education funding until a $9.2 billion debt is paid off.