Author: Joel Fox

I was intending to write something lighthearted as my last entry for Fox and Hounds in 2008. (F&H will not publish again until January 5, 2009.) But then I read that the California Teachers Association has filed an initiative to raise the sales tax. And another initiative has been filed, I assume by the same group, to lower the vote requirement to raise many other taxes. (You can find the initiatives on the Attorney General’s site numbered 08-0021 thru 08-0023.)

Of course, we have the call for permanent tax increases to solve the growing budget deficit. And, then there is the report by the Department of Finance, as reported in the Los Angeles Times, that for the fourth year in a row more people are moving out of California than are moving in. Read that as taxpayers are leaving.

If all these tax measures are successful, expect the exodus to continue.

California is going to be governed from the courtroom. November’s most controversial ballot measure, Proposition 8 on gay marriage, is court-bound. And, the legislature’s Democrats have offered up a complex approach to raise revenue in an attempt to sidestep the state’s standard operating procedure. If this maneuver gets the governor’s signature, the courts will be rendering a verdict on this as well.

Of course, it’s not uncommon for courts to decide the fate of laws. But in both the Prop 8 and tax law cases it appears judges will be going beyond the role of umpire in precedent setting ways.

In the Proposition 8 case, Attorney General Jerry Brown has taken the unusual position of declaring he will not defend the law passed by the voters, but argues that Proposition 8 is in conflict with “inalienable rights” which cannot be altered by an initiative constitutional amendment.

This argument will bring the judges into the long debated issue of natural rights versus legal rights. Natural rights are not based on laws, customs or political beliefs. Thomas Jefferson, in the Declaration of Independence, asserted that a people coming together to govern themselves may do so under the “Laws of Nature and of Nature’s God.” These natural laws cannot be set aside by civic action.

‘When I use a word,’ Humpty Dumpty said, in a rather scornful tone,’ it means just what I choose it to mean, neither more nor less.’—Alice in Wonderland

Democratic leaders (and their lawyers) think they have cleverly found ways around the budget impasse. Like a sideshow magician, they have crafted slight-of-hand maneuvers to increase sales and income taxes, which they claim are not tax increases at all. They order up an oil severance tax, something rejected not too long ago by the voters. And, they declare taxes on gasoline to be fees so that they can raise those fees by a majority vote.

Wouldn’t life be simpler if we could decide the meanings of words for our own convenience? Then no one would have to play by the rules because everybody would constantly be changing the rules to serve their own purposes. That is what the Democrats are attempting to do by changing the nomenclature of taxes to fees.

The authors of this plan claim they can justify the changes under the law. Their explanations stretch the law like silly putty to fit their needs. We’ll see if a court supports their logic. I doubt it.

However, if courts allow this trickery to proceed then two can play this dangerous game.

The state constitution in Article II, Section 9 prohibits the use of the referendum process for, among a list of items, “statutes providing for tax levies.” This section of the constitution says nothing about fees. If the Democrats say there is a difference between taxes and fees, then clearly a referendum can be mounted to reject a statute containing fees.

The Democrats should remember what happened to Humpty Dumpty.

Not even Republicans in the legislature believe the budget proposal they laid out for inspection yesterday will be implemented. Still, the plan has merit in showing where government has grown and combating the idea that automatic budget growth should be expected in these difficult times. In fact, freezing budget outlays to current levels make sense in a fiscal crisis.

What attracted my attention in the proposal was the revenue side, particularly the suggestion to move $6 billion out of quarantined funds for mental health programs and early childhood development. These funds came about because voters passed two ballot measures. Proposition 10 in 1998 raised cigarette taxes for the childhood programs. Proposition 63 in 2004 added a surcharge on high-end income taxpayers to pay for mental health programs.

I worked on the campaigns to defeat both measures, obviously unsuccessfully. To re-direct these funds to general fund purposes will require a vote of the people since it was a vote of the people that established these taxes and their special purposes in the first place.

One of the main sticking points in the discussions over a budget solution is whether California will adopt a tougher spending cap. The Republicans insist the spending cap is part of the deal. They have argued for years that excessive and automatic spending is greatly responsible for the continued budget deficits the state has struggled with over the years and only the discipline of a spending cap can reverse that trend.

The Democrats have no interest in a spending cap. They argue that a rigid spending cap will prohibit the state from responding to changing needs of the people.

Politically, Republicans are concerned that since Democrats are so adamantly opposed to a spending limit measure, even if the Democrats agree to putting such a measure on a future ballot in exchange for tax increases, the Democrats and their allies will go all out to defeat it when the proposition comes before voters. In this scenario, the tax increase bartered for the ballot measure will already be in place. (The spending cap would be a constitutional change and therefore would require approval of the voters.)

Given the set-in-stone attitudes on both sides, there has been no movement on this important issue.

Another state tax commission has been launched. Will it burn up on re-entry like so many commissions before it? I know something about tax and fiscal commissions. I have served on three and I was an informal consultant to another. All of them turned out to be merely academic exercises.

Reports were delivered and ended up on the shelf or as doorstops. The legislature often didn’t hold hearings, or perhaps, had a courtesy hearing before filing the report away. The commission I worked with as informal consultant was appointed by Governor Davis and delivered its findings on the day Governor Schwarzenegger was sworn in after the Recall. Timing is everything. The others suffered only slightly better fates, but in the end all recommendations were ignored.

President Pro Tem Darrell Steinberg promised at the press conference announcing the names of the 12 commissioners that there would be “no dusty shelf reports.” I hope he’s right. The California tax system can use some updating. If the commissioners are true to their mandate to smooth out the boom and bust cycles generated by the current state tax structure without looking for ways to raise taxes, they can perform a great service to the taxpayers.

There was not a lot of new information on California’s dire fiscal crisis laid out by speakers before an unusual joint session of the legislature yesterday. And from the questions from the floor to Treasurer Bill Lockyer, Controller John Chiang, Finance Department head Mike Genest and Legislative Analyst Mac Taylor, there seemed to be little give in the partisan divide on how to solve the problem.

So where do we go from here?

If the four speakers’ unified message is correct, and no one challenged the numbers directly, then where the state goes from here is down, down, down.

Lockyer probably made the most news revealing that, in less than ten days, he is prepared to cut off funding for infrastructure improvements like roads and highways. Chiang talked about the state’s lack of ability to borrow and the need to pay vendors with IOUs by the Spring. Taylor pointed out that solving the deficit problem by increasing sales, income and corporate taxes would make all three categories of taxation the highest in the nation.

Government reform is the theme practically everyone who runs for office uses. But, when someone who spends his work-a-day life striving for government reform gets elected that person is someone to watch. Carl DeMaio our eyes are on you.

DeMaio is a new member of the San Diego City Council. He made the art of government reform his business. DeMaio founded the non-partisan Performance Institute as a think tank dedicated to reforming government through the principles of performance, transparency, competition and accountability. One of the first to warn San Diego officials of a pending city financial disaster, DeMaio created the San Diego Citizen’s Budget Project to examine the city’s financial outlook and improve the city’s service delivery.

Now DeMaio has a chance to practice what he preaches as a member of the City Council. Being one of eight council members and having to deal with the city bureaucracy as well as the executive branch doesn’t insure success. But, DeMaio apparently is intent on making changes by leading by example.

The new Public Policy Institute (PPIC) poll is out and I’m sure there will be extensive analysis of the numbers in the presidential race and the gay marriage measure, Proposition 8. Unlike most other commentators, however, I want to spend one last moment on Prop1A, the high-speed rail bond.

I know what you’re thinking. Get over it. You lost. But, I keep hearing from California political experts and even some tune-in-to-politics-a week-before-the-election types asking the same question: How did a $10-billion bond measure on railroads pass with the state running a massive deficit?

I guess I fall into the same obtuse category of political observation with the legendary film critic Pauline Kael, who supposedly said of Richard Nixon’s landslide victory over George McGovern, “How could that be? I don’t know anybody who voted for him?”