Public Mood on Budget Demands Statewide Reform

by Paul Hogarth on January 30, 2009

Because Governor Schwarzenegger is impotent at brokering a budget, the state will be out of money on February 1st – and will start issuing I.O.U.’s. That means no tax rebates, no financial aid and no other means of assistance. Now we are looking at a statewide special election to get out of this mess. If all we get is more Arnold gimmicks to delay the problem another year, it will be a tragically wasted opportunity. Because now, more than ever, the public is willing to consider tax reform to get us out of the right wing fiscal straitjacket. Beyond the Democrats’ effort to scrap the archaic two-thirds budget rule, legislators must consider placing ballot measures to amend Prop 13 (by exempting commercial property) – and eliminate Prop 218’s onerous requirement that local revenue measures get a two-thirds vote by the electorate. With the recession wreaking havoc on our fiscal health, the public has finally woken up to the horror of right-wing tax policy. For the first – and possibly only – time, voters might approve progressive ways to raise revenue.

Scrapping the Two-Thirds Budget Rule

Liberal bloggers were ecstatic yesterday to report that a new PPIC poll shows a majority of Californians would abolish the two-thirds requirement to pass a state budget. And they should be. Despite California being a solid blue state, Republicans in the state legislature from the Central Valley and Orange County have blocked our budget each and every year – because they adamantly refuse to vote for a single tax increase whatsoever in any way, shape or form. This “tyranny of the minority” has blocked any effort to raise revenue during hard times – forcing the state to make painful cuts and borrow more money.

Specifically, the poll in question showed that a 53-41 majority of likely voters would support lowering the budget vote requirement down to 55%. The Public Policy Institute of California (PPIC) has been asking this question every year since 2005, and it’s the first time that a majority of voters approved this idea. As recently as May 2008, the question failed 39-53, with similar poll results in earlier years. Clearly, a seismic shift in public opinion has occurred.

Getting rid of the “two-thirds” rule is a priority for Democrats in the state legislature, who have tried in vain to forestall this crisis. In a bout of desperation, they finally crafted a manipulation of the tax rules to get around the two-thirds requirement – only to have Schwarzenegger veto it right before Christmas. If the Governor calls a special election, Democrats have said they will place a Proposition on the ballot to abolish the two-thirds requirement.

But it would be a lost opportunity to stop there …

Local Revenue Raising Reform:

Scrapping the “two-thirds rule” would make it easier to pass a state budget, but it would do nothing to solve the perennial revenue crisis that local governments face – a crisis that comes from state law. Prop 218, which passed in 1996, requires all special taxes at the local level to get a two-thirds vote of the electorate. Prop 13 also requires most local tax increases to be on the ballot. So when San Francisco faces a $576 million deficit, these fiscal straitjackets mean requires us to have an election to raise taxes – which is never an attractive prospect.

How in the world would Californians give up their power to raise taxes at the local level? The same PPIC poll asked about lowering the requirement to raise special taxes at the local level from two-thirds to 55% (i.e., amend Prop 218 to make it less draconian.) A majority (50-44) said it was a “good idea,” but the margin was closer among “likely voters.” Prop 218 passed thirteen years ago with little fanfare – because progressives were too distracted by trying to save affirmative action (No on 209), raising the minimum wage (Yes on 210) and supporting medical marijuana (Yes on 215.) Its damage has been catastrophic, but now we have a chance – possibly the only chance ever – to undo it.

Reforming Property Tax Revenue

Would voters also repeal Prop 13? Don’t be silly. The 1978 tax measure that castrated property tax revenue – and spawned the Reagan Revolution across the country – is still popular with Californians, especially long-term homeowners who enjoy the stability of capped increases. But a Field Poll from June 2008 showed they’re open to amending it, and I couldn’t imagine a better time – when public opinion is willing to entertain such measures – to put it on the ballot in the name of rescuing the state.

Prop 13 was billed as saving residential homeowners, but by far its biggest beneficiaries have been corporations who own commercial property. Because commercial property has much lower turnover, they pay much lower property taxes. Imagine, for example, how much more revenue the San Francisco public schools would get if just one building – the Transamerica Pyramid – were exempt from Prop 13. In the same June 2008 poll that showed voters strongly support Prop 13, the idea of “split roll” taxation either got 46-43 support or a whopping 61-27 approval (depending on how the question was asked.)

Progressives like Rob Reiner have been talking about a “split roll” amendment to Prop 13 for years. Now is the moment to finally pass what folks have been saying for years.

For the June special election, San Francisco may put another parcel tax on the ballot – like they did in June 2008 to raise public school teachers’ salaries. I voted for Prop A, but was not thrilled that every homeowner got levied $198-per-year, regardless of the size or value of their property. Which means I will now pay the same amount for my 400 square-foot Tenderloin studio that Dede Wilsey pays for her mansion in Pacific Heights – which is unfair. I’m not against taxing property owners, but let’s have some equity here.

Guess what? San Francisco isn’t allowed to pass a “progressive” parcel tax, because Prop 13 requires them to be “flat.” Rather than repeal Prop 13 entirely, allowing cities to pass parcel taxes that are not regressive sounds like a politically possible solution.

Other Budget Solutions for the Special Election

While structural solutions must be the priority, expect the statewide special election to have a lot of specific revenue measures on the ballot. Schwarzenegger’s fiscally reckless idea to borrow against future lottery revenues is not popular and would fail, but the PPIC poll showed that his alcohol tax proposal would easily pass – and his regressive temporary sales tax is mildly popular. What’s most interesting, however, is that raising the vehicle license fee by $12 would pass 61-37 – and even Republican voters support it by a 7-point margin.

If the Governor wants the special election to be about tax measures (most of which are just quick fixes), Democrats must demand a Proposition to raise income taxes for the wealthy. The PPIC poll showed that idea passing by a 40-point landslide, one of the most popular revenue proposals. Democrats in the legislature tried restoring the upper-income tax bracket to Reagan-Wilson levels last summer, but with the “two-thirds rule” could not muster its passage. And the Governor never supported it – although he gladly repealed a $347/year tax credit for low-income seniors with the stroke of a pen.

If we’re going to raise taxes, let’s do it right. Put a tax measure on the special election ballot to restore the upper-income tax bracket, and see if the voters like that better than Schwarzenegger’s ideas. With the fiscal crisis devastating our state coffers, it’s time for everyone to sacrifice – but let’s demand that those who can afford to pay give their share.

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