Guide to California tax and budget propositions

Oct. 11, 2012

By Wayne Lusvardi

On Nov. 6, voters face a number of  initiatives on the ballot targeted at California’s endemic budget and tax problems. All promise reforms embraced by both liberals and conservatives.  Some even are being marketed as libertarian reforms.  Here’s a rundown.

Props. 30 and 38 tax increases

Proposition 30 is called, grandly, the Schools and Local Public Safety Protection Act of 2012. And Proposition 38 is called, even more grandly, the Our Children, Our Future: Local Schools and Early Education Investment and Bond Debt Reduction Act.

Prop.  30 is Gov. Jerry Brown’s $8.5 billion income and sales tax increase, purportedly for public schools and police that mainly would tax the “rich.”

Prop.  38 is attorney Molly Munger’s proposed alternative, a $10 billion income tax increase on nearly all income levels except the poor to fund schools and pre-school programs.

Except that public schools have been overfunded the past few years. Some $4 billion was “borrowed” from public education to plug the state budget deficit since 2008.  Despite this loss of funding, no core teachers had to be laid off statewide.  In other words, public schools didn’t need the money.  On top of that, statewide enrollments in public schools have declined 1 percent and are projected to continue to decline.

The $4 billion borrowed from education funds was “internal borrowing,” not bonds.  These borrowings could be paid back in the long run with cost savings by shifting from politically protected “categorical” jobs programs for ancillary school personnel to block grants.

Sure, taxes from either Prop.  30 or 38 will go to public schools. But that would only free up already guaranteed education funds for other programs that are running deficits.  This is called “fungibility”: funds are interchangeable and can be used for education, social services, or road repairs.

School children are only political poster children to fund less popular programs such as Medicaid and public employee pensions. President Obama’s policy of shifting 1.5 million of the unemployed nationwide to Social Security Disability has put a $5 billion hole in California’s general fund budget, by this writer’s estimate.  Brown’s and Munger’s school tax proposals are just false fronts to cover up Obama’s financially ruinous policies to California, along with paltry state pension reform.

Proposition 98 already guarantees public schools about 43 percent of the entire state general fund budget no matter if attendance is declining or they didn’t even need $4 billion over the past few years.  Voters need to be informed that Props. 30 and 38 do not specifically earmark new funds for public schools.

Prop.  31 on the budget

Proposition 31 is called the Government Performance and Accountability Act. It promises five budget reforms:

1. A two-year budget cycle instead of annual budgets;

2. A requirement to identify funding for all legislative bills more than $25 million;

3. Authorization for the governor to declare a fiscal emergency;

4. Authorization for the governor to exercise line-item budget veto;

5. Requires performance budgeting in all state agencies.

The undisclosed problem with all of the above so-called reforms is that they already are on the books or can be implemented without voter approval or a constitutional amendment.   They are just an enticement to entice voters into approving the creation of an unelected new layer of government called Strategic Action Plan Committees — SAPs.

These committees supposedly would be able to relax environmental laws and other regulations to get public projects and programs done more cost effectively.  But then why do we need such phony committees in the first place?  Why not just deregulate the revenue sharing funds that flow from Sacramento to local cities and counties?  What Prop. 31’s Strategic Action Plan Committees are all about is tax sharing between financially strapped big cities and wealthier suburbs.

Let’s look at just the provision in Prop. 31 that funding needs to be identified before passing any bill in the legislature of $25 million or more.  This can be so easily gamed by creating only $24.9 million expenditures, fudging the numbers of spending cuts to afford new programs, using projected revenues that never materialize for new spending programs, and padding expenditure bills so that the governor can appear to reduce them with his veto.

Prop. 31 is a pretense for elites to grab public funds away from local governments for their pet projects and programs.  It would undermine representative government and the cost savings are artificial.

Proposition 39: Interstate protectionism

Proposition  39‘s title seems so wonderful: the Tax Treatment for Multistate Businesses, Clean Energy, and Energy Efficient Funding Initiative Statute.

It is a proposition being funded by another billionaire, “hedge-fund king” Tom Steyer, who has bankrolled it with $20 million.

Prop. 39 is a sort of new version of the Smoot-Hawley Act of the 1930’s that was blamed for triggered the Great Depression. The Smoot-Hawley Act raised U.S. tariffs on imported goods.  Likewise, Prop.  39 will increase taxes on out of state businesses trading with California.  Ballotpedia.com more accurately calls Prop.  39 the “Income Tax Increase for Multistate Businesses Initiative.”

Prop.  39 supposedly would level the playing field between businesses inside and outside of California.  But it would be ripped off by well-connected elites, such as Tom Steyer, to reap a windfall on overpriced alternative energy schemes. This will only add to the cost of higher energy under California’s Cap and Trade program to be rolled out in January 2013.

And it will raise the price of consumer goods from out-of-state suppliers.  So Prop. 39 may close a $1 billion tax “loophole” in “lost” revenues for California.  But this would be offset by increased costs for electricity and consumer goods from other states.

In short, the November election gives voters a choice on how they will structure state finances for years and even decades to come. Let’s hope they choose wisely.