Senate Bill 8 would change the tax code to reduce the reliance on topsy-turvy income tax revenues by adding taxes on services and reducing them on personal income. Here’s a description of it from the LegInfo official site:

California’s two trillion dollar economy has shifted from being mainly agricultural and manufacturing in the 1950s and 1960s, when the framework of today’s tax system was set, to one based on information and services, which now accounts for 80 percent of all economic activities in the state. To achieve a future as promising as California’s past, we need a tax system that is based on this real economy of the 21st century while ensuring that new revenue is invested in strengthening the ladder of mobility for all our residents.

The second, SB155, would better integrate California into the Western region’s electrical grid to promote a more resilient system and show how California’s embrace of more renewable sources of energy can be emulated by other states. There’s no bill analysis available, but the intent is to offer up the Golden State as both a model and a partner for states considering more ambitious renewable mandates.

But the twist is that while Hertzberg’s bills are broadly lauded by an East Coast group, in Sacramento they barely made a wave. Neither has ever been voted on, even at the committee level.

Refining tax code proposed — and rejected — before

It’s not clear why other Democrats in the Legislature are cool to SB155. But the central ideas driving SB8 — that we have an outmoded state tax code that poorly serves residents and the business community — have been around for years. They were the driving force behind a 2009 report issued by the Commission on the 21st Century Economy, a panel set up Gov. Arnold Schwarzenegger whose supporters included both Republican luminaries (former Treasury Secretary George Shultz) and Democratic ones (former Gov. Gray Davis).

The report proposed what commission chairman Gerald Parsky called the world’s first tax code specifically designed to promote economic growth; one that reduced many current taxes while imposing new taxes on a wide range of services. Parsky, a Rancho Santa Fee businessman and high-profile behind-the-scenes Republican player, predicted it would lead to a broad California economic boom even without the regulatory reform that business groups have long wanted.

The private Think Long Committee for California, with a more liberal pedigree, made similar recommendations in 2011. The committee chairman, billionaire businessman Nicolas Berggruen, predicted a smart tax code could yield a wave of vast new funding for K-12 and higher education.

Neither got anywhere. Democrats objected to lowering income taxes on the wealthy, while Republicans objected to adding big new areas of commerce for government to tax.

Hertzberg appears to be finding the same resistance.

By Wayne Lusvardi

Despite regionalization failing miserably in the European Union, California is proposing to adopt it as a tax-sharing policy for distributing state funds to local governments if voters approve Proposition 31 on the November ballot.

Prop. 31 is a combined new law and state constitutional amendment sponsored by the California Forward political action group.  Nicolas Berggruen, a European billionaire, is the biggest sponsor of California Forward with a $1 million donation to the pro-Prop. 31 Campaign.  Berggruen owns the IEC College of vocation schools in California and is a registered Democrat in Florida.  He founded the Council for the Future of Europe, which has proposed “fiscal federalism and coordinated economic policy” to rescue the European Union from its debts.

Regionalism Will SAP Revenues from Suburbs to Cities

Urbanologist Wendell Cox writes that “regionalism” is an emerging policy of the Obama administration, as described in Stanley Kurtz’s new book, “Spreading the Wealth: How Obama is Robbing the Suburbs to Pay for the Cities.” Kurtz is a social anthropologist from Harvard.

Prop. 31 will not result in new regionalized governments. Rather, it will end up in what Cox calls “fiscal regionalism” run by a committee.  The tax-sharing facets of Prop. 31 are:

1. “Granting counties, cities, and schools the authority to develop, through a public process, a Community Strategic Action Plan for advancing community priorities that they cannot achieve by themselves.”
2. “Granting local governments that approve an Action Plan the ability to identify state statutes or regulations that impede progress and a process for crafting a local rule for achieving a state requirement.”
3. “Providing some state funds as an incentive to local governments to develop Action Plans.”
4. “Implement the budget reforms herein using existing resources currently dedicated to the budget processes of the State and its political subdivisions without significant additional funds. Further, establish the Performance and Accountability Trust Fund from existing tax bases and revenues. No provision herein shall require an increase in any taxes or modification of any tax rate or base.”

According to Cox, regionalization strategies are “aimed at transferring tax funding from suburban local governments to larger core area governments.”  The Prop. 31 version of regionalization would not amalgamate city, county, special district and school district governments. Nor would it create new taxes. But it could authorize the state to withhold or divert taxes from local governments unless those governments adopted a “Strategic Action Plan” to distribute the revenues from the suburbs to the large urban cities.

In essence, a Strategic Action Plan, or SAP for short, would sap the wealth out of suburbs. SAPS might also sap the bond ratings from suburban communities.

Governor Would Become “Emergency” Czar

Probably one of the most controversial provisions of Prop. 31 would grant the governor the power to cut or eliminate any existing program during a “fiscal emergency.”  In essence, the governor could usurp local government decisions on where to spend state funds.

Budgets for local public schools, community colleges or cities could be cut at the whim of the governor and the funds diverted elsewhere.  The governor could conceivably use new emergency powers to divert state funds to his choice of regional Strategic Action Plans.

Why Democrats and Unions Oppose Prop. 31

Public unions have historically been concerned about granting the governor broader emergency powers.  On July 11, 1999, the Gov. Gray Davis administration called legislative committee chairpersons to inform them that the governor intended to direct the outcomes of selected funding bills without consulting their authors or the legislature.  The leaders of the legislature at that time — Assembly Speaker Antonio Villaraigosa, D-Los Angeles and Senate President Pro Tem John Burton, D-San Francisco — called Davis’ actions a “totally improper intrusion into the legislative process.” The concern was that Davis was going to kill a bill sought by labor unions to increase workers’ compensation benefits.

This explains why the Democratic Party is currently opposed to Prop. 31 giving the governor emergency powers over the budget. Also, any consolidation or revenue sharing arrangement of local governments might lead to the heads of local unions losing their jobs if absorbed into a larger union.

Why Republican Party Wrongly Endorses Prop. 31

Oddly, the California Republican Party supports Prop. 31. This is because Prop. 31 is being misleadingly advertised as a government budgetary efficiency measure.  But a two-year budget and performance budgeting do not need the approval of voters to be implemented.

Budget analyst John Decker in his book, “California in the Balance: Why Budgets Matter,” draws on an example from the Schwarzenegger administration to explain why a voter initiative is not needed for Prop. 31, except for the tax sharing provisions:

“Amid much fanfare the year after his election, Governor Schwarzenegger announced the results of a year long internal effort to find efficiencies in government known as the California Performance Review.  Though most of the recommendations made could be implemented administratively, few were actually taken in the form proposed.”

Local governments can form “joint powers authorities” in California without Prop. 31 and make their own decisions about revenue sharing.  In an email to this writer about Prop. 31, Wendell Cox stated: “State law permits Joint Powers Authorities and this is all that is needed.”

Tea Party Rightly Opposes Prop. 31 Despite Paranoia

The proponents of Prop. 31 may say that the Tea Party and those opposed to fiscal regionalism are over-reacting to its provisions.  But why are the proponents trying so hard to sell Prop. 31 as a budget reform and government performance measure with little mention of its tax-sharing provisions?

The East Bay Tea Party has more accurately perceived the dangers with Prop. 31 as the creation of a “super” layer of government that cannot be held accountable by local government elections.  Unfortunately, the paranoid Tea Party also fears that Prop. 31 would measure the “performance and accountability” of local governments by United Nations Agenda 21.

No doubt this sort of paranoia reflects the powerlessness and political marginalization of the Tea Party’s members in California. But such paranoia gives the opponents of the Tea Party reasons to discount them as “wing nuts” not to be taken seriously.

California Forward Hides Tax Sharing Part of Prop. 31

California Forward is selling Prop. 31 to the public as “trustworthy, accountable for results, cost-effective, transparent, focused on results, cooperative, closer to the people, supportive of regional job generation, willing to listen, thrifty and prudent.” The touted provisions of Prop. 31 call for a “two-year budget cycle” and for “performance budgeting.” Prop. 31 is officially titled “The Government Performance and Accountability Act.

California Forward makes no mention in its filing or in its official ballot argument in favor of it that Prop. 31 will socialize state revenue sharing.  And the analysis of the California Legislative Analyst is so neutral and narrowly focused that it is does not help the public understand the importance of the tax-sharing aspects. The ballot arguments in favor and against Prop. 31 also ignore that it would socialize local government taxes by regions.

Commentariat Mislead About Prop. 31

It is amazing that California’s journalistic commentariat has, thus far, only been concerned that Prop. 31:

* Is a Trojan horse that would result in “tweaking” environmental regulations;

* Prescribes an “aspirin” instead of “surgery”;

* Is a “virtuous budget reform package that falls short;” but

* Would “restore our state to greatness.”

Wendell Cox is one of the few that has caught the magnitude of the problem of regionalism to our democratic form of government when he wrote, “[D]emocracy is a timeless value. If people lose control of their governments to special interests, then democracy is lost, though the word will still be invoked.”

In an email, Cox further wrote:

“In general, the idea of tax sharing is negative. This breaks the connection between local governments and taxpayers, as tax sharing governments are, by definition, not accountable to the taxpayers of jurisdiction with which they share taxes. Milton Friedman was right in saying something to the effect that people are more careful about with their own money than they are with other people’s money. This would be a very bad step for California, which already is suffering significant ill effects from insufficient fiscal responsibility.” 

Prop. 31 is Ripe for Abuse 

Safires’ Political Dictionary defines “tax sharing” as “collection of revenues by the (state) government, returned directly to the (local) governments without (state) control of expenditures.”  Prop. 31 would go beyond merely returning tax revenues to local governments without controls and conditions attached.  It would be prone to abuse for funding political cronies and political earmarks.

When former President Clinton proposed a form of revenue sharing in an economic stimulus bill, Republicans described it as political pork and successfully blocked it.  But in the California Legislature, the Republican Party no longer has any blocking power.  Prop. 31 would be prone to abuse because there are few checks and balances anymore in California’s new “Fusion Party.”

History indicates bureaucratic agencies have a way of not ending up as policy makers intended. There is no way of knowing whether Prop. 31 would end up as some form of “Tennessee Valley Authority” that would usurp local governments and would be self-perpetuating without any sunset provisions.

Voters on both sides of the political spectrum should be concerned about the implications of Prop. 31.

The following first appeared in City Journal California.

FEB. 2, 2012

By STEVEN GREENHUT

California’s ongoing budgetary and political dysfunction has spawned a host of reformers backed by wealthy donors. The latest scheme, released with much fanfare in late November, is a report produced by the Think Long Committee for California and funded by billionaire Nicolas Berggruen. It’s called “A Blueprint to Renew California,” and it leaves much to be desired.

Most of Think Long’s proposals—the creation of a “citizens’ accountability committee,” additional spending on infrastructure and education, streamlining the environmental-permitting process—are window dressing for the main one: a $10 billion tax increase, imposed through a ballot initiative that would go before voters in 2012. And then, after it gets voters to sign off on the tax hike, the committee (like many in California’s majority party) wants to rein in the voter-initiative process. Berggruen and Think Long believe that the key to renewing California is to raise taxes on almost all Californians. Their plan would make the state’s tax code less progressive by trimming the corporate tax rate and imposing a new sales tax on services. The goal: to provide still more revenue to a state government that’s already bloated and wasteful.

Conventional Thinking

Think Long released its utterly conventional recommendations with a burst of self-congratulation: “At a time when political leaders in both Sacramento and Washington seem hopelessly mired in gridlock, the committee has shown that difficult bipartisan compromise can be reached if politics is set aside and the public interest is put first.” These words might be more persuasive if Think Long weren’t composed of so many politicians who wielded power during the period when California’s budgetary problems became unmanageable. The committee’s members include former governor Gray Davis, bounced from office in the 2003 recall election; former assembly speakers Bob Hertzberg of Los Angeles and Willie Brown of San Francisco; and former state supreme court chief justice Ron George. Other advisors include former governor Arnold Schwarzenegger, current lieutenant governor Gavin Newsom, and Los Angeles mayor Antonio Villaraigosa. Most of these are poster children for what’s wrong with California; they are an unlikely group of saviors.

The report ignores the Golden State’s real problems: excessive government spending and dominance by public-sector unions and other special interests. The closest that Think Long comes to acknowledging them is three perfunctory paragraphs at the report’s end, which cite the pension crisis crushing municipal governments and offer this solution: “We recommend that the governor, legislature and local government officials make it the highest priority to work with public employee unions to find ways to address the long-term costs of pensions and the unfunded liabilities that have already been built up.” That’s as far as it goes.

Prison Costs

Nothing in the report comes close to articulating major reforms that would help the state stretch its dollars. For instance, the nonpartisan Legislative Analyst’s Office recently reported that the cost of incarcerating inmates in California has more than doubled over the past decade, the result not only of court decisions regarding inmates’ health care but also of escalating compensation costs for correctional officers. A braver committee would have considered prison privatization or constraining the influence of the noxious California Correctional Peace Officers’ Association, which resists even modest reforms and holds outsize influence over both parties.

Even soft-pedaling, Think Long provoked the ire of the California Teachers Association. The CTA resents the committee’s proposal to junk Proposition 98—which directs 40 percent of the state’s budget to education from kindergarten through community college—even though the report goes on to propose an extra $5 billion for the schools from other sources.

Every would-be reformer knows that something is wrong with California’s budget and political process. But most have tended to be left of center and have offered ceremonial, symbolic reforms that don’t get to the heart of the state’s problems. Think Long is the latest example, and its “blueprint,” like the work of its many predecessors, is likely to be soon forgotten.