It’s Senate Bill 539, by U.S. Senate candidate Kevin de León, a state senator from Los Angeles. The measure would limit the impact on affluent residents of the new $10,000 federal limit on deducting state and local taxes from federal tax returns by sharply increasing an existing tax credit for contributions to a college scholarship program already run by the state.

If SB539 is signed by Brown, families making more than $100,000 – especially homeowners – could potentially save billions of dollars with the new, much higher 75 percent credit. In 2015 – the most recent year for which statistics are available – 6.1 million California tax filers used the state and local tax deduction, with an average of $18,438, according to the Tax Policy Center.

This explains the bipartisan appeal of the measure, which passed the Assembly and Senate with a total of two negative votes – one Republican (state Sen. Jim Nielsen of Fresno) and one Democrat (Assemblyman Jim Frazier of Contra Costa County).

It’s not clear whether Brown will sign the measure. While he called the Republican tax overhaul approved last December “evil in the extreme” at the time it was being considered by Congress, he’s been reported to be skeptical that any state tax avoidance effort would be accepted by the Internal Revenue Service.

That’s the impression the IRS has sought to create since the state and local tax deduction was limited. And last month, the IRS proposed a 15 percent cap on deductibility of certain gifts, including to state programs like the one that would benefit from SB539.

IRS rule could reduce deductions for private tuition

The proposed IRS rule is so broad, however, that Gannett News Service reported on Aug. 24 that it could affect laws allowing for state and local tax credits for charitable contributions in 34 states. In several Republican-dominated states, these credits are available for private school tuition.

This generated a sharp reaction from EdChoice, an Indianapolis-based national nonprofit organization that’s devoted to encouraging alternatives to traditional public schools.

“The IRS chose to adopt a new rule after New York and a few other states who overtax their citizens at the state and local level had the audacity to create federal tax-dodging schemes,” EdChoice told Gannett. “These tax-dodging schemes do not compare in intent or purpose to the charitable programs created years ago to help children access K-12 education where they fit in and can learn.”

Treasury Secretary Steven Mnuchin, however, disputed the idea that the proposed IRS rule would have a heavy impact on donations to private schools and to school choice advocates.

In July, four states – New York, New Jersey, Connecticut and Maryland – sued the federal government over the deduction limit, saying it amounts to unconstitutional “double taxation.” The Tax Foundation says those states and California are the five where taxpayers will face the biggest hit.

But most tax experts think the lawsuit is unlikely to win, given the long-established primacy of Congress in setting tax laws and of the IRS in interpreting them.

California has already sued the Trump administration more than 50 times – but not, so far at least, over the tax deduction change.

Democratic state lawmakers’ interest in pursuing an unprecedented plan to minimize the hit that California’s high-income residents face because of the federal tax overhaul’s $10,000 cap on deductibility of state and local taxes may be losing momentum – undermined by strong warnings from Treasury Secretary Steven Mnuchin, who oversees the Internal Revenue Service, and by a new analysis that says the IRS could easily squelch the maneuver.

Senate President Pro Tem Kevin de Leon, D-Los Angeles, pictured, introduced Senate Bill 227 early this month. It would allow the estimated 6 million Californians who itemize their federal income taxes to effectively continue to write off state and local tax deductions in excess of $10,000 by allowing them to pay their state taxes to a state charitable foundation, the California Excellence Fund.

Tax experts note that states have long allowed tax deductions for charitable donations and say de Leon’s ploy is protected by the fact that tax laws are traditionally subject to stricter interpretation than most federal laws because of concerns that a rogue IRS could target individuals or companies it didn’t like.

Democratic lawmakers embraced de Leon’s proposal, saying the move would allow the 6 million state taxpayers who itemize deductions to save an average of more than $8,000 a year.

Washington Post: California shows how to take on Trump

But after Washington Post coverage of the legislation asserted it could create a “national boilerplate for skirting Trump tax changes,” the Trump administration took notice of what California was up to.

Politico reported that Mnuchin called the proposal in California and similar proposals in other high-tax states “ridiculous.” Mnuchin emphasized that the IRS was allowed to decide what qualifies as an IRS-recognized charity.

“Let me just say again from a Treasury standpoint and IRS, I don’t want to speculate on what people will do, but I think it’s one of the more ridiculous comments to think you can take a real estate tax that you are required to make and dress that up as a charitable contribution,” Mnuchin told reporters at the White House. He described the ploy as an obvious attempt by states “to evade the law.”

Mnuchin’s comments were backed up in a report by the Washington, D.C.-based Tax Foundation.

“This proposal, while interesting, is fairly obviously in violation of existing law and jurisprudence,” wrote veteran tax analyst Jared Walczak. “Just because the IRS has not consistently cracked down on some minor efforts here and there does not mean it would turn a blind eye to a concerted effort to contravene the tax code by providing a contribution in lieu of taxes program.”

Walczak warned state lawmakers that when it comes to de Leon’s Senate Bill 227, the IRS could readily thwart it under precedents that allow it to block deductions for charitable donations if the agency concluded there was no “charitable intent” to the donations.

Given that de Leon and other backers of the bill have openly described it as being designed to reduce Californians’ payments to the U.S. Treasury, lawyers defending the bill if it became law and was rejected by the IRS would face a difficult task: making a plausible case that a “charitable donation” that was undertaken with the goal of reducing an individual’s or family’s tax obligations meets the requirements set by the IRS for allowable charitable deductions.

The latest IRS overview of which deductions are allowed – Publication 526, released in 2016 under the Obama administration – doesn’t seem to allow such self-serving deductions.

It says that for a donation to qualify for a deduction, it must be “made without getting, or expecting to get, anything of equal value. … Qualified organizations include nonprofit groups that are religious, charitable, educational, scientific or literary in purpose, or that work to prevent cruelty to children or animals.”

Senate President Pro Tempore Kevin de León, D-Los Angeles, on Thursday unveiled his plan to allow Californians to skirt the provision of the newly passed federal tax overhaul that caps the state and local tax deduction (SALT), in just the latest effort by Democrats in the Golden State to thwart the Trump agenda in Washington.

Under the plan, state residents could make charitable contributions to a state fund, called the California Excellence Fund, and be able to deduct those payments on their federal taxes. 

The move would decrease the amount of taxes Californians have to pay under the new law, as the deduction for charitable contributions remains uncapped.

“The Republican tax plan gives corporations and hedge-fund managers a trillion-dollar tax cut and expects California taxpayers to foot the bill,” de León said in a statement. “We won’t allow California residents to be the casualty of this disastrous tax scheme.”

In California, the average taxpayer claimed $18,000 in state and local deductions in 2015, according to IRS data. Under the new law, the deduction is capped at $10,000, a provision that hurts high-tax blue states.

The “Protect California Taxpayers Act” essentially allows state taxpayers to reclassify their tax payments as charitable deductions, letting them deduct the entire amount on their federal tax returns.

Additionally, the legislation could serve as a model for other states to circumvent the law. Just recently, Gov. Andrew Cuomo suggested that New York will take its own action, possibly mirroring California’s.

“Washington’s tax plan uses New York and California as piggy banks to finance tax cuts for Republican states,” Cuomo said in his recent annual state of the state address. “We must take dramatic action to save ourselves and preserve our state’s economy.”

While it’s not entirely clear if the proposed law would comport with current IRS guidelines for charitable deductions, similar frameworks, on a smaller scale, have been upheld by the U.S. Supreme Court.

In 2011, the U.S. Supreme Court upheld a tax break for religious schools in Arizona Christian School Tuition Organization v. Winn, ruling that a dollar-for-dollar tax credit that pays for children to go to religious schools cannot be challenged on constitutional grounds.

The High Court found that the plaintiffs did not have standing to bring suit.

And while Congress could simply pass a new law or the IRS could change the rules for charitable deductions, that is unlikely because existing tax credit regimes provide school choice opportunities, an issue popular with Republicans.

“This could end up in extended litigation, perhaps before the U.S. Supreme Court,” tax policy expert Alan Auerbach told KQED. “I don’t think this will be a smooth thing to do.”

For the California state Senate leader, the bill also provides fuel for his primary campaign against longtime incumbent Sen. Dianne Feinstein to show the state’s liberal voters that he’s more equipped to aggressively combat Republicans in Washington.

The influential California Association of Realtors is launching a signature drive for a November 2018 ballot measure that would greatly expand the ability of Californians who are at least 55 years old and disabled people to maintain their low-tax assessments even if they move to other counties or purchase more expensive new homes.

Prop. 13 requires counties to tax properties at 1 percent of their value (plus bonds and other special assessments), which is established at the time of sale. The owners maintain that assessment even if values increase, as they typically do in California. The proposition limits tax hikes to no more than 2 percent a year. Prop. 13 passed overwhelmingly because many people – especially seniors – were being taxed out of their homes as assessments soared during a real-estate boom.

Under current rules, people 55 and older may keep their low assessments if they move within the same county or within one of 11 counties that accept these transfers. They may do so only once in a lifetime. It enables retired people, for instance, to downsize from a big family house to a condominium without paying a stiff tax penalty.

For example, if one purchased a home in 2008 for $350,000 and that home is now worth $750,000, they may continue paying taxes at the lower assessed value even after they sell the home and purchase a smaller one. The valuation goes with them. But the newly purchased property must have a market value the same or lower than the house that has been sold.

The Realtors’ proposal would, for seniors and the disabled, tie the assessed value of any newly purchased home to the assessed value of the old home. They would be free to take that assessment with them to any of the state’s 58 counties. They could carry it with them as many times as they choose. The reduced assessments would apply even for people who purchase home with market values above the ones that they sold.

As the nonpartisan Legislative Analyst’s Office explains, if the new and prior homes have the same market values (based on sales and purchase prices), the new tax valuation would be the same as the old one. A fairly complex formula would determine the tax rate for purchases that were either higher or lower than the sales price of the prior home.

The initiative addresses a problem faced by many empty-nesters. They are living in large homes where they raised their families and would like to downsize – but to do so would mean a huge tax hit given that their new tax rate would be tied to the purchase price of the new property. In the preponderance of situations, the new purchase price for even a smaller house would be far higher than the price that the seniors paid for the homes where they currently live.

The Orange County Register reports that, if passed, the initiative could spur an additional 40,000 home sales a year. Supporters say that could ease up tight housing markets, but foes argue that the Realtors have an interest in spurring more home sales. County governments – backed by LAO projections – say that it eventually will cost them as much as much as $1 billion a year.

“By further reducing the increase in property taxes that typically accompanies home purchases by older homeowners, the measure would reduce property tax revenues for local governments,” according to that LAO analysis. “Additional property taxes created by an increase in home sales would partially offset those losses, but on net property taxes would decrease.”

The Howard Jarvis Taxpayers Association, which defends the legacy of Prop. 13, disputes the idea of large tax losses, given that younger couples would move in to the homes that older people sell, and they would pay property taxes based on the new market value. In other words, an older couple will sell a house and keep their lower tax rate.

“We believe upward portability makes a lot of sense especially as property values across California continue to rebound,” said HJTA president Jon Coupal in a statement. The statement says he believes the measure would “help California alleviate its current housing crisis by removing a financial barrier that keeps many older homeowners from selling their homes, and many millennials from entering the housing market.”

The Realtors’ association had submitted three different potential measures, including one that would expand portability for people of all ages. But the final measure applies only to seniors and disabled persons. As the saying goes, the best defense is a good offense. Supporters of Prop. 13 have learned that the best way to protect it might be by trying to expand it.

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

The latest comes in a special investigation report published last week by the State Personnel Board, an agency charged with enforcing California’s civil-service-related statutes. The report, prompted by anonymous complaints about the BOE’s hiring practices, found that the agency “has a large number of employees who have personal relationships with other BOE employees and work in the same department or division.”

The findings could lead to the dismissal of three state employees. It also poses deep challenges for the agency and its successors. Approximately 90 percent of the BOE’s 4,767 employees will continue doing their existing jobs under the auspices of a new Department of Tax and Fee Administration, which handles tax collections, and a new Office of Administrative Hearings, which will adjudicate tax disputes between businesses and the state.

The State Personnel Board’s survey found that 835 of these employees – comprising 17.5 percent of the former BOE’s work force – have “personal relationships” with other staff members. The board defined such relationships as “associations with individuals by blood, adoption, marriage, registered domestic partnerships or cohabitation.” The survey, the personnel board cautioned, did not capture the entire workforce, so that percentage could be higher or lower.

The numbers don’t tell the entire story, however. The report detailed several specific examples that were investigated as part of the audit, and which provide details about how such questionable hiring takes place.

In one investigated case, auditors looked at allegations that a tax consultant expert in BOE member George Runner’s office “used his position of influence to encourage the hiring of his son.” The son later voluntarily resigned the position. The report argued that “employees acted in bad faith by not intending to observe the spirit and intent of civil service laws” because the hire apparently “was the result of preselection.”

In another investigated case, the personnel audit found that the daughter of an assemblyman was allowed to submit an application for a public-information officer position even though her application was submitted after the deadline had passed. It stated that Board of Equalization Member Jerome Horton and his chief of staff had pushed for the daughter’s hiring even though “she received the lowest rating for the interview by both interview panel members.”

The Sacramento Bee identified the assemblyman as Jim Cooper, D-Elk Grove. The audit argued that the appointment was not made in good faith and called for “corrective action.” Horton told the newspaper that he was simply trying to assure that the assemblyman’s daughter was treated fairly – and didn’t learn of the hire until after the fact.

In a third case, the audit argued that the “voluntary demotion of an employee” from an information-officer position in the Sacramento office to an office technician in the New York office was improper. The report states that “the evidence overwhelmingly supports a finding” that the person’s transfer “violated civil service merit principles and the law.” That case involved BOE Member Diane Harkey and her office. The report called for the employee’s dismissal.

In yet another instance, the report found that a job applicant, whose spouse also worked for BOE, was hired for a position even though he had “not waited the requisite six months between exams.” The audit called for his appointment to be voided.

The report pointed to the significance of these specific incidents. Officials “observed that the culture of BOE was one in which board members and their staff and executives were perceived as having significant influence and power over civil service personal matters” and that “favoritism or perceived favoritism toward employees having personal relationships with other employees had a dispiriting and stressful impact on overall employee morale.”

The State Personnel Board report also found that the BOE engaged in a hiring rush right before the governor’s pension-reform law went into effect, as the Bee explained. The “findings identified deficiencies in 23 of the 27 recruitment packages reviewed” and deemed those 23 appointments to be “unlawful” for a variety of reasons, according to the report.

The new California Department of Tax and Fee Administration prohibits nepotism, which it describes as “favoritism by those with power or influence to appoint, employ, promote, advance or advocate for relatives or persons with whom they have personal relationship.” It states that this situation “is antithetical to merit-based personnel system.”

The rules are clear. And the report offers several specific correctives. The big question now is how the state will handle the broader matter – that such a large number of employees in its tax bureaus have “personal relationships” with other employees.

In his November 13 letter to the State Personnel Board, the tax agency’s director Nick Maduros largely concurred with the report’s findings, but said the agency is working on developing a “more complete and accurate picture of the extent of employee personal relationships moving forward.” He will work with the state human resources agency, CalHR, “to develop a corrective action plan” for relationships that run afoul of the new anti-nepotism policy.

In the meantime, the personnel board’s executive officer, Suzanne Ambrose, told the Bee that she expects more anonymous tips from other state agencies. This could be just the tip of a broad state-governmental scandal that goes much deeper than the dealings of a now-gutted tax agency.

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

The current MID – which allows taxpayers to deduct interest on up to the first $1 million of mortgage debt – has been a boon to the state’s homeowners. The median price of a California home is home nearly $510,000, according to Zillow. In Los Angeles County and Orange County, it’s even more: $574,400 and $691,600, respectively. However, the median price in the booming Inland Empire remains significantly lower: $347,700 for Riverside County and $314,000 for San Bernardino County.

The state and local tax deduction disproportionately benefits those with higher incomes in states with higher tax burdens. According to the Tax Foundation, with an average gross income (AGI) of $73,938, 33.9 percent of filers in California take advantage of the deduction, which amounts to almost 8 percent of AGI.

Meanwhile, the median value of this deduction is less than 4.5 percent, and, per the Tax Foundation, California, New York, New Jersey, Illinois, Texas and Pennsylvania “claim more than half of the value of all state and local tax deductions nationwide.”

As to be expected, many of California’s political representatives have chimed in. Here are a few of their responses:

Jerry Brown penned a letter to Rep. Darrell Issa, R-Vista: “I implore you to vote NO or to ask for more time so that Californians can have a chance to find out about the real impact of this proposal. Getting rid of an individual’s ability to deduct his or her California taxes is a horrible idea, but it is made far worse when you preserve – at the same time – the right of corporations to take those same deductions. Can you tell me how much your neighbors and fellow citizens will have to pay because of this proposal?”

Darrell Issa defended himself and the GOP plan in a letter of his own: “It seemed only fitting to take this opportunity to highlight your expertise on – as your letter states – ‘horrible ideas’ on tax policy. I recognize the role of the state and local tax deduction to reduce the tax burden on many Californians, but let’s be clear: it has only become of such importance as a direct result of the tremendous weight that your misguided policies have put on California taxpayers.” Issa concluded, “Rather than sending contrived letters pretending to care about the burdens placed on taxpayers in our state, I implore you to turn away from the era of ever-increasing taxes that have continued under your administration and instead seek policies that actually lower the tax burden on all Californians.”

House Majority Leader Kevin McCarthy, R-Bakersfield, defended the plan: “Today, we moved closer to enacting reform that will encourage American companies to bring American jobs back to American towns, allow people to spend minutes, not days, doing their taxes, and help increase wages by $4,000 for the average family because of faster economic growth. We’re moving forward at a fast pace because America has so much to gain when we get this done.”

House Minority Leader Nancy Pelosi, D-San Francisco, in a press release published on Halloween, stated, “The GOP plan to double tax middle class families’ incomes shows the fundamental rottenness at the core of their tax bill. Middle class families get tricked, billionaires get treats. Republicans should abandon their broken middle-class tax hike bill, and work with the Democrats for real bipartisan tax reform that puts the middle class first and delivers A Better Deal to the American people.”

Rep. Ted Lieu, D-Torrance, decried, “The GOP tax plan is absurd. Their proposal to eliminate the state and local tax deduction will lead to a massive tax hike for middle class families in California.” He also “double dare[d]” the state’s moderate Republicans – who “should know better” – to vote for “this ridiculous tax plan.”

It’s no secret that the state’s legislative leadership is less than thrilled about an open-government initiative that California voters passed in the November election, and are doing what they can to undermine its clear intent.

Yet, it’s a testament to the measure’s importance that the Legislature painstakingly followed its dictates as they passed last week a controversial bill to increase gas taxes and vehicle-license fees to fund $52.4 billion in transportation upgrades over the next decade.

Had they not followed the timelines detailed in the measure, the transportation bill would be subject to legal challenge. That reality showcases the “teeth” in Proposition 54, which passed statewide with 65 percent of the vote – and even had the rare virtue of receiving voter approval in every one of California’s 58 counties.

The proposition is simple, though arcane sounding. It mainly requires that all bills be printed in final form – and published online –72 hours prior to a final vote in either house of the Legislature. Good-government reformers had for years tried to get the Legislature to approve such a measure, but were consistently stymied.

That’s because legislators love to rush through those “gut and amend” measures at the last moments of a legislative session. That’s when the guts of a bill are stripped away and an entirely new piece of legislation is dropped into its shell. In these rush situations, most legislators are unaware of the details of what they are voting on and the public and media can’t see what’s in the bills. This situation breeds cynicism and contempt for the legislative process.

By contrast, the vote over Senate Bill 1, the transportation measure, was a model of openness, according to many observers. As observers have noted, there’s plenty of reason for criticism of the bill and other parts of the process – the size of the tax increases, the pork-barrel projects, the lack of reforms for current transportation programs – but there’s no doubt the voter-approved proposition made it easier to see what was in it, warts and all.

Prior to SB 1’s passage, an ideologically diverse group of Prop. 54 supporters, including the Howard Jarvis Taxpayers Association and California Common Cause, sent a letter to legislative leaders expressing their “concerns with the Legislature’s implementation to date, which could inadvertently result in the invalidation of bills that the Legislature wishes to pass.”

The bill seemed like a warning: The Legislature better follow the details of Prop. 54 in its consideration of SB 1 or potentially face legal efforts to overturn the measure if it passes. Indeed, the Legislature reportedly followed the 72-hour rule with nine minutes to spare.

But the warning was timely. As the San Francisco Chronicle’s John Diaz explained in an April 7 editorial, “Of particular concern was the Assembly’s attempt to interpret the 72-hour rule more narrowly than was presented to voters.” Assembly leaders interpreted the measure – which its authors say applies to all bills – “only to bills that had previously passed the Senate and were on their last stop before the governor.” That interpretation could eventually be challenged in court.

As the letter writers explained, “Each member of the Legislature is constitutionally guaranteed the right to have at least 72 hours to review the final version of any bill prior to a floor vote, regardless of the bill’s house of origin, and your constituents have the same right. We believe the Legislature’s rules should unambiguously reflect that right.”

The proposition also allows the public to record public meetings and requires the Legislature, beginning in 2018, to post videos of all such meetings online within 24 hours. The letter argues that the Legislature, however, is improperly adopting rules regarding such recordings.

“If the Legislature wishes to regulate the placement and use of recording or broadcasting equipment, it must adopt those rules in compliance with the Constitution’s requirements: that is, by a two-thirds vote concurring in each house, or by statute,” the signers explained.

As Diaz argued, the Legislature had for years “rejected any and all such reforms.” Supporters of the status quo had maintained imposing these “sunshine” rules would restrict the ability of legislators to get things done. But with the passage of SB 1, the Legislature passed one of its major and controversial priorities, despite having to operate with a new level of openness.

Legislators still are resisting the new rules, but they face grave risks if they push their recalcitrance too far. “If the Legislature does not adopt rules consistent with Proposition 54, there is a risk that the Legislature may schedule votes in violation of the Constitution’s 72-hour notice requirements,” according to the coalition letter. “Any such vote for passage will be invalid, and that bill will be ineligible to become a law.”

Ultimately, the Legislature understood what was at risk, which is why they apparently didn’t take any chances with their transportation bill.

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

Some Californians have long complained of their state’s status as a so-called “donor state” — one that sends more money to Washington than it receives. But as political tensions with the White House have heated up, and some federal funding put in play, at least rhetorically, analysts have crunched the numbers, shedding fresh light on the relationship between Sacramento and the nation’s capital. 

Hard to untangle

California’s Legislative Analyst’s Office, an independent body, “has pored over the data to calculate a number that is the monetary essence of California’s relationship with the United States,” the Los Angeles Times noted. “And what a number it is: The federal government spends some $367.8 billion a year on California. That’s an average of about $9,500 for every woman, man and child in the state.”

“In truth, the money isn’t spread out evenly. About 56 cents of every federal dollar spent in California, according to the analysis, goes to health or retirement benefits — Social Security, Medicare and money for low-income residents’ health care through the Medi-Cal program. Defense contracts are the next biggest slice of the pie, followed by paychecks to military and civilian government employees. From there, federal spending gets sprinkled among a number of programs run by the state government.”

The question of what Californians put in, however, has grown complicated over time. “Part of the difficulty stems from the tangled web of money that flows between individuals, the state and the federal government,” as the New York Times observed. “Perhaps the most cited figure comes from the Tax Foundation, a conservative group that found Californians got back about 78 cents in services per federal tax dollar paid in 2005. Other tallies have been higher: between 91 cents and $1.06 on the dollar, according to the Times. 

Limited authority

Although the widening political gulf between the White House and leading California Democrats spurred the interest in recalculating what taxpayers receive, experts have cautioned that even a battle of wills with Washington won’t likely result in a freeze on federal cash. “Key court decisions restrain the federal government’s ability to put coercive strings on funding,” the Sacramento Bee recalled. “Some Republican as well as all Democratic lawmakers would object on behalf of their California constituents. And with upward of $67 billion in federal grants being funneled to the state annually, picking and choosing would quickly get complicated.”

“The Supreme Court, for one, has at times been skeptical about the federal government attaching conditions to funding. In a much-discussed 2012 decision on the Affordable Care Act, Chief Justice John Roberts Jr. wrote that the law had gone too far when it effectively threatened states with losing federal Medicaid funding if they didn’t expand their Medicaid programs to low-income adults.”

Sizing up cutbacks

At the same time, however, the prospect of additional federal grants in at least one controversial area have come under attack from within the state itself. “In a letter to Transportation Secretary Elaine Chao, California’s 14 Republican members of Congress asked that the administration block $650 million in federal grants the state wants to use to electrify a portion of commuter rail that runs between San Francisco and San Jose,” The Hill reported. “Republicans said the money, which would come on top of more than $3.5 billion in federal funding already granted for construction costs, would be wasted.” 

“The Obama administration provided billions in grant funding through the 2009 stimulus package and an omnibus appropriations measure in 2010,” the site noted. “California voters approved a nearly $10 billion bond to fund the project in 2008. But since the high-speed rail system was first proposed, costs have ballooned, from about $33 billion to more than $60 billion.”

Republicans have also eyed another place to pare back politicized funds. “Rep. Duncan Hunter, R-Alpine, won’t request federal funds in the coming fiscal year for states, cities and universities that have a policy to not comply with enforcement of federal immigration laws,” according to a statement cited by the Los Angeles Times.

“California lawmakers approved a health plan tax package Monday designed to continue pulling in more than a billion dollars in matching federal money, while committing several hundred million dollars to services for the developmentally disabled, debt relief and other programs,” the Sacramento Bee reported. “The final deal includes tax offsets designed to minimize any hit to health plans that could be passed on to consumers. In addition, to achieve enough Republican support, the package includes several components Republican lawmakers wanted, such as providing more money to help people with autism and other developmental disabilities and forgiving a budget debt owed by skilled-nursing facilities.”

By shifting the balance of taxes, lawmakers ensured that California’s own budget was not hit with a billion-dollar deficit. No money was allocated to make up that difference if a deal was not reached and federal funds dried up. For that reason, Gov. Jerry Brown all but hounded elected officials to hammer out a bargain. Brown “called a special session on health care last year, tasking lawmakers with finding a long-term solution for funding Medi-Cal so the program doesn’t rely so heavily on the general fund, which pays for most state services,” recalled the San Francisco Chronicle. “One of the key priorities was to expand the state’s tax on managed-care organizations — a tax that the Obama administration said did not comply with federal law.”

Winning support

The political brambles could not be cleared until Republicans felt a deal was appropriately structured given the state’s current budget surplus. Assembly Minority Leader Chad Mayes, R-Yucca Valley, who worked with Brown to negotiate the package, said that “as a whole [it] would be a tax cut – and it also includes several GOP priorities, like paying down debt,” as Capital Public Radio paraphrased his position. “Republicans who support the bill will have some political cover,” the station added, noting the Howard Jarvis Taxpayers Association and the state Chamber of Commerce “both say the governor’s proposal would not result in a net tax increase.”

Providers of private health insurance plans, which initially balked as well, acquiesced to the deal because lawmakers pared back their tax burdens elsewhere in order to make up for what they will now have to pay. As the Chronicle noted, “plans that don’t accept Medi-Cal patients would pay the additional tax, but the state would reduce their corporation and insurance tax liability by $371 million so that the plans will not raise patient premiums. The overall effect is a net increase to the plans, state Senate senior policy staff said. With the change, health plans now support the proposal.”

Cautious optimism

Amid an acrimonious presidential campaign season defined by sharp accusations of political breakdown in Washington, both state parties in California have used the tax deal to claim a measure of political victory. While Mayes cast Republicans as strong negotiators who kept taxes in check, state Senate President Pro Tem Kevin de León, D-Los Angeles, contrasted Sacramento’s performance with the “severe dysfunction in Washington,” according to the San Jose Mercury News. “Here in California, we’re proving that Republicans and Democrats — no matter how difficult the issue may be — can work together and get things done.”

Still, even with Gov. Brown’s signature, one more hurdle remains before legislators can pop the champagne. “Once the governor signs the package,” the Bee cautioned, “state officials must sell the health plan tax to the Obama administration, which will have the final say on whether the state’s approach is eligible for federal matching money.”