Are Big Tax Increases Coming to California?

TaxesGavin Newsom’s election as governor and the expanded Democratic Party majorities in the Legislature have raised hopes in some quarters and fears in others that big tax increases may be on the horizon.

During his campaign for governor last year, Newsom pledged support for a variety of expensive public services, including universal health insurance coverage and universal pre-kindergarten care and education.

His initial budget offered only token appropriations for those and other items on his wish list, but were he to seriously pursue them, they would require tens of billions of dollars in new taxes each year.

Newsom has proposed a new tax on water to pay for cleaning up municipal water supplies in impoverished communities. Several other targeted taxes have also been introduced in the Legislature.

Meanwhile, an initiative has qualified for the 2020 ballot to undo some of Proposition 13’s property tax limits. The measure would create a “split roll,” removing the 2 percent annual cap on increases in assessed valuation for non-residential, non-agricultural commercial property, such as office building and shopping centers.

If passed, it would raise property taxes by perhaps $10 billion a year – a lot of money, certainly, but far short of what the most ambitious service expansions would need. However, the initial polling on the split-roll measure doesn’t bode well for its passage, and the commercial real estate industry has pledged to spend $100 million to defeat it.

The more likely avenue for big tax increases would be some version of tax reform, which Newsom has endorsed in principle.

However, it must contend with the simple fact that we Californians are, in the aggregate, already carrying one of the nation’s highest tax burdens and quite possibly the highest.

The Tax Foundation, a Washington-based organization that charts taxation trends, has California at No. 6 in state and local tax burden as a percentage of personal income, the most accepted method of comparison. It pegs Californians’ burden at 11 percent of personal income.

However, that’s based on 2012 data, so it is seven years out of date, and it does not include all forms of taxation.

A more up-to-date estimate is that California’s state and local governments collect about $325 billion a year in taxes, and that works out to 12.5 percent of personal income, estimated by the state as $2.6 trillion this year, thus putting us very near the top of the states.

So, assuming that Newsom and his fellow Democrats in the Legislature want a bigger tax bite to finance their expansionist ambitions, what form would it take?

Income taxes? They already supply 71 percent of the state’s general fund revenues, half of them are paid by the top 1 percent of taxpayers and California already has the nation’s highest marginal tax rate, 13.3 percent on incomes over $1 million.

Sales taxes? We’re at or near the top in those rates as well, 10 percent in many communities.

Property taxes? That would require not just a split roll for commercial property, but voter permission to virtually repeal Proposition 13’s protections for homes, which polling indicates would be close to impossible.

The real world effect of a big tax increase, moreover, would be magnified by new federal tax laws that sharply limit deductions for state and local taxes, raising the likelihood of a political backlash.

So are we going to see a big tax increase? However much Newsom, et al, might want it, the political lift would be daunting.

This article was originally published by CalMatters.org

How Democrats Plan to Take Over Local Elected Offices Through Redistricting

Democrat DonkeyA new law setting up a redistricting commission in Los Angeles County is the first move by Democrats hoping to take as tight a grip on local elected offices as they have under the capitol dome.

Dan Walters’ Monday column in the Sacramento Bee did an excellent job of dissecting the flaws in Senate Bill 958 authored by Sen. Ricardo Lara and signed into law by Gov. Brown. The statute sets up a 14-member redistricting commission for Los Angeles County with the commission membership reflecting partisan makeup of county voters. As Walters rightly notes, “It’s a recipe for officially bringing party politics into what officially has been, for many decades, nonpartisan local government.” 

Why the move? Because Republicans who have a terrible track record of electing statewide officers, have fewer and fewer representatives in the Legislature and whose percentage of total voters has dropped to an all time low, do pretty well on the local level. Just under half of locally elected officials in county and city government and other local agencies are Republicans.

Local races don’t designate which party a candidate represents. The Republican brand has taken a hit in California. However, when local officials deal with issues, local voters often embrace solutions offered by Republicans and they are elected to office.

How to undercut this trend of Republicans showing strength at the local level? Change the rules of the game and create a system that favors Democrats. That’s what SB958 does. Expect more of the same as Democratic political strategists attempt to choke off the building of a Republican bench, the goal of Republican party state chairman Jim Brulte, who is attempting to rebuild the party from the bottom up.

This piece was originally published by Fox and Hounds Daily

Legislature clings to “gut and amend” powers

TransparencyEven as a measure to end the most egregious offenses waits for voters in November, even as the procedure is discouraged by leadership and even as the move is prohibited by the Legislature’s rules, Assembly Speaker Anthony Rendon will continue to allow bills to be gutted and amended, his staff confirmed.

Gut and amend is a catchall phrase thrown around Sacramento. In general, it means removing all or a substantial part of a bill and replacing it with new provisions that have little or nothing to do with the bill’s original intent, especially after the bill’s shell has passed through a part of the process, like a committee hearing or a vote in one chamber.

Proponents say there are instances when it’s necessary, but detractors say it leads to bad legislation and limits the power of those with an opposing view. The times that irk opponents the most are when a bill is gutted and amended sometimes just hours before a vote.

Members of Rendon’s staff said the Paramount Democrat, who has taken a more soft-handed approach to leadership than some of his predecessors, does not encourage the practice, but leaves legislators to decide how to best handle their legislation.

“There are many situations where a gut and amend may be actually be needed,” said Rendon spokesman John Casey. “Regarding the Speaker’s involvement on the issue, he does not tell members to do anything. They are the masters of their own legislation and are entitled to amend their bills in any way they see fit.”

Senate President Pro Tem Kevin de Leon’s office did not respond to requests for comment, but the Los Angeles Democrat has not opposed gut and amends in the past.

Examples

Proponents of a bill generally care little for how it gets passed as long as it becomes, and remains, law. So the murky gut and amend process is a means to an end for advocates.

For example, last year, the Legislature officially amended a shell with 104 pages of language changes that dissolved 400 redevelopment agencies statewide, which subsidized local development, which advocates of the move said eliminated wasteful and corrupt agencies.

However, right or wrong, the gut and amend circumvented the normal vetting process, critics said.

“SB 107, redevelopment rewrite, may (or not) be a great bill but springing it on final day of session as a budget trailer bill is shabby,” Sacramento Bee columnist Dan Walters tweeted at the time.

A year prior, the Legislature pushed through a 112-page bill limiting school districts’ ability to fund reserves, without even a committee hearing, which Walters called one of the “most pointlessly cynical legislative act(s) of this still-young century.”

And years before that, the Legislature jammed through a bill streamlining the strict environmental review process for local development to pave way for a proposed football stadium in Los Angeles — the shell of the bill required recycling and compost bins in schools — only to have a court later rule part of the measure “unconstitutional.”

And so on.

Rules

Legislative rules in both chambers already prohibit “non-germane” amendments, meaning those amendments that have nothing or little to do with the shell. A prime example waiting in the wings is Democratic Assemblywoman Lorena Gonzalez’s bill to even out when farmworkers are given overtime pay — a measure that died earlier this year but has since been added to a bill originally focused on teachers.

However, the rules can be, and are routinely, waived. Leaders generally like having as many legislative tools as possible at their disposal, and anything that speeds up the process or lacks scrutiny limits the power of the minority to impact in the debate.

Proposition 54, which is to be decided by the voters this November, would, among other things, require the final version of a bill to be in print and made available online for 72 hours prior to a vote.

“The only way to actually fix this problem is by changing the California Constitution,” said Sam Blakeslee, a former Republican legislative leader and proponent of Prop. 54.

But do some deals need to be passed in the eleventh hour?

Prop. 54 would prevent the last-minute gut and amends, but it would also thwart other quickly-passed and negotiated bills that may not qualify as gut and amends, like the 2008 budget deal advocates say staved off bankruptcy.

Democratic political consultant Steven Maviglio argues that Prop. 54 is just another “tool” for special interests to unravel legislative deals at the last second, pointing to the 2008 budget agreement, the 1959 Fair Housing Act, the 2006 climate change bill (AB32) and the 2014 water bond — all voted on without 72 hours notice.

“Let’s not give special interests any more tools to prevent lawmakers from doing the right thing, whether it be unnecessary delays in enacting legislation or ways to demonize the Legislature,” wrote in The Sacramento Bee.

This piece was originally published by CalWatchdog.com

California Gold Miners Score Win Over State

As reported by Dan Walters at the Sacramento Bee:

California’s 21st century gold miners have scored a second major victory over state efforts to restrict – or ban – them from searching for the precious metal in rivers and streams on federally owned land, such as national forests.

On Monday, San Bernardino County Judge Gilbert Ochoa, building on a previous decision by a state appellate court, declared that the state’s moratorium on using suction dredges to sift through gravel had become a de facto ban and thus violated federal mining law, which encourages mining on federal lands.

His ruling was a victory for the Western Mining Alliance, which has battled the moratorium signed into law in 2009 by then-Gov. Arnold Schwarzenegger. While the law allowed …

Read the full story here

Workers’ Comp On The Rise — Again

Sad to read Dan Walter’s item that California once again leads the nation in workers’ compensation costs. It was just a decade ago that the Small Business Action Committee carried the initiative supported by Governor Arnold Schwarzenegger that ultimately brought the warring sides of business and labor to agree to a legislative compromise that brought down the state’s workers’ comp costs.

That measure was adjusted a few years ago under Governor Jerry Brown to insure that injured workers were not deprived of just compensation for on-the-job injuries while still protecting employers’ expenses. Yet, here we are again facing a rising cost that could jeopardize job and economic growth.

The situation is not to the point that it was a decade ago – yet. According to the survey conducted by the Oregon Department of Consumer and Business Affairs, California worker’s comp costs are $3.48 per $100 of payroll. In 2003, the year before the compromise bill was passed, worker’s comp cost $4.81 per $100 of payroll with costs projected to rise to a staggering $6.50 per $100 of payroll by 2006.

The worker’s comp cost burden on business was a huge issue in the recall election that propelled Schwarzenegger into office. It was one of the prime reasons the California Chamber of Commerce chose to end a long-standing policy and endorse in a gubernatorial election, backing Schwarzenegger.

Growing worker’s comp costs brought representatives from other states government business offices flocking to California like vultures in hopes of poaching companies. Full page ads ran in business journals encouraging businesses to relocate, the ads emphasizing lower workers’ compensation costs in those states.

I recall a meeting in the outskirts of the town of Taft in Kern County in a makeshift building that certainly never hosted a political event before stuffed to the rafters with angry business people looking for relief from workers’ compensation costs that were undercutting their businesses.

Are we headed that way again?

The reforms advocated by Governor Brown were intended to get more money to injured workers. But a lot of the workers’ comp funds get sidetracked according to the Workers’ Compensation Action Network, which says that one-third of the money goes to litigation and other costs, not to workers.

Highest in the nation workers’ compensation costs is another measure of why it is so tough to run a business in the Golden State.

Stopping the increased costs must be a concern of the newly elected legislature. If workers’ comp costs climb to a point where they were during the workers’ comp war of ten years ago, another initiative may beckon. With the low turnout in the recent gubernatorial election the amount of signatures needed to qualify an initiative for the ballot has dropped. The necessary signatures to put a workers’ comp reform measure on the ballot would be easier to attain.

This article was originally published on Fox and Hounds Daily