Los Angeles Laboratory for Local Tax Increases

taxesIn the primary election this month 89 local taxes and bonds faced voters. The total is expected to increase in November. In some jurisdictions voters likely will face multiple tax increases dedicated for different purposes.

Los Angeles is a prime example.

Today, the transportation agency known as Metro is considering a half-cent sales tax to fund transportation projects. Los Angeles already has a sales tax for transportation but it has an end date approaching. No end date on the new tax proposal. In a change of tactics, Metro leaders decided to extend the sales tax on a permanent basis.

Los Angeles city residents will probably also face a bond or parcel taxes to fund homeless remedies. The city council plans to move both measures forward, making the final decision on which mechanism to advance to the ballot once council members can further “study” the issue.

Consider that shorthand for which version polls better.

In fact, polling already seems to be moving the decision makers to consider a bond to benefit the homeless. Voters often look at bonds as free money, not realizing that they are funded by property tax increases. Polling shows greater acceptance for bonds than parcel taxes, which have the dreaded “tax” word attached.

In reality, a $1 billion bond would cost twice as much as the $1 billion parcel tax program because of the interest to pay the bond. Parcel taxes have their own issues that could upset a campaign to achieve the necessary two-thirds voter for passage, the same mark bonds must hit. Would a parcel tax be levied per parcel or per square footage? Square foot charges are aimed at collecting more revenue from larger, commercial properties, which likely would open the door for an opposition campaign funded by business. In addition, a square footage tax may be challenged as unconstitutional.

Despite the economics of the more expensive bond proposal, the politics favor pursuing that approach.

Meanwhile, Los Angeles County is considering a parcel tax for parks. The county also considered raising an income tax for the homeless but that plan has sputtered. It required state approval which it did not get. The parks proposal would more than double revenue now brought in by the property assessments that currently help fund county parks. Again, business is opposed to the square foot method and has informed county supervisors that so many, varied tax measures cannot be justified.

In addition to local taxes, voters will face statewide tax measures on the ballot. The $2 a pack cigarette tax increase and the Proposition 30 income tax extension initiatives are both expected to be on the ballot. And, let’s not forget that the marijuana legalization measure has a tax attached to the growth and sale of cannabis.

Analysts wonder how voters will react to an onslaught of taxes. The question is particularly of concern in localities like Los Angeles if all the taxes are placed on the ballot. Many of the local taxes and bonds, unlike the state measures, require a two-thirds vote to pass.

My guess is that multiple tax measures will benefit opponents who need just over one-third of the vote to defeat most tax measures.

ditor of Fox & Hounds and president of the Small Business Action Committee.

This piece was originally published by Fox and Hounds Daily

Cap-and-Trade, Cigarette Tax and the Tale of Dwindling Funds

SmokingCalifornia’s cap and trade program and cigarette tax increases have something in common — the more they encourage behavioral changes in reducing greenhouse gas emissions and smoking, the less revenue they bring in. If the goal is to reduce the pollutants and the smoke then the programs can claim some success. But, these programs also appear to be about the money.

While the Legislature considered ways to divvy up the current cache of cap and trade money, tremors were felt through the system when the May cap and trade auction sold only 11 percent of the permits offered to business and fell far short of the expected revenues.

The cap and trade program is designed for companies to cap greenhouse gases or purchase permits at auction or traded in the market.

What happens if the polluting companies achieve the goal of reducing greenhouse gases and do not need permits? As Stanford economist Frank Wolak told the Los Angeles Times in a comprehensive article on the cap and trade issue, “To the extent that not all the permits are being sold, that is a success of the program.”

But not necessarily a positive to those who want to spend the money that come from the cap and trade auctions.

Chief among them is Gov. Jerry Brown. He needs the money to bolster his bullet train project, which is not capturing the revenues it needs to meet its enormous cost. Other programs designed to reduce climate change are also dependent on money from cap and trade. If greenhouse gases are reduced and there is no need to spend on permits, money is not available for the train or other projects.

There is a similar story when cigarette taxes are raised. Programs are funded with the expected revenue but when the increased taxes turn off smokers from purchasing cigarettes (that’s part of the plan we are told by advocates) the money dries up liked cured tobacco leaves.

Cigarette purchases are down and so is the revenue. The fund that pays the First 5 commissions has seen state revenue from the cigarette tax drop about $150 million annually since its peak. Now there is an initiative bid for an additional cigarette tax. The measure’s proponents recognized the potential for revenue decreases if the tax passes. In the measure, they wrote that if the new tax causes reduced tobacco consumption, that make-up revenue from the new tax would be transferred to existing tobacco funded programs.

But once this new tax reduces consumption where does the money come from to fund those existing programs or for the recipients who will receive money if the cigarette tax initiative passes?

Is cap and trade a different kind of revenue source than taxes on cigarettes? The California Chamber of Commerce doesn’t think so. That organization is seeking a court ruling that cap and trade revenue is a tax. Like the cigarette tax, given the goal of both the cap and trade fee and cigarette tax, the cap and trade charge could also be considered a “sin” tax. It is being levied to punish (and reduce) a certain practice.

It has been argued that not as much money would be needed for the anti-smoking programs or greenhouse gas reduction because problems associated with these concerns would be at least partially solved.

Show of hands from those who believes the money won’t be missed by those who currently receive it and that they won’t try to find a way to make their budgets whole again.

Thought so.

This piece was originally published by Fox and Hounds Daily

L.A. County Wants to Impose Local Income Tax

Photo courtesy of channone, flickr

Photo courtesy of channone, flickr

Members of the Los Angeles County Board of Supervisors have suggested an income tax on millionaires dedicating the money for homelessness relief. Opening the door for local governments to impose income taxes would erode the state’s major fund raising mechanism, burden taxpayers with more paperwork, hit small businesses whose owners pay business taxes through personal income taxes, and subject more government revenue to a highly volatile revenue source. All in all a bad idea.

Last week, when Gov. Jerry Brown vetoed the bill that would have permitted local governments to levy cigarette taxes, he complained that there already are too many taxes on the coming ballot. A push for an income tax would increase the volume of tax measures facing voters.

Yesterday, the L.A. Board of Supervisors put off for one week a motion to ask county lobbyists to try and convince legislators to change the law that prohibits local jurisdictions from imposing an income tax.

Still, Pandora’s Box on local income taxes has been cracked open. If the movement persists the consequences can be great.

The proposal to levy local income taxes comes at a time that a statewide effort to extend the Proposition 30 state income tax levies is on-going. California’s top income taxpayers already pay the highest income tax rate in the country.

L.A. County wants to pile on.

The L.A. County supervisors think they have a winning proposal. The press release announcing the effort said a poll showed 76 percent support. Advocates of the idea will point to 14 states that give permission for some local governments to raise income taxes. Of course, it’s always easy for those polled to say they are willing to raise taxes on someone else.

But what happens when there is an economic downturn? I dealt with that concern for the state last week considering the possibility of a Shakespearean Tragedy for the State Budget.  Looks like the locals want to stage a similar play.

When I write locals, I mean more than Los Angeles. If the Legislature decides to change the restrictions on local governments imposing an income tax, does anyone think other jurisdictions will sit ideally by? Los Angeles County supervisors say they want the money to help the homeless. There are a lot of other interests in communities around the state that consider the causes they believe in worthy of more economic help.

But, what about the taxpayers?

How long before local taxpayers who continue to get hit with increased tax rates throw up their hands and give up on Los Angeles and California? The burden continues to grow. Proposition 30 was sold as a temporary tax for seven years. Perhaps many high-end income taxpayers said they would weather the storm. However, those taxpayers are now looking at an additional twelve years of the highest income tax rate in the country BEFORE local governments jump on that gravy train.

In the Los Angeles County Business Federation (BizFed) poll of members issued last week, the number one concern for small business owners was the income tax.

Before anyone thinks the push for new taxes is only about the rich consider what likely might occur if government budgets relying on increased income tax revenue are hard hit during a recession or economic slowdown.

I remember reading about the Midwest congressman who announced on the floor of the House of Representatives in the early years of the 20th Century that he was voting for the amendment to the United States Constitution that would establish an income tax because his constituents wouldn’t pay the new tax. It was aimed at the rich.

The income tax eventually came after his constituents, too.

Originally published by Fox and Hounds Daily

Will Gov. Brown Sign Bill Requiring Stricter Oversight of High-Speed Rail?

High speed railSometimes watching Governor Jerry Brown in action you often think of Forrest Gump’s box of chocolates: “You never know what you’re going to get.” A recent example: the Jerry Brown who holds a relatively tight reign on the budget in support of economic prudence dismisses economic theory for what he termed a moralistic stand when signing the minimum wage bill.

These thoughts swirl as the Assembly Transportation Committee unanimously passed AB2847 by Assemblyman Jim Patterson requiring stricter oversight on the costs and scope of the high-speed rail project.

Brown is the bullet train’s greatest advocate. He’s also been the state’s leading preacher within the government hierarchy on fiscal responsibility. If AB2847 clears committee and floor votes and ends up on the governor’s desk will he sign it?

The measure, following recommendations out of the Legislative Analyst’s Office, requires details on costs, schedules and scope of each segment of the train’s building progress, and, importantly, demands to know how the segment will be paid for.

The cost question is paramount because voters were told private funding was part of the formula for financing the rail project. No major private funder have stepped forward. In addition, an appeals court is considering a lawsuit over the legality of the cap-and-trade money, a large chunk of which is dedicated to the high-speed rail.

As Assemblyman Patterson notes, “The Rail Authority is tasked with the largest infrastructure project in modern times and is on track to spend billions upon billions of public resources.” We ought to know more detail about the project.

The Legislature appears to be bending to pubic concerns about the seemingly flimsy promises and financial quagmire that the train project could present.

With Brown’s signature on the minimum wage bill and his pronouncement that morality trumps economy, he could position himself similarly on the high-speed rail, although it’s hard to see how the bullet train is a lesson in morality.

It’s a bit ironic, I suppose, that given technological advancements over the last four decades, that what Brown was excoriated for in his first iteration as governor — a proposed state operated satellite, which earned him the sobriquet “Moonbeam” — might seem a more acceptable project today than his down-to-earth bullet train that could go nowhere.

Originally published by Fox and Hounds Daily

Pause Mechanism Does Not Ease Discomfort Over Minimum Wage Hike

Minimum WageAs Governor Jerry Brown signs the new minimum wage increase law this morning, many in the business community are studying the proposed temporary pause mechanism built into the bill that is supposed to reassure businesses. It does not.

The mechanism is power in the hands of a governor to pause the minimum wage increase during economic downturns. There are two scenarios in which a governor can hit the pause button.

It is important to note that this power granted the governor is optional. Even in a recession political pressure could prevent the governor from pulling the trigger.

The first trigger is pulled when nonfarm employment for a 3 or 6 month period declines and sales and use tax has dropped over a 12-month period compared to a previous year, all these measurements to be taken at the end of the budget year in June.

The second trigger is based on state budget projections. If the Department of Finance projects a deficit in the then-current fiscal year or in either of the following two fiscal years the governor can pause the minimum wage increase. The budget trigger can be used a maximum of two times.

According to a quick review by the California Business Roundtable’s Center for Jobs & the Economy, this trigger power, which the business group labels an “Off-Ramp” provision, if it had existed during recent past recessions, would have complicated economic conditions as California was trying to pull itself out of a recession. The analysis says the minimum wage increase would have resumed after the pause while unemployment was still high.

From the Roundtable’s Center for Jobs & the Economy brief examining the last two recessions:

The 2001 Recession—

Most of the country went through a relatively short 2001 recession, but in California it was extended due to Silicon Valley being the epicenter of the dot.com bust and spiking energy prices as a result of the state’s regulatory and other energy policy decisions.  While the triggers would have provided a one-year delay in 2002, the minimum wage would have continued its annual increase as unemployment continued to rapidly rise from an average of 5.4% in 2001 to a peak of 7.3% in 2003.

The 2007 Recession– 

The minimum wage increases would have resumed in 2012 when unemployment still averaged 10.4% or even earlier in 2011 when unemployment averaged 11.7%. Most importantly, the minimum wage increases would have kicked back in during the critically important 5-year recovery period where California slowly struggled to regain the two million jobs lost throughout the state.

The brief also noted how the resumption of the minimum wage could put California at a disadvantage with other states: “the state will then resume raising its wage level above other states just as the recovery begins—a time when competitive factors will be particularly crucial to how quickly the state can restores its economy.”

For the full Center for Jobs & the Economy brief go here.

Originally published by Fox and Hounds Daily

Labor Unions, Legislature, Governor Reach Deal to Raise Minimum Wage

Minimum wage1Labor unions, legislative leaders and the governor came together on a minimum wage deal to presumably keep a minimum wage initiative off the ballot – presumably because there is more than one way to get on the ballot. More on that later.

The governor got what he wanted from the reported deal. Labor got pretty much what it wanted, albeit, with a slight delay. Details of the deal as reported in the Los Angeles Times include a 50-cent minimum wage increase for the next two years, hitting $1 a year after that, reaching the $15 mark by 2022, a year after the initiative planned. Businesses with 25 employees and less will have an extra year to adjust.

The hit on the General Fund will not be as great if the minimum wage increase to state workers is half what is proposed in the initiative. To some extent, that satisfies the governor’s office, which warned that a larger, faster increase in the minimum wage would put a heavy burden on the General Fund. State minimum wage workers would cost the state an additional $4 billion at $15 an hour according to the governor’s office.

Significantly for the governor, the immediate effect of the increase on the state budget is lessened and the full force of the deal comes into play once Governor Brown and his administration will be well into the history books.

Apparently, the business community and small business were not a part of the final negotiation and they don’t like the result. The business community raised concerns that the speedy wage climb to $15 and additional increases would hurt employment and threaten small businesses that survive on the margins.

Two issues the business community sought in minimum wage negotiations were a pre-emption for local government seeking their own $15 or higher minimum wage and preventing an automatic cost-of-living provision that would increase future minimum wage amounts to inflation. Reportedly, neither of those provisions made it into the negotiated settlement. The only reported provision to deal with economic uncertainties is power given to the governor for freezing minimum wage increases in economic downturns. The details are unclear.

If the deal is passed by the legislature and signed by the governor and the union is satisfied with all aspects of the plan, the already qualified initiative can be pulled from the ballot by proponents.

However, the minimum wage question could still find its way to the ballot by referendum.

If the business community objects to the final deal, a referendum gathering the necessary signatures would freeze the law passed by the legislature until the next scheduled election. Depending when the bill passes and is signed and when a referendum qualifies that referendum vote could be in 2016 or possibly 2018.

Is a referendum possible? Cost of signatures brought in by professional signature gatherers is prohibitive right now with many initiatives circulating. However, while labor said that a pre-emption of local minimum wage laws was a non-starter for any negotiated settlements, business made the same argument about the automatic cost-of-living issue.

If the negotiated settlement becomes law with no adjustments for business concerns, the business community will have to decide if it will take its argument to the voters.

The piece was originally published by Fox and Hounds Daily

Tobacco Tax Compromise Stumbles in Legislature

cigarette smoking ashesThe California Legislature passed a package of bills intended to diminish tobacco sales. While one measure allows county governments to seek a tax on cigarettes, a state tobacco tax was not included in the package. That’s not to say many in the Legislature would like a tobacco tax and efforts were made to convince the tobacco industry to go along with a deal that would include a state tax increase. The proposed deal would result in scuttling a ballot initiative aimed for November to increase the tobacco tax and kill some of the bills in the package.

Here’s how Los Angeles Times columnist George Skelton explained the maneuvering in his Monday column:

Behind the scenes, Senate leader Kevin de León (D-Los Angeles) quietly is offering to negotiate with tobacco. If the industry were to allow the Legislature to pass a state tobacco tax, perhaps some of the package could be snuffed.

Then sponsors of a November ballot initiative that would raise the state cigarette tax by $2 per pack might be persuaded to withdraw their measure. That would save the tobacco industry upward of $100 million fighting the initiative.

Why wouldn’t the tobacco industry consider a more modest increase in the tax on cigarettes if some of the restrictive measures on tobacco were pushed aside and the initiative was pulled before it qualified for the ballot?

While tempting, the tobacco industry saw a big hurdle with any deal. There was no guarantee that if the deal were made a different interest group than the one behind the current ballot initiative would come along with a new tobacco tax effort in the near future. Or a future legislature could also consider a tax increase on tobacco.

Without a solid guarantee, the tobacco industry would rather take its stand now against any state tax increase. There is no way negotiating legislators can guarantee that some outside group won’t go to the ballot via the initiative with a new tax increase even if a deal is struck.

Many supporters of more tax revenue think tobacco and cigarettes is a good target because non-smoking voters outnumber smokers and tobacco users. Thus it is tempting for those who want to raise revenue to consider a tobacco tax.

The possibility that a new effort to raise tobacco taxes in the near future could not be guaranteed held back any legislative compromise on taxes.

Joel Fox is editor of Fox & Hounds and president of the Small Business Action Committee.

This piece was originally published by Fox and Hounds Daily

The Legacy on Nancy Reagan

2_21_Reagan_Nancy01Nancy Reagan said her job was to protect her husband, President Ronald Reagan, and she carried out that role to the smallest detail, as I discovered firsthand.

In 2002, when I was writing a book, the Legend of Proposition 13, I did research at the Ronald Reagan Presidential Library. I wanted to look at Reagan’s radio commentaries, voiced before he became president, that discussed taxes. They were written in his own hand on sheets of yellow legal pads and were part of a special collection. Working through the Reagans’ close aide, Joanne Drake, who served Nancy Reagan until her passing yesterday, I sought approval for handling the original documents. I was told approval to do so had to come directly from Nancy Reagan. I had to wait a while, but finally I was told, yes, I could see the documents.

Nancy Reagan continued to protect President Reagan’s legacy and build the Reagan Library as not only a shrine to the Reagan presidency, but also a place to keep involved in political and policy matters by hosting numerous events, many of which she attended.

The last time I saw Mrs. Reagan was at the library at one such event. A few years ago, I accompanied my friend, renowned civil rights attorney, Connie Rice, to the Reagan Library as she planned to listen to and meet with her cousin, Condoleezza Rice, scheduled to speak at the library. Before the former Secretary of State was introduced, while the program’s moderator spoke on stage, Mrs. Reagan, despite being frail, sat in the center of the front row of the audience flanked by the Rice cousins.

The library, which she worked so hard to develop, will remain a legacy of Nancy Reagan as a center of policy and political matters, as well as a tribute to her husband.

Originally published by Fox and Hounds Daily

Over Half-Billion Likely to be Spent on November Ballot Measures

http://www.dreamstime.com/-image2562817Hundreds of millions of dollars spent on legislative lobbying efforts made headlines this week but the total amount will likely pale next to what is expected to be spent this year on that other form of California lawmaking — the initiative process.

Coverage of the lobbying reports disclosed that $312.7 million was spent on lobbying the legislature in 2015, a double-digit increase from just two years earlier.

But according to initiative guru, Rick Claussen, of the consulting firm Redwood Pacific, which specializes in initiative campaigns, a crowded November ballot could produce spending of nearly half-a-billion dollars.

Claussen offered some best guess rounded figures that could be spent for and against a number of the high profile initiatives headed for the ballot.

MediCal Protection measure                                              $50 million
Referendum on Plastic Bags                                               $10 million
Revenue Bond Vote Requirement                                     $30 million
Condom Requirement for Adult Films                             $5 million
State School Bond                                                                 $7 million
Drug Pricing Mandates                                                        $65 million
Minimum Wage Increase (two initiatives filed)             $30 million
Property Tax Increase                                                          $50 million
Prop. 30 Extension (different versions filed)                  $60 million
New Plastic Bag Fee for Environment                              $5 million
Tobacco Tax                                                                           $100 million
Legislative Transparency                                                    $5 million
Marijuana Measure                                                              $35 million

$452,000,000 to persuade voters on policy decisions appearing on the ballot!

Not on the list: the gun control measure which should see lots of money raised on both sides; the governor’s proposal for sentencing reform; potential death penalty reform measures — one to eliminate the death penalty, the other to carry out the penalty more swiftly; political finance reform; and an attempt to end high-speed-rail by diverting rail funds to water projects. All these and more could make the ballot and ring up the initiative campaigns cash register even higher. Indeed, perhaps 20 measures might appear on the November ballot, moving the spending totals close to or well over that half-billion dollar mark.

Funding for initiatives topping the amount spent on a year of legislative lobbying should not come as a surprise to anyone closely following California politics. As academics such as Bruce Cain and others have pointed out, California has, in essence, two electorates. The electorate filtered though legislative elections and the electorate that votes directly on ballot measures.

The two lawmaking approaches yield different outcomes on issues because of the nature of the voting population in the legislative districts as compared to the statewide voting bloc. Initiatives appeal to statewide voters that often express a different opinion than legislators.

Money spent to influence legislators is a big story. More money will be spent to influence citizen-lawmakers.

Then again, there are many more decision makers when it comes to initiatives.

Originally published by Fox and Hounds Daily

Brown’s Big Projects Renew North/South Rivalry in CA

Delta TunnelsCalifornia’s historic north/south rivalry appears to be writing a new chapter over Gov. Jerry Brown’s proposed big legacy projects: the bullet train and delta tunnels.

The rivalry is sure to heat up over both a report that the California High-Speed Rail Authority is reconsidering running the bullet train route north to San Jose before heading south to Burbank as was originally planned, while efforts intensify to stop the tunnels and prevent more water flowing south.

In the Los Angeles Times account of the possible switch of the rail plan, reporter Ralph Vartbedian noted, “With the project already behind schedule and facing estimates of higher costs, the Bay Area option could offer a faster, less risky and cheaper option. Getting even a portion of the project built early would help its political survival.”

The key phrase here is “political survival.” The train is facing mounting pressure from citizen lawsuits, financial uncertainties, and flagging support from the general public. Suggested routesfor the train from the Central Valley to the San Fernando Valley have run into hot resistance. There is urgency for the authority to get something done, to get the project up and running so that it would seem imprudent and unreasonable to stop it.

Yet, the threat to undo the project is there. A ballot measure redirecting bullet train money to water projects is in the offing and the idea enjoys some support in a recent poll — certainly more support than the train itself has seen in polls.

While plenty of Californians — north and south — object to the bullet train being built at all, Southern California transportation advocates are incensed at the possible change in plans favoring the north.

Meanwhile, the other big Jerry Brown legacy project, the delta tunnels, to bring water from the Sacramento-San Joaquin delta to the central and southern parts of the state is also facing opposition.

An initiative already qualified for the ballot would require voter approval of revenue bonds over $2 billion. There is no secret the proponents of this measure are taking aim at a major revenue source to build the tunnels. Revenue bonds, unlike General Obligation bonds that are backed by taxpayers, do not require a vote and are paid by the users of a development. Revenue bonds are considered to be part of the financing structure for the delta tunnels.

Some northern California legislators propose having voters decide if they want the tunnels. Many supporters of the idea think a statewide vote would scuttle the project.

Nearly 35 years ago an effort to construct a peripheral canal to bring water from the delta south was defeated at an election. Southern voters supported the canal but it was overwhelming rejected by voters in the north.

Which brings up important differences in the north-south rivalry.

Despite Southern California being the home of a larger proportion of the electorate, northern Californians vote in greater percentages. That gives the north a political advantage. One reflection of that advantage can be seen in those who hold statewide offices. Of the eight statewide elected constitutional offices, all are filled by northerners except for Treasurer John Chiang.

Like professional sports teams — think Giants and Dodgers – public policy too can produce bitter rivalry and loyal supporters by dint of geography.

Originally published by Fox and Hounds Daily

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