California corporations, big and small, have billions of dollars’ worth of tax breaks and fees in play with a trio of initiatives on the November ballot — propositions some observers believe may prove too complicated to voters.
The outcomes of the battles over Propositions 24, 25 and 26 could help fill a hole in the state budget, an appealing factor in the tough economic times that the state and its citizens are facing.
With chronic deficits and one of the highest unemployment rates in the nation, the state has been looking everywhere to generate tax revenue. But companies, like residents, don’t want to pay any more taxes or fees than they have to.
Proponents for each proposition have put out simple messages:
Proposition 24 would permanently repeal $1.3 billion in annual tax breaks that businesses can start getting in January.
Proposition 25 would allow state budgets to be passed with a simple majority vote in the state Legislature, instead of the current two-thirds super-majority.
Proposition 26 would mandate that new fees for such services as pollution prevention — but not for regulated professions or specific services such as law, accounting and auto registration — be approved by a two-thirds vote of the electorate.
“This is a very familiar battle being fought with the three measures about how Sacramento goes about doing its budget business,” said Bill Whalen, a former speechwriter for Gov. Pete Wilson and a research fellow at Stanford University’s Hoover Institution.
Businesses, trade groups, unions and others on both sides have spent more than $45 million so far on advertising to promote their positions.
Proposition 24 could be a bit confusing because it asks for a Yes vote to repeal a law that allows business tax breaks. Voting for the initiative, in other words, would mean that taxes would not be reduced for businesses.
The law, signed two years ago, allows businesses to curtail taxes in three ways starting next year. It expands the use of operating losses to offset profits in other years; allows corporations to share tax credits with affiliates; and lets multistate businesses calculate income in a way that could limit their tax liability.
With these breaks, California companies contend, they can cut costs and stay competitive with out-of-state firms that already enjoy such incentives.
The initiative pits the California Teachers Assn. and a coalition of education, public employees and good government groups, such as the League of Women Voters, against a phalanx of business groups, including the Silicon Valley Leadership Group, the California Chamber of Commerce and the California Manufacturers and Technology Assn.
Proponents, who have contributed more than $6 million to the campaign, want to repeal the business tax breaks, claiming that the tax cuts would reduce state revenue so much that thousands of teachers, paramedics and other public sector employees would be laid off.
The tax-break law was “a backroom deal with some of the wealthiest corporations in the state,” teachers spokeswoman Becky Zoglman said.
It was an unnecessary giveaway, she said, that doesn’t guarantee the creation of jobs and, with the prospects of more teacher layoffs, would swell the size of already overcrowded public school classrooms.
The business lobbies, which are spending just as much to defeat Proposition 24, argue that repealing the tax reductions could cause them to reduce or eliminate job-creating investments in California.
Pioneering electronics and clean-tech companies and other businesses that spend hundreds of millions of dollars on research and development contend that they need the trio of tax breaks.
A repeal would “penalize employers who want to put jobs, equipment and facilities in California,” said Carl Guardino, chief executive of the Silicon Valley group, which represents 325 companies with total annual revenue of more than $2 trillion and more than a half-million employees.
Proposition 25 is a bit more straightforward. Sponsored primarily by public employee unions, the initiative is designed to end California’s annual stalemate in approving the state budget on time by lowering the voting threshold to a simple majority of state lawmakers. A two-thirds vote would still be required to raise taxes, proponents stressed.
The measure also would threaten lawmakers with suspension of their pay and living expenses for every day they failed to send the governor a budget after the constitutional deadline of June 15.
“Under the current system, a small group of legislators can hold the budget hostage with the ‘ransom’ being more perks for themselves, spending for their pet projects or billions in tax breaks for narrow corporate interests,” backers of Proposition 25 wrote in the state’s official ballot pamphlet.
Opponents, led by California Chamber of Commerce President Allan Zaremberg, contend that the budget initiative gives the Democratic Party — typically the majority — a backdoor way to circumvent the two-thirds vote for tax increases.
What’s more, Zaremberg contended, “It leads us to a situation where California can incur additional debt without having the means to pay for it.”
Proposition 26 is the main response that Zaremberg and most business groups have to Proposition 25.
They put the fee initiative on the ballot to stop Democrats in the Legislature and in local governments from passing so-called hidden taxes in the form of fees on various industries to pay for a variety of general purpose programs.
For example, the city of San Francisco recently tried unsuccessfully to put a fee on wine sales to pay for alcohol treatment programs.
Proposition 26 would mandate that new fees not specifically attached to direct regulation of professions or activities be approved by a two-thirds vote of the electorate, similar to what’s already required to raise taxes.
But opponents argue that the stringent requirement would hamstring local governments’ ability to raise revenue needed to provide important public safety and health services.
It also would make it difficult for state environmental regulators to pay for oil spill prevention, pesticide application safety and a host of other state environmental regulatory and enforcement activities, opponents said.
“The measure is broad and sweeping and would lead to a morass of litigation,” said Bill Magavern, state director for the Sierra Club. “It’s being used as a Trojan horse to protect Big Oil and Big Tobacco.”
Not all California businesses are enthusiastic about Proposition 26. The Silicon Valley Leadership Group has taken no position on the fee initiative. “We’ve long advocated that in a democracy, there should be a majority vote for local taxes and fees,” said Guardino, the group’s leader.
All three propositions are long shots at the polls. That’s mainly because voters tend to turn down measures that they don’t understand or don’t feel connected to emotionally or financially, experts said.
What little polling has occurred backs up the experts. The most recent Public Policy Institute of California poll puts opposition to Proposition 24 at 38% and support at 31%, with 31% undecided.
Proposition 25′s effort to allow a simple majority to approve budget bills is faring better with 49% supporting, 34% opposing and 17% undecided.
There hasn’t been any public polling on Proposition 26, which would require a two-thirds vote from voters to raise many state and local government fees.
Although business is pushing hard to pass Proposition 26, some key trade groups concede that they’re more interested in killing Propositions 24 and 25.
“A successful no vote on all three, from my point of view, would be a victory,” said Greg Hines, a tax expert with the California Manufacturers and Technology Assn. “Even if we lose Proposition 26.”
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