A pot tax for police? How about sin taxes for schools?
California lawmakers are tip-toeing toward giving cities and schools broad new authority to ask voters those questions.
But whether Democrats are truly serious or merely feinting during intense negotiations to place taxes on a future state ballot will probably not be answered until later this summer.
Senate President Darrell Steinberg, a Sacramento Democrat and arguably the Capitol’s second most powerful voice, is the driving force behind expanding what’s known as local option taxes.
Under his Senate Bill 653, local governments and schools could chose from a smorgasbord of levies to raise money for local services and classrooms. The taxes could be narrow: new charges on medical marijuana stores, sweetened beverages and booze, for example. Or, officials could ask voters to add local levies to state-collected income and car taxes. The local sales tax rate also could exceed the current 2 percent ceiling.
“The bill itself would not raise local taxes by one penny,” Steinberg stresses. In a later thought, he adds, “The whole point of the bill is … to give communities a choice, not to dictate what the choice should be.”
Most importantly, he said, the measure leaves voter protections untouched. Voter approval remains mandatory and passage thresholds, such as the 2/3 mandate for specific uses, must be met.
But just as importantly, the proposal raises a basic fairness issue if the outcome is, indeed, a patchwork of tax rates and revenues across the state.
Is it fair, or even worse, a violation of equal protection laws, for poorer communities that reject taxes to receive second-class basic services?
The California Supreme Court has said no, at least when it comes to classrooms. Its historic 1971 decision in Serrano vs. Priest forced California to better equalize per pupil funding to close glaring disparities. Would it take a similar stand when it came to life-and-death police and fire protection?
“The way that I look at this, in the big picture, is some inequities can be addressed through the state playing a role,” Steinberg said. “But where we stand now, in terms of a $10 billion- plus deficit without sufficient revenues, it comes down to something less than perfect vs. doing nothing.”
The measure also could ignite more competition for big box stores and auto malls shopping for tax-and regulation-friendly places to open or relocate. Those decisions could be driven by what kinds of taxes are levied where.
After clearing one committee, the measure is likely to be held in abeyance until a budget deal is struck. Steinberg makes no secret that his legislation is a Plan B in case Democrats and Republicans cannot agree on a plan to place broader statewide taxes on the ballot.
“If your goal is to fund schools and public safety and you’re in the majority it would be close to political malpractice to rely on one pathway which is not exclusively [under] your control,” he explained.
Going to the voters to raise taxes demands a two-thirds vote of the Legislature. But approval of a simple statute allowing local governments and schools to do pretty much the same thing requires only a simple majority, Steinberg said.
That position is in dispute. Some Republicans threaten a legal challenge if the bill becomes law. They say Proposition 26 passed by voters in November requires a two-thirds vote of lawmakers for any law that would result in higher taxes.
More broadly, Republicans are philosophically opposed to expanding taxing authority.
“There’s no way I’m going to support allowing governments to make it easier to raise taxes,” vowed Assemblyman Brian Jones, a Republican and former Santee city councilman.
“Why does government, why do Democrats, continually go back to the public to ask for more tax increases? Why don’t they just live with the money they’ve got?” he asked.
Local governments already own some taxing authority. The most widely employed is the sales tax. Parcel taxes, utility taxes and business license fees are other examples.
If the legislation becomes law, local officials could take aim at cigarettes, liquor, personal income and oil wells, among other targets. Caps vary, but the limit on a pack of cigarettes would be $1. A beer could cost a nickel more and all residents would pay a maximum 1 percent of their income into local tills.
“The mind reels at what a clever tax agency might come up with,” Joel Fox, president of the Small Business Action Committee, wrote in his regular column posted at the website Fox & Hounds.
Sin taxes could be enticing, particularly given that many voters subscribe to the late U.S. Sen. Russell Long’s sarcastic saw “don’t tax you, don’t tax me, tax that fellow behind the tree.”
There is no way of knowing how many local officials would seize the authority, nor whether their voters would go along with tax hikes. Statewide, liquor and cigarette taxes combined will pump an estimated $1.2 billion into various state coffers in 2011-12. The personal income tax is the biggest revenue generator, potentially delivering $55 billion to Sacramento in the next fiscal year.
Steinberg contends that continuing temporary increases in the income, motor vehicle and sales taxes is the only way to pay for vital programs while also drawing down the crushing debt. Without voter approval of the taxes, the state could face a deficit of nearly $11 billion over the next 14 months out of an $88.8 general fund.
But Steinberg’s pitch may have lost some velocity. The state will pocket $6.6 billion more than was estimated earlier this year. A buoyed Gov. Jerry Brown has pledged half of those new revenues to schools, deflating arguments advanced by Democrats that tax extensions are the only way to fully fund schools and fill other needs.
Brown himself has not endorsed the legislation, preferring to “keep my powder dry” while he pursues a statewide vote on his own tax plan to extend expiring increases in car, sales and personal income taxes. If the taxes are blocked, Brown said various interests will “retrench in their corner” and launch a “war of all against all” over various budget-balancing schemes.
The legislation has moved out of one committee and remains parked pending the outcome of budget negotiations.
The committee hearing drew a cross-section of interests. For the most part, local governments, schools and labor unions sided with Steinberg. Retailers, grocers and anti-tax groups implored defeat.
Yolo County Supervisor Jim Provenza said cash shortages are “a threat to everybody’s safety. We start to look more like a Third World country than the state I grew up in.”
Provenza claimed critics exaggerate the threat of unfettered hikes. “All of these taxes won’t pass. We’ll be luck y to get one passed,” he said.
That’s one too many for Ann Kinner, owner of the nautical specialty store Seabreeze Books and Charts in Point Loma.
“Our customers are running out of money. I am running out of money. More taxes will just make the situation worse,” she testified.
Ballot results have been mixed when voters at the local level have faced tax questions.
Most recently, in November San Diego city voters soundly rejected a five-year increase in the sales tax to pay for various services, 61.8 percent to 38.1 percent. Chula Vista turned back a telecommunications tax, 56.3 percent to 43.7 percent. On the same ballot, the San Diego Unified School District lost a parcel tax that would have cost the average homeowner $98 a year. That measure, Proposition J, narrowly won a simple majority, receiving 50.77 percent of the vote, but it needed two-thirds.
Not every local tax measure has failed. In 2004 San Diego voters passed a 40-year extension of a half-cent sales tax to pay for transportation programs.
In normally tax-reticent Orange County, voters in 2006 approved Measure M to extend an expiring half-cent sales tax used for transportation projects.
Statewide, voters appear willing to pay more for local programs. Statewide, there were 40 various tax measures on the June 2010 ballot and 29 passed. That included 18 that, because of the money was dedicated to a specific cause, required a super-majority two-thirds to pass, according to figures compiled for the League of California Cities.
