Simple Tax Initiatives, Not So Simple Impacts

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A tax increase that could spark new cuts?

"We have a message that is pretty simple and pretty powerful," Molly Munger told a group of political reporters after a recent appearance in Sacramento promoting her education tax initiative.

Similar words have also been used by backers of another proposal, one to hike income taxes on millionaires.

And yet, both measures would add new layers onto an already complex system that governs state tax revenues, while possibly -- and, perhaps, surprisingly to voters -- adding as much as $2 billion to the state's projected deficit.

When it comes to taxes and budgeting, nothing is simple.

This morning's edition of The California Report examines some of the possible policy implications facing the two prominent tax initiatives that are on track to be alternatives to the proposal being promoted by Governor Jerry Brown.

Most of the focus thus far has been on the politics, and the bickering between Brown and his would-be initiative rivals about whether there's room on the November 6 ballot for everyone. But not so much attention has been paid as to what happens if either of the proposals -- Munger's broad income tax increase or the millionaire's tax championed by the California Federation of Teachers -- wins on Election Day and Brown's income/sales tax initiative (for whatever reason) should lose.

First, the notion of a deeper deficit. Budget experts explain it as follows: Brown's proposal, which also codifies the 2011 budget's realignment of state and local services, is the only way under current law that the existing budget pencils out. If his proposal doesn't prevail, the 2011 budget reclassification of $5 billion in sales tax revenues crumbles -- revenues that the budget removed from the constitutional formulas that drive K-14 school funding.

Still following? Hope so.

And if those sales tax revenues revert to their normal general fund placement -- thus, counting towards establishing the Proposition 98 funding level -- schools will be owed another $2 billion. And, given the state isn't exactly sitting on surplus cash, that could mean $2 billion in new cuts... even though voters, in ratifying either of the alternate initiatives, would have assumed that new taxes mean no new budget cuts.

That only proves false, it seems, in government budgeting... but it does seem to be an accurate assessment of the stakes surrounding voters rejecting Brown's complex tax initiative (to say nothing, by the way, of the proposed "trigger cuts").

"It's mindboggling," says Jean Ross of the nonprofit California Budget Project. "You need a whole team of lawyers to tell you how the pieces fit together."

Backers of both income tax initiatives understand the stakes as they seem to be laid out, but don't see their proposals as necessarily forcing more cuts.

Carol Kocivar, president of the California State PTA and a backer of the Munger initiative, points out the language in one version of the measure (perhaps the version they've chosen to use) that temporarily pays off school bond debt -- thus, she says, freeing up budget revenues for other purposes.

Jeff Freitas of the California Federation of Teachers and its millionaires tax campaign, says it's impossible to guess what legislators would or wouldn't do if faced with that scenario, and argued the $2 billion at issue was illegally taken out of school funding to begin with.

But it's the language of the millionaires tax initiative -- or rather, the lack of certain lanuage -- that's caught the attention of budget watchers around the Capitol.

For starters, while the campaign's website proclaims that "the state legislature will not be allowed to re-allocate funding for other purposes," there is no protection in the initiative of the money earmarked for higher education. Budget insiders call such protection a 'maintenance of effort,' language that essentially requires funding levels to continue at a specified level(s). Instead, the initiative is essentially silent on whether the Legislature could -- if it deemed it necessary -- go in and redirect (or raid, depending on your politics) millionaires tax revenues ostensibly reserved for the UC and CSU systems.

CFT's Frietas suggests there would be too high a political price to be paid by legislators who voted for such a redirection. Perhaps, but lean budgets of recent years have made clear that when there's no lock on the cookie jar, desperate temptations arise under the Capitol dome.

And on Wednesday, yet more questions about the millionaires tax -- this time, from the California State Association of Counties (CSAC).

"We are concerned that your initiative would cap funding for local county public safety and social service programs at inadequate levels," wrote CSAC executive director Paul McIntosh in a letter to the initiative's backers. McIntosh says he's concerned the dollars allocated to locals are pegged to funding levels for those programs that existed in 2008, levels that were already "artificially deflated" below actual needs. The CSAC letter also asks what happens to the dollars (remember, this is the only permanent income tax increase initiative angling for the ballot) once the local programs are back to their 2008 funding levels?

The bottom line may be that initiatives, especially those that add layers of law upon existing layers (and thus, don't clean up or modify existing laws) are awfully hard for voters to fully analyze... especially in the middle of a heated political campaign.

"It's unrealistic to expect even the most responsible voters," says the California Budget Project's Ross, "to understand the implications of policy choices that are presented to them in 30-second TV commercials."

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About John Myers

John Myers is senior editor of KQED's new multimedia California Politics & Government Desk.  He has covered California politics for most of the past two decades -- serving previously as Sacramento bureau chief for KQED News and, most recently, as political editor for KXTV News10 (ABC) in Sacramento. He moderated the only gubernatorial debate of 2014, and was named one of the nation's top statehouse reporters by The Washington Post. Follow him on Twitter @johnmyers.
  • Deb McCurdy

    The Molly Munger and PTA initiative, “Our Children, Our Future” is the only initiative that mandates complete local control of the dollars schools receive.  Any initiative that funnels money directly to schools and avoids the black hole that is Sacramento — gets my vote.

  • Speech85

    Molly’s initiative, while well intentioned, sets up a fight between the cops and the teachers.  That basically means that while the teachers will get a lot more money, everything else will be eliminated to pay for the cops.  CalWORKs will have to go–and that will have an impact on the classroom.  So will any and all other “optional” or non-mandated services (roads, parks, etc.)  So while Molly’s intentions are good, it would frankly (IMO) be better if voters voted no on everything than if they passed hers.

  • Sohumkids

    Could you clarify how others would lose, while teachers win with this. It seems to me it is creating new funds, not reorganizing existing funding.

  • Frank

    SOS- Same Old S—!  Bottom line is that most of the education problems stem from giving preferential treatment to non-resident (translate that to illegals) in the system.  Start charging ALL non-residents the same out-of-state tuition and the schools would have plenty of money.  Note that this does NOT deny education to the illegals, it simply says they are treated the same as the foreign students that enter the country legally.  Pay  for your education or go home.  When we stop being a sanctuary state, I’ll support changes in the tax structure.  Until then, Sacramento obviously has more money than they need – – or they don’t have the intelligence to recoginze their problems.

    If you aren’t a liberal by the time you’re 20, you have no heart.  If you’re not a conservative by the time you’re 30, you have not brain.