Political News

Proposition 55 would extend "temporary" tax for 12 years

Posted October 15

— When Gov. Jerry Brown and his allies urged voters to adopt a temporary income tax on the wealthiest Californians and a statewide sales tax on everyone four years ago, the deal was billed as a short-term salve for a state mired in debt and on the verge of insolvency.

The taxes were needed to stave off $6 billion in so-called "trigger cuts" to schools and social programs baked into the state budget by Democrats as a threat to voters. Lawmakers also threatened to cut three weeks off the school year if Proposition 30 didn't pass.

"Each of us need to do what we can, and for those who've been most blessed, we're going to ask you for seven years. The biblical seven years," Brown told an audience at the Commonwealth Club in November 2012.

Voters bought the pitch.

Now, with the sales tax set to expire at the end of this year, and income taxes on earnings above $250,000 a year set to end in January 2019, the California Teachers Association and other labor unions want to keep the income tax, which they say is again needed to prevent $4 billion in cuts to schools.

Proposition 55, they say, does not raise taxes on anyone; it simply maintains the current income tax rates. The measure would extend the income tax for another 12 years, raising from $4 billion to $9 billion a year, according to the independent state Legislative Analyst's Office. The sales tax would expire as planned in January.

In 2012, ballot arguments for the initial measure promised that "the money raised for schools is directed into a special fund the Legislature can't touch and can't be used for state bureaucracy."

Brown also vowed in campaign ads that money from the initiative "must go to the classroom and can't be touched by Sacramento politicians."

The wording wasn't exactly true. Although money raised for schools has gone to school districts, which are required to post annual audits, only about half the funds from Proposition 30 have gone toward school funding, according to the Legislative Analyst's Office. The state budget mandates that about half of general revenues are dedicated to education.

"Our estimate is that Prop. 30 has increased that pot of money by roughly 50 cents on the dollar," said Ken Kapphahn, an LAO analyst.

For instance, Brown's finance department estimates Proposition 30 taxes will raise about $7.7 billion in the 2016-17 budget approved by the Legislature.

"School funding didn't increase $7.7 billion, it increased $3.8 billion" in the current budget, Kapphahn notes.

The rest of the money has gone into the state's general fund that pays for a host of other state programs, from child care to parks and prisons. Overall state spending has increased each year since voters approved Proposition 30, precisely as the LAO predicted it would.

David Kersten, a tax analyst and former lobbyist, is the lone registered opponent of Proposition 55, raising $3,000 against it. He argues that the education system should first be forced to demonstrate it can spend more efficiently before the tax is extended.

Meanwhile, Brown has remained neutral on the campaign to extend the income taxes, telling reporters in May when he released a state budget revision: "I said it was temporary when I started. I got Prop. 30 passed, I helped pass it, and I think I'll leave it there."

Still, his messaging was anything but neutral. He displayed charts that depicted future state revenues that showed worrisome red lines if the taxes don't continue.

He used the release of his spending plan to warn of a $4 billion budget shortfall by 2019, when the tax increases fully expire, warning that without the revenue, "we will have cuts, no question about that."

Those numbers have become the centerpiece of the Proposition 55 campaign.

"Education is now just back at pre-recession levels. Our schools are just now making progress," said Jennifer Wonnacott, a spokeswoman for the tax extension campaign who defended the extension as necessary, despite the initial promise the tax would last just seven years.

"If we don't extend these revenues, we know from revenue projections that cuts will have to be made," she said. "We know that means teachers laid off, larger class sizes. Voters know the progress that's been made and they get the opportunity to decide."


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