Friday, May 18, 2012

Jerry Brown’s Optimism Has Been Costly

By Robert Gammon
Fri, May 18, 2012 at 1:32 PM

Jerry Brown’s recent acknowledgement that his administration had seriously underestimated California’s budget woes was predictable. The nonpartisan Legislative Analysts’ Office had been challenging Brown’s numbers for months, contending that the governor was far too optimistic when he predicted in January that the California economy would rebound strongly and that tax revenues would be pouring into state coffers this year. Brown insisted that his projections were right, but they weren’t. He admitted as much on May 14 when he revealed that the state’s budget deficit was much worse than his office had estimated — $16 billion, not $9 billion — because of stagnating tax revenues. Consequently, Brown and the legislature are now facing much deeper cuts to essential state services than expected.

Jerry Brown
  • Jerry Brown
But Brown’s misplaced optimism appears to have created problems beyond having to deal with difficult budget decisions. His insistence over the past several months that California’s financial woes weren’t that bad — when, in fact, they were — may have helped short-circuit efforts to raise corporate taxes in California and generate much-needed funds for the state. Proponents of the corporate tax measures, which would have produced billions in revenues, have either failed to gather enough signatures or appear to have abandoned their efforts altogether.

For example, earlier this year, a noted East Bay law firm proposed a ballot measure that would have reformed Proposition 13 to raise taxes on commercial property. Back in the Seventies, Prop 13 was originally sold as a way to protect homeowners from having to pay increasingly higher taxes as the value of their homes went up. Under the law, property taxes don’t really increase until a home is sold. But the authors of Prop 13 also included commercial property in the measure, and corporations, as a result, have been able to keep their property taxes artificially low — even if they’re making huge profits.

The proposed Prop 13 reform measure would have required that a commercial property be reassessed for tax purposes every three years — not just when it was sold. For years, progressive economists have championed this type of reform as a smart way to raise revenues for the state and close an unnecessary loophole. As a sweetener, the ballot measure backers proposed giving homeowners an additional property tax break. The measure, known as the Protect Homeowners and Close Corporate Tax Loopholes Act, would have generated about $3 billion annually.

However, the proponents of the measure suddenly decided to drop it. Margaret R. Prinzing of the San Leandro law firm Remcho, Johansen & Purcell, LLP declined to comment on why her clients chose to stop gathering signatures. But with Brown’s rosy optimism about the state budget, and his decision to pressure backers of other tax measures to abandon them out of fear that his own wouldn’t pass, it’s not hard to read the tea leaves. After all, if Brown had been right and the state budget problems were not that bad, then it would have been a tough sell to voters to reform Prop 13 — no matter how much sense the measure made.

Similarly, former longtime state Democratic Senate leader John Burton had proposed a 12.5 percent tax on oil and natural gas extraction in California. The tax would have generated $3 billion each year, of which $1 billion would be earmarked specifically for higher education. It also would have closed another unnecessary corporate loophole: California is one of a few states in the nation that does not tax corporations for extracting oil and gas; even Republican-dominated states like Texas and Alaska do it.

There also were at least two other proposed ballot measures that would have done the same thing: implement a tax on oil and natural gas extraction in California. But they both failed. One would have enacted a 15 percent tax, the other, a 10 percent tax. In addition, Burton’s plan doesn’t seem to be making progress either. He didn’t respond to calls for comment, and a news database search found no stories about his measure after he introduced it.

As a result, California appears to heading toward November with only one tax measure on the ballot — Brown’s Millionaire’s tax. And while it’s a smart tax proposal, it only will generate about $7 billion annually, far short of the $16 billion deficit that the state now faces. Consequently, state lawmakers will likely have to slash higher education spending again and shred the social safety net even more next month — a safety net that is already in tatters because of previous budget cuts.

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