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Legislative update:
Committee Approves Measure to Effectively Ban Tax Cuts  

The Senate Elections and Constitutional Amendments Committee approved legislation March 19 that would prohibit certain tax cuts from appearing before voters. The measure, SCA 6 (DeSaulnier), prohibits an initiative from being submitted to the electors unless the Legislative Analyst's Office and the director of the Department of Finance jointly determine that it would not increase costs to the state.

Specifically, the two entities would be responsible for estimating whether an initiative would cause a net increase in state or local government costs, and if so, whether it provides for additional revenue in an amount that meets or exceeds the increase in costs. This determination likely would be based on static estimates that would not account for changes in behavior that would result from the policies included in the initiative.

CalTax opposes SCA 6 on the grounds that the measure’s definition of costs would apply to tax reductions, credits, exemptions, exclusions, federal conformity, and other tax changes. In a letter of opposition to the committee, CalTax wrote: “Although requiring a mechanism to pay for new programs is appealing, giving power to either a legislative appointee (the legislative analyst) and/or gubernatorial appointee (the director of finance) to remove an initiative from the ballot sets a dangerous precedent. It has the potential to disregard important policy measures for manipulative political purposes.”

Similar measures by Assemblyman Mike Gatto and by Senator Mark DeSaulnier were narrowly defeated last year. Senator DeSaulnier said that he is promoting the legislation again because he believes it would prevent ballot-box budgeting.

Paul Smith, of the Regional Council of Rural Counties, spoke in support of the proposal, saying counties have to make up revenue and pay for things that the voters want – but don’t want to pay for – and this results in other programs getting squeezed.

Senator Loni Hancock said voters often approve measures without considering the cost impacts on other programs. She said voters go to the polls with the mindset, “It’s a good cause, so why not?”

Representing the Howard Jarvis Taxpayers Association, lobbyist David Wolfe warned the committee that the measure favored tax increases. Mr. Wolfe said SCA 6 requires higher government costs to be offset with additional revenue, not spending cuts. He also explained that SCA 6 would cut the people out of the initiative process.

If this legislation were in effect, Mr. Wolfe said, “We believe important measures to us – Proposition 13, Proposition 218 and Proposition 26 – would no longer be able to qualify for the ballot.” He noted that under SCA 6, Proposition 13 would not have been allowed on the 1978 ballot, since it resulted in property tax revenue losses for local government.

Senator Hancock responded: “Just for the historical record, since I’ve been around here for a long time, in Prop. 13, actually the state government did not need to – they were not called upon to – backfill city government. Cities in California were collapsing. And, arguably they should have been allowed to do so, so that people could have felt the consequences of their no-tax philosophy on what happens in real places when you don’t have services and you don’t fix the roads and other things.” (CalTax: David R. Doerr, CalTax’s chief tax consultant, recalls that Assembly Speaker Leo McCarthy discussed this option during a Democratic Caucus meeting. However, the Democratic Caucus decided that it would be irresponsible for the state to allow local government to collapse when the Legislature had the ability to preserve services that the people wanted.)

The committee approved SCA 6 on a 3-1 vote, and urged the author to amend the measure to apply to bonds, since the state uses general fund dollars to pay off debts. Voting in favor of the measure were Senators Hancock, Lou Correa and Leland Yee. Senator Joel Anderson opposed, and Senator Alex Padilla did not vote.

March 22, 2013
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