January 2005

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The strong potential of a special election this year has lawyers working overtime to draft ballot initiatives that generally pit Governor Arnold Schwarzenegger in a fight between what he describes as the “people” and the “special interest” public employee and teacher unions. The outcomes likely will determine who will call the political shots in the Golden State for many years to come.

Some of the initiatives submitted to the Attorney General’s Office with $200 filing fees in the mid-January scramble would likely be on the next regularly scheduled statewide election in June 2006. But their sponsors burned midnight oil to get them submitted now so they can have a chance of gathering enough signatures in time to be a part of any special ballot later this year, probably in the fall.

The governor has called a special session of the Legislature to pass his proposed constitutional amendments to reform the state’s budget process with spending controls, the public employee pension system, education (merit pay for teachers) and reapportionment (an independent panel of retired judges would draw legislative district boundaries).

Angry public employee unions are responding with initiatives to raise taxes on business property by splitting the property tax roll, and by allowing the Legislature to raise taxes by majority votes. The unions, along with Democrats in the Legislature, want the ballot to include an increase in the minimum wage and a car buyer’s bill of rights, and affordable pharmaceuticals, ideas in Democrat-authored bills that the governor vetoed last year.

Governor Schwarzenegger, in his State of the State speech January 5 called on the Legislature to pass his agenda in time to go to voters in an early summer special election that he would order. Otherwise, he intends to mobilize for a special election in the fall. The latter date provides various groups opportunity to circulate petitions for initiatives and counter-initiatives.

Also beating the drums for government reform measures is Citizens to Save California, a coalition of business and taxpayer groups. Cal-Tax is part of this coalition, along with the California Chamber of Commerce, the California Business Roundtable and others. A leader of this coalition, Joel Fox, president of the Small Business Action Committee and an adviser to the governor, has submitted an initiative that would require two-thirds votes of the Legislature to reject Governor Schwarzenegger’s governmental reorganization plans.

The latest ballot initiative frenzy was touched off after the November election when the governor’s office began dropping hints about a special election to achieve real government reforms that majority Democrats either killed in 2004 as legislative proposals or indicated that the ideas would be dead on arrival in 2005.

They include the governor’s plan to gain greater control over the budget process, putting in automatic spending reductions when revenues are outstripped by expenditures.

The governor also might yet embrace the business community’s proposed initiative, backed by Cal-Tax, to limit spending to growth in population and inflation. Five versions of the Deficit Prevention Act, or spending limit, are pending with the attorney general for title and summary, authored by state Senator John Campbell, Cal-Tax and the Howard Jarvis Taxpayers Association. One of the measures includes a variation of the governor’s spending control proposal. (A brief description of the differences in the five proposals is below.)

Ballot propositions also have been submitted for title and summary, which can take about three weeks before petitions can be circulated, that would reform the public employee pension system. This measure is proposed by Assemblyman Keith Richman and the Howard Jarvis Taxpayers Association. It has the governor’s endorsement to replace the existing overly generous defined benefit pension program with a more affordable (for taxpayers) defined contribution system, for those state and local public employees yet to be hired.

Other initiatives target public employee unions by requiring them to get members’ permission to use their union dues for political campaigns. Another initiative would require five years of teaching, instead of two, for teachers to gain their tenure. It is Assembly Member Bonnie Garcia’s “Put the Kids First Act.”

Lew Uhler of the National Tax Limitation Committee has proposed initiatives that include the aforementioned measure designed to curb involuntary political donations by members of unions. His others include a repeal of the tax on millionaires to fund mental health programs.

The governor’s proposal to give better teachers merit pay is embodied in The Excellence in Teaching Act initiative submitted January 13 by former Assembly Member Tony Strickland of Moorpark. Several initiatives are on the table for title and summary that deal with reapportionment. The governor’s plan to turn political map-drawing over to retired judges could garner legislative support because of his declared willingness to change the term-limit law to give legislators longer careers in Sacramento.

Countering proposals being championed by the governor and the business community are measures backed by the California Teachers Association to increase assessments of all commercial property (except rental housing). This measure is dubbed by its backers as The High Quality Classrooms Act.

The Corporate Tax Accountability Act, submitted January 13 by the same Democrat law firm (Remcho, Johansen & Purcell) that drafted the teachers’ split roll measure, would enable the Legislature to eliminate business tax credits, exemptions, exclusions and other preferences by majority-vote bills. These tax-hike measures required two-thirds votes for approval under existing law. The measure states that the Legislature may reduce or eliminate a tax incentive by the same margin of vote required to create the law.

Also submitted to the attorney general is an initiative backed by the education lobby to supposedly limit spending in many areas of the budget – but not education. Version 2 of The Education Funding Protection Act also would encase the Sinclair Paint decision of the state Supreme Court in the state Constitution. Taxpayer interests, including Cal-Tax, have been battling against tax measures that masquerade as fees by mimicking the mitigation charges imposed on manufacturers of products containing lead. By citing Sinclair, proponents of these revenue-raisers circumvent the requirement for two-thirds votes of the Senate and Assembly to raise taxes. It would also allow local governments to impose taxes masquerading as Sinclair fees without voter approval.

The Los Angeles Times (January 13) reported that a coalition of Silicon Valley interests plans to propose an initiative that would allow school districts to pass parcel taxes by 55 percent votes of the people, instead of two-thirds.

If all or most of these measures qualify, with paid signature-gathering campaigns costing millions, it would not be surprising to see well over $100 million spent to pass or defeat them, flooding the airwaves with ads that would leave many Californians rather numb, jaded, and probably turned off.

Deficit Prevention Act – Comparing the Five Versions:

Version 1

Limits spending to prior year’s spending (2004-05 is the base year, less the deficit bond proceeds) plus growth in population plus CPI, beginning in 2006-07. The limit can be exceeded for specified emergencies.

Defines the term “tax” for purpose of the Legislature’s two-thirds vote and for local voter approval, removing current loopholes allowing taxes to masquerade as fees.

Requires any change in statute that increases taxes on any single taxpayer to be passed by a two-thirds vote.

Adopts mandate protection provisions of Proposition 1A (the local government revenue protection act approved by voters in November 2004) but does not include the exception for conditions of public employment.

Excess revenues: 50 percent to pay off loans; 25 percent to school and transportation projects; 25 percent to reserve (when reserve builds to 5 percent of expenditures, excess will be refunded through an automatic drop in the sales tax rate).

Fiscal emergency: If limit is exceeded, governor may call a special session of the Legislature to resolve the fiscal crisis. If no action occurs in 45 days, legislative pay and per diem are forfeited.

Limits debt to 6 percent of general fund.

Version 2

Limits spending to prior-year spending (2004-05 is the base year) plus growth in population and CPI (two CPI indexes are used, general and the one for medical expenses, to be used for the health portions of the budget). Base-year spending includes spending from Proposition 57 bonds.

Version 3

This is Version 2 except:

Fiscal emergency: If the governor calls a fiscal emergency, and the Legislature has not passed legislation within 45 days to fix the problem, the governor may make an across-the-board cut (except for bonds, etc.).

If the budget is not passed on time, prior year’s budget continues in effect. Governor may make across-the-board cut (except for bonds, etc.), to come within the limit.

Version 4

Same as Version 2 plus:

Changes Proposition 98 to eliminate “Test 3,” which was added in 1990 and supported by Cal-Tax, to stop schools from encroaching on the budget in times of low revenue growth.

Version 5

Version 2 plus:

Allows the governor to make unilateral across-the-board cuts (except for bonds, etc.) if the Legislature does not act on a fiscal emergency within 45 days.

If no budget is passed on time, prior year’s budget will continue in effect. Governor may make across-the-board cuts (except for debt limit) if prior spending exceeds the limit.

Repeals Prop. 98 “Test 3” (see above).