Businesses Split On Taxing Issue

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Local business groups are split on Gov. Jerry Brown’s tax initiative and another measure on November’s ballot that would rein in the power of unions to raise funds for political campaigns.

Proposition 30, the Brown tax measure, and Proposition 32, the so-called paycheck protection initiative, stirred up the most debate among the measures on the Nov. 6 ballot.

In a Business Journal survey of local business groups, two support the tax initiative, which would increase personal income taxes, two oppose and three went neutral. If the measure fails, $6 billion in education cuts will take effect.

In the chamber debates, many board members said they felt compelled to support the proposition to prevent the cuts.

“While we usually oppose tax measures, a lot of our concern here was based on drastic cuts to education if this fails,” said Stuart Waldman, chief executive of the Valley Industry and Commerce Association, which supports Proposition 30. “California State University Northridge administrators told us that if this fails, they would have to cut 800 classes. We’re talking about our future workforce here and that’s just not acceptable.”

But other organizations’ board members felt that temporary tax increases without any longer-term plan to restore the state’s fiscal health and economic competitiveness were not justified. Also, some said that they resented that Brown and state legislative leaders held current school funding hostage to the outcome at the polls.

“The governor and the Legislature put education in crosshairs,” said Gary Toebben, chief executive of the Los Angeles Area Chamber of Commerce. But he noted that there were also strong opinions in favor of the measure.

“The debate was passionate on both sides,” Toebben said.

These two sides balanced each other out in debates among board members of the Los Angeles, Long Beach and Pasadena chambers, prompting them to declare they were neutral on the measure.

Proposition 30 would increase personal income taxes on earnings of more than $250,000 for seven years and increase the statewide sales tax by a quarter percentage point for four years. The state’s Legislative Analyst Office estimates the measure would generate roughly $7 billion a year more in state tax revenue for the first four years; the money would go to schools, public safety and other state programs.

Political money

The debate has been just as intense on the paycheck protection initiative. Proposition 32 would ban unions and corporations from using payroll deductions from their members or employees for political purposes. Since this is the primary way unions raise money, it could have a significant impact on their ability to raise political funds.

The measure also would ban direct campaign contributions to candidates from unions and corporations, and it would ban contributions from contractors to the politicians who award the contracts.

Business supporters said the measure would weaken the political and financial power of unions and thus level the playing field at the state and local level.

“We believe Prop. 32 brings unions to their knees,” said Randy Gordon, chief executive of the Long Beach Area Chamber of Commerce, which has supported the initiative. “We want the unions to be a weaker political force.”

Other business group supporters, such as the Los Angeles County Business Federation, or BizFed, said that they hope the reforms in the measure would break through some of the gridlock in Sacramento and help make the state more friendly to business.

The main argument of business opponents to the measure centers on the ban on direct contributions to candidates.

“A large number of our board representatives that opposed the measure stressed the fact they would not be able to give direct contributions to candidates,” said Toebben at the L.A. chamber. “They want the candidate to know that they sent the money.

While companies could still contribute to so-called independent expenditure committees, that money can go to multiple candidates or campaigns.

“There would be no transparency about where the money is going,” said VICA’s Waldman. “If I write a check to Assembly candidate X, then everybody knows it. If I write a check for Citizens for a Better San Fernando Valley, then that obscures the process. These independent expenditure groups can give to multiple candidates.”

Mostly in accord

But most of the seven local business groups the Business Journal surveyed last week are in synch on five other statewide ballot propositions and on a countywide measure to extend the transportation half-cent sales tax.

There was broad support for measures on state budget reform, auto insurance discounts and the transportation sales tax extension.

There was overwhelming opposition to measures that would raise income taxes for schools and taxes on out-of-state corporations, as well as one requiring labeling of genetically modified foods.

There are exceptions: The Long Beach chamber, for example, opposes Measure J, the half-cent sales tax extension for transportation projects.

“This all started out with Measure R four years ago as a 30-year increase in the sales tax. Now, if this measure passes, it will be 60 years,” said chamber CEO Gordon. “That’s committing our grandchildren to taxes to pay for projects that we build. That’s simply unacceptable.”

Gordon added that none of the projects on the Los Angeles County Metropolitan Transportation Authority’s list would improve streets, highways or mass transit within Long Beach city limits.

VICA also bucked the trend with its support of Proposition 39, which requires corporations headquartered outside California to pay taxes based on their in-state sales. Currently, those corporations can choose the lower of two formulas: in-state sales or a combination of sales, property and employees in California. The measure would bring in an estimated $1 billion a year more to state coffers, some of which would go to alternative energy projects at public schools and the rest to the state’s general fund.

Most business groups oppose the measure, saying that increasing taxes on out-of-state businesses would cause those businesses to reduce their investment in California.

But VICA’s Waldman said his board members felt the current law “puts California-based companies on an uneven playing field, and that’s unacceptable.”

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Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.