In this period of unprecedented prosperity, the state's business community has mounted an all-out push to change the state's tax code through its strong support of two measures on the Nov. 7 ballot.

Proposition 37 would reduce the ability of state and local governments to impose fees on businesses.

Proposition 39 would reduce the voter approval threshold from two-thirds to 55 percent for new local school bonds, thereby making it easier for local funding of new schools, a long-sought goal of many of the state's major business groups. It could also lessen the pressure on local school boards to impose developer fees to fund new schools.

"Both measures have the potential to reduce the fee burden on businesses throughout the state," said Fred Main, senior vice president of the California Chamber of Commerce, which supports both measures. "But the business community isn't trying to escape in its entirety its obligation to pay fees to fund local and state government. Rather, if there are other funding mechanisms available, we want to ensure that governments are not relying exclusively on fees imposed on business."

Opponents, however, say the measures would make the general public or homeowners bear a disproportionate financial burden.

"It's not fair to have the general public pick up the tab," said Jon Rainwater, executive director of the California League of Conservation Voters, which opposes Proposition 37.

While both measures might reduce the fee burden on business, they go about it in different ways. Proposition 37 attacks the problem directly. With Proposition 39, this goal is secondary to what the business community says is its primary concern: making it easier to fund the building of additional classrooms.

Proposition 37 actually landed on the ballot in response to a 1997 California Supreme Court decision. That ruling, in a case initially brought by Sinclair Paint Co., upheld a fee imposed in 1991 by the state on manufacturers of paint and other products containing lead, with the proceeds funding programs to screen and treat children at risk for lead poisoning.

Sinclair Paint had argued that the fee raised revenues for a broad public purpose, making it a tax and, therefore, subject to more-stringent approval requirements. State lawyers argued the money would address a problem created in part by the manufacturers and should be considered a regulatory fee.

Under existing state law, a state or local regulatory fee needs only majority approval from the governing body that imposes it, while a tax requires approval from either two-thirds of the state legislature or two-thirds of local voters.

Business groups fear local government bodies could use the precedent set in the Sinclair Paint ruling to impose a whole raft of new fees on products and services.

"This ruling makes it too easy for governments to impose fees that really are hidden taxes," said the California Chamber's Main. "We are seeking to reclassify these fees as taxes so that the businesses that are impacted have more say."

That is the main reason, Main and other business advocates say, they placed Proposition 37 on the ballot and have raised about $1.3 million in an effort to get it passed. (Opponents as of late last week had not yet filed a campaign finance disclosure statement with the Secretary of State's office.)

Specifically, Proposition 37 would reclassify fees that address broad environmental, health or other societal concerns as taxes and thus subject them to the more-stringent approval requirements of taxes. The measure exempts fees imposed before July 1, 1999, as well as penalties assessed against companies for specific one-time problems, such as oil spills.

Opponents of the measure argue that it would allow manufacturers that pollute the environment or make products that harm the health of citizens to escape paying to fix the problems they create. They charge that oil and tobacco companies, as well as establishments that make or sell alcohol, have been behind the effort to put the initiative on the ballot.

"This measure is really about the super-majority vote to impose fees on industries that pollute or cause other societal harms," said Rainwater of the California League of Conservation Voters, which opposes Proposition 37. "It allows these businesses to shift the tax burden from themselves to general, ordinary taxpayers instead of having a targeted fee specific to the industry causing the problem.

Opponents also contend that, so far, there have been only a couple of such fees actually imposed by local governments.

"It's a solution in search of a problem," said Michael Madrid, executive director of Action For Better Cities, the political advocacy arm of the League of California Cities.

Both sides concede that definitions of what exactly would constitute a fee and a tax under the initiative is hazy at best. It hinges largely on whether the revenues raised by the fees are used for "targeted" or "broad" purposes, subjective determinations.

Thus, if passed, the fate and scope of the initiative would most likely rest with the courts, where the whole issue began eight years ago. Because it is considered one of the minor ballot measures, neither the California Field Poll nor the Public Policy Institute of California has done any polling to determine where voters stand.

Proposition 39 has no such vagueness of language. It states simply that a local bond measure to raise money to build new schools needs only 55-percent approval from voters in the school district, not the two-thirds vote now required.

If this sounds familiar, it should. Just seven months ago, voters narrowly rejected Proposition 26, which would have lowered the approval threshold for school bonds from two-thirds to a simple majority of 50 percent, plus one vote.

Immediately after that measure failed, Gov. Gray Davis, legislative leaders and other proponents including the state's major business groups huddled and came up with a revised proposal for the November ballot.

"We're supporting Proposition 39 because schools are an essential element for prosperity in California," said California Business Roundtable Executive Director William Hauck. "It's in the interest of our members, who are the state's major employers, to have enough schools and up-to-date facilities so we can have an adequately trained workforce. We need the ability to fix old facilities and add new facilities as needed, and that's why for the last 20 years we've been supporting efforts to reduce the two-thirds voter approval threshold."

Because voters rejected the simple majority threshold, Davis helped broker a 55-percent threshold compromise high enough to be considered a super-majority but still lower than the two-thirds threshold. While only about 60 percent of local school bond measures passed that two-thirds threshold over the last four years, almost 90 percent garnered at least 55 percent of the vote.

Backers put in additional provisions designed to strengthen taxpayer safeguards. One would require citizen oversight committees for each bond measure. Another prohibits special elections with only the school bond measure on the ballot. A third provision caps the amount of money that could be raised by a single bond measure at $60 per $100,000 of assessed property value.

"These measures are pretty strenuous," said Hauck. "We don't make it easy for a district to put a measure on the ballot and, if it does get approved, we want to make it nearly impossible for any improper use of the funds."

Still, despite having poured $7.7 million into the Yes on 39 effort through the first six months of the year, proponents face an uphill battle at the ballot box.

In the last poll taken by the California Field Poll in August, Proposition 39 garnered 48-percent approval, while 31 percent opposed it. The failure to pass the 50-percent mark generally does not bode well for a tax measure, since support for such measures typically erodes as Election Day draws nearer.

Opponents hope to score additional points with their argument that any tampering with the two-thirds voter approval threshold violates the central tenet of Proposition 13.

"In this state, we have a long-term policy of requiring that irrevocable debt that results in a lien on one's home is one of those matters requiring a two-thirds majority vote," said Jon Coupal, president of the Howard Jarvis Taxpayers Association. "This is the cornerstone of Proposition 13 and is an absolutely essential protection for the state's homeowners."

Coupal and other opponents say new schools should be funded with dollars from the huge state budget surplus, not with additional local taxes on homeowners. And they fault the business community for joining in the effort to pass the buck onto homeowners.

"Clearly the business community felt it was in a very vulnerable position with the Democrats controlling things in Sacramento," Coupal said. "That is why they got their marching orders from Gov. Davis on Proposition 26 and I believe they are getting their marching orders from Davis on Proposition 39. After all, most of these big business people have little of their assets tied up in real estate; it's all in the stock market."

But the California Chamber's Main notes that two-thirds of the state's property is owned by business entities.

"We are not shrinking away from paying taxes to build new schools," Main said. "In fact, when business people go to the polls next month, they realize that they themselves will be bearing the largest burden of any new taxes that result."

However, Main acknowledged that if Proposition 39 passes and more local school bond measures do win approval in coming years, school districts would feel less need to impose or raise developer fees, as the Los Angeles Unified School District proposed earlier this year.

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