It's not often that business groups get behind ballot measures that add billions of dollars in taxes, but that's what's happening with the six statewide propositions on the May 19 special election ballot.
Most major business groups in the state including the California Chamber of Commerce and the Los Angeles Area Chamber of Commerce are supporting Propositions 1A through 1F. These measures complete a deal that legislators made with Gov. Arnold Schwarzenegger to close a record $42 billion budget deficit.
"It's a sign of how bad things have become in this state that groups like ours are supporting what amounts to a massive tax increase," said Carol Schatz, chief executive of the Central City Association, which represents business interests in downtown Los Angeles. "It's tragic, but there really aren't a whole lot of alternatives and certainly none that are more palatable."
While the support of business organizations could provide some boost, it won't be anywhere near enough to assure passage: All but one of the measures are trailing by wide margins in the polls.
In early March, the Central City Association was one of the first business groups to voice support for the ballot measures. The measures were a product of budget negotiations that had dragged on for nearly four months, and they were crafted to bring together enough support from various political factions to get the budget passed.
Since then, the Los Angeles Area Chamber of Commerce, the Valley Industry and Commerce Association, the California Chamber of Commerce and the California Manufacturers and Technology Association have joined in support. Last week, the Long Beach Area Chamber of Commerce endorsed most of the ballot measures.
"We're concerned that if this doesn't pass, the Legislature will come back and pass taxes that are more targeted towards business," said Gary Toebben, chief executive of the Los Angeles Area Chamber of Commerce, which endorsed the six propositions earlier this month at press conference with Schwarzenegger.
Proposition 1A, the centerpiece of the package, imposes a spending cap and sets up a "rainy day fund" that could be drawn upon in future hard times. But 1A also calls for $16 billion in tax hikes. The measure creates a two-year extension of hikes in the state sales tax, the personal income tax and the vehicle license fee. Without Proposition 1A, those tax hikes which are just now taking effect would expire by 2011; with Proposition 1A, they would extend to 2013.
Most of the time and especially during a deep recession business groups would line up in opposition to such drastic tax hikes, but not this time. Whether out of fear of more directly targeted taxes eventually hitting them, or out of a desire to see fiscal stability in the state, business groups have set aside their traditional anti-tax stance, split from their usual Republican allies and climbed on board the campaign to pass the propositions.
While not every group has taken a position yet, none so far has come out in opposition to the ballot measures. But individual business owners have.
"I'm against this because I don't want to see any more tax increases, definitely not during this recession," said Armando Palacio, owner of Document Management Solutions, a 35-employee downtown L.A. document management company serving the legal and accounting industries. Palacio said he owns several fleet vehicles and would be directly impacted by the near-doubling of vehicle license fees. The fee hike will take effect Friday and would extend into 2013 under 1A.
Palacio attended a press conference last week launching an opposition campaign to Proposition 1A. In attendance was former Los Angeles Mayor Richard Riordan, who spoke against the measure, saying it would hurt the poor and drive away people who can create the jobs they need.
"Sacramento is out of control, and the people are saying enough is enough," Riordan said.
Scott Hauge, president of Small Business California, a statewide organization, said about 40 percent of the business owners with whom he's discussed the measures are opposed.
"They don't like the tax increases," said Hauge, whose group doesn't take a position on ballot measures.
Proposition 1A is the most controversial of the measures. Opposition is coming from both the left and the right: Anti-tax groups are objecting to the tax extensions, while labor unions, and some health and social service advocacy groups oppose the spending cap because they believe it would slash funding for critical programs.
Of the six ballot measures, only Proposition 1F, which blocks raises for state legislators and elected officials in deficit years, has garnered enough support in recent polls about 70 percent to indicate likely passage. None of the remaining measures polled above 45 percent in a Public Policy Institute of California poll taken in late March; Proposition 1A only showed 39 percent support. Measures polling that low six or seven weeks prior to Election Day generally tend to fail.
But that hasn't stopped Schwarzenegger and business supporters of the budget ballot package from raising more than $12 million to date for their cause. In doing so, they are breaking from the rank and file and the leadership of the state Republican Party, which last week voted to oppose the measures.
"The Republican Party has become much more conservative and staunchly anti-tax in recent years, while business interests have adopted a more practical approach," said Robert Stern, president of the Center for Government Studies, an L.A. think tank and government reform group.
In this case, Stern said, business groups are choosing the lesser of two evils. Proposition 1A extends taxes that are paid by most every resident in the state: sales, income and car taxes. But if the measure fails, the Legislature would have to find money to compensate for the missing $16 billion in 2012 and 2013. It could do so by taxing certain types of service businesses, such as law firms and accountants, or increasing commercial property taxes.
That's why the California Manufacturers and Technology Association has endorsed the six ballot measures.
"We're very concerned about what would happen with taxes on business if this doesn't pass," said association spokesman Gino DiCaro. "It's not just new taxes aimed at business that we're concerned about. It's also taxes masquerading as fees."
The reason for that would be fees can be passed by a simple majority, but new or increased taxes require a two-thirds vote.
Not all business groups are worried about new taxes, though. At the Valley Industry and Commerce Association, the desire to end the painful cycle of mammoth state budget deficits was paramount.
"We're basically up against a brick wall here," said Greg Lippe, VICA chairman. "These deficits are too big to cut our way out and we've pretty much used up all of our borrowing options. So we need more revenue so we can balance the budget and jump-start this stalled economy."
Propositions at a Glance
1A: Increases size of budget reserve fund, imposes a cap on state spending, and extends increases in the sales tax, personal income tax and vehicle license fees for two years, raising an additional $16 billion in revenues.
1B: Authorizes payment of $9.3 billion for K-12 education, but only if Proposition 1A passes.
1C: Allows the state to borrow up to $5 billion from future profits from lottery funds.
1D: Diverts up to $2.5 billion of voter-approved funds from the First 5 Children and Families Program to the state's General Fund for up to two years.
1E: Diverts about $1.5 billion from mental health services raised by Proposition 63 to the General Fund through 2014.
1F: Blocks salary increases for state elected officials in years when the General Fund is expected to show a deficit.
Source: Ballot pamphlet
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