Budget Limbo

The fate of redevelopment and the Amazon.com tax bill remain uncertain after Brown vetoes the Democrats' budget.

When Governor Jerry Brown vetoed the budget package passed by the Democratic-controlled legislature last week, he left in limbo two pieces of legislation that would greatly affect East Bay governments and businesses. The first was legislation approved by Democrats that would effectively eliminate redevelopment agencies in the state. The second concerns legislation that seeks to level the playing field for retailers by forcing Amazon.com and Overstock.com to finally begin collecting sales taxes from California consumers.

East Bay retailers have been pushing for the Amazon.com bill for more than a decade, arguing that exempting online businesses from having to collect sales taxes puts brick-and-mortar stores at a big disadvantage. However, both former Governors Gray Davis and Arnold Schwarzenegger vetoed similar previous bills. In 2000, Davis said he didn’t want to “send the wrong signal about California’s international role as the incubator of the dot-com community.”

That was before the dot-com bust, of course, and the subsequent eye-popping growth of online retailing. Indeed, the sales tax exemption for online retailers has fueled that rapid growth, as the fortunes of brick-and-mortar stores have lagged behind. The tax-exemption also has created a huge hole in the state’s budget. California estimates that it loses about $1 billion a year in tax revenue from online and mail-order sales, the Sacramento Bee reported.

As the state grapples with a huge budget deficit again this year, Senator Loni Hancock of Berkeley and other Democratic legislators have pushed forward with the Amazon.com bill. The Board of Equalization estimated that the Internet tax could generate $317 million for the state. Last week, Democrats approved the legislation, along with the budget package, without any Republican votes. And even though Brown vetoed the Democrats’ budget, he indicated that he supported the Amazon.com legislation, telling reporters in Los Angeles that it’s a “common sense idea.”

Brown is right. The Amazon.com legislation is common sense; and it’s way overdue. Giant online retailers no longer need a competitive advantage over brick-and-mortar stores. Indeed, the sales-tax exemption is helping the Internet companies put small stores in the East Bay and elsewhere out of business.

If the bill goes through, Amazon.com and Overstock.com have threatened to sever ties with their affiliates — small businesses that sell their goods through the big companies’ web sites. Other large retailers, however, including WalMart and Target, have offered to do business with those small affiliates should Amazon.com and Overstock.com carry out their threats. In fact, several large retailers support Hancock’s legislation.

However, the fate of the Amazon.com legislation remained uncertain earlier this week, because Brown didn’t technically veto it. The SacBee reported that Democratic staffers were determining whether the legislation could still be sent separately to Brown for his signature, or whether lawmakers would have to vote on it again since it was part of the overall budget package. In addition, Democratic senate leader Darrell Steinberg tweeted that he believed Brown would veto the Amazon.com bill, presumably until the governor has struck a deal with GOP legislators concerning his proposed tax-extension ballot measures.

The same uncertainty, meanwhile, was swirling around the future of redevelopment. The legislation approved by Democrats last week would require redevelopment agencies to award a total of $1.7 billion to schools, fire protection districts, and transit districts, starting July 1. Most redevelopment agencies, including Oakland’s, don’t have that kind of cash lying around, and so the legislation would effectively put the agencies out of business.

Oakland, as result, would no longer be able to afford to build affordable housing for lower-income residents, Mayor Jean Quan told the Associated Press. In addition, the city was planning to use redevelopment money to acquire land and build infrastructure for a new Oakland A’s ballpark in the city’s Jack London district. Without the money, building a new stadium wouldn’t be possible, and could provide all the impetus that A’s co-owner Lew Wolff needs to take his team elsewhere.

Brown has made it clear for months that he wants to eliminate redevelopment agencies as a way to help balance the state budget. Redirecting redevelopment money to schools and other services means his budget cuts won’t have to be as deep. But if he signs the legislation, it will almost certainly result in protracted litigation. Big-city mayors from throughout California, including Quan, expressed outrage last week at the prospect of losing redevelopment. They contend that the legislation violates Proposition 22, a statewide initiative approved by voters last year that sought to block the state from raiding redevelopment funds.

As with the Amazon.com legislation, it’s unclear whether the Democratic legislature will send the redevelopment bill to Brown for his signature, or whether it would need to revote on it. And Brown may want to wait for a compromise with GOP lawmakers before moving forward on it.

The prospect of such a deal with Republicans appears to be a long shot, however. Moderate Republicans have indicated that they have no intention of voting to put the governor’s tax measures before voters unless, at minimum, he goes along with public-employee pension reform. And Brown has shown no indication that he is willing to do so. In fact, the Los Angeles Times reported over the weekend that Brown may sign a Democratic-approved budget after all, if Republicans don’t agree to his terms, and start collecting signatures to put his tax measures on the ballot without their help.

Three-Dot Roundup

A federal judge refused to overturn a ruling that invalidated Proposition 8, saying there was no proof that Judge Vaughn Walker‘s sexual orientation constituted bias in the case. … A Los Angeles bankruptcy court ruled that the Defense of Marriage Act, the federal anti-gay-marriage law, is unconstitutional because it denies gays and lesbians the same basic protections in bankruptcy proceedings afforded to heterosexual couples. … The East Bay MUD board voted unanimously to raise water rates by 6 percent in an effort to boost revenues because local residents are using much less water. … And a large majority of Californians are ready to overhaul the state’s three-strikes law and give judges and juries more leeway in sentencing convicts, according to a new Field Poll.

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