Jerry Brown’s Optimism Has Been Costly

His insistence that California's budget woes weren't that bad — when they were — might have cost voters a chance to close corporate tax loopholes.

Jerry Brown‘s recent acknowledgement that his administration had seriously underestimated California’s budget woes was predictable. The nonpartisan Legislative Analysts’ Office had been challenging Brown’s numbers for months, contending that the governor was far too optimistic when he predicted in January that the California economy would rebound strongly and that tax revenues would be pouring into state coffers this year. Brown insisted that his projections were right, but they weren’t. He admitted as much on May 14 when he revealed that the state’s budget deficit was far worse than his office had estimated — $16 billion versus $9 billion — because of stagnating tax revenues. Consequently, Brown and the legislature are now facing much deeper cuts to essential state services than expected.

But Brown’s misplaced optimism appears to have created problems beyond having to deal with difficult budget decisions. His insistence on downplaying California’s financial woes over the last several months may have helped short-circuit efforts to raise corporate taxes in California and generate much-needed funds for the state. Proponents of the corporate tax measures, which would have produced billions in revenues, have either failed to gather enough signatures or appear to have abandoned their efforts altogether.

For example, earlier this year, a noted East Bay law firm proposed a ballot measure that would have reformed Proposition 13 to raise taxes on commercial property. Back in the Seventies, Prop 13 was sold as a way to protect homeowners from having to pay higher taxes as the value of their homes went up. Under the law, property taxes don’t significantly increase until a home is sold. But the authors of Prop 13 also included commercial property in the measure, and as a result corporations have been able to keep their property taxes artificially low — even if they’re making huge profits.

The proposed Prop 13 reform measure would have required that a commercial property be reassessed for tax purposes every three years — not just when it was sold. For years, progressive economists have championed this type of reform as a smart way to raise revenues for the state and close an unnecessary loophole. As a sweetener, the ballot measure backers proposed giving homeowners an additional property tax break. The measure, known as the Protect Homeowners and Close Corporate Tax Loopholes Act, would have generated about $3 billion annually.

However, in recent months the proponents of the measure decided to drop it. Margaret R. Prinzing of the San Leandro law firm Remcho, Johansen & Purcell, LLP declined to comment on why her clients chose to stop gathering signatures. But with Brown’s rosy assessment of state finances, and his decision to pressure backers of other tax measures to abandon them out of fear that his own wouldn’t pass, it’s not hard to read the tea leaves. After all, if Brown had been right about the shape of the budget, then Prop 13 reform would have been a tough sell to voters — no matter how much sense the measure made.

Similarly, former longtime state Democratic Senate leader John Burton had proposed a 12.5 percent tax on oil and natural gas extraction in California. The tax would have generated $3 billion each year, of which $1 billion would have been earmarked for higher education. It also would have closed another unnecessary corporate loophole: California is one of a few states in the nation that does not tax corporations for extracting oil and gas. Even Republican-dominated states like Texas and Alaska do it.

At least another two proposed ballot measures also sought to implement a tax on oil and natural gas extraction in California, but they both failed. One would have enacted a 15 percent tax, the other, a 10 percent tax. Burton’s plan doesn’t seem to be making any progress, either. He didn’t respond to calls for comment, and a news database search found no stories about his measure after he introduced it.

As a result, California appears to heading toward November with only one tax measure on the ballot: Brown’s Millionaire’s Tax. And while it’s a smart tax proposal, it will generate only about $7 billion annually, less than half of the $16 billion deficit that the state now faces. Consequently, state lawmakers will likely have to slash higher education spending again and shred the social safety net even more next month — a safety net that is already in tatters because of previous budget cuts.

A’s Move to SJ Looks Dead

The proposal by Oakland A’s owners Lew Wolff and John Fisher to move the team to San Jose looks like it’s officially dead. Baseball Commissioner Bud Selig said last week that there was no timetable for when the league would even consider the A’s proposal, the Associated Press reported. Selig also said that the A’s are nowhere close to reaching a required deal with the San Francisco Giants to move to the South Bay. The Giants, which own the territorial rights to the South Bay, have blocked the A’s’ efforts to move to San Jose.

KCBS news reporter Doug Sovern reported that A’s-to-San Jose booster Larry Stone said he interprets Selig’s comments to mean the A’s’ move to San Jose is dead and no longer an option.

Selig also indicated that the A’s might have to leave Northern California if they want to move out of the East Bay. Wolff and Fisher have said that they have no interest in keeping the team in Oakland. However, pressure has been mounting for Wolff and Fisher to sell the A’s to an ownership group that will keep the team here.

Selig said that both the A’s and the Giants made presentations last week to Major League Baseball’s executive committee. Based on Selig’s comments, it seems clear that the Giants’ presentation was persuasive and that the rest of the league has no intention of overruling the Giants’ opposition to the A’s’ move. The Giants have said that the financial stability of their ballclub — which must pay the annual debt the team took on to build the privately financed AT&T Park — depends heavily on keeping the territorial rights to the South Bay. And other owners appear unlikely to upset that financial balance, or to go against the wishes of a team that’s trying to keep another ballclub from infringing on its territory.


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