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California Senate rejects extending state taxes, votes to expand local tax power

Saturday, Jun. 11, 2011

Senate Republicans blocked a tax solution to the deficit Friday, prompting Democrats to respond with a countermeasure expanding local taxation powers.

Thus began Round 2 of the state budget battle, complete with readings of letters from sheriffs and taxpayers, parliamentary gamesmanship and failed amendments on abortion funding.

With a threat of lost pay hanging over their heads, lawmakers face a Wednesday constitutional deadline to balance the budget. The Senate made procedural progress Friday by passing a slew of budget alterations on a majority vote, but state leaders still lack a bipartisan agreement.

The key divide remains taxation. Democrats want to solve the remaining $9.6 billion deficit with extensions of higher sales and vehicle taxes, as well as a return to higher income tax rates that expired last year. Democrats asserted Friday that they had already taken hard votes by slashing universities and various programs for the poor in March.

“The public doesn’t like cuts and they don’t like taxes,” said Senate President Pro Tem Darrell Steinberg, D–Sacramento. “And as my budget director is fond of noting, I have yet to see a poll that results in a balanced budget. If there was a pain-free option to balancing the budget, we would have passed it months ago.”

Gov. Jerry Brown has pushed all year for a tax election after vowing he would not raise taxes without a public vote.

Republicans say they will not vote directly for taxes, though they have entertained the idea of allowing a tax election if Democrats agree on a long-term spending limit, pension cuts and regulation rollbacks.

Brown has met privately with select Republican lawmakers to hash out a deal along those lines. Sen. Tom Berryhill, R-Oakdale, sounded positive in a floor speech Friday. He said GOP lawmakers have crafted a potential compromise.

“We think we have that plan now,” Berryhill said. “We think that plan is much better than it was back in March. Whether or not we can get there in this next week and come to a consensus of how we’re going to get there and which way we are going to do that is yet to be (seen), but I think that if we keep talking ... that there is a pathway.”

A key sticking point remains whether to extend higher sales and vehicle taxes beyond June. Under a 2009 budget agreement, the state sales tax is slated to decline by one percentage point and the vehicle license fee by half a percentage point on July 1. Should that happen, it will be more difficult for lawmakers to reinstate those taxes.

Senate Democrats on Friday sought to extend those taxes for an entire year, as well as reinstate a smaller dependent tax credit and income tax surcharge. That would raise an estimated $8.1 billion.

“This allows our state to move forward, making the investments that our parents made for us,” said Sen. Fran Pavley, D-Agoura Hills.

The proposal seemed to be a trial balloon, considering Brown has sought a legislative tax bridge half as long behind closed doors. The bill fell short of the two-thirds vote requirement as Republicans warned that imposing such taxes would harm the state’s economic recovery.

“If you extend these taxes, it’s going to mean more people out of work at a time when people can least afford it,” said Sen. Tony Strickland, R-Moorpark. “If you vote for this, it will actually be a full year of tax increase even if in September the people vote this down.”

Once that failed, Steinberg brought his long-awaited local government taxation bill to the floor, Senate Bill 23 1X. Approved on party-line vote, it would give county supervisors and school officials the ability to ask voters to increase taxes on a variety of goods and services – including income, sales, alcohol, cigarettes, medicinal marijuana and oil – to fund local services.

The bill, originally contained in Senate Bill 653, has become a bargaining chip in the budget process as Democrats try to pressure Republicans into agreeing to general tax extensions. Businesses that back Republicans oppose targeted tax hikes and prefer general tax extensions.

“I believe that it is another club to use over Republicans and our constituencies, saying if you don’t do this bridge tax, if you don’t raise the taxes of people that have already said no, then we are going to have all these different taxes,” said Sen. Bob Huff, R-Diamond Bar.

Democrats said they had the responsibility to allow communities to fund their public programs if Republicans refused to.

“I felt it was important to pass this early because it does show that if the minority party, which holds some of the cards here, does not provide bridge funding for schools and public safety agencies that the majority party will fulfill its responsibilities,” Steinberg said.

Earlier in the session, Democrats approved a variety of changes to the budget outline passed in March. They used additional school funding to roll back $200 million in child-care reductions. They also agreed to pay down $3 billion in K-12 deferrals, a plan that relies on the tax extensions that remain in limbo.

One Republican, Sen. Sam Blakeslee of San Luis Obispo, voted for that school legislation even though he rejected the tax bill.