Counties and Cities to Sue to Stop Internet Tax Panel
By JERI CLAUSING. March 3, 1999, New York Times
Frustrated that Congressional leaders have refused repeated calls for fair representation on a task force that will study Internet tax issues, the national associations representing mayors and counties on Tuesday said they would file a federal lawsuit to block the panel from meeting.
The National Conference of State Legislatures has threatened similar action against the task force, the Advisory Commission on Electronic Commerce, which has been unable to meet because of the dispute.
The problem stems from an apparent lack of communication between the four Congressional leaders who were authorized to make appointments to the panel. Working independently, each made their respective choices, resulting in a panel that has nine representatives from businesses that stand to be taxed and only six from the government entities whose revenues are at stake.
"The issue is fairness," Victor Asha, the Mayor of Knoxville, Tenn., said at a news conference in Washington where the National Association of Counties and the U.S. Conference of Mayors announced they would file the lawsuit in federal district court on Monday. "If the commission is to work, it must have appropriate local government representation to ensure Main Street America is heard."
The groups said they decided to go ahead and file a lawsuit because Congressional leaders have declined repeated requests to rectify the situation.
"The actions of the Congressional leaders exemplify an arrogant disregard of a law that clearly calls for state and local representation equal to that of business interests," said Tom Cochran, executive director of the U.S. Council of Mayors.
Shawn Bullard, a spokesman for the National Association of Counties, said the groups have met with Senator Trent Lott, the majority leader, and other congressional leaders involved on several occasions.
"We have brought this to their attention on multiple occasions, and on multiple occasions we have been told to be patient," he said. "We can only be patient for so long."
Indeed, the clock is ticking. The panel was created as part of the Internet Tax Freedom Act, which imposed a three-year moratorium on any new state or local taxes on Internet services and Internet sales. During that time, the panel is supposed to study the issue of Internet taxes and make recommendations on how, if any, national framework for taxing electronic commerce should take form.
The panel was given 18 months to complete its work. The first meeting was supposed to have been held last December.
After receiving objections from seven national associations representing state and local governments, the White House also got involved in the dispute. It proposed last month that legislation be considered to expand the size of the commission so that more government representatives could be appointed without forcing lawmakers into the uncomfortable situation of having to rescind the appointment of a powerful industry leader.
That idea has since been scrapped, according to Neal Osten, director of the National Conference of State Legislatures' commerce and communications committee, because of the likelihood that any effort to change the makeup could result in attempts to make major changes to the Internet Tax Freedom Act, which was a carefully crafted compromise.
A spokesman for Lott said the Senator was confident the dispute would be resolved.
"All along we have felt that this will be worked out," said John Czwartacki, adding, however, that the emphasis should be the "final report from the commission, not the makeup of the commission."
Osten and Bullard both said they had been told the Senate majority leader had told them he would look for volunteers to relinquish their nominations, but he apparently been unsuccessful.
"What we understood the week before the [President's Day] recess, Congressional staff met and were going to go back and survey industry nominees and see if any would voluntarily step aside," Osten said. "What we heard was that there were no volunteers. So we're back to the situation where one of the leaders is going to have to ask, or at least encourage, someone to step aside voluntarily."
Osten said his group has also authorized the filing of a lawsuit over the makeup of the board, but only if the panel attempts to meet.
No meetings of the commission have yet been scheduled, but Governor Jim Gilmore of Virginia, who is expected to be named chairman of the panel, said last week that he intends to be host at the first meeting in Williamsburg, Va., this spring.
Among those selected for the panel are James Barksdale, chief executive of Netscape Communications; Richards Parsons, president of Time Warner; Ted Waitt, chief executive of Gateway; Robert Pittman, president of America
Other appointees representing state and local interests are Jim Gilmore, Governor of Virginia; Gary Locke, Governor of Washington; Mike Leavitt, Governor of Utah; Ronald Kirk, Mayor of Dallas; Paul Harris, a Virginia Assembly Delegate; Dean Andel, a member of the California Board of Equalization, and Eugene LeBrun, chairman of the National Conference of
LeBrun was appointed by Senator Tom Daschle, Democrat of South Dakota, who had originally filled all three of his appointments with industry members. After the dispute over the panel's makeup erupted in December, however, he did what the other Congressional leaders have been unwilling to do. He called back the nomination of Larry Carter, president of Cisco Systems, to make room for LeBrun. Further complicating matters, however, is a dispute over whether or not LeBrun, being a former lawmaker, will be considered a local government representative.
The other appointments were made by Lott, former Speaker Newt Gingrich and Representative Richard Gephardt, the Missouri Democrat who is minority leader.
In addition to the industry and state and local government representatives, the 19-member tax commission includes representatives from the Department of Treasury, the Department of Commerce and the office of the U.S. Trade Representative.
If anyone had tried to design an unaccountable, incomprehensible structure of government that alienates voters and fosters distrust, he couldn't have done much better than serve up the nonsystem that California is now stuck in.
Even describing it is nearly impossible: 58 counties, 471 cities, 4,800 special districts, 400 redevelopment agencies, 1,000 school districts, few of them contiguous, many of them in surly competition with one another.
Because Proposition 13, passed in 1978, shifted control of local property tax to the state, it is the governor and Legislature who control the revenues of school districts and counties and, to a great extent, of cities as well, even while the locals still have nominal jurisdiction -- also increasingly circumscribed -- over how those revenues are spent. And because so many other formulas have been written into the fiscal structure, it's impossible to understand, for example, how schools are funded, who controls county programs or whom to blame when things go wrong. It's a system made for passing the buck.
Meanwhile, because property taxes are so limited and new residential development no longer pays for itself, it is not balanced growth but the slavish pursuit of sales taxes -- meaning shopping and auto malls -- that drives much of local planning. The auto mall was invented in California, as planner William Fulton put it, not "by the auto industry trying to sell cars, but by local governments trying to capture sales taxes."
The slim silver lining here is that in the past decade a growing number of California leaders -- in business, local government, unions and universities -- have become aware of what a mess we have. As a result there are now several major organizations -- the Metropolitan Forum Project in Los Angeles, the California Governance Consensus Project, composed of many of the interest groups in Sacramento -- trying to restore some logic and accountability to the system.
Last week, Assembly Speaker Antonio Villaraigosa, drawing on the work of those groups, created his own Commission on State and Local Government Finance. Among its members, representing a wide political spectrum, are some of the most knowledgeable people in California, from Jean Ross of the liberal California Budget Project to Joel Fox, until lately head of the Howard Jarvis Taxpayers Association, from Dean Tipps of the Service Employees International Union to Bill Hauck, president of the California Business Roundtable. It's chaired by David Abel, who heads the Metro Forum Project and the Los Angeles Little Hoover Commission.
It's hardly an easy assignment leading to a quick fix. A couple of years ago, the official state Constitution Revision Commission, addressing many of the same problems, couldn't get a how-do-you-do either from the governor (Pete Wilson), who had appointed most of its members, or from an indifferent Legislature, which seemed utterly lacking in any interest in the issue.
To make things even tougher, since this mess was not designed by anyone -- it is the result of the accretion and encrustation of 25 years of court decisions and voter initiatives, some of them now sacred icons, plus a collection of quick-fix legislative expedients designed to deal with the problems created by those initiatives -- it becomes even harder to untangle. Touch one hair on the head of Proposition 13 and you will face a whole peasant army with pitchforks.
Villaraigosa deserves whatever little credit he will get here. While it's no secret that he has ambitions to run for mayor of Los Angeles, a job that would sink him right into the middle of that fiscal morass, creating this commission is hardly something that will earn him a lot of votes, or even much attention. Process issues -- questions not about substance but about structure -- are yawners for even the most concerned citizens. This story will not play big on the 11 o'clock news.
Making things even more difficult is the initiative process itself, which has become the wild card in all California policy-making and whose ad-hoc mandates and prohibitions bedevil any attempt at rational fiscal planning.
Still, the general outlines of reform are clear enough: to restore to local government fiscal control, and accountability, over its own affairs. That means, as the legislative analyst has recommended, that the local property tax be locally allocated and that tax increases be subject to majority vote, not to supermajorities.
It also means that the tax structure must be equitable and encourage competitiveness rather than stifling it, as is now often the case. And it means developing a long-term strategy for financing infrastructure. In the past generation, the state has been living off the investments made in the 1950s and 1960s -- in roads and schools and universities. Instead of maintaining it, much less growing it, we have allowed it to run down.
None of those changes will be easy in the face of the accumulated distrust. Yet just to describe California's vicious cycle of frustration and voter initiatives, and the increasingly dysfunctional governmental institutions, state and local, it produces, is also to indicate how urgent real reform has become.
Given the disjointed way public funds are managed in California, it's virtually impossible for any government agency to do long-term planning. Given the confusion of authority between levels of government and the impenetrable structures that defeat even the most conscientious citizen attempts to understand how things work, is it any wonder that Californians tell pollsters they have far more confidence in policy-making through voter initiatives than through the governor and Legislature?
"Our government finance system," Gary Hunt, the executive vice president of Irvine Co., told Villaraigosa's commission last week, "is broken." The longer it stays broken, the deeper public distrust will become.
PETER SCHRAG'S column appears in The Bee on Wednesday. He can be reached by fax at 321-1996; or by letter at Box 15779, Sacramento, CA 95852-0779.
The mark of a true Capitol policy wonk is knowing what the acronym "ERAF" means.
It stands for "Educational Revenue Augmentation Fund," but that's a wonderfully obtuse bit of meaningless governmentese. ERAF really denotes an expedient, massive shift of property tax revenues from local governments to schools to help the state solve its own budget woes.
And beyond that, ERAF is jargon for the absolutely ludicrous system -- or nonsystem -- of financing local governments that evolved after voters enacted Proposition 13, a whopping slash in property taxes, in 1978.
Local government finance is a mixture of property taxes, pieces of the sales tax and payments of various kinds from the state, often with restrictive strings. It's impossible to predict with any certainty, is subjective to the political whims and encourages local land use decisions that may undercut sound planning, such as favoring sales tax-producing retailers.
Doing something constructive about this mess is an incredibly complex and decidedly unsexy political topic, but it's drawing increasing attention in the Capitol. And because its outcome will determine the quality of public services closest to ordinary citizens, there are few agenda items truly more important.
The ERAF property tax shift, which began seven years ago, encapsulates both the problem and the difficulties in addressing it.
With the state budget awash in red ink, thanks to a severe recession, then-Gov. Pete Wilson and the Legislature decided to share the pain by shifting several billion dollars a year in property tax revenues from local governments to schools, thereby allowing the state to reduce its school support.
The shift is currently $3.6 billion a year and in the years since, roughly two-thirds of the revenue loss to cities, counties and special districts has been made up with other money, principally proceeds of a special half-cent sales tax. But many of these offsetting revenues have tight restrictions; the sales tax money, for instance, must be used for law enforcement.
Local government officials have been agitating for years to either undo ERAF or offset its fiscal effects more fully. They tended to personalize their campaign, seeing Wilson as the villain because of his apparent disdain for local governments.
Ironically, however, Wilson successor Gray Davis has not been any more forthcoming in financial terms. In fact, his new budget takes another $200 million whack out of counties, virtually the only major expenditure category to suffer a loss. He's using the same argument that Wilson used, that the offsetting revenues and payments have pretty well compensated local governments for their losses, and promising only a long-term study of the issue.
Both legislative houses, meanwhile, have launched their own studies of local government financing, including a blue-ribbon commission appointed by Assembly Speaker Antonio Villaraigosa.
The Legislature's budget analyst, Elizabeth Hill, weighed in with a new report of her own Tuesday, telling lawmakers that no matter how ERAF were to be changed, some local governments would wind up as losers and some as winners.
What's needed, Hill said quite accurately, is not more tinkering but a top-to-bottom overhaul that would upgrade the local government finance system "into one that reflects modern needs and preferences of local communities."
She's absolutely correct, but to open up the issue fully would also involve even touchier issues as land use controls and growth management. And that's why nothing fundamental is likely to happen.
The mini-furor that erupted over Assembly Speaker Antonio Villaraigosa's naming of Ron Unz to a blue ribbon commission on state and local finances petered out Wednesday with a tiny protest outside the speaker's office in Sacramento. Around 10 demonstrators chanted and held up placards calling the speaker a traitor. The organizer of the event reiterated her charge that Villaraigosa's appointment of the author of the bilingual education ballot initiative to the panel was "a slap in the face" to Latinos across California.
Only a few years ago, newspaper editors would have run this story with the headline "Latinos Protest Speaker's Choice of Panelist." Before the emergence of Latino political clout, activist groups, no matter how small, were considered de facto spokespeople for millions of Latinos. Indeed, when there were so few Latino elected officials in Sacramento, ethnic advocacy groups played an instrumental role in filling the vacuum of Latino leadership. But the tremendous increase in Latino political power over the past few years has not only engendered a greater understanding of the diversity of Latino America, it also has undercut the role of traditional advocacy groups as proxies for California's Latino population.
No longer content to play bit roles as protectors of minority interests, Latino elected officials are assuming responsibility and leadership for the entire state of California. In addition to Villaraigosa, the lieutenant governor, Assembly minority leader and Senate majority leader are all Latino politicians who have sought to broaden their bases and deftly balance both ethnic and mainstream concerns. In so doing, they sometimes find themselves alienating groups like San Francisco's La Raza Centro Legal Inc., the group that picketed Villaraigosa's office.
Many political observers agree that 20 years ago, Villaraigosa, once a militant campus activist himself, may very well have been one of the demonstrators outside the speaker's office. Yet, time, political power, and ambition have surely tempered the speaker's approach to problem-solving. Indeed, if nothing else, Wednesday's demonstration exposed the maturation of the Latino political establishment, from grievance- oriented identity politics to a more confident, broad- based style that seeks to forge alliances with other groups and interests.
Rather than excommunicating Unz for backing an initiative the speaker vehemently opposed, Villaraigosa prefers to find issues upon which he and the opposition can work together. "I'm not interested in continuing the culture wars," says Villaraigosa. "I want to come up with legislative solutions to problems." And, to be successful in the legislative process, an elected official has to reach beyond his own constituency and find allies to provide a winning vote.
"When you gain power, responsibility, coalition building and law-making force you to have agendas that appeal to a broader base," says Loyola Marymount political scientist Fernando Guerra. "Latino politics has been redefined away from the activism of the 1960s and '70s." None of this is to say that the old-style activism will or should disappear, but it is revealing that at a time when Latino politicians are flexing more political might than ever before, more and more activists are afraid of being left out in the cold.
For his part, Villaraigosa is trying hard not to alienate any of his activist base. On Wednesday, he released a statement affirming his respect for the demonstrators' concerns. Still, other recent statements by the speaker indicate that the struggle between the old and new style of Latino politics is not over yet. Last December, Villaraigosa declared that it was time to move beyond 1960s-style confrontational politics. During his swearing-in for his second term as Assembly speaker, Villaraigosa went out of his way to reject what he called "the politics of protest." He quoted his late mother's admonition that it is "not enough to always be against. When you grow up you must also be for something."
Of course, Villaraigosa's local finance commission shouldn't be remembered for merely creating rifts with a sector of his constituency. It is actually bringing a remarkably diverse group of people together at one table. Twenty-nine-year-old San Francisco activist Luis Arteaga of the Latino Issues Forum, who also sits on the speaker's commission, says he is amazed to find himself seated on a panel not only with Unz but with anti-tax activist Joel Fox. "Public dialogue among such a diverse group of people can only help us avoid wedge issues in the future," says Arteaga. With Washington so deeply mired in nasty partisanship, the speaker's diverse appointments on the Commission on State and Local Finance might wind up showing us that there's a better way to play politics.
Gregory Rodriguez is a fellow at the Pepperdine Institute for Public Policy and the Washington-based New America Foundation.
WE DISAGREED with Ron Unz on Proposition 227, his ballot measure last spring to severely curtail bilingual education in state schools.
However, Unz proved himself a serious- minded student of public policy and a very forceful advocate of his position. To his credit, he kept his campaign focused on the substance of the issue, and he did not attempt to exploit racial divisions or resentment against immigrants.
Thus, it is unfortunate that Assembly Speaker Antonio Villaraigosa's decision to appoint Unz to a blue-ribbon panel on government finance has come under attack by a few Latino leaders. Their argument is that Unz, because of his sponsorship of 227, should not be accorded the legitimacy of such an appointment.
Villaraigosa has maintained that he was looking for a variety of views on the 28-member bipartisan group, which will look at an array of issues involving government structure and tax rates. There is every reason to believe the wonkish Unz would be a fine addition to that group.
This state should be looking for healthy debates, not litmus tests, in putting together these diverse commissions to assess public policy.
WE thought that Gov. Gray Davis had declared an end to 'wedgie' politics in California.
Perhaps we heard wrong. Some Latino activists are trying to hang Assembly Speaker Antonio Villaraigosa by his shorts for stretching out his hand to a man they consider their enemy. So far Villaraigosa has fended them off.
Villaraigosa's unpardonable sin: appointing Ron Unz, who led the anti-bilingual education initiative that voters passed last year, to the Speaker's Commission on State and Local Government Finance.
Never mind that Villaraigosa's commission has nothing to do with Proposition 227. Or that many Latino parents happen to agree with Unz's view of it. Or that Unz has supported some Latino causes, including opposing Proposition 187, which attempted to deny schooling to children of illegal immigrants.
Never mind that Unz, a high-tech entrepreneur from Palo Alto, is an original thinker who no doubt will offer some creative ideas about the state's vexing system of taxation.
People who lose the ability to see other points of view often can't let go and accept defeat. They tend to view adversaries on one issue as threats on all issues. They end up like Marcos Contreras, director of the League of United Latin American Citizens, who wrote to Villaraigosa, ``We should avoid giving (a) position of influence and authority to those who can do harm to our community.''
Unz ran into Villaraigosa last year at events where the two debated Proposition 227. Unz said they came to respect one another, and talk turned to government finance. The matter is of special interest to Villaraigosa, who's said to be considering running for mayor of Los Angeles.
Revenue problems are common to all communities and cut across ethnic and class lines. Cities are dependent on the Legislature for money. The revenue system is pinching cities and strangling schools.
Nonetheless, voters are suspicious of tax reform, and politicians are wary of talking about it. Moving the issue off dead-center will require a willingness to take risks and the patience to build a consensus. Villaraigosa took the first step with a bipartisan commission consisting mostly of Democrats but also some Republicans, like Unz and Ruben Barrales, the new CEO of Joint Venture: Silicon Valley Network. Gov. Davis has promised to name his own commission this year.
The Speaker's commission held its first meeting last week. Despite continued protests, Villaraigosa said he won't rescind the appointment.
Villaraigosa should be praised, not pilloried, for naming Unz. Notwithstanding what Davis proclaimed, the era of divisive politics won't end until activists on all sides stop fighting old wars and demonizing their opponents.
Speaker's Commission on State/Local Government Finance