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Tax Fault Lines in California Public policy: Business, concerned about crumbling infrastructure, may retreat from part of Proposition 13.
By Joel Fox, Los Angeles Times, Monday, April 19, 1999

New fault lines are forming on California's political map that could crumble a long-term alliance between the business community and taxpayers. Any shaking along those lines can only encourage those seeking higher taxes.
A number of business leaders and business associations feel that government is right to chafe under some taxpayer protections that citizens have put in the state Constitution. To improve business in California, they argue, education and transportation infrastructure must be upgraded, which they say will take many more public dollars. To get that money, they want to make it easier to raise taxes.

A major fight is shaping up over California's requirement for a two-thirds vote of the people to raise many taxes at the local level. A two-thirds vote provision on taxes was added to the California Constitution by Proposition 13, the 1978 property tax-cutting initiative, and reaffirmed with Proposition 218 in 1996. A two-thirds vote to pass any local general obligation bond backed exclusively by property taxpayers has been state law since 1879.
The state Chamber of Commerce and the California Business Round Table, made up of the CEOs of California's biggest companies, are on record for lowering the two-thirds vote provision for bonds. Also, an initiative has been introduced by Reed Hastings to lower the two-thirds vote for local school bonds. While Hastings and other high profile Silicon Valley entrepreneurs support making it easier to raise these taxes, the high tech industry is vigorously supporting moratoriums on Internet taxes and seeking R&D tax credits. Taxpayer groups, who would normally line up on their side, could think differently when the moratoriums end.

The alliance between taxpayer associations and the business community is a post-Proposition 13 phenomenon. During the campaign for Proposition 13, the state Chamber of Commerce was a leading opponent of the measure. Since it passed, however, the business community has generally come to embrace it.

Some business leaders' desire to make it easier to raise local taxes could come from the recent changes in the state's political landscape. Gray Davis, the first Democratic governor in 16 years, has declared himself business friendly, but having large majorities of Democrats in both houses of the Legislature, along with a Democratic governor, makes business leaders nervous.

For the time being, tax increases through the Legislature require a two-thirds vote, another taxpayer protection added by Proposition 13. This is a provision most businesses like. However, the business community is very concerned about a court-created provision under which fees targeted to mitigate the negative effects of products can be enacted by a simple majority vote. There seem to be few limits on the use of these fees. To assuage those who control the power in the Legislature, business is becoming more accommodating on reducing the local tax vote requirements.

This does not sit well with grass-roots taxpayer groups. Their response is: If business believes taxes should be raised, then let business pay them. Plans are being discussed by the groups to increase business taxes or split the property tax roll, increasing the tax rate on the business side of the ledger if voters are convinced that more taxes are needed.

The argument for looking at business for any tax increase was strengthened recently by a report noting that during the 1990s, the tax burden on business in California dropped while the tax burden on families and individuals increased.

California's tough tax laws have in part assisted the state's booming economy. Raising taxes could put a damper on the economy. But, because of this fight, tax increases seem inevitable one way or another.

There are some solutions to the concerns business cites that do not require tax increases. Business should have more faith in market-friendly answers to infrastructure and education problems, demanding, for example, school voucher experiments. Taxes collected on automobiles and gasoline, which now go to the state's General Fund, should be redirected to transportation infrastructure.

Finally, if the voters are convinced money is needed, they will support tax increase measures even with a two-thirds vote requirement.

Unlike the natural earthquakes that strike California, the tax earthquake has been detected early. The question is what will be done to prevent it.

Joel Fox Is a Los Angeles Consultant and President Emeritus of the Howard Jarvis Taxpayers Assn.

Copyright 1999 Los Angeles Times. All Rights Reserved

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Is It Time to Rethink Prop. 13?
By Diane Wedner, Los Angeles Times, April 18, 1999

As property taxes roll into the state coffers this month, a number of civic activists, politicians and lobbyists are pushing for a ballot initiative next year that would substantially change Proposition 13 by making it easier for local governments to impose or raise non-property taxes.

Momentum has also built to return control of property tax allocations to local governments, allowing them to keep most of that revenue rather than have it disbursed by the state.

DIANE WEDNER asked a recent home buyer from Woodland Hills and a longtime homeowner from Toluca Lake whether it's time to change Proposition 13, the 1978 state constitutional amendment that limited property taxes.

VALERIE PAGE / Woodland Hills resident; assistant food-service director at a hospital

I think it is time to change Proposition 13. As a new home buyer, my husband and I feel that we are paying an unfair share of property taxes, compared to homeowners who purchased prior to Prop. 13. They may own homes that have been assessed in value higher than mine, but my property tax bill is much higher than theirs. I also suspect that many people who own expensive, older homes are making a great deal more money than we are. The change in Prop. 13 that I would advocate would let property owners pay an equal share for the assessed values of their homes, whether they bought it prior to 1978 or after. If the homes are worth the same, the owners should shoulder an equal burden.

One of the more serious repercussions of Prop. 13 is that there has been a lack of funds available to local schools, which has resulted in a decrease in public education funding. The lack of property taxes has also affected many public services, including the health department, resulting in diminished funding for needy local residents, who must have access to affordable health care.
Although no one wants additional taxes, I would like to see local constituents have some control over which non-property taxes are raised. I would like to keep the money in our local communities for libraries, schools and hospitals. I would like us to have the power to vote to impose these taxes, just as we do with bond measures. A simple majority vote would be preferable to the two-thirds majority currently required to raise non-property taxes.

NATALIE BLOXHAM / Past president, Toluca Lake Chamber of Commerce; business owner

I was, and still am, in favor of Proposition 13, because the tax burden that I first faced when I purchased my [Toluca Lake] home in 1972 was tremendous. It was a big relief when that burden was lowered in 1978. My property taxes had been $3,000 a year, then they dropped to $600 a year, and now, even with Prop. 13, they're at about $1,900 a year. Prop. 13 gave a tremendous break to everyone at the time and for many years after. Under Prop. 13, the property taxes remained at a reasonable rate. I believe that if people feel we don't have enough fire protection or city services, they can vote for bond measures. You don't have to impose these taxes on property owners. We all have a voice in how to pay for these services, whether you live in a home or an apartment.

Even new homeowners are benefiting from the restraint put on the city tax assessor by Prop. 13. He's still going to raise the taxes, but at a lot slower pace. The young homeowner won't have runaway taxes on top of what he's already paying, which is a big enough burden.

I am opposed to skirting Prop. 13 with any kind of non-property tax initiative. That would just allow legislators to go ahead and unleash their desires onto the property owner, and taxes would be raised again. They call it non-property taxes, but a tax is a tax. It ends up, one way or the other, on your property tax bill.

Right now we're in control; we can vote to pay for more libraries and fire services. I would prefer to maintain a two-thirds majority approval for a tax increase of any kind.

I totally support the idea of local municipalities retaining our property taxes that are collected for distribution. We should have control over how that money is spent. Only that piece of Prop. 13 should be amended. Any attempt to amend Prop. 13 should use separate initiatives: one for raising non-property taxes, which I would oppose, and one for retaining local power over our tax money, which I would vote for.

Copyright 1999 Los Angeles Times. All Rights Reserved

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