Prop. 39 would end tax giveaway, raise $1 billion for California

The initiative would do away with an incentive for out-of-state corporations not to invest in California.

SACRAMENTO — During the middle of a winter night in 2009, sleep-deprived legislators and Gov. Arnold Schwarzenegger devised the deal from hell. It included a tax incentive for out-of-state corporations not to build facilities or hire employees in California.

You read right. It was nonsensical.

The main feature of the agreement, you may recall, was a four-year tax increase. But the groggy legislators and governor foolishly gave voters an opportunity to halve the tax hike's duration. And the voters eagerly did.

To soften the tax bite, voters also had to kill a rainy day reserve — a sort of spending cap — cherished by Schwarzenegger and Republicans, but despised by unions. So everyone in Sacramento lost in the special election: tax-seeking Democrats and unions; the spending-control-demanding GOP and governor.

But, to be truthful, the deal wasn't all the work of the devil. As a price for the tax vote of then-Sen. Abel Maldonado (R-Santa Maria), a measure was placed on the 2010 ballot to dramatically change California's election system, creating the "top two" open primary.

The new system may result in the election of some more pragmatic, centrist-leaning lawmakers.

Also surviving from that convoluted package, however, is the tax disincentive for out-of-state corporations to invest in California.

The purpose of Proposition 39 on the Nov. 6 ballot is to finally drive a stake through that monster giveaway, killing it and raising $1 billion.

Polling on Prop. 39 indicates weak voter support and general confusion.

A recent USC Dornsife/Los Angeles Times poll found a slim 51% majority of registered voters in favor, but only 29% against. A narrower Field Poll survey just of likely voters showed 45% in support, with 39% opposed.

Under Prop. 39, roughly half the new tax revenue would flow into the state's general fund to help pay for services, including education. Kindergarten through community colleges would automatically receive at least $200 million annually.

The other half would be spent on stimulating the green economy. Specifically, it would pay for retrofitting public buildings, including schools and universities, with alternative energy equipment.

The energy spending would last five years. After that, the entire $1 billion would be poured into the general fund.

The driving force behind Prop. 39 is hedge-fund billionaire Thomas F. Steyer of San Francisco, a Democratic donor and environmentalist.

"Look, why would I get involved in arcane tax law?" Steyer asks rhetorically. "The truth is, this is obviously good for every Californian. It's not going to raise a tax on any Californian.

"The state is not rich enough to throw away $1 billion a year."

Right here I should try to explain the tax giveaway and Prop. 39's solution.

Before the dead-of-night deal, corporate taxes were calculated on a formula that considered three factors: a company's sales, workforce and property in California. Many companies had complained justifiably that this penalized job creation and facility building in California because expanding here would lead to higher taxes.

So legislators moved to adopt a "single sales factor," as many other states had. Taxes would be based strictly on a company's sales in California. But lobbyists for out-of-staters quickly flooded the Capitol corridors complaining about higher taxes for their clients.

The Legislature's weak-kneed solution was to allow companies to choose whichever tax option best suited their bottom lines: the old formula or the new.

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