Millions Spent in Battle Over Making It Easier to Raise Taxes

Public employee unions are spending millions to promote a ballot measure that would make it easier for state lawmakers to raise taxes, while tobacco interests, alcohol companies and other potential tax targets are waging a multimillion-dollar campaign against it.

The fight is over Proposition 56, an initiative on the March 2 ballot that would lower the Legislature’s threshold for approving the annual state budget and any tax increases to 55%. Current law requires a two-thirds vote of lawmakers in both houses to approve such measures.

Foes denounce Proposition 56 as a “blank check” initiative and say it would invite runaway taxes. Proponents promise that their “budget accountability act” would end drawn-out budget fights, in part by withholding lawmakers’ pay if they fail to pass a budget on time. They also say it is not a veiled attempt to levy broad new taxes.

Both sides are airing television spots statewide at a cost of $1.5 million per week. Backers have raised $14 million; opponents have raised $7 million, campaign finance reports show.

The Service Employees International Union is leading the Yes-on-56 campaign, having spent $9.2 million so far. SEIU is the largest single union in California, with 550,000 members, including more than 100,000 state government employees. The California Teachers Assn. and other unions representing public school workers have contributed $4 million.

Their members’ jobs, pay and benefits depend on state budget decisions. Their lobbyists often are at the center of battles over the annual state spending plan, tax increases and tax cuts.

“They have an insatiable appetite for taxes,” said Larry McCarthy, president of the pro-business California Taxpayers Assn., which opposes Proposition 56. “They would like to raise taxes on anything that moves.”

Dean Tipps, executive director of the California State Council of Service Employees, defended his union’s support of the measure, saying its members are among “the chief victims of the budget mess.”

Tipps decried proposals to reduce public university enrollment, cut healthcare for low-income workers’ children and reduce spending on in-home services for invalids provided by workers who are SEIU members.

“This impacts the quality of life for our members and the quality of life in California,” Tipps said. Foes of Proposition 56, he said, “are unwilling to get past their narrow self-interests and look at the greater public good.”

The single largest donor in opposition to Proposition 56 is the California Republican Party, at $750,000. But businesses that routinely are selected for tax hikes have given the bulk of the No-on-56 effort’s $7 million.

The beer, wine and spirits industry has spent $2.2 million to fight the measure, followed by oil and gas producers at $1 million, the insurance industry at $860,000 and tobacco companies at $568,000.

“These are not industries that care about you or me and our taxes,” said Democratic consultant Gale Kaufman, who is managing the pro-56 campaign. “They’re worried only about their own fees and their own singular special interests.”

In the Legislature, tobacco firms and beer, wine and liquor companies regularly fight proposals to raise taxes on their products.

Cigarette maker Philip Morris USA and one of its sister companies have donated $395,000 to fight Proposition 56. Philip Morris spokesman Brendan McCormick said the company opposed the measure because the current two-thirds vote requirement for tax hikes was a “check and balance against excessive taxes.”

ChevronTexaco, which has donated $605,000 to fight the proposition, is particularly vulnerable to tax hike proposals because it owns two refineries in California. There have been attempts to add as much as $1 per barrel in new taxes to gasoline refined here.

“History would tell you that anytime it is easy to raise taxes, the ones that go up are the so-called sin taxes and the gas tax,” said Jack Coffey, who oversees lobbying for ChevronTexaco.

Although Democrats hold majorities of 48-32 in the Assembly and 25-15 in the Senate, Republicans regularly muster enough votes to block tax increases. But some Democrats say a 55% threshold would not lead automatically to tax hikes.

“It would be easier,” said Assembly Revenue and Taxation Committee Chairman Rudy Bermudez (D-Norwalk), a backer of the measure. “Will it be done? No. You have to understand that if you overtax the community, you’re going to upset the balance in revenue and earnings, and people’s disposable income.”

Proponents note that, even if lawmakers approve tax hikes, governors would retain veto power, as well as line-item veto authority to cut specific spending proposals approved by the Legislature.