Backers Say Measure Will Head Off ‘Hidden Taxes’

How about a new tax on fast-food burgers and fries to pay for obesity treatment? Or a fee on aspirin to finance poison control centers? A levy on cell phones to study the health effects of radio waves?

The tobacco, oil and alcoholic beverage sponsors of Proposition 37 on the Nov. 7 ballot say such new levies await Californians unless their “stop hidden taxes” initiative is approved.

Baloney, say opponents of the initiative, who include environmental protection, health and labor activists. They call the proposal a deceptive masquerade by its well-heeled underwriters to shift the costs of monitoring, mitigating and cleaning up pollution to average taxpayers.

Proposition 37, aimed at overturning a unanimous decision of the state Supreme Court in 1997, would make certain regulatory fees tougher to approve by redefining them as taxes.

As taxes, these fees would be subject to the steep barrier of a two-thirds approval of the Legislature or local electorate. Most fees can now be passed by simple majorities of the Legislature, city councils or county boards of supervisors.

“Proposition 37 is an opportunity for California voters to reestablish control over costly, expansive and unaccountable government services,” said Larry McCarthy, president of the California Taxpayers Assn., a business-oriented lobby.

But Jon Rainwater of the California League of Conservation Voters argued that “this is not about protecting taxpayers. It is about sticking taxpayers with the bill for the [adverse] activities of the oil, tobacco and liquor companies.”

Proposition 37 would apply to fees imposed after July 1, 1999, or to earlier fees that will expire and are subject to renewal. It would not affect fines or penalties that are paid to repair damages resulting from a specific incident, such as a hazardous waste spill.

Leaders of the Proposition 37 campaign say they have not identified specific fees that might be reclassified as taxes, but indicated that state recycling fees on used tires and assessments on pesticides might be “at risk.”

In its ruling, the court held that certain specific regulatory fees are a correct exercise of governmental power and are distinct from taxes, which traditionally finance broader programs such as health, education and safety.

Critics in business pounced on the decision, saying it blurred the distinction between taxes and fees and would invite new fees regardless of whether there was a connection between the regulated activity and the problem being addressed.

“The court decision allows you to impose a fee, which is, in itself, regulation,” said Fred Main, an executive of the California Chamber of Commerce who helped write Proposition 37.

McCarthy said the result of that decision will be “all kinds of increased hidden taxes.”

The proposed constitutional amendment would prohibit using regulatory fees to “monitor, study or mitigate the social or economic effects” of a business’ activity. Under the measure, such a fee could be imposed only if accompanied by a “significant regulatory” responsibility.

McCarthy and Main concede that since the court ruled there has been no rush by the state or local entities to enact new fees. They cited only approval of a pair of fees in Santa Cruz and Oakland and one new state fee on tires.

But they said they are taking no chances. “We are trying to turn the spigot off before much water has come out,” Main said.

Meanwhile, the Proposition 37 campaign pushes ahead, advertising a panoply of possible new consumer charges. They include health programs for the obese financed by fees on fast food, levies on cell phones for studies on the health effects of radio waves, and fees on movie and concert tickets to fund recreation programs.

Main, who helped write the initiative, agreed that fees on such examples may not have surfaced in California, but they have been discussed in Washington and elsewhere.

But environmental protection and public health advocates assert that the leading financial backers of the $2.2-million campaign for Proposition 37 are attempting to immunize themselves from pollution-related fees by shifting such costs to consumers.

The campaign has been financed almost exclusively by the tobacco, alcoholic beverage, oil and agribusiness industries. The opponents, known as Taxpayers Against Polluter Pollution, which includes the League of Cities, have reported raising and spending only $42,000.

“I think the liquor industry looks at what has happened to the tobacco companies, and they are concerned for themselves,” said Rainwater, executive director of the conservation voters.

He said he believes those industries are looking at potential environmental and public health issues and insulating themselves from financing such potential costs as paying for the monitoring of MTBE in drinking water.

“You don’t see McDonald’s funding this proposition,” he said.

Another opponent, Lenny Goldberg of the California Tax Reform Assn., which is closely aligned with labor, charged that sponsors of Proposition 37 are “trying to break the [connection] between those who do the damage and those who pay to clean up the damage.”

He noted that proponents of the ballot plan had cited the assessment on pesticides as an example of a fee that may be in jeopardy when it comes up for renewal in 2003. The charge is pennies on a container of bug spray, but provides more than two-thirds of the budget of the Department of Pesticide Control.

Goldberg said Proposition 37 would, among other things, jeopardize the department’s regulation of worker safety in the fields.

A department spokeswoman said staff lawyers indicated in a preliminary finding that the pesticide fee probably would not be affected by Proposition 37.

It is unclear also whether the state’s newly increased recycling fee on the purchase of new tires might become subject to a two-thirds vote.

The fee will increase to $1 per tire from 25 cents on Jan. 1 to finance programs that recycle, reuse and dispose of untold millions of used tires. The program has operated since 1991, but Gov. Gray Davis and lawmakers recently increased the fee after two nasty tire dump fires in the San Joaquin Valley that burned for weeks.

Backers of Proposition 37 said they are unsure whether the tire fee program would be affected by their measure. But they noted that its recent expansion to deal with solid waste issues other than tires may jeopardize the latest fee increase.

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Proposition 37 Highlights

What it would do: It would reclassify certain regulatory fees on business as taxes, subjecting them to a two-thirds vote of the Legislature or local electorate for approval. Generally, such fees now can be adopted by a simple majority of the state Legislature, city council or board of supervisors.

Who supports it: The California Chamber of Commerce, California Taxpayers Assn., California Manufacturers and Technology Assn., California Cable Television Assn., Farm Bureau Federation. Major campaign donors include oil, tobacco and alcoholic beverage companies.

Who opposes it: California Tax Reform Assn., American Lung Assn. of California, American Cancer Society, Clean Water Action, League of California Cities, League of Conservation Voters, Planning and Conservation League and organized labor.