Linking Education and Tax Is Good Strategy

SACRAMENTO

Gov. Gray Davis is chopping both hands on a long table and telling three reporters: “Here is what I’m trying to do. My primary goal is to protect education.”

What Davis also is trying to do, of course, is link education -- by far the most popular program government provides -- with his proposed half-cent sales tax increase. That is, link the two in people’s minds.

It’s good strategy. A recent poll by the Public Policy Institute of California showed that 62% of likely voters are willing to pay higher taxes to avoid cuts in K-12 schools. This includes 50% of Republicans and 74% of Democrats.

Davis also may have a good case. The four-year, half-cent sales tax increase would provide a dedicated revenue stream to finance a $10.7-billion deficit-reduction bond, needed to help close a $38-billion budget hole. Davis and state Treasurer Phil Angelides argue that investment bankers won’t touch the bond without a specific tax to back its repayment.

The governor last week put it this way to me:

“Now, can’t you hear them [bankers] in New York saying, ‘That bunch out in California -- we’re going to count on them to give us Wall Street guys some money rather than give it to schools or child care’?

“We haven’t had a banker come forward and say, ‘We’ll do it,’ yet, and I don’t think there is one.”

Republican legislative leaders adamantly dispute that contention. But they also haven’t produced the names of any investment bankers willing to loan California the money without a new revenue source.

“I keep saying to Republicans,” the governor told us Wednesday, “your [budget] plan doesn’t pencil out. Find me an investment banker who will sell our deficit bonds without a revenue source! Find one!”

Assembly Minority Leader Dave Cox (R-Fair Oaks) says he knows of such a banker, but the man refuses to get in the middle of a political cat fight.

“You cannot finance the current-year deficit, according to the investment community, without a tax,” Davis reiterates, over and over, and then brings it full circle to make his main pitch aimed at pressuring Republicans:

“There is a direct link between the half-cent sales tax and our ability to maintain the progress in public education.... The Republicans say, ‘I am against a tax.’ That means they are against maintaining the progress we have made ... in public education.

“The things I’m trying to protect -- public education, public safety, children’s health insurance and support programs for seniors -- all are made possible by financing the current year’s deficit, which cannot realistically be done without a new revenue source.”

Well, give him this: Davis at least now is aggressively trying to sell his proposed tax increase -- showing some leadership for Democrats -- after not talking up the T-topic until recently.

But he isn’t selling Republican legislators, despite subtle offers to trade taxes for pro-business goodies, like workers’ compensation reform. Even toss in protections for local government funding and spending caps.

“The opportunity for the minority party to shine is at the budget or any other time the two-thirds vote is required,” Davis says. “And if you forfeit that opportunity, shame on you.

“It’s the chance to win policy concessions important for your constituency. But if you don’t make any offers.... I’m open to a number of reasonable suggestions to improve the business climate.”

The governor has urged business leaders to lean on Republicans. But some execs assert that Davis and Democrats should be making the suggestions, creating specific offers.

“Republicans have dug their heels in so deep on ‘no taxes,’ a proposal isn’t going to come from them,” says Jack Stewart, president of the California Manufacturers and Technology Assn. “Democrats are going to have to put the package together.

“Republicans tell us they’re not going to give. They feel they’ve been [beaten up] the last three or four years. They’re saying to Democrats, ‘You got us here, you get us out.’ ”

Therein lies a big problem -- Republicans feel disrespected and dumped on by Davis and Democrats.

Here’s how Cox describes the Democrats’ treatment of Republicans: “They’ve said to us all along, ‘Get in the back seat, sit down, shut up, we’re driving.’ Now they’re saying, ‘If you don’t do something to raise taxes, we’re going over the cliff.’

“The adults are saying, ‘We’re not going to do it anymore.’ ”

So they’re gridlocked.

Comments Davis: “It takes two to do a lot of things. Dance. Walk out together. I can’t make the other side come along. All I can do is prod, persuade, guilt-trip, humor, play golf with -- you’ve gotta use all the skills.”

Davis breaks up laughing.

Persuasion, humor and schmoozing -- skills long missing from Davis’ golf bag -- are what he needs now to protect education and close a budget deal.