California governor, lawmakers punt difficult tax questions

In this photo taken Thursday, Oct. 15, 2015, vehicles pass a highway construction site on eastbound Interstate 80 in Sacramento, Calif. Among the Legislature's unfinished business is a $59 billion backlog in state funding for roads, highways and bridges. (AP Photo/Rich Pedroncelli)

SACRAMENTO — While Gov. Jerry Brown approved high-profile legislation addressing social issues such as aid-in-dying, animal antibiotics and the gender wage gap this year, he kept a tight grip on California’s pocketbook by rejecting more than a dozen bills that sought to increase health care benefits and tax credits for the poor.

In exercising his veto pen, the Democratic governor expressed frustration with lawmakers who failed to address a funding shortfall in Medi-Cal, the state’s health care program for the poor. Brown called the Legislature into a special session this summer to decide whether to extend a $1 billion tax on health plans or cut services in a $91 billion program that offers care to roughly 1 in 3 Californians.

“Given these financial uncertainties, I cannot support providing additional tax credits that will make balancing the state’s budget even more difficult,” Brown wrote in one message blocking nine bills that sought to help low-income families finance everything from homes to new appliances.

In his final term, Brown is focused on creating a legacy of fiscal prudence after inheriting a $26.6 billion state deficit when he returned to the governor’s office in 2011. But unlike social measures that can easily pass the state Legislature on a majority vote, finance issues are more complex. Tax increases require both Republican and Democratic support to reach a two-thirds vote.

Brown and the Democratic lawmakers who control a majority of the Legislature did not strike a compromise with Republicans before adjourning in September, punting decisions on health care financing, transportation spending and other big-ticket items to next year.

And in an election year, partisanship peaks.

As Democrats prepare to campaign for tax increases to fund health, education and other programs for the vulnerable, Republicans will play to their base in resisting additional burdens on individuals and businesses.

“I would just see it as a lot harder to get any sort of GOP support of a tax increase,” said Jeff Cummins, a political science professor at California State University, Fresno.

Cummins said if Brown is unable to broker a deal with the Legislature, the governor may have to go through the ballot box as he did in 2012 to persuade voters to pass temporary sales and income taxes in Proposition 30.

“That’s going to be a big decision for him to make,” he said. “As the revenue numbers are coming in, does he go out and endorse one of the tax measures on the ballot or not?”

Labor, health groups and children’s advocates are already working to place tax issues on the November 2016 ballot:

— The California Medical Association, American Lung Association and Service Employees International Union are joining wealthy Democratic donor Tom Steyer to ask voters to raise the cigarette tax by $2 a pack.

— Former Board of Equalization member Conway Collis and leaders of children nonprofit groups are proposing a property surcharge of up to 1 percent on real estate valued at more than $3 million. The money would be used to fund early childhood services, childcare and preschool programs.

— The California Hospital Association, the Service Employees International Union-United Healthcare Workers West and Common Sense Kids Action want to make permanent the Proposition 30 income tax increases on couples earning at least $580,000 annually. They also would create a new top tax rate for “super earners” making more than $2 million a year. The income tax hikes are due to expire in 2019.

— A coalition including the California Teachers Association and public employee unions is pitching an extension of Proposition 30 income taxes through 2030, dedicating the money to a public education account.

Former state Sen. Gloria Romero, a Democrat who now advocates for school choice and charter schools, said polling suggests Proposition 30 extensions are losing initiatives.

“This may be the time when the voters stand their ground and say, ‘No, we voted for a temporary extension. Don’t come back,'” Romero said.

Wealthy residents may have put up with temporary tax hikes but making them permanent could drive people and businesses out of state, said Jon Coupal, president of the anti-tax group Howard Jarvis Taxpayers Association.

Ultimately, the success or failure of any campaign will depend on the state’s economy, particularly the stock market’s performance, because California relies heavily on capital gains taxes, Claremont McKenna College political scientist Jack Pitney said.

“If we continue to have good fiscal news, the pressure (for taxes) would ease off,” Pitney said.

Brown’s vetoes drew strong rebukes from legislative Democrats.

Among the bills the governor rejected was a measure to increase the state’s low-income housing tax credit program by $100 million to develop affordable rental housing.

“This investment would have produced thousands of badly needed affordable units for our workforce, created thousands of well-paying jobs, and also brought $200 million more in federal resources to our state each year,” Assembly Speaker Toni Atkins, D-San Diego, said. “I am deeply disappointed we will not realize these benefits.”

Assemblyman Chris Holden, D-Pasadena, said the governor’s decision to veto his bill requiring Medi-Cal to cover tobacco cessation programs was shortsighted.

“We’ll be considering whether or not to re-introduce this legislation in the coming months because I believe that stopping the number one cause of cancer death will actually save the state money in the long run,” Holden said.

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