Update: The article was updated on Jan. 14 to include further comments by Gov. Brown.
The California Teachers Association and state health-care organizations behind an initiative to continue Proposition 30’s temporary taxes on the wealthy have changed the wording in response to an objection that Gov. Jerry Brown raised last week.
As amended, revenue from continuing Prop. 30 after 2018 would be subject to diversion to the state’s rainy day fund, just as other state revenues currently are. The original wording in the initiative, slated for the November ballot, would have exempted Prop. 30 revenue from General Fund reserves. Brown called that exemption a “fatal flaw” that would add to an already volatile tax structure the rainy day fund was created to mitigate.
The sponsors submitted the change to the state Office of the Attorney General on Monday, the deadline for reworking the language. In a statement, Gale Kaufman, a consultant for the coalition behind the initiative – the California Children’s Education and Health Care Protection Act – acknowledged the groups did so “after listening to Governor Brown’s concerns last week.”
However, Brown is not ready to say if the change is enough to persuade him to support the tax extension – or at least not oppose it. His press office did not respond to the question. Last week, Brown said at a press conference that he wasn’t ready to talk about November initiatives. (Update: Questioned by reporters at a press conference on Jan. 14, Brown said of the amended version in working: “It certainly removes the fatal flaw, and I think that’s a very positive development.” Then he added, “I think I’ve said enough for this morning,”)
Earlier this week, activists proposing to extend taxes approved in 2012 re-wrote their initiative to include deposits into a reserve account approved by voters in 2014.
Along with the CTA, the coalition submitting the initiative includes Service Employees International California, the California Hospital Association and the California Medical Association. The California Federation of Teachers also has been part of the negotiations. Pending the Attorney General’s approval of the revised wording, the groups are expected to begin collecting the 585,000 signatures needed by June to qualify for the November ballot.
Voters passed Prop. 30 at Brown’s urging in 2012. It raised the state sales tax by a quarter percent and the income tax on individuals earning more than $250,000 and couples earning more than $500,000. It has generated an average of $7.5 billion in revenue annually, with the bulk of it going to education, to help schools recover from billions of dollars of cuts during the recession. But the sales tax piece expires this year and the higher income tax in two years, likely resulting in flat revenues for schools and cuts in the event of a recession. The extension would continue the income tax for a dozen years but would not extend the sales tax.
When previously asked about supporting an extension, Brown was noncommittal, stating only that he sold Prop. 30 to voters as a temporary tax. The groups behind the new proposal assert that an extension is vital to preserving Brown’s legacy of financial stability. Referring to Brown’s presentation of the state budget last week, Kaufman said in her statement, “Temporarily extending the Prop. 30 income tax rates on the wealthiest Californians will help California avoid a projected $5 billion shortfall for public schools beginning in 2019, protect essential funding for health care and avoid the $3 billion projected structural budget deficit outlined by the Governor.”
Brown has made replenishing the rainy day fund, which voters approved in 2014, a priority. With an additional $2.6 billion that Brown proposes for the 2016-17 budget, total reserves would exceed $10 billion. With two-thirds of state general revenues now coming from the income tax, primarily from the wealthiest 1 percent of earners, Brown said that extending Prop. 30 without the reserve protection would compound a potential economic downturn.
How much of Prop. 30 revenues would go into a budget reserve would depend on yearly revenues. Money for K-12 schools and community colleges would be unaffected, since they are allotted money first. Under the proposed initiative, funding the reserves would be the next priority. After that, health care for the poor would receive 50 percent of the remaining money, with the rest going to the General Fund.