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Bill Leonard - Contributor

Bill Leonard is a Member of the State Board of Equalization

A Week Under the Dome...
[Bill Leonard] 8/24/04

When Everything Old is New Again

August in Sacramento is a fascinating time. Temperatures are hot and legislators’ tempers are even hotter. In that sense, this end- of-session romp is just like every other year’s. Legislators and staff are rushed, pressured and harried. There is, though, a sense that this year is different because of our new Governor.

Legislators treat every first-year Governor the same at this time of year. They do not know the new executive’s position on every issue, so they send a variety of bills intended to force the Governor into public positions. Then, they can use the Governor’s veto messages to mold new legislation the next year.

Given that dynamic, Governor Schwarzenegger is in a unique position to teach legislators a lesson. With the time crunch and political pressures that amass during end-of-session, the practice of “gutting and amending” happens all too often. Bills that have spent one-to-two years being about transportation, for example, are suddenly rewritten to change education policy. The new bill language gets no public hearing and has inadequate review. (I remember 20 years ago when language to build a high- speed train from San Diego to San Francisco was inserted into a gutted bill. The version that passed included a line exempting the project from the California Environmental Quality Act. Clearly, not an adequately vetted law, and I say that as someone who does not even like most of CEQA’s requirements!) Governor Schwarzenegger says he will veto all such “gutted and amended” bills and I hope he sticks to it.

Travails at the Senate Desk

Though solid numbers have not been tabulated yet, the very seasoned Senate desk staff tells me that the volume of “gut and amends” is much higher this year. I hear from veteran staffers throughout the capitol that this year is more disheveled and disorganized than ever before, and this even after two years ago when no one imagined it could get any worse. While I was visiting, I overheard the desk staff answering phone calls from young legislative staffers. They were questions whose answers should have been learned long before the end of session: Q: “How do I amend a bill?”, A: “Bring it to the Senate desk.” Q: “Where is the Senate desk?”; A: “On the Senate floor.” Q: “What’s the room number?”; A” “There is no room number; it’s the Senate chambers—the big room.”

The scariest exchange was a legislative staffer wondering what happened after the bill was amended. The Senate desk staff explained that the bill, once passed, would go to the Governor for consideration. The legislator’s young staff replied that such a step would not apply to his boss’s bill because the bill was already “with the Lieutenant Governor.” The staffer could not explain any more, so the Senate desk staff looked up the bill. They found it had been “referred to L.G.”, which is legislative shorthand for the Local Government committee, not the Lt. Governor. I have omitted the names for obvious reasons.

Cost of Use Tax

Last year, the Franchise Tax Board included a line on the state personal income tax form where taxpayers could report how much they owed in Use tax. The Use tax is usually collected by the Board of Equalization with big dollars collected on used cars, used planes, and used boats. Businesses also must pay use taxes on their purchases from non- California based businesses. Going after families for their catalog or Internet purchases from out-of-state businesses is not cost effective and is virtually unenforceable. The first year the Use tax line was included on the FTB form, 20,324 returns (out of a total of 12,527,383) reported Use tax and paid $1,325,851. The cost to add that line item to the forms and process the receipts was $1,007,316. The good news is that next year, the BOE will only pay the FTB $237,000 for their help collecting the Use tax. The bad news is that we are even bothering with that much since our resources would be much better spent enforcing other taxes than nagging individual taxpayers to pay a few bucks for buying on-line.

The Unreform Mental Health Initiative

Proposition 63 is the second of five health-related measures on the November ballot. It would create a special 1% state income tax surcharge on incomes over one million dollars. The money would be used for mental health services provided by county governments.

Mental health programs are obviously critical to many Californians, and all parties seem to agree that the current system is fundamentally flawed. Instead of fixing the system, Proposition 63 adopts the traditional liberal approach of throwing hundreds of millions of new dollars at the problem, without even considering reforms that might eliminate the waste, fraud, and inefficiency that have plagued the current programs for decades.

To prevent the Legislature from shifting funds away from existing mental health programs, this initiative also guarantees that existing funding levels are maintained. This latest example of “ballot box budgeting” will make our state’s fiscal problems even worse. The legislators who support this should be ashamed because they know better than to lock up the state budget this way. This situation makes it very difficult for the Governor and the Legislature to pass the annual budget. And, as we have seen in recent years, it is almost impossible for them to respond to normal revenue fluctuations from year to year without expensive borrowing. What is worse, we may someday reach a point where more than 100% of the state’s revenues are committed to specific programs. Who knows what will happen then? (But I suspect we would all see massive tax increase proposals.)

From a fiscal perspective, it is important to understand that this tax increase might actually reduce revenues. It may be counter- intuitive, but this has happened before. After the record-breaking tax increases of 1991, state revenues actually dropped by more than a billion dollars. In the case of Proposition 63, this could happen if a small number of millionaires decide to leave the State of California to avoid the higher taxes. When they go, we will not only lose the new 1% surcharge, we will also lose the other 9.3% that wealthy taxpayers pay in income taxes. Of course, when the wealthy leave the state, they tend to take jobs and investment funds with them, thus multiplying the losses to the state treasury.

The number of taxpayers earning more than one million per year has been declining steadily in California for several years. It seems to me that we should be trying to find new ways to attract millionaires to California, rather than sending them away. The California Republican Party and the California Republican Assembly have both voted unanimously to oppose Proposition 63. I share their concerns and I would urge a “No” vote in November.

More Reasons to Oppose Prop. 66

Prop. 66 sells itself as improving our Three Strikes law, but in actuality, it will let criminals back on the streets and repeal the Three Strikes concept strongly embraced by California voters. If you are among those who are sympathetic toward Third Strikers who are in prison “just” for “petty” crimes like theft or burglary or drug use, consider this evidence compiled by John J. DiIulio, Jr. of the Brookings Institute:

Two Brookings Institution studies, in 1991 and 1995, found that prisoners in New Jersey and Wisconsin committed an average of 12 crimes a year when free (not including drug crimes).

Steven D. Levitt at the National Bureau of Economic Research estimates that “incarcerating one additional prisoner reduces the number of crimes by approximately 13 per year.”

Economists Thomas Marvell and Carlisle Moody of William and Mary College say, “a better estimate may be 21 crimes averted per additional prisoner.” Patrick A. Langan, senior statistician at the Justice Department's Bureau of Justice Statistics, calculated that tripling the prison population from 1975 to 1989 may have reduced “violent crime by 10 to 15 percent below what it would have been,” thereby preventing a “conservatively estimated 390,000 murders, rapes, robberies and aggravated assaults in 1989 alone.”

Mr. DiIulio concludes, and I concur, “prisons pay big dividends even if all they deliver is relief from the murder and mayhem that incarcerated felons would be committing if free.” If you agree, vote against Prop. 66. CRO




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