Wednesday, January 29, 2003

posted 1/29/2003 06:02:00 PM by Daniel   0 comments

Further Update: McClintock sees the same contradiction.

Today's Los Angeles Times has the following quote: "Is it a tax levy or is it not a tax levy?" said McClintock. "If it's a tax levy it requires a two-third vote. If it's not a tax levy, it's subject to referendum."

The Democrat-appointed Legislative Counsel's spin is that this is a "tax levy" which reduces taxes (on vehicles worth less than $5,000). Never mind that the Vehicle License Fee for all others will go up radically; that's merely an "insufficient revenue" determination which was already permitted by the 1998 law and clarified by this bill.

Give the Assembly Democrats points for creativity. If the courts actually bought this theory (which is doubtful), it would effectively eliminate the referendum provision in the California Constitution. From now on all bills passed by the Legislature could simply include a tiny tax reduction on some minor fee. That would instantly turn them into "tax levies" which shielded them from a referendum but nevertheless did not require a 2/3 vote because the tax levy was a revenue reduction instead of a revenue increase.

Whatever the courts ultimately decide, this is a political loser and the Democrats know it. Davis is now explicitly saying he will veto a Car Tax increase. There appears to be little if any support for a Car Tax hike in the State Senate. And even the ever-reliable tax-and-spend Los Angeles Times editorialized today that there is No Way Around State Cuts: "The first step, however, should be meaningful budget cuts -- the kind that powerful special interests, including education, prisons and health care, will howl about. But that's where the big money goes and that's where savings are to be found."

The Sacramento chess game continues.

I previously said that State Senator Tom McClintock had made a brilliant chess move by threatening a referendum to block an increase in California's Vehicle Licensed Fee. Now we've seen the Democrats' countermove: The State Assembly passed it anyway, but added an amendment to exempt vehicles worth less than $5,000. Supposedly this makes it a tax levy which is not subject to a referendum. Republicans are naturally crying foul and are threatening to take it to court.

I think the Democrats have really boxed themselves in.

The California Constitution requires a 2/3 vote in both houses of the Legislature to raise taxes. Here's the exact wording from Article 13A, Section 3:

Section 3. From and after the effective date of this article, any changes in state taxes enacted for the purpose of increasing revenues collected pursuant thereto whether by increased rates or changes in methods of computation must be imposed by an Act passed by not less than two-thirds of all members elected to each of the two houses of the Legislature, except that no new ad valorem taxes on real property, or sales or transaction taxes on the sales of real property may be imposed.

Since Republicans boast enough votes in both houses to block the 2/3 majority needed for any tax hike, Democrats keep looking for ways around this restriction. The Vehicle License Fee was an attractive target because of a provision in the 1998 tax reduction bill which allowed the Car Tax to return to the original elevated levels if the State was found to be receiving insufficient revenue. So the Democrats figured they could pass a bill by a simple majority vote effectively defining the current budget crunch as insufficient revenue.

That's a rather questionable position. The above Section refers to "any changes in state taxes enacted for the purpose of increasing revenues". From a legal standpoint, neither side's interpretation is a slam dunk (although I personally think the case for a 2/3 majority is stronger).

But suppose the Democrats' argument was to prevail in court. McClintock proposed a fallback position, namely a referendum as authorized by Article 2, Section 9 of the California Constitution:

SEC. 9. (a) The referendum is the power of the electors to approve or reject statutes or parts of statutes except urgency statutes, statutes calling elections, and statutes providing for tax levies or appropriations for usual current expenses of the State.

(b) A referendum measure may be proposed by presenting to the Secretary of State, within 90 days after the enactment date of the statute, a petition certified to have been signed by electors equal in number to 5 percent of the votes for all candidates for Governor at the last gubernatorial election, asking that the statute or part of it be submitted to the electors. In the case of a statute enacted by a bill passed by the Legislature on or before the date the Legislature adjourns for a joint recess to reconvene in the second calendar year of the biennium of the legislative session, and in the possession of the Governor after that date, the petition may not be presented on or after January 1 next following the enactment date unless a copy of the petition is submitted to the Attorney General pursuant to subdivision (d) of Section 10 of Article II before January 1.

(c) The Secretary of State shall then submit the measure at the next general election held at least 31 days after it qualifies or at a special statewide election held prior to that general election. The Governor may call a special statewide election for the measure.

But note from Paragraph (a) in the above Section 9 that referendums do not apply to "statutes providing for tax levies". Hence Democrats deliberately modified their bill to exempt vehicles under $5,000, based on a legal opinion that such an amendment would classify it as a "tax levy" and thereby shield it from a referendum.

So which is it? If this is just a clarification of the 1998 bill rather than "changes in state taxes enacted for the purpose of increasing revenues" then it would not require a 2/3 vote but it would be subject to a referendum. Whereas if this is a "tax levy" then it can't be subjected to a referendum but it requires a 2/3 vote. I don't see how Democrats can have it both ways.

It appears that the Democrats in the State Legislature are desperately flailing around, because they are philosophically and politically incapable of enacting the major spending cuts that the current deficit requires. So they posture and pass bills which they know won't pass legal muster, just to be seen as doing something.

Gray Davis may be smart enough to see the trap and veto the Car Tax increase. But that still won't solve the budget deficit. Whether Democrats like it or not, big spending cuts are inevitable.