This year’s legislative session ended in a bitter stand-off between Republicans and Democrats in the state Senate, with Republicans claiming they had been betrayed by Senate leader Darrell Steinberg, D-Sacramento, and Democrats leveling charges against Republicans that they were blocking important public policy simply to shill for prominent campaign donors.
The late-night breakdown once again brought the software maker Intuit back to center stage in the Capitol melodrama, much to the company’s chagrin.
While Intuit, makers of the popular Turbo Tax software program, has largely tried to remain behind the scenes in the state’s political battles, their five-year long crusade to eliminate the state’s free tax-filing system, Ready Return, essentially brought business in the Capitol to a stand-still.
Since 2001, Intuit has spent more than $1.7 million to lobby lawmakers. The company’s lobbying firm, Lang, O’Malley, Hansen and Miller, is one of the most well-connected firms in the state, and has close ties to Senate Republican Leader Dennis Hollingsworth.
Intuit has also been an active player in the political arena, spending nearly $2 million on campaign contributions – mostly to Republicans, but with some money going to Democrats as well – since 2001. Most of that money was spent in the 2006 race for state Controller, when the company shelled out $1 million for an independent expenditure campaign to help Republican Tony Strickland, R-Moorpark, in his race against Democrat John Chiang.
“We’re a California company, and like other companies we participate fully in the political process,” said Intuit spokeswoman Julie Miller.
Intuit insists they do not want to eliminate the ability of taxpayers to file free online tax returns. They simply want California to ditch its Ready Return system in favor of the Free File system, used by 19 other states and the federal government. That system allows users to chose from more than 20 different tax preparation software programs to help organize federal and state tax returns. Proponents of the Free File system note it will prepare both state and federal tax returns, unlike the Ready Return system.
Intuit says California’s Ready Return program amounts to government-funded competition for private industry.
Hollingsworth said the Free File program is simply better than the Ready Return software made available by the state. He said the state program winds up costing taxpayers money by failing to maximize itemized deductions, thus leading taxpayers to pay more than they owe on their tax bill.
“With Ready Return, they just send you a card that says you owe this much, or your return will be this much,” said Hollingsworth. “You can do nothing and accept those numbers, or file. When most people get something like that, they’re not going to argue.”
Hollingsworth also noted the Legislature has defunded the Ready Return program in the past, but that the Franchise Tax Board, which Chiang chairs, has opted to keep the program running at taxpayer expense.
“FTB has been ignoring the will of the Legislature for three years,” Hollingsworth said. “The Legislature has cut off the money for the Ready Return process, and yet the program continues.”
Chiang estimates maintenance for the Ready Return system costs about $125,000 annually. But, he says, the state more than makes up for that amount by having a simplified tax filing system for people to use. “The information has fewer errors and it costs less to process those returns,” he said.
Miller said the Ready Return program costs taxpayers money. “There’s a sense that Ready Return is free. That’s not true,” she said. “It costs the taxpayers money because it costs the government money.”
Chiang remains a strong defender of the program, calling it “public service at its best. This is a basic tax compliance issue that should not be controversial.”
And yet, the issue has become central to the legislative gridlock and partisan squabbles in Sacramento.
Although Intuit and their supporters do not see the Ready Return issue in partisan terms, the issue has become a partisan touchstone over the last year – in large part because of dust-ups like the one that occurred at the end of this year’s legislative session. In that context, Democrats have cast the GOP-Intuit connection as simply pay-to-play, special interest politics.
Republicans say the issue of Ready Return has been deliberately mischaracterized by Democrats in the Legislature, and by the controller.
“We don’t believe it’s a partisan issue,” Miller said. “Over time, we’ve had legislators on both sides of the aisle who have been supportive of replacing Ready Return with the Free File Alliance.”
While Hollingsworth has been a staunch Intuit supporter, a spokesman for Senate leader Darrell Steinberg said he remains committed to the Ready Return program. “The pro tem would have concerns about any proposal to rescind what is by all measures a popular program,” spokesman Jim Evans said.
Chiang, who defeated Strickland in the controller’s race in 2006, remains strongly opposed to the company’s lobbying efforts. “I think this whole scenario being played out at the end of the legislative session was tragic,” he said. “We had important public policy matters that got held up over other things such as Ready Return.”
Ready Return was not the only issue that led to the end-of-session meltdown. An e-mail from Hollingsworth’s chief of staff, Russell Lowery, sent to Steinberg’s senior staff on the morning of Sept. 11, outlined Republican demands.
“Senator Hollingsworth and others were party to conversations where it was agreed that Ready Return and the homeowner’s tax credit issues would be completed before the end of session,” Lowery wrote in an e-mail to Steinberg’s senior staff on the morning of the final day of the legislative year. “It is my hope that we might get some movement early on these issues in order to avoid a train wreck on some important two-thirds legislation at the end of session.”
Hollingsworth has subsequently said the reason Republicans refused to put up votes for those 20 bills that required Republican support had to do with trust.
“There were things that were left undone from the budget agreement that needed to be finalized,” Hollingsworth said. When asked if he thought he had a commitment from Steinberg to defund the Ready Return program later this year, Hollingsworth replied, “I think it’s accurate to say that. Yes.”
Evans said emphatically that there was never any deal on the Ready Return issue. And he took a swipe at Hollingsworth for orchestrating the demise of nearly two dozen other bills, unrelated to the Ready Return issue – including restoration of funding for domestic violence shelters and a major hospital fee proposal — on Intuit’s behalf.
“I wish I were surprised that the Republican Caucus would throw a bunch of domestic viole nce victims overboard in favor of new corporate tax give-aways in the dead of night, but I’m not,” he said.
Evans pointed out that Republicans wanted the measure to be part of a backroom budget deal instead of going through the normal legislative process.
“I don’t think any members introduced a bill on Ready Return to be considered in the normal process of the Legislature,” Evans said.