Veto threat, tax breaks roil budget

Before the ink was even dry on a new state budget, some labor leaders were already talking about going to the ballot to repeal a key provision of the deal.

As details of the proposed budget deal between Legislative leaders emerged Monday, the Service Employees International Union and other labor groups were already contemplating enlisting voters to get rid of the pieces of the deal they didn’t like. In particular, unions do not like provisions of the budget that they say could lead to billions in corporate tax breaks, and reduced revenues to the state.
“SEIU has serious questions about new tax cuts for wealthy corporations which, in our view, will likely result in deep cuts to health care, education and other vital community services,” said one senior union official who declined to be identified. “We are already hearing from others who want to explore a ballot initiative to repeal these corporate tax cuts and protect California communities. It’s a possibility.” The unions began developing their initiative even as the Legislature worked into the night on the budget.

As the budget drama played out this week, there was an awkward set of political alliances. Labor leaders blasted the budget agreed to by legislative Democrats and Republicans, as the Republican governor, who has clashed with unions in the past, essentially agreed with the unions by promising to veto the budget.

But the reasons given by the governor for voting down the budget were different than the reasons given by labor leaders.

“The Governor has plenty of reasons to veto the mess the legislature sent him: it offers no real solutions; it creates new problems with corporate tax loopholes and cuts, and it will do real damage to our schools. This failed budget is the direct result of a budget process that must be fixed, especially the 2/3 vote requirement,” said SEIU California State Council executive director Courtni Pugh.

“But one of the Governor’s primary reasons for the veto is the one thing the legislature got right. It rejected the Governor’s most rigid future spending and savings rules. The Governor’s demand, which, in essence, is a cap, would cause schools, healthcare, homecare, higher education, and other vital services to face a future of relentless, deep, ongoing cuts.”

But the Legislature seems poised to override Schwarzenegger’s promised veto, setting up an almost immediate showdown heading into the next budget year. Key provisions of this year’s budget – namely an expansion of the state lottery to help generate $5 billion for spending this year – will have to be approved by voters. And it was unclear whether Schwarzenegger would support that lottery measure without his reform measures in place.

“You can’t sell the lottery proposal without budget reform,” said Schwarzenegger spokesman Aaron McLear. “The lottery expansion is a mechanism until you get there. Since the Legislature didn’t do budget reform, lottery doesn’t work.”

And labor leaders may be working against other pieces of the budget deal.

Monday morning, an email was being circulated from Lenny Goldberg of the California Tax Reform Association warning allies of the details in the budget deal.

“In exchange for a small amount of temporary short-term revenues, the Legislature is poised to open two vast new loopholes in the corporation tax, loopholes which will continue indefinitely,” the email stated. “The impact will be to greatly diminish the corporation tax at future costs to education, health care, and public safety. This is a huge giveaway to multinational corporations.”

Specifically, Goldberg focused on a provision that would allow corporations to exchange tax credits among different companies under the same corporate umbrella. Under current law, the state requires tax credits be taken by the specific corporation that is applying for the credit.

The change was one of the provisions requested by Republicans during budget negotiations, said Democratic sources.
“There are many billions in unused credits from companies that have not earned sufficient profit to use them,” writes Goldberg. “This proposal will open the ability of companies to effectively sell these credits—e.g. by allowing ownership by another company—so that the billions in unused credits can now be used by profitable corporations.”

Goldberg estimates this change could cost the state “billions per year and will total many billions over the years.

“These new loopholes will effectively mean the death of the corporation tax as an effective revenue-raiser. This deal compromises future generations, and does not even receive any real revenues in return. Borrowing from the future is bad enough. Giving away the future to multinational corporations is unconscionable.”

Art Pulaski, executive secretary-treasurer of the California Labor Federation, blasted Democrats and Republicans for the budget. “
“The fact that this deal was three months overdue and had more smoke and mirrors than a David Copperfield show is a direct result of our broken budget process. Unless we change the threshold to pass budgets and raise revenues, we’ll never move beyond real budget cuts and fake budget solutions,” Pulaski said in a statement. “The budget passed today does not represent the values of California’s working families. It may let the governor and legislature get out of town, but it shouldn’t let them escape responsibility for its sorry contents.”

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