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Why Prop 26 is the Polluters Protection Act of 2010

Oct4

By Jean Ross
Special to Calbuzz

One of the least publicized measures appearing on the Nov. 2 ballot is one of the most mind-numbing but nevertheless one of the most important issues voters will decide.

Proposition 26 makes two major changes to the state’s constitution. First, it ­redefines some types of “fees” as “taxes,” thereby requiring two-thirds, rather than a majority, vote of the Legislature to increase or enact a fee at the state level. And it requires a vote of the people, rather than an action of a governing body, at the local level.

The debate over what’s a tax and what’s a fee is one of those “only in California” issues that dates back to Proposition 13 and its limitations on the Legislature’s ability to raise a tax and its subsequent requirement that local governments seek voter approval in order to impose or raise a tax.

Opponents of Proposition 26 have christened it the “Polluter Protection Act,” since the fees at issue are primarily those that regulate, mitigate and otherwise respond to environmental, health, and other social impacts of products and services. In other words, businesses seeking to avoid financial responsibility for the “externalities” of the products that they sell. Proposition 26 would not, in contrast, apply to fees paid by “ordinary Californians” such as community college and state park entry fees.

Proposition 26 is aimed at overturning a unanimous 1997 California Supreme Court decision in  Sinclair Paint Company v. Board of Equalization. The Sinclair decision upheld the constitutionality of a fee imposed on paint producers to defray the cost of services for children at risk of poisoning from lead-based paint.

The court found that such fees were regulatory fees – not taxes — and could be imposed by a majority vote. Sinclair built on the logic of a prior appellate court ruling that ruled that, “A reasonable way to achieve Proposition 13’s goal of tax relief is to shift the costs of controlling stationary sources of pollution from the tax-paying public to the pollution-causing industries themselves.”

Conversely, if the state can’t impose the fees on “pollution-causing industries” to recoup the cost of environmental monitoring and remediation, those costs will be shifted to taxpayers as a whole. Or, in an era where budget crises have become the status quo, programs that enforce environmental, food safety and other laws will be scaled back, if not eliminated. Which may be the true goal of the backers of Proposition 26.

If all of this wasn’t enough, Proposition 26 would also impose a two-thirds vote requirement for approval of “Any change in state statute which results in any taxpayer paying a higher tax.”

This is a subtle but important change from the state’s existing two-thirds requirement for any “changes in state taxes enacted for the purpose of increasing revenues.” It means that a bill that closed an obscure and ineffective corporate tax loophole, while lowering taxes for, say, all personal income taxpayers, would require a two-thirds vote.

More troubling, the language is sufficiently vague as to potentially allow a handful of lawmakers to block any bill, not just a tax bill that required anyone to pay a higher tax. How might this work? Think about future increases in the state’s minimum wage that increased the tax bill for low-wage workers or, at the higher end of the income distribution, an increase in Medi-Cal payments to physicians that also translate into higher incomes and income tax liability. Or seismic safety laws that require the purchase of sales-taxable building materials. You get the picture.

Because the “any taxpayer who pays a higher tax” provision is retroactive to January 1, 2010, Proposition 26 would also blow a $1 billion bigger hole in this and future years’ budgets by repealing a carefully crafted, revenue neutral “fuel tax swap” approved by the legislature earlier this year that was designed to give the state greater flexibility to use existing tax dollars to help close the budget gap absent subsequent two-thirds approval by the legislature.

The bottom line: Proposition 26 would take away one of the few remaining budget-balancing  tools from state and local governments, allow polluters and their allies to shift the cost of monitoring and remediating environmental and other hazards to the general public, make it even tougher to get rid of special interest tax breaks, and open the door to even more supermajority gridlock.

Voters got it right in 2000 when they defeated a similar measure 48-52%. Californians should tell the backers of Proposition 26 that the second time around isn’t a charm.

Jean Ross is the executive director of the California Budget Project


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