Propositions had to appease special interests

Legislature had to craft measures keeping in mind deep-pocketed industries.

Published online on Monday, May. 04, 2009

SACRAMENTO -- As California's legislative leaders and Gov. Arnold Schwarzenegger rushed to craft a budget compromise in February, there were two key political goals.

1. Obtain enough votes to get it through the Legislature.

2. Keep the state's richest interest groups happy.

The latter goal was critical. Six elements of the final budget deal, Propositions 1A through 1F, will face the voters in a May 19 special election.

Legislative leaders knew that any well-financed campaign against the delicate package could sink the whole thing.

"Any time you do a ballot measure -- any ballot measure -- you always sit around and say, 'Who could be the potential opposition?' " said Assembly Speaker Karen Bass, a Los Angeles Democrat and one of four lawmakers at the negotiating table. "You also ... say, 'How do I get that opposition on board or neutral at best?' "

The entire architecture of the ballot pact that emerged was heavily shaped by leaders' desire to please -- or at least neutralize -- the state's most powerful political players.

Now, some of those very interest groups protected in the budget deal are bankrolling the campaign to ratify it.

For the oil industry, the package omits a once-proposed 9.9% oil severance tax. Energy companies have given more than $1 million to pass the plan, led by $500,000 from Chevron.

For the liquor, beer and wine industry, increased alcohol taxes were shelved. Alcohol industry heavyweights, such as E&J Gallo Winery ($100,000) and California's Beer and Beverage Distributors ($50,000), have all opened their checkbooks.

For the teachers union, the list of ballot measures includes a separate measure to ensure repayment of deep cuts to schools and protections for top-priority programs. The California Teachers Association has contributed $7 million to the passage of Propositions 1A and 1B.

For casino-operating Indian tribes, the state lottery measure avoids any new games that could threaten their gambling operations. Tribes, which could have been major contributors against the lottery proposition, have kept their checkbooks closed.

At the start of 2009, lawmakers and the governor faced a daunting $40 billion budget hole made worse by a cash shortage so severe the state would have been unable to pay all its bills.

Democrats, with majorities in both houses of the Legislature, were stymied by Republicans and California's constitutional requirement that two-thirds of lawmakers approve tax hikes.

Lawmakers of both parties and Schwarzenegger squabbled for months before settling on a complex plan that raises broad taxes (the sales tax, personal income tax and vehicle fees) on most Californians, borrows heavily and slices deeply into state services.

The linchpin of the ballot deal was Proposition 1A.

If passed, the measure would allow $16 billion in continued tax hikes and create a stronger rainy-day fund to constrain future state spending. Large special interests played a key part in determining which taxes were raised.

Democrats had wanted to tax the rich, but GOP lawmakers nixed that idea. Then, on New Year's Eve, the Schwarzenegger administration proposed taxing oil, alcohol and extending the sales tax to certain services, such as sporting events.

The business community objected, as did Republican lawmakers, who had insisted on closing the budget gap without new revenues.

Then, ever so slowly, the GOP leadership moved toward embracing broad-based taxes, such as the sales and income tax.

"If you're going to raise taxes, you should do it where everybody sees it and feels it and gets mad," said Assembly Republican leader Mike Villines of Clovis.