Brown Says California Voters Should Get to Vote on His Tax Extension Plan

California Governor Jerry Brown said the state’s residents should be given the chance to decide whether to extend tax increases to limit budget cuts, calling Republican opposition to a vote “unconscionable.”

Brown, a 72-year-old Democrat, wants lawmakers to call a special election in June to allow voters to choose whether to extend higher vehicle fees and sales and income taxes to help balance a projected deficit that’s equal to 20 percent of the state’s general fund budget in the coming fiscal year.

Brown, who was governor from 1975 to 1983, has vowed to fix the financial troubles that have left California with the biggest deficit of all U.S. states, and the lowest credit rating. His $84.6 billion plan calls for $12.5 billion of spending reductions. Republicans oppose the tax extensions, which Brown says would offset another $12 billion of cuts, mostly to schools and welfare programs.

“Under our form of government, it would be unconscionable to tell the electors of this state that they have no right to decide whether it’s better to extend current tax statutes another five years or chop another $12 billion out of schools, public safety, our universities and our system of caring for the most vulnerable,” Brown said late yesterday in his first State of the State speech since assuming office last month.

With an economy bigger than Russia’s, California has coped with $100 billion of budget gaps in the past three years amid the global recession. Brown’s plan deals with an $8.2 billion deficit that has emerged in the current budget as well as a $17.2 billion hole in fiscal 2012, which begins July 1.

Lowest Rating

California shares with Illinois the lowest credit rating of any state from Moody’s Investors Service. The A1 grade is Moody’s fifth-highest. Standard & Poor’s rates California A-, its fourth-lowest level for investment-quality securities.

The extra yield that buyers want for 10-year California bonds compared with top-rated municipal debt fell to 109 basis points Aug. 24, from 150 on March 11, the 2010 peak. The so- called spread rose to 121 basis points yesterday. A basis point is 0.01 percentage point.

Individual investors already concerned about their municipal-bond holdings because of mounting fiscal pressures facing state and local governments may grow more worried if the governor can’t get lawmakers to put the tax extension on the ballot, said Bud Byrnes, chief executive officer of Encino, California-based RH Investment Corp., which underwrites and trades California municipal securities.

Political Battle

“There is going to be political posturing and verbal brickbats being thrown back and forth from both sides of the aisle,” Byrnes said in a telephone interview today. “There is a cost from the wariness that the market is feeling. There is fatigue in the market from listening to retail investors’ fears.”

Brown’s budget cuts $1.7 billion from health care for the poor, $1.5 billion from welfare and $1.4 billion from the state’s public universities and community colleges.

“If you are a Democrat who doesn’t want to make budget reductions in programs you fought for and deeply believe in, I understand that,” Brown said. “If you are a Republican who has taken a stand against taxes, I understand where you are coming from.

‘Right to Vote’

‘‘When democratic ideals and calls for the right to vote are stirring the imagination of young people in Egypt and Tunisia and other parts of the world, we in California can’t say now is the time to block a vote of the people,’’ Brown said.

Under Brown’s plan, the legislature would need to approve the ballot measure by March. In June, voters would be asked to extend for five more years tax increases put in place by former Governor Arnold Schwarzenegger in 2009, when he faced a $42 billion deficit.

At that time, the governor and the Legislature added 0.25 percentage point to all personal income-tax rates, raised the state retail-sales levy to 8.25 percent from 7.25 percent, boosted license fees to 1.15 percent from 0.65 percent of a vehicle’s value and suspended child tax credits. In 2009, voters refused to extend the tax increases, which expire July 1.

‘‘Higher taxes didn’t solve the problem two years ago and it won’t solve it now,” said Senate Republican leader Bob Dutton. “Taxpayers already said no to a two-year tax extension in 2009. Why would they now vote to tax themselves for five more years?”

Republicans Needed

During his campaign, Brown pledged he wouldn’t raise taxes without voter approval. To bring the issue to a vote, he must convince two-thirds of the Legislature to put the tax extension on the statewide ballot. While Democrats control both chambers of the Legislature, they lack enough votes to secure the supermajority without the support of at least four Republican lawmakers.

Assembly Republican leader Connie Conway said there’s no support in her caucus for the special election.

“If the people really want it and they want to gather signatures, I won’t stand in the way of signature gathering,” she told reporters after Brown’s speech.

While opposed by Republicans, Brown’s call for a special election has the support of two-thirds of Californians. In a Public Policy Institute of California poll released Jan. 27, 67 percent said it’s a good idea to let voters decide whether to extend the tax and fee increases, and the lower dependent exemptions.

“You have to wonder what are Republicans afraid voters might decide?” said Senate Budget Chairman Mark Leno, a Democrat. “The idea that voters have already spoken on this two years ago is to suggest that we need not ever have another election. Times change and the crisis has deepened.”

To contact the reporters on this story: Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net; Michael B. Marois in Sacramento at mmarois@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.