Brown Reaches Deal With Union on Tax-Increase Compromise

California (STOCA1) Governor Jerry Brown reached agreement with the state’s second-largest teachers’ union leaving only one rival plan to his proposed ballot measure for higher taxes.

The deal between the Democratic governor and the California Federation of Teachers, which had campaigned for a so-called millionaires’ tax, spreads the burden on top earners while curbing a sales-tax increase.

The agreement would ask voters to raise California’s sales levy, already the highest in the U.S., to 7.5 percent from 7.25 percent, and boost tax rates on income starting at $250,000. Those making $1 million or more, now taxed 10.3 percent, would pay 13.3 percent, the most of any state.

“The good news for the governor is that there’s one fewer initiative on the ballot,” said Sherry Bebitch Jeffe, a University of Southern California political science professor, in a telephone interview yesterday. “It also means the governor can take advantage of the teachers’ organization and the teachers’ money.”

That leaves one other potential tax increase vying for the November ballot. Attorney Molly Munger, the daughter of Berkshire Hathaway Inc. (BRK/B)’s vice chairman, Charles Munger, is pressing for higher taxes on earnings of $17,346 or more, with rates stepped up on higher incomes.

Brown and fellow Democrats have warned that voters confronted by three tax measures might reject them all.

“The governor and the federation of teachers have come together and joined forces in such a way that that dramatically increases our chances of success,” Senate President Darrell Steinberg, a Democrat from Sacramento, said of the compromise.

More Revenue

The proposal would raise $2 billion more in the fiscal year starting in July than Brown had said his measure would generate, Steinberg said. The governor estimated his proposal would raise $6.9 billion a year.

The higher estimate might cut against the proposal’s chances, said Jon Coupal, president of the Howard Jarvis Taxpayers Association, named for the author of California’s tax- limiting Proposition 13.

“This is a pretty far left-wing proposal,” he said by telephone.

The California Chamber of Commerce, the state’s largest business group, had opposed the teacher’s federation’s proposal and Munger’s, and was neutral on Brown’s. The business group hasn’t taken a position on the new plan, said a spokeswoman, Denise Davis.

Second-Largest Union

The federation, representing 120,000 school employees, is California’s second-largest educators’ union after the California Teachers Association, with 325,000 members. The larger union had endorsed Brown’s plan.

Under the new measure, those making more than $250,000 a year would see their income tax rates increase by 1 percentage point. Those making more than $300,000 would see an increase of 2 percentage points, instead of the 1.5 percentage points in Brown’s initial plan. Earnings of more than $500,000 would be taxed 3 percentage points higher, instead of the 2 percentage points sought by Brown.

The increases would expire in seven years, instead of five under Brown’s proposal. Sales taxes would rise by a quarter of a cent instead of a half cent under Brown’s measure, to 7.5 percent instead of 7.75 percent, and would expire in four years.

“We have been trying to make the governor’s proposal more progressive,” Fred Glass, a spokesman for the federation, said yesterday in a telephone interview. “The polling backs our position.”

Diminished Support

Just over half of California’s likely voters backed Brown’s plan in a poll released March 7 by the Public Policy Institute of California (85265MF). Support had diminished due to the competition, said Mark Baldassare, president of the nonpartisan institute.

Brown and the federation will have to file a new initiative and present more than 800,000 valid signatures to county elections officials around April 20 to qualify for the November ballot, according to the Secretary of State’s office. Signatures already collected for Brown and the union’s separate measures won’t count.

The agreement leaves proponents competing with a similar measure being pursued by Munger, a Los Angeles civil rights attorney. That initiative would generate about $10 billion by raising income taxes on most Californians and dedicate the extra money to schools.

Steinberg said talks continued in an effort to persuade Munger to drop her proposal.

“We don’t anticipate that it will change our plans,” Addisu Demissie, the Munger measure’s campaign manager, said in a statement. “We have an open line of communication with the governor’s office and we look forward to continuing the dialogue.”

To contact the reporters on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net; James Nash in Los Angeles at jnash24@bloomberg.net

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

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