Will California Voters Support New Taxes to Avoid Painful Budget Cuts?

When supporters of increasing commercial property taxes, reshaping property tax transfer rules and legalizing sports gambling began formulating initiatives to put before voters in November, California's economy was riding high — unemployment was at historic lows and state coffers were flush with fat surpluses.

With less than five months until Election Day, campaigns are now facing a different reality. California's economy has cratered due to the pandemic, leaving lawmakers scrambling to fill tens of billions of dollars in lost revenues.

It also reshaped the political landscape.

"When you start an initiative campaign, you start so much ahead of when the actual ballot contest is that the entire world changes under your feet before you actually get to the ballot," said Gale Kaufman, a political consultant with experience on dozens of high-profile ballot campaigns. "And certainly this go round, it's moved several times and very dramatically."

Now, ballot ideas promising to raise billions of dollars in new revenues are likely to be pitched as lifelines for the state budget and the services they fund. And supporters are betting that Californians will again be willing to support new taxes on the ballot if the alternative is painful cuts to schools and social services, as voters did during the last economic downturn.

The largest and most controversial new revenue measure would roll back part of Proposition 13, the landmark initiative passed by voters in 1978, to raise taxes on commercial properties worth over $3 million while leaving residential property taxes untouched.

The idea of so-called "split-roll" reform has been around for decades. Under this version, backed largely by unions representing teachers and others, the increased assessments of commercial properties could raise up to $12 billion a year for local governments and schools.

With local governments weighing deep cuts and schools facing increased costs to safely reopen in light of the coronavirus, "this measure is needed now more than ever," said Alex Stack, a spokesman for the Schools and Communities First ballot campaign.

The budget crunch could also give a boost to initiative ideas that do more than just raise revenue.

A ballot measure sponsored by the California Association of Realtors would make it easier for homeowners to transfer their existing property tax rate to a new home, similar to Proposition 5, which California voters rejected in 2018.

But unlike that measure, the realtors' new initiative would also require property tax reassessments for inherited properties, which could ultimately result in schools and local governments reaping hundreds of millions of dollars in new tax revenue every year.

"Right now local governments are facing severe budget deficits across the state," said Becky Warren, a spokeswoman for the campaign. "This does not increase the tax rate while still providing some additional new revenues that could be used to fill some of those budget deficits."

Legislators are getting into the game also. At the state Capitol, a proposal to legalize and tax sports wagering has been in the works for a year. Now, supporters of the idea hope the desperate state budget situation will entice support from voters who have no interest in ever placing a bet.

"In a COVID-19 environment, raising money from as many sources as possible so we can make fewer cuts to this already devastated budget is so incredibly important," said State Sen. Bill Dodd, D-Napa, the author of the sports gaming measure.

Sports gaming industry analysts estimate that taxes on sports wagering could bring in $500 to $700 million in new general fund revenues each year. The measure still faces an uncertain path to the ballot, as it will require a two-thirds vote in both houses of the Legislature.

As state lawmakers have weighed billions in cuts to child care, senior services and health care, some have pointed to recent history for hopeful examples of voters rescuing the state budget at the ballot.

"$14 billion in trigger cuts would be a disaster," said Assemblyman Kevin McCarty, D-Sacramento, referring to state spending reductions set to happen unless federal funding come through. "We need to look at other options, whether that's internal borrowing or going to the voters like Governor [Jerry] Brown did in 2012 with Prop 30."

Proposition 30 raised sales taxes as well as income taxes on the state's highest earners to generate billions of dollars for the state's general fund.

The measure followed years of budget cuts that slashed billions from schools, libraries and services for the disabled after the Great Recession ravaged the economy and government budgets. Brown warned that if Proposition 30 was rejected, further cuts would follow if voters didn't come to the rescue.

By contrast, the state's current fiscal situation has quickly spiraled downhill; just six months ago, state lawmakers were planning historic investments in schools and housing.

"With Prop 30, you had several years where [voters] saw teachers being laid off. They saw serious cuts taking effect in their classrooms," said Kaufman, who worked to get Proposition 30 on the ballot. "This is not the same because it hasn't happened yet."

And opponents of the tax measures say it would be unfair to turn to voters, millions of whom out are of work or struggling to keep businesses afloat, to solve the state's budget problem.

"To say that this is the time to raise taxes is utterly irrational and very dangerous," said Susan Shelley of the Howard Jarvis Taxpayers Association, which opposes both the split roll and property tax transfer initiatives.

Shelley said that changing Proposition 13 to raise taxes on large commercial property owners could result in further layoffs, while the realtors' property tax measure could saddle children with an enormous bill for any property they inherit.

The more applicable history lesson, Shelley said, is the result of California's March primary, when voters rejected a statewide school bond and several local bond measures.

"Voters were already sending a message that they are taxed at the limit and they can't pay anymore," she said. "This is an indication that voters in California are squeezed and they can't pay anymore."

Given the uncertainty on what economic and public health realities voters will face in November, the ballot campaigns may have to shift their messages more than once in the next five months, said Kaufman.

"I think anyone running one of those campaigns can attempt to do it based on good, solid data, but to be honest, right now, the data has gotta be really about today. It's really not a prospective look at how people are going to feel in two months or three months," she said. "And that's troubling."