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Unions steer California Democrats toward cliff

- Special to The Washington Times - Friday, December 7, 2012

Obamacare doesn't go far enough. The government needs to replace private insurance companies in a complete takeover of health care.

That’s the system California’s union leaders are pressuring Democrats to create, now that they enjoy supermajorities in both chambers of the state Legislature. And their influence is “tremendous,” according to former Sen. Gloria Romero, D-Los Angeles, who served as Senate majority leader from 2001 to 2008.

“California Teachers Association’s former president referred to them as the fourth, co-equal branch of government,” she said. “Nobody has the political and money war chest that they do.”

And they seem eager to use it.

Along with proposals to eliminate private insurance companies, raise taxes on everything from oil to luxury cars and remove barriers to higher property taxes, California's powerful public-sector unions want the state to spend $68 billion on a bullet train and increase public pension payouts to consume almost 20 percent of local budgets.

Willie L. Pelote Sr., California political director of the American Federation of State, County, and Municipal Employees, said he meets with state lawmakers regularly.

“I don’t miss an opportunity,” he said. “I meet with them, they spend an hour in my office, a lot of them come back.”

AFSCME has given $26,303,148 to the California Democratic Party since 2003, according to FollowTheMoney.org, a nonpartisan, nonprofit research organization based in Helena, Mont. And Ms. Romero said its generosity will likely not go unnoticed by the Legislature.

“I think there will be sort of the toll that is paid the political gatekeeper, which is — take your top political donors, especially public sector unions — going to be a checklist of hey, have you been naughty or nice?”

Another union likely to find itself on the “nice list” is the California Federation of Teachers. According to FollowTheMoney.org, the union has contributed $16,147,479 to the California Democratic Party since 2003. And President John Pechthalt said he has a lot of ideas for how to cash it in.

For one, Mr. Pechthalt said he would like to see the legislature take the lead on a Medicare-for-all proposition, akin to the national health care systems of Britain or Canada.

“We want to take insurance companies out of the equation,” he said. “If you take the insurance companies out of the equation, you still have private companies and doctors who still get paid … just reimbursed directly from the state.”

In other words, this model adds medical professionals to the state’s payroll, and “the health care system is paid for with a tax,” he said, adding that the union would lobby for other tax increases, such as a new extraction tax on oil companies.

Mr. Pelote said the key to generating revenue is increasing taxes on corporations and luxury purchases.

“Huge corporations in this state … they get every kind of massive write-off you can imagine," Mr. Pelote said. “Everybody [should be] paying their fair share, you shouldn’t be exempted from being a responsible citizen.”

Marilyn Cohen, president of Envision Capital Management Inc., an investment management company based in Los Angeles, said taxes are the problem, not the solution to California's budget woes. 

"They're going to tax California until the top 3 percent throw in the towel,” she said. “California has already lost several corporations over the last several years.”

Campbell's Soup closed its Sacramento plant in September, taking 700 jobs with it. EDM Laboratories moved to Texas, joining 253 other companies that moved all or part of their business out of state last year, according to a study by Irvine business consultant Joe Vranich.

Chief Executive Magazine ranked California as the worst state for business for the eighth year in a row in May, citing “excessive” taxes as a major reason.

Still, Mr. Pechthalt said he supports making taxes even easier for lawmakers to levy. Currently, California requires state and local legislative bodies to secure  two-thirds majority votes in order to raise taxes. Mr. Peschalt said he hopes state legislators will vote to reduce the local threshold to a simple majority.

Lawmakers are already taking steps to reduce the threshold for local taxes. On Dec. 3, the state's first legislative session of the new term, state Sen. Mark Leno, D-San Francisco, proposed amending Proposition 13 to allow local property tax increases to pass with just a 55 percent voter majority.

Currently, Proposition 13 requires a two-thirds majority to increase those taxes.

Mr. Pechthalt said he would like to reduce the threshold for raising taxes at the state level, too. However, since the two-thirds majority requirement to raise taxes is written into the state’s constitution, that change would require voter approval. Mr. Peschalt is confident he will get it.

Ms. Romero agrees, saying supermajorities give Democrats control of the state’s purse strings — and, therefore, they can decide how much the state should spend on information campaigns, public service announcements and other initiatives that sway public opinion.

After all, Californians already voted to raise their own taxes by passing Proposition 30, Gov. Jerry Brown’s plan to balance the state budget by temporarily raising the sales tax as well as the income tax rate on people who make more than $250,000 a year.

Supporters of Proposition 30 raised almost $70 million to promote the ballot measure, far more than the $54 million opponents of the measure were able to raise, according to MapLight.org, a nonpartisan research organization based in Berkeley, Calif. Almost all of the money opponents raised came in the final month of campaigning, when polls showed voters were actually likely to approve the measure.

Unfortunately, revenue generated from income taxes is notoriously unreliable — particularly on taxes levied on the wealthy, a group that often makes high-risk investments. 

“Some of the people that pay the most taxes don’t get income from salaries or wages, they get most of their income from stock market investments,” said Gabriel Petek, an analyst with Standard & Poor’s Ratings Services in San Francisco. “The stock market is a lot more volatile. The bottom line is, the problem with California tax structure is it's very volatile.”

Mr. Petek pointed to 2008-2009, when the Great Recession hit California: State GDP declined 5 percent, but state revenues plunged 19.3 percent.

While lawmakers have promised that taxes raised by Proposition 30 will go to schools, those funds are not actually earmarked for education. The actual text of the measure only compels California to spend the money it raises on “programs in the state budget.”

And where did California come up with the money to support Proposition 30? Six of the top 10 donors were unions.

Despite pressure from unions to keep the spending spigot wide open, Democrat leaders including Senate President Pro Tem Darrell Steinberg have promised not to be seduced by their new supermajorities in Sacramento.

“We all recognize that we have to use this new power wisely, and we can’t overplay it,” he said last month.

Ms. Cohen isn't buying it.

"They can't change now. They've got the supermajority, they've got the incentive to do whatever they darn well please, and they will,” she said. “How can a group of people that have been so fiscally imprudent all of a sudden change? It’s impossible, because the takers are going to want more.”

Follow Katherine Timpf on Twitter @kctimpf