February 17, 2005 The Honorable Arnold Schwarzenegger Governor, State of California State Capitol, First Floor Sacramento, California 95814 Dear Governor Schwarzenegger: Subject: Business and Taxpayer Coalition Support for Sinclair Reform Thank you for pursuing an aggressive reform agenda to fix what is so wrong with California. Your courage has been an inspiration to all of us. Your desire to pursue budgetary reform is particularly satisfying because, as you stated, California does not have a revenue problem – it has a spending problem. However, we have grave concerns that some of the budgetary reform proposals will leave a gaping hole that advocates of limitless new spending will quickly exploit to hurt all California taxpayers. Without addressing the problem of taxes disguised as “fees,” no budget reform will save California from overspending. Business and taxpayer organizations urge you to support a corrective measure to protect this state from tax-like fees that are being proposed as a result of the Sinclair decision of the California Supreme Court. Tax-like fees being proposed around the state and in Sacramento under the Sinclair decision are an end-run around Proposition 13, Proposition 218 and other clear expressions of California voters that taxes be carefully approved under a twothirds vote process. Properly defined fees serve legitimate purposes. But, these tax-like fees do not reasonably relate to the services on which assessed, generate revenues in excess of those required to cover costs within the scope of their stated purposes, and are typically applied directly to purposes traditionally reserved for general revenues. Scrutiny of how these tax-like fees are actually spent demonstrates the stated purposes are often pretexts and revenues in excess of the costs to cover their stated purposes are applied to general revenue items and special tax projects that should be supported by taxes, not fees. Tax-like fees increase the cost of goods and services produced and sold in California and make California industry less competitive with other states. Opponents of Sinclair reform suggest it is an effort to protect polluters. This is untrue. All fines, penalties and sanctions levied on polluters are untouched by Sinclair reform. Our concern is that the California Legislature and local agencies, in the past three years, have proposed dozens of new, majority-
The Honorable Arnold Schwarzenegger February 17, 2005 Page Two vote Sinclair taxes. Creativity with regard to Sinclair taxes is limitless. Proposed Sinclair taxes would increase costs for all Californians who own cars, use phones, insure cars, drink wine and beer, and use electric energy. The Legislature has also used a Sinclair rationale to proposed higher costs on California employers to fund the paid family leave program, and for Californians who use long-term care facilities, car washes, visit psychologists, purchase diapers and buy pharmaceutical products, timber and agricultural industries. This list goes on. The public understands with clarity that these tax-like fees are ways for spending advocates to find what they think is a new and secure revenue source. Unfortunately, the damage done by these new taxes will undercut future growth of the state’s economy. It is important to note that business and taxpayer organizations have long supported legitimate fee authority of state and local governments in California. We have opposed measures before the Legislature and on statewide ballots that constrain legitimate fee authority of public agencies. Now, however, we see taxes being called fees to avoid the scrutiny and public debate that voters have repeatedly called for since Proposition 13. We urge you to consider the following: First, these tax-like fees are in fact taxes and should require a two-thirds vote for passage. The tax imposed is an enforced payment to raise revenue for public or general governmental purposes. Taxes should not be classified as fees to circumvent tax approval procedures specified in the Constitution. We have attached criteria to distinguish taxes from fees. Applying these criteria makes it clear that these new hybrid fees are really new taxes. Second, California history demonstrates with great clarity that the biggest revenue opportunity available to the Legislature and the governor is an economy that is improving and growing. When the economy improves, state revenues surge. Jobs, profitability of California companies, and economic investment translate into windfall tax revenue to the state’s general fund and to city and county treasuries. This is not a mystery; it happens again and again. All Californians must be working to make California more competitive for investment, rather than stifling economic growth by raising taxes and fees. Increasing taxes and fees during an economic downturn places an additional
The Honorable Arnold Schwarzenegger February 17, 2005 Page Three drag on the economy, the direct opposite of economic stimulus. Tax and fee increases, whether at the state or local level, will only further retard economic recovery. A tax and fee increase response to the state’s budget problem is a grave error. If nothing is done to control new tax-like fees, California will be a more-expensive, less-desirable place to live and to operate businesses. Extended discussion of tax and fee increase proposals in Sacramento sends a damaging signal to those who would invest in California. We vigorously support your 2005 budget reform strategies that will bring California spending obligations in line with revenues, recognizing the boom-andbust nature of this state’s tax revenue cycles. Your budget reforms are long overdue. But, to truly put a check on the growth of government and to keep “the beast” from feeding off of a new revenue source, elimination of Sinclair fees must be a part of true budget reform. We urge you to protect California taxpayers, consumers and business from this growing tax assault from the spending lobby. New taxes and fees are unnecessary and damaging. Coalition members: AeA Alliance of Automobile Manufacturers American Forest and Paper Association California Aerospace Technology Association California Beer and Beverage Distributors California Business Properties Association California Farm Bureau California Forestry Association California Grocers Association California Independent Oil Marketers Association California League of Food Processors California Manufacturers & Technology Association California Paint Council California Retailers Association California Space Authority California Taxpayers’ Association Chemical Industry Council of California Consumer Specialty Products Association Howard Jarvis Taxpayers Association Inline Translation Services, Inc. JF Shea Homes
The Honorable Arnold Schwarzenegger February 17, 2005 Page Four Coalition members, continued Lumber Association of California and Nevada Miller Brewing Company Orange County Taxpayers Association Paul Hastings Pardee Homes Rubber Manufacturers Association SBC Union Pacific Watson Land Company Western Wood Preservers Institute Wine Institute WSPA
