Business Update with Mark Lacter

California businesses and state propositions

KPCC's business analyst Mark Lacter explains how the business community in California feels about state propositions on the November ballot.

Steve Julian: The propositions voters decide next Tuesday can affect students, employers and business owners - and that's just a sampling.  Business analyst Mark Lacter, what has business said about Governor Brown’s tax measure, Prop 30?

Mark Lacter: Generally, they're not saying anything, Steve.  Many of the business chambers, and that includes the California Chamber of Commerce and the L.A. Area Chamber of Commerce, are not taking a position on Prop 30, which the governor considers kind of a small victory considering the way businesspeople normally feel about raising taxes (and as a reminder the measure would temporarily increase the state sales tax, along with personal income taxes for the very wealthy).  Not everybody is non-committal - the governor is receiving support from senior executives at Coca-Cola and AT&T, along with L.A.-based Occidental Petroleum, which contributed $500,000.  Actually, if there's ever going to be support among businesses for a tax increase, this would be it.

Julian: Without the money, California schools could face monster budget cuts...

Lacter: Right.  Those cuts may result in shortening the academic year, increasing class sizes, shutting down after-school programs, and freezing purchases of computers and other equipment.  You know businesspeople in California clearly have a stake in improving the quality of the state's schools.  Without a skilled workforce, companies have a hard time competing.  And clearly the schools are not like they were two and three decades ago.

Julian: Opponents say the problem is not so much a revenue shortfall as it is out of control spending.

Lacter: That’s right – and those opponents are getting help from several national business groups, as well as by the mega-wealthy college professor, Charles Munger Jr., who has contributed more than $20 million to defeat the measure.  That money undoubtedly has had an effect, but there are reasons the initiative is struggling.  One is what you might call sky-is-falling fatigue - just too many dire warnings in recent years about the consequences of the state budget being slashed.  After a while, folks start to tune out.  The other big challenge for supporters - and this is kind of ironic - is that the state economy has been getting better and voters might try to convince themselves that the added  tax revenues aren't all that necessary (even though they probably are, certainly in the short term).

Julian: On the subject of initiatives, what about Prop 33?

Lacter: Yes, that's the auto insurance measure - and it's almost singlehandedly the work of billionaire George Joseph, who happens to be the founder of L.A.-based Mercury General, which happens to be one of the state's largest car insurance companies.  Joseph is trying to present this as a simple plan to make it easier for drivers to switch insurance companies without having to pay higher rates.  Mercury would benefit in this because it's a discount insurer.  Now, if all this sounds familiar, it's because it is.  Joseph bankrolled a similar proposition in 2010 -  it narrowly lost, so he figured he would try again.  Between the two campaigns, the guy has spent more than $30 million.

Julian: Yet, Prop. 33 is not nearly as simple a proposal as Joseph would have you believe, is it?

Lacter: Actually, it’s quite complicated.  In basic terms, opponents argue that not all motorists would be eligible for a discount, and the premiums would not be based on an applicant's driving record or the number of miles driven.  So, the discount would be just as available to bad drivers as good ones.  But even if you're convinced that Proposition 33 is a great idea, it might not be the best way to use the initiative process.  The state of California has a perfectly capable Department of Insurance that's headed by an Insurance Commissioner - and after that, there's the state legislature and the governor.  We elect these people with the presumption that they'll be able to resolve issues that go well beyond our own little pay grade.

Julian: Same holds true for several other initiatives on the ballot, like labeling for genetically engineered food, or tax breaks for multi-state companies...

Lacter: ...or even Gov. Brown's tax proposal.  And maybe that's a big reason why so many initiatives are turned down.  People either don't understand them, or don't feel they're in the best position to vote for them.  The question, of course, is why they should be put on the ballot in the first place.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.


blog comments powered by Disqus