California’s Union Ballot Initiatives

It isn’t fair to criticize California’s conservatives for failing to back public sector union reform initiatives (ref. “The Conspiricy of Cowardice“) without acknowledging the power of the opposition. Earlier this year, commentator George Will called California a “unionocracy,” in an attempt to describe the power wielded by public sector unions over California’s government. Republican lawmakers in California, off the record, have stated the public sector unions exercise “absolute power” over California’s legislators. And why wouldn’t they? Every month, well over a million unionized public sector workers in California have a portion of their paycheck automatically deducted for union dues, and significant portions of these funds are used for political lobbying and independent expenditure campaigns. In aggregate, the amount of money available to these unions, who don’t have to ask anyone for a cent, overwhelms any candidate who won’t play ball.

There are far reaching consequences to politicians not standing up to California’s public sector unions because they will lose access to their campaign donations or become targeted by them. By controlling the politicians, public sector unions control legislation and they control the agencies. Businesses who do business with California’s state and local governments are understandably wary of antagonizing the public sector unions, since they make or break the politicians who supposedly oversee the agencies. Would anyone risk angering officials are all members of these powerful unions, people who can shut down their business or deny them a contract? One businessperson told me that the unions “were his clients.” When I asked him if he meant the agency, who his company had a contract with, was his client, he responded “who do you think runs the agency?”

With respect to initiatives that would begin to correct this abuse, this virtual take-over of our state and local governments by unions, there is yet another weapon the unions can wield, which is to launch initiatives of their own. Often all the public sector unions have to do is threaten to launch an initiative – imagine the chilling effect this can have on efforts to get union reform initiatives onto the ballot.

Want to support a Voluntary Political Contributions Initiative, a reform that would require public sector unions to acquire permission from each unionized public employee before confiscating a portion of their wages to use for political activity, or a Pension Reform Initiative, a reform that would scale back the totally unsustainable and unwarranted retirement benefits currently granted to public employees? Then don’t be surprised by what happens next.

It is important to note that unions do not necessarily file their own initiatives in direct retaliation to pending reform initiatives. That is merely the reason businesspeople and Republican lawmakers are afraid to back reform initiatives – because they hope these counter-initiatives won’t end up on the ballot in retaliation. The reality is worse – these union-sponsored initiatives are quite likely to be filed and qualified for the ballot no matter what the business community does. Apparently all California’s conservative leadership and business community wish to do is play defense.

Here are three proposed initiatives that have the support of one of California’s most powerful public sector unions, the California Teacher’s Association (CTA):

1438. (09-0088) –  The complete title and summary for all initiatives qualified for circulation to-date can be found on the California Secretary of State’s website on the page “ballot measures cleared for circulation.”

Imposes Political Contribution and Expenditure Restrictions on Corporations. Initiative Statute (full text):
Prohibits corporations or other business entities as defined from making contributions or expenditures related to any elective office, ballot measure, or for issue advocacy, unless approved by resolution of the shareholders. Requires that authorizing resolutions specify the recipient, amount, and purpose of the contribution or expenditure, and time period the authorization is valid. Prohibits corporate officers and directors from consenting to prohibited contributions. Prohibits candidates, political committees, and persons from knowingly receiving prohibited contributions or expenditures...

This initiative, supported by the CTA as documented in a press release of February 5th, is truly diabolical, because to the average voter, this would appear a reasonable counter to the Paycheck Protection Initiative. After all, if the unions have to ask their members for permission to donate to political activity, why shouldn’t corporations ask their shareholders for similar permission? Try to construct a soundbite that will refute that logic. Then go out and raise $20M to promote it on the airwaves – remember, you’ll have to ask for every penny.

The idea that corporations are ready and willing to make any political contributions is the first fallacy in this supposed symmetry. Many large corporations are in détente with public sector unions, working with them to secure more public (taxpayer) subsidies or drive out emerging smaller non-union competitors, and those who aren’t yet corrupted in this manner are scared witless of the unions. Convincing corporate management to donate to political causes is already difficult, let alone if they then have to go to their shareholders and ask them.

The non-symmetry goes well beyond this. The CTA’s initiative requires every single corporate political contribution to first secure a shareholder resolution – recipient, amount, purpose, and time period. Acquiring shareholder resolutions, particularly in public companies, is never a trivial task. Compare this to the mechanics of securing a consent from a public sector worker under the Paycheck Protection Initiative – they sign an annual consent, distributed efficiently in the workplace, specifying how much they are willing to pay to a union-controlled PAC, and this PAC may use the money however and whenever they please.

There’s more. Public sector workers are not being paid with money earned through profits, which are earned through selling goods to willing, voluntary consumers in the free market. Public sector workers collect wages that are confiscated from taxpayers whether they want to pay or not, under threat of imprisonment, and this money is then used to fund political campaigns to manipulate the very same voters who paid the taxes. This closed loop, where the employee unions elect the politicians who control their compensation is the primary reason California’s state and local governments are bloated and nearly bankrupt.

Here’s another gem, an initiative to “Close Corporate Loopholes,” also supported by the CTA:

1412. (09-0058, #1NS)
Repeals Recent Legislation That Would Allow Businesses to Carry Back Losses, Share Tax Credits, and Use a Sales-Based Income Calculation to Lower Taxable Income. Initiative Statute (full text):
Repeals recent legislation that would allow businesses to shift operating losses to prior tax years and that would extend the period permitted to shift operating losses to future tax years. Repeals recent legislation that would allow corporations to share tax credits with affiliated corporations. Repeals recent legislation that would allow multistate businesses to use a sales-based income calculation, rather than a combination property-, payroll- and sales-based income calculation…

This initiative, also supported by the CTA (ref. the same press release), is supposedly to ensure that “in these tough times everybody must be paying their fair share,” and because “lawmakers approved the $2.0 billion in tax cuts for large corporations and oil companies without any requirements for these companies to create new jobs.” Notwithstanding the fact that comments like this reveal a world view diametrically opposed to free-market capitalism – i.e., the government can’t “require” companies to “create jobs,” this press release ignores facts that, again, defy easy packaging into sound-bites. These “loopholes” were actually reforms, designed to stop California-based corporations who do business outside of California from enduring double-taxation, since companies selling goods in other states were already paying taxes in those states, yet had their in-state taxes calculated on factors partially unrelated to in-state sales. Other reforms provided for in this “loophole” legislation were designed to move California closer to corporate taxation law that applies in other states – why shouldn’t a corporation be able to allocate a tax credit to an affiliated company, isn’t it their credit? Why shouldn’t a corporation allocate operating losses to future years? Corporations don’t get money back from the government in years they lose money. It is unfair to tax one year of profits when those profits aren’t normalized for the losses of prior years. But the rhetoric of the CTA reveals their true intentions – they don’t like corporations, they don’t like the private sector, and they don’t like profits or private wealth – despite the fact that without profits there would be no tax revenue. The irony is profound.

Equally disappointing, if not outright sinister, is the fact that the corporate tax reforms that the CTA wants to roll back via this initiative were negotiated in exchange for a state budget deal. But unlike the budget, which is sealed and final, the reforms (“loopholes”) that were enacted as part of the budget package can be rescinded.

To complete our trio of initiatives that will further consolidate the power of public sector unions and expand government beyond its unsustainable present size – probably coming no matter what – and apparently also courtesy of the CTA (ref. “Will CTA Put A Split-Roll Initiative on the 2010 Ballot?“), is this nugget:

1424. (09-0077)
Requires Assessment of Most Commercial Property at Least Once Every Three Years and Increases Homeowners’ Tax Exemption. Initiative Constitutional Amendment and Statute (full text).
Changes existing law to require that commercial property be assessed at fair market value at least once every three years. Excludes residential and agricultural property. Doubles homeowners’ tax exemption from $7,000 to $14,000 on residential property. Creates small business tax exemption for first $1,000,000 in personal property. Permits county governments to offset reassessment costs; transfers ninety percent of remaining revenues to state’s General Fund to support all General Fund programs, including education, public safety, and health care…

What on earth is the CTA thinking? What do they think is going to happen if these three initiatives actually pass? Everything these bills accomplish will harm ordinary people, not help them, because ultimately, businesses don’t pay taxes, ordinary people do. If a business is to remain in business, they have to pass tax increases on to their customers in the form of higher prices. These hidden taxes are crippling California as much as overt taxation. And why should any corporation stay in California, already one of the most business-unfriendly states in the nation, if on top of all that, they are excluded completely from the political process, remain subject to double-taxation and unable to allocate tax credits or carry forward losses, and lose protection from confiscatory property tax rates? Can’t the CTA – and the other public sector union leaders – understand that a healthy private sector is an inviolable prerequisite to robust tax revenues? Once they kill the private sector, they also die. It’s that simple.

California’s Republican leadership, movement conservatives, and uncorrupted business leaders need to understand something very clearly: They are in a war with public sector unions whether they want to be or not, whether they practice appeasement or not. They can make deals that delay their own demise at the expense of others. They can descend into the fascistic mire of corporatism, and enter into joint ventures with government unions, to their own gain, but at the expense of competitive markets, property rights, and optimal economic growth. Or they can defend their principles and do what they know is the right thing to do. The irony is that by fighting this tyranny, they will actually be doing the membership of public sector unions a favor as well, because restoring fiscal solvency to California’s governments and renewing economic growth depends on rolling back the wages and benefits paid to public employees, and restoring the agenda of California’s state and local governments to the people. This requires fighting the public sector unions without reservations.

Edward Ring

Edward Ring is a contributing editor and senior fellow with the California Policy Center, which he co-founded in 2013 and served as its first president. He is also a senior fellow with the Center for American Greatness, and a regular contributor to the California Globe. His work has appeared in the Los Angeles Times, the Wall Street Journal, the Economist, Forbes, and other media outlets.

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