Taxes and fees are on the table as Gov. Brown and lawmakers tackle tough challenges

A backlog of highway repairs is just one of the funding challenges that have state lawmakers looking for new revenue sources.

Aug. 15, 2015 7:46 PM PT

Reporting From Sacramento — Gov. Jerry Brown and lawmakers will start tackling some of the state’s toughest challenges this week, and the solution to many of them may be new taxes and fees for Californians.

The Capitol’s ruling Democrats want to hit up residents and businesses for billions of dollars as they seek new ways to fund public healthcare, subsidize construction of affordable housing and pay for road repairs.

Proposals on the table include an extra $2 per pack on cigarettes, to increase payments to doctors who serve poor patients; an expanded tax on health insurers to help fund assistance for the elderly and disabled; and a new fee on real estate transactions to finance homes for low-income Californians.

Also possible are taxes and fees that Democrats say are needed to fill potholes around the state. Options include a new fee for owners of electric cars, a higher tax on gasoline and steeper charges for registering vehicles.

The stack of tax legislation is being considered even as state finances rebound from the recession with billions of dollars in higher-than-expected revenue.

“It’s a significant task to convince voters that you’ve made the right decision to increase taxes when revenue is already increasing,” said Sherry Bebitch Jeffe, a public policy professor at USC.

State Senate leader Kevin de León (D-Los Angeles) promised that lawmakers would scrutinize revenue proposals carefully.

“We have to make sure we provide the taxpayers of California maximum value and stretch their dollar,” he said.

Boosting taxes and fees is never a sure thing in the Capitol, largely because support from Republicans is needed for the required two-thirds vote in the Legislature. Some GOP lawmakers already have expressed skepticism or opposition.

“I don’t think there will be any interest in raising taxes any further,” said Assembly GOP leader Kristin Olsen (R-Modesto).

Brown, for his part, has left the door open. His approach has changed since his previous term, when he promised to give voters the final say on tax proposals even though their assent is not required by law.

“Everything is on the table,” said Deborah Hoffman, a spokeswoman for Brown.

The final deadline for bills to pass is Sept. 11. But measures involving healthcare and road repairs could take longer: The governor called special legislative sessions to deal with those issues, and they don’t face the same deadline.

The topic of healthcare is particularly complex, with a number of overlapping proposals and a long line of agitated interest groups who feel they’ve received short shrift in previous budget negotiations.

Advocates for doctors, low-income patients and the developmentally disabled are all angling for more funding to erase recession-era cuts that remain in place.

“We can’t afford to believe something’s not going to happen,” said Tony Anderson, executive director of the Arc California, a nonprofit that lobbies for people with developmental disabilities.

The proposal to raise cigarette taxes is projected to generate an estimated $1.5 billion annually for healthcare programs like Medi-Cal, which provides coverage to the poor. It is strenuously opposed by the powerful tobacco industry, but the administration wants to consider it.

“As tobacco use has a significant impact on healthcare costs, it’s an appropriate discussion to have,” said Hoffman, Brown’s spokeswoman.

Lawmakers will also grapple with a tax on health insurance plans that accept Medi-Cal patients. The Obama administration has said the levy needs to be revamped or the state could lose up to $1 billion in federal matching funds.

To comply with federal standards, the tax would need to be assessed on all health plans, even those without Medi-Cal patients. The costs would probably be passed onto consumers.

“It’s expanding the tax to a whole class of Californians that don’t currently pay it,” said Charles Bacchi, president of the California Assn. of Health Plans.

Brown proposed a new $1.7-billion tax on managed care organizations in January, to bring in roughly $600 million more than the current levy generates. Some of the money would help finance in-home care for low-income elderly and disabled residents.

But there has been stiff resistance to the proposal from commercial insurers and business groups like the California Chamber of Commerce. Because the current tax doesn’t expire until the middle of next year, there’s also less urgency to tackle the issue now, Olsen said.

“At this point, I don’t see negotiations coming to completion on the healthcare issue,” Olsen said.

There’s more consensus on road repairs. Labor, business and local governments have all lined up behind proposals that would raise taxes and fees to pay for overdue maintenance.

With a wide range of organizations in support, Jeffe said, “that may cause the scales to tip a little bit.”

Administration officials estimate that $59 billion is needed for state roads. Local officials say an additional $78 billion is required for cities and counties.

Sen. Jim Beall (D-San Jose) has legislation that would boost the gas tax by 12 cents, the diesel tax by 22 cents and the vehicle registration fee by $35. There would also be a new $100 fee for drivers of clean vehicles, who don’t contribute to road repairs by paying gas taxes.

California already has one of the highest gas taxes in the country, but it hasn’t been raised since 1994. Beall said his proposed increase would be the equivalent of adjusting it for inflation.

“We’ve fallen so far behind,” he said. “The Legislature and most organizations feel it’s time to move on this.”

Republicans prefer to use revenue from California’s cap-and-trade program, which imposes fees on polluters. By law, that money must be used to reduce greenhouse gas emissions, and they argue that smoother roads would do so by reducing travel times.

The debate surrounding transportation could grow more complex if some lawmakers succeed in adding public transit to the conversation. They want to use higher diesel taxes to support buses, trains and other options.

“We’ve got too many cars on our roads,” said Sen. Ben Allen (D-Santa Monica).

Also in the mix for the end of the legislative session is a plan by Assembly Speaker Toni Atkins (D-San Diego) to spur more affordable housing development.

She wants a new $75 fee charged when real estate documents such as deeds are filed with county recorders. The fee would not apply to paperwork associated with real estate sales. It would generate an estimated $300 million to $500 million each year, according to Atkins’ staff.

The idea is backed by the state association of Realtors, construction unions and local governments. Taxpayer groups oppose the measure.

Atkins said the extra money is needed to address high housing costs for low-income families.

“Housing instability is affecting more people than ever before, including young people and families,” she said when unveiling the plan this year.

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Times staff writer Melanie Mason contributed to this report.