Gridlock, impasse killed Middle-class scholarship act

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Nearly seven months after Assembly Speaker John Perez, D-Los Angeles, announced the Middle Class Scholarship Act, Perez was on the verge of passing the monumental piece of legislation.

But, on Aug. 31, the last night of the legislative session, discussions devolved into partisan gridlock on the Senate floor after negotiations spiraled out of control.

If it had been passed into law, the Middle Class Scholarship Act would have slashed UC and CSU fees by 60 percent for middle-class students, providing relief in a time of looming tuition increases. Earlier in the legislative session, the Act passed the Assembly with bipartisan support.

In the final hours of the legislative session, the Middle Class Scholarship Act was subjected to countless proposed revisions from state senators, ranging from tax exemptions for tobacco companies to increased funding for the Quality Education Investment Act, K-12 legislation.

The combination of unwavering ideological commitments and hastily conducted negotiations made reaching an agreement impossible.

Ultimately, Perez decided to bring the act to a vote in its original form.

The Final Night

On the night of the vote, a number of college students, including ASUC Chief Deputy of National Affairs Nicholas Kitchel, went to the Capitol to show support for the Middle Class Scholarship Act.

Upon their arrival, Perez’s senior adviser Max Espinoza brought the students up to speed on the progress of the negotiations and said he was confident an agreement could be reached with those opposed to the de facto tax increase, according to Kitchel.

Previously, multistate corporations had been given a choice between two formulas for calculating their taxes. One formula factors in sales, property and payroll, while the other solely accounts for sales. The act would require corporations doing business in California to use the formula that only factors in sales — often the more costly option.

The change was projected to raise $1 billion in new revenues annually.

Representatives from some corporations had indicated to Senator Lou Correa, D-Santa Ana — the only Democrat to vote against the Act — that if the tax revision was implemented, their companies would reconsider their presence in California, said Correa’s chief of staff, Amy Jenkins. California already has the third-highest cost of doing business in the nation, according to the 2012 CNBC “America’s Top States for Business 2012” rankings, and the tax change would have increased the cost of operating in California.

“(Correa’s) record on higher education shows he has fought very hard to protect that funding, but he’s also tried to advance a pro-growth and pro-jobs initiative,” Jenkins said. “What he was trying to do here was strike a balance.”

Kitchel, however, said that when he lobbied at the Capitol that night, he received a series of blunt rejections.

The legislative aide for Senator Doug La Malfa, R-Richvale, told Kitchel that while the senator was a strong proponent of higher education, he had signed the no tax increase pledge penned by Grover Norquist and thus could not vote for the Middle Class Scholarship Act, according to Kitchel.

Staff from each of the offices the students visited that night offered some variation of the same claim — the legislators would not raise taxes.

“Students had a great effect, but you simply cannot overcome some things given the current climate and the stonewalling by Republicans,” said Greg Hayes, the communications director for Senator Kevin De Leon, D-Los Angeles. “There’s this rigid toe-the-line mentality that makes trying to a get a deal done next to impossible.”

Staunch Republican opposition to Perez’s tax code revisions should not have been surprising. Earlier this year, De Leon also attempted to mandate a single sales factor tax with his bill SB 116. Hayes said “the same cast of characters” who fought SB 116 opposed the Middle Class Scholarship Act.

Yet, even though De Leon was able to anticipate the opposition, substantial talks did not begin until the last days of the legislative session, leaving little room for maneuvering on both sides of the aisle.

In some cases, such as that of Correa, Perez only reached out days before the session ended.

With such little time, substantial amendments like Correa’s request for $300 million in tax deductions for companies annually became unmanageable.

Unable to work toward a mutually agreeable package, when it came to a vote, Correa, along with Senate Republicans, denied the Middle Class Scholarship Act the two-thirds majority it needed to pass. It failed with a final vote count of 22 in favor, 15 opposed and 3 without recorded votes.

Financial Future

The following day, Gov. Jerry Brown remained optimistic.

“Speaker Perez deserves special credit for leading the way to end tax loopholes and fund middle class scholarships,” he said in a statement. “We’re not finished yet and we’re going to work together to get it done in the next session.”

Perez, however, appears to have since turned his back on the effort.

On Wednesday, Perez officially endorsed Proposition 39. If passed, the proposition would mandate a single sales factor tax but use the $1 billion in new revenues for clean energy projects and K-12 education rather than a scholarship for college students.

“I’ve come to learn that special interests will block any attempt to close this loophole through the legislature,” Perez said in his endorsement. “That’s why it is up to the voters approve this measure to make California businesses competitive and create jobs.”

Backed by Bay Area billionaire Tom Steyer, the proposition stands a fighting chance at the polls this November. A Field Poll taken in early July showed 44 percent of voters in favor of the proposition and 43 percent opposed.

That leaves the near-term prospects for California’s higher education system dim.

If voters reject Proposition 30 — Brown’s tax initiative — UC Berkeley will face $50 million in cuts, and students may see their tuition increase by 20.3 percent midyear.

“Eventually, though, as people start to see the damages, at some point or another, something has to kick in,” said ASUC External Affairs Vice President Shahryar Abbasi.

Curan Mehra is the lead higher education reporter. Contact him at [email protected]

Correction(s):
A previous version of this story incorrectly spelled Nicholas Kitchel’s name.

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  • Need blind

    Isn’t it strange how a regressive policy can be portrayed as progressive!
    -This is an UPPER middle class tax cut, for people who DON’T QUALIFY on the basis of need, people making 75k to 150k, in the upper 1/4 of the income distribution.
    -It does nothing for the UC education system, they get exactly the same tuition dollars. It takes tax dollars and puts it directly into the pockets of upper middle class students. Need-blind admisstions — full scholarships to those who NEED it — is the responsible, PROGRESSIVE policy. Oh, for whiney entitled upper middle class kids who think scholarship kids are stupid (see below)? “Need blind” means the admissions office is straight quality, scholarship office is straight need.
    -If the Legislature wants to send more tax dollars to higher education, let them spend it as *new* dollars, on buildings or teachers or endowments to recruit top faculty away from the East Coast, or anything else that benefits *all* students, rather than just the upper middle class.
    -Since this is regressive policy disguised as progressive, how can we explain the support of liberal democrats? Perhaps it is just straight old-fashioned vote buying, since it certainly isn’t progressive in any way.
    -Higher education in general (not including community college) and especially at the UC’s, is a “private good,” meaning that the investment in education has a DIRECT PAYBACK to the individual. The salary differential pays back the investment and more. So for people who DO NOT QUALIFY for need based aid, loans are a good investment, and the return to that investment goes right into their pocket.
    -A holiday on loan payments for the unemployed or for those giving back their time in public service to the poor is reasonable public policy. Subsidizing the upper 1/4 so that they can make more money is NOT.
    -Anyone supporting this policy, especially progressives, needs to explain why they would support a bill that will subsidize the upper middle class, those who, by definition, DO NOT QUALIFY FOR AID ON NEED.
    Just in case anyone thinks I’m rich or poor, I would directly and personally benefit from this policy. But it’s not right. Romney has it wrong, it’s not the lower 47 who are entitled, it’s these whiney upper middle class people begging for taxpayer dollars for themselves rather than student loans, so they can go out and get jobs that will keep them in the upper quarter. No.

  • Current student

    Vote NO on moonbeam’s tax hikes

  • Stan De San Diego

    Another editorial passing as a “news” article…

  • Guest

    Honestly, the last thing California needs is more taxes on business, particularly when there is currently sufficient higher education funding to lower UC tuition to less than half its current level for all students. It is a matter of distribution. Simply stop “Return to Aid” and its Blue/Gold free ride to those who qualify for Cal Grant. Instantly, UC tuition is reduced by 35% for all state resident students. That is the static equilibrium effect. There will also be a dynamic equilibrium effect. The state can then transfer the 35% share of Cal Grant funding that was going to pay for “Return to Aid” directly to UC to lower state resident tuition. Since half of UC students are on Cal Grant, that brings state resident tuition down from 65% of the current level to 65% – 35%/2 = 47.5% of the current level. Without the free rides, some Cal Grant recipients will not choose to borrow or work to go to a distant UC and instead will go to a nearby UC or lower cost CSU or community college whereby they can live at home. With reduced state resident tuition, more highly qualified students from middle income families not eligible for Cal Grant and the Blue/Gold free ride and currently attending a CSU or community college will apply for admission and displace less qualified students from lower income families in the admissions process. The students from lower income families that instead go to a CSU which charges half as much state resident tuition or a community college will further reduce funding required for Cal Grant and that funding can go back to UC to further reduce state resident tuition. After the dynamic equilibrium effects take effect, students from middle income families in the 80k-120k income range not eligible for Cal Grant but not well off enough to pay for a UC education, and who currently comprise 40% of UC eligible students but due to being priced out of a UC education only 8% of UC students, will significantly displace less qualified students from lower income families eligible for Cal Grant, greatly reducing the funding required for Cal Grant and that funding can go directly to UC as it did in the past to lower state resident tuition for all state residents. It is not inconceivable that state resident tuition could be reduced to one third of the present level. UC will return to a more sensible model for a public university considering the current fiscal situation. A public university where it is possible for any state resident to attend if that state resident is willing to work his way through school and/or take out a modest amount of loans to finance his education. We should also recognize that simply because a student is from a family of a certain income level that seemingly can readily afford a UC education, does not mean his family will support his education. At the present time, such students are completely excluded from a UC education until six years have elapsed after graduating high school and the student reaches the age of twenty four and is deemed “independent” under Fafsa guidelines that are based on the Higher Education Act of 1965. It should be possible for students in such a situation to work themselves through their state public university with perhaps the aid of a few loans as it formerly was in California.

    • libsrclowns

      That’s all Libs know how to do….tax +. Spend

  • Bad Republicans

    Blinded by the high tuition increases, Republicans are bent on their idiotic “no taxes” pledge and care for corporations, not students.

    Vote all the Republicans out in November!

    • Stan De San Diego

      There’s a little flaw in your logic, child. The Democrats already control the Governor’s office as well as the Assembly. Therefore, the reason it did not pass is that not all those Democrats are on board either. Ever consider that maybe some of the Dems have figured out that raising taxes in the middle of a severe recession isn’t a good idea either?

      • guest

        Whether or not you’re in favor of tax increases, you can’t say Democrats alone control these issues. They simply do not have 2/3 of the votes necessary to pass anything related to taxes.

        • Stan De San Diego

          When the Dems control the governor’s office AND the state legislature, blaming the Republicans is pretty stupid.

          • Bad Republicans

            Good job at not addressing guest’s arguments. The Democrats DO NOT control 2/3 of the state legislature which was required to pass this bill. You are an ignorant Republican or conservative or whatever label you like to call yourself.

          • Calipenguin

            From http://totalbuzz.ocregister.com/2012/09/06/perez-blames-lou-correa-for-defeat-of-middle-class-scholarship/88722/ :

            Two Democrats — Sens. Lois Wolk of Davis and Rod Wright
            of Los Angeles — abstained on the bill.

            By my count that’s THREE DEMOCRATS out of 25 who refused to vote for this bill. Let’s face it, the Democrats couldn’t even convince their own politicians to vote for killing jobs in California. Blaming Republicans only will get you nowhere.

          • I_h8_disqus

            There are a lot more things going on than tax votes. You need 2/3 of the vote for tax increases. The rest of the process is controlled by Democrats. They control the budget, and everything else, because of simple majority requirements.

      • guest

        The funny thing is that for Republicans, only private sector jobs count. If what you really care about is the unemployment rate, why focus only on the indirect impact of tax increases on private sector jobs, and not on the direct impact of spending cuts on public sector jobs?

        • Calipenguin

          By definition public sector jobs take money out of private bank accounts and puts it in government employees hands. Since money is forcibly removed from the private sector, fewer private sector jobs are created and fewer investments are possible. The government can try to improve liquidity by printing more money, but that causes inflation. Thus the best policy is still to create private sector jobs rather than create the illusion of wealth from a plethora of government workers. What about government workers who spend their money in the communities they live? That would be a benefit to America only if they buy nothing but Made in the U.S.A. goods and services, and spend every penny they make.

        • Stan De San Diego

          “The funny thing is that for Republicans, only private sector jobs count.”

          Private sector jobs create wealth, something you can’t say for most public sector jobs. Being a bureaucrat to administer a welfare program is not the same as producing a good or service that others will voluntarily pay for.

        • I_h8_disqus

          I care about public sector jobs. However, I expect that public sector employees should be paid based on their work and not based on the negotiating skills of their union leaders. The fact that we provide a living wage to public sector employees long after they stop working is wrong. You should get paid for working when you are working. We should pay public employees their fair wage in each pay check and cut out the pensions. We should also allow governments to discipline and fire public workers when they don’t perform. Then government would hire appropriately, and its workers would have to be qualified for their jobs, and take the steps to work to the best of their ability just like in the private sector.

    • I_h8_disqus

      The other side says why do you need more taxes? We tax the third highest in the country. How do we not have the third best public education system in the country instead of a public education system that is in the bottom five in the country? Higher taxes have not done anything for California. The more they go up, the worse off we seem to become. They have just made business and those with opportunity leave the state. When the money leaves the state, then our revenues drop further. The better option is not to fund tuition with higher taxes, but to fund it with cuts to wasteful spending and by increased revenues from bringing businesses to California.