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]

A previous version of this story incorrectly spelled Nicholas Kitchel’s name.