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Change Agents: The Commission on the 21st Century Economy is working on a tax plan to present to the Legislature.

Golden Opportunity

State government reform advocates, including Santa Cruz County Treasurer Fred Keeley, look at the flipside of California's budget meltdown and see a chance to mend the Golden State.

By Jessica Lussenhop

AS STATE LAWMAKERS wrangled the budget to a close, voices rose up from every hill and dale in California pleading not to be administered cuts on top of cuts already doled out by their local governments. Schools, social services, health care--they're all being force-fed a giant slice of the $26 billion budget deficit pie. So naturally people are pissed. And they want blood, no matter where the fault lies.

"I think we could have a bill to boil in oil a legislator a month and it would probably pass," says Santa Cruz County Treasurer and former District 27 Assemblyman Fred Keeley. "That assumes the legislators and the governor are fundamentally the problem. I don't think they are."

Keeley, though he agrees that the budget is "inadequate, insufficient, incoherent," views the disaster from a unique perspective in that he serves on two different bodies with an eye on the future. Both the Commission on the 21st Century Economy and California Forward are trying to channel the same passion with which Californians cried "Don't cut us" into "Change us."

"I think about 65 percent of [the blame] can be laid at the doorstep of a process that is terribly outdated and broken and needs to be modernized," Keeley says.

The commission was ordered by Gov. Schwarzenegger back in March to rewrite California's tax system to decrease the kind of volatility that has made the state obese in good times and starved it in bad. Keeley says the group is now poised, after months of information-gathering, to formulate a proposal to bring before the governor and Legislature in the next 60 days. At present the commission must combine two approaches--the wryly named "red plan," written by the conservatives in the 14-member commission, and the "blue plan," for which Keeley served as head author--into one coherent formula.

To Keeley's eye, the red plan is a regressive approach that shifts the burden from the wealthy to more middle- and lower-income taxpayers.

The blue proposal advocates reducing sales and use taxes (while simultaneously broadening their applicability), amending Prop. 13 to reassess nonresidential commercial property for property tax purposes, creating a pollution tax on carbon-based fuels and starting a "rainy day fund" to be filled by extra personal-income tax monies in times of bounty.

The red plan would flatten personal income tax, eliminate the bank and corporation tax and abolish the state general fund sales tax. It would fill those holes with some replacement business taxes.

"They're two completely different ways of dealing with the same thing, and they're both legitimate and we'll probably end up doing some of both," says Keeley. Depending on how palatable the final product is, the governor and Legislature will either vote it up or down as a whole or break it down to chew, digest and vote on piecemeal.

On the California Forward side of things, the group is putting together ballot measures for 2010 designed to limit lawmaker spending, force politicians to explain how their programs will be paid for and give local governments more control over tax dollar allocation.

There is also a possibility the group will have a ballot measure that will eliminate the two-thirds majority needed to pass a state budget, a rule shared only by Arkansas and Rhode Island and one that has become increasingly unpopular over the course of the crisis.

"It is a distortion of democracy," says Keeley. The group is still trying to decide whether to recommend a simple 50 percent-plus one majority or a slightly higher 55 percent.

Still a third effort, called Repair California, hopes to place two of its own ballot measures on the ticket in 2010, which will empower Californians to call a constitutional convention to revise or rewrite what it calls a drastically dysfunctional document.

But are we ready for all this change? Sure, everyone's foaming at the mouth over the dismal state of affairs, but there's the memory of May 19, when voters soundly voted down a whole package intended to stave off disaster.

Though the Public Policy Institute of California has not yet explicitly asked whether voters will say yes to governance or fiscal reform, a May poll showed that 78 percent of those polled felt major change is needed in the way the state budget process works in terms of spending and revenue, an increase of 13 points from 2008.

"I know that California Forward will be on the ballot in 2010 and we'll have a chance to vote on it, and I wouldn't be surprised if some portion of the tax commission's work ends up on the ballot as well," says Keeley. "We have to fix this. We have some degree of confidence that the voters will think we're on the right track."

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