One way or the other, the California Teachers Association and business interests were headed for a mighty battle this November over taxes. Now it’s clear what they’ll be fighting over.

Delegates for the 325,000 member union voted to back initiatives to rescind corporate tax breaks (see initiatives #1412 and #1375), passed a year ago under cover of darkness, that eventually will cut state revenues by an estimated $1.7 billion. Backing up its vote with dollars, the CTA this week committed $587,000 to gather 434,000 signatures needed to put it on the ballot.

For a while, it looked like the CTA would take another tack and ask voters to increase taxes on commercial property either by raising the tax rate by about 25 percent or by having commercial properties reassessed every three years. Proposed initiatives to do that were waiting in the wings.

But those initiatives, while potentially raising more money, would have meant tampering with Proposition 13’s limit on property taxes – a huge gamble in an economic recession. So the CTA settled on the lower risk strategy of trying to prevent a further erosion of state revenues, while tapping into populist outrage over corporate giveaways at a time when kids are being stuffed into  classrooms, and families are losing their homes.

The CTA may end up with unlikely allies. Some Democrats have already called for the tax breaks’ repeal – even though they were in on the deal that approved them. And even Gov. Schwarzenegger has threatened to renege on the gifts he gave big businesses if the federal government doesn’t come through with more revenue to help plug the state’s projected $21 billion deficit.

Using the rule of thumb that 40 percent of the state budget goes to education, the tax breaks would deny K-12 schools and community colleges about $700 million in cuts, starting in 2011-12. Business lobbies argue that the tax breaks will encourage companies to expand in California and create jobs and revenue. But that was largely happy talk – even before companies started laying off tens of thousands of workers.

Tax breaks without a public hearing

Schwarzenegger and legislative leaders inserted the tax breaks into the February 2009 budget deal without even a public hearing. It appeared to be a deal in which business lobbies, in turn, agreed not to fight temporary  tax increases.

The biggest break allows corporations to choose the method used to determine taxes on income generated in the state. The current formula combines payroll, property values and the percentage of sales derived in California. The new law lets companies like Apple and Intel, with most of their sales outside the state, to choose only sales in California for tax purposes. Previous bills would have granted the option only if companies invested $250 million in new plants and jobs. The new law gives the tax breaks without  obligation to create new jobs.

Other provisions would allow businesses to shift operating losses to previous tax years, and allow corporations to share tax credits with affiliated corporations in order to lower taxable income.

Corporations had lobbied for the tax breaks for years and aren’t expected to give them up easily. California Forward, a bipartisan government reform group, has feared that a labor-business battle royal would divert the public’s attention from initiatives it plans to put on the ballot. It has good reason to worry, because there may be dozens of propositions on the ballot. Indeed, teachers will have to dig deeper, because they may also face initiatives to scale back pensions of new employees of public unions and to restrict unions’ ability to collect political donations.

The CTA delegates, interestingly, didn’t take a position on a proposed constitutional amendment to lower what it takes to pass a local parcel tax from the current two-thirds majority vote to 55 percent. The union has blessed the idea before.

Last week, the state PTA endorsed  the parcel tax initiative and called on its local affiliates and all parents to help collect signatures to put it on the ballot.

By John Fensterwald on February 10th, 2010