Business
Column: Taxpayer 'protection' or taxpayer 'deception'? A new ballot measure aims to destroy the California state budget
It’s indisputable that the decline of state fiscal management in California began with the passage of Proposition 13 in 1978.
The tax-cutting initiative upended the tax structure that provided most of the revenues needed by localities and school districts, undermining the locals’ control of their own spending.
It was sold to voters as relief for beleaguered middle-class homeowners, but that was largely a scam: The chief beneficiaries have been the richest homeowners and commercial and industrial property owners, who have received billions of dollars in property tax breaks at the expense of residential owners.
These provisions discourage new government efforts no matter how urgent the problem to be addressed,…[and] hang like a shadow over budgets to be adopted in summer 2025.
— League of California Cities, et al
So it may be unsurprising that the heirs of Proposition 13’s proponents are trying to pull another fast one on California taxpayers.
Their tool, pushed chiefly by the California Business Roundtable, apartment developers and others of that ilk, is the so-called Taxpayer Protection and Government Accountability Act.
The Business Roundtable spent $6.375 million in 2022 pushing the initiative and an additional $770,000 last year; about $310,000 came in 2022 from the Howard Jarvis Taxpayers Assn., named after the chief promoter of Proposition 13, and about $400,000 last year from R.W. Selby & Co., a big apartment developer.
The initiative has been scheduled for the November ballot and will appear there unless the state Supreme Court throws it off; that’s what the measure’s critics have asked, citing numerous technical reasons.
The state’s political leadership is striking back in another way: through a public campaign targeting the Business Roundtable and its leading corporate members, and endorsed by Gov. Gavin Newsom, the Democratic legislative leaders, and organizations such as the League of California Cities, the Service Employees International Union, the California Medical Assn. and the California Teachers Assn.
Their strategem is to redefine the measure as the “Taxpayer Deception Act” and assert in public outreach that it would eliminate state funding for “paid family leave, disability insurance, gun violence prevention, and climate programs,” as well as funding for road and infrastructure maintenance.
Is this a fair assessment? It largely conforms to the judgment of the Legislative Analyst’s Office, which found that it would result in “lower annual state and local revenues, potentially substantially lower.”
As is so often the case when the business lobby starts whining about its difficulties operating in the largest economy and most vigorous consumer market in the United States, “deception” is an understatement.
But let’s start with the text of the initiative itself. Fundamentally, it would change the rule for the enactment of a tax increase from current law, which requires a two-thirds vote of each legislative chamber or passage by a majority of voters, to two-thirds of each chamber and a majority of voters. Obviously this raises the bar significantly.
The initiative also would redefine numerous governmental fees as taxes subject to the new rule. Perhaps most damaging, it would retroactively invalidate any revenue measures passed since Jan. 1, 2022, unless they’re re-ratified in 2025.
Taken together, “these provisions discourage new government efforts no matter how urgent the problem to be addressed, … hang like a shadow over budgets to be adopted in summer 2025, … and impair California governments’ ability to borrow,” a coalition of government advocacy organizations led by the League of California Cities told the Supreme Court in a friend-of-the-court letter. The prospect of passage is “already undermining certainty and impairing planning in government finance,” they wrote.
The initiative backers are plainly intent on riding generalized discontent with taxes to victory. The text bristles with shibboleths of the anti-tax movement, for example by blaming higher taxes on “unelected bureaucrats, empowered by politicians and the courts.” It ties itself to Proposition 13 by stating that its purpose is “to further protect the existing constitutional limit on property taxes” — i.e., Proposition 13.
Let’s take a closer look at the promoters’ lead slogans. One is that the initiative “stops politicians from using ‘hidden taxes’ disguised as fees to drive up the cost of government services.” This absurdly turns reality on its head. Taxes don’t “drive up” the cost of services — they’re levied to pay for government services, almost all of which are favored by taxpayers, and the disappearance of many of which would elicit a taxpayer revolt.
Another slogan holds that Californians are struggling with the “highest income tax, state sales tax, gas taxes, and poverty rate.”
It’s true that California’s top marginal income tax rate is the highest in the nation. But one can hardly blame that on “unelected bureaucrats”: Voters specifically endorsed the current top rates at the ballot box in 2004, 2012 and 2016 — the last by a 63%-37% vote.
The truth, moreover, is that the vast majority of California taxpayers don’t pay anywhere near the top rate, according to the Institute on Taxation and Economic Policy. Who does? The special interests behind this initiative. The highest marginal rates, ranging from 10.3% to 13.3%, kick in for single filers with incomes over $350,000 and couples with incomes of nearly $700,000 and higher.
California’s income tax is steeply progressive, meaning those who earn the most pay disproportionately more. The lowest-income 95% of households, with incomes of less than $25,200, pay less than about 4% of family income in state income tax; the highest 1%, with earnings of $862,000 or higher, pay nearly 9% of their earnings in income taxes.
If you’re wondering why executives sitting around the Business Roundtable might be agitating for lower taxes, there’s your answer.
It is true that the state sales tax rate of 7.5% is the highest in the nation. It’s also our most regressive tax, meaning it burdens lower-income Californians the most — costing the lowest-earning 20%, with household incomes of $25,200 or less, an average 7.6% of family income. That burden drops steadily as income rises, reaching a mere 1% for the blessed top 1% of earners.
One might reasonably ask why the income and sales tax rates are so high in California. The answer is Proposition 13, which eviscerated the property tax that was once the most stable and productive revenue source for local government. With the passage of Proposition 13, the revenue-raising responsibilities devolved to the state, which had no option for covering local needs except through the income and sales tax.
It should come as no surprise that the tax initiative backers don’t mention the property tax in their spiel. The reason is that California’s effective average property tax rate ranks only 33rd among the states; Texas and Florida, which boast of imposing no income tax, are both higher (6th and 26th, respectively, according to Census Bureau figures).
One other point bears mentioning, for perspective. It concerns who the beneficiaries are of these states’ tax structures. In Texas and Florida, it’s the rich. As a share of family income, the total tax burden in Texas falls heaviest on the lowest-income households — 12.8% of family income for those earning $21,700 or less — and lightest on the wealthiest — 4.6% of family income on the top 1%, earning $744,800 or more.
Florida looks the same: Households with earnings of $19,600 or less pay 13.2% of their income in state taxes, but the top 1%, earning $735,700 or more, fork over a mere 2.7% of their income in taxes.
California’s structure is much more equitable. All blocs in the income range, from the lowest 20% (less than $25,200) to the top 1% ($862,000 or more) shoulder burdens ranging from 10.3% to 12%.
Make no mistake: The promoters of the tax initiative want California to look more like Texas and Florida.
Gas taxes, which the initiative promoters also target, are a special case. It’s true that California’s gas tax is the highest in the country, at about 78 cents per gallon. But they also pay for benefits that most Californians would probably regret losing, including clean air, clean gas technology and road and bridge maintenance.
Also, a sizable contributor to the price Californians pay for gas is what Severin Borenstein of UC Berkeley has identified as the “mystery surcharge.” That’s a difference in gasoline prices, currently more than 40 cents per gallon extracted by oil producers, refiners or retailers at an unidentifiable point of the gasoline economy.
Borenstein originally traced the surcharge to a price spike following an explosion at Exxon Mobil’s Torrance refinery in 2015 that led to a more than year-long shutdown — but the spike never disappeared after the refinery came back online.
We can set aside the poverty rate for two reasons: First, its relationship to taxes is dubious, since households in poverty generally pay the lowest taxes (other than sales taxes) in California’s progressive system.
Second, according to the Census Bureau, California’s official poverty rate ranks 22nd among all states as measured by the percentage of residents living below the official poverty line, far better than states such as Mississippi, Alabama, Arkansas and West Virginia.
California does lead the nation in a calculation known as the supplemental poverty measure, but tax rates play almost no role in that calculation, which is based on factors such as housing costs.
Where does that leave us?
Proposition 13 was the child of legislative failure. Homeowners in the 1970s faced ever-higher property tax assessments due to a sharp run-up in home values. The Legislature could have crafted any of a myriad of solutions to deal with the crisis, but didn’t. The result was an outburst of voter fury at the ballot box in 1978, enacting the worst option of all.
Proposition 13 is what launched an era of government fees, for the simple if not obvious reason that the services and amenities California voters value have to be paid for somehow and Proposition 13 left few other options for doing so.
If California homeowners are struggling, one reason is that Proposition 13 shifted the burden of property taxes onto them: In 1975, single-family residences accounted for 39.9% of assessed values in Los Angeles County, and commercial-industrial properties for 46.6%. By 2018, the ratio had more than reversed, with houses accounting for 57.6% and commercial-industrial properties for 28.9%.
The “Taxpayer Protection Act” will make things worse. California voters will still want their services and amenities, but funding them will be much harder, so they’ll deteriorate. Voters will get angrier, but where will they turn and who will they blame?
The enduring rule of ballot measures applies here: If you want to know who will benefit from an initiative, just look who’s putting up the cash for it, and vote accordingly. The backers of the initiative say it’s “simple,” which is the clearest sign of all that it’s anything but.
Business
Commentary: How right-wing anti-transgender attacks led to a Supreme Court ruling upholding sex discrimination
At the Supreme Court, the unfounded fear of boys masquerading as girls in youth sports rolled the clock back on gender equality.
On the surface, the Supreme Court’s June 30 opinion upholding state laws barring transgender girls from women’s and girl’s sports teams looks like a victory for women’s rights.
The 6-3 opinion by Justice Brett M. Kavanaugh certainly presents itself that way. “Females and males have inherent physical differences relevant to athletic performance,” Kavanaugh wrote. “Therefore, in contact sports, forcing female athletes to compete against males can create significant safety risks.” He also asserted that “forcing female athletes to compete against males can undermine competitive fairness.”
The ruling applied to prohibitions enacted in Idaho and West Virginia against “biological” males’ participation on women’s teams in public schools. Federal judges in both states overturned the bans. The Supreme Court majority restored them. The ruling essentially upholds similar bans enacted in 25 other states.
There was no record of any transgender person participating in school sports in the State, let alone any ‘problem’ with transgender students … creating unfair competition or unsafe conditions.
— Justice Sonia Sotomayor, demolishing the Supreme Court’s argument in favor of banning transgender girls from girl’s sports
Kavanaugh, like Donald Trump and others in the anti-transgender camp, maintained that one’s gender is an immutable fact of life, established even before birth.
Anything else, Trump stated in an executive order he issued on inauguration day 2025, could only be the product of “gender ideology extremism.” The U.S., his order stated, recognizes “two sexes, male and female. These sexes are not changeable and are grounded in fundamental and incontrovertible reality.” That’s a “biological truth,” he declared.
In his own version of this overconfident and factually insupportable conclusion, Kavanaugh wrote: “As all agree, females and males have inherent physical differences relevant to athletic performance.”
Science recognizes that some people are “born with sex traits that don’t fit into typical male or female patterns,” to cite a discussion on the Cleveland Clinic web page on the topic “intersex.” The condition “may involve chromosomes, hormones, reproductive organs or genitals.”
From a psychological standpoint, medical science recognizes “gender dysphoria” as a real condition often requiring counseling and medical intervention such as the use of puberty blockers and hormones to stave off the development of secondary sex characteristics until the condition can be resolved.
No one disputes that there are physical differences between the sexes. Few would dispute that on average or even at the median, males may be bigger and more powerful than females, or that in certain contact sports the difference may be telling and on occasion dangerous.
But that’s not the same as asserting that the physical differences between males and females invariably mean that men will invariably prevail over women in all competitions or that their participation will endanger women.
The International Olympic Committee — in a policy statement Kavanaugh cited incompletely — says that in “most running and swimming events,” males have a 10% to 12% advantage over women. That’s a range that would accommodate the full spectrum of outcomes — transgender females win, cisfemales win, they tie. (The “cis” prefix denotes those living consistent with their birth gender.)
West Virginia and Idaho addressed this ambiguity by banning transgender women from all girls’ teams. So under their rules transgender girls can’t play football or soccer with cisgirls. But what’s the argument in favor of banning them from the 100-yard dash, or cross-country track, or diving, or archery?
But something else is going on here. The Supreme Court’s ruling was almost preordained, given the years-long campaign by conservatives to demonize transgender individuals as if they’re members of an alien species.
It will be recalled that during his presidential campaign, Trump spun a despicable fantasy in which children were kidnapped in school and secretly subjected to sex-change operations.
Trump’s executive order wiped out policies aimed at protecting transgender adults from discrimination. He moved to outlaw gender-affirming medical therapies for anyone under 19 by cutting off federal funding for healthcare institutions that provide such care.
He banned transgender individuals from serving in the military and ordered federal prison officials to move transgender inmates into the general populations consistent with their birth genders, which exposes them to physical assault. (Federal Judge Royce Lamberth of Washington, D.C., has blocked the government from transferring three transgender women into the male prison population or terminating their hormone treatments.)
I wrote during Trump’s first term, when his anti-transgender policies were still gestating, that the goal was to show that “one can target any community, as long as it doesn’t have a strong political voice or political power. These are the actions of bullies and cowards, pretending to be strong.”
Last year, the Supreme Court struck its first blow against transgender rights by upholding a Tennessee law banning transgender care, including puberty blockers and hormone therapy, for minors. Similar laws have been enacted in 25 other states. The majority in that ruling by Chief Justice John G. Roberts Jr. was identical to the one in the June 30 ruling — Roberts, Kavanaugh, and Justices Clarence Thomas, Samuel A. Alito Jr., Neil M. Gorsuch and Amy Coney Barrett.
Who are the targets of this ideological campaign? They number only about 1.6 million U.S. adults, or one-half of 1% of the U.S. population. About 300,000 adolescents ages 13 to 17, or 1.4%, identify as transgender, according to a study by UCLA School of Law.
In West Virginia, as Justice Sonia Sotomayor observed in her dissenting opinion, “there was no record of any transgender person participating in school sports in the State, let along any ‘problem’ with transgender students … creating unfair competition or unsafe conditions.”
In endorsing the flat bans directed at transgender women in Idaho and West Virginia, Kavanaugh argued that any attempt to implement case-by-case judgments of students’ requests to join sports teams inconsistent with their biological gender would create “an enormous practical and administrability problem.”
Is that so? That wasn’t the case in Maine, where the annual K-12 population is more than 170,000. There, a committee was charged with determining whether a student’s participation in a sport consistent with their gender identity but inconsistent with their biological sex would “result in an unfair athletic advantage” or present a risk of injury to others. The committee held 56 hearings from 2013 through 2021, or an average of seven per year. During the entire time span, only four involved transgender girls. (The outcome of those hearings couldn’t be learned.)
It was Maine’s policy, one might recall, that provoked a confrontation between Trump and Maine Gov. Janet Mills at the White House last year, when Trump threatened to withhold federal funding from the state unless it barred transgender students from competing on women’s sports teams. “We’ll see you in court,” Mills snapped.
Whether the Idaho and West Virginia laws genuinely protect girls from unfair competition is questionable. (The Idaho law is styled the “Fairness in Women’s Sports Act.”) In practice, the laws may subject women in public schools to “invasive sex verification procedures,” as educational expert George Theoharis of Syracuse University wrote after the court ruling.
They’re also based on a retrograde view of women as fragile creatures needing men’s protection, Theoharis wrote — “the same logic that has historically been used to justify excluding women from making their own healthcare decisions and girls from rigorous math and science; that physically demanding work is simply beyond them.” (There don’t appear to be any state laws barring transgender women from competing in men’s sports.)
Becky Pepper-Jackson, the plaintiff in the West Virginia case, in which she is identified only as B.P.J., is the only transgender girl who sought to join girl’s teams — track and cross-country — in the state. That was in 2021, just after West Virginia passed its law and she was about to enter sixth grade. She didn’t appear to pose any competitive risk to others on the track and cross-country teams she applied to join — her lawyers told the Supreme Court that on those no-cut teams, she “came in near the back.”
Anyway, she had not gone through male puberty, which theoretically might have endowed her with a competitive advantage, because she had been taking puberty blockers and female hormones.
Thanks to the court’s ruling, Sotomayor observed in a dissent joined by Justices Elena Kagan and Ketanji Brown Jackson, West Virginia can deny Becky access to school sports “because it thinks they have an inherent athletic advantage, even if the facts show that they do not.”
B.P.J., Sotomayor wrote, “cannot practice on girls’ teams, even if she would not take anyone’s spot in an eventual competition, even if everyone who tries out for the team makes it, and even if having the chance to participate could aid immensely in treating B. P. J.’s gender dysphoria.”
So whose interest was really protected by the Supreme Court?
An Orange County real estate investor accused of criminally defrauding an Arizona bank of nearly $100 million pleaded not guilty Monday and remains in custody.
Mahender Makhijani, 44, of Corona del Mar — who also was ordered by an arbitrator to pay $1.34 billion in a separate civil fraud case — was arraigned in Santa Ana federal court on two charges.
He is accused of bank fraud and making a false statement to a bank in a June 8 case involving a $100 million real estate loan made by Phoenix-based Western Alliance Bank. He was taken into custody on June 10.
Makhijani is accused of providing bogus collateral for the October 2024 loan now in default. In a civil lawsuit, Western Alliance said the outstanding balance as nearly $99 million.
Prosecutors say he falsified title insurance policies that showed the bank would have a first lien on the underlying collateral if the loan went bad, when in fact it did not.
A trial was set for August 11 before U.S. District Judge David O. Carter in Santa Ana.
Michael Schachter, his criminal defense attorney, did not respond to messages seeking comment.
In the civil case, an arbitrator in May ordered Makhijani to pay Laguna Beach real estate mogul Mohammad Honarkar $1.34 billion after ruling he had fraudulently induced him into a 2021 joint venture — and then wrested control and lost to creditors more than two dozen properties Honarkar had owned.
Makhijani has not been criminally charged in that case, but prosecutors alleged in an affidavit in support of the bank fraud charges that he used “force and threats” in his dealings with Honarkar and others — including taking over the landmark Hotel Laguna in 2023 that Honarkar was renovating.
Prosecutors sought to hold Makhijani without bail after his arrest.
The affidavit noted he is a legal Indian immigrant with a home and bank accounts in that country, has access to private jets and threatened to “run away” if caught in a difficult situation.
The request was denied and he was granted $500,000 bail.
However, Makhijani remains in custody after a hearing sought by prosecutors last month before Magistrate Judge Autumn Spaeth.
The judge declined to accept a $450,000 cashier’s check submitted by a Makhijani associate for the bail, finding insufficient proof the source of the funds was legitimate, according to court records.
Makhijani is not prominent outside Orange County real estate circles, but he established a thriving distressed-assets business over the last decade that attracted prominent Southern California real estate investors.
Prosecutors said it paid for a lifestyle that included two multimillion-dollar homes in Corona del Mar, a luxury apartment in Newport Beach and various luxury vehicles.
As of last month, prosecutors had not fully traced his assets, which they believe are not held in his name and some of which may be in India.
The businessman employed an array of shell companies and strawmen to sign documents on his behalf, and to stand in for him as operators of his companies, according to the affidavit.
Makhijani told an associate he took extra precautions because wanted to insulate himself from litigation and that “they were sharks in the distressed world who took advantage of people,” the affidavit stated.
Business
Many indie festival films struggle to get distribution. Alamo Drafthouse is trying to change that
Dine-in movie theater chain Alamo Drafthouse Cinema is launching a new initiative to show unreleased independent films that had successful festival runs, a move that comes as specialty films have struggled to gain distribution.
The Alamo Exclusives program, announced Wednesday, will give limited theatrical runs to films that showed at festivals including Sundance, the Toronto International Film Festival, Tribeca Festival and South by Southwest festival, as well as Alamo’s own Fantastic Fest.
The idea is to help showcase films that received critical acclaim, but did not secure distribution or acquisition deals. The chain will not acquire these films, but instead will enter into agreements with filmmakers to exhibit their films on Alamo Drafthouse screens. By showing these films to audiences on the big screen, these films could get the momentum they need for further opportunities.
The program’s first film will be the documentary “Butthole Surfers: The Hole Truth and Nothing Butt,” which debuted last year at South by Southwest and chronicles the history of the punk rock band.
The film will be shown in Alamo Drafthouse theaters for a limited time later this summer.
The Austin-based chain, which is owned by Sony Pictures, has a long history of curating indie films for its audiences, giving Alamo Drafthouse confidence that its viewers want to see these kinds of movies, company chief executive Michael Kustermann said in a statement.
“Time and again, they’ve shown they’ll come out to support bold, original films when given the opportunity,” he said. The new Alamo Exclusives “gives us another way to champion filmmaker-driven films that deserve to be discovered and connect them with the wider Alamo Drafthouse audience.”
The initiative comes at a difficult time for indie films. Since the pandemic upended the movie business, traditional studios and distributors have had less appetite for risk, including betting on smaller indie films out of festivals.
And as the 2023 dual writers’ and actors’ strikes thinned out theatrical lineups, that aversion to uncertainty became a push for reliable and profitable hits.
“Too many incredible films premiere at festivals and then never receive the theatrical life they deserve,” Lisa Dreyer, director of Fantastic Fest and film innovation at Alamo, said in a statement. “We are actively searching for films across all genres, from horror to comedy, to everything in-between, to champion in this new, exciting way.”
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