How Brown, union agreed on new tax hike proposal

Reporting from Sacramento —  On the morning of March 10, Assembly Speaker John Pérez sat down to breakfast at Figaro Bistro in Los Feliz with Joshua Pechthalt, the president of the California Federation of Teachers. The speaker was engaged in a final round of shuttle diplomacy, trying to broker a compromise between the union and Gov. Jerry Brown that could avoid dueling tax measures on the November ballot.

Brown was pushing a mix of increases in sales and upper-income taxes, but support was so tenuous that backers feared that the competing measure to raise taxes on incomes of $1 million or more, favored by the teachers federation, was enough to split the pro-tax vote and doom both initiatives to failure.

Time for a deal was running out. Even if an accord could be reached between the governor and backers of the union’s measure, they might not have time to draft a new initiative and gather more than 1 million signatures before a deadline about six weeks away to qualify for the November ballot.

Pérez, who along with Senate leader Darrell Steinberg (D-Sacramento) had tried for months to find common ground between the two sides, wanted to try one last time.

Brown had resisted any talk of concessions, demanding that his rivals on the left drop their proposal. But faced with falling poll numbers, Brown’s negotiators laid out the governor’s terms of a compromise — terms that administration officials say they expected to be rejected.

Under the terms, the union and its allies would abandon their signature-gathering efforts, but the governor would continue to circulate petitions to qualify his original measure for the ballot, just in case the new measure missed the qualification deadline. Also, to speed the necessary review by state officials, the new measure would be a slightly modified version of the governor’s original proposal.

On the other side, the teachers federation sought to shift more of the tax burden onto upper-income earners. If Brown agreed to tweak the formulas in his tax plan, the union might be willing to strike a deal.

In his first interview since the accord was announced, Brown said he believed that his measure would probably fail if the rival proposal went forward. He also knew that any changes to his proposal would have to be modest enough to prevent business interests from running a campaign against it.

There are two things to keep in mind, Brown said. “What’s good tax policy and what you can get enacted.”

Pechthalt said he was hoping all along to find common ground with Brown. “We had been trying to engage with the governor and his administration going back to November,” he said. “They respectfully declined at every turn.”

In the week before March 10, Brown and his surrogates had started a new line of attack against the federation’s measure: Because it dedicated all new revenue it raised to schools and local governments, it did nothing to stave off deeper cuts to health and welfare programs.

“We were sensitive to that,” Pechthalt said. “But we also felt strongly about our approach.”

On March 11, Pechthalt spoke to Steinberg about what a possible compromise might look like. Steinberg’s staff devised a framework that lowered the sales tax Brown proposed from a half-cent to a quarter-cent per dollar and increased the tax hike on upper incomes.

“Once we felt like the regressive elements of the governor’s plan were diminished, we felt comfortable,” Pechthalt said.

That evening, Steinberg called the governor to share his discussions with the teachers union chief.

The main concern at that point was timing, Brown’s aides say. The task of gathering so many signatures so quickly was daunting, and the governor was unsure if it could be done. Brown sought the counsel of union leaders who had run dozens of initiative campaigns. They gave assurances but recommended keeping his backup plan.

On Tuesday, Brown joined Pérez, Steinberg and leaders of the state’s largest unions in the Senator Hotel, across the street from the Capitol, to outline a possible deal.

Tuesday night, the two sides reached a tentative agreement. The modified tax plan would raise an additional $2 billion for the state budget next year, and Steinberg and Pérez both agreed they would push for some of that additional money to try to roll back recent cuts to the state’s universities.

Brown said that while the new proposal increased the chances of a successful campaign this fall, it still could unravel at the polls.

The mixture of taxes has been tweaked slightly, but the heart of the measure remains a combination of sales and upper-income tax increases.

If voters reject the measure, Brown said, he will find another revenue plan. “I would have to do another initiative and put another tax on,” he said.

anthony.york@latimes.com