This article comes to us courtesy of California Watch.
In the jobs package that Gov. Jerry Brown announced last week, there was only one industry-specific tax break – to big cable companies.
The special provision would save cable companies – and cost the state – $83 million over the next three years, according to state Department of Finance projections. The legislation is doomed, however, because it requires two-thirds of the Legislature to approve it, and Republicans already have pooh-poohed it. But there's still the question of how the cable industry got a special deal.
The governor's proposal mirrors a bill by Sen. Kevin de León, D-Los Angeles, which would require companies to calculate their tax burden based only on their sales in California. Currently, multistate companies can choose the most beneficial of either a sales-only formula or one that considers sales, property and payroll. The sales-only approach, called the "mandatory single sales factor," is used by many states and was recommended by the nonpartisan Legislative Analyst's Office as a way to increase jobs and state tax revenue. Brown's proposal would use the extra money to fund tax credits for companies that hire new workers and buy manufacturing equipment.
H.D. Palmer, spokesman for the state Department of Finance, said that because the aim was to "spur job creation and investment in California," the cable provision was kept in order to avoid penalizing companies that already are investing heavily in the state.
The cable industry objected to de León's initial bill because it eliminated a provision benefiting cable and software companies that the industry brokered last year. In a letter opposing the bill, the California Cable and Telecommunications Association wrote that the increased tax burden would harm the industry's ability to expand in California. After the bill was amended to include a special break for cable companies – which then showed up in the governor's proposal – the industry dropped its opposition.
It was a political compromise, said Dan Reeves, de León's chief of staff.
"The senator made this amendment after significant negotiations, for months, with opponents" in the cable industry, Reeves said. The senator, he added, "came up with the most narrow amendment possible that had the smallest cost possible in order to incentivize job growth in California and avoid paying people to keep jobs out of state."
The amendment allows cable companies that invest at least $250 million in California to count only half of their California sales for tax purposes.
An analysis by the state Senate Governance and Finance Committee questioned the special treatment for cable, saying tax systems "should apply the same rules to all taxpayers."
"Also, cable companies primarily invest in California to serve customer demand, and have consistently avoided California with its discretionary investments," the analysis stated. "The Committee may wish to consider why a separate set of rules should apply to cable companies."
The cable industry has argued that it is special because although its companies are based outside California, they have significant operations and personnel in the state.
"The cable-related provisions in the proposed legislation recognize the significant economic contributions and investments that the cable industry makes and is committed to continue to make in California," said Carolyn McIntyre, president of the California Cable and Telecommunications Association.
The industry has been good to Democrats. The trade association gave the state Democratic Party $179,000 this year, not to mention contributions to individual lawmakers. It gave the Republican Party $55,000. Comcast gave the Democratic Party committee $25,000 and also gave $30,000 to Oakland charter schools at Brown's behest.
But Reeves says money wasn't a factor.
"We had numerous Democrats coming to us saying, 'Don’t hurt these guys, they’re a big employer in my district,' " Reeves said. "I don't think that's about contributions. That's about jobs."
In the announcement of his overall jobs proposal, Brown said that by requiring businesses to calculate taxes based only on California sales, he was eliminating "an outrageous and perverse tax incentive that encourages multistate businesses to create jobs outside of the state.”
But state Senate Republican leader Bob Dutton of Rancho Cucamonga immediately shot down the proposal. "Attacking one set of job creators, in an attempt to benefit a different set of job creators, is not the heavy-hitting jobs-creation plan that California needs," he said in a statement.
Jean Ross of the California Budget Project, a nonprofit that focuses on the working poor, criticized Brown's proposed tax credits for new hires and manufacturing equipment.
"Revenues from closing tax loopholes should be used to balance the budget, not creating new tax loopholes," she said.
Ross said the cable provision "has all the hallmarks of a narrowly crafted, special-interest tax break."
Will Evans is an investigative reporters for California Watch, a project of the non-profit Center for Investigative Reporting. Find more California Watch stories here.