A controversial bill by Senate President Pro Tem Darrell Steinberg to give local governments broad new taxing authority has rattled the industries whose products and services are targeted.

Business groups – including oil, tobacco and alcohol interests – have kicked opposition efforts into high gear, with one group launching radio ads and mail pieces blasting the bill.

"This is the most intense threat that we've seen," said Scott MacDonald, a spokesman for the business-backed coalition Californians Against Higher Taxes. "It's got everyone's attention."

By most accounts, that's just what Steinberg wants. The measure has become a key bargaining chip in state budget negotiations that could leverage agreement over Gov. Jerry Brown's plan to extend state sales, income and vehicle taxes.

"If we can reach this agreement over the next week, which I believe is vital for public education and public safety in this state, I will then not move (the bill)," Steinberg said this week.

Steinberg and his supporters are hoping the threat of more local taxes will cause business interests to lean on Republican legislators to support Brown's plan, which would leave many industries that are vulnerable under Steinberg's bill relatively unscathed.

"Hopefully, those industries will be able to communicate to the Republicans that there might be from their perspective a better way to support the services that we need, and that's from a statewide level," said Angie Wei, legislative director for the California Labor Federation.

The measure, now a budget trailer bill, would give local governments the ability to ask voters to increase taxes on a broad list of goods and services currently taxed only by the state. County supervisors or school officials could ask local voters to increase levies in a range of categories, from income and sales to alcohol, cigarettes, vehicles, sweetened beverages, medical marijuana and oil.

Steinberg says he sees the policy, which can be approved with a majority vote, as a necessary option to let local voters make choices about revenue to keep services afloat absent adequate funding from state coffers.

"It is a tool to potentially make up for shortfalls in education and public safety … and it gives local communities a voice," he said.

Local government groups say it's about time such a change is implemented, applauding the measure for creating new revenue options and increasing local control amid ongoing budget constraints.

"Counties believe that each community should decide for itself what level of services its government provides and the appropriate method of funding for them," Jean Hurst, a lobbyist for the California State Association of Counties, wrote in a letter of support.

Supporters point out that any local taxes proposed would still be subject to voter approval, with a two-thirds threshold required for taxes dedicated to a specific purpose.

But opponents say lifting the decades-old limits on local taxing authority would exacerbate California's already complex and burdensome tax system, creating entire new layers of taxes and opening the door for multiple separate taxes on voters' paychecks in some areas.

"If there's any more ill-conceived effort to slow economic growth in California, I don't know what it is," said Jon Coupal, president of the Howard Jarvis Taxpayers Association.

Even floating the idea of local tax increases could be having an adverse impact on the state's economic growth, opponents say. "It's just wrong, and the threat of it makes people think twice, three times and make the decision not to come to California," MacDonald said.

Brown has yet to fully endorse the plan, saying only "if we don't get the (state) tax extensions, everything's on the table, for revenue and many other changes."

Even if the measure cleared both houses and won the governor's support, the policy shift could face significant challenges.

State tax enforcement agencies have voiced concerns about having resources to process and enforce varying tax rates throughout the state. Critics say the plan could create unconstitutional inequities in local funding and service levels and possibly violate a clause prohibiting local regulation of alcohol.

Steinberg, who said the state would not let unconstitutional funding disparities occur, maintains he is committed to advancing the bill if no agreement on the budget is reached in the coming weeks.

"It is on the table, and I'm serious about it," he said. "If there's not a real deal, I'm going to move the bill. I have to."

Some influential business interests, including those already involved in the budget process, say they aren't taking the bait.

"We look at it as two separate issues," said California Chamber of Commerce President Allan Zaremberg, whose group opposes the bill. "We're dealing with them separately."

Senate Republicans have downplayed the impact of Steinberg's effort, questioning its seriousness.

"We've always seen this as a club being used to beat us into submission because we hate taxes," said Senate Budget Committee Vice Chairman Bob Huff, R-Diamond Bar, adding: "I've always thought that it is (a bluff), but it may not be."

Opponents expect to remain on high alert, watching the bill as talks heat up in advance of the June 15 deadline to approve a spending plan.

"If it's truly, as some people say, just a prop to be used in a debate about the budget then I think it will live as long as there is no budget," MacDonald said.

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Call Torey Van Oot, Bee Capitol Bureau, (916) 326-5544.

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