Gov. Jerry Brown expressed confidence Tuesday night that his embattled tax initiative would survive as early returns showed the race too close to call and most votes in populous counties like Los Angeles had yet to be counted.
Education and labor supporters were in a celebratory mood at the Sheraton Grand Hotel in downtown Sacramento, while the Democratic governor watched election results nearby throughout the evening.
"I think for the same reason that people elected Obama, people are going to end up voting to increase taxes modestly to support our public schools, balance our budget and get California back on track," Brown told NBC News.
Proposition 30 trailed 51 percent to 49 percent with 21 percent of precincts reporting. An exit poll conducted by Edison Research showed 52 percent of voters backing the initiative, with strong support from young voters after the state offered late online registration for the first time this year.
Jon Coupal, president of the Howard Jarvis Taxpayers Association, said he was "cautiously optimistic" that voters would reject the initiative.
"I think voters are very skeptical about adopting a $50 billion tax increase without any reforms," he said.
Proposition 30 serves as the linchpin in Democrats' plan to shore up California's beleaguered finances, absent which they will be forced back to the budget drawing board next year.
California voters haven't passed a statewide tax hike since 2004, during more favorable economic times, and Proposition 30 struggled to get past a gantlet of competing statewide tax measures and an opposition campaign with enough money to air attack ads in the final month.
The initiative would raise income taxes on wealthy earners for seven years and hike the statewide sales tax by a quarter-cent on the dollar for four years, raising about $6 billion a year for the state budget.
Proposition 38, a competing measure that sought to raise income taxes on middle- and upper-class households mostly for education, failed Tuesday night despite having the benefit of $47.3 million from wealthy backer Molly Munger.
Democrats held out hope Tuesday that Proposition 39 would also survive the night, raising $1 billion annually for clean energy programs and the state budget by increasing taxes on multistate companies based elsewhere.
But the Capitol community was primarily focused on Proposition 30, the genesis of Brown's two-year effort to raise taxes and patch California's deficit-plagued budget. After striking out last year with Republicans in the Legislature, the Democratic governor went to the streets to gather signatures for this year's initiative.
Through the summer, polls showed Proposition 30 receiving just above 50 percent of support from likely voters, a thinner margin than tax proponents typically want to see before campaign season begins. That support dipped below 50 percent, with 14 percent undecided, in the last two weeks.
Brown endured criticism for waiting too long to hit the campaign trail and for overselling the initiative as an education measure that circumvented "Sacramento politicians." Opponents, who included anti-tax groups and Munger, were quick to emphasize that the governor was misleading voters by suggesting it was only a schools measure.
The governor had to convince a cynical electorate that lacks trust in the Sacramento officials who spearheaded the initiative. Even Brown's own Yes on 30 campaign used the Capitol as a foil in its first ads, telling voters that "Sacramento politicians can't touch the money."
Brown and lawmakers presumed Proposition 30 would pass when they wrote their June budget, but they installed $6 billion in "trigger" cuts that would occur if voters rejected the measure.
The bulk of those would hit K-12 schools and colleges, which state leaders maintain is necessary because education consumes the lion's share of the California budget. But Brown and campaign strategists were also well aware that tax-resistant voters might be willing to approve hikes if they thought the money benefited education more than less popular social service programs.
The initiative ultimately would provide money for both K-12 schools and everything else the state budget finances, including health care, social services, universities, environmental regulation and prisons. It also would enshrine in the state constitution several billion dollars annually for counties to house lower-level inmates and monitor parolees.
California now begins each budget process with more spending commitments than money the state expects to receive. That problem can be solved through some combination of cuts, higher taxes or accounting maneuvers, the last of which is generally a backdoor way of borrowing from future budgets.
In the midst of the recession, former Gov. Arnold Schwarzenegger, Democrats and the bare minimum of Republicans agreed to temporarily raise taxes on top of program cuts and accounting tricks to patch the state budget. The taxes ended last year, however, and Republicans have been reluctant to vote again for taxes since Brown took office.
Absent new taxes, Democrats have relied on cutting programs, restraining growth and borrowing to solve the budget gap. Brown believes Proposition 30 would provide enough money to restore education funding and ease pressure on programs like Medi-Cal, welfare-to-work and universities.
If the initiative fails, Brown insists K-12 districts and universities will have to take immediate funding cuts for the remainder of the school year, as well as compete with other state needs in future budgets. Education groups, however, are expected to lobby hard to reverse planned cuts, which in some districts would otherwise mean a shorter school year.
Some budget relief, albeit minor compared to Proposition 30, could come from Proposition 39, which led 59 percent to 41 percent late Tuesday. The initiative would force multistate firms based elsewhere to use the new formula, raising their taxes by an estimated $1 billion annually.
Proposition 39 was backed almost entirely by billionaire Tom Steyer, who spent $32 billion on the campaign.
The initiative would initially pump $500 million into the state budget and education in the first half of 2013. Thereafter, it would also devote about $500 million for clean energy, in addition to $500 million for the budget and education each year.
Proposition 38 would have generated about $10 billion each year, mostly for preschool and K-12 schools. But it raised income taxes on middle-class households and had support from just 26 percent of voters.
Call Kevin Yamamura, Bee Capitol Bureau, (916) 326-5548. David Siders of The Bee Capitol Bureau contributed to this report.