The election was good news for Orange County’s business leaders. But there’s one hitch on the personal side.
The county’s millionaires are in for a hit to their wallets after Proposition 63 won by a nearly 8% margin.
Officially, the county has the third-most millionaires in the state behind Los Angeles (8,285) and Santa Clara (3,825) counties, according to the state’s Franchise Tax Board.
But that official number could be low. The county counts some 35,360 millionaire households, ac-cording to market researcher San Diego-based Claritas Inc.
Proposition 63 lev-ies a 1% tax on personal income above $1 million to provide funding for mental health services and programs. Several OC chief executives and other rich people here stand to be hit by the tax.
The proposition calls for spending $800 million a year on mental health programs by 2006,an estimated $29 million getting tapped from OC’s rich, according to income tax estimates provided by the Franchise Tax Board.
“I don’t think people were thinking through the precedent they were setting,” said Jack Pitney, a professor of government at Claremont McKenna College. “It’s not a sound approach to public policy. You whack the rich too many times, and you will tend to increase the upper income neighborhoods in Nevada.”
Proposition 63’s passage marred what otherwise would have been a clean sweep for business in last week’s election, thanks to Gov. Arnold Schwarzenegger’s lobbying on a number of issues.
The governor gave a political boost to several measures, pointing the state’s 16.5 million registered voters to his voter guide on 10 ballot propositions.
“I don’t ever recall seeing this in an election where a governor issues his own voting guide,” Pitney said.
Proposition 63 was the only one of the 10 that voters didn’t side with Schwarz-
enegger.
“He’s the E.F. Hutton governor,” said Nancy Snow, assistant professor of communications at California State University, Fullerton, who has written on American political rhetoric and free speech. “He’s such a powerful messenger.”
Schwarzenegger’s weakness: failing to win enough support for some Republican candidates who lost races for the state Legislature.
Still, consider Schwarzenegger’s position on four key business measures, all of which were passed or voted down according to his recommendations:
n Proposition 64, limiting lawsuits by private individuals against businesses, was approved by voters. Supporters argued that unscrupulous attorneys abused the law to churn out lawsuits and win quick financial settlements from small businesses.
n Proposition 72, a referendum on a law that would have forced midsize and large employers to provide health insurance to workers, was narrowly defeated. The measure would have required businesses with 50 or more workers to provide health insurance or pay a fee into a state-run plan for those workers,estimated at 1.4 million statewide.
n Proposition 67, which would add a surcharge of up to 3% on in-state telephone calls on monthly phone bills, was defeated by 72% of voters .
n Proposition 71, which provides $3 billion in bonds to pay for embryonic stem cell research in California. The measure allows the state to step into the traditionally federal role as the primary source of research money.
Paul Feldstein, a senior healthcare professor with the University of California, Irvine’s Health Care Management and Policy Center, said Proposition 72 would have resulted in disastrous effects for business in California had it passed (see related story, page 1).
“Employers don’t pay for these kinds of benefits out of profits, but wages,” Feldstein said.
He said he viewed the proposition as a union effort to level the playing field competitively with non-union businesses, especially retailer Wal-Mart Stores Inc., which doesn’t pay for health insurance for all of its workers.
He suggests that a better alternative to help resolve the uninsured problem might be to require something akin to the state’s mandatory automobile liability insurance. At a minimum, the state could require persons without health insurance to buy a kind of catastrophic policy, based on income level.
So why isn’t this a palatable idea among lawmakers in Sacramento?
“For any politician to say that they’re requiring catastrophic health insurance doesn’t sound right,” Feldstein said. “It sounds like a tax.”
Richard Kronick, a professor of health and family medicine at University of California, San Diego, had a different take on Proposition 72. He said the referendum would have benefited California’s business climate by “substantially lowering productivity losses” for people without insurance.
He estimates that California loses up to $10 billion annually due to health issues and productivity losses in the workplace because of uninsured workers.
“The law certainly would have been better had it provided subsidies for lower income workers and employers,” Kronick said. “Some of the concerns that employers and employees expressed of having to pay more for insurance is a legitimate concern.”
Proposition 64, which reforms section 17200 of the state’s business practices code, was approved by nearly a 17% margin (see related story, page 1). It requires plaintiffs to show actual harm,a change from the past when law firms could sue companies on behalf of the public at large.
Opponents believed section 17200 of the code has been a tool for forcing businesses to stop selling unsafe products, running misleading advertising and polluting the air and water.
But Nhan T. Vu, assistant professor of law with Chapman University School of Law in Orange, said opponents distorted the issues on a very complex topic in a barrage of 30-second, spot TV ads during the campaign.
Passage of the referendum is a step in the right direction, he said.
“You won’t see any great change in the ability to protect consumer rights,” Vu said. “Hopefully, you’ll see a decrease in the ability of lawyers to extract settlements out of business defendants, and bring us back in proper balance with consumer advocates.”
Maio is a freelance reporter for the Business Journal.
