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California's tax measure faces nail-biter finish

California Governor Jerry Brown speaks during the opening ceremony of the Space Shuttle Endeavour Exhibition at the California Science Cente
California Governor Jerry Brown speaks during the opening ceremony of the Space Shuttle Endeavour Exhibition at the California Science Cente

By Jim Christie

SAN FRANCISCO (Reuters) - The centerpiece of California Governor Jerry Brown's plan for repairing the state's budget hangs on a few votes that on Tuesday will decide if the state hikes taxes or cuts more spending.

The debate over Brown's ballot measure, which ultimately comes down to a test of how big Californians think their government should be, has divided the public with most recent polls showing its outcome too close to call.

Brown and fellow Democrats who control the legislature were unable to win support from Republicans for tax increases. Earlier this year, they included revenue in the state budget that assumes voters on Tuesday will approve his measure proposing tax hikes.

Proposition 30 would raise the state sales tax by a quarter-cent for four years. It would also increase income tax rates for individuals who earn more than $250,000 a year and couples making more than $500,000 a year.

The measure would raise an estimated $8.5 billion through June 2013 as its income-tax increases are retroactive to this year. If the measure fails, $6 billion in spending would be cut in the near term to balance the state's books.

Schools and community colleges would lose $5.4 billion and schools could be forced to reduce the school year by three weeks. The University of California and the California State University systems would lose $500 million and likely increase student fees. Local police departments would lose $20 million in state funds and state departments would see various cuts.

Deeper cuts in state spending may be needed in the future if revenue fails to significantly recover because Proposition 30 is estimated to raise $6.5 billion to $7.5 billion a year in future years.

California, which would be the world's ninth largest economy if it were a nation, has been hard hit by the 2007-09 recession and the collapse of the housing market. The state is the biggest issuer on the $3.7 trillion municipal bond market and its credit rating is lower than all states other than Illinois.

A Field Poll survey released on Thursday suggests support for Brown's measure may have stabilized around 48 percent of likely voters, down from 51 percent in September.

Fourteen percent of voters are undecided, which may provide the measure with additional support, according to Field Poll director Mark DiCamillo.

"He's fairly close to getting the 50 percent he needs from the undecided," DiCamillo said. "They might be coaxed into a 'yes' vote."

Others are more cautious. Jack Pitney, a professor of government of Claremont McKenna College, said he would bet on voters rejecting the measure unless the 74-old California governor is able to rally newly registered voters.

"The biggest unknown is how many of new registrants will show up to vote," Pitney said.

In recent weeks, Californians took advantage of a new law that allows them to register online for the ballot with the result that more than 18 million voters are now lined up, up from 17.3 million in early 2009, according to voter data company Political Data.

PROPOSITION 38

Competing against Proposition 30 is a rival tax measure called Proposition 38. It is headed toward defeat, Pitney said.

According to the Field Poll, 34 percent of voters back Proposition 38, while 49 percent oppose it.

Revenue raised by Proposition 38 would go to schools and early childhood programs and to repay state debt. The measure would increase personal income tax rates for 12 years on all but the poorest Californians to raise about $10 billion a year initially and set aside roughly $6 billion a year for schools.

Proposition 38 has struggled since qualifying for the ballot. It has the backing of parent-teacher associations but the state's two teachers unions and Democratic Party, California's dominant political party, support Proposition 30.

The campaign for Proposition 30 has raised nearly $67 million, with the influential California Teachers Association throwing more than $11 million behind it, according to MapLight, a group that tracks political campaigns' finances.

Proposition 38's campaign has raised nearly $48 million - mostly from Molly Munger, the wealthy Los Angeles attorney who put the measure on the ballot.

Munger's half-brother, Charles Munger Jr, has indirectly assisted her measure by putting $35 million behind opponents of Proposition 30.

"It would be immensely tragic if the competition between the two measures means they both fail," said Bob Blattner of education consulting firm Blattner & Associates.

(Reporting By Jim Christie, editing by Tiziana Barghini and David Gregorio)

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