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Bill cuts tuition by closing corporate loophole

By HANNAH DREIER/Associated Press
April 29, 2012 at 11 a.m.
Updated April 28, 2012 at 11:29 p.m.


SACRAMENTO, Calif. (AP) - Democratic lawmakers are offering a way to help California's middle class families cope with soaring college tuition: close a corporate tax loophole and use the money for scholarships.

But the "Middle-Class Scholarship Act," which receives its first committee hearing this week, already is facing several obstacles. Five out-of-state corporations are lobbying against it, and Republican lawmakers are promising to block Democrats from reaching the two-thirds majority vote they need in the Legislature.

AB1500 and AB1501, by Assembly Speaker John Perez, would reduce tuition by more than half for families whose annual household income exceeds the cap for getting a free ride at California's public universities ($70,000 a year for CSU and $80,000 for UC) but is less than $150,000.

"This is not just an issue that impacts students; it's not even just an issue that affects parents who have children in college. This is a broader question about opportunity in the state," Perez, D-Los Angeles, said in a telephone interview.

Tuition for the University of California and California State University systems is three times what it was a decade ago.

Total for tuition and fees for undergraduates at the 10 University of California campuses is expected to be $13,000 next year. The Perez plan would save those students at least $8,000 a year.

The plan would save at least $4,000 annually for students at the 23 California State University campuses, where tuition and fees will be $7,000 next year.

Community colleges, where fees generally are less than $1,500 a year, would receive $150 million to reduce costs to students.

The act is expected to benefit about 200,000 college students and could take effect as soon as this fall if it passes the Legislature and is signed by the governor. Lawmakers have their first chance to weigh in Tuesday, when one of the two bills comes before the Assembly Higher Education Committee.

The legislation's divisiveness stems from how it funds the scholarships. To do so, it eliminates a $1 billion corporate tax break the Legislature approved in 2009 as a way to get a handful of Republican lawmakers to vote for the annual budget.

The deal, constructed during the height of the state's budget crisis, allowed companies operating in multiple states to choose the cheaper of two formulas for calculating their tax liability in California. They can use an option that considers sales, property and payroll, or a "single-sales" formula based on product sales in California.

In the years since the deal, Democrats have sought to force corporations to use only the single sales factor, a change the nonpartisan Legislative Analyst's Office has endorsed. At least 11 other states, including Texas and New York, require that corporations calculate their tax obligations this way, according to the Federation of Tax Administrators.

Last year, Gov. Jerry Brown, a Democrat, tried to pass a single-sales requirement through the Legislature, but his measure failed to get GOP support in the Senate. This time, a coalition of corporations is lobbying against Perez's plan, say it will hurt middle class jobs.

Chrysler, General Motors Corp., International Paper, Kimberly-Clark Corp. and Procter & Gamble Co. have formed a coalition called California Employers Against Higher Taxes. The group has done little more than build a website so far, but spokesman Peter DeMarco said residents can expect more activity in the months ahead.

The California Chamber of Commerce also opposes the plan on the grounds that it might make California less hospitable to business, but did not include the act on its highly-watched list of "job killers." Two other proposals also are taking aim at the corporate tax loophole this year.

An initiative proposed for the November ballot would close the loophole and dedicate a portion of the additional revenue to clean-energy projects. Separately, the "Keep Our Promises Act" by Sen. Mark DeSaulnier, D-Concord, would use the additional revenue to bolster veterans' services.

Senate Republicans are upset about what they see as an attempt by Democrats to undo a previous budget deal. They also say Democrats are trying to create conflict between college students and outside corporations.

"I don't see any support on it. It's a billion dollar tax increase, and it's unnecessary at this time," said Senate Minority Leader Bob Huff, R-Diamond Bar.

Perez's legislation has strong support from Senate President Pro Tem Darrell Steinberg, D-Sacramento, who has introduced a bill to lower the cost of college textbooks. Perez said he is confident that the urgent need to increase access to higher education will help him muster the few GOP votes required to get the act to the governor's desk.

"When all of this is done, my colleagues are going to be more motivated to help middle-class students than they are to create a tax loophole for out-of-state-corporations," he said.

Perez has been touring campuses throughout California to promote the scholarship legislation. Last week, he told more than 100 students packed into a room at California State University, Sacramento that the act would face a "struggle" in the Senate and that he would need their help.

Among the attendees was Benjamin Brumer, a 20-year-old sophomore who said he has taken out $50,000 in loans to finance his education.

"I need the scholarship just to get through the next two years," said Brumer, whose parents are high school teachers in Davis. "I'm part of the group that will support the economy."

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