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ENDORSEMENTS 2008: Ignore the sales pitch and vote yes on Prop. S -- it's a sound move.

January 24, 2008

It's one of the more vexing aspects of California politics: The political powers that be come up with a smart reform or revenue measure that will improve the operation of the state (or city or county). But they don't trust the public to make the right decision based on the facts and instead dress up their pitch with half-truths. That's the case with Proposition S, a prudent measure that would protect Los Angeles' 40-year-old telephone tax while simultaneously reducing it and applying it more fairly to new technologies.

It's tempting to punish politicians for their stealth in marketing Proposition S. But by rejecting the measure, voters would simply be punishing themselves by de-funding their government services. The measure itself is sound. Ignore the pitch and zero in on the substance: The Times strongly recommends a yes vote on Proposition S.

Here's the short version: Los Angeles currently levies a 10% tax on phone calls and other communications -- like telegrams -- under laws dating back to the old days, when there was one telephone company that everyone thought would be around forever. But when cellphones became widespread, the law had to be amended to make clear that the tax applied to them too. Recent lawsuits call those amendments into question, so to make sure they still apply, the matter must be put before voters. Proposition S includes two major changes: It applies the tax to any mechanism people use to call one another, so the law won't have to be amended again when the next communication technology comes along to replace cellphones. And it reduces the tax from 10% to 9%.

Why a reduction? The mayor and City Council were looking for an angle. They want to convince you that Proposition S lowers your tax.

But there is more to the story. A challenge is moving through the courts, and without Proposition S the whole tax eventually could be thrown out. That would mean a loss of $270 million a year in much-needed revenue. That's why Police Chief William J. Bratton is warning, in campaign commercials, that we need Proposition S to protect police, fire and paramedic services.

Don't believe opponents who claim that Proposition S would extend the phone tax to Internet access services. Federal law prohibits such a move, and even if federal law changes, the Los Angeles tax could not apply to the Internet without another vote of the people.

Here's the longer version: For about 100 years -- nearly the entire history of telephone use in the United States -- the federal government applied a federal excise tax to phone calls. States and cities, including most cities in California, followed its lead and applied their own tax, specifically based on the federal tax. Los Angeles imposed its 10% version beginning in 1967, and it became a crucial component of the annual budget. The money goes into the general fund, but it represents a major portion of public-safety spending.

Changes in federal regulations and advances in technology threaten to de-fund local government by paring away tax revenues. Instead of three kinds of calls that Ma Bell once acknowledged and local government once taxed -- local, long distance and WATS -- the brave new world brought a dizzying array of billing plans. Some calls were billed by connect time. Some by distance. Some by flat fee for monthly service. How do you calculate taxes on those calls? Cellphone calls could be taxed if they originated or terminated in the city -- but it was practically impossible to track where the calls were made.

In the 1980s, cities negotiated with phone companies, and together they agreed on how to tax. In 1993, pursuant to the negotiation, Los Angeles amended its utility users' tax to make clear that it applied to monthly cellphone charges. In 1996, California voters adopted Proposition 218, which required any new local tax to be put before voters. Then things really got interesting.

Congress passed a law in 2000 allowing cities to tax any cellphone calls billed to an address within the city limits, regardless of where the calls originated or terminated. So, Los Angeles tax officials figured, they could start taxing actual cellphone airtime and not just monthly service. They were wrong. Last year, a court ruled that the city had to go to the voters under Proposition 218 if it wanted to take advantage of Congress' decision.

Don't believe opponents who claim that last year's ruling struck down the city's tax on cellphones. That's simply not true. The tax remains legal, as long as it applies only to monthly service charges and not airtime.

Meanwhile, the Internal Revenue Service pared back the federal excise tax so that it now applies only to separately billed local calls. That move calls into question any city's telephone tax law that refers, as Los Angeles' does, to the federal tax. Lawmakers' first impulse was to re-craft local laws so that they no longer referred to the federal tax, but as last year's ruling suggests, such a change must be ratified by the voters under Proposition 218.

So here we are. Los Angeles wants to keep its 40-year-old phone tax in place amid a changing technological and regulatory environment. But keeping it in place means changing the mechanics of how it is calculated, and that means a vote of the people. The city relies on this revenue, and must jack up some other tax or drastically cut services if it is lost.

A yes vote on Proposition S keeps vital services intact. It also lowers the phone tax, which is a clever gimmick. But we'll take it, because it's good for the city. Vote yes on S.

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