Assembly Speaker John Pérez on Wednesday proposed a plan that would dramatically reduce university fees for students from middle-class families and pay for it by changing the formula used by large corporations to determine how much are profits subject to California taxes.
Pérez proposes that the estimated $1 billion in revenue the corporate tax change would produce be spent on "middle class scholarships" that would benefit nearly 200,000 California college students and their families.
The plan defines middle class as those with annual incomes generally between $70,000 and $150,000.
The proposed scholarships would be available to all University of California and California State University students who pay in-state tuition and whose families meet the income requirements. It would reduce their annual fees by two-thirds or more — 67 percent at CSU and 74 percent at UC.
The savings would amount to about $4,000 a year for CSU students and $8,200 a year for UC students.
Pérez said the scholarships would restore California's promise of providing affordable, accessible public higher education by effectively rolling back most of the fee increases that have been adopted since 2003. Fees at CSU have spiked by 191 percent since then, while UC fees have climbed 145 percent.
During that period, financial aid to lower-income students has been increased to keep pace, meaning that students from families with incomes generally below $70,000 have received more state aid to offset the fee increases.
"There's been a real squeeze on the middle class," said Pérez, D-Los Angeles. Aides to the speaker said 150,000 CSU students and 43,000 UC students would stand to benefit from the middle class scholarships beginning in the fall.
In addition, the proposal calls for distributing $150 million to community college districts, which would have to use the money to reduce student costs on their campuses.
Adopting the plan requires a two-thirds majority vote of the Legislature to approve the change in the corporate tax formula — a substantial hurdle that couldn't be crossed last year. A similar proposal was approved in the Assembly last fall but failed in the Senate.
The formula, adopted as part of a budget agreement in 2009, gives companies an option in calculating California corporate income taxes.
They can use a weighted formula that factors in the percentage of their sales that take place in California, how much of their property is in the state and what percentage of their workforce is in the state. Alternately, they can calculate their taxes based solely on the percentage of their sales in California.
Pérez's proposal would force all companies to use the formula based only on sales.
The optional formula creates winner and losers. Many large California-based corporations, including high-tech companies in the Silicon Valley and biotech firms such as Thousand Oaks-based Amgen, support the single-sales factor.
Because they have large operations and work forces in the state, such companies save money by using the sales factor. Their out-of-state competitors, however, can reduce their California tax liability by using the weighted formula, which lowers their liability because they have so little physical presence in the state.
"It's a benefit that only exists for out-of-state corporations," Pérez said. "We're taking that benefit and directing it to middle-class families who are struggling to put their kids through college."
Assemblyman Cameron Smyth of Santa Clarita last year was one of two Republican lawmakers to support a switch to mandatory sales factor. At that time, the proposal was to use the money to reduce other taxes on small businesses and families.
Smyth said Wednesday he is open to supporting the switch again as long as he is certain that all the new revenue would be passed along directly to Californians in the form of reduced college fees.
"I'm certainly open to exploring it," said Smyth, whose district includes much of Simi Valley. "One of the big issues we hear at home is the cost of higher education. If there is any way we can provide some relief to those families, we should explore that."
Sen. Tony Strickland of Moorpark, who did not vote on last year's measure, which was opposed by all other Senate Republicans, declined Wednesday to comment on the new proposal. A spokeswoman said Strickland wanted to examine the proposal before commenting.
Assemblyman Das Williams, D-Santa Barbara, said the bill partly responds to efforts made by him and other legislators whose districts include UC and CSU campuses.
"We've been asking for help for a while," he said. "It is much needed."
Williams, whose district includes the UC Santa Barbara campus, said providing affordable higher education is in the state's economic interests.
"In the long term, our economic future rests in our ability to produce more skilled workers than any other place on the planet," he said.