Insight: In California, the Mungers haunt Jerry Brown

SAN FRANCISCO Wed Oct 3, 2012 8:52am EDT

1 of 2. Civil rights attorney and Prop38 supporter Molly Munger poses for a portrait at The Athenaeum in Pasadena, California on September 26, 2012. Prop 38, also referred to as the Local Schools and Early Education Investment and Bond Debt Reduction Act, will be on the November California ballot. Molly Munger has spent almost $30 million on a referendum to raise taxes to fund public schools, a more aggressive alternative to a tax rise proposed by Brown for the state's overall budget. Picture taken September 26, 2012.

Credit: Reuters/Mario Anzuoni

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SAN FRANCISCO (Reuters) - California Governor Jerry Brown has a problem. Call it the Munger problem.

They're scions of a billionaire financier, one a liberal lawyer in Los Angeles and the other a conservative scientist in the Bay Area. Neither claims to enjoy politics.

Yet Molly Munger and Charles Munger Jr., children of Warren Buffett's business partner, Charles Munger, Sr., have together become Brown's worst nightmare as the November election approaches.

Molly Munger has spent almost $30 million on a referendum to raise taxes to fund public schools, a more aggressive alternative to a tax rise proposed by Brown for the state's overall budget. Charles Munger Jr. has ponied up $5 million and counting for measures including a campaign finance reform that would eviscerate the political power of the state's labor unions.

The power struggle illustrates the complexity of governing in California, even for Jerry Brown, a Democratic Party veteran of state politics who first served as governor for two terms in the 1970s and 1980s. State voters regularly make sweeping changes through ballot measures, and the problem for Brown is that there are more than two sides to most issues, especially this November, when voters face 11 propositions -- many of them overlapping.

By using a proposition to raise taxes, Brown avoids the clear lines of party politics which doomed his efforts in the legislature, but he has an unruly set of opponents, including the Munger siblings.

Think of them as the anti-Kochs: where billionaire industrialist brothers David and Charles Koch fund right wing causes with a unified zeal, Charles and Molly Munger each go their own way, united only in their refusal to be cowed by the political establishment.

"This is not some vast Munger family conspiracy," says Charles.

"I am very fond of Charles," says Molly. "He is my brother. He is dear to my heart. But people who are dear to us are not always people we agree with."

The absence of a grand sibling plan is small comfort for Brown and the state's dominant Democratic Party. Both Munger-backed propositions have become distractions for Brown, draining resources from his ballot measure campaign which is teetering on a knife-edge between success and failure.

Since taking office in January 2011, Brown, 74, staked his hopes of fixing California's latest budget crisis on a tax hike that's before voters this fall. Without it, the state plans to cut spending by nearly $6 billion to make up the shortfall.

Brown campaigned on the argument he knew how to make politics work, but he wasn't able to strike a budget deal with the handful of Republicans willing to consider a tax hike. The result is Proposition 30, which takes his temporary tax proposal directly to voters.

The relatively popular governor has given Californians a choice: pass Prop 30, or face draconian cuts in public education and other crucial services. The measure is currently polling at barely over 50 percent in favor.

As the governor enters the critical last month of campaigning, many of the forces standing in his way are backed by Munger money.

ON THE LEFT

On his left flank is Molly Munger, with Proposition 38, a broad income tax hike that would specifically direct revenues to kindergarten through high school education. The measure is in direct competition with Brown's proposal, which features a temporary sales tax increase and an income tax hike for high earners.

Munger's initiative would raise income tax on a sliding scale across the board for 12 years, with the wealthy paying the highest share - individuals earning over $2.5 million would see their tax rates rise by 2.2 percentage points. It would raise about $10 billion a year and 30 percent of funds would be allocated to state debt payments in the first four years.

Brown's plan would increase sales tax by a quarter of a cent for four years and increase personal income tax on those earning more than $250,000 for seven years. It would raise about $6 billion per year in early years, and it would allow the state to avoid $6 billion in cuts to education that are scheduled to go into effect if the measure fails.

If both pass 50 percent support, the one with the most votes would take effect. Neither is permanent.

Munger has contributed $28 million to the Prop 38 campaign, fully 99 percent of all the money raised. Her new TV ad campaign appears directed at Brown and his initiative, asserting that politicians cannot be trusted with tax money and that local officials and leaders should control the new funds.

Brown and allies have fretted for most of a year that competing tax initiatives would confuse voters and doom them all. "Everything in a campaign gets in the way of everything else," Brown told Reuters recently, when asked about Molly Munger's effort on the sidelines of a political event.

At the Athenaeum, a wood paneled club on Cal Tech's campus in Pasadena, Molly Munger picks at a tuna and avocado salad and talks for several minutes without stopping about the policy behind her plan and how it differs from Brown's.

"The local districts will decide what to do with the money," she said, and they must put together simple plans, including how they will measure progress, and post results annually.

"The combined effect of good technology and transparent reporting will enable us to have lots and lots of scrutiny, without lots and lots of bureaucracy," she said.

Teachers' unions have sided with Brown, viewing it as the initiative with the best political chance of success that can help schools and guarantee against immediate budget cuts. The state Parent Teacher Association has backed Molly Munger's plan.

PHYSICS AND POLITICS

The Munger siblings describe animated family dinner table discussions of politics and policy when they were growing up, sparked by their father. "My father has a way of stirring things up, if it's not lively enough," she said.

Mr. Munger Sr., the vice-chairman of Berkshire Hathaway, did not respond to requests for comment.

A former federal prosecutor, Molly Munger became a civil rights advocate and launched the Advancement Project, which has fought for equity in public school education funding.

Her brother Charles is a physicist at Stanford University. Over the last decade he got involved in politics. He threw himself into ballot measure fights that put redistricting into citizens' hands and opened up the primary system regardless of party. Now he is taking on money in politics.

ON THE RIGHT

Charles Munger's measure, known as Prop 32, is arguably Brown's biggest problem on his right flank.

It would ban all corporate and union donations to political candidates. Its most controversial provision is one that would bar unions from using dues deducted from paychecks for political purposes.

Unions, sensing a mortal challenge, have pledged more than $40 million to defeat the measure. That money could otherwise have gone to support Brown's proposed tax hikes.

Charles has given about $1 million directly to the campaign to pass Proposition 32, and another $4 million to the Small Business Action Committee, a conservative group which opposes Brown's tax measure and supports the anti-union measure.

"The point of 32 is to claim that Sacramento is largely in control of a small number of special interests," Munger said.

Several labor groups leading the financial fight for Brown's tax proposal have given far more to defeat Charles Munger's proposal. For instance, a key Service Employees International Union PAC has given over $5.5 million to anti-Prop 32 efforts this year, and just over $2 million to support Brown's measure.

According to Maria Elena Durazo, the secretary/treasurer of Los Angeles County Federation of Labor, the anti-Prop 32 money could have gone to support Brown's tax raising measure, or to aid President Barack Obama's reelection campaign in swing states.

Requests for comment on this story from Brown were directed to Prop 30 campaign consultant Dan Newman. He declined to comment specifically about the Mungers, but said: "If any billionaires decide to spend their fortunes attacking us, it will make our job a little tougher."

SHIFTING ALLIANCES

For Charles Munger, the messy initiative process -- with allies shifting along with issues -- is the way a vibrant democracy should work. It is what the founding fathers such as James Madison had in mind in setting up the checks and balances of the U.S. Constitution, he says.

"If there were a constantly shifting set of alliances and factions, as Madison envisioned democracy would work in our legislature, it would be much more responsible to the needs of the people than it is," he said.

(Additional reporting by Sarah McBride; Editing by Jonathan Weber and Claudia Parsons)

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