Tax for preschool divides businesses.

Actor and director Rob Reiner's universal preschool initiative on the June ballot has caused a virtually unprecedented split in the business community in L.A. and across the state as major industry groups have come down on both sides of the issue.

Three major organizations--the Los Angeles Area Chamber of Commerce, the San Francisco Chamber of Commerce and the Oakland Metropolitan Chamber of Commerce--and several key local business figures support the initiative. The measure would hike the state income tax rate on the top 1 percent of income earners to raise about $2 billion annually to fund universal preschool.

But the California Chamber of Commerce and more than a dozen other chambers throughout the state oppose the initiative, known as Proposition 82. California Chamber president and chief executive Allan Zaremberg is co-chairing the campaign against it.

"It's highly unusual for the chambers not to be on the same side of an issue," said Tony Quinn, co-editor of the California Target Book and former consultant to business groups. "I can't even remember the last time business groups came down so strongly on opposite sides."

In most cases involving proposed income tax hikes, business groups have presented a united front in opposition, arguing that raising taxes would hinder overall economic investment and would hit many small business owners directly.

(Indeed, just two years ago, a proposal to place a 1 percent tax surcharge on incomes over $1 million to fund county-run mental health programs at hospitals, clinics and homeless shelters drew opposition from the business community. However, business groups did not play a big role and voters in Nov. 2004 voters approved Proposition 63, which in its first year raised more than $800 million.)

But this time, it's different. Quinn said the split appears to be along political lines, with chambers in more liberal areas like Los Angeles and the Bay Area supporting the measure and others in the state opposing it.

Also, he said it is no coincidence that chambers in Los Angeles and Oakland--two places with struggling school districts--have backed the initiative. These are among the districts having the most difficulty turning out students with necessary workplace skills. "There's intense interest among business people in improving education, especially in these areas," he said.

It's just that pressure that prompted Reiner to approach business leaders 18 months ago with his idea for universal preschool education. Back in 1998, Reiner had successfully championed Proposition 10, a 50-cent-per-pack increase in the cigarette tax to fund early childhood development programs against only lukewarm business opposition. The program funds child abuse-prevention, early literacy, parenting and other school preparation program, with Los Angeles County getting the largest share, about $150 million per year.

However, Reiner's latest proposition would be much costlier, about $2 billion per year to start, and more each year therafter. That prompted him to gather business leaders from around the state for a series of meetings with union and education leaders to help craft the preschool initiative, according to his campaign aide Ben Austin.

Among the business leaders: Robert Lowe, chairman of L.A.-based shopping center developer Lowe Enterprises and board member of the L.A. chamber; Sherry Lansing, former president of Paramount Pictures; former L.A. Mayor Richard Riordan; billionaire businessman-turned-philanthropist Eli Broad; and Warren Hellman, chairman of San Francisco-based private equity firm Hellman & Friedman LLC and a board member of the San Francisco chamber.

As the initiative took shape, it was vetted with business, labor and early childhood education advocates. "All sides had to make tradeoffs. If labor wanted something, they had to convince business and vice-versa," Austin said.

While he was too ill from cancer treatments to attend the meetings personally, L.A. Area Chamber president and chief executive Rusty Hammer played a key role in crafting the initiative.

"We spent a considerable amount of time negotiating various points with Rob Reiner to do several things that make it easier for us to support, including not raising taxes on business to pay for the program, assuring that funding for this program not be taken from funds already earmarked for K-12 and allowing private providers to participate in the system," Hammer said.

Under the initiative, all 4-year-olds would be entitled to a year of preschool starting in 2010. Enrollment would be voluntary.

When the initiative was unveiled last summer, Hammer helped bring the L.A. chamber on board as its first major business supporter. The endorsement grabbed headlines, since it marked a rare instance when the chamber supported an income tax increase. The support came despite the fact that some of its member companies and many--if not most--of its board members would be hit directly with the tax hike.

Individuals earning more than $400,000 and couples earning more than $800,000 would see their tax rate go from the current 9.3 percent to 11 percent under the Reiner initiative. Thousands of sole proprietorships and partnerships would also be subject to the tax hike, since their income is reported on personal tax forms.

Indeed, L.A. Chamber spokeswoman Marie Condron said there was "a lot of healthy dialogue and spirited debate" before the board took its vote last July.

Adding to the political dimension of that vote was the fact that newly elected Mayor Antonio Villaraigosa--himself a former teachers' union leader--had come out strongly in favor of the Reiner initiative. The L.A. Chamber had just backed losing incumbent mayor James Hahn; supporting the initiative would be one way to work into the good graces of the popular Villaraigosa.

Once the L.A. and Bay Area chambers came out in support, some other business groups--primarily ethnic chambers such as the California Black Chamber of Commerce, the Los Angeles Metropolitan Hispanic Chambers of Commerce and the San Francisco Hispanic Chamber of Commerce--joined.

"We strongly believe that early intervention in childhood education plays an important role in increasing the likelihood that an individual will reach his or her full potential," the California Black Chamber of Commerce said in a statement.

But most of the state's business community was barely aware of the measure, focusing insted on promoting Gov. Arnold Schwarzeneggers' slate of reform measures. Only after those measures went down to a crushing defeat last fall did they turn to the preschool initiative, which by then had qualified for the June ballot.

"Mr. Reiner has been working on this for a number of years and he rounded up support from some business groups early on, before we were able to discuss the measure and before we were able to raise questions about its costs and consequences," the California Chamber's Zaremberg said.

Besides the tax increase, Zaremberg said there was tremendous unease among Chamber board members about the size and scope of the universal preschool program outlined in the initiative. "This program costs $6,000 per child (per year) for just three hours per day of preschool. We think we can target children who don't have access to preschool with an equally effective program for a much more affordable price," he said.

Proponents say the cost is minimal compared to the consequences of preschool-aged children not getting acclimated to a learning environment. Other consequences include higher dropout rates and poorer reading skills.

Whatever the case, once the Chamber board voted to oppose the Reiner initiative, they moved in a big way. Zaremberg helped form the opposition group "Stop the Reiner Initiative" and became its co-chair. He quickly brought several other statewide business groups on board, including the California Retailers Association, the California Business Properties Association and the California Business Roundtable.

Other chambers soon joined the opposition, primarily in moderate or conservative areas of the state like Orange County or the Central Valley. In L.A. County, the Duarte and Redondo Beach chambers came out against the initiative.

"It has been proven that past income tax increases applied to higher income Californians do not work," said Redondo Beach Chamber chief executive Marna Smeltzer in a statement on the chamber's Web site. "Most telling is that funding an expensive, new and unproven preschool program flies in the face of the failing K-12 public school system in California."