Air Board Asks Courts to Create New Tax

carbon-tax-1In a landmark case before the Third District Court of Appeal, the California Air Resources Board (ARB) recently argued for creation of an unprecedented tax doctrine that could raise billions of dollars in new revenues. The ARB described the new revenue not as a tax or a fee (or any other recognized revenue-raising mechanism), but as a “byproduct” of a regulatory program.

The case, California Chamber of Commerce v. California Air Resources Board, challenges the legality of the cap-and-trade auction ARB set up as part of its program to reduce greenhouse gas (GHG) emissions to meet goals outlined in AB 32, the climate change law.

CalChamber is arguing that (1) the ARB exceeded the authority the law granted it by reserving GHG allowances to itself and auctioning those allowances to GHG emitters to raise revenues, and (2) such an auction is a “tax” requiring a two-thirds vote of the Legislature, which was not obtained.

(CalChamber is not challenging AB 32 or the cap-and-trade mechanism itself, because the goals of AB 32 can be achieved effectively using cap and trade. In fact, the efficacy of cap and trade to meet the GHG reduction goals would be unaffected in the absence of the auction.)

The lawsuit aims to prevent the powerful regulatory agency from expanding its reach beyond the boundaries set by the Legislature, and to maintain the integrity of the revenue-raising rules of Proposition 13. But the ARB has raised the stakes even higher by suggesting that the revenues raised by the auction are neither taxes nor fees.

The auctions so far have raised nearly $1.6 billion in revenues that have been deposited into state coffers. The Legislative Analyst has estimated the auction will raise tens of billions more dollars by 2020.

The ARB instead claims that the auction is a legitimate exercise of its regulatory powers and that the billions in new revenues are “incidental” to that regulation. In fact, the ARB flatly states that the auction was not enacted for the purpose of increasing revenues; therefore, it is not a tax.

The Air Board had previously acknowledged that the auction revenues resided comfortably within the state’s tax system, and as “a non-distortionary source of proceeds” could be used “as a substitute for distortionary taxes such as income and sales taxes.”

The lead doctrine on determining whether a charge is a fee or a tax is the California Supreme Court decision in Sinclair Paint v. Board of Equalization. The court held that a regulatory fee is legitimate if (1) there is a reasonable relationship between the amount charged and the burdens imposed by the fee payer’s operations; (2) it is not used for unrelated revenue purposes; and (3) the remedial measures funded with the charge are caused by or connected to the fee payer’s operations. Lacking any of these factors, the charge is a tax.

Since it is apparent that the auction cannot meet these criteria, the ARB dismissed Sinclair’s relevance, stating that the “requirements that govern fees are not useful for reviewing other exercises of the police power.” Even though the ARB claims the revenues are incidental to a regulatory program, it declined to label them as “fees.”

In other words, the ARB has asked the court—in the case of fees imposed for regulatory purposes—to disregard the leading doctrine on regulatory fees.

To be sure, there are charges that government legitimately imposes that are neither fees nor taxes which fit comfortably within the Proposition 13 rubric: special assessments and development fees for infrastructure, charges for goods and services, fines and penalties for law breaking.

But the ARB has sought refuge in none of those time-tested revenue constructs. Instead, it has asked the court to invent a new, unique category of non-tax, non-fee, non-assessment, non-penalty, non-service charge that fits the auction revenue system.

The ARB is seeking a safe harbor for revenues “incidental to regulation” that it claims are not regulatory fees, and which will generate tens of billions of dollars for new spending programs that somehow are not taxes. In fact, next year the revenues from auctions will be one of the largest sources of state revenues—and bound to grow as the ARB allocates even more allowances to itself.

CalChamber has vigorously disputed this new doctrine, calling it “unprecedented, undemocratic and amorphous.” Proposition 13 and the Sinclair decision have limited and rationalized tax and fee doctrine for 37 years, setting out the rules that balance operational flexibility with accountability.

The Court of Appeal will hear oral arguments in this case later this year.

 is president of the California Foundation for Commerce and Education

Originally published by Fox and Hounds Daily

CalChamber Unveils List of 2015 “Job Creator” Bills

Since 2008, CalChamber has been identifying bills that will improve the state’s job climate and stimulate our economy.  We put them on our annual “Job Creator” list hoping to put a spotlight on proposals that will encourage investment in our economy.

Last week, we released the 2015 “Job Creator” list.  This year’s list includes 11 bills that will improve our legal climate, lower costs for employers, spur tourism, and create construction jobs. The list follows recommendations made in our annual business issues guide, called “Foundation for a Better California.”

Each year we hope to have as many job creator bills on our list as we do on our job killer list.  Let’s hope our policy makers make that possible in the years to come! 

The list of 2015 job creator bills includes the following proposals:

Creates Construction Jobs

AB 35 (Chiu; D-San Francisco) Creates Affordable Housing Opportunities. Expands the existing low-income housing tax credit program, making the state better able to leverage an estimated $200 million more in Federal Tax Credits.

AB 323 (Olsen; R-Modesto) Expedites and Reduces Cost for Roadway Repair and Maintenance Projects. Streamlines infrastructure development by extending indefinitely the current CEQA exemption for certain roadway repair and maintenance projects.

AB 641 (Mayes; R-Yucca Valley) Expedites and Reduces Cost for Housing Projects. Streamlines and reduces regulatory burdens for the approval and construction of housing developments by providing an expedited review process under the California Environmental Quality Act.

Improved Legal Climate

AB 52 (Gray; D-Merced) Disability Access Litigation Reform.  Seeks to improve access for disabled customers and limit frivolous litigation against businesses for construction-related accessibility claims by providing an opportunity for the businesses to timely resolve any potential violations.

AB 54 (Olsen; R-Modesto) Disability Access Litigation Reform. Seeks to improve access for disabled patrons without harming businesses through frivolous lawsuits by providing businesses with a 60-day right to correct the violation for a claim based upon a constructed related accessibility standard that was changed or modified in the prior three years.

AB 588 (Grove; R-Bakersfield) Reduces Frivolous Litigation. Seeks to limit frivolous litigation under the Labor Code Private Attorneys General Act, by allowing an employer a 33 day right to cure technical violations on an itemized wage statement that did not cause any injury to the employee.

AB 1252 (Jones; R-Santee) Protects Businesses from Proposition 65 Lawsuits. Provides needed relief to small businesses by prohibiting a person from bringing a Proposition 65 lawsuit against a business employing fewer than 25 employees. Failed passage in the Assembly Environmental Safety and Toxic Materials Committee, 04/14/15. Reconsideration Granted

AB 1470 (Alejo; D-Salinas) Reduction of Costly Employment Class Action Litigation. Limits frivolous class action litigation against employers in California who are creating high paying jobs by creating a rebuttable presumption that employees earning at least $100,000 and performing non-manual labor and at least one exempt duty are exempt from overtime requirements.

SB 67 (Galgiani; D-Stockton) Disability Access Litigation Reform. Seeks to limit frivolous litigation against small businesses and those that have sought to comply, by limiting remedies to injunctive relief and expanding the current period to correct any violation from 60 to 120 days.

Tourism

SB 249 (Hueso; D-Logan Heights) Enhanced Driver’s License. Encourages international trade and tourism by authorizing the Department of Motor Vehicles to issue enhanced driver licenses to U.S. citizens to expedite legal traffic at the border.

Workplace Improvements/Training

AB 1038 (Jones; R-Santee) Flexible Workweek. Provides employers with the opportunity to accommodate employees’ needs as well as business demands by allowing employees to request a voluntary, flexible workweek agreement that can be repealed by the employee at any time with proper notice. Failed passage in the Assembly Labor and Employment Committee, 04/22/15. Reconsideration Granted.

Cumulative Job Creator Signatures

2014: 14 job creator bills identified, 5 sent to Governor, signs 5

2013: 16 job creator bills identified, 2 sent to Governor, signs 2

2012: 34 job creator bills identified, 9 sent to Governor, signs 9

2011: 5 job creator bills identified, 0 sent to Governor

2010: 16 job creator bills identified, 4 sent to Governor, signs 4

2009: 18 job creator bills identified, 2 sent to Governor, signs 2

2008: 3 job creator bills identified, 2 sent to Governor, signs 2

Originally published by Fox and Hounds Daily

Denise Davis is vice president, media relations and external affairs at Cal Chamber

2015 Job Killers — CalChamber Releases Its Preliminary Report

The California Chamber of Commerce yesterday released a preliminary list of “job killer” bills to call attention to the negative impact that 16 proposed measures would have on California’s job climate and economic recovery, should they become law.

Although we will be opposing a number of bills throughout this year, the ‘job killer’ list represents the worst of the worst. These proposals will unnecessarily increase costs on California employers that will likely lead to a loss of jobs.

The list is preliminary. We expect to add more bills to the list in the coming weeks as legislation is amended, and we will periodically release “job killer” watch updates as legislation changes. Please track the status of “job killer” bills on www.cajobkillers.com or by following @CAJobKillers on Twitter. 

Here is the preliminary list of 2015 “job killer” bills:

Increased Labor Costs

AB 357 (Chiu; D-San Francisco) Predictable Scheduling Mandate/Protected Leave of Absence — Imposes an unfair, one-size fits all, two-week notice scheduling mandate on certain employers that perform retail sales activity, and penalizes these employers with “additional pay” for making changes to the schedule with less than two weeks notice, and additionally imposes an unlimited, protected leave of absence from work as well as a broad new protected class of employees who are receiving public assistance or have an identified family member receiving such assistance.

SB 3 (Leno; D-San Francisco/ Leyva; D-Chino) Automatic Minimum Wage Increase— Unfairly increases’ employers costs while ignoring the economic factors or other costs of employers by increasing the minimum wage by $3.00 over the next two and a half years with automatic increases tied to inflation.

SB 406 (Jackson; D-Santa Barbara) Significant Expansion of California Family Rights Act — Creates less conformity with federal law by dramatically reducing the employee threshold from 50 to less than 5 employees and expanding the family members for whom leave may be taken, which will provide a California-only, separate 12 week protected leave of absence on both small and large employers to administer, thereby increasing costs and risk of litigation.

Increased Fuel Costs

SB 350 (de León; D-Los Angeles) Costly and Burdensome Regulations — Potentially increases costs and burdens on all Californians by mandating an arbitrary and unrealistic reduction of petroleum use by 50%, increasing the current Renewable Portfolio Standard to 50% and increasing energy efficiency in buildings by 50% all by 2030 without regard to the impact on individuals, jobs and the economy.

Tax Increases

ACA 4 (Frazier; D-Oakley) Lowers Vote Requirement for Tax Increases — Adds complexity and uncertainty to the current tax structure and pressure to increase taxes on commercial, industrial and residential property owners by giving local governments new authority to enact special taxes, including parcel taxes, by lowering the vote threshold from two-thirds to 55%.

SB 684 (Hancock; D-Berkeley) Increased Tax Rate — Threatens to significantly increase the corporate tax rate on publicly held corporations and financial institutions up to 15% according to the wages paid to employees in the United States, and threatens to increase that rate by 50% thereafter, if the corporation or institution reduces its workforce in the United States and simultaneously increases its contractors.

SCA 5 (Hancock; D-Berkeley) Lowers Vote Requirement for Tax Increases — Adds complexity and uncertainty to the current tax structure and pressure to increase taxes on commercial, industrial and residential property owners by giving local governments new authority to enact special taxes, including parcel taxes, by lowering the vote threshold from two-thirds to 55%.

Increased Burdensome Environmental Regulation

AB 356 (Williams; D-Santa Barbara) Limits In-State Energy Development — Jeopardizes high paying middle class jobs in resource extraction fields by severely restricting wastewater injections sites and requiring unnecessary monitoring of those sites.

AB 1490 (Rendon; D-Lakewood) Limits In-State Energy Development — Drives up fuel prices and energy prices by imposing a de facto moratorium on well stimulation activities by halting the activity after an  earthquake of a magnitude 2.0 or higher.

SB 32 (Pavley; D-Agoura Hills) Halts Economic Growth — Increases costs for California businesses, makes them less competitive and discourages economic growth by adopting further greenhouse gas emission reductions for 2030 and 2050 without regard to the impact on individuals, jobs and the economy.

Increased Health Care Costs

SB 546 (Leno; D-San Francisco) Health Care Rate Regulation — Threatens employers with higher premiums and interferes with their ability to negotiate with health plans by imposing unnecessary and burdensome new reporting requirements on health plans and insurers in the large group market, and giving the Department of Managed Health Care and the Department of Insurance authority to modify or deny all rate changes in the large group market.

Economic Development Barriers

AB 359 (Gonzalez; D-San Diego) Costly Employee Retention Mandate — Inappropriately alters the employment relationship and increases frivolous litigation by allowing a private right of action and by requiring any successor grocery employer to retain employees of the former grocery employer for 90 days and continue to offer continued employment unless the employees’ performance during the 90-day period was unsatisfactory.

SB 576 (Leno; D-San Francisco) Stifles Mobile Application Technology Development — Stifles innovation and growth in the mobile application economy and creates unnecessary and costly litigation by mandating unnecessary, redundant and impractical requirements that will leave many current and future mobile applications unusable, with no benefit to the consumer.

Increased Unnecessary Litigation Costs

AB 244 (Eggman; D-Stockton) Private Right of Action Exposure — Jeopardizes access to credit for home mortgages, increasing the challenge to attract business to California because of high housing prices, by extending the homeowner’s bill of rights to others, thereby opening the door to more private rights of action.

AB 465 (Hernández; D-West Covina) Increased Litigation — Significantly drives up litigation costs for all California employers as well as increases pressure on the already-overburdened judicial system by precluding mandatory employment arbitration agreements, which is likely pre-empted by the Federal Arbitration Act.

SB 203 (Monning; D-Carmel) Lawsuit Exposure — Exposes beverage manufacturers and food retailers to lawsuits, fines and penalties based on state-only labeling requirements for sugar-sweetened drinks.

 president and CEO of the California Chamber of Commerce

Originally published by Fox and Hounds Daily