Can CA Survive Without Oil? Two Perspectives

Gas-Pump-blue-generic+flippedA week ago, Zocalo Public Square published an article, Imagining California Without Oil Refineries, by one of its editors, Lisa Margonelli, suggesting that Californians are embracing new technology that will lead to an oil free future. She wrote that not being gasoline consumers has become part of many Californians’ identities. Meanwhile, the California Resources Corporation (CRC), a publicly traded oil and natural gas exploration and production company, produced a website also asking Californians to imagine the state without oil. The two imaginings could not have been more apart.

The Zocalo piece spoke of the history of the environmental movement in the Golden State and the fact that younger generations are limiting consumerism and supporting a new way of living that reduces — and some day would eliminate — the need for oil. The CRC imagined a day without oil and offered a list of products that would disappear. Never mind the energy that is used to power products, petroleum is raw material used in refrigerators, dishes, smartphones, coffee makers, kayaks and more.

But it was the area of economic effects that made me take notice.

Margonelli wrote that, “Technologies as diverse as Facebook, compost bins, and electric vehicles have made many Californians see themselves as participants in building an oil-free future, without much fear of the potential downsides.”

And: “Rather than being afraid, a surprising number saw an economic upside in getting oil out: In polls, 43 percent of Californians said that cutting gasoline use would create jobs, while only 13 percent said it would kill them.”

(I might note that the PPIC poll respondents don’t always have the best information. Continually when asked, they describe prisons as getting the most money from the state budget and education near the bottom when the opposite is true.)

But accepting for the moment that there would be a rush of new jobs with technology and alternative energy what might be lost if we shut down the oil business?

The CRC made the following assertions:

The industry directly employs 184,100 Californians from diverse backgrounds and all levels of the socio-economic spectrum, which translates into $23.3 billion per year in wages and salaries for oil and natural gas jobs. It offers jobs to workers of all education levels, including truck drivers, geophysicists, chemists and machinists.

The oil and natural gas sector reflects California’s diversity. Over a quarter of the statewide industry workforce is Latino … In California, the average annual oil and natural gas industry salary of $118,032 is double the $56,590 average for other private industry jobs, according to a 2015 report by the Los Angeles Economic Development Corporation (LAEDC).

In total labor income alone, the oil industry injected $40 billion annually into the state’s economy, according to the LAEDC report. These salaries filter into the local economy through the vendors who work with the oil companies and the local businesses frequented by workers… The oil industry supported 456,000 jobs in the state, or 2.1 percent of California’s employment, and generated more than $204 billion in direct economic activity.

In addition, U.S. oil and natural gas companies pay considerably more in taxes than the average manufacturing company. According to Standard & Poor’s research, in 2013 the oil and natural gas industry paid an average effective tax rate of 40.2 percent versus 22.3 percent for other S&P 500 industries such as healthcare, retail, utilities, media and pharma.

In California, nearly $22 billion in state and local taxes collected in 2013 can be attributed to the oil industry, as well as $14.8 billion in sales and excise taxes, according to the LAEDC report, all of which help fund essential services and infrastructure that Californians rely on every day.

The issue of taxes paid by oil and gas companies plays against the future imagined in the Zocalo piece. Will the new alternative energy industries produce the same kind of revenue for the state?

The end-oil commentary concluded that a young woman was driving an electric vehicle – a Leaf—“with state and federal incentives.” (The family) “even installed solar panels that feed the Leaf, making them participants in generously funded state programs…”

You wonder if we cut out the traditional energy industries with all those jobs and the billions paid by the oil and gas industry in taxes if there will be revenue available to offer generous state funded incentives to buy solar panels and electric vehicles or pay for other budget items.

Originally published by Fox and Hounds Daily

Do Californians Even Care About High Taxes?

Tax surveyIn Tuesday’s Republican debate in Milwaukee a graphic was displayed to show where Facebook activity occurred discussing taxes. The green shaded areas on the graph indicated areas and states that had Above Average chatter on taxes (whatever average is). What catches the eye is that about two-thirds of California is white — no heavy tax chatter. Included in the white area are the large metropolitan and heavily populated areas of Los Angeles, San Francisco, San Jose, San Diego and Sacramento.

Does this mean that Californians don’t care about taxes, at least to the extent that they don’t talk about taxes on Facebook as much as residents of other states?

More to the point for analysts and consultants, does this Facebook chart bode well for the many advocates who are hoping to place tax increases on next year’s ballot? Are taxes not a concern for Californians?

Certainly, the Facebook graphic is not a scientific survey. Who knows how many likely voters are spending time on Facebook to discuss taxes?

Perhaps, Californians are not as concerned about taxes because the state is flush. The Controller’s Office announced yesterday that in October the state pulled in nearly $200 million more than was expected lifting the surplus over $500 million more than anticipated by budget projections.

A budget surplus would play a role in the coming debates over tax measures on the ballot and lead voters to feel that no new taxes are necessary – at least those who discuss such things on Facebook.

Originally published by Fox and Hounds Daily

L.A. Unified In Danger of Bankruptcy

Los-Angeles-Unified-School-District-LAUSDHere’s an old tune you’ve heard before: The Los Angeles Unified School District could face bankruptcy with one of the chief contributing factors being high pensions and health care costs for retired employees.

The L.A. School Board will discuss a new report raising that ominous red flag this week.

Pensions are not the only issue driving the school district toward insolvency. The report cited declining enrollment as a factor driving down revenue. Enrollment is falling due not only to fewer potential school age children but the fact that many students have decamped to independently operated charter schools.

Still, the pension issue is cited as part of the problem as it has been with so many financially struggling government agencies.

One year ago this week, the University of California announced it would have to seek a series of tuition increases. At the time, the UC Chief Financial Officer cited retirement costs in explaining the need for tuition increases. He said tuition hikes could be avoided if the state helped with retirement costs.

City bankruptcies or near bankruptcies in California also highlighted the pension burden. Stockton, for example, was spending $13 million in pensions at the turn of this century, a decade later the cost was $30 million and was predicted to double again in only a few years.

The possibility of the state’s largest school district facing bankruptcy will play into the push to extend the Proposition 30 tax increases beyond the date the so-called temporary taxes were to end. Voters won’t hear much from supporters of the tax extension about funding pensions – the campaign rhetoric will be about the students – but pensions are a major factor for those supporting the extension.

Last January, the Manhattan Institute’s Steve Malanga wrote in a Wall Street Journal op-ed that a good portion of the original Prop. 30 tax increase was dedicated to pensions. (Disclosure: I was quoted in the article.) He wrote that the problem of school pension costs would continue and an effort would be made to continue the Prop. 30 tax increase to cover those costs.

Now it is almost certain a form of the Prop 30 extension will be on the November 2016 ballot just as he predicted. Malanga concluded his piece: “It’s a reminder that in some places the long struggle to pay off massive government pension debt is just starting.”

It is not starting but continuing in the Golden State.

Originally published by Fox and Hounds Daily

Special Report Slams CA High-Speed Rail Progress

high speed rail trainLike a punch-drunk fighter, the High Speed Rail Authority must be reeling from the blows landed by Ralph Vartabedian’s Special Report in the Los Angeles Times asserting with expert testimony that the project is likely over cost and behind schedule. And, an even bigger blow could come from the courts removing the rail’s one steady income stream.

The Times’ article questioned many experts about the train’s progress and potential obstacles. Chief among those were the difficulties with tunneling through Southern California areas riddled with earthquake fault lines.

Cost overruns are almost assured according to the experts. “You have an 80 percent to 90 percent probability of a cost overrun on a project like this,” according to Bent Flyvbjerg, a University of Oxford business professor and a leading expert on megaproject risk, quoted in the article. “Once cost increases start, they are likely to continue,” he added.

The project, now slated to cost $68 billion, was promised to cost $33 billion, when voters approved a nearly $10 billion dollar bond in 2008. At one time, before scaled back to the $68 billion mark, projections ran close to $100 billion.

Here’s betting, if the project is completed, it will end up in that high-priced neighborhood again.

Money was supposed to come from the private sector and the federal government. While the feds sent some seed money to California for the train, future payments appear doubtful. The private sector has not rallied to the train. Many outside investors want to see government step in with greater funding.

The main revenue stream for the project, aside from the bond money, is the dedicated cap-and-trade funds authorized by the California legislature at the behest of the governor. This revenue stream will grow annually and allow, potentially, the rail authority to seek bonds, using the revenue stream as guarantee.

However, the cap-and-trade funds could be in jeopardy depending on court action.

The California Chamber of Commerce has sued asserting that the cap-and-trade funds are a tax and thus require a two-thirds vote to take effect. Since the action creating cap-and-trade did not receive a two-thirds vote from the legislature, the Chamber argues that the funds collected under cap-and-trade are illegal.

A superior court ruled against the Cal Chamber but the Chamber appealed the ruling to the Third District Court of Appeal. The Chamber notes Sacramento Superior Court Judge Timothy Frawley called the issue of whether the levy was a tax or a regulatory fee “a close question.” The Chamber is counting on the appeals court to see the issue differently.

If so, then the revenue source for the rail would have to be reconsidered by the legislature. Given the change in public opinion on the bullet train since the 2008 bond was passed, the legislature forthrightly voting for a tax supporting the train is doubtful.

If the court rules in favor of the Chamber on the tax question, that could result in a knockout blow against the bullet train.

Originally published by Fox and Hounds Daily

Remembering Allan Hoffenblum

Allan Hoffenblum 2The sudden death of Allan Hoffenblum was a tear in the fabric of California’s political world. He was an endless source of information to the media and political players who subscribed to the California Target Book which he co-founded and managed amassing much information on California’s political races.

More importantly to many of us in the political world he was a friend and a mentor.

I knew Allan for many years and was pleased to host him a number of times at the public policy class I teach at Pepperdine University. On each occasion he would re-new an old friendship with the public policy school’s then dean, Jim Wilburn, who Allan recruited to work on President Nixon’s re-elect campaign in California in 1972. Allan took pleasure in sharing his knowledge and experiences with students.

Allan managed many political campaigns once he opened his consulting business. But, it was in his role as an independent observer of the political scene that gained him his greatest following as he explained the complex, rough and tumble world of California politics with an unbiased eye. I often heard him express harsh words for the Republican Party that he worked for in the ‘60s and 70s as it slowly lost its competitive edge.

Allan liked to tell me about the time he was directing political efforts for the Republican Party and used the Proposition 13 tax revolt to boost many of his candidates. Here’s how I wrote up his story in my book, The Legend of Proposition 13 that was published a dozen years ago:

Hoffenblum remembered that one of the candidates for Assembly, Dennis Brown, came to see him with some interesting polling information. Brown’s poll consisted of two questions. The first question asked how voters intended to vote in his race. The answers showed that newcomer Brown was substantially behind. The second question asked, if you knew that Dennis Brown supported Proposition 13 and his opponent opposed it how would you vote? The numbers nearly flip-flopped. Hoffenblum decided to poll other districts using similar questions. The results were nearly the same.

Hoffenblum sought out Jarvis and put together letters in sixteen races, including the State Senate, the Assembly and Congress, all tailored to each particular race. Jarvis’s letters stated simply that the Republican newcomer had supported Proposition 13 and that the Democratic incumbent had opposed it. The letters hit just a few days before the election and caught the incumbents off guard.

Fourteen of sixteen incumbents opposed by Jarvis were defeated. Pro-Prop 13 Republicans elected to the legislature for the first time were dubbed “Proposition 13 babies.” Hoffenblum said, “It was the biggest election landslide for California Republicans since the election of Warren Harding.”

Times have changed but Allan’s perceptive analysis of the California political scene was eternal. Many, including me, will miss him.

You may read more about Allan Hoffenblum’s career in the Sacramento Bee here and the Capitol Weekly here.

Originally published by Fox and Hounds Daily

Poll: Will Voters Support Tax Proposals on 2016 Ballot?

taxesIn the shadow of my commentary yesterday on the possible tax measures on the 2016 ballot comes the Public Policy Institute of California poll that takes the standing of many of the potential tax initiatives. This snapshot in time indicates supporters of the tax increases have a lot of work to do to convince the public to vote for them.

But the way the questions were asked must be considered when weighing the results.

The idea of extending Proposition 30 is becoming more practical than theoretical with the submission of two separate ballot measures to achieve that goal. One measure, filed chiefly by the California Teachers Association, would extend Prop. 30 for 12 years. The second measure filed by the California Hospitals Association, a health care union and a children’s advocacy group, would make the Prop. 30 taxes permanent.

The voters appear divided on extending Prop. 30 with 49% in favor of extension and 46% opposed. However, those favoring the extension drop to 32% if the taxes are made permanent.

One odd result from the poll was the great support for the Prop. 30 extension in the San Francisco Bay Area (63%) and much less support in the Central Valley (50%); odd, because this tax is centered on the wealthy, those with incomes of $250,000 and more. There are many more high-end taxpayers in the Bay Area than the Central Valley.

However, the way the question was asked may have something to do with this disparity. The question described the Proposition 30 tax that exists today. Poll respondents were asked if the taxes on incomes over $250,000 and the quarter cent sales tax should be extended. But, the quarter cent sales tax portion of the Prop. 30 tax measure is not included in either of the extension plans that were filed.

Could Central Valley voters have focused on the sales tax piece and would their answers be different if they knew the extension only affected high-end income taxpayers?

Once again, PPIC asked about splitting the property tax roll under Proposition 13 treating commercial property differently than residential property by taxing commercial property according to current market value. Likely voters approved of the idea by 55% with 39% opposed.

But as stated here many times before, this basic question doesn’t inform potential voters of consequences related to this issue. There was no effort to deal with either the potential positives or negatives of changing the property tax system. Those issues will certainly be aired during an expensive campaign over a split roll and undoubtedly would lead to different results than the poll currently reflects.

Two other taxes that are being discussed received quite different results. An oil extraction tax found 49% support with likely voters; a cigarette tax was supported by 66% of likely voters.

There could be a lot of money spent in a campaign opposed to these taxes and a fair amount of change in support. However, looking at all the tax measures at this moment in time, if the old rule were applied that an initiative needs to have at least 60% support in early polls to have a fighting chance at passing, then only the cigarette tax looks possible at this time.

Of course, if the ballot is full of tax proposals the old rules may not apply.

Originally published by Fox and Hounds Daily

Déjà Vu in the Special Session: Taxes vs. Reforms

tax signWatching the maneuvering to pass a transportation revenue package in the special session, I can’t help but think of the observation by that great philosopher Yogi Berra who said: “It’s déjà vu all over again.” The legislative scrum over a legislative roads fix is similar to the struggle to find common ground before Proposition 30 was put on the ballot.

Remember those days at the beginning of Governor Jerry Brown’s third term. Brown tried to pick off a few Republican votes to secure the two-thirds margin he needed to put a tax increase measure on the ballot. In return, the Republicans who were courted by Brown sought reforms to the spending side of the budget, particularly, a spending limit and a rainy day fund. Pressured by public employee unions, Democrats in the legislature showed no interest in accepting these reforms.

The effort to achieve a compromise package went nowhere. The governor then turned to the ballot, working with union groups already pushing a tax increase initiative to create Proposition 30.

On transportation in the special session, Democrats put forward a series of tax and fee increases. Republicans countered with a package of spending proposals using cap and trade dollars, redirecting current transportation revenues for the roads, re-doing Caltrans employment, and reconsidering the high-speed rail project.

Republican senate leader Bob Huff said there is no support for tax increases in his caucus. Democratic majorities in committee killed the Caltrans and high-speed rail proposals. Democratic Senate President Pro Tem Kevin de León said taking money from cap-and-trade for the roads is not a serious proposal. “There is no nexus between greenhouse gas emissions and potholes,” he said.

Rob Lapsley, president of the California Business Roundtable, which supports a compromise that would include both tax increases and re-directing cap-and-trade funds said, “Both sides will likely experience some pain, both sides will need to have some wins.”

At this stage there seems no give to accept any part of the plan put forth by the other side.

Negotiations will continue. But will history repeat itself if no deal is struck?

The forces behind the tax and fee increases could play the initiative card. With supporters in labor and big business, and if the governor endorses an initiative, they certainly have the wherewithal to qualify a measure for the ballot. But, how likely is it that voters would embrace a 12-cent per gallon gas tax increase and higher car registration fees if such a proposal qualified for the ballot?

Originally published by Fox and Hounds Daily

Top 5 Taxes You May See on the 2016 Ballot

http://www.dreamstime.com/-image18514272In June 2014, I wrote a column forecasting the tax increase measures that might be on the November 2016 ballot given the conversations going on at the time. I updated the list in March of this year. It’s time for another update, this one prompted by an answer to a question Senate President Pro Tem Kevin de León gave to Comstock’s Magazine.

The pro tem was asked where he stood on the change to Proposition 13 to separate commercial property from residential property. De León responded that he had no position on the plan at present but added: “I do think that revenue enhancement measures deserve a very serious debate, whether it’s a continuance or some variance of Proposition 30 or some other proposal.”

While the legislature gets together next week with the opportunity to have that debate, most likely any tax measure on the 2016 ballot will come via the initiative process.

As I wrote previously, situations and strategies change. What’s being discussed most heavily today is not necessarily what will be pushed to the ballot for voters to decide in 2016.

  • OIL SEVERANCE TAX

As reported previously, whether the oil severance tax initiative moves forward depends on one man – hedge fund billionaire and NextGen president, Tom Steyer. Recently, Steyer took the focus away from the oil severance tax and held a press conference supporting a bill for more transparency about oil company revenues. During the press conference, he suggested if the legislature did not act on a transparency bill he may take one to the ballot via initiative. While Steyer certainly has the ability to attempt more than one initiative at the same time, history shows that doesn’t always work out so well. (See John Van de Kamp 1990.) With the potential of other tax measures on the ballot, there seems to be less emphasis moving forward with the oil severance tax. It barely hangs on the list at number 5.

  • SERVICE TAXES

While Senator Bob Hertzberg’s plan was mentioned in previous columns, it was never ranked. However, as Hertzberg works to build support for his plan, which he says will tie the tax system more closely to the current state economy, the idea of many different taxes potentially appearing on the ballot may present an opening for Hertzberg. He could argue that his answer to California’s tax system flaws is a better overall fix than other proposals. And, remember, he also has potential financial support from Nicolas Berggreun’s Think Long Committee.

  • SPLIT ROLL

The grassroots/public union effort to push a split roll is still ongoing. Whether the big money is ready to commit to this approach is uncertain. Since the last rankings a second property tax surcharge on all properties that are assessed on the property tax rolls at $3 million and more has been filed. While this measure doesn’t seem to have the support to move into the top 5, it complicates the split roll position. Some have suggested that the split roll is being pushed to convince the school establishment that any tax measure that reaches the ballot should provide for more than schools. Whether for leverage or an earnest effort to achieve a split roll property tax, there is a decent chance the measure will be filed.

  • CIGARETTE TAX

The cigarette tax holds in the second position although it is clawing to gain the top spot. An initiative has already been filed. However, there will be a lot of talk in the Special Session on Medi-Cal reform perhaps including a cigarette tax increase to help fill the Medi-Cal funding hole. If the legislative session ends with no cigarette tax increase, the chance that such a tax will make the ballot probably jump this one to number one.

  • EXTENSION OF PROPOSITION 30

Extending or slightly changing Prop. 30 and continuing it holds the top spot because many supporters of a tax increase believe this type of measure may be the easiest one to pass. However, when the Public Policy Institute of California asked Likely Voters in May if they supported the extension of Proposition 30, 46 percent said yes, 30 percent said no. Not strong numbers. But all you need to know about a Prop 30 extension remaining the most likely tax measure you’ll see on the November 2016 ballot is the answer Senator de León gave above. Instead of talking about a change to Prop. 13 when questioned, he specifically cited the possibility of continuing Prop. 30. At this time it remains number 1.

Follow Joel Fox on Twitter @1JoelFox1

The Cigarette Tax Dilemma

cigarette smoking ashesIs a tax on cigarettes a revenue raiser or a “sin tax”—used to discourage individuals from using products considered harmful? The effort to raise taxes on cigarettes – there is a measure in the legislature as well a ballot initiative moving through the process—often directs new revenues toward specific purposes. Yet, the increased taxes often lower the use of a product thus reducing the revenue for organizations and agencies.

Last, week the Los Angeles Times reported that the First 5 committee, which received funding from a previous cigarette tax increase, was concerned that fewer smokers meant less revenue. The First 5 group, which focuses on improving early years of children’s lives, is attempting to rally the legislature to add revenue from any new cigarette tax to include First 5 in those groups that receive new revenue.

But the cycle will certainly continue for First 5 and any agency that receives cigarette money. A tax increase will likely once again reduce the number of smokers and cigarette purchases and at some point reduce the revenue agencies expect to receive.

The cigarette tax revenue for First 5 has dropped about 17% to $460 million over a five-year span.

Yet, shouldn’t the sponsors of the cigarette tax measures that purport to advance the tax to educate the populous about the negative effects of smoking cheer the reduction in the number of cigarettes purchased?

According to the article, First 5 is looking at an alternative for additional revenue by examining the promotion of a marijuana initiative and the tax revenue such an action would bring in to help replenish the First 5 coffers.

Others groups undoubtedly will also have their eyes on marijuana tax money despite the recent report from Lt. Gov. Gavin Newsom’s committee studying marijuana legalization that declared tax revenue should be low priority in considering legalizing marijuana.

Is concern for revenue paramount to the reduction of “sin” with many groups and agencies who receive these tax dollars?

Joel Fox is editor of Fox & Hounds and President of the Small Business Action Committee

Originally published by Fox and Hounds Daily

A Lone Voice – Voting Against the Minimum Wage Hike in L.A.

Minimum wage1City Councilman Mitchell Englander was the lone no vote against raising the minimum wage in Los Angeles to $15 an hour. It would be over the top to suggest his stand was akin to Gary Cooper in High Noon — one man standing against the threat to the town – but suffice it to say it was important for someone to stand up and point out the concerns raised by the business community and others. The minimum wage issue is not as clear-cut as the lopsided vote in the L.A., City Council would indicate. Important issues surrounding the implementation of the minimum wage must be raised.

Englander explained his reasoning in a Los Angeles Times opinion piece last Monday.

Some excerpts:

“This wage increase may hurt the very people it is designed to help. Most minimum wage jobs are in low profit-margin industries or small businesses that are easily relocated to one of more than two dozen cities bordering Los Angeles. Many of these cities have minimum wages substantially lower than $15 an hour. This competitive disadvantage doesn’t support local job creation or retention.”

“Representatives of both the business and nonprofit/charitable communities testified that they will be forced to reduce hours or staff size to comply with the new policy.”

“Minimum-wage increases by themselves do nothing to expand the middle class. In order to do this we need to create an educated workforce, bringing back trade training and shop classes to our high schools and encouraging a clear and affordable pathway from two-year colleges to four-year universities and beyond.”

“I voted no on the increase because cost-benefit analyses show that the disproportionate burden to business is not balanced by a guaranteed benefit to the impoverished, or to the local economy.”

Englander’s reasoning obviously did not sway other members of the council. But while the city can create laws to control business – one law they are discussing is to require a minimum wage for workers whose home base is outside of Los Angeles but their work brings them into the city for at least two hours – city council members cannot repeal the laws of economics. They will be consequences to the council’s actions.

The minimum wage increase is not the only mandate faced by many businesses in California. Required minimum wages, mandated time off, fees, and taxes add to business costs making it tougher and more complicated to do business in California.

Englander was right to make his lonely stand so that these issues can be aired and remembered.

Originally published at Fox and Hounds Daily