Energy Sector a Bright Spot for California

The Milken Institute’s California Center reports that one bright spot in a dismal business climate is the energy sector both with research and production of alternative and renewable energy along with production and refinement of oil and natural gas. To understand the effect the energy business has on the California economy, the Institute reported on the Chevron Corporation, California’s largest Fortune 500 company.

Chevron is the largest firm in the state as measured by revenue and is the only major energy producer headquartered in California.

Chevron’s impact on the economy is revealed in some numbers highlighted by the Milken report.

  • In 2007, Chevron directly employed 10,000 workers in California. These workers contributed earnings of $1.2 billion and an output of $4.5 billion to the state’s economy.

Still Jerry Jarvis

Yesterday, I reported on San Francisco Mayor Gavin Newsom’s town hall meeting in Santa Monica and what I perceived as his tax and spend rhetoric. I was struck by the contrast with another Democratic gubernatorial candidate who has been around the block a few times – Jerry Brown.

In an interview with the San Francisco Chronicle’s Carla Marinucci a week ago,
Attorney General Brown took a different tack. According to Marinucci’s report, Brown said if he were elected governor, “I would not be advocating new taxes, I’ll tell you that.” Already, California is “one of the highest tax states around,” he said. “So we’ve got to be competitive. We can’t drive all the jobs out and tax the few people who stay.”

Jerry Brown has lived through a tax revolt before when he was governor in 1978 and he senses when the natives are restless. Leading the opposition to Proposition 13, Brown learned the wrath of taxpayers first hand. After the initiative passed overwhelmingly, he declared himself a “born-again tax cutter” and did his best to implement the measure. In fact, his efforts on that front lead Proposition 13 co-author Howard Jarvis to vote for Brown for re-election.

Mr. Newsom Goes to Santa Monica

San Francisco Mayor Gavin Newsom said he would be the “worst advocate” for measures on the special election ballot. Speaking to about 500 people at a town hall meeting in Santa Monica High School’s gym last night, Newsom said he supported the idea of a rainy day fund but would not be a champion for the ballot measures. He singled out Proposition 1C, the lottery modernization measure, saying it was bad policy to encourage gambling as a way to pay off the state’s debt. However, he said, he recognized that if the measures did not pass, the budget situation would be worse.

Newsom, however, was a strong advocate for a constitutional convention to deal with California’s dysfunctional government. On his list of reforms was Proposition 13 and the two-thirds vote to pass the budget and raise taxes.

Declaring that unlike Warren Buffet, who was warned away from a discussion of Prop 13 by then candidate Arnold Schwarzenegger, Newsom said that Californians needed to have a conversation about Prop 13. He backed off a little and said that at least there should be a conversation about property taxes on commercial property. Newsom told the audience members they were paying for Proposition 13 in the highest income taxes in the nation and the high and regressive sales tax.

New Budget Hole Presents an Opportunity

The Legislative Analyst’s announcement that the state budget may be $8 billion out of balance despite the recent budget deal has focused attention on the May 19 ballot measures designed to fix the budget problems. Critics and commentators argue that this announcement puts the budget reform package in danger of being defeated. The Los Angeles Times carried a sub-headline that said the shortfall “could make May ballot items a tougher sell.”

How’s that? Defeating the ballot measures won’t close the budget hole. In fact, it will do the opposite; it will make the budget hole larger in the out years as predicted by the LAO.

But, the announcement is both a warning and an opportunity for the legislature to start working on long term solutions to California’s budget and government structural problems.

The first thing the legislators should recognize is that, with the economy down, the expected revenue boost from the new taxes will not be as high as projected. For one thing, this means that if Proposition 1A on the May ballot passes, the new spending cap based on revenues will be that much tighter.

Cigarette Tax Should Go Up in Smoke

The most astonishing thing about the introduction this week of a new cigarette tax proposal offered by Los Angeles state Senator Alex Padilla was that Senate President Pro Tem Darrell Steinberg joined Padilla at his news conference to cheer him on.

Steinberg forced a few sleepless nights trying to squeeze a budget deal, which included controversial taxes, out of the Senate. He finally succeeded, but the package he worked so hard to achieve must be ratified by the voters in the May 19 Special Election. As anyone who listens to talk radio or reads a blog knows the tax part of the budget package has been generating heated opposition.

One of the charges against the budget deal is that the tax floodgates will open up, especially with projections of dropping revenue and new deficits on the horizon. While supporters of the budget package claim that the taxes passed are temporary to bridge a gap and that we are not seeing the birth of Taxifornia, there’s Steinberg giving ammunition to his political opponents by hailing a new tax proposal.

Tax Commission Extension Means More Time to Consider Difficult Choices

The Commission on the 21st Century Economy stepped out of the way of an on-coming political train and sought an extension to finish its work. Originally scheduled to bring recommendations on tax structure reform to the governor and legislature by April 15, commission members acknowledged that the May 19 special election will directly affect their mission.

Proposition 1A on the ballot will establish a spending limit but at the same time extend for up to two years some of the taxes recently passed by the legislature in the budget deal. As I suggested in a previous Fox and Hounds Daily commentary, the commission’s report of possible changes to the tax system might be used in the campaign for Proposition 1A. Alternatively, the voters’ decision on Proposition 1A would alter the debate on what tax changes the commission might recommend.

Commission Chairman Gerald Parsky said in light of the Special Election he would request that the governor and legislative leaders extend the commission until after the May election if the other commissioners agreed. Parsky’s recommendation received unanimous support.

Tax Commission To Seek Extension

The Commission on the 21st Century Economy, set up to give recommendations to the governor and legislature on reforming California’s tax structure, was due to issue its report on April 15th. At the Commission meeting held at UC Berkeley today, Commission Chairman Gerald Parsky recommended that in light of the special election on May 19 which will deal with budget and tax issues, the commission should seek an extension for its report until sometime during the summer. The commission members unanimously agreed. Parksky noted that new commission meetings will be added to the schedule if the commission’s life is extended. Only one more meeting was scheduled to be held April 9 at UC Davis. The Commission will need a revised executive order from the governor to change the due date of its report. More on the commission hearing at Fox and Hounds later.

Recalls and Witch Hunts

So now the call for punishing legislators who raised taxes has spread to those legislators who did not vote to raise taxes. Calls for recalls have gone beyond the targets of the governor and Republicans who voted for the taxes to include Republicans who voted to put Proposition 1A, the spending limit/two-year tax extension measure on the ballot. Supposedly, there was a deep conspiracy to make the taxes happen and all, or nearly all, Republican legislators are guilty.

Am I the only one that sees echoes of the Salem witch trials and Arthur Miller’s award winning play about the witch trials, The Crucible, in all this?

In the play, presiding Judge Danforth says: “You must understand, sir, that a person is either with this court or he must be counted against it, there be no road between.”
In Salem, all is black and white, you are either with God or with the Devil, and anyone who opposes the court cannot be an honest opponent.

Short Term Pain Versus Long Term Gain

Proposition 1A on the May 19 special election ballot will create a spending limit and a rainy day fund to even out the ups and downs of the budget and restrain spending. But, it is important to note, if the measure passes, the temporary tax increases approved by the legislature and signed by the governor will remain in effect for four years instead of two years.

A difficult choice is presented to the electorate. Is establishing a long term spending limit worth accepting the temporary taxes for an additional two years? I believe the answer is yes.

I do not reach this conclusion casually. The decision is the product of both analysis and history.

First, the history.

Reading the Tea Leaves of the Los Angeles City Election

Prognosticators will be out in force combing over the results of the Los Angeles City election held yesterday. Most of the chatter, of course, will be about the mayor’s race looking toward the Antonio Villaraigosa’s potential run for governor.

With another low municipal turnout of 15% of registered voters, city voters returned Mayor Villaraigosa to office for a second term.  The mayor faced little opposition and captured 55% of the vote. That’s enough to avoid a run-off election but not enough to put a scare into potential rivals for the Democratic nomination for governor should Villaraigosa choose to run. If the mayor is interested in statewide office, his base in Los Angeles must be strong. With weak and barely funded opposition, a 55% vote will not impress the pundits.