Back-Room Deal: Cal Forward’s Debate Over Biz Fees


Bob_HertzbergLurking in the preliminary reform proposals put forth by California Forward is a little-noticed item that would limit the Legislature’s ability to raise revenue through “mitigation fees” on business.

The reform group is quietly planning a sit-down to search for a compromise over the politically controversial idea in the next week or so. Whether it’s a deal breaker for  CF’s  agenda  remains to be seen.

“I don’t know yet,” says Bob Hertzberg, the former Assembly Speaker who is co-chairman of the goo-goo outfit backed by some of the state’s biggest foundations.“It’s a dynamic process. Seems to me it’s pretty important.”

sinclairpaintWhat it’s all about is what’s known among tax weed whackers as “Sinclair” – referring to Sinclair Paint vs. Board of Equalization, 15 Cal.4th at 881 – a 1997 California Supreme Court decision that said the provisions of Prop. 13 do not prevent the Legislature from imposing – by a simple majority vote – certain fees on polluters or producers of contaminating products to help mitigate environmental impacts.

Calbuzz has no particular nose for the legal biz (despite the parade of process servers banging on our door).  But we can smell a potential political deal — and this has that distinctive aroma. The working papers that members of the CF Leadership Council reviewed at their last meeting included this language:

“As a condition for lowering the vote threshold for enacting a budget to a simple majority, the ability to raise revenue through ‘mitigation’ fees should be limited to prevent lawmakers from significantly increasing fee-based revenue.”

Sounds kinda like a quid pro quo to us. And although, as the CF papers note, the Legislature has not since used the authority implied in Sinclair to try to raise taxes masqueraded as fees,  “it would be simple to add a fee to alcoholic beverages, petroleum products and anything else that carries a nexus to a public problem,” according to the CF working papers.

So some of the business representatives on CF want to cut the Dems off at Sinclair Pass – by limiting what’s a fee and what’s a tax – or by requiring a two-thirds vote to increase fees, just like what’s required now to increase taxes. The group has tested that last idea in polling, we’ve learned.

“There will be language limiting what can be passed as fees,” said Ryan Rauzon, spokesman for CF.

But Chairman Bob insists it’ would be a mistake to focus only on Sinclair as the key to business support for CF reforms. The only way some of the conservatives and business people on CF would “even consider” allowing 50% to pass the budget is if there’s a whole panoply of budget reforms – pay-as-you-go provisions, controls on one-time expenditures, two-year budgeting,  performance reviews, sunset provisions AND limits on what can pass with 50% as a “fee,” he said.

But will liberals – on CF and in the Legislature – agree to circumscribe their current authority to impost fees with a majority vote? Will they agree that there has to be a “clear nexus” between charges allocated to a polluter or manufacturer of polluty stuff?

Hard to imagine why they’d give up their political edge on this one, when there are some conservatives (Tom McClintock, for example) who support passing a budget with a majority vote even without a deal on fees.

We’ll know more in another week or so after the enviros on the committee and some of the bizpeople meet to see if there can agree on language codifying Sinclair.

Although the matter carries us deep into the policy weeds, it represents one of the fundamental political tensions underlying CF’s attempt to build consensus on a reform agenda: resolving the inherent conflict between conservative, pro-market business interests and liberal, pro-regulation types.

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There are 2 comments for this post

  1. avatar Mark Paul says:

    You incorrectly describe the position California Forward has taken on polluter fees as being driven by “conservative, pro-market business interests.” This is incorrect.

    Let me explain. Some kinds of economic activities produce costs that are imposed on the larger society and not just the private producer of the goods or services–think of a coal-burning plant or a trucking business. The cost of operating a dirty diesel truck is not just paying for the truck, the fuel, and the driver. The truck is also emitting pollutants that dirty the air and cause harm (heart and lung diseases) to people who breathe the air. The full cost of operating a truck with a dirty diesel engine is the sum of the private costs to the owner of the truck and the costs to society, which economists, with their gift for gab, call “negative externalities.”

    Economists have long understood that this outcome is less efficient for society than a market in which producers bear the full costs of their output. That is why they argue that the correct market solution is for government to impose taxes or fees on the activity with negative externalities in the amount of the harms caused by the social costs. The fees will cause the market to work to yield the most efficient outcome.

    This is not a conservative or liberal position, at least among economists. For example, Gregory Mankiw, a chief economist for George W. Bush and for the McCain campaign, has been a prominent advocate of higher fuel taxes to deal with the social costs of petroleum use.

    California Forward’s choice on the question of polluter fees suggests that it believes that reform in California consists in part of preventing the Legislature from making markets work more efficiently. They would make it harder for the majority of Californians to protect their health, their businesses and their environment from harms imposed on them by various economic actors.

    So the correct description of California Forward’s stance is “anti-democratic, anti-market, pro-polluter.”

  2. avatar irishsob says:

    More backroom deals from this Republican front group. Imagine that! Their reforms basically cut out the public and have placed the redistricting process firmly in the hand of the Chamber of Commerce.

    Now watch, even fees will take a 2/3s vote when these misguided and naive do-gooder’s finish up sucking up to Big Business.

    John Gardner, the founder of Common Cause must be rolling over in his grave.

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