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Arnold’s Offshore Oil Drill Project Not Dead Yet

Thursday, July 30th, 2009

offshoreA new statewide poll reports that a sizeable majority of likely voters now favors  expanded offshore oil drilling in California, a finding likely to fuel renewed efforts to approve the just-defeated Tranquillon Ridge project .

A PPIC survey released late Wednesday  shows that 55 percent of likely voters support more oil drilling off the coast, compared to 41 percent who oppose it. Among all adults, the gap is narrower — 51-to-43 percent in favor — although this is the second year in a row that PPIC found majority backing for more drilling, which previously was a long-settled issue in the state.

The new data comes as executives of the Houston-based oil company PXP vow to continue pressing for approval of a state lease for the controversial project off the coast of Santa Barbara, which was defeated in the Assembly last week after passing the senate by one vote.

An Administration spokesman also said the governor remains enthusiastic about the proposal – and hopes to get another chance to sign it into law.

“The fact that the Legislature did not approve it does not in any way lessen the Administration’s support for the project,” Department of Finance spokesman H.D. Palmer told Calbuzz. “Nor does it in any way lessen the fiscal and environmental benefits to the state, which we hope the Legislature will re-examine.”

In the context of the budget battle, the basic media narrative that emerged from last week’s dust-up framed the Tranquillon Ridge vote, with its potential revenues for the state, as a simple yea-or-nay referendum on offshore drilling. In fact, the policy issues at stake are more nuanced and complex, given that the rejected legislation has its roots in a negotiated 2008 agreement between PXP and a large group of Santa Barbara environmentalists ; they enthusiastically backed a new state lease –- for slant drilling off an existing oil platform in federal waters — as a pathway to ending some drilling off their coast permanently.

The Politics

As a political matter, the unsettled conflict over the project is significant for several key reasons:

– In California, the fight over Tranquillon Ridge reflects a shifting political landscape, as recession-mired residents appear to be recalibrating the balance between long-held, pro-environmental values and economic growth and energy  costs. The PPIC poll found that public support for policies to improve the environment “has dropped a notch,” in the words of poll-taker Mark Baldassare, on a host of issues, including climate change and air quality, with wide partisan differences in each case.

– Across the nation, the fight over the PXP project is being watched as a possible precedent-setter, at a time when the Obama Administration is conducting a review of the government’s five-year drilling plan for the outer continental shelf. The issue is particularly germane in Florida where U.S. Senators from Alaska and Louisiana are trying to remove prohibitions against drilling in a wide swath of coastal waters.

– In Sacramento, the issue is filled with palace intrigue, because environmentalists who negotiated the agreement with PXP hope eventually to bring it back to the State Lands Commission for reconsideration. The commission defeated it on a 2-to-1 vote last January, with Lt. Governor John Garamendi leading the opposition; with Garamendi now running for a House seat in the 10th Congressional District, insiders are spinning scenarios in which Schwarzenegger might appoint Garamendi’s replacement, swinging the balance of power on the commission in support of the project.

What’s Next

PXP oil company executives have spent millions on some of the top lobbying talent in Sacramento, including Darius Anderson, good pal of  Schwarzenegger chief of staff Susan Kennedy, according to a nice weekend piece by the Bee’s Kevin Yamamura that examined how the Third House influenced the budget deal.

PXP executives made it clear immediately after the project was voted down in the Assembly that they plan to keep pushing: “PXP is committed to continue working with California’s elected and appointed leaders on a potential agreement for the T-Ridge project to build on the momentum generated by the (Schwarzenegger) Administration’s and Senate’s bipartisan support,” PXP vice president Steve Rusch said in a statement released Sunday.

The project could return in several venues. Speaker Karen Bass said in a statement after the budget vote that the project “could be reconsidered in August.” Although Bass’s press office failed to return calls seeking clarification about exactly what this meant, it is possible the project could return in a standalone bill. With state revenues continuing to plunge, the project might also be resurrected yet again if the governor and Legislature have to craft another deficit cutting package in the fall or winter.

And as leaders of Santa Barbara’s Environmental Defense Center work to address the problems with the project cited by the State Lands Commission in January – specifically the enforceability of PXP promises to permanently end offshore drilling on four federal platforms in exchange for the state lease – the possibility that Schwarzenegger could name a replacement for Garamendi would be crucial.

“This ain’t over,” Attorney General hopeful and Assemblyman Pedro Nava, D-Santa Barbara, who led the charge against the project, told us.  “Round two is coming up.”

Weed Whacking with PPIC

Foes of offshore drilling no doubt will try to minimize the importance of the new poll’s basic finding –- that all adults surveyed favor expanded drilling by 51-to-43 percent –- which is essentially unchanged from last year, when a slim majority of Californians –- 51-to-45 percent –- favored more drilling, albeit for the first time in PPIC polling history.

But if you, uh, drill down into the data, there are some troubling trends for coastal oil foes.

For starters, among likely voters, which is to say the most politically engaged Californians, the majority of those who favor more drilling is significantly larger – 55-to-41 percent – than among all adults. In this group, the pro-drilling view has grown substantially stronger in one year; in 2008, likely voters told PPIC they favored more drilling by 51-to-45. This represents a net pick up of eight percentage points for the drill baby drill team in just one year.

Breaking the likely voter numbers down along partisan lines shows that the polarized views of Democrats and Republicans on the subject are essentially unchanged: 34 percent of Democrats now favor more drilling (compared to 32 percent last year) while 81 percent of Republicans are now in favor (compared to 80 percent in 2008).

But there has been a dramatic switch in attitudes among independent voters:

– In 2008, independents opposed more drilling by a ratio of 53-to-43 percent, with four percent having no opinion.

– In 2009, independent likely voters now say they favor more offshore drilling, by 55-to-42 percent, a net swing of 23 points in favor of the oil companies’ position.

–Jerry Roberts and Phil Trounstine

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Posted in California Politics, California Resources, Department of Finance, John Garamendi, Karen Bass, Pedro Nava | 2 Comments »

Why Arnold’s “Legacy” Claim is a Fraud

Monday, July 27th, 2009

arnoldcigarThe day before the Legislature passed the third patchwork version of California’s budget in 10 months, Gov. Schwarzenegger took to “Flashreport,” the state’s leading conservative web site, to claim “a huge win.”

“(T)he biggest winner to emerge from our negotiations is California,” the governor bragged, “our state’s legacy, its priorities, and its budget stability.”

Wrong, wrong, wrong!!

Schwarzenegger’s triumphalist braying was little more than a one-step-ahead-of-the-posse exercise in spin control, a pathetically transparent bid to establish a positive narrative for the budget disaster over which he’s presided, in hopes that voters and his suck-up pals in the national media will buy his story without bothering to check it out.

(NOTE TO NATIONAL POLITICAL WRITERS: Schwarzenegger did NOT solve or stabilize California’s budget. Despite his assertion to the contrary, his budget – passed in February and now revised twice – actually RAISED TAXES by $12.5 BILLION. With the latest revision, he threw off enough ballast to keep his hot air balloon afloat but in no particular direction.)

As Fred Keeley, the elected treasurer of Santa Cruz County, put it:

“The governor set the standard when he said, at the start of the process, that this needs to be a complete solution. And then he violated his own standard by signing a budget which doesn’t solve the problem this year or next year and in fact, according to the Legislative Analyst and the Department of Finance, is going to create a multi-billion-dollar deficit next year.”

Keeley knows wherearnoldbuckof he speaks. He served on the Assembly Budget Committee for six years, was asked by former Gov. Gray Davis to be Finance Director and is a Senate appointee to the Governor’s 21st Century Commission on the Economy.

In truth, Arnold’s entire tenure has been one continuous failure of leadership. This is just the latest chapter.

From his first days in office (when he sowed the seeds of today’s never-ending fiscal crisis by his irresponsible cut in the vehicle license fee) to his ill-considered $15 billion borrowing bond (which helped make interest payments the fastest growing item in the budget) and his current shameful spending plan (which gives the University of California a major push into mediocrity while continuing the slow death of K-12 education and punishing the aged, blind and disabled), he has been little more than a narcissistic, tone-deaf poseur, surrounded by sycophants and devoid of principle or conviction.

At a time when the state’s economy is hemorrhaging, its schools failing and roads crumbling, Schwarzenegger has been utterly ineffective in explaining to Californians the reasons behind the problems we face, and even less so in proposing innovative solutions to any of them. His little touchdown dance about the current budget belies the painful truth that this is nothing but a stop-gap maneuver designed to escape the embarrassment of issuing IOUs and con the credit markets into a few months of cash to ease the state’s borrowing jones.

Schwarzenegger’s soaring claims about the wonders worked by his budget fail on three grounds:

1. It’s a short term fix. Amid all the high-fives and chest bumps in the governor’s circle, it’s important to recall that the latest budget plan comes just five months after the last one, which came only five months before the previous. In other words, California has had three budgets in less than a year and, given current revenue trends, it’s all but certain that Arnold and the gang will be back in the fall for yet another round of all-nighters. Filled with gimmicks, borrowing and Grand Theft from schools and local government, the “huge win” for California being trumpeted by Schwarzenegger is nothing but more of the same old same old.

2. It does nothing to address the state’s dysfunction. As Calbuzz has reported the ongoing budget mess is a symptom of a far more fundamental disorder – a state of permanent ideological gridlock shaped by term limits, gerrymandering and three decades worth of wrong-headed initiatives. The latest “drama” over the budget is just another re-run of Groundhog Day, and it will keep re-playing and replaying until the pols in the Capitol acknowledge and accept the need for fundamental reforms, and find the cojones and the political skill to sell them to their constituents across the state.

3. It will probably make things worse. While it is true that the state for years has had a structural deficit, caused by the governor and the Legislature’s effort to defy the laws of arithmetic, it is also true that the huge magnitude of the current deficit is overwhelmingly caused by the current recession, which slashed state revenues by nearly one-third in one year, reducing tax collections to the level of a decade ago. The bursting of the real estate bubble, and the structural decline of the economy that has followed it has put the entire state economy into treacherous territory that may yet turn into a full-blown depression.

Under these conditions, there’s a strong argument to be made that wholesale cuts that the budget delivers will make the recession more punishing: as layoffs of public employee push the unemployment rate higher, furloughed state workers spend less, as all the programs set up to help with those who fall on hard economic times are cut back at the very moment they’re needed most.

As Calbuzz reported about the latest forecast by California economist Bill Watkins: “California’s budget issues are likely to be made worse by continuing economic decline. Perversely, the budget then negatively feeds back into the economy. The problem is not likely to see relief, at least in terms of increased revenues, before late 2011.”

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Posted in Arnold Schwarzenegger, California Deficit, California Economy, California Education, California Politics, California State Budget, Department of Finance, Gray Davis | 7 Comments »

Red-Blue Clash Emerges in 21st Century Commission

Monday, July 13th, 2009

fred keeley_0102The Commission on the 21st Century Economy, headed by Schwarzenegger pal and Republican bigwig Gerald Parsky, has been developing a plan to overhaul California’s tax system that includes flattening personal income tax rates and broadening the sales tax, as loyal Calbuzz readers know.

Instead of achieving the consensus sought by Parsky,  however, the commission faces an ideological (and factual) conflict at its meeting in San Francisco on Thursday, as liberal members are now proposing an alternative plan. Their draft proposal, among other things, rejects as too regressive a flat income tax system, and also suggests amendments to Proposition 13.

The commission’s Blue Wing (as in blue state/red state) is questioning underlying assumptions of the Red Wing flat-taxers, like: 1) Is California actually unfriendly to business? 2) Are jobs and businesses actually fleeing California? 3) Does improving competitiveness demand elimination of the progressive tax system and the sales tax?

The introduction of the Blue Plan has already raised partisan political hackles between appointees of the Republican governor and those of Democratic legislative leaders.

Former GOP Assembly Speaker Curt Pringle, in a letter obtained by Calbuzz, accused former Democratic Assemblyman Fred Keeley, one of the leaders of the liberal wing of  “crafting a plan in private” and end running commission procedures with “an 11th hour presentation.”

“Why shouldn’t every commissioner gather their respective philosophical mates and assemble and submit competing plans in the weeks and even the months ahead,” Pringle said.

But Keeley, now the Treasurer of Santa Cruz County, insisted he has honored commission procedures, and has been raising similar issues in meetings since March.

boskinThe conservative Red Wing, led by Parsky and Michael Boskin of Stanford, previously had hoped that their plan was on track for recommendations to flatten and simplify the income tax, eliminate the business tax and create a net receipts tax, like a European value added tax, to replace the sales tax.

But after the elements of that idea – which became known as the Red Plan — were well-publicized and thoroughly examined by the commission’s staff, the liberal wing on the commission, led by Keeley and Christopher Edley, dean of the Boalt Hall School of Law, came forth with an alternate Blue Plan.

Still in draft form, their plan would:
– Require that all state revenues that are 5% or higher than Department of Finance estimates be placed in a rainy day reserve fund.
– Make no change to personal income taxes, but reallocate capital gains tax revenue, with one-third going to the General Fund; one-third to debt and retirement fund payments; and one-third to the reserve fund
– Reduce the sales tax by 2% and expand it to cover, not just goods, but also a wide variety of services.
– Reduce the rate of the corporations tax, but broaden its base by restricting deductions on business losses and rolling back tax breaks for companies that operate outside California
– Subject the controversial business net receipts, or value-added, tax to further study.
– Adopt a pollution surtax on carbon-based fuels
– Amend Prop. 13 elements of the California Constitution to allow local governments (cities and counties) to increase existing local sales tax by up to 1.50% (or any .25% fraction thereof) by a majority vote of its electorate, instead of the currently required two-thirds,.
– Amend Prop. 13 to change the non-residential property tax rate from 1% to 1.50%, effective upon change of ownership, essentially establishing a “split roll” assessment system.

The Blues also would require display of all tax expenditures – special tax breaks, credits, deductions and exemptions – in the governor’s budget, and require them to sunset in no more than five years.

At this Thursday’s meeting at UCSF, the Blue Wing will ask that their proposals be given the same thorough analytical treatment that the Red Wing proposals have received and then be considered at the July 22nd meeting at UCLA.

The Blue Wing rebellion was first reported by Dan Walters of the Sac B-, who suggested the commission is headed for deadlock. That’s certainly possible, given the stark differences in world view commissioners have, but Keeley, for one, isn’t so sure.

He believes the commission can come up with a compromise, Purple Plan that combines elements of the two approaches.

It wouldn’t include a flat tax on income, but it might mitigate some of the brackets and could easily address capital gains. And while it might not replace the sales tax with a net receipts tax (which Michigan has had trouble predicting), it might lower the sales tax rate and broaden its application to services, as many other states have done.

“It depends how deeply people want to hold onto their ideology versus producing a game-changing product,” Keeley said.

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Posted in California Democratic Party, California Economy, California Politics, California Republican Party, California State Budget, Dan Walters, Department of Finance, Gerald Parsky, Proposition 13 | 4 Comments »

How Oil Scandal Shaped State Politics

Wednesday, June 10th, 2009

crude-politicsThe current political brawl over offshore oil drilling between the State Lands Commission and Governor Arnold’s Department of Finance has historic roots in a Depression-era scandal that helped shape today’s energy politics in California.

The Commission and the Finance Department have clashed in recent weeks over the governor’s push to resurrect a proposed lease for drilling off the coast of Santa Barbara. The Commission rejected the plan in January, but the Department of Finance this week released draft legislation to overturn that decision and give authority over the disputed lease to the Schwarzenegger administration.

Ironically, the State Lands Commission was created in 1938 precisely to take away from the Department of Finance the power over oil drilling on public lands, in the wake of a bribery and kickback scandal that helped bring down the administration of Republican Frank Merriam at the hands of Democratic reformer Culbert Olson.

“Olson accused Merriam of having let the Department of Finance…become ‘the agency of private interests,” according to “Crude Politics,” a UC Press history of state oil policy by Paul Sabin. “The…scandal and the investigator’s report on legislative corruption, both in 1938, opened a window on internal administrative and legislative corruption in Sacramento.”

Among other things, the book recounts how oil companies seeking leases on state land were told to “go see Rosie,” a reference to Merriam’s chief political consultant, Joe Rosenthal, while famed lobbyist Artie Samish meanwhile doled out slush fund cash to lawmakers backing the Finance Department’s plays on behalf of Standard Oil and other companies.

The scheme unraveled in 1938, when Samish was arrested for refusing to testify at a grand jury looking into allegations that Department of Finance executives held up oil companies for stock, cash, kickbacks and nepotism, in exchange for the rights to drill on state oil tidelands and sites offshore Southern California.

“Vast Tideland Oil Fraud,” screamed the Chronicle on August 14, 1938, disclosing details of the scandal that eventually capped a decade in which oil politics dominated the Capitol and the courts.

At issue in Olson’s victory over Merriam was the charge that oil companies, not the public treasury, were receiving maximum benefit from oil drilling on state lands. Over the next decades, the politics of the issue changed dramatically, so that the central concern became conservation of beaches and tidelands, not financial exploitation of the minerals beneath them.

The current controversy over the Tranquillon Ridge project reflects that political framework – alas, it has no exciting charges of bribery and corruption, at least to date – as Lands Commission chairman and Lite Gov. John Garamendi is accusing Schwarzenegger’s Department of Finance of trading long-term environmental protection for short-term economic gain. Led by chief deputy director Tom Sheehy, the finance department insists the deal would benefit both the environment and the budget.

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Posted in California Politics, California Resources, Department of Finance, John Garamendi, State Lands Commission | 1 Comment »

Key Schwarzenegger Aide: Governor’s Offshore Plan Not An End Run

Friday, May 15th, 2009

Governor Schwarzenegger’s bid to capture $1.8 billion by resurrecting a controversial deal to expand offshore oil production near Santa Barbara is not a backdoor attempt to short-circuit anti-drilling policies in state coastal waters, a top administration official said Friday.

“This is not an attempt to circumvent the California Sanctuary Act,” protecting coastal waters, Thomas Sheehy, chief deputy director for policy of the Department of Finance, told Calbuzz. “This is in no way a camel’s nose event.”

As new details emerged about the governor’s plan to authorize a new offshore oil lease, unveiled in his latest budget proposals, leaders of a key environmental group that earlier favored the disputed deal over the drilling area reacted cautiously to Schwarzenegger’s move.

“We’re still processing,” said Linda Krop, lead attorney for the Santa Barbara-based Environmental Defense Center told us, moments after finishing a conference call with Sheehy in which he briefed her on the proposal. “My first reaction was ‘What? You’re going to take this action without full public (participation)?’

“They’re addressing some of our concerns,” she added. “It’s still unfolding.”

As a political matter, the support of Krop and her group is crucial to Schwarzenegger’s hope of renewing the deal on offshore drilling, long a third-rail issue in California politics.

At issue is what is known as the Tranquillon Ridge project. Earlier this year, the Environmental Defense Center (EDC), representing a broad coalition of coastal protection groups, and the Houston-based Plains Exploration & Production oil company (PXP) hammered out an agreement that would allow the company to drill in state waters at Platform Irene, located off the coast near Vandenberg Air Force Base.

The company now drills in federal waters on one side of the ridge, and there is no end date for them to stop doing so. At the same time, the California Sanctuary Act of 1994 has blocked the company from drilling in state waters, which extend three miles out from the coastline.

In exchange for a state lease to expand drilling for oil and gas, which drain from federal into state waters at Tranquillon Ridge, the company agreed to a series of environmental concessions sought by EDC.

Chief among these was an agreement to permanently shut down Platform Irene in 2022, ending all drilling in both federal and state waters. PXP also promised funds to permanently protect thousands of acres of onshore lands, about $350 million of tax revenue for local government, plus $1.8 billion in royalty payments to the state over the next 14 years.

Despite support from both the company and most local coastal protection groups, the deal was rejected by the State Lands Commission in January by a vote of 2-to-1. Lieutenant Governor John Garamendi and Controller John Chiang opposed it while Sheehy, the Department of Finance representative on the panel, voted in favor.

With the state now facing a budget deficit of $15-21 billion, depending on the outcome of next week’s election, Schwarzenegger is now trying to breathe new life in the proposal, through legislation that would overcome the State Lands Commission’s disapproval of it. His new plan for addressing the budget crisis counts $100 million in new revenue for the coming fiscal year, an advance on the royalties from PXP.

In a prepared statement, PXP said that, “We are encouraged that the governor recognizes the merits of the project, which includes substantial monetary value to the state.

“PXP is ready to move forward with this project following its approval by the governor and the California state legislature,” the statement said.

Krop said that her first thought after hearing of the proposal Thursday was that the governor was trying to end run the normal, comprehensive public hearing and multi-agency processes involved in such an environmentally sensitive project, which could establish a precedent for doing so. After hearing from Sheehy, however, she said she felt somewhat reassured.

“Is it really a precedent?” she told us. “This is the only place in the state” that would be affected.

(Wonk Alert! Next section goes deep into policy and process weeds).

Department of Finance officials said the governor’s plan included these elements:

– A budget trailer bill that would allow the Director of Finance to “reconsider” an offshore deal that conformed with legislative language defining six specific circumstances which apply only to the PXP deal; the most important is that oil and gas are draining into state waters at the site, and Tranquillon is the only project that meets that criteria.

– A process by which the Department of Finance would hold a public hearing in Santa Barbara, the Coastal Commission would also have hearings, and federal Minerals Management Service would review the deal in a manner that officials said would be “fully transparent.” The State Lands Commission would not get another opportunity to vote on it, although finance department officials would consult with staff about its environmental concerns.

– A provision to sunset in January 2011 the legislation giving special authority to the Director of Finance to review offshore projects that meet special conditions.

“Tranquillon is the only project that fits” the narrow criteria in the legislation, Sheehy said. “This project has tremendous environmental benefits for California, and we can’t turn a blind eye to the financial benefits.”

But Susan Jordan, a longtime advocate for coastal protection, who broke with her longtime allies at EDC and opposed the PXP deal back in January, was not persuaded.

“They’re giving special treatment to this project,” she said. “The most important issue is, they’re not following existing legal process and (they’re) taking away existing legal protections” that govern offshore projects.

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Posted in Arnold Schwarzenegger, California Deficit, California Politics, California Resources, California Sanctuary Act, California State Budget, Department of Finance, State Lands Commission, Susan Jordan, Tom Sheehy | 15 Comments »

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