Archive for the ‘Department of Finance’ Category

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.

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.

Arnold’s Final Bid for Budget Ballot Props

Thursday, May 14th, 2009

heilarnoldArnold’s drop-by at his big press avail on the May budget revision was a case of the elephant giving birth to the mouse.

The administration has been putting out details of its worst-case/worser case scenarios for almost a week: more cuts for schools, early release of thousands of state prisoners, selling off everything but the Golden Gate Bridge. So there wasn’t a whole lot new in terms of the numbers, and the governor’s plaintive plea on behalf of his ballot props next Tuesday was definitely déjà vu all over again.

(The Department of Finance report on the two alternatives for addressing the deficit for the fiscal year that begins July 1 — $15.4 B if the props pass, $21.3 B if they don’t — is here.

That said, his Arnoldship did make at least a few interesting statements, starting with his introduction of Finance Director Mike Genest – “this man is on suicide watch” – that will frame yet another budget brawl, which will erupt next week as soon the election formalities are finished:

1-“To look for new revenues is out of the question.” It’s true that in negotiating this year’s budget deal, Schwarzenegger kept insisting that he’d never go for tax increases, right up until he did. But his position at this point is basically irrelevant; with the six Republican legislators who signed on to new taxes in February all being punished – by losing their leadership posts, facing recalls, or being shunned by the GOP caucus – it’s a safe bet that the death grip Reps hold on budget matters because of the 2/3rds requirement will now be tighter than ever. So look for lots of anti-tax triumphalism by the party of Grover Norquist, er, um, Lincoln.

2-“I absolutely despise taking money away from local government.” Besides looming battles over more cuts for education and cutting prisoners loose, the loudest fight will be over Schwarzenegger’s grab for $2 billion from local governments, in direct violation of his earlier promise not to do just that. With cities and counties scrambling to pay cops and firefighters while facing the same recession-level revenue problems as Sacramento, taking an extra hit so the Capitol Clown Show can pretend to balance the budget won’t be popular.

3-“You hope the economy is coming back.” That’s a bottom line underlying assumption of Schwarzenegger’s fiscal strategy at this point, whether the May 19 props pass or not. In addition to squeezing the locals by “borrowing” $2 billion, both his fixes also call for $6 billion in new borrowing through Revenue Anticipation Warrants and scheming to use federal stimulus money to backfill state cuts; in other words, kicking the can down the road, one more time.

5 Questions: How California’s Financial Flack Makes Sense of the Mess

Saturday, April 4th, 2009

Harold Dean Palmer, known in the political universe as “H.D.”, serves as Gov. Arnold Schwarzenegger’s chief spokesman on budget and fiscal issues as Deputy Director for External Affairs at the California Department of Finance. A former spokesman for U.S. Senators S.I. Hayakawa and John Seymour of California and Jim McClure of Idaho, he worked for Gov. Pete Wilson and state senate GOP Leader Jim Brulte before joining Schwarzenegger’s team in 2003.

Calbuzz: Lacking a PhD from the London School of Economics, describe the process you go through to understand the deep-in-the-weeds stuff, and then to translate it into English.

H.D. Palmer: At the start, it was total immersion — into the deep end without water wings. I had the good fortune to start at Finance at a point between the governor’s January budget and his revised budget in May, so the staff in each unit had the time to give me full briefings, in mind-numbing detail, on all of the programs in their respective areas, and then tolerated every rudimentary, basic and/or dumb question I had after that (and still have to this day).

I’m lucky because Finance has some of the smartest and hardest-working men and women in show business who know their stuff cold. My job is to work with the information I get from them, de-jargonize and de-acronym it in some cases, and then try to put it into basic terms that readers, listeners and viewers can understand to explain how and why the governor is putting forward all of the various proposals in his budget. When there’s an analogy that captures the issue in basic terms, I try to go with it. For example:


Translation to human-speak: We had to shut off the spigot for infrastructure funding and we can’t turn it all the way back on yet.

CB: Who gives the best spin — your heroes among political spokespersons?

HDP: The two guys who I’ve always considered professional lodestars were Otto Bos — Pete Wilson’s long-time communications genius and aide-de-camp — and Marlin Fitzwater, President Reagan’s last and President Bush 1′s only press secretary. Both guys were total pros who understood the importance of being a truthful and trustworthy advocate for their bosses. And they understood that to be successful you have to be an honest broker between two institutions that often work at cross-purposes: their bosses and their clients, the press corps. Both of them definitely found the sweet spot. By doing that, both guys richly earned the respect of both their bosses and reporters. They also, I think, embodied some sage advice that I got when I first started out: take your job seriously, but don’t take yourself seriously.

CB: Who are the best and worst reporters in the state to deal with?

HDP: Me naming a “best reporter” would the professional equivalent of Michael Corleone kissing Fredo in the Havana nightclub in Godfather II. Next thing you know, that reporter’s in a fishing dingy on Lake Tahoe reciting Hail Marys. I respect the ones I do consider the “best” not to put them through that kind of public hazing. Come to think of it, though, there were these two guys who used to write politics for the Chronicle and the Mercury News who were real pains in the . . .

CB: If he was being really candid, how would your boss characterize the overall depth and accuracy of the state media’s reporting on budget issues?

HDP: I think he shares my view that reporters are trying to explain not only the mechanics of something that’s so complicated and has so many moving parts as the state budget, but also the political dynamics that overlay it. The challenge is that with the current economics of the media industry (see the word “abattoir”* in your Webster’s for further definition), we’re likely going to have a dwindling pool of reporters who have a lot of experience and familiarity with the beat. Which is why I have always offered (and continue to offer) reporters coming onto the beat the same kind of into-the-deep-end briefings from our staff that I got when I started.

CB: How many press calls do you field in a day? What’s the most you received and what was the issue? (OK, that makes six questions)

HDP: Usually 10-15 a day. And given everything regarding the budget and public finance of late, it’s like Forrest Gump’s box of chocolates — you never know what you’re gonna get. The Guinness Book record, though, had to be this February when the budget was passed at dawn. We went over to the governor’s office to brief him later in the morning for a noon press availability, then for a session in his office after that was done. I’d been out of my office for about an hour, and the red message light was on when I returned. I hit the button and robo-voice said: “You have 22 unheard voice mail messages.” And they kept right on coming while I was taking down the voice mails and returning them. It was the media-relations version of trying to walk up a “down” escalator.

*Editors’ note: abattoir [ab-a-twahr] = slaughterhouse (we had to look it up too)

Fred Keeley: Calbuzzer holds his nose to vote for budget props

Thursday, March 26th, 2009

By Calbuzzer Fred Keeley

The May 19th ballot package is the best bad deal you will get.

Despite the claims to the contrary by the governor and leaders of the Legislature, the packet of ballot measures that implement the February Follies budget is, for the most part, lousy public policy.

The single exception is Proposition 1A, which would create an effective tool for reducing the tremendous volatility in the General Fund portion of the state budget. (Yes, it extends tax increases, but it’s still worth supporting.)

As to the other elements, they are further evidence of the need for profound reform of California’s budgeting system — a system that for decades has failed to produce a budget that reflects the needs and aspirations of most Californians.

When the deal was done, California slipped from 44th to last in the nation in per-pupil spending in K-12 public schools. A severely under-funded public mental health system will be even more threadbare and ineffective. The highly-regarded First Five program for young children will be stalled in its tracks. And the California Lottery, a mockery of a public enterprise if ever there was one, will be further disgraced by becoming, effectively, a credit card.

Why, then, should voters support these measures?

First, it’s the best bad deal that the current system can produce. Under the current budget-making architecture, irreconcilable belief systems are given equal value and left unsettled. For example, it has been reported here and elsewhere that many members of the Republican Caucus in the Assembly and state Senate were urging party members to withhold their votes for the budget in order to drive the state into bankruptcy.

Some people may think that’s utterly irresponsible. But for Republican legislators who believe that “government schools” cannot be made better by increasing funding, but, rather by injecting competition, or that the only way to break the stranglehold of the prison guards union is to contract management of the system to a private firm, to them, California’s fiscal crisis was not about coming up with an 18-month solution: it was about the chance for Republicans to see their belief system become reality.

Second, the few folks who will go to the polls in May will see two measures that contradict their previous messages to budget writers in Sacramento. The First Five and Mental Health “sweeps” will seem offensive in the extreme to those who fought to enact them in the first place. Convincing those folks that it will only get worse if they don’t approve all of the measures on the ballot, will be asking skeptical voters to suspend disbelief.

Third, the Legislative Analysts Office says that the budget deal has already fallen apart. A new projected $8 billion deficit is prepared to come into full bloom before the end of this fiscal year. Additionally, the Department of Finance, in moments of private pondering, sees that as a fairly “happy” deficit projection. Combine that reality with the failure of the May 19th ballot measures, and a new $12-15 billion deficit will present itself to the governor and legislature.

More importantly, the tools for fixing that problem in early June will consist of a bit of borrowing and a ton of budget cuts. The Republicans who saw their chance to prevail in the clash of beliefs in February may well be in the driver’s seat again.

So, if you are a voter who believes that we simply cannot expect high quality public education while we are looking up at Mississippi in terms of per-pupil spending, or if you are a voter who believes that decades of programmatic retrenchment in the areas of health, human services, environmental protection, infrastructure, affordable housing or any of the other policy areas where California has fallen from leadership and grace, then you’ll vote “yes” on each and every ballot measure May 19.

It’s the best bad deal you’re going to get.

Fred Keeley is the elected Treasurer of the County of Santa Cruz, a former member of the California Assembly, a member of the Governor’s Commission on the Economy of the 21st Century, and a member of the Leadership Council of California Forward.