Gov. Brown, Democrats push lumber tax

Aug. 28, 2012

By Dave Roberts

When is a tax not a tax? When it’s called a fee by Gov. Jerry Brown and fellow Democrats. But the $30 million that has been proposed to be sucked out of Californians’ wallets and fed into the wood chipper of state government definitely walks, quacks and smells like a tax, according to some Republicans.

Brown’s 2012-13 budget includes a 1 percent tax hike on retail sales of lumber and wood products. The money will pay the cost for state agencies to regulate the timber industry. Timber company officials are backing the bill because consumers get stuck with the tab instead of them, and the legislation, AB 1492, introduced by the Assembly Budget Committee, limits the amount of the judicial damages that timber companies can be hit with in the event of a forest fire.

The Senate Budget and Fiscal Review Committee approved the bill 11-0, with five Republicans abstaining, on Aug. 15. Although calling it a fee rather than a tax means that AB 1492 does not need the two-thirds legislative approval mandated by Proposition 26, the bill still requires two-thirds support because it’s been deemed an urgency item as the tax takes effect in January. Although the vote was lopsided in the budget committee, the bill was bashed and thrashed by several Republicans and even one Democrat before that.

That Democrat is Sen. Roderick Wright, who represents Inglewood. He sounded positively Republican as he blasted California’s expensive regulatory practices. He ended up voting for AB 1492, but was not happy about it.

“One of the things that we seem to do in California is we make stuff decidedly more expensive for absolutely no benefit,” said Wright. “Those states, Oregon and Washington in particular, seem to have figured out a way to manage their forest as well or in some cases better than we do, have a lower timber harvest plan cost, deliver more board feet of lumber at a better price. We are importing lumber from them in many instances. And their fire danger seems to be less than ours. So they end up achieving all of the benefits at a lower cost than we do.

“It seems like to me we have an ass backwards system. And I’m not sure what we do with it. Today we may have to support this because it may be the best that we have. But I don’t think anyone would even suggest that this is a good idea. It’s just better than the stupidity that we have been operating under. We’re just making an improvement over something that was before admittedly stupid. So now it’s just less stupid.”

New tax

Another Senate Democrat who voted for the bill, Gloria Negrete McLeod, also seemed skeptical about how the new tax on wood products would be implemented. “What if I go to the lumber store and I want a lath, and I only want six inches of a lath because I want to shore something up,” she asked. “Are you going to charge me six inches of a lath as opposed to a board as opposed to a bunch? What about toothpicks? They are made out of wood. [Laughter in the audience.] I’m serious.”

Although the specific wood products that will be taxed have yet to be identified, the intent is to focus on building products, responded Matt Paulin, assistant program budget manager for the California Department of Finance. But that answer did not satisfy Mira Guertin, a lobbyist representing Home Depot.

“Home Depot has concerns this new assessment burdens retailers like Home Depot,” she said. “The definitions are vague. The toothpick example raised by Sen. Negrete Mcleod is not really all that farfetched. There’s a lot of things like doors, window frames, lattice work, gardening barrels, tool handles, all sorts of things, thousands of products in these stores that could potentially be subject to the tax. And that is a big burden for retailers to try to program around that. And also the list will change every year.

“We are also concerned that this is potentially a double increase for our customers. They may be facing or choosing to impose on themselves a half-percent sales tax increase in the fall [Proposition 30]. This would go on top of that. It’s currently unclear in the language whether the sales tax is applied to the 1 percent lumber assessment or not. That’s something we’d like to see clarified at the very least.”

Quick decision

Senator Doug La Malfa, who represents Butte, led the Republican attack on the bill, which he said should first have been considered by other committees dealing with governance, finances and natural resources.

“Here we are with 16 days to go in the session taking up some very important policy that should be heard and fully vetted in these committees,” he said. “And we are doing it once again as a budget trailer item on some key tax and resource policy. Traditionally, when we have the implications on the regulatory side and the new tax that’s going to be involved, I think we would like to vet out in the committee process and have input on … what is going to be deemed a wood product that’s going to be subject to the 1 percent sales tax.”

Hearing the word “tax,” Committee Chairman Mark Leno, D-San Francisco, smiled and corrected La Malfa, calling it a “regulatory fee.”

La Malfa responded, “If it walks and quacks like a tax …” He went on to agree with Wright about incompetent regulations: “I’m just really troubled by this. And this is something that I care passionately about. I’ve served here almost eight years in the Legislature. And forestry management issues, the ability to harvest timber within our state instead of exporting our so-called environmental problem to other states or countries, I think great strides need to be made. Yet what we are doing is conceding California’s costs are going to be tremendously higher for timber harvest plans than Oregon or Washington, which are very successful in managing forests.”

Tax or fee?

Sen. Bill Emerson, R-Riverside, is concerned that the lumber tax revenue will be sawed off to other programs, especially if more money comes in than is needed to regulate timber.

“What happens when the economy improves and the dollars go to, say, $60 million?” Emerson asked Paulin. “You’re telling me that any excess funds would be protected and not ripped off as we’ve done traditionally in this state of California. Will they go into the General Fund and just be used for whatever?”

Paulin responded, “No, they clearly can’t go into the General Fund, being a regulatory fee.”

Emerson interrupted, “Sir, sir, it’s not a regulatory fee. Individuals are paying. This is a tax. It’s a consumer tax that individuals are paying. It has nothing to do with regulatory. You may use it for regulatory, but it has nothing to do with a regulatory fee. Let’s be honest about that one.”

But the committee Democrats were persuaded by the pleas from timber company officials, some of whom said that they are in danger of going out of business if AB 1492 is not passed. One of those is Chuck Henderson, manager for Shasta Forest Timberlands, who said his family-owned company owns 140,000 acres of timberland in northeast California and has been in business since 1894. It is being sued by the federal government for $791 million in connection with the Moonlight fire, which burned 65,000 acres in the Plumas National Forest in 2007. If the federal government is successful in court, Henderson called it “a virtual economic death penalty.

“This law is critical to the survival of family-owned timberland companies such as ours as well as farmers, ranchers, ski areas and anyone else whose business abuts government property. This law sensibly seeks a balance between economic and environmental damages and the value of the land damaged. It recognizes the cost of negligence while also ensuring the risk of accidents is insurable. Last year our insurance doubled for half the coverage. And what’s more, we now have four layers of insurance where we used to have two. This is not sustainable. If we are no longer able to afford insurance, we will no longer be able to stay in business and no longer be able to stewards of our land and no longer able to deliver the economic and environmental benefits that we have provided to the community and to the citizens of California for over a century.”

Leno cited the pleas from Henderson and other timber harvesters as he called for the vote. AB 1492 received two-thirds support, 47-23, in the Assembly on March 22. No Republicans voted for it, but four abstained. The full Senate still is considering it.