The county has done business with each of the top 10 recipients of local and state subsidies in California, records show.

Tesla received $20 million in tax breaks and other subsidies to locate a plant in California

The practice is common, although hardly in violation of any rules. But across the state, groups that have received breaks are getting deals to do business, with taxpayers effectively signing two sets of checks to some of the largest, well-capitalized companies in the world.

Oracle received a contract in 2011 for project management software to monitor L.A. County’s $40 million transit and highway expansion project. Oracle has also received $7.5 million in tax breaks and subsidies in the state since 1996.

In the city of San Diego, subsidized vendors included Time Warner, which had a cable internet contract in 2014, as well as software maker Oracle and defense behemoth Northrop Grumman Systems, which had contracts in 2012.

Northrop Grumman has cleaned up there; the $593,388 in city contracts over the past three years came as the company has received $429 million in subsidies statewide.

CalWatchdog compared local government vendor data to the numbers gathered by the subsidy watchdog group Good Jobs First. By the group’s tally, state and local subsidies in California topped $2 billion in recent years, with information focused on the period since 2012 plus some awards back to the mid-‘90s.

The state subsidies list is dominated by heavyweights: Walt Disney, Comcast, Anschutz Company, Viacom, Time Warner, Virgin, Lockheed Martin, Samsung, Northrop Grumman and Oracle.

Most of the top 10 can be found among the Fortune 500, a ranking based on revenues. California taxpayers helped get them there, through breaks, allowances, training allotments and delays on taxation. (Voice of San Diego did a good assessment of California’s many subsidy programs last fall.)

In exchange, the body giving the break, be it the state or a municipality, hopes for employment and tax revenue that will put it ahead of the game. Job creation mandates are sometimes part of the deal — that is, upon the creation of a number of jobs, the subsidy is given. Major corporations have teams that work full-time on such equations.

California ranks lower than most with regard to size and scope on a statewide basis.

“Although California has often been on the losing end of interstate job piracy, the state generally does not offer major state subsidy packages to individual companies,” according to a report by Good Jobs First. “And contrary to the norm, it has only a few programs of any significance.”

Often found near the bottom of rankings for business climate, the state has had a mixed experience with subsidies.

Subsidy programs in Tennessee and Texas were used to woo Nissan and Toyota, once a major part of the state’s proud auto company portfolio, away from California. Those were the highest-profile moves among a number of corporate headquarters defections from California in the past 10 years.

The state recently passed legislation to give $330 million worth of inducements to get the entertainment industry back, after losing business to the growing number of states with film incentive programs.

Even by handing over government contracts to the already-subsidized companies, incentives are a gamble.

The state’s glaring example of unintended consequences has been with Tesla, which in 2010 received a package of incentives worth $20 million when the company took over part of the empty NUMMI auto manufacturing plant in Fremont.

An article at the time by the San Francisco Business Times noted, “Gov. Arnold Schwarzenegger said the deal for NUMMI was made possible by tax incentives and credited Treasurer Bill Lockyer for finding available incentives.”

The party was disrupted in May, when it was revealed that Tesla was benefitting from $4.9 billion in government subsidies across the U.S., including those from California. It is considered by many an outsized allotment for an industry – electric vehicles – that has no solid base at this point.

At the same time, there have been winners.

The California Valley Solar Ranch developed by NRG Energy was granted a property tax break by San Luis Obispo County worth $14 million, and is now performing above expectations, generating up to 4 percent more than the 600,000 kilowatt hours a year that were projected.

Steve Miller can be reached at 517-775-9952 and avalanche50@hotmail.com. His website is www.Avalanche50.com

In polling conducted by USC Dornsife and the Los Angeles Times, respondents confirmed some eye-opening facts about California’s appeal to its own residents — such as the primary importance of its largely snow-free climate. Although good weather has long been known as a point of pride among West Coasters, the continued economic uncertainty nibbling at Californians cast their appreciativeness in a darker, more politically interesting light.

The poll revealed Californians like their climate far better than their fellow Golden Staters or their job prospects. While over 70 percent expressed a preference for their home state over any other, 69 percent attributed their continued residence to the weather.

As the LA Weekly observed, that struck a sharp, unflattering contrast to the 18 percent who credited “family, friends and the people” of their state, or the 12 percent who said their “employment and earnings potential” kept them sticking around.

Perhaps even more remarkably, given California’s stereotype as a culturally and politically deep blue bastion, a scant 17 percent associated their decision to stay in-state with its “progressive atmosphere.” Despite a virtually unbroken string of legislative victories and dominance in the state’s congressional delegation, the poll suggested, Democrats have failed to produce political and economic outcomes that alone appeal enough to most of their voters to stop them from picking up stakes.

Indeed, according to the poll, some 25 percent of respondents admitted they were more likely than in the past to do just that — blaming cost of living, employment conditions, taxes and business climate, and government and politicians above all. All told, a whopping 42 percent said the next generation of Californians would find it worse off than today’s generations.

A hidden demographic

Some analysts who examine how Californians vote with their feet raised concerns the USC/Times poll appeared to reinforce. In a recent study, Carson Bruno, a research fellow at the Hoover Institution, noted that California’s 0.9 percent population growth from July 2013 to July 2014 obscured the thinning-out of a specific and important demographic. Young middle-class professionals, he explained, were the most likely group to leave the state.

That exacerbated just the kind of economic trends that respondents in the USC/Times poll identified among their biggest reasons to relocate.

Californians’ difficulty in getting or staying ahead has been shown to correlate with another potentially problematic demographic trend — population stagnation. Over a period of 15 years, Bruno determined:

“California’s natural increases have fallen by over 18 percent, a direct result of the birth to death ratio falling over 13 percent to just two births for every death.

“And the shift has accelerated more recently. Since 2008-2009, births have fallen by an annual average of 2.1 percent and deaths have risen by an annual average of 1.2 percent; both rates are over twice as fast as the 1999-2000 to 2007-2008 period. This suggests that despite natural increases accounting for a larger share of California’s population growth (thanks to falling net migration), it is itself trending in the wrong direction.”

In other words, despite a massive budget and a world-class quality of climatological life, California appeared set to rely increasingly on immigration in order to drive economic and population growth. For a state where productivity, opportunity and economic inequality have dominated residents’ concerns, that prospect could sour them even more on their vision of the future.

Doubling down

Nevertheless, Californians seemed exceptionally unwilling to consider fundamental changes to the political status quo.

As CalWatchdog.com previously observed, the USC/Times respondents strongly affirmed their support for both Gov. Jerry Brown and for presumptive presidential candidate Hillary Clinton.

Brown’s 26 percent unfavorable rating came in at less than half of Arnold Schwarzenegger’s at the close of his term in office, when 75 percent viewed him negatively.

By Chris Reed

Democratic lawmakers have been a bit more likely to discomfit the status quo and show high expectations than normal this year. A Senate committee report strongly suggesting that school districts were stealing federal school lunch funds for inappropriate uses used to be the best example. But this week’s decision by a freshman Democrat assemblyman to embarrass a veteran Democratic pol over her poor performance in statewide office is without recent precedent. Here’s Brian Joseph’s account in the Orange County Register:

“Brought before legislators to explain a six-week backlog of business filings in her office, Secretary of State Debra Bowen offered this week a small window into state operations.

“It was not, as Assemblyman Tom Daly, D-Anaheim, said afterwards, encouraging.

“She explained how the her agency’s Sacramento office building, constructed in 1995, has ‘maxed out’ on available electrical outlets and how the state’s tortured procurement process virtually ensures that whatever software she orders will be obsolete by the time it’s delivered.”

It’s 2013, and a lack of electrical outlets is used to explain a major shortcoming at a state agency. Feel free to laugh, groan, guffaw or cry. Or all four simultaneously.

“She blamed budget cuts, staffing shortages and a generally unresponsive and inefficient government system for embarrassing delays that businesspeople say is costing them money.

“‘I almost needed smelling salts the first day I took a tour of the Secretary of State’s office,’ said Bowen, a former Marina Del Rey legislator who was first elected California’s chief elections officer and business records clerk in 2006. ‘It was just so incredibly paper-driven.’

“Bowen’s office has taken heat in recent days after it was revealed that her staff was taking 43 days to process business filings. As Assembly Budget Committee staff reported, this backlog delays businesses from starting up or hiring employees and postpones business tax payments.

“New York processes such documents in seven days, committee staff found. Texas, five days.

“‘There is a scoreboard,’ Daly said, referring to the other states’ better turnaround times. ‘At some point, the time for excuses is over.'”

How un-Sacramento: Expecting competence, rejecting excuses

This is a “wow” moment, given how Sacramento has worked for years. But it shouldn’t be. Lawmakers shouldn’t go easier on statewide officials just because they’re in the same party.

Especially now that Democrats’ power has reached hegemonic levels, taxpayers have to hope Dem lawmakers will make like Tom Daly going forward.

As for Bowen, I got to know her a little bit a dozen years ago when she was a state senator during the 2000-01 blackout crisis/debacle/scandal. I found her and another Democratic state senator, Joe Dunn, to be impressive and smart. I find it confounding that as secretary of state, she’s been so low-key and passive.

But maybe she just harbors hopes of following the Bill Lockyer route, moving from powerful statewide office to powerful statewide office without ever going for the governor’s job.

But at least Lockyer occasionally makes waves and gives a middle finger to the Democratic status quo.

By Katy Grimes

Coke — it’s the real thing. But not for 60 Sacramento area Coca-Cola employees who are about to lose their jobs.

Only two months after Coca-Cola, Inc. purchased the locally-owned Sacramento Coca-Cola Bottling Company, Coke announced it is closing the bottling facility on Stockton Boulevard, putting 60 people out of work.

In January when the purchase was completed, Bevnet reported that the Cola-Cola company had been streamlining operations over the past three years. “This most recent deal comes 14 months after the cola giant acquired Great Plains Coca-Cola Bottling Co., which, at the time, was the fifth-largest independent Coca-Cola bottler in the United States, for $360 million. Coke also acquired Coca-Cola Enterprises Inc., its largest bottler in North America, for $12.3 billion in 2010.”

The Sacramento Bee reported David Ethridge, general manager of the Sacramento production facility, “said the timing of the shutdown has to be negotiated with officials at Teamsters Local 150, which represents the workforce at Stockton Boulevard. Teamsters officials were not available for comment.”

Surprise, surprise.

The pause that refreshes

The sixth largest independent  Coke bottler in the country, Sacramento Coca-Cola Bottling Company was founded in 1927. It currently employs more than 460 people in the Sacramento region.

The 2012 Thumbtack.com Small Business Survey, in partnership with the Kauffman Foundation, found Sacramento to be one of the least friendly cities for business.

Surprise, surprise.

The five least friendly cities were Sacramento, San Diego, Los Angeles, Tucson and Detroit, according to the survey. “More than 6,000 small businesses in Thumbtack’s database of 275,000 members — most of whom have five employees or less — responded to the survey,” CNN reported.

California received an “F” grades on tax code, regulations, health and safety, licensing, and overall business friendliness. The state received “D” grades on the ease of starting a business, environmental and zoning.

And the comments of business owners were telling:

* “Working with any government organization seems to have its difficulties. With the lack of competition, most government employees seem not to possess a personal drive in order to satisfy the general public, which in turn creates an atmosphere of dislike and distrust,” Thumbtack.com reported a business owner saying. “If the government was operated like a large business, I feel it would be more efficient and easier to deal with.”

* “The EPA regulations (CARB) is too extreme on small business with regard to emissions regulations in CA,” said another small business owner. “Worker’s compensation insurance is way over priced to small businesses and would better benefit in having an award system where it is similar to vehicle insurance in that your rates are much less for non-injury records.”

While Coca-Cola may be streamlining its operations, the business climate in Sacramento is so lousy, it was probably a relatively straightforward decision to close the production facility… if the Teamsters Local 150 allows this.

Even in California, things don’t always go better with Coke.

By Chris Reed

Over the weekend, the U-T San Diego had a story about the Texas vs. California business-climate debate. It featured an astounding claim from Gov. Jerry Brown’s top economics adviser:

“California provides a higher level of service than other states, said Kish Rajan, director of California Gov. Jerry Brown’s Office of Business and Economic Development, Go-Biz.

“Rajan defended the state’s tax rates, saying they fund key services and are a known quantity to businesses who can budget for them. But, he said, there is work to be done on overlapping and confusing regulations.

“’I think that a lot of things that these states are selling are lower costs, lower costs, lower costs, and our mantra in California is we’re not in a race to the bottom with any other state,’ he said. ‘We have found a way in our state to have very high quality, very high value. We’ve proven that you can have a successful economy and still preserve the environment and look after workers and protect consumers and look after the public health.’”

No, you aren’t hallucinating. I didn’t make up the part that I boldfaced.  Jerry Brown’s economics guru really did describe California as having a “successful economy.” I laughed up a storm at that. But if I were without a job in our rotten economy, or had a spouse, parent or kid who had been hunting for work without success for years, I would be infuriated.

Brown administration blithely indifferent to economic suffering

Here’s part of my U-T San Diego editorial reacting to this blithe ignorance and indifference from the Brown administration:

“So the Golden State has a ‘successful economy’? Really?

“California is in its longest sustained stretch of high unemployment since the depression. Its jobless rate has been higher than 8 percent since September 2008. For 52 months, there have been at least 1.5 million people in this state actively seeking work who can’t find jobs. And those numbers don’t even reflect the ‘underemployed’ – those with part-time jobs – and the hundreds of thousands of people who have given up looking for work. In January, the state’s unemployment rate was 9.8 percent, among the worst of any state and significantly higher than the national average of 7.9 percent.

“Rajan’s comments make clear the immense disconnect between the powerful wing of California’s Democratic coalition – urban professionals, academics, public employees and those in the entertainment industry – and the coalition’s ignored wing – poor and lower-middle-income residents who struggle to find work and make a living in our expensive state.

“California has a ‘successful economy’ for those who have jobs. Those who can’t find full-time work? Jerry Brown says, ‘Let them eat cake.’”

Joel Kotkin, the brilliant Los Angeles demographer and a Democrat himself, has written about his party’s indifference to the poor and minorities and its hostility to capitalism for years. Here’s how to judge whether California most influential Democrats will like a policy proposal: Does it make a thrill go up the legs of the denizens of the faculty lounge? If not, who cares?

Jan. 18, 2013

By Chris Reed

That California is extraordinarily hostile to business is accepted as a given by just about everyone who is an executive, manager or small-business owner in the state.  But Democrats and some in the media routinely challenge this assumption, and some genuinely seem to believe it’s nothing but a talking point used by business interests to gain undeserved favor.

I once saw a labor official even suggest there was something sinister or rigged about the CEO survey that comes out every year and always ranks the Golden State last in business-friendliness, as if there was a national conspiracy to put California down.

To a degree, Gov. Jerry Brown seems to believe that the business community’s gripes have some merit. So he’s taken to criticizing excessive regulation and to urging bureaucrats to help, not hinder, job creation.

Brown now faces an acid test for his alleged interest in helping the private sector: an insanely capricious and destructive decision by the state’s Franchise Tax Board to impose four years of retroactive taxes on hundreds of businesses because it lost a court fight with one business. It was a fight that started in 2008 over whether the company qualified for a tax break that encourages entrepreneurs — a partial state income tax exclusion on sales of stock of a “Qualified Small Business.”

Tax decree

At xconomy.com, victimized businessman Brian Overstreet shares his horrific story of facing a huge ex post facto tax decree, and explains its genesis:

“The company at issue in that lawsuit did not meet one of the QSB requirements—that it maintain 80 percent of its employees and assets in California. In August of 2012, the California Court of Appeals sided with the plaintiff, ruling that denying him the QSB exclusion based on the ’80 percent requirement’ was an unconstitutional violation of the interstate commerce clause.

“Since the FTB lost the case, you might think that they would strike the unconstitutional requirement and keep the rest of QSB statute intact. Not a chance.

“What the FTB did instead was to take their ball and go home. They decided that since they could not impose the 80 percent requirement, no one would be entitled to the QSB exclusion. They put out an announcement terminating the Qualified Small Business exclusion and retroactively disqualifying all exclusions and deferrals going all the way back to 2008.”

This is bonkers. You don’t get much more anti-business than punishing business owners out of pique over losing a lawsuit that those business owners had nothing to do with.

Overstreet’s takeaway from this assault on sanity:

“1. If you are a business founder or early investor who sold stock since 2008 and took the QSB exclusion: Surprise! You are going to get a bill from the FTB for the 50 percent of the taxes you excluded plus interest plus possible penalties.

“2. If you are a business founder or early investor and have not yet sold stock: Rethink your business and tax planning strategies. Consider whether it’s fiscally prudent to stay in California.

“3. If you a contemplating starting or investing in a California business: Think long and hard. Consider out-of-state alternatives.”

The governor should clean house, right? Well …

If Jerry Brown really means what he says about wanting to help grow jobs in California, here’s what he should do: Clean house at the Franchise Tax Board.

FTB Executive Director Selvi Stanislaus? He should be gone, for starters. And so should everyone at FTB who thought this made sense.

But there’s a little problem with the let’s-clean-house theory. According to the FTB’s website, who are the three members of the agency’s governing board?

1) Ana Matosantos. As in Jerry Brown’s director of finance.

Evidently word of the governor’s desire to help the private sector hasn’t reached his Cabinet.

2) Jerome Horton. As in the former Democratic lawmaker from Inglewood appointed by Brown to the FTB oversight post.

Evidently word of the governor’s desire to help the private sector hasn’t been shared with his board appointees.

3) John Chiang. As in the state controller, elected by the voters.

Evidently breaking trust with job-creating entrepreneurs in such grotesque and extreme fashion isn’t a big deal to the veteran Democrat who fancies himself as governor material.

I look forward to watching this story play out. Most mainstream media in California have little sympathy for business complaints. But everyone can relate to the story of people hit with four years of dubious back taxes because of childishness and stupidity from tax bureaucrats. And their bosses.

Your move, Gov. Brown. Yo, Jerry: Do you think this is fair? Tolerable? Honorable?

We shall see.

Katy Grimes: If you thought the June election might make California Democrats take pause and re-examine their business-killing policies, think again.

Today in the Assembly Business, Professions And Consumer Protection Committee, bills to regulate dog groomers, dental hygienists, Naturopath doctors, practitioners of Chinese medicine and even alarm companies are about to be even more regulated.

Here is the list with links to the bills:

9 a.m. – State Capitol, Room 447

BILLS HEARD IN SIGN-IN ORDER

Measure:        Author:    Summary:

S.B. No. 467  Pavley. Department of General Services: contracts for en-

ergy efficiency information technology products or services.

S.B. No. 633  Huff. Bonds: fine for unauthorized use.

S.B. No. 969  Vargas. Pet groomers.

S.B. No. 1077  Price. Alarm companies: limited liability companies.

S.B. No. 1099  Wright. Regulations.

S.B. No. 1202  Leno. Dental hygienists.

S.B. No. 1266  Corbett. Resource conservation lands: appraisal process.

S.B. No. 1301  Hernandez. Prescription drugs: 90-day supply.

S.B. No. 1387  Emmerson. Metal theft.

S.B. No. 1395  Rubio. State Auditor.

S.B. No. 1427  De Leon. State contracts: electronic goods: bid preference

for refurbished electronics.

S.B. No. 1446  Negrete McLeod. Naturopathic doctors.

S.B. No. 1488  Yee. Healing arts: California traditional Chinese Medicine

traumatologist certification.

S.B. No. 1575  Committee on Business, Professions and Economic Development. Professions and vocations.

S.B. No. 1576  Committee on Business, Professions and Economic Development. Professions and vocations.

S.C.R. No. 82  Blakeslee. California veterans of the Iraq War: memorial.

If you can stomach it, you can watch it live on the California Channel, HERE.

I will be there and will report on the outcome.

By Steven Greenhut

Gov. Jerry Brown’s “Moonbeam” shtick has long passed its expiration date, taking about as long to go from “cute” to “annoying” as it did for Arnold Schwarzenegger’s “Terminator” references.

On Monday, in announcing that the state’s budget deficit ballooned from $9.2 billion to $15.7 billion in a mere four months (later revised to about $17 billion by the legislative analyst), the governor let loose with this Brown-ism: “The capitalist system is not coincident with your expectations of exactitude.” In other words, the market system “doesn’t play out like we may want it to.”

That entertaining wordplay might have gotten a chuckle or two in the past, but the governor — not the capitalistic system — is largely responsible for the budget mess he detailed that day. The state continues to face enormous shortfalls precisely because this governor betrayed the promises he made to Californians.

An Inefficient and Meddling Government

Brown promised us an honest budget. But, according to economists who looked at a budget deficit that has grown by 70 percent since January, there was nothing in the economy that caused the tidal wave of red ink. The problem: Gov. Brown’s budget was dishonest. Just like Schwarzenegger and Gray Davis before him, Brown didn’t have the courage or political skill to bring state spending in line with revenue, so he relied on overly aggressive economic forecasts to paper over the enduring mess.

Brown has no interest in cutting government, even though the state’s still-huge budget is filled with waste, inefficiency and redundancy. The state government meddles in just about every aspect of our lives. California’s cost to provide services is far higher than for most other states, thanks largely to the enormous overhead exacted from a public sector that enjoys the most lush pension and health care benefits in the nation. We’re supposed to believe the government is cut to the bone?

The Legislature has refused to pursue pension reform, which would not only trim needed dollars from the deficit, but would keep the state’s localities from hitting the financial wall. But legislators don’t have time for it, busy as they are with such pressing matters as banning foie gras. If Brown spent a tenth of the time pushing his pension reform plan as he does pushing for tax hikes, he might actually get somewhere.

Brown has tried to play on his cheapskate image, honed in the 1970s, by cutting a few pennies from, say, the Commission on the Status of Women, but he has not looked at serious reforms, alternatives to the government’s costly — but shoddy — delivery of services. He recently joked that there’s plenty of money “sloshing around” in California, and that the rich are doing just fine. But such words are only a reminder of what a bore the man has become.

Turning Away Businesses

A growing economy could surely bring in new revenue, but the state’s leaders are too busy punishing the private sector to understand that message.

Like other leaders of his party, he doesn’t take seriously the evidence — such as California’s lowest ranking among states to do business, per Chief Executive magazine’s latest survey, or the USC survey showing dramatically slowing population growth — that the rich, moderately rich and entrepreneurial middle class are high-tailing it to other states. Yes, people are still coming to California — but taxpayers are being replaced largely with tax consumers.

The California government’s war of attrition against the most productive members of its society might explain another reason that the deficit keeps getting worse. “California is suffering [a] tax drought even as most other states enjoy a revenue rebound,” the Wall Street Journal opined. “State tax collections were up nationally by 8.9 percent last year, according to the Census Bureau, and this year revenues are up by double digits in many states.” California defied that trend.

I argued recently for Bloomberg that there’s a case for staying in California, in that we ought to dig in and fight for our home rather than pull up roots and try to find a better place. But it’s hard to imagine any new business choosing to move or expand here, despite localized growth (San Jose) and the state’s appeal for those who already have made their fortune. We have tools to revive our state (i.e., the initiative process), but someone save us from the crowd that governs us these days.

Brown’s Faulty Leadership

Brown, who helped create the state’s current mess during his first go-round as governor (1975-83) thanks to the vast expansions of power he granted to public-sector unions and his small-is-beautiful approach to infrastructure, positioned himself as the man best able to wrestle with the state’s problems. Instead of confronting tough problems, he’s looking for the easy route — cobbled-together budgets and tax increases as he protects the coddled public sector from competition and reform.

Brown also is committed to spending our way out of the mess, as he promotes other dishonest schemes, such as a bloated high-speed rail project based on phantasmagorical funding schemes and “green jobs” programs based on equal parts subsidy and fantasy. The carbon-emission cap-and-trade system embraced by Schwarzenegger and Brown alike is killing business and won’t provide any cleaner air, designed as it is merely to prod other states and the feds into following suit. That’s California exceptionalism these days – following its own ideologically driven path right over the cliff.

“You’ve got to try many paths because a lot of them don’t work,” Brown said at a March economics conference. “I’m open, I’m curious, and I like to try new things.”

But Brown really is open to only one idea – new taxes. He’s using threats of Draconian cuts to coerce the public into giving the state government and the unions that dominate it even more of their hard-earned money. Voters should understand that if they give him what he wants, we’ll never get real reform, and Brown and his allies soon will be back, asking for even more money. That’s even less entertaining than the governor’s boring rhetoric.

By Katy Grimes

SACRAMENTO — A recent poll about the implementation of AB 32 shows that California voters and taxpayers aren’t real crazy about cap and trade or regulatory reporting regulations. Cap and trade programs mandate reduced emissions, while providing a trading mechanism for emissions “credits.”

Despite the entire program being speculative, and the dismal poll results, the California Air Resources Board is moving ahead with a cap and trade program and its first carbon auction in November.

Additionally, a strange informational hearing about cap and trade took place Wednesday in the Senate Select Committee on California and Mexico Cooperation. More of a dog-and-pony show to gin-up interest in cap and trade, the hearing was supposed to be about California and Mexico becoming carbon trading partners.

But Mexico does not have a cap and trade program, does not have a climate change law in place like AB 32, and pulled out of the Western Climate Initiative.

AB 32 Poll

The poll, authored by the AB 32 Implementation Group, submitted the polling information to the CARB, but it appears that CARB has turned a deaf ear on Californians.

The poll found:

* Support for AB 32 has declined since 2008, with a slim majority of voters still in favor. 

*California voters are unwilling to pay more for energy and other essentials in order to fund GHG reduction policies.
* Nearly two-thirds of voters oppose CARB’s proposed cap and trade auction and less than a majority of informed voters support cap and trade in general as currently planned.
* Two‐thirds of voters think California is seriously on the wrong track.
* Only about a third of voters have a favorable view of the Legislature.

And once California starts down the path of carbon trading, there is no going back.

Cap and Trade and Mexico

Currently, the cap and trade program can’t support itself. Despite this, Gov. Jerry Brown, state legislators and CARB are trying to push this aggressive and untested program alone, despite a shaky economy.

Yet the hearing was held as if California and Mexico are forging ahead as part of the Western Climate Initiative.

WCI Inc.

As I reported last month, the California Air Resources Board has created a stealthy new corporation in Delaware. The Western Climate Initiative Inc., which will manage cap-and-trade programs, even has its own form of currency.

WCI Inc. states that it exists “to perform administrative and technical services to support the carbon trading market, including market monitoring of allowance auctions, and market trading of compliance instruments.”

Initially, California was to unite with other Western states to reduce carbon emissions and put an end to global warming. “However, the partners determined that they would prefer not to tackle the issue during a recession,” Assemblywoman Diane Harkey, R-Dana Point, recently explained to me. “The cost of making their states less competitive in a tough business environment outweighed the benefit.”

Harkey has been trying to get her legislative colleagues to understand that setting a goal to reduce greenhouse gas emissions to 1990 levels, with California’s increasing population, is guaranteed to cost employers and everyday people more for the electricity and products they need. That’s also one reason why so many businesses are already leaving the state.

Last November, New Mexico, Arizona, Washington, Oregon, Montana and Utah all pulled out of the Western Climate Initiative. Despite the exodus, California formally launched its own cap and trade system on January 1, 2012, with a very ambitious target of carbon emissions reductions of 80 percent by 2050.

California’s only remaining partner in the Western Climate Initiative is the Canadian province of Quebec. The province is expected to launch its own scheme in 2013, which is said to link with California.

And this is where things start to get sticky. Once California links with another carbon trader, we can no longer make changes to the plan. It has to be right the first time.

If our trading partners offer more carbon allowances to their businesses and industries than California does, it will hurt our competitive advantage, similar to the way higher in-state taxes already hurt California businesses competing against businesses in other states.

And it is important to note that the California-Quebec relationship is not trading apples-to-apples. Quebec gets 97 percent of its energy from hydroelectric sources. California is trying to reduce traditional electricity production, including hydroelectric power, and instead replace it with as much “renewable” energy as possible from wind and solar, algae and ethanol. Energy experts have been saying in recent months that California’s energy demand is too much for the alternative energy and lower usage standards.

Additionally, Quebec has only 80 regulated industries. California regulates more than 300 industries.

Hearing from the players

The requisite climate change supporters spoke at the hearing. One was Gary Gero, with Climate Action Reserve, formerly known as the Climate Action Registry. He said Climate Action Reserve is the largest offsets registry in North America, with nearly 500 offset projects in four U.S. states and Mexico, and has certified more than 24 million metric tons of greenhouse gas emission reductions.

Gero called for forest protocols, livestock protocols and ozone protocols, and is looking to be “the largest liquid North American carbon market.”

Jim Gonzales with the Renewable Energy Accountability Project, a national environmental organization, said he thinks a California-Mexico offset program is in the cards. However, many question the validity of this since Mexican industry is currently much less regulated than California businesses and industry, and Mexico does not have the strict pollution standards California is famous for.

California Air Resources Board

No hearing about climate change would be complete without testimony from CARB. Much of this hearing centered around CARB’s mandates and future implementation policies.

Richard Corey with CARB gave his usual song-and-dance about CARB’s great work. Corey gave an overview on the implementation of AB 32, California’s Global Warming Solutions Act of 2006, as well as the 2008 scoping plan, and the Renewable Portfolio Standard of 2011.

“Cap and trade acts as an economy-wide backstop,” Corey said. “We will work with other greenhouse gas emission markets and can trade allowances with each other.”

But the most important point Corey made is that CARB sets all of the carbon allowances.

With the upcoming first carbon auction in November, committee members wanted to know how this was going to impact industries within their districts, suddenly faced with being forced to implement new programs or fined for carbon emissions.

Corey said that CARB is allowing free emissions for the first period, but in the second trading period, emissions will be charged.

“A lot of industries in my district have already spent millions of dollars to clean up their act to lower emissions, and pushed it as far as the science will go,” Sen. Anthony Cannella, R-Ceres, told Corey.

Cannella was concerned that businesses have already made substantial reductions on their own, and will be punished by CARB with even stricter emission reductions. And if that is the case, the fear is that businesses will continue to flee the state.

Sen. Bob Dutton, R-Rancho Cucamonga, expressed concerned with the Mexico and California relationship, and why Mexico is no longer an “observer” of WCI Inc.

Corey couldn’t answer why Mexico left the WCI, but talked about the law just passed by the Mexican Legislature, similar to AB 32. Mexican President Felipe Calderon has not signed the bill yet.

Dutton grilled Corey about the purpose of WCI Inc., and why CARB incorporated WCI in Delaware.

Corey insisted that WCI Inc. is just an administrative function for the cap and trade program, but did not specifically address why it is incorporated in Delaware and not in California. However, he did admit that WCI Inc. will be facilitating the carbon auctions, proceeds of which will go to California.

Dutton wanted to know under what authority WCI Inc. was created. Corey said that embedded in AB 32 was authorization for CARB to create WCI Inc, and offered to provide Dutton more information after the hearing.

Cap and Trade

California’s new cap and trade program places a limit on greenhouse gas emissions from the businesses and entities responsible for approximately 80 percent of the state’s greenhouse gas emissions.  CARB will issue carbon allowances to these businesses and entities, which will be able to turn around and sell them to other businesses on the open market.

The “cap” is the state-imposed limit on businesses that emit greenhouse gasses, and the “trade” is the sale of carbon credits to other businesses. Only the businesses chosen by CARB get to sell carbon credits to polluters, and profit from doing so.

Businesses will be limited on how many credits they can purchase. If a business produces more carbon emissions than the state allotted, CARB will issue stiff fines and penalties. Or the business can just reduce their production output and lose money instead.

Mexico Cap and Trade

Dr. Luis Farias, the president of Mexico’s Sustainability Commission, testified that in Mexico, it will be the private sector which makes the investment needed into alternative energy. Farias said that there are 431 projects currently under way in Mexico.

But in what sounded like a warning to California, Farias said that we need to find a way to increase rather than retard business growth. “All offsets are not created equal,” Farias said. “Standards and protocols are one thing, implementation is another.”

Alfonso Lanseros, president of CO2 Solutions in Mexico, gave a lengthy, highly technical presentation about the opportunities for California’s technology and labor in Mexico’s renewable energy development.

Wrapping up the hearing was Dorothy Rothrock with the California Manufacturers and Technology Association. Rothrock acknowledged that California has already passed AB 32 and now we must deal with it. But she said that there is a “great tension” in the implementation process, which does not have to be there.

Rothrock warned that, as California heads for the carbon auctions, it is important to keep in mind the necessity for our businesses and industries to remain competitive. If they cannot, less capital will be available, and it is likely that other states will not join us as trading partners.

However, if California does this right, we could be the leader. “We’ve a great history of imposing requirements on ourselves. We can help others get up to our standards, rather than continue to hammer on ourselves,” Rothrock said.

And Rothrock warned that linking with Quebec is a problem. “They are distant, and not a trade partner of California,” she said. “We can’t make changes after linking with anyone.”

As the hearing ended, Sen. Lou Correa, D-Santa Ana, said he had more questions, not fewer, after hearing all of the testimony. He said much more research was needed before California moves forward with a cap and trade program.

Assemblywoman Harkey opined that, if California starts to bleed more businesses, then create more carbon certificates, we will create inflation and the carbon certificates will be devalued. “I would hope that the Senate and Assembly hold banking and finance hearings to tell us how this would work,” Harkey said. “Who will be in charge behind WCI Inc.? We need to move slowly so we don’t get hosed in the meantime.”

By CHRISS STREET

The California state government’s general fund is running a staggering cash deficit of $21 billion on an $88.5 billion budget. The number comes from Controller John Chaing just-released financial statement for December 2011. The bad news came in the face of strong national consumer spending and private-sector employment gains

This imploding financial condition is a reflection of how California’s high business taxes and excessive regulations are accelerating the trend of businesses abandoning the state.  According to Chaing, “While we saw positive numbers in November, December’s totals failed to meet even the latest revenue projections.  Coupled with higher spending tied to unrealized cost savings, these latest revenue figures create growing concern that legislative action may be needed in the near future to ensure that the State can meet its payment obligations.”

The above are “code words” that the state is in financially dysfunctional and it’s getting worse.  Compared to the previous year, California revenue of $39.4 billion for is down by 11.2 percent for the fiscal year to date (July – Dec. 2011). That’s due mostly to a 26.4 percent nose dive in sales tax collection. And state spending of $52.3 billion is currently running 33 percent higher than the state’s revenue.

Tax Increases

The controller does not seem impressed that Gov. Jerry Brown and the Legislature’s only solution to fix this budget mess is to relying on voter willingness to approve an initiative to raise the already hefty sales tax they pay by 13 percent and add another surtax on the wealthy to generate $6.9 billion in revenue.

Even if the public shocks pollsters and actually passes the tax increase, the non-partisan Legislative Analyst’s Office calculated the initiative would only generate $4.8 billion per year.  Prior to the Controller’s grim report of a $5.2 billion budget miss, the LAO had already estimated that state’s revenue would be $3.7 billion below forecast and “trigger” $2 billion of automatic budget cuts to K-14 education.  The LAO’s estimate of a $13 billion deficit next year, due mostly to constitutionally required “settle up” payments for short-checking public schools in prior years, now looks like a $20 billion deficit.

California’s budget projections are so consistently whacky that the Governor closed the California Recovery website this summer to avoid ridicule regarding its ludicrously optimistic recovery projections.  Despite creating one of the most unfriendly business climates in the nation, for 20 years California’s socialist politicians were able to do the “la vida loca” spending on the back of an epic real estate boom.  With the real estate bust now in its fourth year, California ranks third in the nation in foreclosures. And according to the Foreclosure Radar Report, it is one of only two states in the nation where foreclosures increased in December.

Credit Ratings

The credit rating agencies will undoubtedly take a very hard look at downgrading California’s municipal bond debt, which is already the worst rated in the nation at only two notches above junk.  But the budget disaster also spells bad news for the credit ratings of California local governments.  Last year the Legislature passed a law striping $1.7 billion per year from state’s 400 redevelopment agencies to augment its own budget shortfall.  Moody’s Investor Services immediately put $11.6 billion of California tax allocation bonds on review for a possible downgrade.  Moody’s stated, “If left unchanged, this law would be significantly negative for bondholder credit.  This legislation could result in multi-notch downgrades on bonds of the dissolved redevelopment agencies.”

Perhaps California’s budget problems can be best understood from a Fox Television interview of Joseph Vranich, president of the Business Relocation Coach. He makes his living moving companies out of California. (See video below.) He said businesses leave to avoid “high businesses taxes and excessive regulations imposed on commercial enterprises of all types.  Costs are illustrated by the fact that a business leaving the city of Los Angeles for a nearby county can save up to 20 percent in costs while moving to another state can save up to 40 percent in costs.”

Vranich pointed out that, in the first half of 2011, there were 129 companies with 100 or more employees that moved out of the state.  This averages 5.4 larger companies leaving for “greener pastures” per week, versus 3.9 per week in 2010 and only 1 per week in 2009.  The top relocation destination is not China, but  the neighboring business-friendly states of Texas, Arizona, Colorado, Nevada and Utah.

Other People’s Money

British Prime Minister Margaret Thatcher, in a TV interview in 1976, famously said, “Socialist governments traditionally do make a financial mess.  They always run out of other people’s money.  It’s quite a characteristic of them.”  If she were to move to California 35 years later, she would add, “Or else the other people will take their money and just leave!”

Feel free to forward this Op Ed and or follow our Blog at www.ecoservativenews.com or www.chrissstreetandcompany.com  Thank you also for the success of Chriss Street’s latest book, The Third Way, available in hard copy or for Kindle at: www.amazon.com

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Joseph Vranich video:

Why Businesses Move Out of California: MyFoxLA.com