California State Senate buries SB 241, oil and gas severance tax initiative. CMED ballot measure still alive.
By Andy Cohen
My colleague Doug Porter yesterday wrote in his “The Starting Line” headline that “The first step toward a balanced budget is getting Republicans out of office.” We’ve seen here in California over the last several years that, with today’s Republican Party completely devoid of ideas or any willingness to actually govern, he certainly has a point. It has proven to be a necessary first step toward undoing the legislative gridlock deliberately created by “The Party of No.” That is at least until the Republicans decide to remove the pointy hats from their heads and come out from the corner to join the rest of the class.
But to simply say that the Democratic supermajorities in the Assembly and the State Senate is to be credited with California’s newfound budgetary resurgence is to give state Democrats far too much credit. In fact, it hasn’t been the goings on in state capitol at all that that should be commended for the state’s economic recovery. At least not as far as the Legislature goes.
No, the legislature, despite being dominated by Democrats, is still paralyzed from being able to do anything big. The Democrats are still disinclined to tackle big issues, particularly big fiscal issues out of fear of being labeled “tax and spend Democrats.” It’s an admirable stance to be sure—the state has been mired throughout the Great Recession by debt and deficits. No one wants to see us go back to that place again.
During the Great Recession at the end of Arnold Schwarzenegger’s reign as governor and through the first two-and-a-half years of Jerry Brown’s term, California was forced to decimate the state education budget, health programs—especially mental health programs—and child care programs that were a godsend to working parents. Unemployment spiked from a manageable 5.9% in January, 2008, to 12.4% in 2010.
One political argument was that state taxes were far too high, and that’s why the state’s economy crashed.
The state is now in a recovery phase, and the economy is looking up. Unemployment rates are down (to a preliminary estimate of nine percent for this past April) but not low enough, services are being restored, and according to Governor Brown’s latest proposed budget, the state is looking at a sizeable budget surplus for the upcoming fiscal year. If things remain on track, California’s state government could be debt free within five years.
This is all good news. The economy is picking up, and tax revenues are hitting state coffers at unexpectedly high rates. California can actually pay its bills for a change.
But the recovery had very little to do with anything courageous legislative Democrats have done. Sure, much of the austerity measure they agreed to institute were probably necessary just to keep the ship afloat until the economy started to improve. It was an infusion of federal money, though, that really started the process, and not state tax revenues.
Instead, the current budget situation can be credited to Jerry Brown and the voters of California. It was Jerry Brown who managed to get a tax increase onto the 2012 ballot, a policy that most Dems in the legislature ran away from as fast as they possibly could. And it was the voters who approved Prop 30, temporarily raising the state sales tax and hiking the income tax rates on the state’s top earners. Prop 39 also managed to earn wide approval from the voters, changing the state tax rules so that it leveled the playing field for California based businesses, instead of the previous system that favored out of state interests.
Largely because of these two measures, the state is once again on solid fiscal footing, but it had little to do with our elected representatives doing the job in Sacramento that the voters sent them there to do. Legislators were too timid to do the right thing, so it was left to the voters via costly ballot initiatives to take matters into their own hands.
Last month I wrote about another ballot initiative being proposed that would create a severance tax on oil and gas extracted in the state. As I noted, it’s not exactly a novel concept. Many other states far more politically conservative than California require higher severance taxes than is being proposed here. There was also a bill working its way through the State Senate sponsored by Noreen Evans (D-Santa Rosa) that would essentially do the same thing. It was a signal that maybe, just maybe, our legislators, with their newfound Democratic supermajority, are settling in to actually do the tough job of legislating.
It was feared, though, that the Senate would view the California Modernization and Economic Development Act initiative as a crutch, an excuse for not having to deal with it in the Senate. Let the voters have a crack at it. We (legislators) don’t want to be viewed as supporting raising taxes again so soon after the passage of Prop 30, no matter how popular the concept is. The Senate bill, SB 241, would have used the severance tax to restore even more funding to California schools as well as providing a boost to the state parks system.
Turns out those fears were dead on. On May 20, the Senate placed Evans’ SB 241 in the “suspense file,” effectively killing the legislation in an apparent effort to not anger supporters in the oil and gas industry. It was a piece of legislation that would only have had positive effects on California’s budget, as it was highly unlikely that the state would lose any oil and gas business due to the proposed 9.5% severance tax. Oil companies have raked in monstrous profits in recent years, even during the Great Recession, and surely would continue to do so even with a California severance tax. Besides, even Texas has a severance tax, and there hasn’t seemed to be a mass exodus of oil and gas companies from that oil dependent state.
It was a stunning act of political cowardice. Instead of doing the hard work themselves, the job they’re being paid to do, the Senate has chosen to give itself cover by passing responsibility off to the far more costly and unwieldy initiative process so that the voters can decide on the matter. If it passes, then the will of the people has been served. If it doesn’t, then the legislators get a reprieve from having to do something the oil companies won’t like.
It only serves to further a recent tradition of legislating via initiative so that our elected representatives can avoid taking politically difficult stands. Truly it’s an abdication of their responsibilities.
If the voters are going to be asked to take on all of the tough decisions, then why do we need our state legislators in the first place? Passing bills like SB 241 is what they were sent to Sacramento to do. A representative democracy does not work if our representatives are too afraid to represent the voters who selected them.
At least CMED still gives Californians some hope.
Andy Cohen
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And then when those initiatives are passed by the voters, they spend years in court trying to decided it it is “legal” or not. I think we need to x-ray all candidates running for office to see if they have a spine before allowing their names on the ballot.
I agree with Andy Cohen here. We need more State Legislators with the intestinal fortitude to carry out the responsibility of instituting an oil and gas severance tax just as they do in states like Alaska and Texas. These multi-national oil and gas companies need to start paying their fair share of California’s expenses.