Vol. XIV, No. 17                                                                                  
May 4, 2001

TAX ON ENERGY PRODUCERS HITS SENATE FLOOR

Majority Democrats muscled an electricity “windfall profits” tax bill to the Senate floor on Monday when the Appropriations Committee approved SB 1X (Soto), imposing a 100 percent excise tax on sales of electricity to California that exceed $80 per megawatt hour.

With Senate President Pro Tem John Burton leading the charge, the fiscal panel approved the bill on a party-line 7-3 vote.

Opponents testified that the bill would have a perverse result by discouraging investment in new energy generation in California despite a consensus over the need for additional power plants to add more electricity and rein in the costs.

“While it makes good political theater, this bill does absolutely nothing to solve the energy crisis,” said Mike Kahl, representing the Western States Petroleum Association and alternative energy providers. He said such a “confiscatory tax sends a perverse message” to investors in electricity generation to avoid California. He also said it is a “transparent attempt” to enact illegal price regulation of interstate commerce.

Carrie-Lee Coke of the California Manufacturers and Technology Association said the bill is the “wrong medicine,” would worsen the energy crisis by reducing supply, and would cause “financial disaster” for CMTA members.

Carl London, representing InterGen, an international energy generator, said SB 1X will scare away investment in badly needed power plants. “I can say with all certainty that the prospect of having this bill hanging out there” will cause InterGen to stay away from California, he said.

Senator Burton said the bill “says you can’t come in and rip us off. It doesn’t say you can’t come in and do business.”

Senator Jack Scott, principal co-author of the bill, said, “We have been royally mistreated” by energy providers headquartered in other states that have “gouged us like no consumer has been gouged in history.” He said the bill still “guarantees a generous profit for wholesalers.”

Revenue from the tax would be returned to California through income tax rebates. Since none of the revenue goes into the state’s general fund and would be returned to taxpayers, proponents contend that the revenue-neutral bill can increase a tax by mere majority-vote approval of the Senate and Assembly, not the two-thirds majorities required for tax increases in the state Constitution. Cal-Tax has long disagreed with this interpretation.

Supporters of the bill included Toward Utility Rate Normalization, the public-employee financed California Tax Reform Association, the California Public Interest Research Group, the California Labor Federation and the Service Employees International Union.

When Senator Jim Battin noted that the bill would impose windfall profits taxes on energy contracts negotiated by the Davis Administration (at $86 per megawatt hour), Senator Scott agreed to amend the bill to exempt existing contracts.

While Governor Gray Davis has indicated support for a windfall profits tax, his Department of Finance had no position at Monday’s hearing. A spokesperson said there was no analysis from the Franchise Tax Board on the impact on state revenues. The department also noted that a company would have to have nexus (physical presence) in California to be taxed, so at least some of the wholesalers could be immune. The department also expressed concern about how poor people would benefit if they don’t earn enough to file income tax returns.

Co-authors Nell Soto and Scott accepted a number of committee staff amendments.

In other action, the committee approved SB 17X (Brulte), establishing a solar energy tax credit. The Department of Finance noted that the FTB put the value of the tax credits at $5 million a year. A 9-0 vote sent the bill to the Senate floor.

Another tax-related special session energy crisis bill, SB 30X (Brulte), seeks to leave property taxes derived from new power plant development in the jurisdictions that approve them, instead of having these dollars shifted to schools. The committee put this bill on its suspense file for possible action after the governor’s May Revise of the proposed 2001-02 state budget.
 

SPLIT-ROLL BILL IS DROPPED

The big news from the Assembly Revenue and Taxation Committee last Monday was something that did not happen. Assembly Member Bill Leonard did not take up his split-roll property tax assessment bill – AB 1013.

Committee Chair Ellen Corbett told a sparse audience that Mr. Leonard dropped the bill “altogether.”

In a statement released by his office, Mr. Leonard said, “I am dropping AB 1013 because there is no data to show that commercial property owners have taken advantage of state law to the detriment of residential property owners.”  There was no proof that there has been enough change in the property tax burden between residential and commercial property owners to warrant such a change in the law, according to a Leonard aide.

The Leonard bill provided that when 50 percent of a corporation’s voting stock changed hands, all property of the corporation in California would be reassessed to market value. The bill was limited to corporations subject to Security and Exchange Commission filing requirements.

The committee analysis scored the bill as a $3.3 billion tax increase. Some of those at the committee hearing speculated that Mr. Leonard, a San Bernardino County Republican, did not want to be known as the author of the second largest tax increase in California history.

Proponents of the measure were listed as the California Tax Reform Association, the California State Association of Counties, and unions representing state and local government employees.

Cal-Tax President Larry McCarthy expressed satisfaction with the demise of this split-roll proposal.  “It is important for this bill to drop from sight,” he said. “Movement of a split-roll property tax bill in the California Legislature would underscore for everyone that policy-makers don’t mind making California an impossible place to operate a business.”

Other committee developments:

• Bills Sent to Suspense File. All but one bill heard on Monday was dispatched to the committee’s suspense file. Among bills meriting this treatment were: AB 243 (Runner), a sales tax exemption for jet fuel sold to aircraft in an enterprise zone; AB 273 (Nakano), an income tax deduction for mortgage insurance; AB 523 (Matthews), a sales tax exemption for bronchodilators (for asthma); AB 641 (Briggs), an expansion of the enterprise zone in Tulare County; AB 660 (Nakano), an increase in the alternative incremental research and development tax credit to 100 percent of the federal credit; AB 904 (Briggs), a sales tax exemption for thoroughbred breeding horses; AB 1601 (Papan), a sales tax exemption for non-woven, reusable surgical gowns, and AB 1636 (Briggs), exempting diesel fuel from sales tax.
   
• Property Tax: Electronic Payments. Legislation establishing statewide standards for dating electronic payments of property tax (AB 594, Harman) was approved by the committee. Such payments will be deemed received on the date the transaction is completed by the taxpayer. The bill was supported by the state’s tax collectors and there was no opposition.
   
• Suspense File Hearing Date. Ms. Corbett announced that the committee will vote May 14 on “suspense file” bills. Committee Vice-Chair Tom Harman inquired of the procedure. Tentatively, Ms. Corbett replied, there will be no further testimony on suspense file bills. The chair may have a recommended dollar revenue-loss ceiling, which she said she hopes will be high.
   
• Asthma Worse in Central Valley. During testimony on the bronchodilator sales tax exemption, a representative of the American Lung Association (supporter of AB 523) told the committee that California’s Central Valley is the “worst area in the nation for asthma.” Until recently, bronchodilators were not taxed because they were considered medicine prescribed by a physician. Now, they are available over-the-counter, making them subject to the tax. The BOE estimates the state will lose $1.1 million if the exemption is approved.
   

NOW AVAILABLE: THE ELECTRONIC CALTAXLETTER

To Caltaxletter subscribers: Cal-Tax’s newsletter, which for more than 13 years has provided greater coverage of California tax issues than any other publication, is evolving into an entirely electronic operation.

What does this mean for you? Timelier reporting of state and local tax decisions in the California Legislature, state tax regulatory agencies, the courts and on state and local ballots. Our in-depth coverage will still be produced 40 times a year (weekly when the Legislature is in session).

Notice that this issue is dated Friday, May 4, not Monday, May 7. Instead of arriving in mailboxes, usually on Saturdays or Mondays, the Caltaxletter will be sent electronically on Fridays.

We’ll switch you from regular mail delivery to e-mail as soon as we have your go-ahead and your electronic address. Please send your e-mail address to karen@caltax.org. Or call us at (916) 930-3100.

To take advantage of the technology (and save many trees), we must have your e-mail address. However, if you’d prefer your Caltaxletter in printed form, let us know. If you’d rather receive it by facsimile, provide your FAX number and we’ll send it to you that way – on Fridays.

Besides more in-depth articles and analyses in your hands when they are of greatest value, you need the electronic Caltaxletter to utilize hyperlinks to important documents, court cases, legislation and Franchise Tax Board or State Board of Equalization regulations. It’s all there – right at your fingertips.

And, of course, you can print an issue from your PC and take it with you.

We are excited about getting our unparalleled reporting on the California tax scene before your eyes faster and more efficiently. As they say, it isn’t news if it isn’t new.

–        Ron Roach, editor.
 

FTB ADOPTS “COVENANT NOT TO COMPETE” REGULATION

Over the objections of San Francisco attorney Roy Crawford, the Franchise Tax Board last Wednesday adopted staff’s revised “income from a covenant not to compete” regulation (Regulation 17951-6).

The regulation sources income received from a covenant not to compete based on the property, payroll and sales factor of the business for the year it was sold. Mr. Crawford argued that this is unconstitutional as it taxes income of persons who have never lived in California and have no nexus with California. FTB staff said such a covenant is property and, if a person signs a covenant not to compete in California, that establishes nexus. Mr. Crawford replied that a personal right is not a property right.

The board also adopted a revised regulation relating to sourcing of income of non-residents from a business, trade or profession (Regulation 17951-4 / Comments and Responses).

Other FTB developments:

• Action Deferred on Ceridian Notice. After a lengthy discussion, the board deferred a decision on a draft of an FTB Legal Notice on how the Ceridian decision (relating to a deduction for insurance company dividends) will be applied.

The Ceridian decision held that the statute exempting dividends of insurance companies domiciled in California using formula apportionment discriminated against out-of-state companies. FTB staff proposed to tax all insurance company dividends, retroactively back to 1997. An alternative, proposed by a Cal-Tax coalition, proposed exempting all insurance company dividends.

FTB attorney Mike Brownell argued that the statute is void as a result of the decision and it is up to the Legislature to fix it. If the statute is void, there is no authority for any deduction.

Cal-Tax General Counsel Greg Turner said the staff proposal retroactively increases taxes on California taxpayers, resulting in a doubling of taxes in some cases. By severing the unconstitutional portion, he said the board could apply the statute without discrimination.

FTB staff argued that the decision discussed the idea of reformation of the statute, and rejected it. Richard Martland, attorney with the firm of Nielsen, Merksamer, Parrinello, Mueller and Naylor, and a former deputy attorney general, said there was a big difference between “severability” and “reformation,” and no case has said an administrative body cannot sever.

FTB Member Claude Parrish, chair of the State Board of Equalization, expressed concerns about the staff draft of the notice and offered an alternative for consideration. Controller Kathleen Connell, the FTB chair, said this issue needed further discussion between staff and taxpayers, and the Parrish proposal needed study. She said she wants the issue back on the board’s agenda in a couple of months.

• Protest Regulation.  Mr. Parrish said he is continuing to pursue a compromise on the FTB protest regulation, but that it would need a broader coalition of participants to be resolved.  Mr. Parrish deferred action to the direction of the state controller.  The controller noted that it would be important to seek the input of both staff and industry representatives to forge a potential solution to the log-jammed regulation.
   
• Joint Strike Fighter. The board gave staff a green light to begin work on regulations to implement the “Joint Strike Fighter” wage tax credit. A partial symposium process is planned.
   
• Section 25137 Petition. The board turned down a request by IKEA Holding U.S., Inc., to use “separate accounting,” rather than the apportionment formula, to determine its California taxes.
   
• Use of the 540 EZ Tax Form. FTB Executive Officer Gerald Goldberg told the board there was a big increase in the use of the simple 540 EZ tax form this year. Approximately 1.5 million of the forms were used, compared with 475,000 last year.
  
• New Board Secretary. Claudette Romo has been named board secretary, replacing Katie Horn, who has transferred to work on the child support project.
   

MIGDEN INTERNET TAX BILL ADVANCES

Despite continued opposition from Governor Gray Davis and Republicans who view it as a $16 million tax increase, legislation has advanced to the Assembly floor that would expand state sales tax collections to out-of-state Internet retailers that have affiliates with stores in California.

With only Democrats voting in support, the Assembly Appropriations Committee last Wednesday approved AB 81, carried by the committee’s chair, Carole Migden.

The governor’s Department of Finance said the bill would increase taxes by $16 million a year, and the governor, who vetoed similar Migden legislation last year, opposes additional taxes on the Internet while supporting a three- to five-year extension of the state’s Internet Tax Freedom Act. Minority Republicans on the committee also took the position that the bill represents a tax increase, disagreeing with Ms. Migden’s representation of the measure.

Ms. Migden said legislative counsel has told her that the bill “is not a tax expansion,” but rather an “enforcement mechanism” to require the State Board of Equalization to order such companies as Barnes and Noble or Borders Books to collect sales taxes when its on-line affiliates sell products to Californians over the Internet.

The bill is supported by independent bookstores, the California Grocers Association and the Urban Counties Caucus.

In other action, the Appropriations Committee sent to its “suspense file” AB 589 (Wesson), replacing the assessor loan program with a grant program. It also doubles the costs (to $120 million) and extends the program for five years. The Department of Finance voiced opposition to the bill.

The effort by the city of Los Angeles to obtain names, addresses and Social Security numbers from the Franchise Tax Board of persons reporting income from a trade or business (AB 63, Cedillo) was approved on a party-line vote with Democrats in favor. The data will be used to increase collections by up to $66 million from those who have evaded the city’s business license tax. The FTB estimates first-year costs of $1.6 million, which will be reimbursed by the city. One problem with the bill is that residents of Los Angeles reporting income from a trade or business may not be earning the income from a business in Los Angeles. Another concern is the breaching of the confidentiality of tax returns, including information on a taxpayer’s Social Security number.
 

POOR SCHOOL DISTRICTS NOT HELPED BY PROP. 39

The reduction of the voter approval requirement for school bonds to 55 percent (Proposition 39 of 2000) will not help a number of the state’s poorer school districts.

The Redding Record-Searchlight reported in mid-April that the Grant Elementary School District (in Shasta County) cannot raise the money it needs for a new school with a 55 percent vote due to the caps placed in the measure on tax rates. Three times in the last six years the district failed to pass bond measures requiring a two-thirds vote.

According to Superintendent Bob Watson, the $30 per $100,000 of assessed value cap on tax rates if a bond is approved by 55 percent (which was a major selling point used by proponents of Proposition 39) would raise only $1.2 million in the district for construction of a new school. This is far short of the $4 million needed for building the middle school.

In a related development, a May 1 report by the Legislative Analyst Office points out gross disparities in local school facility funding, resulting from the impact of the property tax limits imposed with the passage of Proposition 39.

This document states the bottom quartile of school districts could “raise less than $153 (per child)” in capital outlay funds from a Proposition 39 bond issue. In fact, the poorest district could only raise $40 per student. Conversely, the wealthiest 25 percent of California’s school districts could raise from $464 to $30,270 per child from a Proposition 39 bond.

In other words, the $60-per-$100,000 of assessed value cap imposed by Proposition 39 would allow one district to raise $30,270 per pupil for capital outlay and limit another to only $40 per student. (See A New Blueprint for California School Facility Finance).
 

JERRY BROWN ACTION LEADS TO SMALLER OAKLAND UTILITY TAX CUT

All Oakland taxpayers will not enjoy an across-the-board cut in their city utility user tax (UUT), thanks to Oakland Mayor Jerry Brown. According to the San Francisco Chronicle, the former governor used his “strong-mayor” powers to block a six-month cut of the UUT from 7.5 percent to 6 percent that had been approved by a 5-2 City Council vote. The mayor has veto power over a council action approved by fewer than six votes.

In response, the council approved a revised plan last Tuesday that exempts only low-income taxpayers from the UUT, at a cost of only $300,000 in reduced revenue. This is consistent with Mr. Brown’s pre-Proposition 13 thinking, when he proposed giving property tax relief only to low-income Californians (the 1977 circuit-breaker proposal that did not pass and helped build momentum for the Jarvis-Gann initiative that was Proposition 13 on the June 1978 ballot).

Also reminiscent of his pre-Proposition 13 stance as governor (saying the state could not afford massive property tax relief), Mr. Brown said Oakland couldn’t afford the council’s $1.6 million UUT cut, despite the rapid increase in tax revenue due to higher utility bills.

Other UUT developments:

• Compromise in Stockton. A compromise has been reached in efforts to reduce Stockton’s UUT. Sponsors of an initiative to reduce the tax (State Board of Equalization Member Dean Andal and past Stockton Chamber of Commerce President Larry Solari) have agreed with Stockton Mayor Gary Podesto on a plan to: (1) reduce the UUT for low-income taxpayers; (2) provide an enterprise zone rebate of up to 95 percent of the tax for companies that employ 1,000 workers, and (3) place on the March 2002 ballot a proposal to reduce the UUT rate from 8 percent to 7 percent, beginning July 2002, with a further rate cut to 6 percent beginning in July 2003. The Stockton City Council, by a 6-0 vote, approved the compromise last Tuesday. The city clerk had refused to place the Andal-Solari initiative, for which 10,000 signatures were gathered, on the ballot, claiming a defect in the size of the print on the petitions. Without the compromise, proponents of the initiative could have gone to court to overturn the clerk’s decision or simply qualified another initiative.
   
• Desert Hot Springs Defers Action. Desert Hot Springs will wait until summer power bills arrive before deciding whether to reduce its UUT. Last Tuesday, in a report to the City Council, City Manager Joe Guzzetta said it is too early to tell what increased energy rates will do to the city’s 5 percent UUT. According to the Palm Springs Desert Sun, Mayor Mat Weyuker said, “If it is possible to reduce the tax and give our residents a break, we will.”
   

WITHHOLDING REPEAL DEFEATED

An effort to repeal California’s personal income tax withholding program (SB 704, Knight) failed passage in the Senate Labor and Industrial Relations Committee last Monday. Withholding was instituted in 1971, after highly acrimonious debates on the issue in the 1960s.

The bill would have required employers to pay income taxes through quarterly estimates. Senator Pete Knight said the state, because of withholding, gets an interest-free loan of taxpayers’ money. He said most taxpayers are subject to over-withholding, especially lower-income taxpayers with no tax liability. The vote on the bill was three ayes and five nays.

NEW LEGISLATION OF INTEREST

Interest Deduction: Purchase of Energy-efficient Products. SB 75X (Ortiz) allows a personal income tax deduction for interest on loans to purchase and install energy-efficient products.
 

NEW WINE IN OLD BOTTLES

Personal Income Tax: Earmarking for Political Campaigns. AB 190 (Longville) was amended April 26 to delete prior contents of the bill and add provisions allowing personal income taxpayers to earmark $5 (or $10 joint) of their tax payments for political campaigns. The money would be placed in the Legislative Election Fund to be distributed among eligible nominees.

Minimum Wage Tax Credit. AB 475 (Cogdill) was amended April 26 to correct sloppy drafting of the April 23 amendments. The bill now provides a tax credit for wages paid “attributable to a newly increased minimum wage.”

Local Property Tax and Sales Tax Reallocation: Sacramento Region. AB 680 (Steinberg) was amended April 30 to establish a scheme for reallocating local property and sales tax in the Sacramento “region.” (The region is defined as Sacramento, Placer, Yolo, Sutter, El Dorado and Yuba counties.) In general, beginning in March of 2002, the plan allocates sales tax to cities and counties on the basis of population (with the counties using only unincorporated-area population). To offset the revenue losses in some jurisdictions, an amount of school district property tax revenue is shifted on a dollar-for-dollar basis to those that lose sales tax. The state will backfill losses to the school districts.

Income Exclusion: Energy-efficient Clothes Washers. AB 952 (Kelley) was amended April 26 to delete prior contents and add provisions excluding from income a rebate from a local water or energy supplier for purchase of energy-efficient clothes washers.

Collector Car Tax Increase. SB 800 (Johannessen) was amended April 25 to repeal the $2 limit on the vehicle license fee on historical motor vehicles. Legislative counsel has ruled this is a tax increase pursuant to Proposition 13, requiring a two-thirds vote.
 

POTPOURRI: SYMPOSIA, SIGHTINGS, SALUTES & SNAFUS

LAO: END IN SIGHT FOR SALES TAX CUT. The Legislative Analyst’s Office says Californians can expect to pay a higher sales tax starting next January, which will amount to $1.2 billion statewide in 2002. The .25 percent reduction that occurred this year was a result of consecutive years with at least a 4 percent budget surplus. It’s not going to happen this year, automatically restoring the .25 percent to the tax, reported the Orange County Register (May 3).

NEW ALAMEDA COUNTY ASSESSOR. Ron Thomsen has been appointed assessor of Alameda County, succeeding John Scott. Mr. Thomsen served as assistant assessor for the past five years.

OAL APPROVES BOE INVENTORY REGULATION. The Office of Administrative Law (OAL) has approved amendments to the State Board of Equalization Rule 133, relating to business inventories. The change conforms the rule to a 2000 appellate decision (Transworld Systems, Inc. v. County of Sonoma) and was effective April 6.

S.F. TAX FUSS. Nordstrom Inc. Vice President Vicki McWilliams says the company will let San Francisco keep more than $500,000 that it collected in illegal taxes, giving up its share of the $80 million settlement of the business tax case, the San Francisco Examiner reported (April 26). Ms. McWilliams said Nordstrom is satisfied that the city will change its tax system and doesn’t want to see city services suffer. Charles Ajalet, attorney for a number of corporations benefiting from the settlement, said other clients would not follow suit. “Our clients have been extremely good corporate citizens by taking an extremely low settlement,” he said. The city’s two-tier business tax system has been thrown out by the courts. County Supervisor Aaron Peskin, meanwhile, urged “everyone in San Francisco to tear up their Macy’s card and not shop there anymore” because the company has filed a $10 million claim against the city instead of signing the settlement agreement. Mr. Peskin said the city will have to issue bonds to pay for the settlement. Supervisors have voted to abolish the gross sales receipts tax, cutting revenue by $25 million a year. However, some supervisors have vowed to seek another tax to recoup the revenue.

L.A. RANKS LAST IN EFFICIENCY. The Reason Public Policy Institute reports that Los Angeles city government is the least efficient of 44 large U.S. cities. Reason studied how well cities provide 11 services, such as police protection and street repair, and used such factors as budget and population, reported the Los Angeles Daily News (April 25). Only three departments responded to Reason’s request for information, and the institute said missing data indicates inefficiency. Executive Director Adrian Moore said, “There’s an old saying in the private sector: What gets measured gets done. Cities that measure efficiency tend to be more efficient.” New York and Chicago officials did not respond to the survey, which Mr. Moore said involved some three years of work. Los Angeles provided a “ton” of data in the past four months, but that was too late, he said. Mayor Richard Riordan’s press secretary, Peter Hidalgo, said there were “significant flaws in the way that this alleged study, if you want to call it that, was done.”

LEONARD FOR BOE? Add Bill Leonard to the list of legislators eying the Board of Equalization as they are termed out of the Assembly or Senate. The San Bernardino County Republican has formed an exploratory committee for the BOE, reports the Riverside Press Enterprise (April 23). Mr. Leonard, who has spent 23 years in the Legislature as a member of the Assembly, then the Senate, and then back to the Assembly, says he’s keeping his options open because of district reapportionment later this year. He is looking at the BOE second district, which will be without an incumbent. State Senator Jim Brulte also is considering candidacy for the BOE seat now occupied by Dean Andal. Mr. Leonard, who has caused some concern in the business community with a bill to increase property taxes paid by business (a split roll), told the newspaper the board appeals to him because “there are a lot of interesting areas there in tax policy.” 

TAX $$$ @ WORK: Anaheim Pay Hikes. Members of the Anaheim City Council, on a 4-1 vote April 24, approved a 50 percent pay raise for themselves. According to the Orange County Register, the council members were already among the highest paid in the county. They will receive $1,500 a month, up from $1,000. They also get a $475 monthly car allowance, plus health and retirement benefits, and the use of luxury suites at city-owned Arrowhead Pond (ice hockey) and Edison Field (baseball).

RIORDAN BUDGET. Lameduck Mayor Richard Riordan of Los Angeles has proposed a $4.9 billion budget that would offer tax amnesty to delinquent business taxpayers. It is expected that enough would pay up voluntarily to avoid penalties and bring in $20 million in revenue. Media attention on the April 20 budget proposal focused on the net reduction of the police force by some 400 officers, even after hiring 360 new officers. That’s because at least 730 are expected to retire next year. The budget provides $40 million to pay liability claims stemming from the Rampart police corruption scandal, plus $26 million to comply with a court consent degree to clean up the department.

TAX $$$ @ WORK: “R” RATED FILMS IN THE CLASSROOM.  Films that teenagers are not allowed to see with parental permission (“R” rated films) were being shown to students in the Manteca Unified School District, until the school board banned the practice earlier this month. According to the Stockton Record, school board member Dale Fritchen said, “Students were standing up against what was a state-sponsored publicly funded school system showing these movies. They shouldn’t have to do that.” Melinda Hinkley, a high school senior said, “Time and again teachers have been careless and nonchalant about showing movies.” Other observers wondered why the schools are using up valuable classroom time showing movies that can be seen at local theaters.

SONOMA SALES TAX FOR RAIL TRANSPORTATION? Sonoma County Supervisor Mike Kerns is touting a county sales tax to fund primarily rail transportation in the county. According to the Santa Rosa Press Democrat, Mr. Kerns told the Petaluma Chamber of Commerce, “There is no doubt in my mind that this is something we need to do for the future.” Supervisor Paul Kelley said his top priority was to widen Highway 101, the main freeway through the Redwood Empire. Mr. Kerns supported the unsuccessful effort in March 2000 to impose a 0.5 percent sales tax to widen Highway 101.

TEACHER TAX CREDIT; WHO’S ELIGIBLE? Most teachers will be eligible for the teacher tax credit enacted last year. In its legal Ruling 2001-1, the Franchise Tax Board has determined that teachers who hold a teaching credential and have taught at least (4) years with an appropriate credential are eligible if they are employed at a “qualified educational institution.” Such institutions include schools operated by the Department of the Youth Authority, the California School for the Deaf, the California School for the Blind, the Department of Developmental Services and the Department of Mental Health. In addition, certain programs operated by the Department of Corrections also qualify.

PAY COMMISSION BALKS. Copley News Service reported that public outrage helped scuttle pay raises for the governor and legislators, who “will not be rewarded with pay raises at a time when many Californians are being punished by soaring power bills.” California’s independent salary-setting commission has decided that the governor, other state constitutional officers and members of the Legislature can go without higher pay. Claude Brinegar, a former oil company executive and chair of the panel since it was created by Proposition 112 in 1990, said at the April 12 meeting in Sacramento: “They are well-paid in relation to the job.” The commission granted huge pay raises in the past, drawing heat from the public. An initiative campaign is under way to abolish the commission and roll back salaries to 1998 levels, before legislators’ pay was raised more than $20,000 to total $99,000 a year, plus another $25,000 or so in tax-free per diem. Governor Gray Davis, at $175,000 a year, is second to New York’s governor, $179,000, in compensation. This year, the commission refused to grant even a cost-of-living hike, and a spokesperson for the governor said that “the commission acted properly.”

LATE REPORTS ANGER LEGISLATORS. The Assembly Budget Committee, running out of patience with state agencies that are late in completing reports to the Legislature, has decided to cut 28 agency budgets by $90.5 million. The committee says 53 reports were overdue or incomplete as of March 29. These are reports that the Legislature requested to help determine whether the state should continue to support various programs with tax dollars. The committee has the authority to restore funding later in the budget hearing process.

BORDONARO AND ENERGY. Tom Bordonaro, a member of the state Assembly from 1994 to 1998, looks at the state’s energy crisis and, according to the San Luis Obispo Tribune, gets no satisfaction by saying, “I told you so.” The Republican businessman from Paso Robles was the only member of the 1996 state Legislature who did not vote for the electric utility restructuring bill. He abstained, he said, because the “whole approach to deregulation was haphazard, and those who were making the decision didn’t have the expertise. You can’t just deregulate part of the market.”   He said he abstained because a “no” vote meant support of monopolies. “I was between a rock and a hard place. Deregulation can be a very good thing if it is done correctly.” A farmer who also works in real estate, Mr. Bordonaro said: “The bottom line is that the Legislature has a very short-term view of every issue: How can we create issues that we can take home and pat ourselves on the back with? That was the most frustrating reality that I encountered in politics coming from a business background. There is no strategic planning.” The Tribune’s interview with the former legislator was published March 29.

NEW WATCHDOG LEADER. San Diego Democrat Michael E. Alpert, retired Gibson, Dunn & Crutcher partner, has become chair of the state’s Little Hoover Commission. Mr. Alpert has been on the commission since 1994 as an appointee of then-Assembly Speaker Willie Brown. He was reappointed by Senate leader John Burton. He succeeds Richard Terzian, who served as chair since 1994. Sean Walsh, a Republican from Oakland, is vice chair. He was an official in the Pete Wilson administration.
 

COMING UP