Bumps, hurdles and progress for regulatory economic analysis in California

Posted by Gino DiCaro, Vice President, Communications on March 11, 2010

Yesterday the Senate Rules Committee took up a bill that would create a new joint legislative committee to do economic impact analysis on proposed legislation. This special session bill did not get a vote, but the same bill will be heard again in regular session this spring. (Process note - SB8x 60 is identical to SB 954)

Some committee members agreed that the goal of the bill is laudable. The generally favorable discussion is a good sign that California might become more sensitive to competitive and economic impact, especially since other state governments are working so much harder to attract jobs and provide a competitive climate for industry. A year ago, this bill and concept would have been buried with little fanfare.

California has lost 636,000 manufacturing jobs over the past nine years. Hundreds of new regulations each year make it almost impossible to compete, and in many cases unthinkable to make future investment decisions in the state. This is why this bill is so important. This is a low-cost policy that will go a very long way in turning around California's 12.5% unemployment rate and the loss of 34% of our manufacturing base -- a sector that houses many of our greenest industries.

Pro tem Darrell Steinberg agreed that we should proceed with the concept in the bill but that the idea needs work. He agreed to convene a small working group to explore ways to incorporate economic impact analysis into the legislative process. So stay tuned.

Senator Gil Cedillo expressed concerns about use of such a process to put the legislature in the role of determining economic and business outcomes, like we are “creeping toward socialism." Going forward we’ll need to convince wary legislators that quality information is always a good thing and they can use it or ignore it as they please.

Have a look for yourself in these videos:

CMTA's Dorothy Rothrock

Bill author, Senator Tom Harman

Senator Gil Cedillo

Entire hearing

View Coalition support letter

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California does not need more tax penalties

Posted by Gino DiCaro, Vice President, Communications on Feb. 24, 2010

The LA Times' Evan Halper wrote a piece on Monday, 'Group fights plan to fine tax cheats', regarding a tax refund penalty provision buried in Senator Lois Wolk's otherwise worthy tax relief bill SBX8 32. The focus of concern in this bill is a controversial penalty on misclaimed refunds. Whether or not one agrees with the policy of a refund penalty, it is important that controversial policies stay out of a federal tax conformity bill. The conformity bill, over 100 pages, must have consensus or its demise is certain.

Typically, controversial provisions are passed outside the conformity bill process, which is why items like the Health Savings Account and the Research and Development Credit conformities have not been included in past omnibus conformity bills.

If proponents of the bill are truly worried about total federal conformity, they should include all items related to conformity, like those above, or even eliminating provisions that do not conform, such as the California-only 20 percent "understatement penalty" for understatements in excess of $1 million, with no right to appeal. This penalty, passed as part of a "dead-of-night" budget session, caused taxpayers to substantially overstate their taxes to avoid the penalty that may result from unexpected federal adjustments. The proposed erroneous refund penalty has the potential to whipsaw taxpayers that have overstated their liability to avoid this egregious understatement penalty on the front end, and now, on the back end, must be extremely careful to ask for a refund that does not exceed what the FTB deems to be reasonable.

The merits of tax relief for troubled homeowners and innovative energy companies is good tax policy considering the state of our economy, but this bill merges needed relief with another penalty that innocent and, in many cases, drowning businesses can't afford. If the author and its proponents want relief for homeowners underwater in their mortgages, renewable energy projects, and jobs, they would not be moving a bill, addressing those very important and noble efforts, that is certain to be vetoed based on the inclusion of a less than noble and political issue.

Instead, the proponents have called out manufacturers and every other major business group in opposition to the bill as 'tax cheats'. California manufacturers, who employ over 1.5 million workers, are losing ground every month in large part because of state policies that drive up costs and eliminate their ability to compete. Now, we are in some way at fault for not trusting a state that can’t manage its own finances to somehow determine what is fair and reasonable in managing ours. To label this a 'tax cheat' plan is a stretch. Excuse me if we have concerns with a penalty placed on both ends of the tax process in a state that already carries the highest corporate taxes in the nation. Seems to me to be set up for a pretty good gig for California.

Let's pull this penalty policy out of the bill and bring back the many years of debate on conforming our research and development credit and others to federal standards. We can then discuss how each provision might hurt or help our economy. Those R&D credits in particular could go a long way in ensuring that our next life-saving product or military defense design is invented and produced here in California. But for some reason that particular conformity doesn't ever seem to fly.

When will we stop treating our coveted employers as tax cheats and start recognizing them as revenue generators that need to be able to compete in California? The LA Times missed the point on this bill and Sen. Lois Wolk offers more of what California doesn't need: more penalties on employers.

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'Cool Cars' embodies Sacramento's 'bumbling, well-intentioned, paternalistic nonsense'

Posted by Gino DiCaro, Vice President, Communications on Feb. 23, 2010

The California Air Resources Board (CARB) is looking to finalize its "Cool Cars" policy this Thursday, once again putting regulation before reason and imposing knee jerk command-and-control mandates with no regard for economic impacts and, in this case, public safety.

**** Since this blog was written I have been corrected by CARB that it is not on the agenda for Thursday. But no doubt folks are still showing up to testify in the public comment period on the issue *****

Here's the nickel tour:

CARB's "Cool Cars" policy was set up in 2009 as an AB 32 early action item to reduce the state’s greenhouse gas emissions by reflecting heat away from cars, thereby requiring less air conditioning and less fuel.

CARB originally tried to ban dark colored vehicles. That didn't fly with the public, auto dealers, manufacturers and anyone else who breathes in California. Whew.

CARB then focused on a policy that mandated a reflective layer in all car windshields by 2012 and all windows by 2016. They did this before any analysis on economic or safety impacts and without regard for alternatives with similar emission reductions.

Policies like this require extensive research to ensure proper benefit with the least amount of economic burden. Over the past few months important information and data on these two fronts has emerged from the Wireless Association and the Auto Alliance that prove that the proposed "Cool Cars" policy creates:

A substantial economic burden (costs 2 and a half times more than CARB reported)
A serious concern about public safety because of negative effects on GPS ankle mechanisms and less cell phone 911 call completion
Overall administrative nightmares for any system using toll road and bridge transponders

Even when presented with these problems and new information on better alternatives, CARB is still unwilling to budge and provide any flexibility or necessary changes in the regulation.

The ultimate absurdity of "Cool Cars" is that the policy discourages new green tech and innovation in our automobiles. Solar absorptive technology incorporated in windshields is an alternative approach and is 90 percent as effective in reducing the build-up of heat in a vehicle. This technology has none of the negative outcomes of the proposed "Cool Cars" regulations. Further, there is a decent chance this less costly and more efficient technology (along with other alternatives) could be adopted nationally or semi-nationally, meaning larger emission reductions countrywide.

CARB in the end wants it one way. Their way. CARB is going it alone, ignoring the studies and contributing to what the Orange County Register called in a November editorial, "Sacramento's caricature of bumbling, well-intentioned, paternalistic nonsense".

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Leadership on jobs growth emerging

Posted by Gino DiCaro, Vice President, Communications on Feb. 10, 2010

California has often claimed leadership on many big issues and movements. It's time for policymakers to claim leadership where it matters most -- growing our job base. A 12.4% unemployment rate, a $20 billion state deficit, a manufacturing sector that lost more than 607,000 jobs since the decline started, and a negative 5.97 public-to-private sector job ratio since 2001 leaves California in a stranglehold of deterioration.

Both parties introduced jobs packages in the last 24 hours that indicate the Legislature is now focused on leading us out of this mess with a policy environment that at least thinks of job impacts first. Up until now, the employer, employee and unemployed communities in California were left wondering why California leads on everything but jobs and our economy.

Both parties deserve credit for working to put something together, but there are delineations in the two proposals that must be pointed out. The democrat proposal is almost solely based on government created jobs, while the republican proposal sends signals to the private sector that California will create a competitive job creation climate with reduced costs and flexible regulations. (The latter covers many of the themes in CMTA's campaign asking policymakers to understand economic and job impacts of existing and new regulations.)

An answer to the two different proposals lies in a look at California's private-public sector job ratio and Texas' job and revenue growth. According to the Bureau of Labor statistics data, for every new California government job since 2001, the state LOST 5.97 private sector jobs. That hurts ... bad. It translates into an environment that has literally picked the winner in California -- government. On the flip side, over the same nine years the Lone Star state's focus on flexible regulations and lower costs (CA is 57% higher in taxes than Texas) has given them 484,600 new private sector jobs and, consequently, the money to pay for important government services -- to the tune of a $2 billion surplus in 2009. In other words, produce the wealth first, then pay for increased government.

With a plan that cuts costs, eases regulations with flexibility, and eliminates lawsuit abuse, the Republicans understand that our recovery starts with a competitive environment for our large and small businesses.

While there are quality proposals in the democrat plan -- such as streamlining small business permitting with one-stop shops -- they rely too heavily on spending dollars we don't have to create new government programs and new government jobs. Part of their plan actually eliminates furloughs and redirects tax dollars into more public sector jobs.

The re-directed leadership is appreciated by all working families and employers in California, no doubt. Now it's just time to get it right. If we do, we just might get on the cover of Time Magazine for the leadership this state deserves.

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Regulatory uncertainty is the bane of investment

Posted by Jack Stewart, President on Feb. 5, 2010

Uncertainty is the bane of investment, innovation and economic growth. California's economy will not recover so long as our state consistently implements regulations without regard for negative economic consequences. I penned the following piece in today's Sacramento Bee as part of CMTA's effort to grow jobs and revenue by understanding regulatory impacts. Our goal is to create 2 million new jobs by 2020 by reviving California's golden era of economic growth and prosperity.

Viewpoints: Thicket of regulation strangles jobs
By Jack Stewart
Special to The Sacramento Bee
Published: Friday, Feb. 5, 2010 - Page 15A

For all the rosy talk, California's new "green" jobs now account for less than 1 percent of the state's work force. Certainly we need these jobs and should be doing everything we can to nurture them. But pretending that they alone will pull California out of our current economic bog is naive. Growing thousands of green jobs while driving away hundreds of thousands of manufacturing jobs won't recapture our state's economic glory. We need both to reignite our economy.

California's manufacturing sector provides high-wage jobs for millions of middle-class families while generating billions of dollars in tax revenue for schools, infrastructure and other public services. But these jobs are disappearing. We aren't talking about old "smokestack" industry jobs, but aerospace, high-tech, biotech and other skilled positions that pay on average $20,000 a year more than service-sector jobs. This month, our last auto manufacturing plant is closing.

Manufacturing and other companies are leaving California or failing to expand, in large part, because of the state's notoriously expensive and uncertain regulatory environment. Businesses are afraid to invest here because the rules keep changing while the cost of compliance spirals ever higher.

"It's difficult for most employers to make a solid case for starting up or expanding a business in California," observed Trends Magazine recently. "Government regulations seem perversely aligned to discourage people from doing business there." Last year, one California company told the Legislature it had been inspected by regulators 165 times in 2008, nearly every two days, and that inspections had increased another 26 percent in 2009. Reports like this scare other companies away.

Since 2001, California has lost nearly a third of its manufacturing base, a 32 percent decline in just eight years.

The impact has been devastating: 600,000 lost jobs, $75 billion a year in lost wages and $5 billion annually in lost tax revenue, money that once helped balance the state's budget.

If we're serious about reversing California's reputation as a lousy place to do business, we need to get serious about regulatory reform. We don't need to dismantle environmental, worker or consumer protections to improve California's regulatory climate.

But we do need to remake the system so it's lean, efficient, predictable and accountable, with common-sense rules that are fairly applied. It's a smart way to begin repairing our image (and our economy) because it can be accomplished quickly and without cost. Moreover, the benefits will be felt almost immediately, as it will send a powerful message to the business world that we genuinely want their jobs and the revenue they provide. Very quickly, we'll once again be competitive with other states.

To achieve this, three things need to happen.

First, the Legislature needs to restore its authority over the state's regulatory bureaucracy. Unelected officials now have sweeping powers to impose new regulations, with no requirement that these regulations be reviewed or approved by the Legislature. This creates an uncertain and unpredictable regulatory climate that can easily be fixed by requiring legislative approval for each new regulation proposed by the bureaucracy.

Second, there needs to be a system that accurately measures the potential impact of proposed regulations on jobs and the state's economy, so informed decisions can be made about whether the benefit of a new regulation is worth the cost.

Requiring the Legislative Analyst's Office to complete an unbiased, independent economic impact report for every major regulation that's proposed will achieve this.

Third, to begin trimming California's regulatory thicket, the Legislature should review every regulation already on the books, and require periodic review for all new regulations adopted in the future. Doing so will ensure that regulations are working as intended, and rid the state of regulations that are outdated, ineffective and redundant.

Clearly, other steps must be taken to fully revive California's economy and stop the exodus of jobs and tax revenue. But regulatory reform is a good place to start because it provides tangible and immediate proof to wary investors and company decision-makers around the world that California is back in business.

Article link: http://www.sacbee.com/opinion/story/2514710.html#mi_rss=Opinion

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