Lumber tax survives, tax deal for scholarships dies as California legislators head home

kyamamura@sacbee.comSeptember 2, 2012 

A tax on lumber to pay for timber-industry regulation squeaked through the California Legislature early Saturday as a broader tax deal to pay for scholarships for college students collapsed.

In the final days of the legislative session, Assembly Speaker John A. Pérez tried to forge a compromise with Senate Republicans and moderate Democrats to net $1 billion for college students and K-12 schools by tightening a tax formula for corporations based outside California.

Pérez made his "Middle Class Scholarship" plan his top priority this year.

But the package grew too unwieldy by the end as holdout lawmakers demanded a laundry list of items to win their support.

Republicans sought to restore Healthy Families care for 880,000 lower-income children rather than move them to Medi-Cal. That would have required Democrats to renege on a deal with Gov. Jerry Brown, whose office said last week that the governor still wanted those children in Medi-Cal instead.

At the same time, Republicans wanted to avoid imposing a 1 percent tax on lumber to pay for regulating the timber industry.

But the most politically sensitive elements were special exemptions to the higher tax formula.

The final version of amendments would have allowed cigarette-maker Altria, Kimberly-Clark and International Paper to avoid paying higher taxes under the bill, according to legislative sources who reviewed the language.

Both Republicans and moderate Democrats wanted those carve-outs. Sen. Michael Rubio, D-Shafter, carried the bill in the Senate and told lawmakers that the compromise would have protected jobs at International Paper in his district.

Kimberly-Clark has facilities in the Orange County district represented by Sen. Lou Correa, D-Santa Ana, who ultimately was the lone Democrat to oppose the bill.

"It would have provided important exemptions for businesses that have a large business footprint in this state even though they're headquartered outside of the state," said Senate Republican Leader Bob Huff, R-Diamond Bar. "They're not bad just because they can't have a headquarters in the state of California. They have a huge footprint and create a lot of jobs, why does that make them bad?"

Fifteen minutes after Brown met with Pérez and Steinberg late Friday, officials in the speaker's office said the deal was dead because the exemptions were too difficult to accept. The Senate rejected the plan on a 22-11 vote, five short of the supermajority needed.

"It is disturbing that Senator Correa and so many Republicans would refuse to stand up for the middle class and instead continue to support a tax giveaway that favors out-of-state companies over our own," the speaker said in a statement on his Facebook page.

Steinberg said the grand compromise never jelled enough to warrant a serious conversation in his caucus about whether Democrats could stomach the exemption to Altria. "If that had come forward, we would have gone into the Maddy Lounge (caucus room) and, I'm sure, had a very robust discussion about it," Steinberg said just before 2 a.m. Saturday. "But you know, it was all theoretical."

The death of Pérez's megadeal left a heavily lobbied forestry package to fend for itself an hour before midnight. Brown had been working all year on a package that would loosen requirements on timber companies while generating additional money for state agencies that regulate tree-cutting for environmental impacts.

The proposal, Assembly Bill 1492, also has a provision to reduce wildfire liability for major landowners. That change drew criticism from the Sacramento-based U.S. attorney's office, which has aggressively used state laws to win record amounts of money from those who spark fires.

The linchpin of the plan had been a 1 percent tax on lumber paid by consumers, which would raise $30 million annually for regulatory efforts.

Environmentalists generally liked that part of the proposal after having long complained about funding cuts to state regulators.

California timber firms supported the tax because it relieves them of regulatory fees they must currently pay – and additional fees that Democrats have long wanted to impose on them to fund state forestry oversight. Shifting the tax to consumers means that wood from outside California would also face the new 1 percent charge.

When the scholarship deal imploded, timber-industry lobbyists continued to work the hallways outside the Senate chamber to ensure their bill could pass on its own. The Senate approved the measure only after Republicans held a 1 a.m. caucus to discuss how they would vote; ultimately, two Republicans helped pass it out.

The bill then moved to the Assembly. The lower house rejected it on the first vote, seemingly leaving it for dead. But then it was resurrected at the last moment, a surprise to many in the Capitol.

Most lobbyists had long since departed after a long day of chatting up lawmakers and staff. But a handful of key forestry lobbyists stayed until nearly 2 a.m. to greet Steinberg, thanking him with handshakes and hugs for helping them get their bill approved.

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