Special Session on Taxes: On Tuesday, the Commission on the 21st Century Economy released its final 425 page report and recommendations on ways to update and improve California’s revenue system and make it more reflective of our state’s economy. Coinciding with the release, Governor Schwarzenegger call a Special Legislative Session to “to address and improve the state tax system, including but not limited to the following: establish a tax structure that fits with the state’s 21st century, stabilize state revenues and reduce volatility, promote the long-term economic prosperity of the state and its citizens, improve California’s ability to successfully compete with other states and nations for jobs and investments, reflect principles of sound tax policy, and ensure that the tax structure is fair and equitable.”
The proposal is extremely complex, but it essentially flattens state income tax rates, reduces sales taxes and establishes a new consumption tax on businesses (called the Business Net Receipts Tax or BNRT.) The impact on cooperatives and their producer members has yet to be determined. However, the initial reaction from a wide spectrum of business, labor and tax reform groups has been extremely unfavorable. So, when the legislature convenes its Special Session in the next couple of weeks, it’s highly unlikely the proposal will move.
CDFA Retirement: After 33 years of state service John Connell, Director of Plant Health and Pest Prevention Services at CDFA, is retiring effective December 2. Since his appointment to the position in 2006, John has spearheaded major eradication projects including Light Brown Apple Moth and Asian Citrus Psyllid. No replacement has been named yet.
Green House Gas Legislation: While California has already moved forward with the implementation of state policies to reduce green house gas emissions, the debate in Congress is just heating-up. Although the issue is currently overshadowed by the health care reform, two different proposals are currently pending in each house of Congress. The following analysis is provided by the Agriculture Energy Alliance, a national coalition supported by the Ag Council. It summarizes the differences between the Senate and House versions from an agricultural perspective:
The Boxer bill contains a more aggressive greenhouse gas (GHG) reduction schedule in the early years of enactment than the House passed Waxman/Markey bill. The House version of the bill mandated a 17% decrease in GHG emissions from 2005 levels by 2020. The newly released Boxer/Kerry bill mandates a 20% decrease in GHG emissions from 2005 levels by 2020. Both bills maintain the same long-term reduction goals of 83% below 2005 levels by 2050.
- The Senate bill does not contain specific allocations to energy intensive industries. The House bill allocated 15 percent of the total allowances to energy intensive industries but reduced the amount each year. The Senate bill does contain a section on how energy intensive industries will be determined and allocated allowances, but it does not identify the amount of allowances. The section on energy intensive industries in the Senate bill appears to contain the same language as the House bill. We have been told that this is simply a place holder and will be addressed during committee markups. Providing free allocations to energy intensive industries, including fertilizer manufacturing, are critical for this sector to remain competitive in the global marketplace.
- Like the House version under Waxman/Markey legislation, petroleum refiners, especially small business refiners which are the primary fuel providers to agriculture and rural communities, are significantly slighted in the allowance allocation. Because the legislation will make refiners responsible for the GHG not only from their plant emissions, but more significantly the GHG in their fuel products, refiners will have to pass along significant costs to all consumers in every gallon.
- Unlike the House bill that passed in June, the Senate bill does not address trade provisions or border measures. The Senate bill leaves a placeholder in this section stating that a trade title, including a border measure, will be included in the final bill. Border adjustments (basically a carbon tax at the point of entry) are necessary for the domestic fertilizer industry to remain globally competitive.
- The Senate bill includes new natural gas incentives under a “clean energy” provision that rewards companies that switch from power sources with higher emissions than the 2007 power sector average – such as coal-fired or oil-fired power plants – to cleaner fuels including natural gas. The Waxman/Markey bill did not give significant allocations to the natural gas producers and natural gas producers have been actively lobbying for greater incentives in the Senate bill. The Boxer bill gives natural gas producers incentives without having to significantly alter the free allocation scheme negotiated in the House bill. There is significant excess natural gas electric generation capacity in the U.S., and these incentives could quickly lead to fuel switching resulting in large increases in demand and the price of natural gas.
- The Senate bill removes restrictions placed on EPA under the House Waxman/Markey bill that prevented EPA from regulating GHGs under existing sections of the Clean Air Act. This could result in overlapping regulation with ill-suited environmental programs that could start sooner than the bill’s enactment. There is limited preemption language in the Senate bill for state climate programs from 2012 to 2017. Environmentalists consider this change a major victory, specifically because it would allow EPA to set greenhouse gas emissions standards when issuing permits for existing plants under the agency's New Source Review program.
- The Senate bill contains the same total allowance of “offsets,” but reduces the amount eligible from international sources to no more than 25 percent of the total. This will allow more offsets to come from domestic sources such as agriculture and forestry. The offset provisions in the bill are very complicated, but many believe that these offsets will provide a less expensive option for facilities that will have to purchase emission allowances. Many people believe that the amount of international offsets envisioned in the House Waxman/Markey bill were overly ambitious and not realistic.
- There is still language in the Senate bill that gives farmers “offset” credits for reducing nitrogen fertilizer use or increasing nitrogen use efficiency. The fertilizer industry is working to remove this language from the bill.
Applications due for Outstanding Young Farmer on Nov. 1: The California Junior Chamber is accepting applications for it's 2009 Outstanding Young Farmer award. Applications are due on November 1. Applicants need not be a member of the Junior Chamber to apply. Candidates must be a farmer or rancher in California, and be able to attend the award luncheon on November 14, 2009 in Visalia. Applications can be found on our website at www.agcouncil.org.
The next In The Know will be distributed on October 16.
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