March, 2012 | Issue 51
From Diane Harkeys Desk to Yours
Cap and Trade - the New California Currency
(As Published in the Orange County Register 2-27-12)
You can't accuse California of not being creative. You know we have reached the pinnacle in regulation when we cannot manufacture goods and services, but can manufacture a "market" for pollution (Carbon Market). Thanks to all the unemployed investment bankers that fled Wall Street after the housing bubble burst, landing in San Francisco to assist us with our debt needs, we will be monetizing pollution.
Introducing Cap and Trade into our lexicon of potential state revenue opportunities, Governor Brown is also counting on increasing capital gains taxes (tax on earnings from investments) to fill our state coffers and pay for high speed rail. Cap and Trade, another form of taxation with a lot less transparency, and the capital gains from trading in the new currency of pollution "allowance certificates" could very well create the next boom and bust cycle for our state if the scheme works as planned.
As a refresher, in 2006 the Schwarzenegger administration with willing accomplices in the Democratic controlled Legislature decided to limit Green House Gas (GHG) emissions, and solve Global Warming unilaterally. Initially the state was to unite with other Western states to reduce the purported menace to the future of our planet. However our partners determined that they would prefer not to tackle the issue during a recession; the cost of making their states less competitive in a tough business environment outweighed the benefit. The "fix," setting a goal to reduce GHG emissions to 1990 levels, with increasing population on the horizon, is guaranteed to cost employers and everyday people more for the electricity and products they need. California's only remaining partner is the Canadian province of Quebec.
The program to be evaluated by the Legislature has two components. The first is the rationing and allocation of "pollution" certificates among certain industries, such as oil producers, refiners, electricity generators, and other large industries thought to be producing more than 25,000 metric tons of CO2 e per year. Other industries such as Agriculture and Forestry would be exempt from the cap and dealt with separately in the regulatory scheme. Initially California Air Resources Board (CARB) would use a combination of free and auctioned allowances.
The second component, the auction, creates the value, as allowance certificates would be sold to covered entities, not unlike a form of fiat currency. The allocation of the free allowances or certificates would decrease over time to eventually reach the state's 2020 GHG goal. CARB plans quarterly auctions beginning in August 2012 for current year and "vintage" allowances to be used in 2015 and beyond. The marketing of these allowances would be handled in a similar fashion each year. The willing buyers would be able to bank some of the allowance certificates for future GHG emissions. The initial sales and offset credits or "primary market" would be augmented by a "secondary" or open trading market for unused offset credits and "derivative" products. The derivative would undoubtedly provide some sort of insurance to the targeted industries for a range of "cost of compliance" otherwise known as hedge derivative products, to hedge their bets.
The initial price auction participants would be willing to pay depends on the bidding, but is estimated between $10 and $50 per allowance with prices increasing over time. Needless to say, the amount of state revenue from this highly complex new currency and trading market is difficult to ascertain. But two things are certain, the cost will be absorbed by you, and the risk of market manipulation could be huge. The state could end up with a wide range of revenues or losses, due to leakage (or employers leaving the state) as well as pollution goals unmet. The Governor and others that are counting on future billions flowing into the state's General Fund from monetizing pollution better be hedging their bets as well. You can bet Wall Street will. I wonder if they will accept our new currency as legal tender for debt repayment.
Lemon Law - Riding the Rails to Your Town Soon
I want to issue a special thank you to the cities of Rancho Santa Margarita, Mission Viejo and San Juan Capistrano for their unanimous support of a City Council resolution to support AB 1455, the bill I introduced this year to de-fund the voter approved High Speed Rail Bond of 2008. The suggested resolution of support was mailed to each City Council and Supervisor in Orange County as well as other areas by request throughout the state. Many other cities have the resolution on the docket for council review in the near future.
The decision to support AB 1455 is not as easy as you may think. While I have been preparing and distributing data confirming that what the voters thought they voted for is not what they appear to be getting, many of your cities have been assured money for rail improvements if they support high speed rail. Southern and Northern California transportation agencies have been grouped together in "Joint Powers Agreements" stating that certain regions would be assured of one billion dollars or more for projects. OCTA, SANDAG, LA METRO and others have been reviewing the agreement at their respective Board meetings. To date, OCTA has not agreed to the language as presented.
The issue for locals remains the same as the issue for the state, "From where do the promised funds originate?" Prop 1A the $9.95 billion voter approved bond, and the authorizing legislation, AB 3034, has strict guidelines for funding and the $9 billion may only be allocated to certain areas. For example, Fresno to San Francisco, or LA to Anaheim could use a restricted portion of the $9 billion reserved for High Speed Rail. That being the case, the $9 billion cannot be arbitrarily promised for county or region wide distribution for local rail. The 0.95 billion is and was always slated to be used by locals for connectivity or rail improvements. To date, no one (including the California High Speed Rail Authority) has been able to answer where the extra billions being promised in the Joint Powers Agreements is coming from.
Until we get some answers to how the money flows and who pays ($100 Billion project, operating costs and your local match) please encourage your city to consider support for AB 1455. The voters were deceived and there should be a law - there is - AB 1455 the High Speed Rail Lemon Law.
Ending Horsey Hysteria
My district includes many Equestrian areas and stables, and as many of you know, I love horses. As informed by local as well as Equestrian Newspapers and social media, the facility where I board my horses was under quarantine for a virus. Important to note: the virus or strain is not new to the horse population. What is new is the improved diagnostics and reporting requirements.
The Equine Herpes Virus-1 remains dormant in a large percentage of horses. Up until last year the California Department of Food and Agriculture did not require the virus to be reported. However due primarily to improving diagnostic techniques, and an increased awareness, the neuropathogenic strain of the virus is now reportable to the CFDA. As typical with any change in procedure, where information is difficult to obtain, there has been much misinformation and a bit of horsey hysteria in the Equine community. Being in an enclosed stable environment, and the first stable in the area to have to deal with the new reporting, it was difficult to determine a workable method to diagnose and separate the few ill horses from the healthy. Our stable owner and resident veterinarian were working constructively, and not without considerable expense and criticism during the process, to ensure our horses were analyzed, procedures were put in place, and most of all our favorite "pets" remained healthy.
To help clear up any remaining questions, on February 15, 2012, I contacted CDFA staff Dr. Kent Fowler and Dr. Annette Whiteford and received the communication below:
"Twenty one days after the last confirmed positive case of neuropathogenic strain of Equine Herpes Virus-1 the quarantine for Rancho Sierra Vista Equestrian Center has been released. Horse owners and facility management worked tirelessly to contain the disease by isolation of confirmed cases and implementation of enhanced biosecurity measures. The Department recognizes veterinarian Dr. Mark Secor and facility owner Patty Garrison for their outstanding service and cooperation with regulatory veterinarians from CDFA - Animal Health Branch. Their contributions played an important role in controlling disease spread and protecting the CA equine industry.
Horse owners traveling to an equine event are reminded that there is always risk when horses of unknown health status are commingled at one location for a show or competition. The CDFA strongly recommends horse owners practice proper biosecurity when traveling to or stalled at an equine event. Consistent basic biosecurity practices, such as avoiding nose-to-nose contact between horses and avoiding shared water sources, play an important role in reducing risk of exposure to all contagious equine diseases when attending an event."
Hope this helps bring happy trails to you!
Legislation for 2012
I try to keep my legislative or "law making" agenda to a minimum, to ensure my time and effort remains focused on analyzing important issues affecting not only my district but the entire state, specifically budget, finance and taxation. To see a listing of proposed new legislation I have introduced and will be presenting, please see here.
Last week, I joined with Assembly and Senate Republicans to co-author a package of bills to place the Governor's pension reform on the November ballot. The Governor's proposal includes pension cost sharing, eliminating the ability to artificially "spike" pension benefits, prohibiting those who commit felonies in the line of duty from collecting tax-payer funded pensions, raising the retirement age, and limiting post retirement government services, as well as other reforms that many of our local public employees have already implemented. While these reforms will not solve the underfunding problem, they are a step in the right direction. Republicans can supply up to 28 votes in the Assembly and 15 in the Senate. Working in a bi-partisan manner with Democrat member support we could see progress this year. For more information on Pension Reform and updated Budget information see here.
My staff and I have been attending many local events, such as city council meetings, San Juan Capistrano's State of the City, San Clemente's Chamber of Commerce Board Installation, and many others. The parade season will open on March 3rd , with Dana Point's Festival of the Whales, and followed by San Juan Capistrano's Swallows Day Parade on March 24th.
For information on special events in your city check your city's website or Chamber of Commerce website. If there is a special event you would like us to attend, please contact my office.
Thanks again for your support and don't forget to view the website here for additional information on the budget, high speed rail, changes to public safety and other issues that I am working on that concern you.