American politics begets the parsing of words (you might recall “it depends on what the meaning of the word ‘is’ is”), California being no exception.
Case in point: the definition of “win”, as it applies to a legislative measure signed into law late Tuesday afternoon by California governor Gavin Newsom and his political fortunes.
Late last week, California’s State Senate advanced a first-of-its-type bill (seen here, in its latest amended form) giving the California Energy Commission the power to impose civil penalties on oil companies for perceived price-gouging.
The same bill also created a new entity within the commission (a “Division of Petroleum Oversight”) tasked with tracking the energy market – a task maybe made easier since the bill gives the California Energy Commission the authority to subpoena oil executives to testify and force companies to disclose financial information.
The media’s reaction?
Bloomberg CityLab credited Newsom with a “Win in Bid to Curb Oil Profits.”
The Hill’s headline writers went a step further: “Newsom Gets Big Win.”
Such wasn’t the viewpoint in “the oil capital of California” and this Bakersfield Now headline: “California Senate Bill Targets ‘Big Oil,’ Riles Critics.”
My question: was it really a “win” for Newsom?
The answer: that all depends on what the meaning of “win” is.
On the one hand, Newsom is a “winner” in that—and this assumes the governor signs some version of the Senate bill into law—he’s made life more complicated (and punitive) for a fossil-fuel industry that he’s repeatedly taken to task since last fall’s record-high prices appeared across the Golden State.
On the other hand, Newsom is not a “winner” in that the penalty isn’t the weapon he originally sought back when Californians were experiencing pain at the pump.
Let’s go back six months to this gubernatorial press release calling for a windfall profits tax—not a penalty—the proceeds from which “would go directly back to California taxpayers.”
By early December, that tax proposal was no more—Newsom, in this press release, now calling for a Big Oil “price gouging penalty.” That rephrasing was no accident, as imposing a new state tax in California requires a two-thirds approval in both legislative chambers, whereas penalties can be imposed by simple majorities.
(Speaking of parsing words, California’s judiciary may have the final word on this matter if oil companies seek a legal injunction. Their argument: the bill doesn’t jibe with the state’s constitution and what qualifies for simple-majority approval (“a fine, penalty, or other monetary change imposed by the judicial branch of government or the state, as a result of a violation of law”).
Now, a second question: is this really a win for Californians? To believe in what the governor and the legislature are up to here requires something in shorter supply than cheap energy: trust.
Consider the following:
- Should Californians trust the legislative process given that the Senate bill sailed through the chamber without much in the way of vetting (for example, there is no revenue model) and not long after Newsom’s office made major changes—the key one being the aforementioned provision requiring the California Energy Commission, not lawmakers, to decide what constitutes excess profits? (Here’s more on how the measure succeeded in vaulting the equivalent of 100-meter hurdles.)
- Should Californians trust a state energy commission to have the core competency and intellectual bandwidth to fully grasp the intricacies of the oil industry? Keep in mind, this is the same state government that got ripped off to the tune of at least $20 billion in phony COVID unemployment claims—checks cut for the likes of a Dianne Feinstein imposter and “Mr. Poopy Pants.”
- Will the individuals tasked with figuring what constitutes “price gouging” and sanctioning profit margins be honest brokers? The California Energy Commission consists of five gubernatorial appointees (requiring Senate approval). The individuals asked to examine oil companies’ books likewise will be Newsom/legislative picks, but not with the same staggered five-year terms as the commission members—i.e., the governor can remove an appointee anytime he likes. Does this make for a “dedicated, 24/7 independent watchdog,” as yet another gubernatorial press release proclaimed?
- Should California taxpayers trust lawmakers with distribution of whatever proceeds there are, should oil companies actually face a penalty? Unlike the original Newsom vision, where tax revenue went straight to Californians, funds from the penalty would go into a fund, which the legislature would then determine how to spend. What are the odds of said revenue going to something germane to oil and gasoline—say, reimbursing drivers for car damage done by potholes on California’s storm-battered freeways?
Then again, California may have dodged a bullet by not going with Newsom’s first instinct and the windfall profits tax—not an original concept, in that it was floated in Washington, DC, last year (Senate Finance Committee chair Ron Wyden introducing a “Taxing Big Oil Profiteers Act,” which would impose a 21% tax on the “excess profits” of oil and gas companies earning more than $1 billion in annual revenue).
What Newsom and Wyden overlooked: a windfall profits tax didn’t work the last time Washington took a stab at it, back in 1980. One of several problems that soon emerged: as oil prices stabilized, the excise tax on differentials between market and base prices failed to deliver anticipated revenue.
Speaking of “anticipated,” in California that includes more drama involving the state legislature, the Golden State’s business community, and the initiative process.
That starts with Assembly Bill 421, which, if approved, would alter the rules for ballot-measure signature gathering by requiring at least 10% of petition signatures to be obtained by unpaid volunteers. With this twist: the new requirement targets initiatives and referenda that seek to amend or overturn state laws less than two years old.
Why that specific mandate? Because going to the ballot to undo state laws is one of the few means by which California’s business community can counter lawmakers’ progressive whims: the fast-food industry collected enough signatures earlier this year to prompt a November 2024 referendum on a new wage law for fast-food chains across the Golden State; and oil companies announced in February that they too had enough signatures for a referendum to overturn a 2022 law banning new drilling projects near residences and schools (California voters have weighed in on 50 “veto referenda” in all, 29 times repealing existing laws while 21 times upholding them).
If this sounds familiar for readers of these pages, it should. California’s 2020 election saw a high-dollar, high-stakes battle between Democratic lawmakers and ride-share companies that had financed Proposition 22, which sought to exempt gig workers from a California statute that took away their status as independent contractors. That round went to the ride-share companies.
The previous election, in November 2018, saw a kerfuffle over Proposition 25 and whether to end cash bail in the Golden State (a confusing measure—and not a “veto referendum” in that a “yes” vote meant keeping the existing law, not tossing it).
Such may be the shape of California elections to come: progressive candidates dominating in state and local races; business interests spending heavily to undo what those candidates do once they reach Sacramento.
Which may constitute a different windfall profits tax for California to consider: political consultants making out like bandits in expensive referenda battles for the foreseeable future.
