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IN THIS ISSUE – “Now Is Not the Time for Major Tax Increases”
POLICY & POLITICS
- Newsom Ponders CPUC & Utility Regulatory Remake
- Winter Deluge Drowns California’s Drought
- Housing Shortage v. Environment: A Stark Case Study
- Petroleum Producers Survive in New Low-Price Era
- Coffee Beans Move North
- Hemp Capital of the US?
Capital News & Notes (CN&N) harvests California legislative and regulatory insights from dozens of media and official sources for the past week, tailored to your business and advocacy interests. Please feel free to forward
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FOR THE WEEK ENDING MARCH 15, 2019
Preliminary General Fund agency cash for the first eight months of the fiscal year is $2.218 billion below the 2019-20 Governor’s Budget forecast of $85.150 billion. Revenues for the month of February were $128 million above the month’s forecast of $5.791 billion.
nPersonal income tax revenues for the first eight months of the fiscal year are $2.795 billion below forecast. Personal income tax revenues to the General Fund were $137 million below the month’s forecast of $3.051 billion. Withholding receipts were $113 million above the forecast of $5.395 billion. Other receipts were $63 million higher than the forecast of $533 million. Refunds issued in February were $316 million higher than the forecast of $2.821 billion. Proposition 63 requires that 1.76 percent of total monthly personal income tax collections be transferred to the Mental Health Services Fund (MHSF). The amount transferred to the MHSF in February was $2 million below the forecast of $55 million.
nSales and use tax revenues for the first eight months of the fiscal year are $31 million below forecast.
Revenues for February were $152 million above the month’s forecast of $2.454 billion. February cash includes a portion of the final payment for fourth quarter 2018 sales, as well as the first prepayment for the first quarter
nCorporation tax revenues for the first eight months of the fiscal year are $537 million above forecast. Revenues for February were $102 million above the month’s forecast of $162 million. Estimated payments were $22 million above the forecast of $126 million, and other payments were $33 million higher than the $152 million forecast. Total refunds for the month were $47 million lower than the forecast of $117 million.
nInsurance tax revenues for the first eight months of the fiscal year are $9 million above forecast. Revenues for February were at the forecast of $30 million for the month. Revenues from alcoholic beverage, tobacco, and pooled money interest taxes for the first eight months were $12 million below forecast, and $3 million below forecast for the month of February. “Other” revenues were $74 million above forecast for the first eight months of the fiscal year, and up $13 million for the month of February.
The state added 3,000 nonfarm jobs in January, well below the monthly average job-gain of 29,000 since the current employment expansion began. On a year-over-year basis, California nonfarm payrolls expanded by
1.4 percent in January, the smallest year-over-year job gain since December 2011. In comparison, U.S. nonfarm payrolls increased by 1.9 percent in January,
By population and percentage of personal income, this state already has the nation’s 10th highest tax burden. And the leader of the California Senate, Pro Tem Toni Atkins, has pointedly cautioned against any more levies that take cash out of the pockets of working families.
In short, California lawmakers needn’t look far for an excuse to avoid raising taxes. Whether Atkins’ fellow Democrats got the memo, however, isn’t clear.
Proposals this legislative cycle alone have included—so far—a soda tax to fight obesity, a tire change tax for stormwater cleanup and a drinking water tax to clean up toxic wells. Also a firearms excise tax, an oil and gas severance tax, and a fee on dialysis centers. Also an increase in lead-acid battery fees.
Democratic Gov. Gavin Newsom has embraced the drinking water tax. He’s also put forth a few new revenue streams, namely a monthly phone fee to upgrade the 911 emergency response system, possible higher payroll tax for babies to get six months of paid family leave, and a state individual health mandate to replace the federal penalty repealed by Republicans.
But the proposed hikes pose the real challenge to legislative leaders such as Atkins, who remember all too clearly the statewide backlash to the 2017 gas tax increase.
“Many proposals have been put forward by the governor and by individual legislators,” she said as this year’s session started. “All will be appropriately reviewed through our policy and budget process. But one thing is clear, now is not the time for any major broad-based new tax increases on lower- and middle-income families.”
Democratic operatives say there’s no grand strategy for raising taxes even as Republican lawmakers labeled it #taxifornia. But the drumbeat of targeted tax and fee proposals comes after eight years of former Gov. Jerry Brown’s emphasis on fiscal restraint.
Brown kept a tight rein on the state’s purse strings with the power of his veto, campaigning more selectively for a sales and income tax hike and encouraging the state’s teachers’ unions to stump for extended income taxes on the wealthy if they wanted more school funding.
“I think a lot of these folks are like, ‘Hey, man, we’ve had a Democrat tell us no, now we have a Democrat who we think is progressive and we want him to tell us yes,’” said Andrew Acosta, a Democratic political strategist in Sacramento. “But the reality is, how many things are California voters going to say yes to?”
The challenge for Newsom and legislative leaders is to say no if they hope to raise significant revenue to fund such ambitious goals as universal health care, universal preschool and improved K-12 funding. Newsom released a $209 billion budget in January and has lofty goals to combat homelessness, expand affordable housing, make college cheaper, and pay down pension debts.
“Having to vote on an endless series of taxes is political malpractice,” said Steve Maviglio, a Democratic consultant who is fighting the soda tax at the behest of the soda industry. “I think leadership recognizes that and they’re trying to tamp down expectations because that’s the most difficult vote they can take.”
The Democratic legislative leaders–Atkins and Assembly Speaker Anthony Rendon–now preside over a super-duper majority in both houses. The 80-seat Assembly has 61 Democrats, and the 40-seat Senate has 28 Democrats, far more the two-thirds needed to approve a tax hike.
On the surface, that should make passing taxes easy. But not all members are free to tax liberally.
Josh Newman was recalled from his Orange County state senate seat last year for his aye vote on a bill to raise California’s gas tax by 12 cents per gallon and increase diesel fuel taxes by 20 cents per gallon to fund road repairs and public transit.
Republicans funded an effort to repeal that gas tax in November and even though the initiative failed statewide, it carried in eight Democratic Assembly districts and one Democratic Senate district, according to Rob Pyers, research director at the California Target Book.
At least one Democrat from a newly flipped district is already rejecting the governor’s push for a 95-cent monthly water meter fee to help clean up contaminated drinking water in the Central Valley. The bill, SB 200 by Sen. Bill Monning of Carmel, also calls for taxing fertilizer and dairy production, which contribute to unsafe drinking water in the region.
“I think that there are other approaches that I would like to see us explore that I think would be more effective,” said Orange County Assemblywoman Cottie Petrie-Norris at a recent event hosted by the Sacramento Press Club.
While many of the taxes and fees being proposed are targeted for public health or environmental benefits, they are not enough to fund the Democrats’ most ambitious programs, such as universal health care and a cradle-to-careerapproach on education.
Anthony Wright with Health Access California, a statewide consumer health care advocacy group, said the state could invest $5 billion to achieve universal health coverage by expanding the state’s Medicaid program, known as Medi-Cal, to low-income residents regardless of their immigration status and by offering bigger subsidies to working families to purchase coverage through Covered California, the state’s health insurance exchange.
So far, Newsom is proposing a limited expansion of Medi-Cal coverage to young adults ages 19 to 25 regardless of their legal status. The state currently covers children from poor families. He’s also supporting a state individual mandate to provide insurance subsidies but that plan would only generate an estimated $700 million.
“It would take some general fund investment but it’s in the realm of not just aspirational, but achievable,” Wright said.
Currently, the only measure on the 2020 ballot that would bring in a significant new stream of revenue is the Schools and Communities First initiative, which would assess commercial and industrial property at market value to bring in between $6.5 billion and $10.5 billion a year for schools and local governments.
But Californians are divided on the so-called split roll change to Proposition 13. According to the Public Policy Institute of California, less than half (47 percent) favor it, 43 percent oppose and 10 percent don’t know.
“Majorities of Californians continue to say that Proposition 13 has been a good thing for California, while the split roll property tax reform draws mixed reviews across party lines,” said PPIC president and CEO Mark Baldassare.
Helen Hutchison, president of the League of Women Voters of California, which is supporting the initiative, is casting the measure as closing a tax loophole on a small number of businesses that have held onto property for decades. Think Disneyland and Chevron.
She view the tax proposals in the Legislature as complementary.
“I actually think it’s positive that we have a focus on taxes and fairness,” Hutchinson said. “We can be another piece of what the Legislature is trying to do.”
If supporters can sell that to voters, it would reap new ongoing funding for schools and local governments and help insulate against the volatility of the stock market at the state level.
Unlike Brown, Newsom is open to entertaining the idea of updating California’s tax system, which is outdated and prone to boom and bust cycles. He spoke about the possibility when unveiling his January budget and his chief of staff, Ann O’Leary, said at a recent PPIC talk that although it’s early still, policymakers will have to think hard in order to secure stable funding for education.
Los Angeles-area Sen. Bob Hertzberg, who has been among the Democrats leading the charge on tax reform, has a placeholder bill in SB 522 if the governor entertains broad tax policy changes.
But Brown has left Newsom in a difficult corner, says former Assemblyman Mike Gatto. Brown already passed taxes during his final two turns as governor and even though he could have tried to negotiate a wholesale restructuring of California’s manufacturing-based tax code to better reflect today’s service economy, he declined to tackle it on his way to retirement.
“I could not think of anybody in this state except for Jerry Brown and the fact that he shirked that shows how difficult it is. And it’s also a disappointment, frankly,” Gatto said. “I give major props to Mr. Newsom in that he has not shied away from these discussions. He’s got something Jerry Brown never really had, which is optimism. And sometimes optimism can get you pretty far.”
Newsom Ponders CPUC & Utility Regulatory Remake
Wall Street Journal, March 11
Gov. Gavin Newsom is considering overhauling California’s regulator of power and water companies as he and other state leaders race to prepare for another wildfire season.
Mr. Newsom, a Democrat, discussed the idea at a meeting with legislative leaders and analysts from S&P Global Ratings in his office last week, according to people with knowledge of the meeting.
The state’s largest utility, PG&E Corp., protection in January after struggling with billions of dollars in potential liabilities from its role in igniting wildfires. California legislators are considering ideas such as a wildfire fund and allowing utilities to issue more debt to cover wildfire costs.
At the meeting, Mr. Newsom told S&P’s analysts that he is considering a new president of the Public Utilities Commission, which regulates state utilities, and that a plan for an overhaul of the agency could come in a matter of weeks, one of the people familiar with the meeting said.
The PUC has faced pressure to better monitor the safety practices of utilities. A transmission line on which PG&E repeatedly delayed safety improvements is a prime suspect in causing last year’s Camp Fire, which killed 85 people and was the deadliest in state history, The Wall Street Journal has reported.
The PUC’s president, Michael Picker, has faced criticism from some lawmakers and critics in the wake of the wildfires for not taking faster action to protect public safety.
Mr. Picker told lawmakers during a hearing in Sacramento Jan. 30 that the state was not prepared for the “enormity” of the wildfire problem. To that, one lawmaker, Assemblyman Jim Wood, said on Twitter that Mr. Picker’s comments did not reflect a “sense of urgency.”
S&P stated that it could downgrade the state’s other investor-owned utilities, Southern California Edison Co. and San Diego Gas & Electric Co., to junk status by the start of wildfire season in early June if lawmakers or regulators didn’t take “concrete steps” to limit the risk to utilities under the state’s current regulatory framework, according to a Feb. 19 report by the ratings agency. S&P and Moody’s Investors Service have both already moved the utilities’ ratings closer to junk.
The governor has given his team until April 12 to come up with a plan to address PG&E and the other utilities, which could occur within the federal bankruptcy court process as well as through regulatory and legislative changes.
An S&P downgrade to junk could lead to higher borrowing costs for the utilities as well as more expensive contracts with power suppliers and vendors. Given the constant need for utilities to borrow money, persistently sub-investment-grade electricity providers are rare around the world and practically nonexistent in the U.S., investors and analysts said.
Among the ideas under discussion is legislation by Assemblyman Chad Mayes, who met individually with S&P analysts last week. Mr. Mayes said he discussed his bill that would create a wildfire fund to be used by utilities that face liability from catastrophic events.
“This is fixable by making sure that there is a backstop to this liability,” he said.
All such ideas would be decided after a wildfire commission created last year reports recommendations to the state Legislature later this year, said Chris Holden, chairman of the Assembly Utilities and Energy Committee, who also met with S&P analysts last week.
Those ideas include allowing the utilities to securitize costs related to last year’s devastating fires, Mr. Holden said. Prior legislation allowing utilities to take such steps didn’t cover 2018.
Legislators may also consider changes to a state liability rule that allows compensation for property damage caused by government entities or state actors, Mr. Holden said. The provision in the California Constitution, known as inverse condemnation, puts utilities on the hook for fires sparked by its equipment.
Two California Democratic lawmakers have introduced a bill that would develop a state-owned banking system, modeling it on a program run by one of the smallest states in the union.
California Assemblymen Miguel Santiago, D-Los Angeles, and David Chiu, D-San Francisco, have introduced Assembly Bill 857, which would enable local governments to charter their own public banks.
Santiago and Chiu would bring a similar system to California’s 39 million residents, arguing that a public institution might better serve the interest of low- and moderate-income households.
“It’s pretty obvious that the Wall Street system of wealth distribution has created an income inequality crisis,” Santiago said in a statement announcing the bill’s introduction. “And nowhere is that more visible than right here in my district, where luxury condos loom over Skid Row. Instead of making rich men even richer, our resources should be invested in community development: parks and green spaces, free community college, new schools, smooth roads, and cleaner air.”
Amendments for the bill are still being processed but the full text is expected to be online by the end of the week, according to a Santiago spokesman.
Unlike the North Dakota system, AB 857 wouldn’t create a state-owned, statewide bank. Instead, it would empower local governments to charter their own such public banks.
The bill “also encourages partnerships between a public bank and existing local financial institutions to provide retail services, enabling public banks to provide affordable loans and lines of credit to local businesses and nonprofits, and increase the lending capacity of the local banking system,” according to the fact sheet.
The bill is co-sponsored by the California Public Banking Alliance, as well as several other public banking advocate groups.
The bill also has the support of Herb Wesson, president of the Los Angeles City Council, and Jeffrey Prang, Los Angeles County Assessor. AB 857 co-sponsor Chiu said in a statement that publicly owned banks would allow Californians to invest in institutions that fit California values.
“Time and time again, we have seen big banks invest our money in institutions most Californians are opposed to — oil pipelines, gun manufacturers, private prisons, and companies with unfair labor practices. This legislation allows us to take a first step towards ensuring the public’s money is used for public good,” he said.
It’s not the first time that California leaders have proposed bills that would create public banks. Former Treasurer John Chiang last year commissioned a study on whether the state should develop a public financial institutions for the cannabis industry.
The study released in December recommended against launching a public bank for marijuana retailers and growers, finding that opening a public bank would be costly and potentially risky.
Wife. Widow. Daughter.
For decades in American politics, successful female candidates often belonged to political dynasties, following in the footsteps of a husband or father and relying on their famous last names to reassure voters. That has shifted in recent years: Few if any of the women who won new House seats in November came from powerful political families, and none of the six female presidential candidates do, either.
With Hillary Clinton saying last week that she would not run for president, Mrs. Clinton became both a trailblazing figure and a transitional one. She rose to prominence as the wife of Bill Clinton, as he led Arkansas and then the nation. Her work as first lady helped her become a senator from New York. Over time, because of her own accomplishments, she advanced: presidential candidate, secretary of state, the first woman to be nominated by a major party for the White House.
With Mrs. Clinton not planning to be the seventh woman running in 2020, an endlessly debated question of 2016 — did some voters resist awoman or this woman? — can be tested with women who do not have her political baggage or what turned out to be her establishment stigma.
These women, such as Senators Amy Klobuchar and Kamala Harris, had significant careers in public service in their home states before reaching Washington, and they are now running for president with messages that aim to appeal broadly across ideological and gender lines. Another 2020 candidate, Senator Elizabeth Warren, had an admired career as a law professor before her consumer protection policy interests drew her into government. Senator Kirsten Gillibrand’s grandmother was an influential figure in Albany politics, and Representative Tulsi Gabbard’s father entered elected office around the same time she did, but their family histories in public service are not a factor in the 2020 race. Most of the women who ran for House, Senate and governor in 2018 had also worked their way up professional or political ladders without a male relation going first.
Female leaders with famous last names — as well as male leaders who have come from family dynasties too — have been members of both political parties over the years; Senator Lisa Murkowski and former senator Nancy Landon Kassebaum both had fathers who were prominent Republicans.
Jean Carnahan, who had been the first lady of Missouri, was appointed to fill the Senate seat held by her husband, Mel, a Democrat, when he died just before the election in 2000. She recalled what it was like to be an active political partner behind the scenes.
“During my husband’s 20-some campaigns, I did the things he least enjoyed doing and that I preferred: writing speeches, designing campaign material, coming up with themes, designing the database, writing letters, scheduling, fund-raising,” she said. As a result, she felt prepared to assume his seat. Although she lost re-election, her daughter (and her son) later entered politics on their own.
Assemblyman Joaquin Arambula, D-Fresno, entered a not guilty plea to a misdemeanor child cruelty charge on Wednesday in Fresno County Superior Court.
Arambula is chair of the budget subcommittee for health issues.
His attorneys, Michael Aed and Margarita Martinez-Baly, appeared on behalf of Arambula, who was not present. Assistant District Attorney Steve Wright appeared on behalf of the county, and the two sides agreed to an April 23 trial date.
When pressed about why Arambula, a public figure even before his election, did not appear in person Wednesday, Martinez-Baly said “he does not have to.”
The Fresno County District Attorney’s office filed the charge Tuesday after Arambula’s arrest and release in December. He is accused of injuring his 7-year-old daughter.
Arambula, his wife and his attorneys have all said he is innocent. Arambula has insisted he was only disciplining his daughter, while Fresno police Chief Jerry Dyer has been no less insistent that a crime was committed. Wednesday afternoon, Dyer used a regularly scheduled event to speak out on the Arambula case again.
During a news conference after Wednesday’s arraignment, Aed said the district attorney’s decision to file a charge was disappointing. He said he had offered additional evidence and given the DA a chance to interview his client before making the decision, but the office did not respond. He learned of the decision to file Tuesday morning, when the DA went public.
Wright declined to comment after the arraignment.
Arambula, who’s also a physician, took a voluntary leave of absence from the Assembly on Tuesday.
When asked if Arambula’s political future – he will need to file for re-election by the end of the year should he wish to seek it – was a motivating factor in pushing for a speedy trial, Aed said it was. The two sides have already begun exchanging evidence, he added.
“We expect that the jury process will vindicate Dr. Arambula,” Aed said. “This is not about politics. This is about a human being – a father of three children who has a reputation.”
However, it was Arambula – through a statement released Tuesday by Martinez-Baly – who first broached the possibility of political motivation in District Attorney Lisa Smittcamp’s decision to file the charge.
“While politics may have influenced the decision to file, we are confident that our judicial system will find this allegation to be false,” the statement said.
Smittcamp’s office immediately released a response denouncing the notion of any political motivations in the case.
“We base our filing decisions on the law and evidence collected during the investigation,” the statement said.
It’s official: California is 100% drought-free.
For the first time since 2011, the state shows no areas suffering from prolonged drought and illustrates almost entirely normal conditions, according to a map released Thursday by the U.S. Drought Monitor.
Former Gov. Jerry Brown issued an executive order in 2017 that lifted the drought emergency in most of the state, leaving some breathing a sigh of relief. But he cautioned Californians to keep saving water as some parts of the state were still suffering from extreme drought.
Now, two years later, that deficit seems to have been erased, thanks to an exceptionally wet winter.
“The reservoirs are full, lakes are full, the streams are flowing, there’s tons of snow,” said Jessica Blunden, a climate scientist with the National Climatic Data Center at the National Oceanic and Atmospheric Administration. “All the drought is officially gone.”
The Drought Monitor, which collects data from scientists from the National Drought Mitigation Center, the U.S. Department of Agriculture and dozens of weather agencies, last showed a drought map that was clear in December 2011.
In updating the map, scientists consult with hydrologists, water managers, meteorologists and other experts to determine the amount of water in the state’s reservoirs, the snowpack level and other key measurements. With the wet winter streak going strong, their reports have been good.
In January, storms filled up many of the state’s water reserves almost to capacity and added about 580 billion gallons of water to reservoirs across the state. That month, the snowpack in the Sierra Nevada, a major source of California’s water supply, doubled — and then doubled again in February.
“California has been getting a tremendous amount of rain, storms and snow,” Blunden said. “It’s just been extremely wet and it’s been so wet … that we’ve been able to alleviate drought across the state.”
A year ago, just 11% of the state was experiencing normal conditions while 88.9% of the state was “abnormally dry,” according to the drought report. Some parts of Los Angeles and Ventura counties were still colored dark red, meaning they were experiencing “extreme drought.”
Even last week, a small portion of Northern California was labeled as having “moderate drought” conditions. But as of Thursday, 93% of the state was experiencing normal conditions and none of it was in drought, Blunden said.
Small portions in the far northern and southern parts of the state were still marked as “abnormally dry,” but elsewhere, the map registered no drought conditions at all. In San Diego County, reservoirs were only 65% full, which contributed to the dry conditions in that area, Blunden said.
And conditions are expected to return to normal next week in Northern California, she said. With another storm expected within a week in San Diego, that area also would likely come out of its dry spell entirely.
After a cold winter in Southern California, the Santa Ana winds are returning, while a high pressure system will help raise the temperatures, said Jimmy Taeger, a meteorologist with the National Weather Service.
The winter chill set records in downtown Los Angeles, which recorded its coldest February in nearly 60 years. There had never been a February since July 1877, when record-keeping began in downtown L.A., that the temperature failed to reach the 70-degree mark.
In contrast, the highs for this weekend in the Los Angeles area are expected to hit 78. In San Diego, the mercury could reach 75 degrees Sunday for the first time since late January.
The warm weather is rolling into the region on strong winds. In Los Angeles, the weather service issued a wind advisory Thursday morning, noting that winds between 15 and 25 mph would roll through, with gusts up to 40 mph from Malibu to the Hollywood Hills.
Temperatures might be creeping up, but as for the rain, Taeger said “we’re not completely over with it yet.”
Offshore winds will subside, bringing a 40% chance of a storm coming through San Diego over Wednesday and Thursday. Next weekend will bring more warm temperatures, but another storm could materialize toward the end of March, forecasters said.
The rainy trend has extended across the United States, making for vast improvements in drought conditions, especially in the Western part of the country. Colorado, New Mexico and Wyoming, for example, have made significant progress, though much of those states are still classified as abnormally dry and are still experiencing drought conditions, Blunden said.
But storms are raging in some areas. A blizzard is moving over Colorado and Arizona, and New Mexico on Wednesday had heavy thunderstorms, which could significantly alleviate drought conditions in the next few weeks.
Californians have a lot to be happy about, she said, but Blunden warned that could change.
“Dry conditions can easily creep back in,” she said. “That’s why we adjust the map every week. The conditions change — and they can change fast sometimes.”
Brown’s declaration was made after record rainfall in 2017. Then, in 2018, the state broke more records following an extremely dry winter.
“We did see such major drought for five years,” Blunden said. “All of these storms came along and alleviated the drought. Everybody thought we were out of the woods, but then it came right back.
“I think drought conditions can sneak up on you very quickly. It is good to be cautious and always think about conserving water.”
USWS Drought Monitor:
A sprawling stretch of salt ponds on the western edge of San Francisco Bay, once eyed for the creation of a virtual mini-city, is back at the center of debate over regional development after the Trump administration this month exempted the site from the Clean Water Act.
With the regulatory hurdle out of the way, real estate company DMB Pacific Ventures says it’s reopening discussion about what to do with the unusually large chunk of undeveloped land at the heart of Silicon Valley in Redwood City.
The Phoenix-based firm hasn’t offered a plan for the property. It’s only said it won’t pursue the same 12,000-home proposal it sought a decade ago. That idea was dropped amid fierce opposition, but with emotions still raw from the fight, renewed talk of development is once again igniting tension between such competing interests as housing and bay restoration.
“What was proposed before was huge and controversial … and divided our community,” said Redwood City Mayor Ian Bain. “There’s very little appetite in the community for another big project.”
Bain said his preference is to return the land to its original, marshy state. This option was popularized during the last dispute because a natural wetlands would help buffer the city from the rising bay water that has come with climate change.
Any proposed construction on the roughly 2-square-mile salt-harvesting site would still have to be approved by the city as well as other local and state agencies. But DMB Ventures, which is working with the property’s owner, agribusiness giant Cargill, believes the Bay Area’s acute housing shortage plus the land’s proximity to such employers as Facebook, Oracle and Kaiser Permanente could warm the community to new residential development.
“It’s a critical site, it’s a critical size and it’s a critical location,” said attorney David Smith, representing DMB Ventures. “It’s uniquely poised to help facilitate solutions to some of Silicon Valley’s most vexing challenges.”
The prospect of building over the salt ponds comes after the U.S. Environmental Protection Agency last week tossed the findings of the local EPA office and determined that the land is not bound to the Clean Water Act. The 1972 law is designed to restrict water pollution as well as prevent the destruction of wetlands.
Agency Administrator Andrew Wheeler wrote that the Redwood City property had been turned from marsh into a salt farm before the passage of the Clean Water Act and, therefore, future development wouldn’t be subject to the law. The land was diked and filled in the early 1900s to create a series of pinkish-red pools where briny water, to this day, is dried to produce salt.
Jared Blumenfeld, former administrator of the EPA’s West Coast office and now California’s secretary of environmental protection, said the agency’s decision is a misguided interpretation of the Clean Water Act.
During his tenure at the federal EPA, Blumenfeld’s office determined that the Redwood City site was subject to the law because it covers areas that can be easily converted back to wetlands, which is the case with the salt ponds. That determination was not made official, however, before President Trump took office, and the new administration moved forward with its own review.
“This is a very troubling precedent,” Blumenfeld said. “More than 90 percent of coastal wetlands have been destroyed in California, and this opens up the potential of (more) development” on the bayfront.
When OPEC started an oil-price war in late 2014, most people believed U.S. shale was doomed. In reality, the giant oil majors suffered most — burdened by expensive mega-projects, Chevron Corp., BP Plc and the rest struggled to adapt to the fall in energy prices.
Slowly, those companies figured out how to survive in the lower-for-longer price era. They cut costs and, more importantly, learned how to stop them from rising again. In an industry that favored tailored solutions for every project, companies started to talk about standardization. At closed-door sessions in Davos, Big Oil bosses didn’t waste time on self-important talk, but instead discussed how to share the design of anything from underwater valves to pumps.
Nearly five years after the crash, the cultural change is starting to work. The world’s major energy companies have managed to press the reset button, allowing them to make profits today similar to what they did in a world of $100-plus a barrel oil prices.
“Big Oil has been able to re-emerge from this downturn stronger and lower on the cost curve,” said Michele Della Vigna, the top oil industry analyst at Goldman Sachs Group Inc., who had been a critic of the majors.
The level of spending at the world’s eight largest integrated oil and gas companies fell last year to $118 billion, down 45 percent from a pre-crisis peak of $215 billion in 2013, according to data compiled by Bloomberg News.
But their business model has changed a lot in the process. The reliance on multi-billion dollar projects in far-flung corners of the world has been reduced and the majors are pouring billions into Texas’s Permian Basin, once dominated by independent exploration and production companies.
Other strategies include trying to build new projects closer to existing ones and reusing old infrastructure to reduce costs. They’ve also re-discovered the joys of integration, investing in refineries and petrochemical plants that make money even when prices are low.
To the surprise of many in the industry, lower costs haven’t translated into slower development. In fact, projects have often come ahead of expectations, like the giant Zohr gas field in Egypt, developed by Italian major Eni SpA.
The industry got a lot of help from its suppliers. According to Exxon Mobil Corp., the cost of 3D seismic technology, used to find underground reservoirs, and the deep-water rigs needed to exploit them has fallen more than 50 percent from the 2013 level.
The new era means combining projects that pay back quickly, whether in U.S. shale or elsewhere, with some traditional larger projects. In the oil industry, it’s a model called short-and-long oil cycle, because some projects pay back in as little to two-to-three years, compared to as long as 10 years for conventional projects.
“Big Oil now wants a diversified portfolio with short-and-long cycle oil,” said Daniel Yergin, the oil historian who this week hosts the annual CERAWeek energy conference in Houston. “Before the oil crisis in 2014-15, the mere concept of short-cycle oil didn’t exist in Big Oil.”
Short-cycle oil has a one big advantage over mega-projects: companies can dial them up and down quickly to respond to changes in oil and gas prices.
The other significant change is natural gas. Big Oil had already embraced gas before the crisis, with companies like Exxon investing in massive projects in Qatar. But today some executives suggest gas is gaining the upper hand.
“Gas is the fastest growing hydrocarbon,” said Bernard Looney, chief executive for upstream at BP. “It’s the future.”
Despite the significant reduction in spending and much lower energy prices, returns haven’t suffered, according to data complied by Bloomberg. The biggest oil companies posted return-on-capital-employed — a traditional yardstick used by investors — of about 8.7 percent last year, higher than the 8.4 percent of 2014. Return-on-equity, another closely watched measure, has risen to 11.6 percent, the highest in six years.
The whole industry isn’t moving at the same pace, though. Exxon, for example, is boosting spending to catch up with rivals after some bad bets in Russia stymied its output growth. But in contrast to the pre-2014 world, the company is promising investors they’ll be given bang for their bucks, developing projects that will boost production.
Ever wonder what Southern California would taste like in a coffee cup? Fifty local java-lovers were the first locals to find out this past weekend in private “cupping” sessions of the first-ever locally-grown coffee at Bird Rock Coffee Roasters in Mission Valley.
“I tasted nougat, maple syrup, burned butter and tobacco,” said Alex Stabrawa, a Clairemont resident who shares her java passion on her Instagram page @Coffeeandvegan. Ernst Kneubühler, a barista and coffee machine technician vacationing from Switzerland, said he detected notes of vanilla and citrus and a pleasant finish of chocolate powder “that stayed with me for a while.”
They each paid $125 for the first hour-long cupping session on Saturday, which included the tasting experience and a tiny, take-home 40-gram tub of Cuicateco beans from Frinj Coffee.
Founded in 2017, Frinj is a Santa Barbara-based agricultural cooperative growing the first commercially produced coffee in the continental United States. Its “ultra-specialty” coffee beans are grown on 35 private farms in San Diego and Santa Barbara counties.
How ultra-special are these beans? The first 500-pound lot of Frinj coffee sold for $18 a cup at Blue Bottle Coffee shops in the Bay area in 2017. It sold out within two weeks.
Frinj founder and CEO Jay Ruskey said ultra-specialty coffee has the potential to become as popular a homegrown product as craft beer, though it will never be as easy to produce due to the unique growing conditions coffee plants require.
“We think they’re the best coffees in the world,” Ruskey said.
California’s Central Valley is already the bread basket for the nation. But now a new Oakdale company — in partnership with the University of California, Davis — wants to help make it the hemp capital of the country.
The California Hemp Corporation was formed by Oakdale residents Jeff McPhee and Kent Kushar last year and has entered into a sponsored research agreement with UC Davis to study how the plant grows in the valley. Like its more famous cousin marijuana, hemp is a species of cannabis plant — but lacks enough THC to produce pot’s high.
Instead hemp has a long agricultural history in the United States, and was even famously farmed by President George Washington. Over the years it has been used in everything from clothing, rope, cosmetics, construction and food.
“We want to grow hemp up and down the San Joaquin Valley, just like every other one of our crops,” McPhee said. “This crop will change California.”
With the expansion of the recreational and medicinal marijuana markets across the county, including in California, hemp has been looked at more for CBD production. CBD, the other, non-psychoactive compound in cannabis, has been hailed for its wide-ranging medicinal benefits.
McPhee said the company is most interested in growing hemp for its CBD, which then can be used in everything from creams to tinctures, food and drinks.
The research project will begin with “a couple hundred acres” of hemp planted this season in fields in Lemoore, south of Fresno. The study will see how hemp grows outdoors in Central Valley conditions, using California’s advanced irrigation and growing techniques. The genetics of the plant also will be studied, to understand how to best scale it in the state as an agricultural crop.
McPhee has a background in farming and masonry, and his business partner Kushar has worked for 20 years at E.&J. Gallo Winery as its Chief Information Officer. At UC Davis the research project will be led by Edward Charles Brummer, the director of the Plant Science Department. The long-term, 10-year study is considered the first significant cannabis research project initiated by the University of California system.
“It will be among the first significant hemp breeding programs of its kind, for what may be the most important crop in a generation,” Brummer said in a statement about the project. “It will also be our first use of groundbreaking breeding technology, which we believe has the potential to become the standard for the next generation of breeding professionals.”
Hemp cultivation is currently regulated by the California Department of Food and Agriculture. But unlike traditional crops, it can’t just be planted freely yet. The Oakdale company’s grow has been approved as part of the research agreement.
McPhee said the results of the research project will help farmers learn how to grow hemp in the valley, and the benefits of growing the crop. But regulations aren’t the only thing McPhee and Kushar are fighting with their hemp company. Hemp’s connection to marijuana — the two plants look and smell very similar — has been hard to shake.
“We have to distance ourselves from the stigma of the marijuana plant. We want more people to understand that hemp has little to no THC and understand CBD’s benefits,” McPhee said.
He said he wants to help educate California farmers about hemp, CBD and its agricultural potential. A report published last year by the Brightfield Group, a cannabis and CBD market research firm, said the global hemp market could reach $22 billion by 2022.
“It’s going to be grown, everyone will be coming out of the woodwork in the next few years wanting to plant this stuff,” McPhee said. https://www.modbee.com/news/local/oakdale/article227255239.html#storylink=cpy