Viewpoint

 

Prop. 23 Needed To Sustain Business

October 2010
 
by Alicia Yandell and John Yandell
 
 
A bill on the California ballot in November will challenge the populace either to make a logical decision or an emotional one. The focus of Proposition 23 is Assembly Bill 32 (AB 32), a law passed in 2006 that established anti-greenhouse gas standards. Starting in 2012, AB 32 requires that emissions be reduced to 1990 levels by 2020. If Proposition 23 passes, it temporarily will suspend AB 32 until California businesses can afford the cost.

Some believe that AB 32, also known as the Global Warming Solutions Act, would cost the state more than 1 million jobs and result in billions of dollars in lost productivity if its progressive climate change measures are enacted. This is based on the stringent timetable for compliance coupled with our current recession. This lethal combination could not come at a worse time for California businesses.

As members of California’s wine industry and part of the agricultural sector, we believe AB 32 may dramatically change the ways in which businesses currently operate. A study performed by Thomas Tanton of T2 & Associates1 concluded that some California wineries would have to pay $2.6 million a year for AB 32 Auction Taxes.

AB 32 would cripple the bottom line of many wine producers, especially because the AB 32 Auction Tax would be in addition to higher water and electricity costs, which already are staggering operational costs for the wine industry.

While California’s unemployment rate has hovered around a double-digit percentage for the past two years2, one sector that has benefited so far is state government staffing. The California Air Resources Board, during a time of budget cuts and state workers’ furloughs, has increased its staff 12.5% since 2007. While Bill Magavern from the Sierra Club would like to see more people enforcing air quality rules, the only way the state can justify such an expense is through fees it would assess on refiners, utilities and other energy producers.

Jon Coupal, president of the Howard Jarvis Taxpayers Association, asks, “Why is the state adding employees to enforce a law that has already hurt the state’s economy?” In its present form, AB 32 would continue to impede the state’s economic recovery. Critics say the “programs under AB 32 hurt the industries, the agencies they regulate, and consumers would wind up paying through higher prices.”

Many studies have tried to calculate the financial impact on businesses and consumers if AB 32 goes forward under its current timetable. First, costs to the consumer would skyrocket. The increase in costs throughout the delivery chain of products would be passed on to the consumer. Based on an estimate from the California Department of Finance, the increase to every household would be $3,857.00 per year.3 With 13,530,719 households in California in 2008, the total cost annually would be $52.2 billion.

Second, there are approximately 718,220 small businesses in California that provide 52.1% of the private sector employment, account for more than 90% of new job creation and contribute 75% of the gross state product.4 Most small businesses are sole proprietorships, and the average small business nets a profit margin of 10%.4 AB 32 would impact five major areas for all businesses: transportation, fuels, utilities, food and housing.

For businesses complying with AB 32, one estimate projects an increase in cost structure of at least 4.5%.5 This equates to a cost increase of more than $63 billion on sales of $1.6 trillion. As a result of high unemployment and an increase in residential and commercial foreclosures, people are leaving the state because they cannot afford to live here. Our businesses are not only facing some of the highest tax rates in the country, the state also has among the highest energy and utility costs, combined with a regulatory environment that is certainly not business-friendly.

While the ultimate goals of AB 32 are not in question, the statistics and implications for business speak for themselves. California businesses cannot afford to comply with the strict standards AB 32 demands. A more adaptable and flexible schedule would ease the strain this is placing on businesses across the state. This needs to be suspended so our businesses—and ultimately consumers—are not footing the bill for such a quick attempt to curb global warming.

This collaborative critique is by Alicia Yandell and her father, John Yandell. Their family businesses, Yandell Truckaway Inc. and Santa Clara Warehouses Inc., based in Oakland, Calif., have been serving Northern California wineries and other businesses for 65 years. To comment on this Viewpoint, e-mail jim@winesandvines.com.


References
1. Thomas Tanton, AB 32 Implementation Group March 2010
2. Data Source: U.S. Bureau of Labor Statistics—July 26, 2010
3. California Department of Finance, Table 2: E-5 City/County Population and Housing Estimates, 1/1/2009.
4. California Small Business Profile, Small Business Association Office of Advocacy, 2009.
5. Varshney & Tootelian. “Cost of AB 32 on California Small Businesses – Summary Report of Findings.” Submitted to Betty Jo Toccoli, California Small Business Roundtable, June 2009, 8.

 
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