Governor Blocked Tax on Large Donors

Gov. Gray Davis this spring blocked efforts to impose a new $22-million tax on the timber industry, three months after leading timber interests donated $105,000 to his reelection campaign.

The legislative analyst’s office suggested the timber tax hike, and several Democratic lawmakers embraced it as a way to help close the state’s $23.6-billion budget deficit. But the governor successfully opposed it during budget talks, according to legislators who participated in those discussions.

Davis’ revised budget, released in May, included general tax hikes that will affect almost all Californians but did not endorse the proposed timber tax.

Administration officials and timber company representatives say there is no connection between the campaign contributions and the governor’s opposition to the timber tax hike. Although some environmentalists complain about the governor’s actions--and accuse him of yielding to a campaign contributor--Davis aides and legislators who represent logging areas say the tax would have hurt already struggling companies.

The decision, a Davis spokeswoman said, was sound policy.

The administration’s position against the timber tax is the latest in a series of steps Davis has taken as governor that have helped bring the timber industry, long allied with Republican candidates, into the fold of the Democratic incumbent. Altogether, timber interests have donated about $450,000 to Davis since he took office in January 1999.

The dispute over those contributions and Davis’ actions, or inactions, including charges by environmentalists that the administration has been slow to protect a species of salmon threatened by logging, represents the latest challenge to Davis’ fund-raising practices. Environmental leaders who once backed Davis now question whether the governor has given timber interests a break in part because those companies have helped pay for his political campaigns and have denied support to Republican gubernatorial challenger Bill Simon Jr.

The Sierra Club, for instance, endorsed Davis in 1998, but has not yet taken a position in this election. Carl Pope, the club’s executive director, expressed disappointment with Davis’ environmental record, especially on timber, water quality and fisheries. He described Davis’ record on air quality issues as “pretty solid.”

“The Sierra Club has not decided what to do in this race,” Pope said. “Our two real options are endorsing the governor, or not endorsing” anyone.

The timber industry’s donations are a concern, Pope said. “When a special interest is giving substantial campaign contributions, and the governor is not keeping his campaign commitments--which on forestry issues, he is not--you’ve got a very serious problem,” he said.

He also criticized Davis for allowing extended vacancies on the state Board of Forestry. He called the state’s timber regulations inadequate, and said the board and its staff have failed to make them more stringent.

“I can’t tell if the policy is following the money or the money is following the policy,” Pope said. “Whether it’s quid pro quo or pro quo quid, I don’t care which way it runs.”

Shrinking Industry

David Bischel, president of the California Forestry Assn., said the timber industry has been shrinking for years in California and cannot afford more costly taxes and regulations. In the last year, he said, Pacific Lumber has closed century-old mills in Scotia, and the state’s last factory that manufactured pencils closed in Stockton.

Faced with those difficulties, Bischel said, the industry contributes to Davis and other candidates who “support balanced natural resource policies.”

“The process hasn’t gotten any less complex or any less expensive [under Davis],” Bischel said. “But the administration has demonstrated a commitment to try to be balanced. We’re not happy with everything the administration does. Nor are we upset with everything the administration has done.”

Because of intense opposition from timber companies and agricultural interests, some environmentalists are concerned the Davis administration may stop short of designating the coho salmon as a threatened or endangered species. The salmon, which lives in Northern California, has been declining for decades, and environmental groups see its downward spiral as an indication of over-logged forests and muddied streams. The timber industry, meanwhile, fears additional protection for the fish will lead to new restrictions on logging in northern coastal forests.

As the election nears, the issue is coming to a head. The state Fish and Game Commission is scheduled to hold a hearing Aug. 1 in San Luis Obispo on whether to add the coho salmon to the state list of endangered species. That would protect the fish and could limit logging and farming in the northern part of the state.

In an effort to avert a head-on collision between the timber industry and environmentalists, state officials initiated talks earlier this year with the same groups that sought the listing.

Robert Hight, director of the state Department of Fish and Game, said he believes a compromise that would avoid the designation but create a recovery plan to restore the fishery would help the fish survive by avoiding time-consuming lawsuits and moving ahead with a plan to hasten the salmon’s recovery.

The state’s talks with environmentalists took an unexpected turn June 7 during a discussion of ways to protect coho salmon while a recovery plan was drafted, according to two people in the meeting. Some listened on a conference call, while others gathered in a Sacramento office.

When some environmentalists voiced opposition to one scenario, Hight cut off the conference call and left the room, the sources said. Hight confirmed the account.

“It wasn’t productive. Sometimes negotiations come to a point where everyone has to take a hard look at where they’re going,” he said. As for the recovery plan, he said, “We still believe this is the best approach.”

Hight called the talks a “negotiation in process.”

Asked whether the proposed compromise is connected to timber contributions to Davis, Hight said: “Absolutely, unequivocally, no.”

The state is proposing the recovery plan approach, he said, “because it’s the right thing to do for the fish.”

On the other side, some are skeptical. One environmentalist involved in the talks, Cynthia Elkins of the Environmental Protection Information Center, said she believes timber and agriculture money has influenced Davis’ position on forestry issues.

“Because these industries have contributed so heavily to his war chest, he feels indebted to these industries,” she said.

The timber company donations, while significant, do not place the industry among Davis’ largest donors. Since becoming governor, Davis has raised more than $50 million for his reelection effort.

The industry’s support for Davis has, however, denied Simon a natural source of contributions from companies that historically have backed Republicans. California Republican Party spokesman Rob Stutzman said Simon may still receive timber industry money. But he also said, “The business community in general has come under a lot of pressure to contribute only to the governor.”

“The timber industry is heavily reliant on favorable state regulations,” Stutzman said. “And it is no secret that the governor has created a pay-to-play atmosphere in Sacramento. There is no reason to think the timber industry would be immune from the governor’s grip.”

Four years ago, timber companies supported then-state Atty. Gen. Dan Lungren in his gubernatorial race against Davis. Lungren had spoken out for property rights and tangled with environmentalists as he defended loggers’ right to fell trees.

During the 1998 campaign, Sierra Pacific Industries, which owns vast tracks of timberland in the Sierra Nevada, donated $110,000 to Lungren and provided an additional $18,000 in free airplane flights for the Republican candidate. Simpson Investment, a Seattle-based timber concern, donated $105,000 to Lungren.

After Davis beat Lungren, the timber companies changed course.

Shift in Donations

In December 1998, Sierra Pacific and Simpson, which owns coastal redwoods, each donated $10,000 to Davis’ inaugural committee. The California Forestry Assn., the industry trade group, added $5,000. Campaign contribution reports show the two timber companies gave the governor $10,000 apiece in December.

Davis received his first timber industry contribution this election year in February--$25,000 from Pacific Lumber Co., the Maxxam subsidiary that owns significant redwood land on the north coast, and that sold the Headwaters Forest in 1999.

In March, the other timber companies--Sierra Pacific, Simpson and two Oregon-based firms with timber interests--donated a combined $65,000. The California Forestry Assn. gave $15,000 to Davis. To date, Sierra Pacific and Simpson have given Davis a combined $167,000.

The governor did not include the timber tax in his January budget proposal.

In February, however, the legislative analyst, which advises the Legislature on budget matters, recommended imposing new fees on timber companies to cover the state’s cost of reviewing logging permits and enforcing compliance with timber harvest plans. Under the analyst’s proposal, the fees would cost timber companies $22.1 million.

The Department of Forestry and Fire Protection opposed the proposal in April. And Davis rejected the timber tax when he issued his revised budget in May.

While both houses recommended that a version of the tax be imposed, the issue died this month when Davis’ Department of Finance reiterated opposition.

“Apparently, this is an industry that operates on fairly small profit margins,” said Department of Finance spokesman Sandy Harrison. “Imposing this fee would increase the cost of what already is a costly process, and there is a concern that it could put small timberland owners out of business.”

Sen. Wes Chesbro (D-Arcata), who represents the state’s largest timber-producing county, Humboldt, sits on the budget conference committee. Chesbro opposed the tax, as did Republican conferees. But Chesbro said Davis’ opposition was key.

“The administration is a pretty important player,” Chesbro said. “Unless there is a real strong sense on the conference committee, a lot of weight is going to the administration’s view.”

Chesbro and Ross Johnson, deputy director of the Department of Forestry and Fire Protection, said the tax, which would have been based on the value of timber felled, could have had an unintended consequence of causing smaller landowners to cut more trees to pay for the new tax.

“It hits the smaller landowner more,” Johnson said. “You’re going to have to increase cutting to pay for it.”