Buried in the details of the deal to close California’s $19-billion budget deficit is a roughly $30-million tax break crafted to benefit a company owned by members of one of the state’s richest and most politically influential families, according to a legislative analysis obtained by The Times.
The provision, which will allow the Humboldt Redwood Co. to deduct $20 million in old losses from future taxes, is also expected to cover penalties and interest for the firm co-owned by three sons of Donald G. Fisher, founder of the Gap and Banana Republic, said company Chairman Sandy Dean.
The tax break was inserted into the draft state spending plan during closed-door negotiations between the governor and legislative leaders, said people close to the talks. They spoke on condition of anonymity because of the secret nature of the deal-making.
Republican leaders demanded new tax breaks before they would agree to other changes in tax rules that Democrats wanted. Democratic leaders accepted the proposal that would help the Fishers’ company.
Dean said the arrangement is fair because the firm was “uniquely damaged” in 2008, when legislators suspended all such write-offs in an effort to close that year’s deficit. The company is highly regarded among environmentalists for having saved a large swath of redwoods from the threat of being clear-cut.
Some budget watchers were dismayed that the governor and legislative leaders would fashion a measure giving a large tax benefit to a single wealthy family when California is suffering through a grueling recession.
“It’s inappropriate to grant narrowly targeted tax breaks at a time when the state is making deep cuts to public schools, social service programs and other essential programs,” said Jean Ross, executive director of the nonprofit California Budget Project.
“This is a total special-interest grab,” said Lenny Goldberg, executive director of the California Tax Reform Assn. and a critic of corporate tax breaks. “I’m sure there are lots of companies that would like to take these losses.”
The Fishers’ company paid about $500 million in a 2008 deal to buy land in Mendocino County owned by the former Pacific Lumber Co. The Fishers were counting on writing off the old owners’ $20-million tax liability,
but the Legislature suspended the practice of allowing such write-offs in the effort to close the 2008 budget gap.
“The rules changed after the fact, to the unique and substantial disadvantage of only us,” Dean said. “Most other people, if they had to pay the $20 million, would have been able to get it back.”
The firm hired two lobbyists, Marc Aprea and Chris Micheli, to approach legislators last spring in search of a remedy, Dean said: “We thought we ought to go talk to the Legislature and see if people are sympathetic to what we have to say.”
The Fisher family members are no strangers to the halls of power in Sacramento. The late Donald G. Fisher and his wife, Doris, have contributed more than $6 million to candidates, political parties and other California political entities since 1999, according to fundraising reports filed with the secretary of state.
Sons Robert and John — both among the owners of Humboldt Redwood — have contributed more than $1million each, the records show. In 2006, John Fisher contributed loans and cash totaling $826,436 to help defeat Proposition 82, a measure sponsored by Rob Reiner that would have taxed the rich to create a statewide preschool program.
Robert Fisher has given at least $1million to environmental causes, including $500,000 each to Californians for Clean Alternative Energy in 2006 and the Natural Resources Defense Council in 2010.
He also donated at least $22,300 to Gov. Arnold Schwarzenegger’s reelection campaign in 2006 and $50,000 to the governor’s California Dream Team in 2009.
The governor’s spokesman, Aaron McLear, said he could not comment on the tax break because of an agreement between the governor’s office and legislative leaders not to discuss details of the budget before a hearing set for Wednesday.
Leaders from both parties in the Senate and Assembly also declined to comment.
Humboldt bought the land in bankruptcy court in 2008, Dean said, following a protracted battle between the former owner, Pacific Lumber, and its creditors. The former company’s logging practices had been a source of tension with local environmentalists, Dean said.
The Fishers managed to forge a truce with the local groups by promising to harvest the trees more slowly, protect old growth and preserve jobs at a company mill in Scotia, Humboldt County, Dean said.
Had the Fishers not bought the land, “the sawmill would have closed and the timber would have been sold off to the highest bidder, regardless of how they would treat the land,” Dean said.
A few months after the purchase, state legislators suspended the tax credits and eliminated the possibility of claiming losses incurred by companies that no longer existed — such as Pacific Lumber.
A series of clauses inserted into the 2010 budget will allow the write-offs for any company that ceased to do business before Aug. 28, 2008, sold or transferred all its assets to another company before that date and was sold under a reorganization plan overseen by a bankruptcy judge, among other provisions.
The Humboldt Redwood Co. is the only firm that meets all the criteria, said the legislative sources, who declined to speak publicly because the details of the legislation will not be released until Wednesday.
The Legislature is expected to vote on the budget Thursday.