On Monday, Assemblyman Brian Nestande, a Palm Desert Republican, broke with the GOP and voted for Assembly Speaker John A. Pérez's $1 billion tax hike to fund "middle-class scholarships."

On Tuesday, Nestande ceased being Assembly Republican Caucus chairman.

"I would prefer to say I stepped down," Nestande told me, though he had no choice.

The rest of us got a peek at how this town works, especially at the end of legislative sessions, when the insiders turn serious about doing their deals.

On the surface, Pérez won big on Monday, muscling his signature piece of legislation through the Assembly. As currently written, his Assembly Bill 1500 would raise taxes by $1 billion on out-of-state companies that sell heavily into California but have little payroll or property here. Think General Motors, Chrysler and, notably, Altria, also known as Philip Morris, the world's largest cigarette maker.

Republicans are all but irrelevant in the Legislature except when the talk turns to tax increases, which require two-thirds votes. To round up the few Republicans he needs, Pérez is offering sweeteners.

The biggest plum would be an overhaul of the California Environmental Quality Act, the 1970 law signed by then Gov. Ronald Reagan that has been used and sometimes misused to restrict and block development.

In an email that is bouncing around the Capitol, a Pérez aide circulated language for one version of the overhaul. Proponents of the changes say the proposal would remove red tape from development. Environmentalists say the proposal would gut the law.

The truth is hard to come by. With the legislative session down to its final weeks, there won't be time for legislative hearings on the changes. The language has not appeared publicly in an actual bill.

Pérez is trying to distance himself from the tax-CEQA play. In a statement, he said Assembly members voted for the tax legislation on its own merits. His statement also said he supports "modernizing" the environmental quality act.

"But there's no nexus between the two. Any piece of legislation needs to pass on its own merits. Period," the speaker's statement said.

Period? Hardly.

Whatever the speaker's view, Nestande saw reason to buck his party, relinquish his leadership role and risk his political future because, he believes, Pérez will use his power to overhaul CEQA.

"I anticipate some regulatory reform measures," Nestande said. "This will all be part of a package."

Before becoming an assemblyman, Nestande worked as a consultant who represented clients who had development projects that were blocked or delayed by CEQA.

"I am very familiar with how people sue," Nestande said. "I look forward to a fix that is not just for a football stadium. We need a comprehensive solution."

No end-of-session play would be complete without the Third House, the insiders' name for lobbyists. In this instance, the powerhouse firm headed by lobbyist Joe Lang is pushing for the CEQA overhaul on behalf of Silicon Valley Leadership Group.

On Monday, Lang buttonholed Assemblyman Tony Mendoza, a Southern California Democrat, who has tangled with Pérez in the past. Mendoza balked at voting for the bill because, he said, he dislikes how Pérez proposes to spend the $1 billion.

Whatever Lang said, the words had their intended effect. Mendoza voted for Pérez's tax bill.

"They do have a play going on it," Mendoza said.

Exactly what that play is remains to be seen.

Complicating it all, Tom Steyer, a Democratic donor and co-founder of a San Francisco hedge fund, is promoting Proposition 39 on the November ballot. Like Pérez's bill, Steyer's initiative would impose a $1 billion tax on out-of-state companies, including Philip Morris, an Altria company. Steyer proposes to use the money for environmental projects, not Pérez's idea of funding college scholarships.

On the surface, Pérez and Steyer support one another. But they're also competitors. If Pérez's bill were to pass and voters were to approve Steyer's initiative, the initiative likely would trump Pérez's bill, though there would be litigation to sort it all out. The winner would get the glory, and the other would be a footnote.

Last year, the Legislature considered legislation that was nearly identical to Pérez's tax bill. It died. Who led the effort to kill it last year? Lang's firm, on behalf of Lang's biggest client, cigarette maker Philip Morris.

Here's a wild guess about how this could play out. Republicans and a few moderate Democrats could approve a CEQA overhaul, a handful of Republicans could join Nestande in support of Pérez's tax bill, and corporations could mount a late campaign against Proposition 39.

Don't be surprised if Pérez's bill is amended to ease the tax bite on Philip Morris. But that's a guess. We outsiders rarely know all the games insiders play.

© Copyright The Sacramento Bee. All rights reserved.

• Read more articles by Dan Morain

Order Reprint