As the legislative session was ending, Assembly Speaker John A. Pérez was on the verge of striking a deal that came down to this: help kids while granting a multimillion-dollar tax break to Altria, the world's largest cigarette company.
Ultimately, the deal died. But that it was alive as of 8:30 p.m. Friday, the final night of the legislative session, shows the depths to which some of California's elected leaders are willing to stoop to create a legacy.
In his signature piece of legislation, Assembly Bill 1500, Pérez sought to close what he calls a $1 billion-a-year tax loophole that benefits corporations based outside California. Like many companies, Altria, which is headquartered in Virginia, benefits from that tax code section.
But while most out-of-state companies would have paid more in California taxes if AB 1500 had become law, Altria, whose influential lobbyists were at the Capitol in force, stood to gain a special exemption worth millions, maybe tens of millions.
Pérez envisioned spending the tax revenue on all sorts of good and very important programs, most notably $425 million to help students of modest means pay for college, so-called "middle-class scholarships." He wanted to increase payments to public schools, fund logging regulation and reinstate Healthy Families, a health care program for 900,000 children of low-income parents that will disappear at the end of the year because of budget cuts.
All that would be fine. But to get votes, the speaker also included amendments that would have granted exemptions for at least three companies, each based outside California. One was International Paper. Another was Kimberly Clark, a consumer products company. The third was Altria, formerly known as Philip Morris.
Pérez kept details secret for most of the day and into the evening. Even now, there has been no official release of the language, although I got my hands on a version that is time-stamped 7:37 p.m., Aug. 31, the final day of the session.
The language that affects Altria is especially opaque:
"For the purposes of this subparagraph, 'qualified commonly controlled group' means a commonly controlled group that, as of January 1, 2012, consisted of three or more separate apportioning trades or businesses, one of which had 100 percent of its stock acquired by member of the commonly controlled group on January 6, 2009, and that is considered a trade or business primary engaged in the business described in Code 312130 of the North American Industry Classification System published by the United States Office of Management and Budget, 2012 Edition."
On the chance that's not quite understandable, there are clues to the beneficiary. First, the clause about Code 312130 refers to wineries. So to qualify, any company would need to own a California winery.
Another clue is the date, Jan. 6, 2009. On that day, Altria purchased UST Inc., purveyors of chewing tobacco and owners of Ste. Michelle, a wine company that owns Michelle-Antinori LLC. Michelle-Antinori, in turn, owns Stag's Leap Wine Cellars, a winery that under founder Warren Winiarski became synonymous with the finest Napa Valley wines.
On Friday, about 3 p.m., I saw Pérez in the Capitol and asked whether his bill included a tobacco exemption. "Not yet," he said, as he kept walking. He turned and added that I ought to be asking Republicans what they were seeking in exchange for their support of his legislation.
His implication was that Republicans refused to vote for the bill without a tobacco exemption. Perhaps so, though Senate Republican leader Bob Huff told me the Altria language came from Pérez's office. Even if Republicans had demanded a tobacco exemption, Pérez should have asked himself at what price does a bill cost too much?
Pérez didn't emphasize the tobacco language as he rounded up support. Rather, he focused on other issues, including the promise that Healthy Families would be restored. That won support from the California Medical Association, the physicians lobby group.
Jodie Hicks, the doctors' lobbyist, said she never saw the final bill, and doubts the medical association would have gotten involved if there had been a tobacco exemption. But the doctors are "supportive of Healthy Families being reinstated."
Pérez abandoned the amendments late Friday as details became known in the Capitol, without explanation, and the bill died. Altria didn't get the exemption, but doesn't need it. The $1 billion loophole that benefits out-of-state companies including Altria remains, though Proposition 39 also seeks to close the loophole, and divert money to environmental causes.
Pérez is scheduled to speak at the Democratic National Convention in Charlotte, N.C., today. No doubt, he will hit the right notes and perhaps inspire listeners. But back in the Capitol, where he seeks to create a legacy, Pérez was prepared to help kids by helping Altria. It doesn't get more cynical.