Please see the last third of this column.  Karen

Dan Walters: 2% problems vex governor


(Published Sept. 14, 2000)
Two percent doesn't sound like much of anything, but California's economy is
just so big -- a trillion-plus dollars a year, measured by either output or
personal income -- that even a tiny share can mean many billions of dollars.
As it happens, Gov. Gray Davis finds himself in the middle of several
quasi-economic, quasi-political squabbles, each of which involves a couple
of percentage points of California's economy -- and the outcome of which may
affect his governorship.
One showdown occurred last week when the Air Resources Board, an arm of the
Davis administration, decided to stick with its policy of compelling the
auto industry to sharply increase sales of zero-emission cars. There are
about 2,000 electric-powered cars now on California's roads, and the ARB
wants that to increase tenfold and beyond, despite industry assertions that
battery technology isn't advanced enough. Californians lay out about $20
billion a year for a million new cars -- 2 percent of the state's personal
income stream. The ARB's decision could either create an entirely new
industry of nonpolluting cars, as advocates claim, or reduce the overall
supply of cars that can be legally sold and drive up Californians' costs, as
critics maintain. And Davis will get the credit or blame.
Although exact numbers are hard to obtain, it's likely that within a few
years, Californians will be spending another $20 billion a year to gamble,
mostly in casinos operated by Indian tribes, thanks to legislation signed by
Davis -- a major recipient of tribal political contributions. Cardroom
operators, who say they may be driven out of business by lavish new Indian
casinos, persuaded the Legislature to pass two bills that would allow them
to offer new card games, including a form of blackjack. But the tribes
oppose such expansion, obviously wanting to maintain what is rapidly
becoming a state-sanctioned monopoly on casino gambling, and Davis must
decide the bills' fate. Regardless of what he does, cardroom operators are
mulling a federal lawsuit alleging that the Indian monopoly on slot machines
violates federal law, which generally grants Indian casinos parity with
other forms of gambling.
The final 2-percent issue facing Davis poses the greatest peril to his
governorship: the huge run-up in electric utility costs in the wake of
deregulation. Utilities were paying about $20 billion a year for power
before the recent spike, but their costs now have doubled. San Diego
ratepayers got hit first, but those in other major metropolitan areas could
feel the pocketbook pain soon.
Davis signed two measures, one that rolls back San Diegans' power bills
temporarily, but could lead to balloon payments later, and another to speed
up siting of new power plants. But they are, at best, stop-gap measures, and
he may veto a third bill that would have the state directly underwrite the
higher utility bills. What the governor appears to be doing, by word and
deed, is to plead with the Public Utilities Commission and the Energy
Commission to get him off the hook.
The timing is critical because Pacific Gas and Electric Co. and Southern
California Edison say they are absorbing billions of dollars in higher
wholesale costs that they can't immediately pass on to consumers thanks to a
rate freeze. The freeze is supposed to end in 2002, just as Davis is seeking
a second term, and if he and his utility regulators can't come up with a
solution by then, all hell could break loose as consumers' bills escalate
sharply and they look for someone to blame.
Davis may not have had anything to do with the original deregulation
legislation -- as he points out at every opportunity -- but he's stuck with
the problem now. Dealing with it could be critical to his political future.
DAN WALTERS' column appears daily, except Saturday. Mail: P.O. Box 15779,
Sacramento, CA 95852; phone (916) 321-1195; fax (781) 846-8350
E-mail: dwalters@sacbee.com <mailto:dwalters@sacbee.com>
Recent columns: <http://www.capitolalert.com/voices/index_walters.html>




Karen Edson
kedson@ns.net
916/552-7070