When Jim Dobbas incorporated his business, he figured doing so on April 1, 1968, was fitting.
“It was April Fool’s Day, but I didn’t care because I didn’t think I was going to make it anyway,” he recalled with a chuckle. Fortunately for California’s railroads, his pessimism was ill-founded.
From a single truck hired out to haul heavy loads, Jim Dobbas Inc. has grown to be a premier heavy equipment contractor, specializing in emergency and derailment response service for class 1 railroads such as the Union Pacific and Burlington Northern Santa Fe. From its yard in Newcastle, northeast of Sacramento, the company now serves Northern California, northern Nevada and southern Oregon.
Three generations of the Dobbas family - from left, Jim, Dillon, and Don.
Don Dobbas, the second-generation president, said railroad-related work makes up about 80 percent of the company’s business, with the rest outside transportation and heavy equipment hauling. A crew of about 40 employees man the fleet of excavators, loaders, dozers, trucks and trailers, and other heavy equipment.
That’s a far cry from the beginning. The family emigrated to the region in 1855 and owned dairies, but Jim was fascinated with trucks since he was a young boy. While still a student at Placer High School in Auburn, Jim bought a 1932 Ford school bus hoping to get it running in auto shop. When that didn’t work out, he bought a running 1931 Chevy truck and then after graduating bought a new Chevy two-ton truck.
Before starting his own company, he was a dispatcher for another company and finally decided to go out on his own.
“Then, I had one truck and no employees, and I didn’t want any. I was going to run that truck until I died,” he said. But a former coworker had other ideas. He kept pestering Jim for a job and finally Jim bought an old truck with no motor for $500 and the new employee soon got it running. That driver started in 1969 and stayed with Dobbas until he retired – and still drops by from time to time to see how things are going.
The company got its big break in 1973, when a train containing 21 freight cars, each carrying 330 bombs and bound for Vietnam, exploded in the massive Roseville rail yard, then owned by the Southern Pacific Railroad. Hot brakes caused by the descent from the Sierra had caused some of the cars’ wooden floors to catch fire.
Jim, now 87, was at home in Auburn when he heard the bombs going off at about 7 a.m. He learned what was happening from a Fire Department radio in his pickup and called SP’s division engineer, who told him to get all the heavy equipment he could and head for Roseville.
His crews stacked the twisted debris and broken tracks in a side area and helped the railroad install new track. “We cleaned up the yard and they were running trains in seven days,” he said.
Jim and Don, who took over as president in 1990 and assumed ownership in 2000, attributed the company’s success and longevity to excellent employees and sheer tenacity.
“It was just going at it every day, answering the phone and saying yes,” Don said. “Working for the railroad you don’t know what that call is going to be. It’s not like bidding a contracting job. Sometimes you’re working seven days straight in bad weather. It takes special people to do it.”
Jim Dobbas crews lifting a tank car.
The jobs often entail bringing the heavy equipment in on rail as close as possible, pulling up the cars, and lifting them back onto good sections of track – one car at a time. The worst derailment they had to deal with was 94 loaded cars in Cajon Pass north of San Bernardino.
Like many second-generation family business owners, Don got his start by going along with his dad on jobs when he was 7 and 8 years old. He worked during summers while in high school and then started full-time as a laborer, equipment operator, and driver after graduating from high school in 1979.
“I never really had the urge to do something different,” Don said. “I was comfortable with it and it was fun – there was no way I was going to be in an office job back then.”
His son, Dillon, is now working as an equipment operator but like many next-gen family members, isn’t sure yet if he wants to make the company his career.
Like many California business owners, the Dobbases say doing business here is always a challenge. The state’s strict environmental regulators – the California Air Resources Board and the Water Quality Control Board in particular – can be difficult to work with.
“The scariest thing is the environmental movement. The smallest mistake – a broken hydraulic line that leaks oil into a river – could cost us the entire company,” Jim said.
Don said family businesses have unique interests unlike other companies, especially inheritance taxes. And, of course, finding family members interested in working for the business and eventually taking over. That’s where FBA has been very helpful, he said.
“Family businesses are different. They have different challenges than a big (public) corporation. For us to have a voice at the Capitol is very important and FBA is there to keep an eye on all the legislation that add more burdens to business,” he said. “That’s invaluable.”
For another perspective, read the article about the Dobbas family business in the Auburn Journal.
When the Congressional Budget Office made its June 2017 forecast of our fiscal future, it projected a deficit of $689 billion in FY2019. The deficit is now poised to be $1.2 trillion, a dramatic and profound change that is hard to overstate. One major reason for the growing deficit is that the GOP tax cut that passed in late December is estimated to reduce revenue by $1 trillion over the next decade, even after pro-growth economic effects are factored in. The other reason is the budget deal passed by Congress in early February, includes $300 billion in new spending over two years, along with $90 billion in hurricane relief, fully financed by larger deficits.
This is a stark reversal from the years 2010 through 2016, when congressional Republicans insisted on spending cuts and the Obama administration insisted on raising taxes (by allowing some of the Bush administration tax cuts to expire). Those steps, combined with an improving economy, cut the budget deficit from almost 10% of GDP in 2009 to less than 2.5% in 2015. What does this abrupt fiscal change mean for the economy in the near term, medium-term and long-term?
In the near term, economic growth should be quite strong. No matter what assumptions are made, and which economic models are used, GDP growth over the next 18 to 24 months will be about half a percentage point higher than it would be absent these twin expansionary policies. After all, between tax cuts and the boost to spending, close to $500 billion is being injected into the US economy over the next year! Even in an economy near full employment, this will boost growth and reduce the likelihood of a recession to a minimum.
In the medium-term, things are a bit murkier. The big question is whether the economy has room to grow without generating inflation — and how the Fed will respond. With unemployment near 20-year lows, it is unknown how close the economy is to full employment. If it is close, inflation is likely to worsen. But if the U.S. has more growth potential, due to more corporate investment in plant and equipment, reduced regulation, and more workers coming from the ranks of those that dropped out in years past, the Fed could raise rates more slowly, allowing the expansion to run longer because inflation would be subdued. In addition, there is also fear that the Powell Fed will proactively raise rates too fast simply to prove its inflation-fighting-chops and needlessly cut short the current expansion.
In the long-run, the annual deficit is going to be worse than at any time other than during recessions or wars. This not only reduces the ability of the government to fight the next recession with a big dose of fiscal stimulus, but higher debt service costs are also a concern. And as interest rates rise because of the added borrowing, so too will interest payments. Lastly, there is also concern that government borrowing may “crowd-out” private sector borrowing. To the extent funds that can be borrowed are finite, and that is debatable, every dollar the government borrows is a dollar potentially not available for home mortgages or business expansion.
To conclude, in the short run, things look good. In the medium-term, the fear of inflation and the Fed’s ability to let the data speak and not preemptively raise rates unnecessarily will determine how long the current expansion lasts. In the long run, the government will have less room to maneuver when the next recession hits, and interest payments will consume a growing percentage of the budget, making budget battles on Capitol Hill more contentious and the need to find more revenue increasingly pressing.
Elliot Eisenberg, Ph.D. is President of GraphsandLaughs, LLC and can be reached at Elliot@graphsandlaughs.net. His daily 70-word economics and policy blog can be seen at www.econ70.com.
The Family Business Association of California is one of the business groups that signed on to the following letter to Assembly Members Phil Ting, D-San Francisco, and Kevin McCarty, D-Sacramento, opposing their proposal to impose a 10 percent “surcharge” on corporate taxes. The effort is being led by the California Taxpayers Association (CalTax.) You can also view and download a fact sheet opposing the measure here.
CalTax and the organizations listed in this letter oppose ACA 22, one of the largest tax increases in state history. ACA 22 imposes a 10 percent “surcharge,” in addition to the existing state corporate tax rate of 8.84 percent, on California employers. Companies with annual net income of more than $1 million that are subject to corporate income and franchise taxes in California would be required to pay the new tax. We oppose this policy for the following reasons:
Creates the Highest Corporate Tax in the U.S. ACA 22 would more than double the state’s corporate tax rate, which already is the highest among the Western states, and one of the highest in the nation. This would represent one of the largest tax increases on California employers in the state’s history. The 18.84 percent corporate tax rate proposed by this measure would be the highest corporate tax rate in the United States, by a wide margin, and would create a huge incentive for California businesses to take their jobs and operations to other states. Texas, Nevada and Washington, for example, have no corporate income tax, and even New York’s 6.5 percent corporate tax would be roughly two-thirds less burdensome than California’s tax.
Creates a Competitive Disadvantage for Employers Who Stay in California. Higher corporate tax rates put California companies at a tremendous competitive disadvantage. The 49 other states all would benefit from California’s decision to make itself less attractive to employers. A thriving economy is the best source of growing revenue for important government programs, but by chasing jobs away, this proposal would hurt rather than help.
A 2017 study by the Washington, D.C.-based Tax Foundation found that the corporate tax falls predominately on labor, which it estimates bears at least 70 percent, if not all, of the burden. At some point, a tax increase on business impacts individuals through less economic growth, lower wages, higher prices, fewer jobs or decreased returns in retirement accounts.
California already has sufficient revenue to provide additional funding for programs that benefit the Middle Class. The Legislative Analyst’s Office stated in its review of the governor’s proposed 2018-19 budget: “Under our current revenue and spending estimates, and assuming the Legislature makes no additional budget commitments, the state would end the 2018-19 fiscal year with $19.3 billion in total reserves (including $7.5 billion in discretionary reserves).” The analyst added that revenue is expected to be even higher when the
budget is revised in May, and noted that these estimates do not account for possible economic stimulus from federal tax changes. When the state is bringing in surplus revenue, it simply is unnecessary to impose one of the largest tax increases in California history, targeted directly at companies that employ California workers and fuel the state’s economy.
For the foregoing reasons, we must oppose this legislation.
California Taxpayers Association
Advanced Medical Technology Association (AdvaMed)
Association of California Life & Health Insurance Companies
Biocom
California Ambulance Association
California Apartment Association
California Beer & Beverage Distributors
California Business Properties Association
California Forestry Association
California Hotel & Lodging Association
California Life Sciences Association
California Manufacturers & Technology Association
California Railroads
California Restaurant Association
California Retailers Association
CompTIA
Council on State Taxation
Family Business Association of California
Los Angeles Official Police Garages
Orange County Taxpayers Association
San Diego County Apartment Association
Silicon Valley Leadership Group
Western Growers Association
Western Manufactured Housing Communities Association
Wine Institute
Governor Brown delivered his 16th – and final – State of the State address last week, asserting that the “bolder path is still our way forward” on climate change, infrastructure investment, health care, education, and criminal justice.
In his remarks, the Governor pointed to a number of far-reaching, bipartisan measures passed in recent years – from pension and workers’ compensation reform to the Water Bond, Rainy Day Fund, and the Cap-and-Trade Program – that demonstrate “some American governments can actually get things done.”
Some of the major points he discussed in his speech included:
“We can’t fight nature. We have to learn how to get along with her.” He discussed the negative climate impact from forest fires and discussed better management practices for forests are needed.
He made a strong statement for California WaterFix - the controversial twin-tunnels project his administration has been working on its entire tenure.
The Governor included a pitch for the gas tax, which he said “wasn’t easy, but absolutely necessary.” The measure faces an initiative to repeal it this fall.
He made a strong pitch for high-speed rail, which garnered little applause and even some boos. He made a light-hearted statement that high-speed rail “will last 100 years — after all you are gone.”
He discussed his proposal for online community college for under-skilled Californians in the workforce and specifically stated it would not compete with traditional “brick and mortar” colleges.
The final policy point during the address was identifying criminal justice reform.
The State of the State is often just a place where the Governor can expand upon his budget priorities and policy focus for the year.
Legislature Considers Tax Increase on Businesses
California Democratic lawmakers have proposed a corporate income tax surcharge that would take half of the savings businesses get under the federal “Tax Cuts and Jobs Act” to fund programs for lower- and middle-income Californians. State Assembly members Kevin McCarty from Sacramento and Phil Ting from San Francisco introduced ACA 22, which would amend the state Constitution and create a 7 percent tax surcharge on corporations’ net income over $1 million, beginning January 2018. Revenue from the tax would be allocated to education spending and to services targeted to support lower- and middle-income Californians, including expanding the state’s earned income tax credit and providing funding for child care and healthcare programs.
California’s current corporate tax rate is 8.84 percent of net income; S corporations pay a tax of 1.5 percent of their net income. Schanz said the tax surcharge would apply to C corporations and S corporations but not limited liability companies, in order to protect small businesses. If approved by two-thirds majorities in the State Legislature, A.C.A. 22 would go before voters on the November 2018 ballot.
According to Ting and McCarty, the measure is in response to the recent federal tax reform that reduced the federal corporate tax rate from 35 percent to 21 percent, a 14 percentage point reduction. A release from McCarty’s office explained that the proposed 7 percent surcharge would be equivalent to half the savings California companies will realize from the reduced rate. The Sacramento Bee has reported that proponents of the measure estimated it could raise as much as $15 billion to $17 billion annually.
The lawmakers said the corporate tax cut will force reductions to federal spending on programs for the poor and for middle-income earners. “It is unconscionable to force working families to pay the price for tax breaks and loopholes benefiting corporations and wealthy individuals,” Ting said in a statement. “This bill will help blunt the impact of the federal tax plan on everyday Californians by protecting funding for education, affordable healthcare, and other core priorities.”
The measure isn’t the only legislation California lawmakers have proposed in response to the new federal tax law. One high-profile proposal by Senate President Pro Tempore Kevin de León, D-Los Angeles — S.B. 227 — would circumvent the new federal cap on state and local tax deductions by providing a state individual income tax credit in exchange for taxpayers’ charitable contributions to California. Taxpayers could then claim the federal charitable deduction instead of the capped SALT deduction.
Legislation that would have reinstated the Estate Tax in California if the Federal government repealed the tax died last week.
SB 726, by San Francisco Democrat Scott Wiener, would have asked voters to reinstate California’s estate tax if the federal government had repealed it. The bill became difficult to justify after the final federal tax reform legislation doubled the estate tax exemption for a period of eight years, forgoing an outright repeal.
After fierce opposition led by the Family Business Association, Senator Wiener was forced to amend the bill to prescribe procedures for fiscal review on any tax legislation considered that exempts products from sales and use taxes.
“Defeating this effort to reimpose the death tax in California has been our top priority for the past year, and we’re pleased that Senator Wiener has removed the language from his bill,” said FBA Executive Director Robert Rivinius.
“However, there is already an initiative campaign under way to reinstate the Death Tax to pay for higher student aid benefits — and given the costs associated with numerous legislative proposals, it is quite likely that resurrecting the death tax will be proposed again. FBA will remain vigilant and be ready to fight any new proposal.”
