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July 16, 2008

The 2007-08 term of the Wisconsin Supreme Court ended in June. Since the conclusion of its term, the Court has been releasing opinions (decisions) at a steady pace - and we address two of those decisions in this issue of Tidbits.

In a case involving the Beaver Dam Area Development Corporation, the Court expanded the application of Wisconsin's open meetings and public records laws to "quasi-governmental corporations"  (which the Court tries to define) and includes many, if not most, local economic development corporations.

Please see the Hamilton Consulting Group's Update for a more complete analysis and critique of the decision.

On the same day, the Court clarified the role and authority of the Wisconsin Tax Appeals Commission and rendered a decision favorable to business and individual taxpayers - although one that is likely to be costly to the state coffers.

Courts in other states have also been busy, including the Rhode Island Supreme Court, which joined a growing list of states (Wisconsin excluded) that have found nuisance suits and market share theories in lead paint cases - which attempt to circumvent traditional causation requirements - to be without merit. The Hamilton Consulting Group has been monitoring these and related Wisconsin trial court cases since the "risk contribution" pronouncement in the Thomas v. Mallett case that was rendered three years ago, July 2005.

Please see our most recent Update on Lead Paint Cases.

Tidbits also summarizes the recommendations of the Global Warming Task Force, which recommendations will be forwarded to the Governor and may make their way into proposed legislation; and, reports on DNR's Mercury Reduction Rule, including a link to Hamilton's Update on the status of litigation aimed at forcing regulatory compliance by the DNR.

July 9 was the deadline for filing nomination papers for all partisan offices for elections to be held this fall.

Please consult our Election's Page for continuing updated coverage and candidate information, with primary emphasis on state legislative races.

Policy Developments

Open Meetings/Public Records Apply to Quasi-Governmental Corporations
Supreme Court Decision includes (at least some) Economic Development Corporations
On Friday, July 12, the Wisconsin Supreme Court handed down its decision in State of Wisconsin v. Beaver Dam Area Economic Development Corporation, et al. in which it determined that the Beaver Dam Area Economic Development Corporation (BDADC) is a “quasi-governmental” corporation subject to Wisconsin’s open meetings and public records laws.

The Court, however, provided minimal guidance to local economic development entities by declaring that a determination of whether or not an entity is a “quasi-governmental” corporation requires a case-by-case analysis.

Please see Jim Hough’s Update entitled Wisconsin Supreme Court Delivers a Blow to Economic Development Activities for an analysis and critique of this decision.

Rhode Island Supreme Court Overturns Verdict against Lead Paint Companies
On July 1, 2008, the Rhode Island Supreme Court issued a decision ruling that the trial court should have dismissed a nuisance suit against lead paint pigment manufacturers who had been sued by the state under a nuisance theory.

The Court held that under no set of circumstances could the facts pled in the complaint rise to a public nuisance. The court also opined that causation is a basic requirement in any public nuisance action, consistent with the law of torts, generally and that there was no allegation that the defendants had control of the lead pigment at the time it caused injury. Please see Jim Hough’s Update on Lead Paint Cases.

Wisconsin Supreme Court Finds Software System Not Subject to Tax
The Majority opinion in Wisconsin Dept of Revenue v. Menasha Corporation concluded that the Tax Appeals Commission’s interpretation of statutes is entitled to “due weight deference” and its interpretation of administrative rules is entitled to “controlling weight deference” and is not bound to defer to the Department of Revenue (DOR).

Based on the “controlling weight deference,” the court concluded the Tax Appeals Commission’s interpretation of the rule was reasonable when it determined the Menasha software system was custom and, thereby, not subject to sales and use tax.

Justice Ziegler opined that the decision has great import to the average taxpayer who is entitled to a fair hearing before a neutral tribunal when that person believes that he or she has been taxed incorrectly by the DOR. Although subject to judicial review, the Tax Appeals Commission is the final authority for determining questions of law and fact under the tax code.

This was a 4 (Justices Ziegler, Prosser, Roggensack and Crooks) to 3 (Justices Abrahamson, Bradley and Butler) decision with concurring and dissenting opinions filed.

While a victory for business and individual taxpayers, the Legislative Fiscal Bureau has estimated that the decision could cost the state nearly $300 million in refunds and diminished sales tax collections between now and next June 30.

For further information on the above Court decisions, contact Jim Hough at the Hamilton Consulting Group.

Global Warming Task Force Finalizes Recommendations
On Thursday, June 26, the Governor’s Task Force on Global Warming approved on a 23-3 vote the”Revised Strawman Proposal.” Co-chairs Roy Thilly and Tia Nelson developed the strawman proposal to address several key issues on which the full Task Force failed to reach a consensus.

The proposal sets targets to reduce greenhouse gas emissions to 2005 levels by 2014, 22 percent below 2005 levels by 2022, and 75 percent by 2050. The linchpin recommendation is for the establishment of a federal or regional multi-sector cap and trade program. The proposal also includes recommendations for a three- to four-fold increase in Wisconsin’s investment in energy efficiency. Changes to the state’s renewable portfolio standard would require utilities to produce 10 percent of their electricity from renewable sources by 2013, 20 percent by 2020, and 25 percent by 2025.

The recommendations of the Task Force regarding vehicle emissions included an endorsement of California Vehicle Emission Standards (often referred to as California Cars). Auto manufacturers assert that such a standard provides no meaningful improvement over the federal Corporate Average Fuel Economy (CAFE) program and will ultimately reduce the availability of certain products in Wisconsin such as flex-fuel vehicles. (See Comments of the Alliance of Automobile Manufacturers.)

The report recommends developing a declining GHG emissions profile measured in CO2-equivalent gram per unit of fuel energy (BTUs). The standard will be measured on a life-cycle basis to include all emissions from fuel consumption and production, including upstream emissions. A related issue is how such a standard would limit the availability of Canadian crude oil derived for oil sands. (See Comments by Flint Hills Resources.)

The group also recommended modifying Wisconsin’s nuclear moratorium law to ensure that any nuclear plant must meet stringent waste disposal standards.

The Task Force co-chairs will now finalize the document and policy templates, which will be added as appendices, and reconvene the Task Force on July 24 for a final vote before the document is forwarded to Governor Doyle. Most of the policies contained in the Task Force recommendations will require legislative action. The Wisconsin Legislature will not convene until January 2009.

Go to the following inks for related documents.

• Governor's Task Force Home Page

• Press Release

• Highlights of the Revised Strawman Proposal

• Revised Comprehensive Strawman Proposal

For further information on this issue, contact Amy Boyer or Bob Fassbender at the Hamilton Consulting Group.

Natural Resources Board Approves Mercury Reduction Rule
On June 25, the Natural Resources Board approved a mercury reduction rule that would require 90 percent reductions in mercury emissions from utilities operating in our state. The controversial rule is now undergoing legislative review, with hearings expected before the respective environmental committees.

Large coal-fired power plants must either meet a 90 percent mercury emission reduction by January 1, 2015 or opt into a multi-pollutant alternative. The multi-pollutant alternative, aimed at alleviating ozone and particulate matter pollution, requires the affected power plants to achieve nitrogen oxides (NOx) and sulfur dioxide (SO2) reductions beyond those currently required by federal and state regulations. Under the multi-pollutant approach, an additional six years (2021) is allowed to achieve the 90 percent mercury emission reduction standard, with interim targets set at 70 percent (2015) and 80 percent (2018).

Beyond the aggressive mercury targets, the business community opposed using the mercury rule as a sort of Trojan horse for otherwise not needed ozone and particulate matter mandates. For example, the rule marks the first time since the 1990 Clean Air Act Amendments that ozone regulations would apply outside the Southeast Wisconsin ozone nonattainment areas. Moreover, DNR has repeatedly asserted the new ozone and particulate matter controls were not needed to meet the federal air quality standards, making these requirements unnecessary and unauthorized under state law.

For an update on the related litigation on this rule, go to the Hamilton Consulting Group Status of Suit to Compel DNR Compliance with Jobs Creation Act.

For further information on this issue, contact Bob Fassbender at the Hamilton Consulting Group.

Wisconsin Supreme Court Asked to Resolve Lemon Law Issues
On July 14, the U.S. Court of Appeals for the Seventh Circuit found in Bruce A. Tammi v. Porsche Cars North America, Inc. that Wisconsin’s Lemon Law statute provides insufficient guidance on a key issue of damages.

While affirming the district court’s $266,160 verdict against Porsche, the Court stayed a remand pending resolution of issues relating to pecuniary loss. The issues certified for Wisconsin Supreme Court resolution involve those situations in which a consumer exercises an option to purchase a lease vehicle.

Gov. Doyle Issues Major Budget Policies for 2009-11
Gov. Jim Doyle has ordered state agencies to submit their 2009-11 budget requests by September 15. Most state agencies were told to hold their spending flat in each year of the upcoming budget and to prepare plans to reduce all non-federally-funded state administration operations appropriations by 10 percent.

See Doyle's letter to agency heads (including major budget policies):

http://www.doa.state.wi.us/docview.asp?docid=7110&locid=3

See 2009-11 Technical Budget Instructions:

http://www.doa.state.wi.us/docview.asp?docid=7141&locid=3

For further information on this issue, contact Pat Osborne at the Hamilton Consulting Group.

Wisconsin Politics

Wisconsin Election Overview
The balance of power in the State Legislature is at stake in the upcoming 2008 Fall Elections. Currently, Democrats control the State Senate 17-14 with two open/vacant seats. Republicans control the State Assembly by a 51-47-1 margin with 11 open seats.

Governor Jim Doyle (D) and Republican Attorney General J.B. Van Hollen are not up for reelection this cycle. The partisan Primary Election will be held on Sept. 9, 2008, and the General Election is Nov. 4.

For more information and future updates, go to the Hamilton Consulting Group’s 2008 Election page.

Federal Developments

D.C. Circuit Court of Appeals Vacates EPA Interstate Pollution Rule
On July 11, 2008, The D.C. Circuit Court of Appeals vacated the Clean Air Interstate Rule (CAIR) in what some consider the most devastating setback ever of an EPA program. Even environmental groups that pushed for a more aggressive program are troubled over the decision’s adverse impacts to the air quality.

The decision in North Carolina v. EPA was an indictment of EPA’s regulatory strategy to address the transport of emissions affecting ozone and particulate matter (PM2.5) pollution. The court found the key compliance mechanism allowing for interstate trading of the targeted pollutants, NOx and SO2, to be inconsistent with the Clean Air Act requirement that each state mitigate its impact to downwind states.

Other defects related to the second phase 2015 deadline that, according to the court, must be reconciled with the 2010 compliance deadlines for the 1997 PM2.5 standard. The court also found EPA’s decision to allow more emission allowances for coal plants flawed; virtually assuring any future regulations impose higher costs for states such as Wisconsin that are more reliant on coal generation. I

n addition, the court found that the pollution transport mandates must not only assure compliance with standards in downwind states, but must assure maintenance of the standard for states in compliance; in other words, a margin of safety beyond that prescribed by EPA.

If left standing, these key findings should lead to a much more expensive program, even if resulting in substantial delays. In the meantime, utilities have already spent billions of dollars to meet CAIR’s upcoming January 2009 deadline.

At this time, the implications of the ruling are unclear for Wisconsin, one of 28 states subject to the federal program. For example, is Wisconsin’s rule, NR 432, which implements CAIR still enforceable or is it in effect void given the demise of the underlying federal program? Similarly, how are the existing and anticipated state strategies for ozone, particulate matter and regional haze affected considering that the CAIR reductions were a fundamental compliance component for each of these programs? These questions will be sorted out over time, but for now, the decision creates a regulatory black hole.

For further information on this issue, contact Bob Fassbender at the Hamilton Consulting Group.

EPA Outlines Climate Change Strategies
On July 11, EPA published its advance notice of proposed rulemaking (ANPR) on how to respond to the U.S. Supreme Court’s decision in Massachusetts v. EPA.

In April 2007, the Supreme Court concluded that greenhouse gas emissions meet the Clean Air Act definition of an air pollutant.  Therefore, EPA has authority under the Act to regulate these emissions such as CO2. See EPA’s related web pages at: http://www.epa.gov/climatechange/anpr.html.

Political News

McCain targets women at Hudson campaign stop: Milwaukee Journal Sentinel, July 11, 2008. At J&L Steel Erectors, senator touts himself as better choice than Obama.

Opponent challenges Colón’s nomination papers: Milwaukee Journal Sentinel, July 11, 2008. Sen. Spencer Coggs (D-Milwaukee) is the subject of a separate challenge, but it might be invalid because it was made anonymously.

Business wins big in high court: Milwaukee Journal Sentinel, July 11, 2008. Sales tax ruling may cost state $265 million.

Ryan is running, Thomas isn't in 1st District: Janesville Gazette, July 10, 2008. The race for Wisconsin’s 1st Congressional District seat will be different this year because of who is not running.

Gard: Increase U.S. oil output: Green Bay Press-Gazette, July 10, 2008. Best chance we have to lower gas prices.

Assembly member splits from Republicans to run as independent: Milwaukee Journal Sentinel, July 9, 2008. The last time the Legislature had a member elected from a third party was the 1947 session.

Control of Legislature in play: Milwaukee Journal Sentinel, July 9, 2008. GOP, Democrats set rosters for fall races in hopes of winning other house.

Democrats go full blast to win Assembly: Wisconsin State Journal, July 6, 2008. At stake is how Gov. Jim Doyle, a Democrat, and the Legislature - currently divided between a GOP-controlled Assembly and a Democratic-led Senate - approach the economy, taxation, health care and education.

Give nuclear power green light (opinion): Wisconsin State Journal, July 6, 2008. Now that state lawmakers have received a green light from an important committee, they should swiftly lift the state's 24-year-old moratorium on nuclear power plant construction. Wisconsin can no longer afford to rule out new nuclear power sources.

What will new rules cost state? (opinion): Milwaukee Journal Sentinel, July 5, 2008. Lawmakers must understand that we cannot sustain high-paying manufacturing jobs in Wisconsin when industrial electric rates continue to rise and when energy continues to cost more in Wisconsin than it does in neighboring Midwest states.

Upcoming Fundraisers

July 21

• U.S. Rep. Tammy Baldwin (D), Madison

• Rep. Mike Huebsch (R-West Salem), Eau Claire

July 30

• Rep. Scott Suder (R-Abbotsford), Madison

For details, go to Hamilton Consulting Fundraiser Calendar.