The California Legislature rejected two tax increases in 2011. Nevertheless, Californians will find their taxes increased by more than $1.1 billion in 2012-13.
That’s right; the California Legislature does not have the last word on whether to raise certain taxes. It turns out that is the job of some powerful but obscure state boards.
For the first half of 2011, the Legislature and Governor Brown were engaged in a high-stakes debate over how to finance the state budget, with Republicans holding out against higher taxes and Democrats eventually adopting a budget that made deep cuts in state programs.
Feeling the brunt of these cuts were vital and popular institutions like the University of California and the state’s trial courts, as well as the social safety net.
In the meantime, the Legislature considered a bill giving the Administration backdoor authority to tax the new cap-and-trade program designed to reduce greenhouse gas emissions from California sources, raising billions of dollars.
The Legislature also considered targeted increases in utility taxes to subsidize programs for renewable energy projects, energy efficiency retrofits, and research reports. These increases – actually an extension of an existing tax – would have raised more than $2.8 billion over the next eight years.
Both bills were extensively debated in the Legislature, and were defeated in the Assembly Appropriations Committee, in the case of the cap-and-trade tax, and on the Assembly floor, in the case of the utility tax.
But just because the state Legislature says “no” to a tax increase doesn’t mean there won’t be a tax increase. This appears to be especially the case with programs that transfer money from energy consumers to special interests operating in the crosswinds of the energy economy.
The cap-and-trade tax is obscure, but potentially far-reaching.
In a nod to minimizing the economic burden on California residents and businesses, Governor Schwarzenegger insisted that the bulk of the greenhouse gas reductions be accomplished through market mechanisms. Carbon emission sources would be given “allowances” that can then be bought and sold to enable companies and utilities to remain under the statewide cap while allowing higher value activities to remain viable.
However, some powerful special interests angled to raise money through this mechanism to pay for unrelated programs and benefits, by charging industrial sources for ten percent of their allocations. The Air Resources Board adopted regulations to that effect last fall, and Governor Brown endorsed the scheme in his budget proposal.
The Governor said the proceeds generated from “the program … will be used to invest in clean energy, low-carbon transportation, natural resource protection, and sustainable infrastructure.” But the objects for all this new spending do not benefit or provide a service to the payers, nor are they inherent in the program to regulate the emission of greenhouse gases. Therefore, the levy is not a legitimate fee, and is instead most likely an unlawfully-levied tax.
Indeed, the Administration may have acknowledged this by conceding that they intend to use about $500 million of the proceeds on environmental programs now financed through the General Fund. They must have a sweeping vision of what constitutes “GHG emission programs financed by the General Fund” since, for example, the entire Cal-EPA agency receives in total only about $40 million in General Fund support.
In the case of the utility tax, responding to a request from Governor Brown, the Public Utilities Commission adopted an emergency interim order continuing the utility surtax to support the subsidies for renewable energy and funding for research projects. Brushing aside suggestions that the Legislature’s demurral should represent state policy, the Commission instead ordered the new taxes, citing their organic authority to “do all things, whether specifically designated in this part or in addition thereto, which are necessary and convenient in the exercise of such power and jurisdiction.”
Hard to argue with that reasoning.
The Commission promised to further increase this tax at a later date to support energy efficiency projects.
To be clear, these subsidies are not paid out of utility profits, nor are they merely down payments on programs with a guaranteed return on investment. They are uneconomic, which is why the Legislature had to mandate them in the first place and require a rate increase to support them. In any other context, a mandatory levy for a general public policy purpose that does not directly benefit the payer is commonly known as a “tax.”
The impulse to support uneconomic alternative energy investments and public policies is formidable, considering the effort to increase taxes for these purposes is more sustained and more successful than that to support basic public services like schools, universities and the judiciary.
Follow Loren on Twitter: @KayeLoren