A government takeover of Pacific Gas & Electric Company could cost billions of dollars for the buyout and a big loss in property taxes for the governments that want to become the new utility proprietors. As a government owned utility, a state or local government run operation would no longer be required to pay property taxes.
According to the State Board of Equalization, the assessed value of PG&E is nearly $30.9 billion. At a one percent tax rate, the PG&E property tax liability is about $309 million. That would be gone with a state take over.
Assuming that the property tax roll is reduced by $309 million then the state will have to make up about 37% of the loss to K-12 districts or about $115 million, since each dollar of property tax that goes to the schools saves General Fund payouts to the schools. Community colleges are affected as well.
Not that government will allow for the utility to escape all taxes. In Los Angeles, the city operated Los Angeles Department of Water and Power sought an in-lieu fee in place of property taxes, but lawsuits were filed against that effort.
Government takeovers seem to be the solution of the moment for a number of California politicians.
Sen. Scott Wiener introduced a bill to accomplish a state takeover of the Northern California utility with the possibility of local government utility spin offs. San Jose Mayor Sam Liccardo wants customer owned energy co-ops to take over some PG&E assets and offer power to the co-op members. Gov. Gavin Newsom stands on the sidelines shaking pom-poms, cheering for the idea. At a minimum, he wants to promote the takeover solution as a bargaining chip against PG&E to provide a re-modeling of the company he finds appropriate.
In Los Angeles, City Councilman Gil Cedillo, responding to a landlord’s desire to raise rents in his multi-unit apartment, says the city should purchase the building through eminent domain to keep renters in affordable housing. In this case too, beyond the cost of paying for the eminent domain—estimated at $15 million–is the property tax loss from the 124-unit building once it becomes city property.
In the Los Angeles situation, the owner of the property received a multi-million-dollar loan from the now extinct L.A. Redevelopment Agency and in turn promised to use 59 units as affordable housing for 30 years. The agreement time period is over, and rents can increase to market value. Cedillo fears that will force people who can’t afford the market rents to move out, maybe adding to the city’s burgeoning homeless population.
Cedillo hasn’t stopped with this one building, asking a city agency to investigate if other apartments that received city help and could lift rents are also possible takeover targets.
Putting aside for the moment the wisdom of more government intrusion into the private sector, the economic attention on government takeovers is focused on the cost to purchase the assets. Loss of tax revenue, the life-blood of government, cannot be ignored.