Crossposted at

Billions of dollars in new taxes may soon flow into California state government to be spent on new programs.

The taxes are harmful to the economy, they’re probably illegal, and they’re not even needed for the program’s success.

And don’t even imagine that they’re getting Legislative or voter approval.

I’m not talking about new income taxes or sales taxes for education. Not new taxes to balance the state’s budget. Not new taxes to sew up the tattered safety net or rescue California’s once-vaunted higher education system.

Beginning later this year, billions in new revenues will be used for … well, we don’t exactly know yet.

The taxes will be levied by the “Cap and Trade Auction,” a scheme developed by the Air Resources Board to regulate the emission of greenhouse gases under 2006 legislation. According to the Administration, the auction will raise between $12 billion and $60 billion through 2020.

And perhaps craziest of all – these new taxes are utterly unnecessary to achieve the GHG reduction goals set forth by the Legislature in the first place. Doubly crazy when you consider that these new billions in taxes would be collected as gasoline prices are climbing to new record highs and as electricity prices are ticking ever upward.

The auction is probably illegal on its face. The legislation in question, Assembly Bill 32, passed in 2006, authorized “market-based compliance mechanisms” to reduce greenhouse gas emissions. As such, the Board adopted a conventional cap-and-trade program (like the successful Clean Air Act Acid Rain Program) that distributes allowances to greenhouse gas emitters and permits the allowances to be traded in a securities market to efficiently allocate the required greenhouse gas reductions.

But in a surprise twist, the Board held back one-in-ten of these allowances, and decided to instead auction them into the market – in effect charging a ten percent tax on the distribution of GHG allowances.

Nowhere in the Legislation was such an auction or tax authorized. And for good reason – any new tax would require a two-thirds vote of the Legislature, which wasn’t in the cards for such a controversial bill. Indeed, the authors of AB 32 recognized this: Speaker Fabian Núñez wrote an official letter clarifying that the fee authority in the bill was limited to “direct costs” of administration; Senator Fran Pavley sought (and failed) to give the Board specific authority to run an auction.

The Administration and some legislators have lately taken to calling the auction a “fee,” which would obviate the need for supermajority legislative approval. But the change in name doesn’t change the underlying illegal maneuver, since a fee cannot be levied if its primary purpose is to raise revenues for new programs, which is the basic purpose of the auction.

Notwithstanding the serious legal and policy clouds, the Board has scheduled auctions as early as August of this year,  even though neither the Administration nor the Legislature has yet determined how to spend the proceeds, estimated at between $660 million and $3 billion for 2012-13 alone.

By any measure, these are extraordinarily large revenues to appear in state coffers with so far little public attention and only modest legislative oversight. The revenues aren’t even programmed yet in the state budget.

The Administration proposes merely to provide the Legislature with an expenditure plan at some future date, some 30 days before it begins to allocate revenues.

The Administration estimates that, of the estimated $1 billion in new revenues from the auction for the next fiscal year, some $500 million would be spent to offset existing General Fund costs of greenhouse gas mitigation activities. The remaining $500 million would be “invested” in (1) clean and efficient energy, (2) low-carbon transportation, (3) natural resource protection, and (4) sustainable infrastructure development.

Last month, the Legislative Analyst released a report that raised concerns over the schedule, budgeting and oversight of the new auction, as well as urging prudence given the legal cloud shadowing the program. Indeed, the Analyst has not been able to identify more than $100 million in current General Fund costs for the first $500 million, and where the remaining $500 million would be spent is anybody’s guess.

But wait, there’s more. The Public Utilities Commission is responsible for ordering the redistribution of between $650 million and $2.6 billion of auction revenues generated from the state’s electric utilities. The Commission has opened a proceeding to determine how and on what the money should be spent, although they have committed to see the funds used “to benefit electricity consumers.”

California is struggling with real deterioration of basic public services, caused by years of fiscal mismanagement and a devastating economic recession. A legitimate public debate is unfolding whether to raise income and sales taxes to shore up education, public safety and safety net programs. It is revealing and disturbing that billions in new taxes to support as-yet unidentified energy subsidies is moving along with little public deliberation and even less respect for the law.

Follow Loren on Twitter: @KayeLoren