Clean energy projects to get almost $3B over five years

by Brian Leubitz

UPDATE: Senator Kevin de León, who is sponsoring legislation  that would implement the school green retrofitting plan, is working with Tom Steyer, Prop 39’s main backer. They launched a website that offers more information on the plan. With the support of the governor and a strong group of legislators, the school plan seems to be the likeliest outcome. However, the LAO criticism may make other options or a compromise possible. SB 39, and a similar bill in the Assembly (AB 39), will likely get some priority towards a quick passage that would make implementation as smooth as possible as the money starts coming in.

They had a press conference and made a 20 minute video of it. Enjoy!

Last November’s Prop 39 has two major aspects, one of which helped it rack up 61% of the vote. But let’s start a few years back, 2009 to be exact. In that year’s GOP budget hostage situation, the Republicans extracted a new tax loophole, allowing corporations to choose one of two tax treatments. It allowed those large multistate operations to save over a billion dollars annually, and thus, to shortchange our general fund a billion dollars annually.

In 2010, a labor backed measure, Proposition 24 attempted to close this newly created loophole. However, relatively few resources were directed at the measure, and it couldn’t overcome the anti-tax groups attacks.  That brings us to Tom Steyer and Prop 39. Steyer, a very wealthy venture capitalist, saw an opportunity to create good green jobs in California while closing this loophole. The measure permanently closes the so-called “single-sales factor” loophole, and dedicates about half of those revenues to green energy projects.  However, the measure wasn’t exactly clear as to where that money would go. The specifics were left to the people who are supposed to appropriate money, you know, those people that we hire to run our government, the legislature and the governor.

But, now there is this post of about $500 million (or more) annually to be directed to energy projects, and disbursing that was never going to be easy. Jerry Brown has a plan, however. Basically, noting his belief that the money should be counted under Prop 98’s educational funding requirements, he is calling for the money to be spent entirely on retrofitting schools for energy efficiency. He gets to count it for Prop 98, and everybody’s happy. Right?

Well, being that this is still California governance, nothing is ever so easy. The goal of retrofitting schools is certainly laudable, and will help redirect energy savings to the classroom (hopefully). However, in pure energy savings alone, there are other state institutions that could gain more from the efficiency upgrades, such as public hospitals and other buildings open 24 hours a day. But the Prop 98 impacts are difficult for somebody putting together a budget to ignore.

The LAO, however, has a different take.

Legally, the analyst’s office says the governor’s plan invites manipulation of the state constitutional guarantee by counting the funds toward school operating budgets. The analyst’s office says that approach marks “a serious departure” from how it interprets the state constitution, a view that the office says it “developed over many years with guidance from Legislative Counsel.” Additionally, the analyst’s office says it departs from what voters were told last year.

Brown’s Department of Finance disagrees. It says that because the money is paid by corporations into the state general fund, schools have a claim on it. … “Our proposal reflects the fact that education continues to be the top priority of the governor’s budget,” Director of Finance H.D.] Palmer said. He added that past budget cuts “took their toll not only on classroom instruction dollars but physical upkeep as well.” ([SacBee)

The LAO advocates putting the money through the California Energy Commission, in some sort of competitive process between public agencies.

This conversation is really just getting started, but tossing school finance in the process means that we’ll likely get some greener schools with a side of legislative controversy.

Both Angelides and Westly spoke at the state convention of Education Trust-West, a group which, according to its website, is “squarely and relentlessly focused on California’s most serious problem: the huge achievement gaps separating poor students and students of color from other young Californians.” 

They both agreed we need to provide additional funding for our schools.  Right now, it appears that there is some sort of consensus being built around additional funding for K-12.  Well, at least among Democrats.  This is a good thing.  Now comes the point where disagreement arises, how the hell do we pay for the additional funding?  Heck, how do we even pay to get to Prop 98 levels?

Check the flip…

Westly went first, focusing on his plan to alter lottery payouts:

Steve Westly, the state controller, promised to raise K-12 funding by changing the payout formula for the California Lottery to offer a smaller percentage in prizes for lottery ticket buyers and a larger share of revenues for schools.
***
Westly…charged that California is turning its back on public education. “We have tied their (students’) hands with funding cuts, crowded classrooms and broken schools,” he said. “If we want a high school degree to stand for something, we have to stand by our kids.”
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In an interview, Westly said he wasn’t sure if he would need to bring a new initiative before voters to rewrite the lottery funding program from the 1984 voter-approved California Lottery Act or whether he could put into law a reform measure passed by the Legislature.

“While it was passed by voters,” Westly said of the lottery initiative,”a lot of voters thought more money would be going to education.”
(Sac Bee 4/4/06)

Well, as Angelides’ people brought up, there will be a problem with the lottery plan.  Namely, it will be hard to maintain the same amount of people buying if we lower payouts.  Also, multi-state programs, which we have had several brief flirtations with, have fixed payouts.  Personally, I’m not a huge fan of lotteries in general.  They are somewhat of a “math-impairment tax,” and take away money from those who really need it.  Let’s face it, spending on lottery tickets is disproportionately focused in the lower quintiles.  The Charlotte Observer did a piece on this last month regarding North Carolina’s new lottery.

In South Carolina, where the lottery sells dreams of riches, those who can afford it the least spend the most.  Low-income people also spend a greater portion of their income on the games than more affluent players, according to an Observer examination of four years of lottery data.  Experts suggest that North Carolina can expect similar rates when its lottery starts March 30.

“When North Carolina’s lottery starts up, there will be financial problems for some households. The state needs to be ready to step in for services,” said Duke University public policy professor Philip Cook, who has studied lotteries.

Like the Palmetto state, North Carolina plans to offer counseling referrals and other services to people with gambling problems. Neither state lottery will target low-income players.  Cook said in most states, the dollar amount spent on lotteries generally does not fluctuate much over income brackets.  But in South Carolina, the Observer found that lower-income people spend more. People earning less than $30,000 a year spent an estimated $627 per household annually, nearly triple the spending of those making more than $50,000.(Charlotte Observer 3/18/06)

However, I do agree with Westly that if we are going to have a lottery, that we should be sending all of that revenue to our schools.  Tweaking the formula will probably help, but I’m a little suspect about the ability to totally fund our schools using the lottery funding.

On the other hand, Angelides wants a tax on the highest bracket and the closure of corporate loopholes:

Phil Angelides, the state treasurer, sold his plan to tax high-income earners and close corporate tax loopholes to pay for training and recruiting more teachers for public schools as well as rolling back student fee increases at the University of California and California State University systems.
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Angelides also chided both Westly and Republican Gov. Arnold Schwarzenegger, who say they don’t support a tax increase, for being in denial over how to fund education.
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Angelides, noting that California has the largest number of low-income students and English learners of any state, complained that the state ranks near the bottom in education spending, declaring: “We are never going to have first-rate schools with second-rate levels of investment.”
Turning his attention to Westly and Schwarzenegger and their stated resistance to raising taxes, Angelides said: “Let’s be clear. I’m the only candidate for governor who will do what it takes to fully fund our schools and balance the state budget.”(Sac Bee 4/4/06)

Now, with a tax, you have the ability to select how much money you can take.  Also, the increase of a state income tax doesn’t hit most taxpayers as hard as federal income tax increases due to the fact that most taxpayers can deduct their state tax.  However, the Alternative Minimum Tax is biting into that benefit.  There has been a lot of discussions of fixing the AMT, but it doesn’t look to happen this year with the election.  It would cost the federal government hundreds of billions, so the correction of the AMT would require cuts in services or raising other taxes.  Or, if you are W, neither and let your grandchildren pay for it.  Woohoo, I got me a credit card.

Back from that federal diversion, there is another issue with taxing the upper incomes.  We are going to be taxing them for Prop 82, if it passes.  An additional tax on top of that might make some people move.  Maybe.  Just maybe.  I’m somewhat skeptical of this argument, but I think it must be considered.  Of course, the passage of Prop 82 would probably hinder this component of Angelides’ plan.

And this brings me back to my opposition of the supermajority rules.  If the state didn’t have these arcane supermajority rules, perhaps we wouldn’t be arguing about 82 vs. 98.  The funding could be considered in an ordinary and orderly budget process.  But nope, Howard Jarvis doesn’t want it that way.  And you know Grover Norquist would go crazy if the supermajority rules were ever repealed. (Btw, what better reason is there to reform the supermajority rules than to give Norquist a hissy fit?)

Also on that note,  Is Angelides going to get a supermajority to increase taxes?  And if not, will he be able to get a ballot measure through?  It will be difficult.  My word, governing this state is quite a challenge.  I think Peter Shrag is right, the structure of California politics is broken:

But in the long meantime, California’s cumbersome governmental machinery – its supermajority vote requirements, its auto-pilot spending mandates, its incomprehensible fiscal machinery, its wild-card initiative process – make it appear that despite voters’ expressed desires, they really aren’t sure they want the thing to work at all. (Sac Bee 2/2/06)

I agree with closing loopholes, but who doesn’t in the abstract?  Specifics of the plan are probably necessary in order to determine if that’s actually going to bring in a lot of money.  Plus, some of those “loopholes” might be incentivising business in the state.  I don’t know.  The Franchise Tax Board is going after tax shelters this year, so perhaps that can help matters with upper income tax fraud. 

However, in general, I think both ideas are a good start.  We are probably going to have to throw most of the kitchen sink at these funding issues, so every idea should be welcome.  At least we are talking about the issue, Arnold has been so busy talking about his pretty infrastructure bonds that he’s be neglecting the school funding issues.