No on California Proposition 39, Public Funding of Energy Corporations

Official Title: Tax treatment for Multistate Businesses. Clean Energy and Energy Efficiency Funding. Initiative Statute.

Proposition 39 appears to close a corporate tax loophole, and it would fund renewable, or "clean" energy in the state of California. Since in general I have supported closing corporate tax loopholes, and favor the reduction of greenhouse gas emissions, why am I not supporting Proposition 39?

The California corporate income tax loophole is complex. Few corporations operate only in California. Their revenues and expenses come partly, or even mostly, from out of state. Current laws allow corporations to pick from two methods to determine how much taxable income to report. Naturally each corporation picks the method that results in their lowest taxes. Proposition 39 would impose a uniform method on these calculations.

Proposition 39 should result in an additional $1 billion of tax expense to corporations and $1 billion of revenue to the state government. If Proposition 39 stopped there, it would be a good initiative.

However, 39 continues a California tradition of misgovernment by pre-determining how the new tax revenue will be spent. At this point the money should just go to paying reducing the annual deficit. Once we have an annual surplus, it should be used to pay down debt. Once debt is at a tolerable level, it should be used to create a "rainy day" fund.

Only if the California budget situation improves vastly over the next few years should the $1 billion be considered as money that can be spent by the government. And how should it be spent? We can't know that now.

Our budget is a mess partly because past initiatives have roped off funds, forcing them to be used in certain ways, for instance to pay off bonds or for public education. The alleged benefit of this earmarking of tax revenue is that without it the Legislature would go wild and fund frivolous bureaucracies and new tax loopholes, while ignoring core areas.

It has not worked and it will work less well as time goes on. As corrupt and incompetent as the Legislature has been, it is still better to allocate funds on an as-needed basis. Some human judgment is needed to allocate funds each year, and that becomes impossible when initiatives earmark the vast majority of taxes collected by the state.

Has "clean energy" been left out? Clean Energy is itself a corporate industry. It has been highly subsidized by the federal government. Closing one corporate loophole to raise funds to shower down on a particular (and very small) set of corporations is just plain crazy. Wrapping a corporate subsidy in the flag of environmentalism may be good politics, but it is bad governance.

No on 39, No taxpayer funded bailout to the energy industry.

Proposition 39 summary, official arguments, and text