The State Legislative Analyst’s Office is calling into question the legality of Gov. Brown’s proposal to count new revenue from Proposition 39 toward funding for education. In a report released Thursday, the LAO warns that the governor’s plan for the initiative, the California Clean Energy Jobs Act, violates the intent of the law.
Proposition 39, which won with 61 percent vote last November, is projected to raise up to half a billion dollars in revenue this fiscal year and as much as a billion per year starting next year for clean energy projects. It does this by changing the tax formula for multistate corporations doing business in California to one used by most other states.
At issue is a provision of Prop. 39 that requires the state to put half of the revenues raised for each of the next five years into a new Clean Energy Job Creation Fund for energy efficiency projects in local communities, such as hospitals. The other half of the money would go into the general fund, where it would increase the minimum school-funding guarantee of Proposition 98 by as much as $500 million this year and go up from there.
The Governor’s budget plan would count all the revenue raised by the initiative toward calculating the minimum school funding guarantee of Proposition 98. Brown also wants to allocate all Prop. 39 funds for the next five years to K-12 schools and community colleges to reduce their energy costs by using energy efficient construction for new school buildings and modernizing their aging buildings. For next year, $400.5 million would go to K-12 schools, while community colleges would receive $49.5 million.
The LAO report calls this approach “a serious departure from our longstanding view of how revenues are to be treated for the purposes of Proposition 98,” and says it “is directly contrary to what the voters were told in the official voter guide as to how the revenues would be treated.”
The Department of Finance disputes that interpretation. Spokesman H.D. Palmer counters that the LAO has it backwards. Because Prop. 39 generates corporate tax revenue it’s counted as part of the general fund, even if the money is then moved to the new Clean Energy Fund.
“In our view it’s not a gray issue,” said Palmer. “By definition and by law you must include those revenues when you calculate the Prop. 98 guarantee.”
The LAO also argues that this approach could also lead to “greater manipulation of the minimum guarantee” by opening the door to all types of accounting shifts. “The state could, for example, require that all sales tax revenues be deposited directly into a special fund rather than the General Fund, thereby excluding the revenues from the Proposition 98 calculation.”
In an alternative proposal, the LAO recommends that the Legislature exclude Prop. 39 revenues from being counted toward the school funding guarantee and instead create a competitive grant process for energy efficiency projects administered by the California Energy Commission. Schools and community colleges would be welcome to apply.