Is Proposition 10 the answer to California’s Energy Woes?

If you’re like me, you get a little confused when you read the pros and cons listed underneath a proposition that is up for vote.  Both sides can be pretty darn convincing in their arguments.  So who do you believe?  Is a proposition going to be a marvelous solution to one of our state’s many problems?  Or is it going to be a colossal, money-sucking mistake that will end up funding special interest groups?

Proposition 10 is a California initiative that is on the ballot for your vote this November.  It is called the  ALTERNATIVE FUEL VEHICLES AND RENEWABLE ENERGY BONDS INITIATIVE STATUTE. The intent of the initiative is to:

• Provide $3.425 billion to help consumers and others purchase certain high fuel economy or alternative fuel vehicles, including natural gas vehicles, and to fund research into alternative fuel technology.
• Provide $1.25 billion for research, development and production of renewable energy technology, primarily solar energy with additional funding for other forms of renewable energy; incentives for purchasing solar and renewable energy technology.
• Provide grants to cities for renewable energy projects and to colleges for training in renewable and energy efficiency technologies.
• The total of this funding should amount to $5 billion from general obligation bonds.

Sounds pretty straight forward.  I mean, we all know about global warming and the need to find alternative fuel sources.  So this initiative, on the surface, sounds great.  Maybe California, by passing this initiative, can pioneer our country into energy independence!

And maybe not…

These are the presented “Facts” of Proposition 10 as reviewed by a Legislative Analyst:

Reading further into the not so fine print the initiative states that the actual cost to the state will be about $10 billion over 30 years to pay off the principal ($5 billion) and interest (also $5 billion) of the bonds.  This amounts to approximately $335 million per year.

There will also be an increase in state sales tax revenues of an unknown amount which can potentially total into the tens of millions of dollars, over the period from 2009 to about 2019.

• In simpler terms, this means that the state will collect more sales taxes which should offset some of the cost of the bonds.

Local sales tax and vehicle license fee (VLF) revenues will also increase by an unknown amount, potentially totaling in the tens of millions of dollars during ’09 to ’19.

• They are hoping that by offering rebates (see below) on High Fuel Economy and Dedicated Clean Alternative Fuel Vehicles they can increase the values of these vehicles thereby collecting more taxes and  VLF fees.

Lastly, it will also incur potential state costs of up to about $10 million annually, through about 2019, for state agency administrative costs not funded by the measure.

The majority of the bonds funds (approximately $2.9 billion) will go toward rebates ranging from $2,000 to $50,000 per rebate.  The rebates are designed to encourage the purchase or lease of vehicles that, presumably, are more expensive than the vehicles that consumers (individuals and businesses) would purchase or lease in the absence of the rebates. To the extent the rebates result in individuals and/or businesses purchasing or leasing vehicles that are more expensive than those that they would otherwise purchase or lease, state sales tax revenues would increase. In addition, consistent with the experience with other vehicle rebate programs in California, retailers may adjust the sales price upwards to account for the individuals and/or businesses being eligible for a rebate. Such an increase in the sales prices of these products would result in an increase in state sales tax revenues. Finally, rebates will result in lower out-of-pocket expenses for some individuals and/or businesses purchasing or leasing vehicles. If these individuals and/or businesses spend any of these savings on other taxable purchases, this will result in increased SUT revenues.

Approximately $550 million will go toward research, development, and demonstration of alternative-fuel and high-efficiency vehicles, and alternative fuels.

The next biggest chunk of the budget will go toward the Solar, Wind, and Renewable Energy Account ($1.25 billion).  This includes financial incentives for the research, design, development, construction, and production of electric generation technology that reduces generation cost and greenhouse gas emissions as well as financial incentives for the equipment to produce electricity from renewable resources.