Submitted July 17, 2008
Proposition 10
Bonds. Alternative Fuel Vehicles and
Renewable Energy. Statute.
Background
State Energy and Air Quality Programs. The
state administers a number of programs to promote renewable energy (such as
solar and wind power), alternative clean fuels (such as natural gas), energy
efficiency, and air quality improvements. Some programs provide financial
incentives, such as grants, loans, loan guarantees, rebates, and tax credits.
Funding for these programs has primarily come from fee revenues, although
general obligation (GO) bonds more recently have been a funding source for air
quality-related incentive programs.
State and Local Taxes and Local Vehicle License Fee
(VLF) Revenues. State and local governments levy a number of taxes,
including the sales and use tax (SUT). The SUT is levied on the final purchase
price of tangible personal items, with a number of specified exemptions. The SUT
has two rate components: one state and one local. The state SUT rate is
currently 6.25 percent, of which 1 percent is distributed to local governments.
The local SUT rate currently varies between 1 percent and 2.5 percent, depending
on the local jurisdiction in which the tax is levied. Thus, the overall rate in
California varies from 7.25 percent to 8.75 percent. In addition, the state
collects an annual VLF on motor vehicles. Most of these VLF revenues are
distributed to cities and counties. Currently, the VLF rate is equal to
0.65 percent of a motor vehicle’s depreciated purchase price.
Proposal
Authority to Sell GO Bonds. This measure
allows the state to sell $5 billion in GO bonds for various renewable energy,
alternative fuel, energy efficiency, and air emissions reduction purposes.
Figure 1 summarizes the definitions of key terms used in the measure.
|
Figure 1
Key Terms as Defined in Proposition 10 |
|
Clean Alternative Fuel. Natural
gas or any fuel that achieves at least a 10-percent reduction in
carbon emissions when compared to conventional petroleum-based
fuels. |
Clean Alternative Fuel
Vehicle. Generally, a vehicle powered by a clean alternative
fuel. |
Dedicated Clean Alternative Fuel Vehicle. A vehicle
powered exclusively by specified clean alternative fuels—biomethane,
electricity, hydrogen, natural gas, propane, or any combination
thereof. |
High Fuel Economy Vehicle. A light-duty on-road
vehicle (weighing less than 8,500 poundsa)
that can achieve a fuel economy of 45 miles per gallon for highway
use. |
Very High Fuel Economy Vehicle. A light-duty on-road
vehicle (weighing less than 8,500 poundsa)
that can achieve a fuel economy of 60 miles per gallon for highway
use. |
|
a Currently, the
average light-duty passenger vehicle weighs less than 4,500 pounds.
|
|
For more information regarding GO bonds, please refer to
the section of this ballot pamphlet entitled “An Overview of State Bond Debt.”
Figure 2 summarizes the available uses of the bond money,
which primarily would (1) provide $3.4 billion for financial incentives to
reduce the cost to purchase or lease high fuel economy vehicles and dedicated
clean alternative fuel vehicles (primarily rebates for trucks and other medium-
and heavy-duty vehicles), and (2) $1.6 billion to fund research, design,
development, and deployment of renewable electricity generating technology. The
measure allocates the bond funds among four accounts, as shown in Figure 2.
|
Figure 2
Proposition 10
Uses of Bond Funds |
Amounts
(In Millions) |
Clean Alternative Fuels Account |
|
$3,425 |
Rebates—Ranging from $2,000 to $50,000 per
rebate. |
$2,875 |
|
•
High Fuel Economy Vehicles. |
($110) |
|
•
Very High Fuel Economy Vehicles. |
(230) |
|
•
Dedicated Clean Alternative Fuel Vehicles: |
|
|
—Light-duty vehicles weighing less than 8,500 pounds.a |
(550) |
|
— Light-medium-duty vehicles weighing between 8,500 and 13,999
pounds. |
(310) |
|
—Heavy-medium-duty vehicles weighing between 14,000 and 24,999
pounds. |
(650) |
|
—Heavy-duty vehicles weighing 25,000 pounds or more. |
(1,000) |
|
•
Home refueling station rebates ($2,000 per rebate). |
(25) |
|
Financial
incentives—Research, development, and demonstration of
alternative-fuel and high-efficiency vehicles, and alternative
fuels.b |
$550 |
|
Solar, Wind, and Renewable Energy Account |
|
$1,250 |
Financial incentives—Research, design,
development, construction, and production of electric generation
technology that reduces generation cost and greenhouse gas
emissions.b,c |
$1,000 |
|
Financial incentives—Equipment to produce
electricity from renewable resources.b |
250 |
|
Demonstration Projects and Public Education
Account |
|
$200 |
Grants to local
governments—Construction and operation of alternative and renewable
energy demonstration projects. |
$200 |
|
Education, Training, and Outreach Account |
|
$125 |
Grants to public
universities and colleges—Staff development, training, research, and
tuition assistance for alternative fuel and clean energy technology
commercialization (making the new technology ready for sale in the
commercial market) and workforce development. At least $25 million
for outreach and public education. |
$125 |
|
Total |
|
$5,000 |
|
a Currently, the
average light-duty passenger vehicle weighs less than 4,500 pounds. |
b Financial incentives
could include low-interest loans, loan guarantees, and grants. |
c At least 80 percent
of the funds ($800 million) must support financial incentives for
solar technology. |
|
State Agency Administration of Bond Funds. The measure
designates various state agencies to administer different components of the
measure. Specifically, the State Board of Equalization (BOE) would administer
the alternative-fuel vehicle rebates, the Air Resources Board would administer
the incentives for alternative-fuel research and development, and the California
Energy Resources Conservation and Development Commission would administer the
renewable energy incentives and the monies available for grants to local
governments and public higher education institutions. Regarding BOE’s
administration of the rebates, the measure provides that BOE shall calculate the
SUT applicable to the sale or lease of a vehicle at the pre-rebate purchase or
lease price.
The measure requires each state administering agency to
adopt program milestones, provide for annual independent audits, issue annual
progress reports, and establish procedures for oversight of the awarding of
incentives. The measure also requires that the monies allocated to each bond
account be spent within ten years, with reasonable efforts to be made to spend
the monies for alternative-fuel vehicle rebates within five years.
Finally, the measure specifies that not more than
1 percent of the funds in each account established by the measure may be used to
pay for program administration.
Fiscal Effect
Bond Costs. The cost of these bonds would
depend on interest rates in effect at the time they are sold and the time period
over which they are repaid. The state would likely make principal and interest
payments from the state’s General Fund over a period of 30 years. If the bonds
were sold at an average interest rate of about 5 percent, the cost would be
about $10 billion to pay off both the principal ($5 billion) and interest
($5 billion). The average payment would be about $335 million per year.
Impact on State Sales Tax Revenues. The
measure provides $2.9 billion for a variety of vehicle-related rebates. 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.
While the exact amount of increased sales tax revenue
that would result from the measure would depend on the quantity and actual
selling price of vehicles purchased or leased and other behavioral effects in
response to the rebates, we estimate that the amount is potentially in the tens
of millions of dollars from 2009 to about 2019.
Impact on Local Revenues. The bond-funded
incentive programs under the measure would result in the following two effects
on local revenues:
- Increased Local Sales Tax Revenues. As
with the measure’s impact on state sales tax revenues discussed above,
depending on the quantity and actual selling price of vehicles purchased or
leased in response to the rebates, the measure would result in increased
sales tax revenues to local governments, potentially in the low tens of
millions of dollars from 2009 to about 2019.
- Increased Local VLF Revenues. As stated
above, the measure could result in individuals and/or businesses purchasing
or leasing vehicles that are more expensive than those they would otherwise
purchase or lease. To the extent that the measure results in the purchase or
lease of more expensive vehicles than would otherwise be purchased or
leased, it would lead to increased local VLF revenues. While the exact
amount of any such VLF revenue increase would depend upon the quantity and
actual selling price of any vehicles purchased or leased as a result of the
rebates offered by the measure, we estimate the increase in VLF revenues to
be potentially in the millions of dollars from 2009 to about 2019.
State Administrative Costs to Implement the
Measure. The measure’s 1-percent limit on administrative costs may leave
the various state departments with insufficient funds to implement the programs
consistent with the provisions of the proposition. To the extent the measure
fails to provide adequate funding for its administration, other state funds may
face pressure, potentially averaging up to about $10 million annually, to fund
implementation of the measure through about 2018‑19.
Return to Propositions
Return to Legislative Analyst's Office Home Page