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A Green Scissors Project

Participating Organizations Friends of the Earth 1025 Vermont Avenue NW, Suite 300 Washington, DC 20005 Phone: 202 783-7400 Fax: 202 783-0444 Email: [email protected] Website: www.foe.org Friends of the Earth is dedicated to protecting the planet from environmental degradation; preserving biological, cultural and ethnic diversity; and empowering citizens to have an influential voice in decisions affecting the quality of their environment — and their lives. Green Capitol 1904 Franklin Street, Suite 909 Oakland, CA 94612 Phone: 510 444-4710 Fax: 510 444-4743 Email: [email protected] Website: www.ecoventure.org The fiscal watchdog for California’s environmental movement, Green Capitol fights to expose irresponsible government taxing and spending practices that destroy California’s unique environmental assets.

The following organizations support the principles of the Green Watchdog report to help create policies for California that are fiscally responsible and environmentally sound. They do not necessarily endorse or have expertise on every recommendation in this report.

California Tax Reform Association 926 J Street, Suite 710 Sacramento, CA 95814 Phone: 916 446-4300 Fax: 916 444-6611 Email: [email protected] The California Tax Reform Association has been an advocate since 1976 for fair taxes in the context of a healthy public sector. CTRA has sought to make the tax system as progressive, equitable and efficient as possible, from the perspective of the ordinary taxpayer. CALPIRG 3486 Mission Street San Francisco, CA 94110 Phone: 415 206-9338 Fax: 415 206-1859 Email: [email protected] Web: www.calpirg.org California Public Interest Research Group (CALPIRG) is a statewide consumer, environmental, and good government organization. For over 25 years they have been working to protect consumers, preserve the environment, and promote democracy.

California League of Conservation Voters Jon Rainwater 510 271-0900 www.ecovote.org

Congress of California Seniors Bill Powers 916 442-4474 www.seniors.org

Pesticide Action Network North America Jessica Hamburger 415 981-1771 www.panna.org

California Oak Foundation Janet Cobb 510 763-0282 www.californiaoaks.org

Consumer Federation of California Richard Holober 916 442-4474

Redefining Progress Mark Glickman 510 444-3041 www.rprogress.org

Environmental Defense Tom Graff 510 658-8008 www.environmentaldefense.org

San Diego Audubon Society Allison Rolfe 619 275-0397 www.sandiegoaudubon.org

Californians Against Waste Mark Murray 916 443-5422 www.cawrecycles.org Clean Water Action Marguerite Young 415 362-3040 www.cleanwateraction.org Coalition for Clean Air Kevin Finney 310 441-1544 www.coalitionforcleanair.org

Environmental Working Group Bill Walker 510 444-0973 www.ewg.org Friends of the River Betsy Reifsnider 916 442-3155 www.friendsoftheriver.org Planning and Conservation League Gerald Meral 916 313-4514 www.pcl.org

Sierra Club California Bill Allayaud 916 557-1100 www.sierraclub.org/chapters/ca/ Taxpayers for Common Sense Cena Swisher 202 546-8500 x108 www.taxpayer.net

Executive Summary

Table of Contents Sites Offstream Storage Reservoir Study

3

Paving South Pasadena Route 710

4

Cadiz Water Project

5

State Route 125 South Tollway

J

ust a few months ago, most analysts predicted that California would be awash in budget surpluses. Now that electricity deregulation has unraveled and there are signs the economy is slowing down, budget forecasts have tightened and become uncertain. Instead of focusing primarily on how to spend the expected surplus, policy makers have been forced to look for savings.

7

Power Plant Property Taxes

8

No Tax Or State Royalty On Oil Drilling

9

Giving Away Pollution Permits

10

Fee Structures for State and Regional Water Quality Control Boards

11

The Department of Pesticide Regulation Gasoline Additive Research

New budget scrutiny, however, could be the silver lining in the cloud that deregulation has produced, not just for taxpayers but for the environment as well. Twenty environmental, consumer and taxpayer groups have reviewed state spending and formulated the Green Watchdog report to provide a menu of budget cuts and tax loophole closures for policy makers to consider adopting this year, as well as to encourage a longer term rethinking of how the budget impacts the environment. Green Watchdog recommends fourteen cuts and policy

6

Special Tax Breaks for Oil and Gas Companies

Off Highway Vehicle Program

12 13 14

Sprawl and the Property Tax Assessment System

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Parking Tax Breaks

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changes that could save state taxpayers more than $23 billion while making a major contribution to improving our environment.

Stop Boondoggles Tax dollars should not be spent on environmentally harmful and excessively expensive projects when cheaper alternatives exist.

No Pork Barrel Spending

Principles at Stake

Tax dollars should be spent for the public good, not the benefit of a few special interests, especially those that pollute.

The recommendations in this report are based on several principles that would help create a more environmentally responsible budget.

Fair Return from Public Assets Whether it is oil and gas on public lands or the air we breath, taxpayers should receive a fair return for use of their assets and charge accordingly. If the public does not properly capture the value of its assets then costs, such as dirty air or environmental cleanups, are usually passed along to taxpayers and to future generations.

Polluter Pays Polluters, not current or future taxpayers, should pay to clean up pollution. Fees should cover the expenses of environmental regulation and mitigation so that the cost of cleaning up is treated as an ordinary cost of doing business, like payroll or rent.

Eliminate Counterproductive Policies Government policies should work in conjunction towards a common goal, but sometimes it seems as if the government’s left hand doesn’t know what the right hand is doing. For example, several of the programs targeted in this report promote sprawl and automobile use even as tax dollars are being spent to limit sprawl and promote public transportation.

1

Underpinning this report is the belief that success depends on finding areas of agreement — agreement between fiscal watchdogs and environmentalists and agreement between Democrats and Republicans. Both Democrats and Republicans helped to create the programs targeted for reform in Green Watchdog. The same parties that cooperated to start these programs and loopholes must now cooperate to end them. Taxpayers and environmentalists demand it.

California Green Watchdog part of national Green Scissors campaign The recommendations in this report are modeled on similar efforts designed to help frame national public policy debates and push budget cuts that help both the environment and taxpayers. In the past five years, more than $25 billion in wasteful programs and subsidies have been eliminated from the federal government as a result of the Green Scissors Campaign. Similar statelevel reform efforts have been undertaken in Minnesota, Michigan, Washington, and North Carolina.

How were the programs selected? The Green Watchdog recommendations were chosen by participating groups after consultation with a variety of experts, agencies, and advocates, in addition to independent review of the state budget. Many of these programs involve highly complex issues that will require structural reform or are connected to larger debates and controversies. The fourteen issues highlighted here were compiled working on a very limited time line and budget, and are not intended to be fully inclusive. They represent just the tip of the iceberg and we recommend further investigation in the future. We look forward to working with Governor Davis, the state legislature, and other fiscally responsible leaders in the future. Savings figures in Green Watchdog are taken from current appropriations or budget proposals and include state spending only. One-time, annual, and five-year savings are provided as applicable.

Summary Box Stop Boondoggles Sites Offstream Storage Reservoir Study Paving South Pasadena

Program Cost (5 year total) $4.5 million $220 million

No Pork Barrel Spending Cadiz Water Project State Route 125 South Tollway Special Tax Breaks for Oil and Gas Companies Power Plant Property Taxes

$50 million $130 million $175 million Unknown

Fair Return From Public Assets No Tax or State Royalties on Oil Drilling Giving Away Pollution Permits

$1.5 billion $80 million

Polluter Pays State and Regional Water Quality Control Boards The Department of Pesticide Regulation Gasoline Additive Research Off Highway Vehicle Program

$1 billion $85 million $800,000 $100 million

Eliminate Counterproductive Policies Sprawl and the Commercial Property Tax Assessment System Parking Tax Breaks

$20 billion Unknown

TOTAL

Over $23 billion

(Note that while many projects could fit into several categories we have chosen the principle it best illustrates.)

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Stop Boondoggles Sites Offstream Storage Reservoir Study The CALFED Bay-Delta Restoration Program includes a commitment to study the feasibility of constructing the Sites Offstream Storage Reservoir in the western Sacramento Valley. Because it is not located on a permanently flowing stream or river, the Sites project has been touted as environmentally benign. In fact, the proposed 1.9 million acre-foot water storage reservoir would drown more than 14,000 acres of habitat and divert significant amounts of water from the Sacramento River. The dams needed to create the reservoir are located on or near earthquake faults, and could cost taxpayers as much as $500-$700 million to build. Pumping facilities and canals needed to divert and convey Sacramento River water to the reservoir site could cost an additional $50-$400 million, depending on whether existing facilities are improved or new facilities are constructed. Much of the water stored by Sites would be used by local irrigation districts. Green Watchdog Proposal Eliminate

taxpayer funding of the Sites Offstream Reservoir feasibility study, saving $4.5 million in 2001. This project primarily benefits local water users in the northern Sacramento Valley. These direct beneficiaries — not state taxpayers — should pay for studies and build the project using their own funds if it proves economically and environmentally feasible. Current Status In response to the CALFED decision to pursue feasibility studies for the Sites project, the Department of Water Resources (DWR) signed a Memorandum of Understanding with local water districts and government agencies to study and design the project. The goal of the Sites project, as stated in the memorandum, is to meet existing and future water needs in the Sacramento Valley, and provide an unspecified amount of water for environmental purposes. DWR has already spent $20 million studying Sites and other offstream storage projects north of the Delta. Another $4.5 million is budgeted in 2001-2 to conduct further field studies, engineering design, and environmental permitting for the project. These activities are scheduled for completion in 2004.

$4.5 million Project Hurts Taxpayers Taxpayers have already spent $20 million to study a project that will primarily benefit local water users. Conservatively estimated at a half billion dollars, actual construction costs could be higher if seismic safety concerns require the project dams to be heavily engineered. As recently as ten years ago, local water interests decided not to pursue the project on their own due to its high costs. But as long as CALFED promises to pay for Sites using state taxpayer funds, local interest remains high. There is currently no cost sharing agreement between the State and local water interests to ensure that direct beneficiaries contribute monetarily to either studies or construction of the project, despite CALFED’s promise that beneficiaries shall pay. Project Hurts Environment The Sites reservoir would drown more than 14,000 acres of rare vernal pools, grasslands, and oak woodlands, including 19 acres of unique alkaline wetlands. The vernal pools and wetlands are likely habitat for federally protected threatened and endangered invertebrate species (fairy shrimp and valley elderberry longhorn beetle). At least eight sensitive species are known to be on or within one mile of the reservoir site, and probable habitat exists for 37 other sensitive, threatened, or endangered species. In addition, significant diversions from the Sacramento River to fill the Sites reservoir could result in substantial adverse impacts on the river ecosystem. The river hosts numerous threatened and endangered species, including the endangered winter run chinook salmon and threatened bank swallow. Ironically, CALFED is spending millions to acquire and restore riparian and aquatic habitat along the Sacramento River, which could be harmed if diversions to the Sites reservoir remove too much water from the river system. Contacts Steve Evans, Friends of the River, (916) 442-3155, Ext. 221

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Paving South Pasadena Route 710 State Route 710 was first planned in 1949 as one in a series of freeways serving Los Angeles County, California. In 1973, the freeway was halted by a federal court injunction pending an adequate Environmental Impact Statement by the California Department of Transportation (Caltrans). This 4.5 mile, eight-lane urban freeway has a total price tag of $1.47 billion and would divide historic neighborhoods and destroy thousands of mature trees.

$220 million Taxpayers should not be asked to pay for a project with a flawed EIS, nationwide opposition and a $10 billion shortfall in the local transportation funding agency. At over $300 million per mile, this project is more expensive per mile than most urban freeways and the Los Angeles subway system.

Project Hurts the Environment The freeway would cause the loss of thousands of mature trees, many more than 100 years old. The freeway is redundant. A local joint powers authority is constructing a Green Watchdog Proposal Do not build Route $713 million light rail project that would serve the 710 saving approximately $220 million in state costs same commuter need as the freeway for travel from and $1.25 billion in federal costs. Pasadena and Los Angeles to Long Beach. Also, the Current Status For the second year, nationally important $2.2 billion Alameda Corridor, INTERSTATE in 2000 the U.S. Congress prohibited which will serve freight movement from the Ports of the use of any federal funds in the Los Angeles and Long Beach, parallels the route of completion of the 710 freeway. In the freeway. In addition, the $950 addition, Congress approved $46 milmillion Alameda Corridor east is lion for use in 710 corridor traffic planned to manage any interimprovements, partially implementing “If the choice must section conflicts between rail alternative measures to the freeway. be between the Meridian and auto traffic. The freevariation and ‘no-build,’ way would traverse estabMotions to intervene in South Pasadena’s 27 the latter is preferable.” lished, historic month litigation against Caltrans and the neighborhoods in Federal Highway Administration were denied to Letter to Department Pasadena, South Pasadena the City of Alhambra and to the Southern of Transportation from the Advisory Council on and the largely Hispanic California Association of Governments. Judge Historic Preservation, community of El Sereno in Pregerson, who presides over the case, joined with December 6, 1984 Los Angeles. The freeway the U.S. Environmental Protection Agency in stating would destroy 1,300 homes and that any claims that air quality nonconformity would businesses — relocating over 4,000 result if Route 710 was not constructed were untrue. people, 70 historic properties and six districts listed on Project Hurts Taxpayers Cheaper alternatives exist. the National Register of Historic Places. Many national, state, and local groups support a less Contacts Clarice Knapp, Citizens United to Save South expensive, non-freeway alternative to the projected $1.47 Pasadena, (626) 441-6147; Evan Paul, California Public billion project. The Multi-Mode/Low Build Alternative Interest Research Group (213) 251-3680 x334; David advanced by the Advisory Council on Historic Hirsch, Friends of the Earth, (202) 783-7400 x215 Preservation in conjunction with the City of South Pasadena would only cost an estimated $120 million.

710

4

No Pork Barrel Spending Cadiz Water Project

$50 million

Expenditure of bond funds should be subject to the In order to reduce its dependence on water from the same criteria as expenditures of general fund revenue. Colorado River, the Metropolitan Water District of Bonds are repaid, after all, with general fund revenue. Southern California (Metropolitan) is considering a State Treasurer Angelides has championed a process of project that would use an aquifer in the Mojave Desert evaluation of bond spending he calls “Smart to store water from the Colorado River Aqueduct in Investment.” His efforts are a step in wet years and extract this stored water and “Top legislators the right direction and should remove native groundwater during dry invited [Cadiz executive] include the spending principles years. Storage and/ or groundwater minBrackpool to help in the proposed in the introduction ing would take place in the Cadiz and final hours of crafting a to this report. Fenner Valleys of eastern southern $1.97 billion water bond. … In California (the Mojave Desert), in a Project helps the envithose behind-the-scenes Capitol partnership with Cadiz, Inc., a large ronment The desert meetings, language was added to the and very politically-connected land aquifer has a slow rate of bond that qualified Met for a subsidy owner in the Valleys. This aquifer replenishment, but the proof as much as $50 million should it supports five Bureau of Land ponents of the project are proceed with the Cadiz project.” Management wildernesses and the using exaggerated estimates of Mojave Desert National Preserve. Sacramento Bee, this recharge. At the proposed The project is being challenged February 29, 2000 levels of groundwater removal, by environmental and other desert ecosystems and habitats will groups on a variety of eventually be deprived of water that is essengrounds, including concerns tial for the threatened, endangered, and unique species over the impact of groundthat inhabit the Mojave Desert. water mining on desert habiLess environmentally harmful alternatives may exist. tat and air quality. The October 2000 report “Groundwater and Surface Green Watchdog Proposal Water in California: A Guide to Conjunctive Use” Do not spend the $50 million in California Water identifies over 21.5 million acre-feet of additional Quality Bonds authorized for the Cadiz groundwater groundwater storage available in southern California. storage project. Additionally, the draft report “Southern California Comprehensive Water Reclamation and Reuse Study” Current Status The California Water Quality Bonds identifies several regional water reclamation and reuse authorized by the voters in November 2000 included a projects that are in progress, which could yield up to last-minute provision for $50 million of state investseveral hundred thousand acre-feet in new recycled ment in an unnamed project that appears to be the water supplies. Cadiz project. In April, Metropolitan voted to take a preliminary step towards pursuing a contract to build Contacts Gary Wolff, Green Capitol, (510) 538the project.The next environmental impact statement 4156, Helen Wagenvoord, Cadiz Campaign for this project is expected out in the summer. Coordinator, (510) 644-1648, Elden Hughes, Sierra Club, (562) 941-5306, Simeon Herskovits, Western Project Hurts Taxpayers State funds should not be Environmental Law Center, (505) 751-0351 spent on a project that primarily benefits Cadiz Inc. more than the public interest.

5

State Route 125 South Tollway

$130 million

The SR 125 South is a proposed eleven-mile tollway that would extend from Spring Valley in San Diego County to the Mexican Border. The proposed ten-lane tollway would bisect a largely undeveloped and environmentally sensitive area for the purpose of building sprawl-style homes without an adequate supply of available jobs. The primary tollway investors are the same companies who own much of the undeveloped land in the area, known as Otay Mesa. They have plans to build tens of thousands of new homes but cannot break ground until the transportation infrastructure is in place. Green Watchdog Proposal Cancel the franchise agreement between the tollway consortium and Caltrans and prevent any public money from being spent on the toll road, saving at least $130 million. Current Status In July, 2000 Governor Gray Davis vetoed over $8 million in funding for the tollroad — part of a larger transportation package that he signed.

reverts to the state after 35 years, but “cost-benefit” clauses in the franchise agreement will allow deferred maintenance towards the end of term, so that maintenance will fall on the taxpayer if the road is abandoned.

Project Hurts Environment The tollway will destroy endangered species and their habitat. San Diego County is an epicenter for species extinctions with Thousands of residents from adjacent communities, 15 more threatened and endangered species than any other major environmental groups and over 55 businesses have county in North America; the tollway will push 252 organized to oppose this tollway. The 125 South has plant, 94 bird, 23 mammal, 18 invertebrate, 15 consistently been criticized by the U.S. reptile, and 3 amphibian species closer to the Environmental Protection Agency, which brink of extinction. “I do not gave the developers’ environmental studies support state Polluted run-off from the tollway and for the tollway a failing grade. The project funding for the associated residential development will is currently on hold because the Regional acquisition of a flow directly into bays and beaches Water Quality Control Board unaniprivate toll road.” rather than percolating into the soil mously denied certification for the tollGovernor Gray Davis, where it would be naturally cleansed. way, though the developers may reapply. July 2000 There will be more flooding to the west of Project Hurts Taxpayers The first mile the tollway, and airborne particulates settling of the toll road, a 150 foot high, $130 milinto the Sweetwater Reservoir will bring the level lion span, would be publicly funded, forcing taxpayof pollution above legal limits for safe drinking water. ers to pay for the most difficult and expensive portion The tollway will also cut through the Sweetwater of the toll road. Regional Park (paid for by taxpayers), and the vernal In addition, the franchise agreement between the tollpool National Wildlife Refuge. way consortium and Caltrans provides additional subsiContacts Allison Rolfe, San Diego Audubon Society, dies and does not protect taxpayers against bankruptcies 619 275-0397; Jewels Michalak, Flying Dove or earthquakes. The developers are guaranteed valuable Equestrian Center, 619-470-0062 airspace rights for 99 years that could be used for fiber optic telecommunications cables. Furthermore, the road

6

Special Tax Breaks for Oil and Gas Companies

$175 million

Oil and gas companies enjoy several special tax breaks at Policy Hurts Taxpayers The tax provisions proboth the state and federal level that few other businesses mote oil production from sources that would not otherreceive. These tax breaks cost Californians millions of wise be economically viable and distort the market by dollars every year. For example, oil and gas producers attracting investments that could be used more produccan immediately expense (write off ) most or all of their tively elsewhere in the economy. development costs. Other businesses must deduct these Because the percentage depletion allowance can expenses over a longer period of time. Independent oil amount to 100 percent of net income, companies can and gas companies can deduct 15 percent of their sales get out of paying any corporate income tax at all in revenue using the special percentage depletion allowance some years. In addition, because companies can regardless of the actual loss in value over time. recoup over time more than their actual Under the enhanced oil recovery credit, 15 investment, they can experience signifi“… tax percent of the costs associated with cantly higher long-term profits. expenditures are “enhanced recovery” projects, like gas reviewed less frequently and chemical injectants to dilute crude Policy Hurts the Environment … [which] can also result in sludge, are subtracted from the corpoThese breaks give the already profitable tax expenditures remaining rate income tax. petroleum industry an advantage over in the tax code long after cleaner emerging technologies. This Green Watchdog Proposal outliving their usefulness.” deepens America’s dependence on oil, Eliminate these three special breaks California Tax Expenditure which retards the competitiveness of from the tax code, saving California taxReport, 2000-01 alternative fuels that may be cheaper and payers about $175 million over five years. more stable for consumers in the long run. (Immediate expensing $70 million; percentage depletion allowance $100 million; enhanced oil recovEnvironmental Protection Agency studies show that ery credit $5 million) carbon emissions could be reduced by 1.1 million metric tons by the year 2010 simply by eliminating the perCurrent Status In 1999, the U.S. Congress expandcentage depletion allowance. ed the percentage depletion tax break, allowing it to equal over 100 percent of income. California has not Contacts Brad Heavner, CALPIRG, 805-730-1391 followed suit, though there may be efforts to make California’s tax code “conform” to the federal tax code.

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Power Plant Property Taxes In 2000, the California Board of Equalization decided to change the way taxes on power plants are calculated, making it a local rather than state assessment. This change will cost local governments and schools substantial revenues, and thereby impose additional costs on the state which will have to make up the shortfall. Under the old state-assessed system, power plants were assessed at their full market value. Now they will be assessed at purchase price plus 2 percent per year, as provided under Proposition 13 for locally-assessed property. (They would be re-assessed if they subsequently change ownership, at the purchase price). With the price of power skyrocketing and electricity in short supply, the full market value of these plants would prompt an increase in their assessed value. However, under the system of local assessment, their assessed value is fixed despite their increasing market value. While their assessment may increase when plants are re-powered and upgraded, some plants have applied for reductions in assessment based on costs and depreciation despite the current electricity market. Green Watchdog Proposal Restore the assessment of power plants to the Board of Equalization, as stateassessed property, rather than locally-assessed property, ensuring that power plants pay taxes based upon their full market value.

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Unknown Current Status While the Board has finished its proceeding on this issue, a newly-elected Board of Equalization could re-open the question of power plant assessment. Policy Hurts Taxpayers Underassessing the tax from major electricity generators is a double hit, on both taxpayers and ratepayers. Ratepayers pay exorbitant costs, while taxpayers pay more or get reduced services because of power plant underassessment. Schools, which receive 50 percent of property taxes from power plants, will receive less in property taxes and therefore state taxpayers will have to make-up the differences. Policy Hurts Environment Underassessment of older power plants discourages (in a marginal way) investment in newer, cleaner technologies through re-powering. Misallocation of property tax revenues from new power plants can discourage citing of highly-efficient, well-located plants. Contact Lenny Goldberg, California Tax Reform Association, (916) 446-4300

Fair Return From Public Assets No Tax Or State Royalty On Oil Drilling California is the only state in the country, and may be the only government in the world, that does not require some form of public benefit charge for the removal of oil from the ground — whether through severance taxes or royalties. All oil-producing states have severance taxes, and some, such as Texas and Alaska, rely heavily on such taxes. California is the fourthlargest oil producing state, but only charges minimal regulatory fees on the production of oil, except for receiving royalties on state-owned tidelands. Green Watchdog Proposal The legislature should enact an oil severance tax in the 4-6 percent range on the price of oil at the wellhead. This would be consistent with other states and would generate around $300 million per year or $1.5 billion over five years, depending on the price of oil. Other alternatives have been suggested, such as a tax upon delivery at the refinery-gate, which would have the same effect but might avert certain problems with competition between large and small oil producers.

$1.5 billion

Current Status There has been no recent action, but several reform bills have been defeated over the last several decades. Policy Hurts Taxpayers Taxpayers lose about $300 million per year from the failure to tax the extraction of oil. In addition, a 1981 study by the Rand Corporation, “The impacts of an oil severance tax on California,” demonstrated that there would be little impact of a severance tax on the price of refined products or on oil production over time. Policy Hurts Environment The failure to impose a reasonable tax on depletion of a natural resource generally leads to overdrilling and over-production. Continued subsidy makes it harder for cleaner energy sources with fewer environmental problems to compete in the market. Contact Lenny Goldberg, California Tax Reform Association, (916) 446-4300

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Giving Away Pollution Permits In 1993, the South Coast Air Quality Management District (SCAQMD), which regulates air quality in the Los Angeles region, adopted the Regional Clean Air Incentives Market (RECLAIM) Program. RECLAIM replaced some command-and-control rules with an emissions trading system to reduce sulfur oxides (SOx) and nitrogen oxides (NOx). SOx is a precursor to the formation of fine particulate matter, which causes respiratory illness. NOx is a precursor to smog. Under RECLAIM, total NOx and SOx emissions from many sources are capped at a level which is reduced each year from 1994 to 2003. Emitters are free to decide how they reduce their emissions to stay within their allotted emissions “budget”. The NOx and SOx permits can be used, traded, bought, or sold. SCAQMD “grandfathered” these permits by allocating them based on historical reported emissions on the highest level of emissions out of the last five years. This means that the more a firm polluted in the past, the more emission permits they received. The permits are referred to as RECLAIM Trading Credits. Green Watchdog Proposal SCAQMD should auction the NOx and SOx permits to polluters. This option would have raised approximately $80 million over the past five years, $37 million dollars in 1999 alone. Current Status During the first five years of RECLAIM implementation more credits were given away than were needed to cover emissions. As a result, it often cost businesses much less to purchase credits than to install pollution control equipment. During the summer of 2000, older, uncontrolled utility boilers were brought into operation resulting in significant increases in NOx emissions. Increased power demand and increased production at facilities may result in emissions of NOx above the levels targeted under RECLAIM.

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Approximately $80 million Having an excess of permits and the free right to pollute, appears to have delayed the installation of pollution control equipment. Now companies are faced with unexpectedly higher emissions and higher NOx credit prices. The average price of NOx credits traded in 2000 was $15,377 per ton, up from an average price $1,827 per ton in 1999. When the credit prices exceed $15,000 per ton, RECLAIM must be reviewed for price stabilization options. SQACMD is now reviewing actions that will reduce the price of NOx emissions, including waiving penalties for firms that exceed emissions, capping prices, or creating reduction incentives. Policy Hurts Taxpayers Giving away emission permits is a major windfall to polluting companies and essentially gives away a public resource, use of the airshed. From 1994 to 1997 the value of permits freely distributed was worth approximately $11 million dollars each year. In 1999, the public lost approximately $37 million dollars by giving away the right to dump pollutants into public air. Policy Hurts Environment Granting free emission permits based on the highest historic pollution levels delays the adoption and development of cleaner technologies and defeats the goal of creating incentives for companies to reduce their emissions. Allocating too many emission credits made it financially foolish for companies to invest in pollution control equipment. SCAQMD must now issue even more credits and allowances as firms bring outdated, high polluting facilities to help deal with California’s increased electricity needs, making Los Angeles air quality even worse. Charging polluters would cause companies to treat their emissions like any other cost of doing business thereby inducing them to reduce emissions as a cost reduction strategy. Contacts Paige Brown; Redefining Progress; (510) 444-3041 ext. 318

Polluter Pays Fee Structures for State and Regional Water Quality Control Boards The nine Regional Water Quality Control Boards and the State Water Resources Control Board regulate discharges of waste to “waters of the State,” including disposal of solid wastes to land when such disposal has the potential to pollute surface or groundwater. Currently, permit fees fall short of covering actual costs of the regulatory boards. This is due, in part, to fee caps established by the state legislature. For example, water pollution permit fees are capped at $10,000 regardless of how much the State Water Resources Control Board spends issuing the permit. Tom Disanto, former Chief Budget Officer of the State Water Resources Control Board said: “Permit fees are not paying their fair share — the revenue just isn’t sufficient. The fees were set in the 1980’s and have never been adjusted, even for inflation.”[1] The Governor’s FY01-02 budget proposes about $860 million for the water board, of which more than $200 million would come from the general fund. This budget includes a one-time General Fund augmentation of $100 million to implement a clean-up of Southern California beaches and restoration of other coastal resources. These numbers do not include general and administrative costs of regulatory compliance outside of CalEPA, such as legal expenses incurred by other State and local branches of government. Green Watchdog Proposal Increase permit fees or implement emissions charges to collect at least $200 million per year or $1 billion over five years. The costs of environmental regulation incurred by other branches of government (e.g., the Attorney General and County District Attorneys) should be evaluated, and also recovered through permit fees. The initial increases could be phased in over five years or less, and should be accompanied by automatic inflation adjustments after the phase-in period.

$1 billion

Current Status SB 390 (Alpert, 1999) required the State and Regional Water Quality Control Boards to evaluate permit fees and other funding issues, including “the time and effort required to review and approve individual waste discharge reports, and other factors necessary to properly determine the adequacy of fees.”[2] The enabling legislation required that this “needs assessment” be submitted to the State Legislature by January 1, 2001. The needs assessment was completed by Board staff prior to January 1, 2001 and forwarded to the Governor’s office for review. It was not submitted to the Legislature by January 1, as required, and is not available for public review. Policy Hurts Taxpayers Taxpayers pay $200 million per year to cover the shortfall caused by insufficient permit fees from polluters. These costs should be borne by the polluters and their customers, not taxpayers. Full cost recovery for regulation through fees is more efficient, and inherently fairer, than current financial practice. Policy Hurts the Environment The current system does little to encourage polluters to simplify their permit applications, be more time sensitive and transparent in their compliance efforts, and abate more emissions than they abate today. These types of environmental costs are small at any one time or for any one pollutant, but are cumulatively significant over time. Contact Gary Wolff, Green Capitol, (510) 823-3935 [1]

[2]

Personal communication between Tom Disanto and Steven Frenkel, 4/5/00. California State Assembly website: http://www.assembly.ca.gov/acs/acsframeset2text.htm

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The Department of Pesticide Regulation The Department of Pesticide Regulation (DPR) regulates pesticide use in California. The DPR has been criticized on several grounds grounds [3] [4], including the encouragement of toxic pest-control chemicals when non-toxic biological controls are available. For example $35 million has been appropriated for the California Department of Food and Agriculture to control a bacterial disease that affects grapes (Pierce’s disease) through chemical spraying with Lorsban and Sevin, or development of genetically engineered grapes. The most important insect carrier of this disease, however, (the glassy-winged sharpshooter) is reported [5] to be susceptible to a combination of biological and lower-toxicity chemical controls. The Governor’s FY01-02 budget proposes about $63 million for DPR, essentially unchanged from FY00-01. Approximately $17 million of this budget is General Fund money, yet sales of pesticides are exempt from the state sales tax. A fee of 17.5 mills on pesticide sales ($0.0175 per dollar of pesticide sales) provides another $30 million per year of DPR funding as well as about $15 million per year to County Agricultural Commissioners. Green Watchdog Proposal Eliminate the sales tax exemption for pesticides and permanently increase the pesticide mill fee to about 24 mills in order to eliminate General Fund support for DPR, saving taxpayers $17 million per year or $85 million over five years. Mandate that 20 percent or more of DPR funds be used to support integrated, lower-toxicity pest management activi-

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[3]

See for example, Environmental Working Group, 1999, What you don’t know could hurt you: pesticide’s in California’s air. Available at www.ewg.org

[4]

See Kegley, Susan, et.al., 1999, Disrupting the balance: ecological impacts of pesticides in California (Californian’s for Pesticide Reform: San Francisco)

[5]

See the pesticide action network at: www.panna.org/panna/campaigns/sustCA.html

$85 million ties. Create a broad-based, stakeholder review panel for DPR activities, or charge an existing body (e.g., the Little Hoover Commission) to review and suggest further changes in DPR priorities, if appropriate. Current Status The mill fee will automatically decrease from 17.5 mills to 9 mills on January 1, 2003. The decrease will cause an additional funding shortfall of around $23 million for DPR, either requiring reductions in pesticide regulation or increases in General Fund support. Policy Hurts Taxpayers Taxpayers are currently paying for pesticide regulation that is ineffective at protecting public health and the environment. The responsibility for supporting an effective program should fall on the producers and users of pesticides. Currently, taxpayers are paying part of these costs. In fact, they may be paying twice: first through their taxes, and then as victims of unnecessary exposure. Policy Harms the Environment The current program, especially because the fee is scheduled to be reduced, does not provide sufficient incentives for reduced pesticide use. Relatively small incentives, however, have lead to significant reductions in pesticide use in Iowa and Austria. Once pesticide users understand that they will bear the full costs of their activities in the long run, they begin to seriously investigate and experiment with alternative pest management techniques. Full, permanent funding with the mill tax is a first step toward improved pesticide regulation. Establishing that current and future pesticide regulatory costs will be borne by pesticide users will reduce tax burden and may reduce pesticide use. At minimum, it will cause pesticide users to think about regulatory costs, including potential future remediation or mitigation costs, when they make pest management decisions. Contact Gary Wolff, Green Capitol, (510) 823-3935

Gasoline Additive Research California gasoline is specially formulated to burn cleaner than gasoline sold in most of the United States. Methyl Tertiary Butyl Ether (MTBE) is a prominent gasoline additive that is intended to make the fuel burner cleaner, However, this additive has contaminated groundwater in many parts of the state. Unlike many components of gasoline, MTBE is highly mobile in water. Relatively small amounts of leaked MTBE can contaminate large amounts of water. Once an underground gasoline tank leaks, or a jet ski releases un-burnt gasoline to a lake, the MTBE in the gasoline spreads rapidly. The MTBE story — an air-quality improving gasoline additive that has led to significant water pollution — has been news in California for several years. Much of the clean up effort is being paid for with General Fund dollars rather than the polluters. Green Watchdog Proposal Pay for MTBE and gasoline additive related research from special funds created for this purpose, saving at least $800,000 this year. The California Air Resources Board (CARB) air pollution control fund, the State Water Resources Control

$800,000 Board underground storage tank fund, and gasoline tax revenues or sales tax revenues from sales of gasoline, are appropriate funding sources that are capable of bearing these costs. Current Status The CARB FY00-01 budget contains $800,000 and a proposal in the Office of Environmental Health Hazard Assessment FY01-02 budget includes $834,000, for research into the potential environmental impacts of gasoline additives. Policy Hurts Taxpayers Funding MTBE research from the General Fund does not provide a financial incentive to reduce MTBE use, which increases the total cost of the cleanup. Special funds that exist should be used before requesting General Fund support for MTBE research. Policy Hurts the Environment The current program fails to establish the polluter pays principle; which helps the environment in the longer-term. Contact Gary Wolff, Green Capitol, (510) 823-3935

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Off Highway Vehicle Program

$100 million

fuel taxes. However, these transfers are based on estimates Despite spending almost half a billion dollars in the 30 of illegal or unregistered off-road vehicles and cars and stayears since California’s Off-Highway tion wagons that never actually go off-road. That means Vehicle (OHV) program was that taxpayers subsidize off-road vehicles around $20 milestablished, the state’s OHV lion per year. policies do not prevent “… the indiscriminate — and often actually and uncontrolled use cause — environmenof those vehicles [off-highway tal damage on public vehicles] may have a deleterious lands. The California impact on environment, wildlife Department of Parks habitats, native wildlife, and Recreation’s and native flora.” OHV uses fuel-tax Off-Highway Vehicle funds paid by all drivers Recreation Act of 1988 to finance a grant program for the narrow benefit of OHV users that often cause extensive environmental damage. Green Watchdog Proposal Stop diverting fuel-tax revenue to the OHV Trust fund from unregistered offhighway vehicles and street-licensed cars that do not go off-roading. Make the OHV program self-supporting by ensuring that the OHV Trust fund receives monies only from “Green Sticker” registration and fuel taxes that are properly attributed to off-road use, saving around $100 million over five years Current Status In 1999, the legislature appropriated $400,000 to conduct a new Fuel Tax Study to determine the number of off-road vehicles using California public lands and the total amounts of fuel used by vehicles on off-road recreation. This study is intended to correct a badly flawed 1990 review that is contradicted by figures used by other state agencies. Earlier estimates likely over-counted off-road use leading to excessive transfers from the general fuel tax fund. Discussions are underway to provide additional funding to increase the new study’s accuracy. In addition, the state has begun a series of stakeholder meetings between environmentalists, off-road users, and resource managers to resolve to increasing disputes. Policy Hurts Taxpayers Off road users, not all drivers, should pay for this program. The OHV Division receives less than ten percent of its funding from “Green Sticker” registration fees by off road users. The rest of the program is funded by transfers from

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Policy Hurts Environment Offroad vehicles emit significant air pollution. For example, 2-stroke motorcycles emit 118 times as many smog precursors as modern automobiles on a per-mile basis, according to the California Air Resources Board. Off-road vehicle use, and the related trail construction and maintenance, create widespread erosion and water quality problems. For example, road and motorcycle trails in the 23,000 acre Rock Creek OHV area of the Eldorado National Forest produce in excess of 1,693 tons of sediment each year, with 435 tons per year deposited directly into streams. Off-road vehicles impair other people’s enjoyment and understanding of the outdoors on public land. In addition, illegal trail use, which remains a significant problem, has destroyed the character of several wilderness study areas. Contacts Bill Denneen, Citizen for a Vehicle Free Nipomo Dunes, 805-929-3647

Eliminate Counterproductive Policies Sprawl and the Property Tax Assessment System

$20 billion

Instead of assessing non-residential property at market value, as most states do, California assesses property upon “change of ownership,” a loophole-ridden concept for most non-residential property held by partnerships and publicly-traded corporations. This policy encourages sprawl and speculation and taxes new investment while exempting unearned windfalls. It fails to collect sufficient revenues for infrastructure, and gives the wrong signals to local government decision-making.

Meanwhile, those who hold their land see their property values rise, not necessarily as the result of their own investments but as the result of improvements made by others. These windfalls are entirely untaxed in the current system. Changing this policy would likely benefit homeowners and other small taxpayers by shifting the tax burden from households onto commercial establishments and improving the tax base for providing community amenities.

Green Watchdog Proposal Amend section XIIIB of the Constitution (Proposition 13) to say, “Non-residential property shall be periodically re-assessed at market value” generating $4-6 billion per year or at least $20 billion over five years. As an alternative, the legislature could change the statutory definition of “change of ownership” to require re-assessment for publicly-traded corporations and many more partnerships, LLC’s, and Subchapter S corporations which hold real property.

Policy Hurts the Environment The assessment system encourages land speculation by making it less expensive to hold land off the market. Higher land values thus create little pressure for development in existing areas, counteracting market signals which would promote rational land use patterns and appropriate development. Instead, the tax system encourages leapfrog development and low-intensity sprawl which uses greater resources. And, because new investment does not pay for itself in generally rising commercial property tax revenues, developers are often forced to pay for basic infrastructure. Amenities such as open space and parks are unaffordable to local governments. In addition, because of the insufficiency of property tax revenues, local governments encourage big-box and sprawling retail at the expense of more job-intensive and concentrated development. Regular re-assessment of non-residential property is a necessary element of any program to control sprawl.

Current Status State Representative Bill Leonard has introduced AB 1013 that would reassess corporations or partnerships at market value upon cumulative sale of 50 percent of ownership interests. Policy Hurts Taxpayers Since Proposition 13’s passage, and particularly in recent years, the burden of the property tax has shifted substantially from businesses to homeowners. The homeowner share of the property tax has gone from 32 percent to 38 percent, as home values have risen. Non-residential assessments have stayed relatively flat despite the boom of the 1990s. The “change of ownership” concept does not cover many business transactions, and thus significant tax revenues are lost.

Contact Lenny Goldberg, California Tax Reform Association, (916) 446-4300

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Parking Tax Breaks

Unknown, but several million dollars is likely

The California tax code follows the U.S. Internal Revenue Code which creates a tax incentive for free or subsidized employer-provided parking for individual drivers. Under the tax code, this fringe benefit is counted as deductible expense for the employer, and it is not included as taxable income to the employee. In other words, the tax code encourages free parking. In addition, commercial property used for parking is likely to be grossly undertaxed, thus encouraging its continuation for parking lot uses (see related recommendation on property tax assessment). Green Watchdog Proposal Eliminate the employer deductibility of parking expenses and the employee exemption from taxable income for parking benefits, for a general fund savings in the range of several hundred million dollars over five years. Current Status The governor’s FY 2001 budget partially addresses this issue by offering employers a tax credit for providing subsidized transit passes to their employees. The amount of the credit is reduced if the employer provides free or subsidized parking for his or her employees. For example, an employer who does not provide free or subsidized parking would get a credit equal to 80 percent of the cost of the transit permit while employers that subsidize parking would receive a credit equal to 40 percent

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of the transit permit. This proposal encourages the use of mass transit while trying to eliminate some of the incentives for people to drive to work alone, and moves in the right direction by recognizing the problem of subsidized parking. Policy Hurts Taxpayers Taxpayers spend millions of dollars building new highways, in part because of implicit and explicit subsidies to drivers. Most transportation studies identify cheap or free parking as the most important subsidy that encourages driving. The tax code should ensure that drivers, not taxpayers and non-drivers, pay the full costs of driving. Eliminating subsidized parking would reduce driving, thereby increasing mobility through less-congested freeways and providing an impetus to create better non-driving transportation alternatives. Policy Hurts the Environment Tailpipe emissions from automobiles are one of the leading causes of air pollution and global warming. By encouraging driving, the parking incentive exacerbates traffic congestion and construction of new parking lots — paving over natural spaces. Contacts Allison Pratt, California Tax Reform Association, (916) 446-4300

The report was made possible through the generous support of the Educational Foundation of America, the Clarence E. Heller Charitable Trust, the W. Alton Jones Foundation, the Sidney Stern Memorial Trust, and the Steven and Michele Kirsch Foundation. Editor David Madland With assistance from Gawain Kripke, Doug Linney, Allison Pratt, Lenny Goldberg, Gary Wolff. Graphic Design by Annette Price Additional copies of Green Watchdog are available for $10 (including shipping). Please contact: Friends of the Earth 1025 Vermont Avenue, NW, Suite 300 Washington, DC 20005 202 783-7400 x389 877 843-8687 x389 (toll free) Green Watchdog is on the web at www.greenscissors.org Printed on 100 percent recycled paper, containing 20 percent post-consumer waste. Paper recycled without dioxins. [union bug]