State Senate Skeptical of Loaning Cap and Trade Revenues to General Fund

May 21st, 2013 | Posted by

Last week Governor Jerry Brown announced in his May Revise of the state budget a proposal to loan $500 million in cap-and-trade revenues to the general fund rather than to earmarked carbon emissions reduction programs such as transit. Well, a State Senate budget subcommittee does not seem very interested:

The two Democrats and one Republican on a Senate budget subcommittee denounced Brown’s plan, which was included in a revision of his state budget last week.

The $500 million loan to the general fund is designed to partially offset the Brown administration’s forecast that revenues will dip below earlier projections in the 2013-14 fiscal year by $1.8 billion, but members of the committee said it made little sense since the same budget proposes to repay some of the state’s “wall of debt,” which is mostly money owed to schools.

Money from the fees is supposed to pay for programs that reduce greenhouse gases, and the Legislative Analyst’s Office had warned in the past that using the fees for other purposes could be illegal.

“It’s a little bit of an odd exception to reducing the wall of debt,” Sen. Jim Beall, D-San Jose, the subcommittee chairman, said. Republican Jim Nielsen of Gerber and Democrat Hannah-Beth Jackson of Santa Barbara joined in the criticism. The committee was poised at one point to formally reject the loan, but decided to leave the issue open instead.

Senators Beall and Jackson are both good progressive Democrats and I’m pleased, though not at all surprised, to see them push back against this proposal. $500 million is a lot of money that could provide an important and much-needed boost to transit in California, especially electric passenger rail. The Legislature should use that money for its intended purpose – to reduce carbon emissions.

  1. Mike
    May 22nd, 2013 at 11:13

    As I’ve commented before, if “the Legislature should use that money for its intended purpose – to reduce carbon emissions,” then this limited amount of money would be best spend on residential and commercial energy conservation and efficiency retrofits that will deliver ongoing carbon reduction benefits over coming decades. Sure, transit is *part* of the carbon-reduction solution, but it’s a horribly loose connection, compared to building retrofit. And if spent on transit operations, it’s at best a one-time benefit. And if spent carelessly on transit–i.e., just dumped into the STA formula–it will *worsen* carbon emissions, by virtue of putting out on the streets greater numbers of underused (i.e., averaging fewer than 8 passengers) diesel-burning buses.

    Once cap and trade has stabilized–passed judicial review, and reached some degree of a stable predictable market for carbon credits–then we can have a conversation (vague and unconvincing though it will be) about how putting money, broadly, into transit ops will support a transit away from private auto and to public transit. Or we could have a more credible discussion about focusing on supporting those transit routes that actually have high ridership potential and can analytically demonstrate carbon reductions. But at the moment, this $500 million is best thought of as one-time money. I don’t begrudge the Governor wanting to defer spending it for a year; I also wouldn’t begrudge spending it now on energy efficiency retrofit of buildings. But the vague idea of using it “to support transit” as a credible carbon reduction measure, well, that just doesn’t pass the smell test.

    jimsf Reply:

    Maybe the money should go towards cleaning up the worst air areas first, targeting whatever the worst offenders are.

    BMF of San Diego Reply:

    Valley farm equipment?

    Mike Reply:

    It’s not for “cleaning up the air”, it’s for carbon reduction.

    jimsf Reply:

    well it should be for cleaning up the air in california first. especially in the smoggiest areas.

    joe Reply:

    MIke’s rules are not quantitative. Maybe he’s thinking the carbon per dollar spent is optimized with his solution. Until i see numbers or reference, it’s just a guy with a opinion.

    BMF is right 100% – pollution in CV is disproportionally old diesel farm equipment. That’s the most cost effective source with combustion engines. They know it and feds know it. It is also a C source and these are inefficient but also produce particulates and other gases that contribute to warming and air pollution.

    Also, old equipment is less efficient at it’s job, new equipment would be cleaner, more reliable and work more effectively.

    I’ve done some consultig for the Ag Res Service in CV and this is one of the issues for almond growers and cherry growers first hand.

    Jimsf’s right that this pollution hurts people and worsens the air.

    So it’s the right thing to do and it reduces C emissions. It does exactly what the law requires and it has many side benefits for farmers, farm production and air quality.

    jimsf Reply:

    The valley, on a clean clear day after a storm for instance, with the sierra visible, is a really nice place. Even with the summer heat, its not the heat that is unbearable so much as the thick, oppressive atmosphere. The valley has all the seasons, snowcapped peaks, autumn colors, etc etc and if it had clear pristine air, it would be a very desirable place to live. It will take a major effort to clean it up. California’s more notorious smog regions, mainly valleys prone to inversion layers, will not be clean until we go to an all electric california. no diesel trucks, trains, gas cars, or farm equip. Imagine blue skies every day everywhere. It would be worth the cost.

    joe Reply:

    Yes and seasons are enjoyable.

    I’ve worked in ID and MT and CA has some very competitive views and landscapes – not in the big name parks but even human dominated ecosystems can be appealing on clean days. Salinas Valley Ag is awesomely productive – unmatched in the world. CV is a food producing powerhouse.

    Been to Seoul Korea which has crazy shit brown haze where only Sycamore and Ginko can survive. Also to Amazonian Brazil in the fire season – nuts – land clearing fires and smoke everywhere for weeks on end. Oppressive and scary to think we can get that bad if we do not try harder.

    Nathanael Reply:

    Hmm. From what I’ve read, the least efficient fuel-burners are small two-cycle engines. Pretty much all of those can be replaced with electric RIGHT NOW. Of course, that would cost probably less than a million dollars.

  2. synonymouse
    May 22nd, 2013 at 13:45

    Central Stubway has shot its wadd:

    “That contract was awarded to low-bidder Tutor-Perini for $840 million — $90 million to $120 million over projections. While there’s money in the contingency to cover that increase, it pushes the fund below the $160 million level required by the federal government.”

    Eric Reply:

    With HSR you complained that the bid was too low, here you complain that it’s too high. What exactly do you want, Mr. Goldilocks?

    John Nachtigall Reply:

    I don’t know about synonymouse, but I would like accurate. What you bid is what you spend.

    jimsf Reply:

    That’s not realistic.

    Paul Druce Reply:

    Sure it is. It’s called fixed contract and massive penalties for underperformance.

    jimsf Reply:

    no it isn’t because otherwise it would be happening. Obviously it isn’t happening and probably won’t happen. Thus unrealistic to complain about. I wish you luck in changing it though. I think penalties would be a good idea.

    Paul Druce Reply:

    The fact that currently incompetence is in vogue does not mean that it is not realistic. It just means you need to get people who actually give a damn involved.

    jimsf Reply:

    yes but who is going to do that?

    Joe Reply:

    Who wants to bid on a project with these hardass terms?

    I expect this attutude to yield nothing but padded budgets or novel companies that will take the money and fail after making a profit. Then go bankrupt – fuck you very much.

    Joey Reply:

    Joe: it works in certain not-American parts of the world. What’s different here, other than that companies bidding on public contracts are used to not being accountable for their mistakes?

    jimsf Reply:

    Joe: it works in certain not-American parts of the world. What’s different here

    Whats different here is that that doesn’t seem to happen. What I want to know isn’t what needs to change, I want to know who is going to change it and how. Because I don’t see it happening even with all the criticism.

    Joey Reply:

    Well yes, I’m not really sure how to instigate the change that needs to happen. But Joe’s point was that this type of bidding inherently results in bad bids, which is simply not true.

    jimsf Reply:

    America is basically a nation of criminals. The system is set up with “laws” and the “freedom” becomes “what ever you can get away with” and if you get caught you hire experts (lawyers) to use their knowledge of the “laws” to get you off the hook.

    This is not a country that was set up for people to be moral, to do the right thing, or to take responsibility. Oh sure there is constant inane blather on and on to the end of the day about morals, doing the right thing, and taking responsibility, but thats a matter of collective deflection.

    So it would not surprise me in the least to find the result of making stronger rules with stiffer penalties, to be even shadier practices. Especially by those who exist purely to make profit.

    We can hope for better but I for one would be shocked.

    joe Reply:

    “Joe: it works in certain not-American parts of the world. What’s different here”

    I don’t know that punitive contracts work elsewhere or they solved the problem of cost overruns.
    This book uses European examples.

    I hope the design and build approach HSR selected works. It seems to be working on I-405 albeit the problem is the chances of unforeseen issues is greater with that approach. In SF, its a tunnel and that’s high risk work. it’s complicated and people complain and complicate things like extraction points for the tunneller.,0,87156.story

    The solution IMHO is the courts, we should litigate and prosecute. I’m not fan of Tudor-perini from what I read about them but I also think critics that complain about costs as a strategy to keep costs low regardless get what they deserve, low cost, low quality Wal-mart construction firms.

    joe Reply:
    Project Management Oversight Contractor observes that resident engineers for the several planned Central Subway stations haven’t yet been hired — and should have been on the job and boning up for a while already:

    boning up? jeeze.

    The lowest bid was over what the project estimated, so the project contractor hasn’t gone over budget. There is no mistake at this time.

    There some correctable issues and it’s very good to have this federal funded oversight and report. Note one contractor “brought in a second piece of equipment to double production.” for installing the Union St pilings. they are not going in right so maybe they’ll have two machines creating twice the problems. Not sure the added equipment solves the problem.

    jimsf Reply:

    you have to keep in mind that the majority of people don’t even vote and the last thing they are thinking about ( other than foamers) is who is up to what at whatever rail agency. Remember the vast majority of 40 million californians have never even ridden a train.

    So, its not realistic to expect that anything will change much any time soon is all. But when you look at the country as a whole you can see the total dysfunction and inability to cooperate on anything to get anything at all done. So really what do you expect when americans themselves don’t even agree on anything and/or really don’t have to even give a crap about anything.

    Thats the reality. If you can fix that it will be a miracle. Me, I’m more realistic, If I see a smidgen of progress on anything I figure well thats better than going backwards.

    Nathanael Reply:

    I guess I’m a bit more of an idealist than you; I only think it’s an improvement if I see a smidgen of progress on something of some lasting importance. But I’m a lot less of an idealist than some around here.

    adirondacker12800 Reply:

    Part of the problem is that a significant percentage of the people who do care think government is a bad idea and do everything they can to prove it.

    Joe Reply:

    It may mean you get worse bids.

    If you setup a system where contractors bid and have to make good without excuse then you will get few quality bids.

    Generally the theme here is to get tough. We just need to be more like Walmart and get lower cost product and cut costs. I appreciate the machismo but reality is you will not get good bids.

    Critics throw roads blocks and lawsuits to delay and undermine the project and then want a curate bids.

    Well if you give the project dictatorial power, bids will improve in accuracy and I bet precision. And if course we would need to spend hundreds if millions to study the routes to assure there are no surprises.

    Paul Druce Reply:

    Yes, giving us such low quality bids as the A-7 Corsair II, one of the finest attack planes ever built.

    joe Reply:

    Not interested in chasing red herrings. If you can show it embodies the philosophy of punitive contracts then give it a try. I see no lesson there.

    Punitive, high risk procurements do not work. You’ll get a bid, profiteering and the vendor can go bankrupt when the axe falls.

    Alon Levy Reply:

    Why do punitive systems work when they’re tried abroad, then?

    jimsf Reply:

    because they are abroad.

    John Nachtigall Reply:

    It happens in private business all the time. You don’t think Goldman Sachs pays for cost overruns on their contracts. What about Walmart…nope. It is possible, it just does not happen in government because the contractors are smarter than the payer (in this case the government)

    Nathanael Reply:

    Actually, Goldman Sachs often HAS paid for cost overruns on its contracts.

    Have you ever looked at the way “information technology” contract disputes usually play out? Because the people who write the contracts usually don’t know how to specify deliverables in computing, when they get an incomplete system, the IT provider can often just walk off, declare the project to be done, and the company which contracted for it has the choice of paying extra or starting over.

    This is getting less common as more companies have people who know how to specify contract deliverables in computing.,

    adirondacker12800 Reply:

    For it to be the way 1955 was portrayed on the Kukla Fran and Ollie Show.

    synonymouse Reply:

    I never complained that the Tutor bid was too low; I just predicted they would get it.

    It is cut-and-dried – all a matter of the fattest envelope to the bosses.

  3. jimsf
    May 22nd, 2013 at 19:28

    cap and trade funds should not go to the general fund at all. The general fund needs to be funded properly or cuts should be made. The balance of where the state spends money is way out of line. I would start with the consolidation of school districts and county social services.

    adirondacker12800 Reply:

    The balance of where the state spends money is way out of line

    Yes it is, why don’t Californians pay the same kind of Amtrak fares Northeasterners love to pay?

    jimsf Reply:

    I don’t know why. I don’t know why a 2 hour trip from sf to sac cost 30 but a 2 hour trip from sf to stockton costs 10.

    But you can barely even find transportation in the budget. It all goes to schools and welfare.

    adirondacker12800 Reply:

    You do want the home health aide who comes to your house in 2045 to help you to be able to read don’t you?

  4. jimsf
    May 22nd, 2013 at 19:59
  5. Ted Judah
    May 22nd, 2013 at 21:15

    The only beneficiary of the Governor’s budget proposal is the California Teachers Association. Brown has shown zero willingness to increase spending in any area, be it welfare, health, transportation, etc and has claimed that he is powerless under Prop 98 to stop more of the surplus from floating to school districts.

    joe Reply:

    I have a kid in public school so i see it differently. It’s the students who benefit and possibly those in lower performing schools. Good.

    Ted Judah Reply:

    And that’s the point: people think whatever services they benefit from are beyond reproach…waste is what other agencies or departments do…. California’s education funding scheme is highly regressive, with poor tax payers having to use sales tax dollars to keep schools open while wealthy districts avoid a heavy property tax burden.

    Brown criticizes what the State did after Prop 13 and then realigns state funding supposedly to stop it, all the while embracing Prop 98 which more or less bails out wealthy property owners made rich by Prop 13…go figure.

    joe Reply:

    I don’t think my needs are beyond reproach. Students are definitely beneficiaries and their parents and community. selfishly, it makes CA a better draw for businesses. It’s not “only” the CTA. Education and welfare drive the state budget so it’s a big impact on what CA does for CA.

    I’d like the state to repeal Prop13, reform it to eliminate the corporate tax break and accelerate the tax rate increase.
    That reform would decrease pressures to approve strip mall developments which are how cities capture sales tax revenue.

    Nathanael Reply:

    The problems with California — and the US in general — are largely about taxation. In general, rich corporations don’t pay taxes (they should) while poor people do (they shouldn’t).

    adirondacker12800 Reply:

    VAT. they can’t cook the books to avoid taxes. No complaints about double taxation on dividends then either. I’m sure they will come up with something that they complain about about VAT but no more complaints about dividends. The tax embedded in a product’s cost shifts to VAT and is just passing through the retailer’s cash registers.

    synonymouse Reply:

    Of course Jerry took care of the CTA – rewarding friends is the modus operandi of a patronage machine.

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