Proposition 70: Requires Legislative Supermajority Vote Approving Use of Cap-and-Trade Reserve Fund
Should (a) California’s cap-and-trade greenhouse gas reduction disbursements and (b) a related partial sales tax exemption be made subject to a two-thirds vote in the state Legislature in 2024 to continue the program and the exemption?
Greenhouse gases (GHGs) including carbon dioxide, arising from sources like gasoline-powered cars and industry, contribute to climate change. One of California’s programs to reduce GHGs is referred to as "cap-and-trade," beginning in 2012 and continuing until 2030.
The state issues a limited number of permits to emit GHGs, about half to be given away and half to be sold at auction. Companies must obtain a permit for each ton of GHG they emit. Permit auction receipts are deposited in a special Fund and are disbursed for GHG programs through the annual budget process, requiring a majority vote in both houses of the Legislature. The Legislative Analyst’s Office (LAO) estimates that about $3 billion will be disbursed from the Fund in 2017-18.
California charges a sales tax on retail sales of most goods but not on the purchase of certain types of equipment through 2030. The LAO estimates that this exemption currently reduces state revenue by about $250 million annually.
Prop.70 requires that, beginning in 2024, (a) cap-and-trade disbursements and (b) the sales tax exemption would be suspended until the state Legislature, by a two-thirds vote in both house (rather than by a majority), passes a bill authorizing both to continue. Thereafter, future disbursements would only require a majority vote and the exemption would be reinstated.
The suspension of the sales tax exemption could increase sales tax revenue, by an amount dependent on the length of the suspension period. For a lengthy delay, the increase could be up to a few hundred million dollars annually.
The 2024 two-thirds vote requirement could, temporarily, delay and/or change the mix of state and local programs disbursements compared to what would otherwise occur. The fiscal results are unclear.