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CA Senate Bill To Give Taxpayers Rebates ($530 For Married Couples Filing CA Tax Return, $200 For Individuals) to Offset Energy Costs Blocked in Committee; Future Reconsideration Granted

SB77 author Sen. McClintock tells Committee, "I'll be back."

(April 6, 2001) -- By a 2-3 vote, the CA Senate's Revenue and Taxation Committee blocked legislative advancement of a bill giving a $530 rebate to married couples filing a CA tax return this year, and a $200 rebate to singles filing individual returns, to compensate for higher energy costs.

The Committee did vote to allow reconsideration of the bill at a future time.

Because LB consumers have been impacted by high natural gas bills this winter and rising SCE electric bills now, will provide extended coverage of SB77. Below we include excerpts of the Committee hearing, the full text of the bill and the Committee's written analysis of the bill.

Senator Tom McClintock (R., Thousand Oaks) introduced SB77 in January, titling it the "Rate Payer Relief Act of 2001." It needed four "yes" votes in the CA Senate's Revenue and Taxation Committee to advance in the legislative process but received only two.

Voting "yes" were:

  • Sen. William J. "Pete" Knight (R, Palmdale/Santa Clarita)
  • Sen. Charles Poochigian (Vice Chair, R., Fresno/Bakersfield)

    Voting "no" were:

  • Sen. Jack Scott (Chair, D., Pasadena/Altadena)
  • Sen. Debra Bowen (D., Redondo Beach)
  • Sen. Dede Alpert, (D., San Diego)

    "Absent, Abstaining or not voting" was:

  • Sen. John Burton (D., Senate President Pro Tem, San Francisco)

    The Committee's 2-3 vote on April 4 effectively stalls the bill unless two more yes votes can be obtained, sometimes by amendment, sometimes by persuasion.

    The Committee voted 5-0 to allow reconsideration of the bill at a future time. Following the Committee's SB77 vote (and a negative vote on another one of his bills), Senator McClintock told the Committee, "I'll be back."

    Posted below are unofficial hearing excerpts prepared by us, followed by the verbatim text of SB77 and the verbatim Committee bill analysis.

    The Comittee analysis lists SB77 supporters as the Howard Jarvis Taxpayers Association; Peoples Advocate, Inc., Committee on Moral Concerns; California Manufacturers and Technology Association, Capitol Resource Institute. Opposition listed was the American Federation of State, County & Municipal Employees.

    Excerpts of April 4 CA Senate Revenue and Taxation Committee Hearing

    Senator McClintock: ...When I proposed this rebate back in January, just a portion of the stateís projected surplus could have financed the entire rebate. I realize it is much more difficult now because much of that money has been lost by the Governorís day-trading corner office.

    The rebate could now require smaller budget growth obviously, but consumers are already being forced to actually cut their family budgets as a result of the state's policies, and now perhaps it's the state's turn to restrain its own spending long enough to grant those families just a little relief.

    These rebates are steeply progressive. They provide the same $530 check to families that paid no taxes as to those that paid much. The idea is to offset a major part of the financial damage the higher rates will do to all families, but without losing the inducement to conserve electricity.

    ...We increased spending $20 billion last year. The question before you is will you return $5 billion to the people who earned it...

    [two intervening speakers in support]

    ...Senator Bowen: I don't know if you were here, Senator McClintock, but we had the state Chamber [of Commerce] group testifying that their members were willing to pay the cost of higher costs of electricity while the new generation was coming on line and were not willing to go to the Federal Energy Regulatory Commission to ask for assistance with bringing the wholesale market under control. Wouldn't it be better to simply protect residential ratepayers and small businesses then if the state Chamber is in favor of allowing those markets to work?

    Senator McClintock: These are not tax cuts for businesses. These are tax rebates for families.

    Senator Bowen: Isn't it better to just not have the rates go up in the first place?

    Senator McClintock: But they have, and the question is now what are we going to do about it.

    Senator Bowen: But they actually, they haven't been in many parts of the state. LADWP...

    Senator McClintock: Oh sure they have, sure they have.

    Senator Bowen: Excuse me, if you'll allow me to finish. LADWP has had no rate increase.

    Senator McClintock: That's because LADWP was allowed to enter in long term contracts that were forbidden to the private utilities. The LADWP was allowed to keep its generating facilities, something that was denied to the private utilities. The fact of the matter is, electricity prices have gone up. We're paying them not only on our electricitry bills, we are also paying them on our tax bills. When the Governor goes out and starts day-trading, buying power at say 50 cents a kilowatt hour, we don't know exactly how much 'cause he won't tell us, let's say it's 50 cents a kilowatt hour, 7 cents right now shows up on your electricity bill, the other 43 cents is showing up on your tax bill just as surely as if it was on your utility bill and you are paying it just as surely.

    Senator Bowen: If we take funds from taxpayers in the Los Angeles area, from businesses in Los Angeles and from other areas and return them to taxpayers in those areas who have not had a raise, don't they just get a loophole?...

    Senator McClintock: On the contrary, the people in Los Angeles have suffered nearly a tripling of their natural gas utility bills for example and they are about to see substantial increases in their gasoline prices as well.

    Senator Bowen: Oh but that's just...

    Senator McClintock: Furthermore...

    Senator Bowen (cross-talk continues): ...have no gas increases, isn't that correct?

    Senator McClintock: Well, most of them have gas heat and the gas prices have gone through the roof up and down this state.

    Senator Bowen: But that's a de-reguated commodity. Are you in favor then of re-regulating natural gas?

    Senator McClintock: We never deregulated electricity. We...

    Senator Bowen: I asked you a question...

    Senator McClintock (cross-talk): ...created a regulated monopoly for...

    Senator Bowen (cross-talk): You don't want to answer the question, do you?

    Senator McClintock: ...power exchange for the highest price that all bid. That's not deregulation.

    Senator Bowen: Are you in favor of re-regulating natural gas so that these people don't have to suffer those (inaudible) energy prices again or not? Or do you just want them to pay taxes on one side and have them get a check back on...

    Senator McClintock: Senator Bowen, there's a reality that seems to have escaped you and that is when something is scarce, the price goes up. You're hiding that right now in the electricity bills by shifting over to peoples' tax bills. We've lost now approaching $5 billion in subsidizing those electricity rates. Now that doesn't mean that people aren't paying them. It means that they're filling out of their income taxes right now...

    Senator Bowen: But are you...

    Senator McClintock: ...the first $600 of their tax bill is doing nothing more than covering the losses the Governor has incurred day-trading in electricity to keep electricity bills subsidized. So it really doesn't matter whether you're paying it out of your electricity bill or your tax bill. You're still paying it. The question is right now...

    Senator Bowen: ...If you are arguing that we should not subsidize residential ratepayers' rates by keeping rates low then you must be arguing that we should allow their rates to up to bear the whole cost, so you can't have it either way...

    Senator McClintock: Senator Bowen, they've gone up. They've gone up. Whether they pay it on their tax bill (cross talk, inaudible)...the question now is, at a time when the state's tax rates are at the highest in history...

    Senator Bowen: I see that (cross talk)...the real issue...

    Senator McClintock: ...are you going to grant a portion of their earnings back to them as a rebate so they can cope with these higher prices that your policies have created? ...

    Senator Scott (Committee chair): Excuse me. This is a very interesting discussion I'm sure and could go on in perpetuity. However, at the present time I am not prepared to reduce the revenues of the state of California by over $5 billion and therefore I am putting a hold on this one.

    Senator McClintock: But Senator, with all due respect, you were quite willing to increase spending $20 billion last year.

    Senator Scott: Senator McClintock, we could continue this discussion. The point is, with the state of California in a precarious state, I hardly believe this is a time that we can take $5 billion from the state of California and in some way or another spend it, so we would have to reduce revenues by that much. So I've made a statement already, the policy is going to be we're going to hold all tax cut bills unless they deal specifically [with the energy issue]...and that's the way we're gonna do it.

    Senator McClintock: Mr. Chairman, is that the result of a vote of this Committee?

    Senator Scott: If anyone on the Committee wants to move your bill, they're free to do so, however I will not vote for it.

    Senator McClintock: Well, I would appreciate a motion if there's anybody on the Committee willing to return that money to the people who earned it...

    ...Senator Scott: Well...if somebody wants to move this bill, I will be glad to listen to that but I do not, we can't go through this whole process of every bill. Here we are facing a fiscal crisis in California. There's an economic downturn in the economy of California. We know that the energy crisis has cost us a great deal. We could spend a lot of time castigating whomever is to blame. That I don't intend to do, but I do intend to tell you that we're not going to vote bills out if I as the chair of the Committee have anything to do with it.

    Senator McClintock: Senator Scott, with all due respect, those families are going through exactly the same financial....

    Senator Scott: You have made your point, Senator McClintock. And we have granted you quite a number of minutes here. We have a large number of bills that we'll be handling today and so I've asked the discussion stop unless somebody wants to move the bill.

    On the motion to pass the bill but re-refer to the Committee on Appropriations, the vote was 2-3 (with four yes votes required) and the motion failed. The Committee subsequently voted 5-0 to grant reconsideration of the bill at a future time.

    SB 77 text

    INTRODUCED BY Senator McClintock
    JANUARY 11, 2001

    An act relating to utility ratepayer relief, making an appropriation therefor, and declaring the urgency thereof, to take effect immediately.


    SB 77, as introduced, McClintock. Utility ratepayer relief.

    The California Constitution establishes an annual appropriations limit for state government and requires the state to return to the public, by means of revised tax rates or fee schedules, a specified percentage of those state revenues that exceed state appropriations limits over a period of 2 consecutive fiscal years.

    This bill would, pursuant to legislative findings and declarations with respect to the burdens currently being suffered by utility customers and the surplus moneys available to state government, appropriate the sum of $5,300,000,000 from the General Fund to the Controller for allocation in specified amounts to taxpayers under the Personal Income Tax Law.

    This bill would declare that it is to take effect immediately as an urgency statute.

    Vote: 2/3. Appropriation: yes. Fiscal committee: yes. State-mandated local program: no.


    SECTION 1. This act shall be known and may be cited as the Ratepayer Relief Rebate Act of 2001.

    SEC. 2. The Legislature hereby finds and declares all of the following:

    (a) The current problems with the rising cost of electric power constitute a very expensive crisis for the working families of California, which to date constitutes a staggering cost of over $40 billion to working families.

    (b) Working families have paid $23 billion in higher energy rates to help utilities recover the cost of government mandated programs; these costs are also called "stranded costs."

    (c) Working families are repaying $7 billion in revenue bonds that were issued by the state government to "lower" their energy rates, but have in fact been used to retire utility debts.

    (d) Working families are now being asked by the utilities to cover the $11 billion that utilities lost by buying power at outrageous prices through a government-created, Soviet style exchange system.

    (e) On January 3, 2001, the Public Utilities Commission raised family electric rates by 9 percent.

    (f) Government regulations have prevented California utilities from entering into long-term contracts to buy most of their power at reasonable rates, while at the same time forced them to sell their own generation plants.

    (g) The Legislative Analyst's forecast of General Fund revenues shows that revenues have roughly doubled (up 94 percent) in just seven years, while family income grew by less than one-half that amount (up only 42 percent). By May, the state will have cash reserves in excess of $7.3 billion, deposited in the bank and collecting interest.

    (h) Family budgets are straining to pay for a tank of gasoline, natural gas bills that have doubled or tripled, and now higher electric prices that most expect to further increase.

    (i) State government can immediately rebate $5.3 billion of overcollected tax revenue to struggling families of California in May of 2001 and still have comfortable reserves for the 2001-02 budget year. This $5.3 billion rebate will help to stimulate the California economy.

    SEC. 3. (a) There is hereby appropriated from the General Fund to the Controller the sum of five billion three hundred million dollars ($5,300,000,000) for allocation in May of 2001 as follows:

    (1) Five hundred thirty dollars ($530) to each taxpayer filing a tax return under the Personal Income Tax Law (Part 10 (commencing with Section 17001) of Division 2 of the Revenue and Taxation Code), in calendar year 2001 and before May 1, as a married couple filing a joint return, or as a head of household.

    (2) Two hundred dollars ($200) to each taxpayer filing a tax return under the Personal Income Tax Law (Part 10 (commencing with Section 17001) of Division 2 of the Revenue and Taxation Code), in calendar year 2001 and before May 1, as an individual, a married individual filing separately, or as a surviving spouse.

    (b) (1) For purposes of this section, the filing of a tax return includes the filing of a return in accordance with a previously granted extension of the time for the filing of a return.

    (2) No taxpayer may receive more than a single payment pursuant to this section.

    SEC. 4. This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the Constitution and shall go into immediate effect. The facts constituting the necessity are:

    In order to reduce the burden on working families that has resulted from dramatically increased energy prices during the winter of 2000-01, it is necessary that this act take effect immediately.

    Revenue & Taxation Committee staff analysis of SB77

    Senator Jack Scott, Chair
    bill no:SB 77 - author:McClintock
    Amended: As introduced
    Hearing: April 4, 2001 URGENCY Fiscal: YES

    SUBJECT: Rebates $5.3 billion to income tax filers -- $200 per taxpayer filing a single return, $530 per taxpayer filing a joint or household head return

    THIS BILL would appropriate $5.3 billion from the General Fund to the Controller for the purpose of making payments, before May 1, 2001, of $530 to each taxpayer filing a joint or household head income tax return, and $200 to each taxpayer filing a single, married filing separately or surviving spouse tax return.


    Franchise Tax Board estimates that the $5.3 billion appropriation would fall about $60 million short, based on preliminary estimates of numbers of returns expected to be filed by May 1, 2001. However they estimate that the rebate would encourage some 2 to 3 million additional filers who have no tax liability, and no requirement to file under current law, but who wish to receive the rebate; committee staff estimate that this could increase the shortage by as much as another $1 billion. FTB is concerned about the potential for fraudulent claims (e.g., people filing multiple returns with false names and addresses).

    FTB estimates that the administrative cost of issuing the rebates would total some $8.4 million in 2000-01 and $1.8 million in 2001-02.


    Purpose of the bill

    The bill declares that the Legislature finds that the current problems with the rising cost of electric power constitute a very expensive crisis for the working families of California, and to date constitutes a cost of over $40 billion to working families. Furthermore government regulations have prevented California utilities from entering into long-term contracts to buy most of their power at reasonable rates, while at the same time forced them to sell their own generation plants. The Legislative Analyst has indicated that by May the state will have cash reserves in excess of $7.3 billion. The state can immediately rebate $5.3 billion to struggling families and still have comfortable reserves for the 2001-02 budget year.

    B. Has the bill become obsolete?

    At the time this proposal was drafted it appeared that 2000-01 would close with a surplus in excess of $7.3 billion, and that there would be continued surpluses for the next two years. Since then, however, it is clear that the twin specters of national economic slowdown, coupled with the current energy crisis in California, have seriously clouded our future for an unknown duration. What looked like a surplus three months ago may have turned into something different by the time this bill requires rebate checks to be in the mail.

    C. Rebate would be taxable income for both federal and state purposes

    The proposed rebates would represent taxable income for federal purposes. And as currently drafted the rebates would be taxable under California income tax as well.

    D. Why $530 for married but only $200 for single taxpayers?

    It is unclear why the rebate would amount to $530 for taxpayers filing joint returns while those filing single returns would only get $200. Note that as drafted Franchise Tax Board interprets the bill to grant EACH taxpayer filing a joint return (i.e., two taxpayers per return) to receive the $530 rebate -- $1,060 per married couple, but only $200 per single taxpayer.

    E. Franchise Tax Board indicates concerns, comments

    Although the bill requires the Controller to make rebates to taxpayers in May,†2001, Franchise Tax Board indicates that it will be difficult for them to give useful information to the Controller on which to base payments, since under current procedures information on returns processed during the 2001 year wonít be available until late in 2001.

    Rebates going out in May would conflict with the heavy volume of income tax refunds, also going out in May. It is not known whether the Controller has resources to disburse both refunds and rebates at the same time.

    Since many low-income individuals have no return filing requirement, it is likely that a large number of these individuals would fail to receive their rebates.

    Taxpayers who are also claimed as dependents by other taxpayers would be eligible for rebates.

    Part-year residents and non-residents could claim the full rebate (by filing their returns), even though they may not be impacted by increasing energy costs in California.

    There is no correlation between utility bills and income tax filing status.

    Support and Opposition

    Support: Committee on Moral Concerns, Peopleís Advocate, Inc., Howard Jarvis Taxpayers Association, California Manufacturers and Technology Association, Capitol Resource Institute

    Oppose: American Federation of State, County & Municipal Employees

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