Prop. 87 – Economic disaster for California

The November 2006 California Ballot includes a measure “California Clean Alternative Energy Act” (Proposition 87). It is a measure that is likely to drastically diminish every Californian’s quality of life, while devastating the California economy.

First of all, it is one of those measures in the State of California that are proposed from time to time, that has a private citizen sponsor, committed to a personal political agenda, that persuades voters to give control over millions of dollars in public money to unaccountable political bodies, who in turn spend funds to further the sponsor’s political agenda, and, in this case, their economic benefits.

Proposition 87 is the creation of Vinod Kholsa, a Silicon Valley venture-capitalist and founding CEO of Sun Microsystems, Inc. Kholsa has a personal political cause of reducing America’s reliance on oil, and developing alternative fuel sources. Achieving his objectives would be good for California.

In funding Prop. 87, Kholsa got the support of Stephen L. Bing, movie mogul/environmental activist and John Doerr, another billionaire venture-capitalist. The three funded Proposition 87 to the tune of $3 Million, and to date, have raised another $1.8 Million.

Proposition 87 would impose a tax on oil companies – a politically unsympathetic target. But the tax is not based on oil company profits, but rather on the amount of oil that oil companies extract from California annually. In other words, it is designed as a disincentive for oil companies to produce oil in the State of California. The effect of that will be the reduction of oil supplies in California and a resulting increase in prices at the pump.

The approximately $4 Billion annually that would be raised by this tax would be placed at the disposal of a non-elected group of political appointees in a revamped bureaucracy known as the California Alternative Advanced Transportation Financing Authority. The Authority has the authorization to dole out these public monies to accelerate the development and deployment of clean alternative energy technology. Other than an “annual report” the Authority has little accountability to the public or their elected representatives in the State Legislature. They can spend the money any way they choose as long as there is some plausible connection to alternative energy sources.

Prop. 87’s two stated goals are to reduce the use of petroleum in the State of California by 25% by the year 2017, and the replacement of the lost petroleum with clean energy sources. But, what if it accomplishes the first goal but not the second? It assumes that causing pain by depriving people of life’s necessities should be used as a way to force them to conform to politically correct behavior. That falls into the pattern of typical liberal thinking.

If Prop. 87’s clean alternative energy sources are not developed, or not developed fast enough to replace the oil lost following the 25% reduction, we are likely to see a return to long lines at the gasoline pumps, designated fill-up days and the reappearance of “no gasoline today” signs, or maybe just a dramatic spike in gasoline prices. There are many more implications of this that would have a significant adverse effect on the California economy, such as reducing State and local tax revenue from fuel purchases and reducing property taxes on oil reserves, thereby reducing revenue to California schools. Knowledgable sources estimate that the loss of funds to California schools could amount to $2 Billion.

No one opposes research and development of clean alternative energy sources, but there is little to suggest that as early as 2007 or even by 2017 we will have sufficient alternative energy sources to replace the diminished oil supplies in California. We shouldn’t start reducing our oil supplies until we know we have the alternative sources to replace them.

But the real problem with this measure is that someone is advocating that California should attempt to set goals through top-down coercion, forcing people along the paths chosen by a few who want to promote their personal agenda.

Further, the leading sponsors of this measure are venture-capitalists whose personal and professional investment specialty is ethanol and alternative energy companies – the very industry that Prop. 87 is designed to benefit.

(Primary Source: M. David Stirling, Pacific Legal Foundation)

UPDATE: As of October 30, the total amount funded by the Yes on 87 campaign has been about $60 Million, $40 Million from Steven Bing alone.