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Utility Tax Is For Those Who Did Not Flunk Math
Why global warming is a movie extravaganza in California
by Wayne Lusvardi 10/11/07

egalizing the continuation of utility transfer taxes, now declared unconstitutional, by local ballot initiatives at the prior tax rate may result in much higher taxes when the Green Power tax kicks in, by raising the base to which the tax rate is applied.  

Israel Gallegos is attributed with the quote that "the lottery is a tax on people who flunked math."  Peg Bracken, author of the "I Hate to Cook Book" (1960) once made a similar observation when she wrote: "Why does a tax increase cost you two hundred dollars and a substantial tax cut save you thirty cents?" 

Taxpayers who catch on to the implications of recent California appellate court rulings about the unconstitutionality of taxes on your cellular telephone, electricity, and water bills may soon be making the same observations and asking the same type of questions as those above.  And if they probe deeper they may end up having to do the math to figure out the bottom line.

Guest Contributor
Wayne Lusvardi

Wayne Lusvardi worked for 20 years for the Metro Water District of So. Cal. and is an independent real estate appraiser in Pasadena. The views expressed are his own. Wayne receives e-mail at waynelbox-blogger@yahoo.comand blogs at http://www.pasadenapundit.com

In the City of Los Angeles, the Howard Jarvis Taxpayers Association and the Apartment Association of Greater Los Angeles are responding to an odd lawsuit whereby the City is suing its own residents to validate the continuation of transfers of taxes collected from water rate payers to the City's General Fund for municipal purposes.  At issue is the City's practice of overcharging its water rate payers by over $20 million each year since about 1995 to fund other non-utility related municipal services.   

In the Appellate Court case Bighorn-Desert View Water Agency v. Verjil, the California Supreme Court ruled that reducing or increasing water rates are within the people's initiative power and are subject Proposition 218, which provides:

"Revenues derived from the fee or charge shall not exceed the funds required to provide the property-related service;" and: "Revenues derived from the fee or charge shall not be used for any purpose other than that for which the fee or charge was imposed." 

Additionally, Proposition 218 requires voter approval of such taxes (e.g., a majority vote for a general tax and a two-thirds vote for a special tax). 

Concurrently, wireless telephone companies recently won a lawsuit challenging Los Angeles' 10% tax on cell-phone and long-distance phone bills which generate $270 million a year or 6% of the City's budget.  This is equivalent to about 3,000 police officers of one-half of the fire department budget. 

The City of Pasadena is proposing a ballot initiative for the February 2008 election to continue its utility transfer tax of 8.28%.  Pasadena City Councilman Sid Tyler commented in the October 19 issue of the Pasadena Star News" ("City Wants to Keep Utility Tax") that the utility tax "is not a tax increase, it's not sneaky."  

This is disputable.  Even if made legal by voter approval, Pasadena's 8.28% utility transfer tax will equate to an effective 11.59% tax when the base electricity rates are raised to purchase expensive Green Power.  Do the math.

Pasadena has already enacted legislation to shift 20% of its electricity to Green Power by the year 2014 in compliance with Assembly Bill 32 (also known as the California Global Warming Solutions Act).  Renowned economist Robert Samuelson has stated that a shift to Green Power would likely result in 20% less electricity than conventional energy sources and would increase wholesale electricity prices by 40%.

If he's right, a 8.28% transfer tax on a 40% higher electricity base rate would result in an effective 11.59% tax on the old base power cost.  Do the math.  

One of the reasons for a 40% increase in utility rates for only a 20% shift of electricity to Green Power sources is that alternative energy (wind, solar power) will require redundant back-up power plants because the wind doesn't always blow nor the sun always shine.     

Conversely, the utility transfer tax in the City of Pasadena would have to be lowered to about 5.91% to equate to an effective rate of 8.28% given a 40% increase in utility rates. Do the math.  This would be more consistent with the 5% utility transfer tax imposed in the cities surrounding Pasadena, such as San Marino and South Pasadena.     

As a resident of Pasadena, this writer might support the City-proposed ballot initiative to continue the utility transfer tax if the 8.28% tax rate was applied only to the base rate of lower-priced conventional power from Pasadena's coal-fired Intermountain Power Plant in Utah.

Otherwise the City has a perverse incentive to create environmental subterfuges to find the most expensive sources of power for a hidden tax increase. This might raise antitrust violation issues in the private sector.

The claims of environmental harm especially by the cognitive elites in academia, the media, and government have historically been shown to be false, mostly false, or unproven.  The claims of global warming have to be considered in this historical light.  The Dust Bowl era of the 1930's remains a warmer period than today.

Since 1999 it is the California Howard Jarvis Taxpayers Association that has been relentless in pursuing legal actions to require full compliance of utility transfer taxes with Proposition 218's cost-of-service tax limitation

requirement.  The Howard Jarvis Taxpayers Association led the 1978 California Taxpayer's Revolt which resulted in a limitation on property taxes by the historic Proposition 13.  

Californians have nearly always been adamant to resist property taxes on the "American Dream" of a single family home, which is often used as an equitable bank account or retirement insurance.  Thus, shifting a portion of their municipal taxes to their telephone, electricity, and water bill has furthered California's aversion to the negative affects of tax capitalization on home values.

However, the recently enacted Global Warming Solutions Act (Assembly Bill 32) has thrown a monkey wrench into the utility transfer tax issue by creating a perverse incentive for cities to find the most expensive source of water or power so as to boost the base on which the utility transfer tax rate is applied. 

This makes a case for either: 

(a) discontinuing the transfer of utility taxes to City general funds;

(b) shifting utility transfer taxes to property taxes;

(c) privatizing municipal water and power utilities just as telephone companies are; 

(d) rescinding the Global Warming Solutions Act;  

(e) continuing utility transfer taxes either: (1) at the prior rate; or

(2) by indexing the utility transfer tax rate to the base price of conventional power so as to avoid the potential conflict of interest. 

Obviously, discontinuing utility transfer taxes altogether would be the most direct and honest solution. 

However, for those municipalities which can not quit their drug-like addiction to utility transfer taxes "cold turkey," continuing their utility transfer tax has two options:  (1) unthinkingly continuing the tax at the prior rate or (2) phasing in some form of rate base indexing, just as an Annual Percentage Rate (APR) must be disclosed on a home mortgage. However, any form of rate indexing would leave open another opportunity for the chicanery of cities to game the complexities of the system.  But rate base indexing might provide more honest disclosure than just continuing the tax on the old rate.

To do rate base indexing the public will have to do the math.  They can't depend on the innumerate media, the phony utility consumer advocacy organizations (T.U.R.N.), or the California Public Utilities Commission (CPUC) to do the math for fear of political incorrectness and conflict with the skullduggerous State legislature.   

With 160 cities which have imposed utility transfer taxes on their residents phone, electricity, and water bills, it is perhaps just now becoming apparent why global warming is like a Hollywood movie  political extravaganza in California with its Greenie Governor-actor playing the leading role in a sequel to his movie "True Lies."  The potential loss of the Utility Transfer Tax is the second coming of Proposition 13 in California. CRO


copyright 2007 Wayne Lusvardi




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