Regardless of where you may sit on the political spectrum, the November elections sure presented interesting, and sometimes surprising results. If you’re in the renewable energy business, here’s one you’ll like. But, it comes with a note of caution, too.
Proposition 39, titled “TAX TREATMENT FOR MULTISTATE BUSINESSES. CLEAN ENERGY AND ENERGY EFFICIENCY FUNDING,” passed 60% YES/40% NO.
These summary bullets are from the state’s official ballot description
distributed to voters (my highlights in red are most notable for this discussion
- Requires multistate businesses to calculate their California income tax liability based on the percentage of their sales in California.
- Repeals existing law giving multistate businesses an option to choose a tax liability formula that provides favorable tax treatment for businesses with property and payroll outside California.
- Dedicates $550 million annually for five years from anticipated increase in revenue for the purpose of funding projects that create energy efficiency and clean energy jobs in California.
Summary of Legislative Analyst’s Estimate of Net State and Local Government Fiscal Impact:
- Approximately $1 billion in additional annual state revenues—growing over time—from eliminating the ability of multistate businesses to choose how their California taxable income is determined. This would result in some multistate businesses paying more state taxes.
- Of the revenue raised by this measure over the next five years, about half would be dedicated to energy efficiency and alternative energy projects.
- Of the remaining revenues, a significant portion likely would be spent on public schools and community colleges.
The ballot description goes on to say…
Energy Efficiency Programs. There are currently numerous state programs established to reduce energy consumption. These efforts are intended to reduce the need to build new energy infrastructure(such as power plants and transmission lines) and help meet environmental quality standards.
ANALYSIS BY THE LEGISLATIVE ANALYST CONTINUED
Provides Funding for Energy Efficiency and Alternative Energy Projects. This measure establishes a new state fund, the Clean Energy Job Creation Fund, to support projects intended to improve energy efficiency and expand the use of alternative energy. The measure states that the fund could be used to support: (1) energy efficiency retrofits and alternative energy projects in public schools, colleges, universities, and other public facilities; (2) financial and technical assistance for energy retrofits; and (3) job training and workforce development programs related to energy efficiency and alternative energy. The Legislature would determine spending from the fund and be required to use the monies for cost-effective projects run by agencies with expertise in managing energy projects. The measure also (1) specifies that all funded projects must be coordinated with CEC and CPUC and (2) creates a new nine-member oversight board to annually review and evaluate spending from the fund.
The Clean Energy Job Creation Fund would be supported by some of the new revenue raised by moving to a mandatory single sales factor. Specifically, half of the revenues so raised—up to a maximum of $550 million—would be transferred annually to the Clean Energy Job Creation Fund. These transfers would occur for only five fiscal years—2013–14 through 2017–18.
Frothy Competition for Bidding Leads to Enhanced Competitive Rivalry
The result of this ballot presents a bonanza for the renewables industries, as well as other providers of energy efficiency products and services. Thankfully, there is a labor training component, too, as this need is clear.
My personal prediction is that this windfall opportunity will spark a lot of industry activity, but that it will also increase competitive rivalry among firms, such as solar providers, to pitch the business, submit proposals, and ultimately fulfill the contracts. This type of pitching and bidding process is not for the faint of heart or under-capitalized. In that particular industry, SolarCity plans to raise capital from the public market, and thus presumably, will be in a stronger position to compete for and fulfill this type of business than most solar installers.
With opportunity come challenges. Please contact me if your company may contemplate the need for additional capital to keep up with a changing industry, and/or may consider merger and acquisition activity to strengthen your competitive position.
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