Impact of Proposition 26 roiling Capitol

Proposition 26, a complex ballot measure requiring a two-thirds vote for new fees, has a retroactive provision that could block hundreds of millions of dollars in tax breaks approved earlier for new alternative energy plants in Southern California.

It also could undo a budget trailer bill – approved by the Legislature and signed by the governor — that levied fees on renewable energy plants to help defray some regulatory costs.

Approved by California voters on Nov. 2, Proposition 26 redefines fees as taxes, thus requiring two-thirds votes. It also applies retroactively to the last legislative session. Less than two weeks after voters approved it, the measure has generated uncertainty in the Capitol over what is covered by its provisions and what isn’t.

A hard-fought Senate bill approved in April, targeting state-federal tax conformity issues, included tax breaks on federal stimulus money intended to jump start solar energy development and other clean-energy and other projects, many in the inland deserts.

One of the bill’s numerous provisions allows alternative energy developers to exclude the federal grant dollars from their income tax liability for 2009-10, a major financial incentive for the companies.

“This bill excludes these grants from income for 2009-2010 tax year, because an unexpected tax could cause project developers to terminate or delay the projects, causing job losses and less renewable power for the state,” a Senate analysis said.

With $10 billion in federal funding at stake, including grants and loans, the financial implications of Proposition 26 on energy alone are huge.

But the Senate bill, SB 401 by Sen. Los Wolk, D-Davis, was approved with only simple-majority votes in each house of the Legislature – not two-thirds votes – and thus is subject to repeal under Proposition 26.

“We know this is a problem,” Wolk said. “We have been looking at this and we plan to reintroduce legislation on the first day of the session, on Dec. 6,” she added.

The bill followed months of negotiations. It corrected provisions of a flawed, special-session bill that had been vetoed by the governor, and it targeted dozens of state-federal tax issues.

Another energy-linked law, part of the long-delayed state budget, required fees on renewable energy generators to cover some regulatory costs. It, too, was approved with a simple majority vote and is subject to elimination under Proposition 26.

By year’s end, solar and photovoltaic projects totaling more than 4,000 megawatts are expected to be approved. Currently, tax incentives for the projects will be available for those that begin construction by the Dec. 31 deadline. Another set of incentives, loan guarantees, carry a September 2011 deadline.

The Legislative Counsel’s office, the Legislature’s legal adviser, has been asked for opinions on the tax-credit and other already-approved legislation.

Meanwhile, getting a two-thirds vote to restore legislation eliminated under Proposition 26 may not be easy.

“The goal is to get them approved and to capture this money,” said V. John White of the Center for Environmental Efficiency and Renewable Technologies. “This problem is solvable. There are a lot of things to get done.”