Solar Tax Break Proves Budget Muscle of Powerful Interests

In a five-hour session of the Legislature's joint budget conference committee last Thursday night, it all went down in less than three minutes.

A multiyear, multimillion dollar tax break — inserted into the budget and never examined in the light of day — was being fast-tracked as part of a state spending plan that was only hours away from landing on the governor's desk for an all-but-certain signature.

"This is a great program," said state Sen. Mark Leno (D-San Francisco), the only legislator on the dais that night who seemed to have an understanding of SB 871, a new extension of a long-standing tax break.

"Because it's been in place, we've had all these benefits," Leno said in a brief speech. Moments later, seven of the eight budget conferees voted for the — up until then — unheard of proposal.

The story of the surprise solar tax exemption is one that longtime state budget watchers know all too well: the ability of influential groups to inject last-minute items into the annual spending plan during a time where the full vetting of the proposal is often overshadowed by the constitutional deadline for fast action.

"If you're a well-connected interest group, there's no better place to sneak a piece of major policy change," says Phillip Ung, director of public affairs at California Forward, a bipartisan government reform group.

The bill in question, one of 19 budget implementing "trailer" bills, extends the life of a property tax reduction for solar energy installations. Solar's special treatment in property tax law dates back to 1980, when voters approved Proposition 7 that — among other things — gave the Legislature the power to deem solar installations irrelevant in calculating local property tax assessments, which would otherwise be included improvements and thus would likely raise the property's value.

Current law continues that trend, but has set a Jan. 1, 2017 expiration — a "sunset" in government parlance — for the solar tax break. That change is more than two years away, but was promoted as something more urgent in the June 12 marathon session of the budget conference committee.

"This is a great program, it's about to sunset," said Sen. Leno during his brief remarks.

But not everyone saw it that way.

"It wasn't like it was a bill that everybody loves," says Assembly member Wes Chesbro (D-Arcata).

Chesbro was one of only a few Democrats in the Legislature to vote against SB 871 when it came up for final floor votes on Sunday, June 15 — hours before the constitutional deadline for legislators to send Gov. Jerry Brown a budget or forfeit their paychecks.

If anyone in the Legislature knows a thing or two about state budgets, it's Chesbro. The north coast politician, now in his 14th year in the Capitol, was chair of the Senate's budget committee and now chairs the Assembly's Natural Resources Committee — the committee that would have considered the policy effects of the solar tax break extension had it gone through the normal process.

"The public would have had a chance to participate," Chesbro said.

Chesbro may have convinced some of his fellow Assembly Democrats to question the tax break; official records show that five Democrats in the lower house voted against the measure, and nine more abstained from casting a vote. But a bipartisan majority supported the measure, and Brown administration officials say the governor also supports the extension — a sign it's destined to be signed into law before July 1.

All Democrats who were present in the state Senate voted for SB 871.

Exactly who instigated the inclusion of the stealth provision is unclear. Staffers who spoke on background said they believed the impetus came from the Brown administration; but a spokesman for Brown said on Monday that it was legislators, not the governor, who wanted the tax break proposal.

Lobbyists hired by the solar industry were on pins and needles watching the votes in the Capitol's main hallway on Sunday night. Supporters argue there's a large economic benefit to extending the government boost to solar, but the only analysis that could be found was a state Board of Equalization review in 2008. No new analyses have been conducted.

When SB 871 passed the Senate on Sunday night — its last hurdle — the small group of lobbyists exchanged high fives and hugs.

"Good work, everybody!" one of the lobbyists said.

None of the lobbyists contacted for this story returned phone calls or emails seeking comment on either the merits of the bill or its insertion into the budget process.

State records show some of those lobbyists represent powerful players in the solar industry. Included on the list is a lobbying firm representing SolarCity, the solar energy company chaired by Tesla founder Elon Musk.

A late trailer bill to the budget, especially one with powerful backing, was custom made for getting a green light.

"The budget process gives you a very small amount of time for people to raise hell," California Forward's Ung said.

In a letter distributed to lawmakers over the weekend, opponents — including wind, geothermal and biomass energy groups — suggested that solar energy no longer deserves special treatment.

"An extension [of the solar property tax break] should go through the normal legislative process and be transparent," says the flyer, signed by 21 different groups.

Sen. Leno, the legislative champion of the surprise solar tax break, admitted in a Sunday night interview that the general goal in dealing with tax policies that expires, or "sunset," is to take a close look at whether they still works before granting an extension — something that didn't happen in this case.

"That's a point well taken," Leno said.

And regarding the hurried, relatively opaque process, is government operating at its best?

"We can always do better," Leno said.