December 2002

Table of Contents

Cal-Tax Home

Email Editor

Cal-Tax Commentary 

Carol Evans is vice president of the California Taxpayers’ Association.

"I'm from the government, and I’m here to help.” Those may be the nine most frightening words any taxpayer can hear. Yet throughout the state of California, taxpayers are under assault by free-spending government bureaucrats. The latest government scheme cooked up by the city of Corona is to create a bureaucracy to take over electrical service to the city.

At a special lame-duck session on December 2 (two council members were replaced the following day), the Corona City Council unanimously voted to seek court approval of a hostile takeover of Southern California Edison’s electrical distribution system. It was soon apparent that the hearing was really no more than window dressing to comply with legal requirements. Despite public testimony three-to-one against the plan, and compelling testimony from Edison that the city’s feasibility study was fundamentally flawed, the council heard nothing to change their minds. Perhaps they were motivated by the fact that it was disclosed by the city manager for the first time at this hearing that the city had already spent $900,000 in their attempt! How many firefighters and police officers could be hired, or youth athletic fields built, with that money?

One of the main reasons that nearly 95 percent of the cities in California contract their utility service is because the financial risk is immense otherwise. When the stock of many energy companies plummeted a year ago, you may have thought to yourself, “Thank God I didn’t have stock in that company!” But if your city takes over the utility, and fails to meet financial projections, it will affect you directly. Corona’s taxpayers/ratepayers will be on the hook for any debt incurred by this new government bureaucracy.

A minor inconvenience for the city is the fact that the utility is not for sale by Southern California Edison, your current provider. The only way the city will be able to acquire all Southern California Edison’s property and electrical equipment is through eminent domain – a 25-cent expression for government takeover – which the city conservatively estimates will cost $180 million dollars (make that $325 million with interest payments). The cost could be much higher when the court determines a fair market value appraisal of Edison’s property and costs associated with severing its power lines from the city. It was revealed at the hearing that key assets, such as the substation supplying 50 percent of Corona’s electricity, were valued at $0 in the city’s appraisal.

Is it wise for the city to go hundreds of millions of dollars in debt – putting its own taxpayers at risk – to jump into the volatile energy market? Even our state politicians in Sacramento learned a lesson after their failed attempt at government control over the electric utility industry. That governmental foray into the private-sector utility industry is directly responsible for a major chunk of the state’s $21 billion budget deficit.

Recent history in California is littered with municipalization plans that eventually didn’t pencil out. The city of Long Beach recently decided not to spend a half-billion dollars to take over its electrical utility. Just last month, the voters of  San Francisco – a city that embraces big government – decided to leave the financial risk of operating a utility in the hands of an investor-owned entity.

Even if you believe we need government to take over another sector of our lives, consider this: When local governments go into the electricity business, other government agencies lose. When you take over private assets and turn them into public property, property taxes received by the county, the schools, and other jurisdictions will simply disappear, as will corporate income taxes to the state’s general fund. Where will these agencies get the money to make up for what the city has taken away? Taxpayer exposure for this ill-advised takeover will take existing tax resources away from priority services or will force new taxes or higher utility bills.

The city makes an unsupported claim that you will save 15 percent on your electric bill if you allow it to take over the utility. In reality, there is no way the city can guarantee any long-term reduction of your rates. Nor does the city offer any assurances that any money saved would be offset by reduced taxes. Logic dictates that increasing the city’s debt and reducing its tax base by buying out Edison is much more likely to result in a tax increase, not decrease.

You may be interested to learn that city-owned utilities are not subject to the same rigorous regulatory oversight as private utilities. If the city takes over, guess who will set the rates: the City Council. What prevents the council from raising revenue by simply raising the rates to you – their captive customer? Government operations are inherently political, bureaucratic and inefficient and cannot be easily divorced from the larger public policy agenda.

If Corona believes it can run private businesses better than our business community can, then why stop at utilities? Maybe the city should provide all its residents free health care and take over all hospitals and doctors’ offices. Or perhaps Corona could take over all retail stores. Surely the city could earn a profit doing that!

The California Taxpayers’ Association believes good city government provides quality service through public-private partnerships and competitive contracts, not hostile takeovers.