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Newsom Releases May Budget Revisions

Gov. Gavin Newsom on Friday proposed funding a pair of landmark corporate emissions disclosure laws in his 2024-25 budget but proposed delaying more than $1 billion in other climate spending in a bid to close a massive budget deficit. 

The budget proposal would shift more than $3 billion in general-fund spending to cap-and-trade proceeds and doesn't mention a climate bond that environmentalists have sought. 

Newsom's May budget, which attempts to close a $27.6 billion budget deficit that has widened by $7 billion since January, would give the California Air Resources Board funding to implement a pair of landmark corporate climate disclosure laws, CA SB253 (23R) and CA SB261 (23R), that he had left out of his January budget proposal. 

It would also shift $1.7 billion in general funding this year from zero-emission vehicle, clean energy, and carbon sequestration programs to the state’s cap and trade fund but provides little detail on programs that could be delayed to make room for those fund shifts. 

Newsom offered little clarity on his priorities for November bond measures during his budget presentation Friday, leaving environmental groups pushing for climate funding in limbo less than two months from the ballot qualification deadline. 

Lawmakers are carrying infrastructure bond proposals on climate, schools and housing with a combined price tag north of $40 billion, well beyond the $20 billion ceiling Newsom in March estimated California can responsibly borrow. 

Newsom mentioned Friday that the state had received some $15.9 billion in federal climate funding but didn't commit to backing any bonds. 

CIPA submitted a letter last week to the Assembly Budget Committee outlining its opposition to the changes in tax treatments proposed in the governor’s budget.

The budget proposal includes the elimination of the following tax treatments:

  • Immediate Deduction for Intangible Drilling Costs – Under current California law and in conformity with federal law since 1987, seventy percent of intangible oil and gas drilling costs, such as survey work, ground clearing, drainage, and repairs, can immediately be deducted by corporations as a business expense, with the remainder spread over five years. For independent oil producers, one hundred percent of intangible drilling costs can be deducted immediately.

  • Percentage Depletion Rules for Fossil Fuels – Under current California law and in conformity with federal law since 1993, businesses may deduct a fixed percentage of gross income that is higher than the normal cost-depletion method when it comes to resource depletion of mineral and other natural resources. 

  • Enhanced Oil Recovery Costs Credit – Under current California law, certain independent oil producers are allowed a nonrefundable credit equal to five percent of the qualified enhanced oil recovery costs for projects located in the state if the reference price of domestic crude oil falls below a specified threshold for the preceding year. Taxpayers who are retailers of oil or natural gas and those who are refiners of crude oil whose daily output exceeds 50,000 barrels are not eligible for the credit.

Intangible drilling costs (IDCs) are not subsidies, but rather tax treatments. It is likely that the state would gain very little additional revenue since the language simply changes the timing of deductions. 

Newsom and lawmakers will now work on hashing out a broad budget agreement by the June 15 deadline, though negotiations will continue as budget trailer bills are finalized.

For more information, contact Rock Zierman.


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