California Construction Trucking Association (CCTA)

Highway and Transit Gets Hosed – Again!

On page 11 of CTN July 2010 Issue ("State Bets Against Higher Gas Prices"), we have included an interesting story about how the legislature has sidestepped the initiative/proposition process as well as the voter’s intent to secure gas taxes on at least two occasions. In another slick tax maneuver to help balance the budget, the legislature has once again stuck it to the commuters and construction industry in this state.

Some say that this is a good thing since less than 20% of the budget is discretionary and the rest is non-discretionary, mostly as a result of the initiative process, which forces percentage spending for a variety of things, the most famous or infamous is education.

One of the best stories concerning this issue that I have read so far was from the July 8th OC Register. The reporter started off by saying that there is some good news about this tax reallocation scheme and some bad. Apparently, the good news appears to be the fact that the state’s sales and use tax rate on gas dropped from 8.2% to 2.25% as of July 1. On the first read of this, one would possibly conclude that if this is correct, prices will plummet at the pump, right? Not!

As of July 1, this creative legislative scheme also hiked the excise tax rate on motor vehicle fuel by 17.3 cents per gallon – from 18 cents to 35.3 cents.

That essentially makes up for the big sales tax drop, so it all seems like a wash. The consumer filling up their car with fuel isn’t supposed to see an ounce of difference.

So, why bother? “The excise tax gives the state more flexibility,” said Anita Gore, spokeswoman for the state Board of Equalization. The “gas tax swap,” as it’s being called, essentially allows the state to sidestep two voter initiatives designed to ensure that gas taxes are used for road and transit projects. The new excise tax scheme which wasn’t part of any initiative/proposition allows state govenment to siphon money from its gas-tax piggy bank and use it to plug holes in its other more socially important piggy banks.

“It all springs from the state’s budget difficulties,” said Stephen Finnegan of the Automobile Club of Southern California. “From a consumer standpoint, there’s no change at the pump. From a transportation industry and consumer standpoint, they’re going to now be using gas excise taxes to repay general obligation bonds…. It will be a loss to transportation, both roads and transit.”

In 2002, Proposition 42 sponsored by Transportation California and other construction industry groups asked the question: “Should the California Constitution be amended to require gasoline and diesel fuel sales tax revenues be allocated for specified transportation purposes, including highways, streets and roads, and transit improvements?” Voters answered with a resounding “yes! – it passed with about 70 percent of the vote. The behind the scenes story here is that the sponsor of the initiative/proposition (the construction industry) under poor advice wrongly agreed to include a budget escape clause under threat that the then-governor Gray Davis would oppose the initiative if a budget emergency escape clause was not included.

Of course, we all know what happened. There was a fiscal mess that has just worsened and a gubernatorial recall that followed. And the construction industry was forced to go back to the lobbying and initiative process for the next four years to fix the problem for good – or at least that’s what we all thought.

Fast forward to 2006.
That year, voters went a step further with Proposition 1A, which asked the question, “Should the California Constitution be amended to further protect the state sales tax revenues for transportation purposes from general-purpose use and require any funds borrowed to be repaid to the transportation fund?” This time the answer was an even more resounding “yes!”– it passed with a huge 80% of the vote.
Again, the construction industry and Transportation California spent millions lobbying and PR-ing this Proposition as a “final solution” to protecting the gas tax, its use, as well as past years’ repayments to this fund that were utilized else where. But apparently all that was another futile effort, as the Schwarzenegger administration and this legislature has found yet another way to get at these funds.

Reducing the gas sales tax paid by consumers and hiking the excise tax paid by fuel suppliers, well, that leaves a lot more spending flexibility for a broke state to maneuver, redirect these new excise taxes, and postponing infrastructure fund repayments that were supposed to be guaranteed.

Does that violate voter intent? Sure it does!

To the extent the state borrows funds from these special use funds, they would have to be repaid, but with this new scheme that may not be true any longer.

And we’ll note for the record here objections raised by many good-government types to the enormous problems raised by ballot-box budgeting.

It should also be noted that there are other “propositions” on the table in November that will attempt to tie Sacramento’s greedy hands: Proposition 22, backed by local public safety unions (police, fire, etc.), aims to “wall off” money in local government budgets from the sticky-fingered state government. The initiative would prohibit the state from taking local government, transit, and transportation funds, even in a fiscal emergency, which seems to be the norm in Sacramento. How that would affect the gas tax swap is still a bit unclear.

Also on the ballot will be Proposition 26 (sponsored by the CalChamber), which would require a two-thirds supermajority vote in the California State Legislature to pass any fees, levies, charges, and tax revenue allocations that under existing rules can be enacted by a simple majority vote. Supporters (businesses and taxpayer groups) of the initiative call it the “Stop Hidden Taxes” initiative because they believe that fees, levies, and other similarly named creative tax schemes imposed by the California government, both state and local, amount to taxes, and should therefore require the same supermajority vote required to enact income or sales tax increases.