California Gears Up for a Gas Tax Clash

AP Photo/Richard Vogel

Gasoline prices are displayed at a gas station near downtown Los Angeles 

Your gas tax dollars at work/Rebuilding California, SB 1” signs have sprung up on transportation infrastructure repair and maintenance projects from the Mexican border to the Oregon line. Having $5 billion each year to fill potholes, shore up bridges, and pave roads is a pipe dream for most states. In 2017, California finally stopped imagining the “what-ifs” of transportation fixes and got to grips with its state-of-good-repair backlog. Governor Jerry Brown signed a new transportation revenue program into law in last April and the state officially hiked fuel taxes and vehicle fees last November.

With little real money expected from a dysfunctional Washington, the onus for new revenues has shifted to states to figure out the best way to keep decay at bay. In California, the Democratic-controlled Legislature came up with a slate of investment measures known as SB1 (Senate Bill 1) that includes new fuel taxes: a 12-cent per gallon increase in the gasoline excise tax, which raises the levy from nearly 30 cents to roughly 42 cents a gallon. The diesel excise tax went up 20 cents from 16 cents to 36 cents per gallon and the diesel sales tax also increased. The new law also levies an annual fee on vehicles (based on the value of the vehicle) and a $100 annual registration fee on zero-emission vehicles, such as electric cars. (All the taxes and fees (except the sales tax) will be adjusted for inflation.)

That adds up more than $50 billion over the next decade (tucked away in a transportation “lockbox” to prevent legislative sleight-of-hand moves to steer funds elsewhere) to invest solely in getting the state’s transportation assets back to a state of good repair. The annual funding program steers nearly $2 billion to the state highway system; another roughly $2 billion to local streets; $750 million to transit agencies; $400 million to bridges and culverts; $100 million to bike and pedestrian projects. There’s also money for other initiatives, such as workforce training, university research, and local planning grants.

That kind of money would be hard to give up every year, right?  But California could do just that.

On November 6, Golden State voters will weigh in on Proposition 6 which would repeal the fuel taxes and fees. Construction work in progress on about thousands currently funded projects would grind to a halt and future investments would be wiped off map, along with about 680,000 jobs and more than $180 million in economic growth over the next decade. Plus, voters would get to approve or strike down on any future fuel tax or vehicle fee proposal approved by the legislature before enactment. 

So in an era when Californians spend hours in hellish commutes on poor roads, state Republicans came up with a potent wedge issue: repealing the gas tax. It’s an open secret that Republicans view Proposition 6 as a way to turn out their anti-tax faithful and a few million more in this fiercely Democratic state. The move has had the desired effect: Democrats in four congressional district races have already come out in support of the repeal. 

The GOP has already had a dry run on using the tax issue to spear vulnerable Democrats: Orange County Republicans led a successful effort to recall a Democratic state senator, Josh Newman, a Democrat based largely on his support for the new taxes and fees. (He also co-authored the lockbox legislation.)

A June Survey USA poll found that 46 percent of likely voters would cast a ‘yes’ vote to repeal the taxes and fees, a decrease of five percentage points from a May SC Dornsife/Los Angeles Times May poll that found that 51 percent of likely voters supported the repeal. Opponents of Proposition 6 have heavily outspent supporters of the measure.

The vote may yet be a close one, but not everyone is worried. Denny Zane of Move LA, a Los Angeles County transportation advocacy group, has been surprised by the support he’s gotten from a business community that is keenly aware that bad infrastructure is bad for business. He reels off the groups that oppose the repeal: the Los Angeles Area Chamber of Commerce, BizFed (Los Angeles County Business Federation); Los Angeles Business Council; and more. 

And it’s not just LA area business groups that appreciate the new investments. The Inland Empire Economic Partnership, based in the swing-voter rich region east of LA that includes the cities of Riverside and San Bernardino, opposes the repeal. “Everyone knows that the worse two-fer is when you are stuck in congestion and highways are a wreck; that’s a real source of aggravation, inconvenience, cost, and risk,” says Zane who helped quarterback the passage of Measure R and Measure M, the landmark transportation revenue ballot initiatives in LA County.  

However, higher taxes make people nervous since the average Californian endures stagnant wages in a state where the high cost of housing is a major issue. “People are squeezed,” says Steve Smith of the California Labor Federation. Through focus groups and their own polling, they’ve found that people who regularly drive very long distances tend to support the new taxes. “These folks spend so much time on the road really understand the need for road improvement [and] bridge safety,” Smith adds.

A fuel excise tax is more of a user fee. According to the California Budget and Policy Center, most of the $35 billion that the state lays out for the upkeep of hundreds of thousands of miles of state and local roads, tens of thousands of bridges, and hundreds of transit agencies comes from state and local sources, such as sales taxes and transit fares. The center notes that, “While usage-based taxes and fees may be mostly regressive, they can be considered fair, to a degree, in that they are paid as the cost of using the service. Even alternative transportation funding options—toll roads and fees based on vehicle miles traveled, for instance—raise revenues based on people’s use of highways and roads, and not with regard to users’ incomes.”

Yet the revenue-generating power of fuel taxes as local, state, and federal transportation officials know them today is declining as automotive technology transitions away from fossil fuel-powered vehicles.  So many states want to increase fuel taxes while the getting is good. Ten states have passed fuel tax increases since 2016.

Even better for California, Caltrans, the state transportation agency and local transportation departments split the new tax revenues. That provision ensures that dollars will flow to every single county, not just to Los Angeles and San Francisco or to the state. “This money is not only already being spent, but people are seeing it being spent,” says Smith. 

After seeing their transportation tax dollars at work, can California voters get over their reflexive disgust with the “t” word and begin think of fuel taxes as the price for using a public good? Perhaps. California stands to lose $2.4 billion in transportation funding in this fiscal year alone if Proposition 6 succeeds, forcing Sacramento and local governments to poke around elsewhere for maintenance and repair cash. Long accustomed to being a national leader, California instead would usher in a new transportation dark ages by eliminating fuel taxes and vehicle fees.

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