BILL ANALYSIS
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THIRD READING
Bill No: SB 70
Author: Senate Budget and Fiscal Review Committee
Amended: 3/22/10
Vote: 21
PRIOR VOTES NOT RELEVANT
SUBJECT : Budget Act of 2009: fuel tax swap
SOURCE : Author
DIGEST : Assembly Amendments deleted the Senate version
of the bill relative to legislative intent. This bill now
revises provisions of the fuel swap to recognize special
users of fuel, such as purchasers of diesel fuel for rail
or other off-road use. On March 4, the Legislature
approved AB 6 x8, which is a revenue-neutral tax swap bill
that lowered certain fuel taxes and raised others. For the
typical consumer, there would be no change to fuel prices
paid at the pump. However, certain fuel users enjoy tax
breaks in current law, and due to these existing tax
breaks, they would see a net increase in taxes under AB 6
x8. This bill assumes the Governor will sign AB 6 x8 and
then amends statute to revise the tax provisions such that
special users, such as railroads and purchasers of aviation
gasoline, will not be adversely affected. This bill also
makes other technical and clarifying changes requested by
the Board of Equalization.
ANALYSIS : Under current law, certain fuel consumers are
CONTINUED
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exempt from excise taxes, others pay a reduced excise rate,
and others are exempt from sales tax. Included are the
following three groups:
1. Users of "dyed diesel fuel" - the excise tax on diesel
fuel is intended for users of the highways system and
excludes from the tax those that purchase fuel for
off-road use. This would include diesel purchased for
railroads, off-road construction equipment, farm
equipment, etc.
2. School buses and transit buses - the excise tax on
diesel fuel for these vehicles is only one cent per
gallon (versus the base rate of 18 cents per gallon).
3. Users of aviation gasoline - aviation gasoline is
defined in statute as "motor vehicle fuel" along with
regular gasoline. Aviation gasoline is exempt from the
sales tax, but pays the excise tax.
This bill revises the tax provisions, so that the special
fuel users would not see any negative tax impact. For
example, the users of dyed diesel fuel would be exempt from
the increase in the sales tax on diesel fuel, since they
would not receive the compensating benefit of a reduction
in the excise tax (because they are already exempt from the
excise tax).
This bill assumes AB 6 x8 is signed by the Governor and
revises that statute to exempt special fuel users, as
specified. The description below includes both the base
provisions of AB 6 x8 and the new provisions. The changes
made by SB 70, specifically, are underlined below.
1. Tax Swap: This bill lowers certain taxes and increases
others, such that on net there is a small tax decrease
annually through 2011-12. Thereafter, this bill is
revenue neutral. Specifically, this bill:
A. Exempts gasoline from the State 6.0 percent sales
tax on July 1, 2010, which by itself would reduce tax
revenue by $2.5 billion in 2010-11.
B. Increases the excise tax on gasoline by 17.3
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cents on July 1, 2010, which by itself would increase
revenue by $2.5 billion in 2010-11. In 2011-12 and
thereafter, the Board of Equalization (BOE) would
adjust the excise rate to match what the sales tax on
gasoline would otherwise provide. The BOE is also
required to adjust the rate for any over, or under,
collection of revenue in the prior fiscal year - this
"true-up" mechanism ensures revenue neutrality will
be maintained. Aviation gasoline is exempted from
the excise tax increase, because that fuel is already
exempted from the sales tax, and therefore users
would not see a compensating tax cut on the sales tax
side. The aviation gasoline exemption reduces
2010-11 revenue by about $6 million, but will not
have an ongoing affect due to the true-up mechanism
for BOE that will adjust the excise rate in the
future.
C. Increases the State sales tax on diesel on July
1, 2011, from 5.0 percent to 6.75 percent to increase
revenue for the Public Transportation Account by
about $115 million (the total State sales tax on
diesel will increase to about $430 million).
Dyed-diesel fuel, which is purchased for off-road
purposes (by railroads, agricultural users, etc.), is
exempted from the sales tax increase because that
fuel is already exempted from the excise tax, and
therefore users would not see a compensating tax cut
on the excise tax side. Had dyed-diesel users been
subject to the sales tax increase, their net tax
obligation would have increased about $30 million.
Also exempted from the sales tax increase is fuel
purchased for school buses and transit buses.
Exempting those purchases lowers revenue by about $3
million.
D. Decreases the excise tax on diesel on July 1,
2011, from 18 cents per gallon to 13.6 cents per
gallon, which decreases revenue for the Highway Users
Tax Account by about $120 million. In 2012-13, and
thereafter, the Board of Equalization would adjust
the excise rate to keep the decrease in the excise
revenue equal to the increase in the sales tax
revenue. The BOE is also required to adjust the rate
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for any over, or under, collection of revenue in the
prior fiscal year - this "true-up" mechanism ensures
revenue neutrality will be maintained.
2. Protects Proposition 98 Education Funding: Specifies
that the tax changes in the bill would have no net
fiscal impact upon the amounts that would otherwise be
calculated under Test 1 of the Proposition 98 guarantee.
3. Tax Levy: This bill is a tax levy within the meaning of
Article IV of the Constitution and would go into
immediate effect. However, the changes in tax rates
would still be effective July 1, 2010, or July 1, 2011,
as specified.
4. Board of Equalization Technical Amendments: This bill
includes technical changes to the language of AB 6 x8
due to technical concerns of the Board of Equalization
(BOE). These include conforming language on the
existing prepayment requirements for the sales tax, and
clarification that the annual adjustments to the excise
tax rates would occur at the beginning of the state
fiscal year.
Related provisions in AB 9 x8 : AB 9 x8 was approved by the
Legislature on March 4, and contains the expenditure
provisions on the fuel swap. Since both bills are
necessary to fully enact the swap package, the components
of AB 9 x8 are outlined here:
1. Transit Funding: This bill appropriates $400 million to
transit operators to help fund operations for the
remainder of 2009-10 and for 2010-11. In 2011-12, the
diesel fuel swap provides for growth in both transit
operations and intercity rail. Transit operators will
get about $350 million in 2011-12, and a growing amount
thereafter, via receipt of 75 percent of the state sales
tax on diesel. The amount available for intercity rail
and other state purposes will grow, via receipt of 25
percent of the state sales tax on gas and most of the
non-Article XIX transportation funds (about $72 million
per year).
2. Highway and Road Funding: This bill increases funding
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for highways and local roads. In 2010-11, this bill
would fully backfill for the highway and local road
funding lost due to the elimination of the sales tax on
gas. An additional $650 million in 2010-11 gas excise
tax funds would be set aside in this bill for future
appropriation by the Legislature. In 2011-12, and
thereafter, the excise tax revenue would provide
additional funding for highways and roads. After the
payment of debt service, the highway and road funding
would be split: 44 percent for the State Transportation
Improvement Program (STIP); 12 percent for the State
Highway Operations and Protection Program (SHOPP); and
44 percent for local streets and roads. This bill would
provide net new revenue to highways and roads of about
$420 million in 2011-12, with new revenue over ten years
of about $3 billion.
3. General Fund Relief: This bill, when combined with AB
8X 6, produces General Fund relief of $219 million in
2009-10, $929 million in 2010-11, and ongoing GF relief
of about $700 million and growing in the out years. The
General Fund relief by year is as follows:
In 2009-10:
A. Directs $140 million in PTA funds to reimburse the
General Fund for eligible debt service on
general-obligation bonds (specifically, Proposition
108 of 1990 bonds, Proposition 1A of 2008, and
one-quarter of Proposition 1B of 2006 bonds).
B. Directs $79 million in non-Article XIX
transportation funds to reimburse the General Fund for
Prop 116 of 1990 bonds.
In 2010-11:
A. Directs $254 million in PTA funds to reimburse the
General Fund for eligible debt service on
general-obligation bonds.
B. Directs $72 million in non-Article XIX
transportation funds to reimburse the General Fund for
Prop 116 bonds.
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C. Directs $603 million in new gasoline excise tax
revenue to reimburse the General Fund for Proposition
192 of 1996 bonds, and three-quarters of Proposition
1B of 2006 bonds.
In 2011-12 and thereafter:
A. Directs $727 million (and varying amounts over
time) in new gasoline excise tax revenue to reimburse
the General Fund for Proposition 192 of 1996 bonds,
and three-quarters of Proposition 1B of 2006 bonds.
Comments
This bill is similar to the Governor's Budget Proposal, but
has been modified to provide additional funding for transit
and highways. The amendments in this bill, relative to the
base language in AB 6 x8, are designed to address concerns
raised by railroads and other industry groups that they
would see a net tax increase due to existing tax breaks not
being fully factored into the language. With the
amendments in this bill, the tax changes are not only
revenue-neutral overall, but are also revenue neutral for
each of the special industry groups.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
Revenue Impact of Tax Swap (contained in AB 6 x8, as
modified by this bill)
(Estimates in millions)
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| |2010-11|2011-12|2012-13|2013-14|
| | | | | |
|--------------------------+-------+-------+-------+-------|
|Eliminate Sales Tax on |-$2,531|-$2,435|-$2,369|-$2,525|
|Gasoline | | | | |
|--------------------------+-------+-------+-------+-------|
|Increase Excise Tax on | $2,511| $2,435| $2,369| $2,525|
|Gasoline | | | | |
|--------------------------+-------+-------+-------+-------|
|Increase the Sales Tax on | 0| 114| 118|125 |
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|Diesel | | | | |
|--------------------------+-------+-------+-------+-------|
|Decrease the Excise Tax | 0| -118| -118| -125|
|on Diesel | | | | |
|--------------------------+-------+-------+-------+-------|
|Net change in revenues: | -20| -4| 0|0 |
| | | | | |
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Expenditure Highlights of Tax Swap (contained in the
companion bill, AB 9 x8)
(Estimates in millions)
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| |2010-11|2011-12|2012-13|2013-14|
| | | | | |
|---------------------------+-------+-------+-------+-------|
|Transit Operations via | $400| $348| $348| $354|
|STA* | | | | |
|---------------------------+-------+-------+-------+-------|
|Intercity Rail and other | 162| 157| 171| 190|
|State Operations | | | | |
|---------------------------+-------+-------+-------+-------|
|Net new Highway and Road | 0| 417| 251|208 |
| | | | | |
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* 2010-11 funding amount is that appropriated in 2009-10 by
this bill.
DLW:nl 3/22/10 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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