BILL ANALYSIS
SENATE COMMITTEE ON BUDGET AND FISCAL REVIEW
Denise Moreno Ducheny, Chair
Bill No: SB 70
Author: Committee on Budget and Fiscal Review
As Amended: March 22, 2010
Consultant: Brian Annis
Fiscal: Yes
Hearing Date: March 22, 2010
Subject: Fuel tax swap.
Summary: This bill 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 X8 6, 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 X8 6. This bill assumes the
Governor will sign AB X8 6 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.
Background: Under current law, certain fuel consumers are
exempt from excise taxes, others pay a reduced excise rate,
and others are exempt from sales tax. Included are the
following three groups:
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.
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).
Users of aviation gasoline - aviation gasoline is
defined in statute as "motor vehicle fuel" along with
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regular gasoline. Aviation gasoline is exempt from
the sales tax, but pays the excise tax.
This bill would revise 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).
Proposed Law: This bill assumes AB X8 6 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 X8 6 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:
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.
Increases the excise tax on gasoline by 17.3 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 .
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
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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.
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 for any over,
or under, collection of revenue in the prior fiscal
year - this "true-up" mechanism ensures revenue
neutrality will be maintained.
1.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.
2.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.
3.Board of Equalization Technical Amendments: This bill
includes technical changes to the language of AB X8 6 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 .
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Related provisions in AB X8 9: AB X8 9 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 X8 9 are outlined here:
1.Transit Funding : This bill would appropriate $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 would increase
funding 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.
1.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
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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.
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.
Fiscal Effect: This bill would result in the following
overall revenue impact.
Revenue Impact of Tax Swap (contained in AB X8 6, as
modified by this bill)
(Estimates in millions)
----------------------------------------------------------
| |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|
|Diesel | | | | |
|--------------------------+-------+-------+-------+-------|
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|Decrease the Excise Tax | 0| -118| -118| -125|
|on Diesel | | | | |
|--------------------------+-------+-------+-------+-------|
|Net change in revenues: | -20| -4| 0|0 |
----------------------------------------------------------
Expenditure Highlights of Tax Swap (contained in the
companion bill, AB X8 9)
(Estimates in millions)
-----------------------------------------------------------
| |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 |
| | | | | |
-----------------------------------------------------------
* 2010-11 funding amount is that appropriated in 2009-10 by
this bill.
Support: Unknown.
Opposed: Unknown.
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 X8 6, 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.
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