BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 16 |Hearing | 5/6/15 |
| | |Date: | |
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|Author: |Beall |Tax Levy: |No |
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|Version: |4/15/15 |Fiscal: |Yes |
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|Consultant|Bouaziz |
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TRANSPORTATION FUNDING
Imposes a $0.10 per gallon excise tax on gasoline, a $0.12 per
gallon excise tax on diesel fuel, and increases the vehicle
license and registration fees for five years.
Background and Existing Law
I. Excise tax rates. The Motor Vehicle Fuel Tax Law (MVFTL)
and the Diesel Fuel Tax Law generally impose an excise tax on
gasoline and diesel fuel upon:
The removal (except for aviation gasoline) at the
refinery or terminal rack.
The entry into the state; and
The sale to an unlicensed person.
For fiscal year (FY) 2015-16, the gasoline excise tax rate is
set at $0.30 per gallon, and at $0.13 per gallon on diesel fuel.
Currently, as part of the "fuel tax swap," retail sales of
gasoline are exempt from the state's General Fund rate. The
fuel tax swap also increased the sales and use tax rate on
retail diesel fuel sales and purchases to offset the loss
related to the diesel fuel excise tax rate reduction. Sales and
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use tax law provides that the excise tax on gasoline is included
in the computation of locally imposed sales and use tax. The
excise tax imposed on diesel fuel is not subject to sales or use
tax.
Upon enactment of the fuel tax swap in March 2010, the gasoline
excise tax rate was increased and included a floor stock tax,
which is a way to equalize the excise tax paid on fuel held in
inventory by a supplier, wholesaler or retailer prior to the
effective date of a tax increase and fuel purchased after the
tax increase. Having a large fuel inventory before a tax rate
increase takes effect can bring about a small windfall to a
seller, who can raise the selling price of the fuel purchased
prior to the increase and attribute the increase in price to the
tax rate increase. Since the diesel fuel excise tax rate was
decreased, there was no need for a floor stock tax.
The Local Motor Vehicle Fuel Taxation Law authorizes counties to
impose countywide excise taxes on gasoline at increments of one
cent per gallon, provided a majority of the voters approve the
proposition. The funds collected must be used only for purposes
authorized by Article XIX of the California Constitution, such
as transportation planning and construction. To date, no county
imposes a local fuel tax under this authority.
In addition, federal law imposes additional per gallon taxes on
gasoline and diesel fuel of $0.184 and $0.244, respectively.
II. Vehicle license and registration fee. The vehicle
license fee (VLF) is a tax on the ownership of a registered
vehicle in place of taxing vehicles as personal property. Prior
to 1935, vehicles in California were subject to property tax,
but the Legislature decided to create a state-wide system of
vehicle taxation. The taxable value of a vehicle is established
by the purchase price of the vehicle, depreciated annually
according to a statutory schedule. Prior to recent budget
actions, the state collected and allocated the VLF revenues,
minus administrative costs, to cities and counties. The VLF tax
rate is currently 0.65% of the value of a vehicle, but
historically (from 1948-2004) it was 2%. In 1998, the
Legislature cut the VLF rate from 2% to 0.65 % of a vehicle's
value. The current vehicle registration fee is $43 per
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vehicle.
Proposed Law
Senate Bill 16 establishes the Road Maintenance and
Rehabilitation Program, and requires all revenues from the
imposed taxes and fees to be deposited in the newly created Road
Maintenance and Rehabilitation Account (RMRA). The bill
specifies:
I. The gasoline and diesel fuel excise tax rates.
II. Vehicle license and registration fee increases.
III. Allocation of revenues.
I. Gasoline and diesel fuel excise tax rates. SB 16 imposes an
additional $0.10 per gallon excise tax on gasoline and $0.12 per
gallon on diesel fuel.
II. Vehicle license and registration fee increases. SB 16
incrementally increases the vehicle license fee to a rate of 1%,
over a 5-year period beginning July 1, 2015, with the revenues
above the current 0.65% rate to be deposited in the General Fund
and used for transportation general obligation bond debt
service. Additionally, the bill increases the annual vehicle
registration by $35, and adds a new $100 annual vehicle
registration fee applicable to zero-emission motor vehicles
III. Allocation of revenues. Two cents of the diesel fuel tax
increase, resulting in about $50 million annually, shall be
deposited in the Trade Corridors Improvement Fund. These funds
are allocated by the CTC for infrastructure improvements on
corridors that have a high volume of freight movement. The
remainder of the funds raised by SB 16 are allocated to both
state and local projects. 5% percent is set aside for counties
which pass local sales and use taxes for transportation
purposes, but have not previously passed such taxes. The
remainder is split 50/50 between state and local projects. The
local project funding is allocated pursuant to an existing
statutory formula where 50% goes to cities based on population
and 50% goes to counties based on a combination of the number of
registered vehicles and the miles of county roads. In order to
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receive these funds, the city and county must maintain their
historic commitment to funding street and highway purposes by
annually expending not less than the average of its expenditures
for the 2009-10, 2010-11 and 2011-12 fiscal years. The
California Transportation Commission (CTC) shall annually
evaluate each agency receiving funds to ensure that the funds
are spent appropriately.
SB 16 provides that loans made by the General Fund to the State
Highway Account, the Motor Vehicle Fuel Account, the Highway
Users Tax Account, and the Motor Vehicle Account must be repaid
over three years. The outstanding loan amounts are estimated at
about $1 billion. After the loans are repaid, they will be used
to fund the road maintenance backlog by deposits in the RMRA.
To backfill the loss to the General Fund from the loan
repayments, funds from the Budget Stabilization Account (BSA),
will focus on paying down state debts and unfunded mandates.
The BSA balance at the beginning of FY2015-16 is estimated to be
$1.6 billion.
Additionally, the bill requires Caltrans, by March 1, 2016, to
provide the CTC with a plan to increase the department's
efficiency by 30% over the prior three years. The savings shall
increase the funding for the road maintenance and repair work.
As an urgency measure, SB 16 takes effect immediately and is
repealed by its own terms as of July 1, 2020. The bill makes
legislative findings and declarations to support its purpose.
State Revenue Impact
According to the Board of Equalization, the increase in gasoline
and diesel excise tax revenues is $1.789 billion in 2015-16, and
$1.795 billion in 2016-17. The associated increase in state and
local sales and use tax revenues is $77 million in 2015-16, and
$75 million in 2016-17.
Comments
1. Purpose of the bill. According to the author, "This bill
solves a crisis that threatens our deteriorating streets and
highways. California faces a $59 billion backlog in deferred
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maintenance that will grow by billions every year. The state
transportation system is critical to California's economic
well-being, as it enables us to move goods, people, and ideas
around the state. SB 16 creates a much-needed, temporary
funding plan to address the maintenance backlog of our aging
systems. Under this bill, everyone who uses the roads will
share in paying for the cost of these essential repairs.
SB 16 will provide more resources for the state to repair the
infrastructure under its jurisdiction and it also distributes
billions to the local level. The author notes that the state
has failed to keep pace with repairs due to several factors,
including the diversion of road maintenance revenues for other
uses and the decline of the gas tax revenue.
This bill is the result of four Transportation Committee
hearings that were held across the state that received testimony
from local government officials, transportation experts,
businesses, and the public. The author believes that all agree
that this is a problem that needs to be fixed now."
2. Need for the bill. In his 2015 inaugural address, the
Governor noted that the state faces a $59 billion shortfall over
the next 10 years to adequately maintain the existing state
highway system. Local governments have estimated the funding
shortfall for maintaining existing local streets, highways and
bridges is $78 billion over the same time period. SB 16 is
estimated to increase excise tax revenues by almost $1.8 billion
dollars a year, which will help, but not eliminate the funding
gap that exists. This will cost the average driver driving
12,000 miles per year about $180 per year or $0.50 per day.
3. Floor stock tax. A floor stock tax equalizes the excise tax
paid on those fuel gallons held in inventory by a supplier,
wholesaler or retailer prior to the effective date of a tax
increase and those gallons purchased after the tax increase.
Having a large fuel inventory before a tax rate increase takes
effect can bring about a small windfall to a seller, who can
raise the selling price of the fuel purchased prior to the
increase and attribute the price increase to the tax rate
increase. Since this bill contains a sizeable gasoline and
diesel fuel excise tax increase, a floor stock tax increase
should be considered for both tax laws. However, BOE states a
floor stock tax requires six month's lead time to allow adequate
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time to notice the different parties in the supply chain that
they must pay the one-time lump-sum tax increase on their fuel
inventories. The Committee may wish to consider adding a floor
stock tax.
4. Sales and use tax impact. Existing Sales and Use Tax Law
expressly includes within the definition of "gross receipts" and
"sales price" the amount of any tax imposed by the state under
the MVFTL. Thus, an increase in gasoline tax results in an
increase in sales and use tax revenues. Although the fuel tax
swap provides a state General Fund sales and use tax exemption
on gasoline sales, a statewide base sales and use tax rate of
2.25% that is dedicated to local governments will continue to
apply, as will higher tax rates in certain districts with
voter-approved district tax rates.
5. Double-referral. The Senate Rules Committee ordered a
double-referral of SB 16 to the Senate Committee on
Transportation and Housing, which considered the bills'
transportation funding provisions, and to the Senate Governance
and Finance Committee, which will consider the bills' tax
provision. The Senate Transportation & Housing Committee
considered SB 16 at its hearing on April 29, and approved the
bill on the vote of 6-1.
6. Urgency clause. As an urgency statute, SB 16 must be
approved by 2/3 vote of each house of the Legislature. Regular
legislation takes effect on the January 1 following its passage,
but urgency bills take effect as soon as they're passed, signed,
and chaptered. The Committee may wish to consider delaying the
operative date to give the BOE time to implement the tax
provisions of the bill.
7. Related bills.
SB 321 (Beall) amends the method BOE uses to adjust the
fuel tax swap rates. The bill was approved by the
Committee on April 15, 2015.
SB 433 (Berryhill) would require the Department of
Finance, instead of the BOE, to determine the annual excise
tax rate adjustment for gasoline and diesel fuel under the
"fuel tax swap" provisions. The bill was approved by the
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Committee on April 22, 2015.
Support and
Opposition (4/30/15)
Support : American Society of Civil Engineers; Associated
General Contractors; California Alliance for Jobs; California
Association of Councils of Governments; California Contract
Cities Association; California State Association of Counties;
California Infill Federation; City of Calexico; City of
Cathedral City; City of Brisbane; City of Burbank; City of
Clearlake; City of Downey; City of Gilroy; City of Hanford; City
of Hayward; City of Hercules; City of Hughson; City of
Lafayette; City of Lakeport; City of Los Altos; City of
Livermore; City of Modesto; City of Montclair; City of Morgan
Hill; City of Rancho Cucamonga; City of Rancho Mirage; City of
Sacramento; City of San Jose; City of Santa Ana; City of Santa
Clara; City of Santa Maria; City of Santa Rosa; City of Seaside;
City of Soledad; City of Thousand Oaks; City of Watsonville;
City of Whittier; CTM Construction; DeSilva Gates Construction;
Granite Construction; League of California Cities; LIUNA Locals
777 & 792; Northern California Carpenters Regional Council;
Santa Clara County Board of Supervisors; Town of Danville;
Transportation California; United Contractors.
Opposition : Association of California Car Clubs; Howard Jarvis
Tax Payers Association.
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