BILL ANALYSIS Ó SENATE COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE DEVELOPMENT Senator Jim Beall, Chair 2015 - 2016 First Extraordinary Bill No: SBX1 7 Hearing Date: 9/1/2015 ----------------------------------------------------------------- |Author: |Allen | |----------+------------------------------------------------------| |Version: |7/16/2015 Vote: | | | 2/3 Required | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |Yes |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant|Erin Riches | |: | | ----------------------------------------------------------------- SUBJECT: Diesel sales and use tax: State Transit Assistance (Tax Levy) DIGEST: This bill increases the sales and use tax on diesel fuel and dedicates the increase to transit. ANALYSIS: Existing law establishes the State Transit Assistance Program (STA), which provides funding to local transit agencies to help support operations and capital costs. STA funding comprises only about 3% of overall transit funding, with the remainder coming from local sources (passenger fares and local sales taxes), federal funds, and Local Transportation Fund monies (derived from a cent of the general sales tax collected statewide). In 2010, the "gas tax swap" eliminated the sales tax on gasoline, 20% of which had been dedicated to transit, and replaced it with an increase in the gasoline excise tax designed to generate an equivalent amount of revenue. To partially make up for the loss in transit funding, the gas tax swap legislation also provided for a revenue-neutral swap of (increased) sales tax on diesel and (reduced) diesel excise tax in order to increase Public Transportation Account (PTA) funds available for transit operations funding. SBX1 7 (Allen) Page 2 of ? Today, STA funding is generated primarily from the sales tax on diesel fuel, currently set at 9.25%. Of this amount, 4.75% is dedicated to the PTA, with half of these revenues being directed to Caltrans for intercity rail and administration and half flowing to the STA program. In 2011, to bolster transit funding, the Legislature enacted an incremental increase for the sales tax on diesel, with the ongoing rate of 1.75% going into effect in 2014-15. (The remaining 2.75% of the diesel fuel sales tax is directed to the General Fund for other purposes, such as debt service and local public safety programs.) Thus, STA currently receives 4.125% of diesel fuel sales tax revenues: 2.38% (half of the PTA portion) plus 1.75% that goes directly to STA. STA funding is allocated to local transit operators based on a statutory formula, with half the funds allocated based on population and half allocated based on local revenue support, including farebox revenue and local sales tax measures. This bill increases the portion of the diesel fuel sales tax that is dedicated to STA from 1.75% to 5.25%, effective July 1, 2016. By increasing this portion, this bill increases the overall diesel fuel sales tax from 9.25% to 12.75%. COMMENTS: 1)Purpose. The author states that STA funding has not kept pace with the projections established by the Legislature and Administration just five years ago, much less the funding levels necessary for maintenance, rehabilitation, and expansion of the state's public transit service network. STA funding is declining due to the price of oil, which is much lower than when the gas tax swap was enacted by the Legislature; consumption has not increased sufficiently to make up the difference. Further, a 2013 study of California's unmet transit needs by CH2M HILL found that for both operating and capital funding, projected need outstrips expected revenue. In fact, over the next 10 years, the funding gap will exceed $70 billion. The study predicts that "Under such constrained scenarios the conditions of existing assets will decline over time as reinvestment actions fall outside of agency budgets. In addition, if not met, the service expansion needs will begin to erode the reliability and performance of existing SBX1 7 (Allen) Page 3 of ? services." This bill would triple the incremental sales tax rate on diesel fuel in order to direct roughly $298 million in additional funding to the STA program. The author states that this funding will help local transit operators meet critical funding needs which, in turn, will assist the state in meeting important policy goals such as reducing greenhouse gas emissions, reducing petroleum consumption, reducing vehicle miles traveled, and directing benefits to disadvantaged communities. 2)Running the numbers. Of the current 9.25% sales and use tax on diesel fuel, nearly half (4.125%) goes to STA. Under this bill, STA would receive more than half (7.63%) of diesel fuel sales tax revenues: 2.38% (half of the PTA portion) plus the 5.25% that goes directly to STA. Thus, this bill not only increases the dollar amount going to transit, but also the share of diesel fuel sales tax revenues going to transit. 3)Where will the money go? Because the original version of this bill simply directed revenues from the diesel sales tax increase to the PTA, the monies could conceivably have funded nothing but salary increases at transit agencies. Such an action would seem to violate the intent of the First Extraordinary Session, which aims to: provide funding for maintenance and repair of infrastructure; improve the state's key trade corridors; complement local efforts for repair and improvements of local transportation infrastructure; establish clear performance objectives measured by the percentage of pavement, bridges, and culverts in good condition; and incorporate project development efficiencies to expedite project delivery or reduce project costs. To address this concern, the committee may wish to consider amendments to ensure that revenues generated pursuant to this bill are spent on maintenance, repair, or service improvements. The committee may further wish to consider including reporting and tracking requirements, to help ensure the money is spent as directed. Related Legislation: SBX1 1 (Beall) - would increase several taxes and fees to raise roughly $4.3 billion in new transportation revenues annually, with the funding used to address deferred maintenance on state SBX1 7 (Allen) Page 4 of ? highways and local streets and roads and to improve the state's trade corridors. SBX1 1 passed out of this committee on August 19, 2015, and is pending hearing in the First Extraordinary Session Senate Appropriations Committee. ABX1 8 (Chiu and Bloom) - is identical to this bill. ABX1 8 is pending committee assignment in the Assembly Rules Committee. FISCAL EFFECT: Appropriation: Yes Fiscal Com.: Yes Local: No POSITIONS: (Communicated to the committee before noon on Thursday, August 27, 2015.) SUPPORT: California Transit Association (sponsor) Metropolitan Transportation Commission Monterey Salinas Transit Peninsula Corridor Joint Powers Board Sacramento Regional Transit San Francisco Mayor Edwin M. Lee San Mateo County Transit District San Mateo County Transportation Authority Santa Cruz Metropolitan Transit District Solano County Transit OPPOSITION: None received -- END --