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 --