BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 321 |Hearing |4/15/15 |
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|Author: |Beall |Tax Levy: |No |
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|Version: |3/26/15 |Fiscal: |Yes |
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|Consultant|Bouaziz |
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MOTOR VEHICLE FUEL TAXES: RATES: ADJUSTMENTS
Changes the methodology used to determine the fuel tax rates.
Background and Existing Law
In 2010, the Legislature enacted two "fuel tax swap" measures
that changed the imposition and rates of state taxes on gasoline
and diesel fuel, and require the Board of Equalization (BOE) to
annually determine the appropriate excise tax rate adjustments
to maintain revenue neutrality (ABx8 6, Assembly Committee on
Budget, 2010) and (SB 70, Senate Committee on Budget and Fiscal
Review). The gasoline tax changes became operative on July 1,
2010, and the diesel fuel tax changes on July 1, 2011.
The fuel tax swap was partly enacted, to allow the use of
additional existing transportation revenue for highway purposes,
including General Obligation bond debt service, where that debt
service was related to transportation projects.
The swap bills exempted sales and purchases of gasoline from the
state sales and use tax rate. To offset the revenue loss
related to this partial exemption, the law increased the
gasoline excise tax rate from $0.18 per gallon to $0.353 per
gallon. Conversely, the measure reduced the diesel fuel excise
tax rate from $0.18 to $0.13 per gallon, but increased the sales
and use tax rate on diesel fuel sales to offset the loss related
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from the reduction, resulting in the following rates:
1.87%, effective July 1, 2011,
2.17%, effective July 1, 2012,
1.94%, effective July 1, 2013,
1.75%, effective July 1, 2014, and thereafter.
The fuel tax swap provisions require BOE to maintain revenue
neutrality, so that the revenues derived from the increased
gasoline excise tax and the increased diesel sales and use tax
equals the revenues that would have been derived had the
gasoline sales and use tax partial exemption and the diesel fuel
excise tax reduction, respectively, not occurred.
To maintain revenue neutrality, state law requires BOE to
annually adjust the gasoline and diesel fuel excise tax rates
either upward or downward. For gasoline, the BOE determines:
(1) whether the sales and use tax revenue loss related to the
partial exemption was fully offset by the adjusted rate, and (2)
the projected sales and use tax revenue loss for the next fiscal
year, considering forecasted gasoline prices and consumption.
For diesel fuel, the BOE determines: (1) whether the revenue
gain from the increased sales and use tax rate on diesel fuel
sales and purchases was fully offset by the adjusted diesel fuel
excise tax rate, and (2) the projected sales and use tax revenue
gain for the next fiscal year, considering forecasted diesel
fuel prices and consumption. By March 1 each year, the BOE must
determine the rate adjustments and the adjusted rate applies on
the following July 1.
Proposed Law
Senate Bill 321 amends the method BOE uses to adjust the excise
tax on fuel. Specifically, AB 321 does the following:
For Fiscal Year (FY) 2015-16, requires BOE to adjust the
excise tax rate based on a five-year average that relies on
fuel price data, from the immediately preceding four years
and estimated fuel prices for the current fiscal year, to
generate a forecasted fuel price that is weighted primarily
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by known fuel price data. That adjusted rate must be
determined by July 1, 2015, and that rate would be
effective for 2015-16.
Beginning 2016-17, BOE would follow the same estimate
methodology as above, but the rate would be adjusted by
March 1 of the fiscal year immediately preceding the
applicable fiscal year.
For true-up rate adjustments made after January 1, 2015,
BOE can make partial adjustments over a three-year period,
to take into account the net revenue gain or loss of any
fiscal year in order to reduce potential revenue
volatility.
If changes in either fuel prices or consumption in the
state occur, the BOE may adjust the rate before March 1,
but not sooner than six months between the intervening
adjustments.
This bill contains an urgency clause, and becomes effective
immediately.
State Revenue Impact
None.
Comments
1. Purpose of the bill. According to the author, "The Board of
Equalization (BOE) annually adjusts the price-based portion of
the excise tax on gasoline in order to collect roughly the same
amount of revenue, as the state would have collected if it still
charged a sales tax on gasoline. Difficulty in forecasting gas
prices inevitably results in either over- or under-collecting
revenue and future adjustments must reconcile this discrepancy.
The reconciling adjustment, or "true up," leads to volatility
from year to year. Uncertainty, in future revenue puts a
significant strain on state and local governments when preparing
their multiyear transportation budgets. SB 321 makes changes to
the administrative process, for setting the price-based excise
tax in order to give BOE the tools necessary to reduce the
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overall volatility of this revenue."
2. Reduction in volatility. SB 321 attempts to reduce the
volatility of revenues received by local governments. The fuel
price component has the biggest impact on the fuel excise tax
calculation. The current methodology for forecasting the fuel
price component is problematic because, it does not take into
account historical data using only projections. This bill would
use 4 years of historical data, which is expected to result in a
reduction of wide excise tax rate swings, and make
transportation budgeting less difficult for local governments.
Additionally, when there is a wide excise tax rate swing, the
bill allows the swing to be paid over a three year period,
reducing its impact.
3. Related legislation. 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.
4. Urgency clause. 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
California Constitution allows urgency statutes that are
"necessary for immediate preservation of the public peace,
health, or safety." SB 321 contains an urgency clause
explaining the need for the bill to take effect immediately.
Support and
Opposition (4/9/15)
Support : California State Association of Counties; California
Transportation Commission; City of San Jose; League of
California Cities; Rural County Representatives of California;
San Bernardino Associated Governments (SANDAG); Urban Counties
Caucus.
Opposition : Unknown.
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