BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                        SB 433|
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                                   THIRD READING 


          Bill No:  SB 433
          Author:   Berryhill (R)
          Amended:  4/6/15  
          Vote:     21  

           SENATE GOVERNANCE & FIN. COMMITTEE:  6-0, 4/22/15
           AYES:  Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach
           NO VOTE RECORDED:  Pavley

          SENATE APPROPRIATIONS COMMITTEE:  Senate Rule 28.8
           
           SUBJECT:   Motor vehicle fuel taxes:  diesel fuel taxes:   
                     rates:  adjustments


          SOURCE:    Author


          DIGEST:  This bill requires the Department of Finance (DOF),  
          instead of the Board of Equalization (BOE), to determine the  
          annual the fuel tax swap rates.


          ANALYSIS:   


          Existing law:


          1)Requires BOE to annually adjust the gasoline and diesel fuel  
            excise tax rates either upward or downward.  For gasoline, the  
            BOE determines: (a) whether the sales and use tax revenue loss  
            related to the partial exemption was fully offset by the  








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                                                                    Page  2


            adjusted rate, and (b) the projected sales and use tax revenue  
            loss for the next fiscal year, considering forecasted gasoline  
            prices and consumption.  For diesel fuel, BOE determines: (a)  
            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 (b) 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, BOE must determine the  
            rate adjustments, and the adjusted rate applies on the  
            following July 1.

          2)Requires 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.  

          3)Requires BOE Members approve these rates annually in a public  
            meeting.


          This bill:


          1)Requires DOF beginning on March 1, 2016, and every March 1  
            going forward, to annually calculate and adjust the gasoline  
            and diesel tax rates.  


          2)Requires DOF to notify BOE of the calculated rates by March  
            10, 2016, and each March 10 thereafter.


          3)Becomes effective January 1, 2016.


          Background


          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 BOE to annually determine the  







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          appropriate excise tax rate adjustments to maintain revenue  
          neutrality (ABX8-6, Assembly Committee on Budget, Chapter 11,  
          Eighth Extraordinary Session) and (SB 70, Senate Committee on  
          Budget and Fiscal Review, Chapter 9).  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 bills 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  
          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.

          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   No


          SUPPORT:   (Verified5/5/15)


          Board of Equalization


          OPPOSITION:   (Verified5/5/15)


          None received








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          ARGUMENTS IN SUPPORT:     According to the author, "The  
          determination of the gasoline and diesel fuel excise tax rate is  
          a ministerial function that the Department of Finance (DOF)  
          already calculates in the Governor's yearly budget.  The Board  
          of Equalization (BOE) staff simply calculate a 'true-up' of the  
          DOF calculation to set the tax rate.  Because the fuel tax rate  
          is voted on by elected officials from different parties in a  
          public hearing, the issue is often politicized.  Additionally,  
          the BOE is an agency that collects taxes and performs tax  
          audits.  The agency was not designed to forecast prices on goods  
          like gasoline.  SB 433 will shift the responsibility of setting  
          the gasoline and diesel fuel excise tax rate to the DOF  
          beginning in the 2016-17 fiscal year.  The Department already  
          performs these calculations, so no additional responsibility  
          would be given to the DOF.  SB 433 will make this process less  
          political and help reduce redundancy in state government."


          Prepared by:Myriam Bouaziz / GOV. & F. / (916) 651-4119
          5/6/15 16:49:46


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