BILL ANALYSIS
SB 11 X1
Page 1
( Without Reference to File )
SENATE THIRD READING
SB 11 X1 (Ducheny)
As Amended December 18, 2008
Majority vote
SENATE VOTE :Vote not relevant
SUMMARY : Enacts new motor vehicle fuel fees in order to finance
state and local transportation projects. Specifically, this
bill :
1)Enacts a 39 cents-per-gallon gasoline fee, effective April 1,
2009.
2)Enacts a 31 cents-per-gallon diesel fuel fee, effective April
1, 2009.
3)Indexes the fees to inflation.
4)Allocates the resulting fee revenue in the following manner:
a) 33% of total fee revenues to cities and counties ($2.3
billion total, or $640 million above the current funding
level). This allocation relies on current statutory
methodology plus the current Proposition 42 methodology for
any excess needed to achieve the 33-percent level;
b) 45% to the State Highway Account (SHA) (about $3.1
billion total, or about $400 million above current SHA
revenues). Of this amount, 20% would be reserved for State
Transportation Improvement Program (STIP) - which is
similar to the current funding level from the Proposition
42 allocation; and,
c) 22% to the new Transportation Funding Stabilization
Account (TFSA) (about $1.5 billion total, which is all net
new revenue for State transportation). Future legislation
will allocate funds in the TFSA.
FISCAL EFFECT :
1)Total revenue raised by the new fee would be about $6.9
SB 11 X1
Page 2
billion - approximately $4.7 billion for the State and $2.3
billion for local transportation.
2)Relative to current-law revenue and current fuel prices, the
new fees would result in a net gain of about $1.9 billion for
state transportation projects and a net gain of about $640
million for local transportation projects.
3)Revenue to the Public Transportation Account would be reduced
by about $345 million. However, the retention of the sales tax
on diesel fuel will provide an ongoing source of funding
available for transit operations.
COMMENTS :
1)The motor vehicle fuel excise tax was first imposed on October
1, 1923 at a rate of 2 cents per gallon. The excise tax is
allocated by statutory formula to the State and to local
governments. The tax was increased five times over the next 60
years, and was set at 9 cents per gallon on January 1, 1983.
In the early 1990s the tax was increased in increments over
several years, until it was set at the current level of 18
cents per gallon on January 1, 1994. The Legislative Analyst
evaluated the erosion in the purchasing power of the excise
tax in Analysis of the 2008-09 Budget Bill and found that
based on the Producer Price Index for Highway and Street
Construction, the 18 cent gas tax implemented in 1994 is worth
11 cents in purchasing-power today.
2)California levies a sales and use tax on transactions
involving tangible personal property. The sales tax was
broadened to include gasoline in 1972. Chapter 1400, Statutes
of 1971, relinquished 0.25 cent of the State's then 4.0 cent
sales tax to local governments to fund transportation
development (primarily mass transit). To hold the State
harmless, the tax base was broadened to include gasoline. The
legislation further provided a mechanism to assure that the
General Fund would not benefit as a result of the broadened
tax base. This "spillover" formula transfers any net General
Fund revenue gain to the Public Transportation Account. In
most years, there was no "spillover" transfer, and all of the
SB 11 X1
Page 3
revenue from the sales tax on gasoline went to the General
Fund. When the excise tax was increased in the early 1990s by
Proposition 111, the sales tax derived from the 9 cent per
gallon excise tax increase was directed to the Public
Transportation Account. Chapter 91, Statutes of 2000, created
the six-year Traffic Congestion Relief Program which
transferred all the non-spillover, non-Prop 111, gasoline
sales tax from the General Fund to transportation accounts.
At that time, the General Fund cost was about $1.1 billion
annually. The budget shortfall in 2001-02 and 2002-03
resulted in the suspension of the Traffic Congestion Relief
Program in those two years.
3)Proposition 42, approved by voters in 2002, was part of the
package developed when the Traffic Congestion Relief Program
was suspended in 2001-02 and 2002-03. Proposition 42 made the
transfer of gasoline sales tax to transportation permanent,
but also included a constitutional provision that would allow
suspension of the transfer. Full or partial Proposition 42
suspensions occurred in 2003-04 and 2004-05, but the full
transfer has occurred in all years since. In 2008-09,
Proposition 42 revenue is approximately $1.4 billion.
4)Proposition 1A, approved by voters in 2006, strengthened the
Proposition 42 constitutional provisions by requiring full
repayment of the 2003-04 and 2004-05 suspensions, and by
limiting future suspensions to two times every 10 years and
requiring repayment within three years.
5)The new fees on gasoline and diesel fuel are set to a level
that compensates for the lost purchasing power that has
occurred since the excise taxes were last raised in 1994.
Going forward, the new fees would be indexed for inflation
with adjustments in every third year. Another bill in the
current special session eliminates the base excise taxes and
sales taxes.
6)This bill would increase the stability of transportation
funding. In the past six budgets, Proposition 42 has been
suspended two times. Additionally, spillover revenue has been
diverted for General Fund relief in most recent years. In
contrast, the base excise tax revenue has been relatively
stable and predictable from year to year. As stated above,
the fee revenue would only be available for purposes
SB 11 X1
Page 4
consistent with requirements under law for a user fee of this
nature.
7)Separate pending legislation (AB 2 X1) would eliminate the
current 18 cents-per-gallon gasoline and diesel excise taxes
and the state general sales tax on gasoline effective April 1,
2009 (but retains the sales tax on diesel fuel).
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081
Dan Rabovsky / BUDGET / (916) 319-2099
Adam Dondro / BUDGET / (916) 319-2099
FN: 0000059