Advertise Here

Deliver your message to thousands of readers every day.

Our readers are influential opinion makers - politicians, journalists and activists.

Our latest headlines

Why the States Belong in the Stimulus Package
A Clear and Present Danger: A Californian Finds Gaps in Consumer Communication from Financial Institutions
California Wildfires and the Urgency of Combating Climate Change
California Education Cuts in the Year After the “Year of Education”
A Breeze of Fresh Air from Washington D.C. To California? Waxman and Dingell Battle Today--Reactions to Obama's Climate Remarks—Schwarzenegger Calls Them “Fantastic”
Stronger Renewable Energy Goals For California: Schwarzenegger’s Executive Order and Where We Go From Here
Dear Speaker Pelosi, Can California Have $25 Billion?

About Us

The California Progress Report is published by Frank D. Russo, a longtime observer of and participant in California politics.

About Frank Russo.
About California Progress Report.

Got a news tip? Want to write a guest column? Contact Frank here.

Books

California Budget Loot That Won't Stay Stolen: Transportation Money and Prop 42

By Mark Paul
Senior Scholar
New America Foundation

One of the prime uses of the California initiative process is budget theft: a special interest, unhappy with its cut of state spending, passes a ballot measure to increase or fence off its budget. But sometimes the loot doesn’t stay stolen.

Just ask the road lobby. Alarmed by reports that Republican legislators want to grab dollars from transportation accounts to paper over the state’s budget deficit, it has launched a radio ad campaign to defend its booty.

The loot at issue is the portion of the state’s sales tax revenue derived from the sale of gasoline.
Until this decade, the state, for tax purposes, treated gasoline like any other purchased good. California levied the normal state sales tax on sales at the gas pump and put the money into the general fund, along with the revenue from sales of surfboards, Steely Dan records, and other goods. This money helped pay for schools, health care, and prisons. (The sales tax should not be confused with the separate 18-cents-a-gallon state excise tax on motor fuels, a levy on road users exclusively dedicated to fund road maintenance and improvement.)

But as the new century rolled around, the road lobby had a problem. The revenue from the gasoline excise tax, last increased in 1994, was being eaten away by inflation and more fuel-efficient cars. The inflation-adjusted gas tax revenue per mile driven fell by about 20 percent even as the number of cars and miles driven increased by about 20 percent. California no longer had enough gas tax money coming in to maintain and improve roads.

There was, of course, a tried-and-true solution available for this problem: raise the fuel excise tax on road users and index it to inflation. User-pay has been the central road financing mechanism for the better part of a century. But telling voters that they must pay for driving is against the California way –– remember, Californians drive on freeways, not highways. And with the Internet boom at its peak, California was rolling in revenue.

So the road lobby stole some of that money, fair and square. In March 2002 it convinced voters to pass Proposition 42, shifting the state sales tax on gasoline purchases out of the General Fund and earmarking it for transportation.

But like the tax cuts California enacted during the dot-com stock bubble, the road lobby’s raid was built on an illusion. Once the hot Internet money evaporated, the raid threatened to add another $1.4 billion to the state’s growing budget gap. To prevent that, the Legislature and Governor stole the money right back, suspending Proposition 42.

Not for long. In November 2006 the road lobby got voters to pass Proposition 1A, which limits how often the sales tax shift can be suspended and requires any suspension to be treated as a loan, to be paid back to transportation accounts, with interest, on an accelerated schedule.

Where’s the high moral ground in this budget border war of raid and counter-raid? Both sides have plausible claims. California is in no fiscal shape to shift general fund revenues away from schools, colleges, and health care. But it has also failed to adequately fund transportation. (For the moment, let’s give the road lobby a pass on the Loony Tunes nature of earmarking the sales tax, a general tax on consumption, according to the kind of goods being purchased. Other than to ask, What’s next? Dedicate the sales taxes collected on condoms and Victoria’s Secret lingerie to family planning services?)

What’s indefensible is having a two-track budgeting system: a main legislative track where budgeting is a matter of priorities and trade-offs; a second ballot-box budgeting track where voters decide every question in isolation, without the discipline of having to make the needed trade-offs for what they want. It is hard to see how California can ever escape budget hell unless it changes the initiative process to require every measure submitted to the voters to include its own funding source.

Mark Paul, senior scholar at the New America Foundation, was formerly deputy treasurer of California and deputy editorial page editor of the Sacramento Bee. This article was originally published in New America Voices, and is republished with their permission.

Posted on July 26, 2008

Comments

Get Email Updates

Want the California Progress Report by email? Once a week, we'll send you the latest and greatest headlines.

Stat tracker