Schwarzenegger plan for gasoline taxes slammed as 'bait and switch'

Sacramento Bee

January 14, 2010

By Tony Bizjak

California drivers could save a dollar and change each visit to the gas pump under a tax swap proposed by Gov. Arnold Schwarzenegger.

In an effort to free up money to balance the state budget, the governor wants to reduce the sales tax motorists pay on gas purchases while increasing the gas excise tax, also paid at the pump.

The net result, state finance officials estimate, would be a 5-cent savings for consumers per gallon of gas in the next year. A Bee calculation based on this week's $3-per-gallon average in California puts the savings at 7 cents a gallon.

The complex proposal – in the governor's 2010-2011 budget plan – is drawing sharp opposition from transit advocates, and scrutiny from public school officials – both of whom will take a financial hit.

The change, if approved by legislators, starts in July. The temporary savings for consumers would then run through July 2011.

Administration officials say the switch would help California close a $19.9 billion budget gap by nullifying laws that reserve most of the gas-pump sales tax for transit agencies.

That would free up anywhere from a few hundred million dollars to more than a billion dollars for the state general fund. The total amount is disputed by the administration and transit officials.

State finance spokesman H.D. Palmer said the plan has the added benefit of saving motorists nearly $1 billion at the pump in the coming year.

"That's one of the pleasant aspects," Palmer said.

Longer-term, however, the governor's plan calls for increasing the gas excise tax annually for the next 10 years from its current 18 cents to 34 cents per gallon by 2020.

Transit officials, meanwhile, are livid. They're calling it a "bait and switch" move to avoid making good on voter-approved funding for local bus service and rail service.

Elimination of transit funding would further hamstring bus and light-rail providers, including Sacramento's Regional Transit, when services are needed most, transit advocates say.

"Apparently, when you have the power to get laws changed, you don't have any obligation to follow the ones already on the books," said Josh Shaw, head of the California Transit Association.

State Assembly Transportation Committee chair Mike Eng, D-Monterey Park, called the tax switch "voodoo economics."

School advocates also are troubled. The tax swap would allow the Legislature to reduce funding to public schools this year by $800 million, the Legislative Analyst's Office noted.

That represents a 1.6 percent reduction of Proposition 98-mandated school funding.

The Howard Jarvis Taxpayers Association declined comment on the plan, saying the group needs to study its long-term implications.

The issue will trigger intense legislative debate, said Sen. Bob Huff, R-Diamond Bar, vice chairman of the Senate transportation and education committees.

"There is going to be a lot of push and pull before we get around to adopting something," Huff said.

Schwarzenegger's complicated proposal involves two taxes that motorists now pay at the pump. One, the state's long-standing 6 percent sales tax, would be eliminated.

With gas at $3 a gallon in California, that would give drivers an 18-cent sales tax savings per gallon. Then, to partially compensate for the revenue loss, the governor proposes increasing the other pump tax – the excise tax – by 10.8 cents per gallon this year.

That takes it from its current 18 cents to 28.8 cents per gallon this year.

The net gain to drivers is 7 cents a gallon – for now. The excise tax is slated, under this plan, to rise eventually to 34 cents per gallon, potentially negating consumer savings.

The governor's tax move is the latest in a several-year legal battle between the state and transit agencies over control of gas pump tax revenues in tough economic times.

The California Transit Association won the last round in September, when the Supreme Court declined to hear the governor's challenge of a lower court ruling that the state was illegally siphoning transit funds to balance the state budget.

Administration spokesman Palmer said the governor's tax proposal "is an effort to achieve the same goals we sought last year in transportation funding."

Administration officials say they believe gas price increases have caused consumers to spend more of their money at the pump, leaving less for spending on other goods whose sales taxes go to the general fund.

Transit officials, with the League of California Cities and the California Alliance for Jobs, already have launched a counterattack – a petition drive for the November ballot protecting transit funds, redevelopment funds and other local revenues from the state.

The measure is called the "Local Taxpayer, Public Safety and Transportation Protection Act of 2010."

"We are saying in one common voice, enough is enough," Sacramento Mayor Kevin Johnson said Tuesday at a briefing announcing the petition drive.