Proposition 1A - State Gas Tax Changes

What it does

This state Constitutional amendment embodied in Proposition 1A, (the "Transportation Investment Fund "), would: a) prohibit the Legislature and governor from using gas sales-tax revenues for any purpose other than transportation or transit improvements, b) authorize "loans" only in the case of severe state fiscal hardship, c) within three years require loan repayment with interest to the TIF, and d) require repayment to the TIF the $2.5 billion diverted to non-transportation programs over the past several years.

Three years ago, California voters overwhelmingly approved Proposition 42 dedicating the existing state sales-tax on gasoline for transportation and transit projects. The proposition contained a provision that allowed the Legislature and governor to divert funds to non-transportation expenses during fiscal emergencies. During the state's recent fiscal crisis, about $2.5 billion was diverted from transportation projects. Proposition 1A seeks to close this loophole and prohibit the diversion of gas-tax funds.

Prop. 1A requires a simple majority vote for passage.

Why it is on the ballot

Historically, a substantial portion of gas-tax revenues was used for general purposes such as health, social services and local government support. Only a small portion of the revenues was used for transportation and transportation programs. This has led to a decline in the quality of our transportation infrastructure as we fail to keep up with increased vehicular movement and population growth.

In 2000, the Transportation Congestion Relief Program was enacted. It earmarked gas-tax revenues from fiscal years 2003-04 through 2007-08 for state and local transportation and transit programs. Thereafter, the funds would have been available for general purposes.

But that provision was not quite enough. Faced with increased deterioration in state and local transportation and transit systems, and increased congestion, voters decided that gas-taxes are a "user fee" reserved for transportation and public transit programs, not utilized for general government purposes. In November 2002, nearly 70 percent of California voters approved Prop. 42, earmarking state gas-tax revenues for state and local transportation and public transit programs. Funds from Prop. 42 would flow into a Transportation Investment Fund. The earmarking of gas-tax funds was intended to be permanent, rather than just for a specified number of years, as the previous measure had been. Under Prop. 42, starting in 2008-09, about $1.4 billion in gasoline sales-tax revenues, would continue to be used for state and local transportation projects. This amount would increase annually thereafter.

Prop. 42 had a provision to allow the governor and Legislature to redirect gas-tax TIF revenues to non-transportation programs in a fiscal crisis, without any guarantee of TIF repayment. This opt-out required a two-thirds vote of the Legislature to modify or suspend the amount dedicated to transportation. On two occasions, the state has not fully funded the TIF - in 2003-04 there was a partial suspension and in 2004/5 there was a complete suspension of the transfer payments. Under existing law, these suspended amounts would have to be repaid, with interest, by 2008-09.

In January 2006, Governor Arnold Schwarzenegger proposed a Strategic Growth Plan for California's Future. One element of the plan was the permanent protection of Prop. 42 gas-tax revenues for transportation and transit programs. A second element was limiting the diversion of TIF revenues to non-transportation programs in a future fiscal crisis. These two elements are now included in Prop. 1A.

Pros

Those who support Prop. 1A state:

• Prop. 42 was a good first step but still made it too easy for politicians to divert the TIF funds to non-transportation programs, thereby exacerbating the condition of streets and highways and mass transit. This was because the limitation on TIF transfers to the General Fund was too weak and because there was no guarantee that the funds would be repaid to the TIF. For example, during the state's recent fiscal crisis, the governor and Legislature used Prop. 42 as a way to divert $2.5 billion in TIF revenues to general government programs.
• California has a massive infrastructure deficit. In particular, the state has under-invested in transportation. The state needs to spend significantly more on all modes of transportation. This measure further limits the state's ability to dip into our limited transportation funds.
• It is too tempting for elected officials to spend money on labor-intensive uses instead of capital-intensive uses because of the pressures of interest-group politics - the votes and dollars represented by the labor-intensive uses. Therefore, it is likely that the elected officials will never have the ability to spend sufficiently on infrastructure, including transportation. "Locking in" the gas-tax is the only way.
• The gas-tax is the most economically efficient way to pay for transportation because it functions both as a user fee and as a small way to internalize the externalized costs of driving. Dedicating that money to transportation helps make the link between driving and other impacts. Were the tax to be increased, this would ensure that the state uses additional funds on projects that continue to improve the transportation infrastructure.
• Prop. 1A still provides some level of flexibility to help the state in severe fiscal emergencies. These provisions will protect funding for schools, social services and other state programs but will require a proclamation from the governor declaring the state's fiscal emergency.

Cons

Those who oppose Prop. 1A state:

• State program priorities change. It is wrong to lock spending priorities into the constitution. During a future fiscal crisis there is likely to be increased pressure on social services, education and other programs to bear the cost of resolving the fiscal emergency. We should allow our elected officials to do their jobs in setting budgetary priorities rather than hamstring them with these kinds of permanent rules.
• Dedicating the gas-tax to transportation funding alone is inappropriate because the externalities of driving cover far more than transportation costs such as road repair. For example, for every gallon of gasoline consumed by an automobile, the state spends uncalculated amounts on programs such as air-pollution control, emergency services (such as fire, police medical services), and asthma medication for children. These externalities from driving are funded from the general fund. If we restrict the use of the gas-taxes to transportation projects, we are not fully capturing the externalities from driving.

SPUR's analysis

Prop. 1A limits the diversion of the TIF during a fiscal crisis by requiring that the governor proclaim a severe fiscal emergency. The Legislature then must approve a TIF transfer with a two-thirds vote. TIF funds transfers to the state General Fund are to be treated as "loan"; to be fully repaid with interest within three years. The measure prohibits TIF transfers more than twice during any period of 10 consecutive years. No TIF transfers may occur until loan repayment has been fully completed. Further, Prop. 1A requires the repayment of the $2.5 billion the state borrowed from the TIF in previous years. This $2.5 billion is already part of the governor's budget.

The TIF is apportioned using state allocation formulas: 40 percent to highway capital projects including repairs, reconstruction, traffic safety and congestion relief; 20 percent to mass-transit expansion and capital improvements; and 40 percent to local streets, and highway maintenance and construction. The allocation formula may be changed by a two-thirds vote of the Legislature.

Although this measure will reduce the ability of the Legislature to deal with problems as they arise, we believe that the over-riding imperative is to spend more heavily on infrastructure.

SPUR recommends a "Yes" vote on Proposition 1A.