BILL ANALYSIS                                                                                                                                                                                                    

                                                                     AB 227

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          Date of Hearing:   April 13, 2015


                                 Jim Frazier, Chair

          AB 227  
          (Alejo) - As Introduced February 3, 2015

          SUBJECT:  Transportation funding

          SUMMARY:  Repeals provisions related to the gas tax swap that  
          direct weight fee revenue to be transferred from the State  
          Highway Account (SHA) to the General Fund to pay debt service on  
          transportation bonds; extends the sunset date on provisions that  
          authorize public-private partnership (P3) agreements for  
          transportation projects.  Specifically, this bill:  

          1)Requires, by December 31, 2018, the repayment of loans  
            previously made to the General Fund from ten specified  
            transportation-related accounts.

          2)Repeals provisions that provide for the transfer of weight fee  
            revenue to the Transportation Debt Service Fund for the  
            purpose of directly paying debt service on certain  
            transportation bonds.

          3)Repeals provisions that designate all transportation loan  
            repayments as weight fee revenue and direct the repaid funds  
            to be transferred to the Transportation Debt Service Fund.


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          4)Extends the sunset date, to an unspecified date, on provisions  
            that authorize P3 agreements for transportation projects.   
            Note: The author has indicated that he intends to take  
            amendments in committee to strike provisions of AB 227 related  
            to P3 agreements.  Consequently, those provisions will not be  
            discussed further in this analysis.

          5)Strikes provisions that transfer miscellaneous revenue [for  
            example, from the sale of documents by the California  
            Department of Transportation (Caltrans), miscellaneous  
            services to the public, and rental of state property] from the  
            SHA to the Transportation Debt Service Fund.

          6)Repeals provisions that direct revenue from the price-based  
            gas tax to be used to backfill the State Highway Account for  
            weight fee revenue that is diverted for debt service on  
            transportation bonds.  

          EXISTING LAW:  

          1)Imposes weight fees on commercial trucks and directs the  
            revenue to be deposited into the SHA and then transferred to  
            the Transportation Debt Service Fund and the Transportation  
            Bond Direct Payment Account to pay for debt service on  
            transportation bonds.  


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          2)Imposes an excise tax on gasoline, comprised of two parts:

             a)   A price-based excise tax the rate of which is calculated  
               to generate revenue equal to what would have been generated  
               had sales and use tax been collected on gasoline.  The  
               current rate is 18[ per gallon until July 1, 2015, when it  
               will drop to 12[ per gallon; and,

             b)   The traditional excise tax of 18[ per gallon.  

          3)Directs revenue from the price-based excise tax to be used  
            first to backfill the SHA for weight fees that are diverted  
            for debt service and directs the remaining revenue to be used  
            as follows:

             a)   44% for local streets and roads;

             b)   44% for transportation construction projects identified  
               in the State Transportation Improvement Program (STIP);  

             c)   12% for highway maintenance and operations projects, as  
               identified in the State Highway Operations and Protections  
               Program (SHOPP).  

          4)Until January 1, 2017, grants Caltrans and regional  
            transportation agencies authority to enter into P3 agreements.  

          FISCAL EFFECT:  Weight fees generate nearly $1 billion annually.  
           Under this bill, this money would be directed to transportation  
          uses rather than to the General Fund to pay for transportation  
          bond debt service.  Additional provisions that require loans  
          from the General Fund be repaid to transportation accounts could  
          result in additional revenue for transportation.

          COMMENTS:  The use of weight fees to pay for debt service is  
          part of a larger budgetary and statutory arrangement referred to  


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          as the "gas tax swap."  ABX8 6 (Committee on Budget), Chapter  
          11, Statutes of 2010, enacted the original gas tax swap.  That  
          bill eliminated the sales tax on gasoline and replaced it with  
          an increase in gasoline excise tax designed to generate an  
          equivalent amount of revenue.  Among its many provisions, the  
          original gas tax swap created a new, non-General Fund revenue  
          stream of about $1 billion annually from the new price-based  
          excise tax.  That money was originally used to repay the General  
          Fund's cost of debt service on transportation bonds.  

          Later in 2010, voters approved Proposition 22 that prohibits  
          excise tax revenues from being used to pay debt service on  
          transportation bonds.  As a result of this restriction, excise  
          tax revenue could no longer be used for General Fund relief.  In  
          response, the Legislature passed and the Governor signed a  
          reconstituted gas tax swap, AB 105 (Committee on Budget),  
          Chapter 6, Statutes of 2012.  Under the reenacted gas tax swap,  
          weight fee revenue, rather than excise tax revenue, is used to  
          provide General Fund relief for debt service on transportation  

          AB 227 will repeal provisions of the gas tax swap related to the  
          transfer of funds from the SHA to pay for debt service and to  
          the backfill of the SHA with revenue generated by the  
          price-based excise tax.  As a result, an additional nearly $1  
          billion in weight fee revenue will be available for distribution  
          using the same formula that revenue from the rest of the  
          price-based excise tax is distributed - that is, 44% for local  
          streets and roads, 44% for STIP projects, and 12% for SHOPP  

          Funding to pay for maintenance and repair on the state highway  
          system comes primarily from taxes on gasoline and diesel fuel.   
          This revenue source is rapidly declining because of reduced fuel  
          consumption and because of funding shortfalls in the Federal  
          Highway Trust Fund.  The estimated funding available from these  


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          sources for state highway preservation is less than          $2  
          billion annually; however, the estimated need for rehabilitation  
          and reconstruction of the state highway system is close to $8  
          billion annually.  Funding for local streets and roads is in  
          equally desperate straits.  Moreover, these costs estimates are  
          for preservation only.  Estimated costs for needed improvements  
          are greater still.  

          The Governor, in his 2015-16 proposed budget, acknowledged this  
          transportation funding crisis, specifically noting a nearly $59  
          billion backlog in needed transportation upkeep and repair.  In  
          response, his budget proposes an early repayment $351 million of  
          General Fund loans and calls upon both parties of the  
          Legislature to craft a transportation funding solution.

          AB 227 is intended, at least in part, to address this mounting  
          backlog in unmet transportation needs by:  

             a)   Ensuring previous loans from transportation accounts to  
               the General Fund are repaid within the next few years;

             b)   Redirecting weight fee revenue to transportation  
               purposes instead of to the General Fund for debt service;  

             c)   Directing revenue from miscellaneous sources be used for  
               transportation, not General Fund relief.
          According to the author, "By diverting these funds back to their  
          original purpose?we move a long way toward rebuilding our  
          deteriorating infrastructure without imposing more debt on our  
          grandchildren."  Over two dozen engineering firms and  
          transportation agencies that applaud the redirection of  


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          transportation money to transportation purposes support AB 227.

          Writing in opposition of the bill, the Professional Engineers  
          California Government (PECG) argues that AB 227 lacks clarity  
          regarding the P3 agreement provisions (which are expected to be  
          stricken from the bill).

          Related legislation:  AB 4 (Linder) stops the transfer of weight  
          fee revenues to the General Fund to pay debt service on  
          transportation bonds, until January 1, 2020.  AB 4 was referred  
          to this committee but is not scheduled to be heard this year.  

          Previous legislation: AB 2651 (Linder) of 2014 would have  
          prohibited weight fee revenue from being transferred from the  
          SHA to the Transportation Debt Service Fund or to the  
          Transportation Bond Direct Payment Account and from being used  
          to pay the debt service on transportation general obligation  
          bonds.  AB 2651 was referred to the committee but was not heard  
          at the request of the author.  

          AB 2652 (Linder) of 2014, among other provisions, would have  
          repaid transportation loans from the General Fund.  AB 2652 died  
          in the Assembly Budget Committee.  

          AB 2653 (Linder) of 2014, would have repealed specific  
          provisions that enacted the weight fee revenue transfer and the  
          SHA backfill.  AB 2653 died in the Assembly Budget Committee.  

          AB 2728 (Perea) of 2014, would have prohibited the use of truck  
          weight fee revenue to pay debt service on transportation-related  
          general obligation bonds, until January 1, 2019.  AB 2728 was  
          held in Assembly Appropriations Committee on the suspense file.

          SB 1418 (DeSaulnier) of 2014, repealed specific provisions that  


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          enacted the weight fee revenue transfer and the SHA backfill.   
          SB 1418 was held in the Senate Appropriations Committee on the  
          suspense file.

          Double referral:  This bill will be referred to the Assembly  
          Budget Committee should it pass out of this committee.


          Note:  Many of the letters in support and opposition  
          specifically cited provisions in the bill related to P3  
          agreements.  It is unclear if any of these positions will change  
          once the P3 provisions are deleted from the bill. 


          ACS Infrastructure Development

          American Council of Engineering Companies

          Associated General Contractors

          Blackburn Consulting 

          California Alliance for Jobs

          California Asphalt Pavement Association

          California State Council of Laborers


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          City/County Association of Governments of San Mateo County

          Dimensions 4 Engineering, Inc.

          EFS Engineering, Inc.


          Granite Construction Incorporated

          HMH Engineers

          Holdrege & Kull 

          Kennedy & Associates

          Kimley Horn

          Lane Engineers, Inc.

          Lee & Pierce, Inc. Consulting Engineers

          Leighton Consulting, Inc.

          Leptien, Cronin, Cooper, Morris & Poore, Inc.


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          Los Angeles County Metropolitan Transportation Authority

          Michael Baker International


          Orange County Transportation Authority

          Rick Engineering Company

          Robert L. DeWitt and Associates, Inc. 
          Shannon & Wilson, Inc. 


          Stantec Consulting Services

          The Covello Group

          Towill, Inc.

          Transportation California

          Yeh and Associates, Inc.


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          Professional Engineers in California Government

          Analysis Prepared by:Janet Dawson / TRANS. / (916) 319-2093