BILL ANALYSIS                                                                                                                                                                                                    

                              Senator Jim Beall, Chair
                           2015 - 2016 First Extraordinary

          Bill No:          SBX1 1            Hearing Date:     8/19/2015
          |Author:   |Beall                                                 |
          |Version:  |7/14/2015                                  Vote:      |
          |          |             2/3 Required                             |
          |Urgency:  |Yes                    |Fiscal:      |Yes             |
          |Consultant|Randy Chinn                                           |
          |:         |                                                      |

          SUBJECT:  Transportation funding

            DIGEST:  This bill increases several taxes and fees to raise  
          roughly $4.3 billion in new transportation revenues annually,  
          with the funding used to address deferred maintenance on the  
          state highways and local streets and roads and to improve the  
          state's trade corridors.


          1)The need.  The Governor, in his 2015 inaugural address, noted  
            that the state faces a $59 billion shortfall over the next 10  
            years to adequately maintain the existing state highway  
            system.  Local governments have estimated the funding  
            shortfall for maintaining existing local streets, highways,  
            and bridges is $78 billion over the same time period.

          2)Current taxes and fees.  Existing law imposes state taxes and  
            fees related to transportation as follows:

             a)   Gasoline excise tax:  $0.30/gallon
             b)   Diesel excise tax:  $0.13/gallon
             c)   Diesel sales tax:   $0.27/gallon
             d)   Vehicle license fee (VLF):  0.65% of market value
             e)   Vehicle registration fee (VRF):  $43 per vehicle
             f)   Weight fees, for commercial vehicles only: up to a  
               maximum amount of $2,271


          SBX1 1 (Beall)                                         PageB of?

          1)How current taxes and fees are spent.  The details of how  
            transportation taxes and fees are spent are complicated and  
            confusing.  In general, the gasoline and diesel excise taxes  
            are spent exclusively on road maintenance and construction as  
            provided for in the Constitution<1>; vehicle license fees are  
            spent on general fund obligations; vehicle registration fees  
            are spent on Department of Motor Vehicles and California  
            Highway Patrol operations; and weight fees are spent on paying  
            the debt service on transportation bonds.

          2)Taxes and fees under this bill.  This bill increases taxes and  
            fees, and creates new fees, as follows:

             a)   Gasoline excise tax:  $0.12/gallon
             b)   Diesel excise tax:  $0.22/gallon
             c)   Road access charge:  $35 per vehicle annually
             d)   VRF increase:  $35 per vehicle annually, plus an  
               additional $100 for zero-emission vehicles
            Every three years, the fuel excise tax rates are adjusted  
            based on the Consumer Price Index.

            The table below summarizes where the new funding comes from  
            and how much is forecast to be raised (assuming zero  

          |                   |  RATE  |PHASE|ADDITIONAL REVENUE BY YEAR (in      |
          |                   |        |     |millions)                           |
          |           | INCREASE  | IN (YRS)  |  YEAR 1   |  YEAR 2   |  YEAR 3   |  YEAR 4   |  YEAR 5   |           |
          |Excise on  |         12|     1     | $1,752    | $1,752    | $1,752    | $1,752    | $1,752    |           |
          |Gasoline   |           |           |           |           |           |           |           |           |
          |(in cents) |           |           |           |           |           |           |           |           |
          |Road       |         35|     1     | $1,000    | $1,000    | $1,000    | $1,000    | $1,000    |           |
          |Access Fee |           |           |           |           |           |           |           |           |
          |VRF (in    |         35|     1     | $1,000    | $1,000    | $1,000    | $1,000    | $1,000    |           |

          <1> The Constitution also permits these taxes to be spent on the  
          construction and improvement of mass transit guideway systems.


          SBX1 1 (Beall)                                         PageC of?
          |dollars)   |           |           |           |           |           |           |           |           |
          |Annual ZEV |        100|     1     | $     10  | $     12  | $     15  | $     20  | $     25  |           |
          |Fees (in   |           |           |           |           |           |           |           |           |
          |dollars)   |           |           |           |           |           |           |           |           |
          |Excise on  |         22|     1     | $   572   | $   572   | $   572   | $   572   | $   572   |           |
          |Diesel (in |           |           |           |           |           |           |           |           |
          |cents)     |           |           |           |           |           |           |           |           |
          |GF Loan    |           |     3     | $   330   | $   330   | $   340   | $         | $         |           |
          |Paybacks   |           |           |           |           |           |-          |-          |           |
          |           |           |           |           |           |           |           |           |           |
          |            | Total New  | $4,664     | $4,666     | $4,679     | $4,344     | $4,349     |            |
          |            |  Revenue   |            |            |            |            |            |            |

          1)Where revenues are spent.

             a)   No effect on current taxes and fees. This bill does not  
               affect how revenues from existing gasoline excise taxes,  
               diesel excise taxes, VLF, and VRF are spent.  It only  
               affects the new revenues raised by this bill.

             b)   Most new funds spent on maintenance.  This bill creates  
               the Road Maintenance and Rehabilitation Program.  All funds  
               raised by the tax and fee increases in this bill are  
               deposited into the Road Maintenance and Rehabilitation  
               Account (RMRA), which is created within the State  
               Transportation Fund, with the exception of $0.12/gallon  
               from the diesel excise tax increase, as described below.   
               The RMRA funds shall be spent on basic road maintenance and  
               rehabilitation and critical safety projects.

             c)   Accelerated loan repayment.  This bill provides that  
               outstanding loans made to the General Fund from the State  
               Highway Account, the Motor Vehicle Fuel Account, the  
               Highway Users Tax Account, and the Motor Vehicle Account  
               shall be repaid over three years, one third per year.  The  
               outstanding loan amounts are estimated at about $1 billion.  
                These funds will also be used to fund the road maintenance  
               backlog as they are deposited in the RMRA.  Funding to  


          SBX1 1 (Beall)                                         PageD of?
               backfill the loss to the General Fund from the loan  
               repayments will come from the Budget Stabilization Account  
               (BSA, aka the Rainy Day Fund), which was revised in  
               Proposition 2 of 2014 to focus on paying down state debts  
               and unfunded mandates.  The BSA balance at the beginning of  
               FY 2015-16 is estimated to be $1.6 billion. 

             d)   State and local split.  These new funds raised by this  
               bill are formulaically allocated to both state and local  
               projects.  Five percent is set aside for counties which  
               pass local sales and use taxes for transportation purposes,  
               and which have not previously passed such taxes.  The  
               remainder is split 50/50 between state and local projects.   
               The local project funding is allocated pursuant to an  
               existing statutory formula, where 50% goes to cities based  
               on population and 50% goes to counties based on a  
               combination of the number of registered vehicles and the  
               miles of county roads.   In order to receive these funds,  
               the city and county must maintain their historic commitment  
               to funding street and highway purposes by annually  
               expending not less than the average of its expenditures for  
               the 2009-10, 2010-11 and 2011-12 fiscal years.  The  
               California Transportation Commission (CTC) shall annually  
               evaluate each agency receiving funds to ensure that the  
               funds are spent appropriately.  

             e)   Trade corridors.  Twelve cents of the diesel fuel tax  
               increase, resulting in about $300 million annually, shall  
               be deposited in the Trade Corridors Improvement Fund.   
               These funds are allocated by the CTC for infrastructure  
               improvements on corridors that have a high volume of  
               freight movement. 

          1)Caltrans efficiency.  This bill requires Caltrans, by April 1,  
            2016, to provide the CTC with a plan to increase the  
            department's efficiency by 30% over the prior three years.   
            The savings shall increase the funding for the road  
            maintenance and repair work.  

            Beginning February 1, 2017, this bill requires the CTC to  
            allocate all the capital and support costs for the State  
            Highway Operation and Protection Program, and to approve any  
            additional allocations for projects which exceed their budget.  
             This is consistent with a recent recommendation of the  
            Legislative Analyst's Office to improve oversight and  


          SBX1 1 (Beall)                                         PageE of?
            accountability of transportation funds<2>.

          2)Gas tax swap. In 2010, sales tax rates on vehicle fuels were  
            reduced and replaced with an increase in the fuel excise tax  
            rate.  The swap is intended to be revenue neutral, which  
            requires annual recalculation of what sales taxes revenues  
            would have been had the rate not been reduced and then a  
            resetting of the fuel excise tax rate.  This annual adjustment  
            has led to sudden and steep variations in revenue, making it  
            hard for state and local governments to plan their  
            transportation programs.  This bill eliminates the true up and  
            instead imposes a more stable tax.

          3)Urgency.  This is an urgency statute.


          1)   Purpose of bill.  According to the author, this bill solves  
            a crisis that threatens our deteriorating streets and  
            highways.  California faces a $137 billion combined state and  
            local backlog of deferred maintenance that will grow by  
            billions every year.  The state transportation system is  
            critical to California's economic well-being, as it enables us  
            to move goods, people, and ideas around the state.  SBX1 1  
            creates a much-needed funding plan to address the maintenance  
            backlog of our aging systems.  Under this bill, everyone who  
            uses the roads will share in paying for the cost of these  
            essential repairs.  

            SBX1 1 will provide more resources for the state to repair the  
            infrastructure under its jurisdiction and it also distributes  
            billions of dollars at the local level.  The author notes that  
            the state has failed to keep pace with repairs due to several  
            factors, including the diversion of road maintenance revenues  
            for other uses and the decline of the gas tax revenue.  

          2)   What will this cost me?  For an average driver, using a  
            typical vehicle value, average fuel efficiency, and driving  
            12,000 miles per year, the extra fees and taxes will result in  

          <2> 2015-16 Budget: "Capital Outlay Support Program Review".  
          LAO, May 14, 2014.


          SBX1 1 (Beall)                                         PageF of?
            direct cost increases of about $130/yr<3>.  Individuals who  
            use more gas or diesel will pay more.  By way of comparison,  
            the slump in gasoline prices from their high of $4.25 in the  
            middle of 2014 to about $3.25 per gallon today will reduce gas  
            costs for the average driver by over $500/yr if prices stay at  
            current levels.
          3)   Lockbox.   Gasoline and diesel excise taxes may only be  
            spent for transportation purposes, pursuant to Article XIX,  
            Section 2 of the California Constitution.  Fees on vehicles,  
            other than in lieu property taxes (e.g., VLFs), may only be  
            spent for transportation purposes pursuant to Article XIX,  
            Section 3 of the Constitution.  Consequently, all of the tax  
            and fee increases imposed by this bill may only be spent for  
            transportation purposes and may not be borrowed by the  

          4)   Pay now or pay more later.  Engineers have observed that  
            the cost of fixing roads is relatively low initially, but at  
            some point the road wear starts to accelerate, greatly  
            increasing the cost of repair.  A study commissioned by the  
            League of California Cities and the California State  
            Association of Counties notes that many California streets are  
            at the point of accelerating road wear.  Without additional  
            funding, the percentage of roads in failed condition will  
            increase from 6% to 25% by 2024, greatly increasing the cost  
            of repair.  Inaction is costly.

          5)   A good start, not a final solution.  As vehicle fuel  
            efficiency rises and fossil fuel alternatives become  
            increasingly available, gasoline and diesel taxes become less  
            reliable and less-fair mechanisms to pay for the cost of  
            roads.  SB 1077 (DeSaulnier, Chapter 835, Statutes of 2014)  
            required the CTC to study alternatives to fuel taxes, such as  
            a road usage charge.  That effort is underway, but new  
            mechanisms for paying for roads aren't expected for several  
            years; legislation will be required.  

          6)   Other states.  California's transportation funding  
            shortfalls are shared by other states.  According to the  
            American Association of State Highway Transportation Officials  
            database, 14 states have increased taxes and fees and  
            dedicated that funding to transportation projects, including  
            Georgia, Iowa, Pennsylvania, Utah, and Wyoming.  Congress is  

          <3> 12,000 miles @ 24 miles/gallon x $0.12/gallon = $60 in  
          additional gas taxes plus $35 road access charge plus $35  
          vehicle registration fee increase for a total of $130.


          SBX1 1 (Beall)                                         PageG of?
            also considering the issue, though there is little reason to  
            expect any federal help.

          7)   Another idea.  In February, the Speaker of the Assembly  
            announced her plan to increase transportation funding by $2  
            billion annually by establishing a road user charge or a flat  
            annual fee for access to the road system, returning weight  
            fees to transportation purposes, and accelerating the  
            repayment of transportation loans.  A bill to enact that  
            proposal has not yet been introduced.

          8)   Helping themselves.  As previously noted, the bill  
            allocates 5% of revenues to counties whose voters approve a  
            sales tax for transportation purposes, and who have not  
            approved such a tax before.  Each fiscal year, unallocated  
            funds revert back and are split 50/50 between the state and  
            local governments.  This provision may need further work on  
            its mechanisms and definitions.

          9)   Technical amendment.  Page 16, line 3 after "gallon,"  
            insert the following:

            "including an inflation adjustment,"

          Related Legislation:
          SB 16 (Beall) - this bill raises various transportation fees and  
          taxes with a five year sunset for the same purposes as SBX1 1.   
          SB 16 is pending on the Senate floor.

          FISCAL EFFECT:  Appropriation:  Yes    Fiscal Com.:  Yes     
          Local:  No

            POSITIONS:  (Communicated to the committee before noon on  
                         August 13, 2015.)

          Alameda Corridor-East Construction Authority
          Alta Vista Solutions
          American Council of Engineering Companies of California
          Blackburn Consulting


          SBX1 1 (Beall)                                         PageH of?
          Blair, Church & Flynn Consulting Engineers
          Brelje & Race
          California Asphalt Pavement Association
          California Association of Council of Governments
          California State Association of Counties
          California State Council of Laborers
          California Transit Association
          CDM Smith, Inc.
          CEI Engineering Associates, Inc.
          City/County Association of Governments of San Mateo County
          Covello Group, The
          CSW/Stuber-Stroeh Engineering Group, Inc.
          Diaz Yourman & Associates
          Guida Surveying Inc.
          Hatch Mott MacDonald
          HMH Engineers
          Humboldt; County of
          ILS Associates Civil Engineering And Land Survey
          Infrastructure Engineering Corporation
          Inland Foundation Engineering
          JLB Traffic Engineering
          Lane Engineers
          Lawrence Nye Carlson Associates
          League of California Cities 
          Leighton Consulting, Inc
          Leptien, Cronin, Cooper, Morris & Poore, Inc
          Long Beach; City of
          Los Angeles; City of
          Michael Baker International
          MNS Engineers
          Morton & Pitalo, Inc
          Nasland Engineering
          Ninyo & Moore
          Oakland; City of
          Professional Engineers in California Government
          Quad Knopf
          Rau And Associates
          Rick Engineering Company
          Rural County Representatives of California
          SA Associates


          SBX1 1 (Beall)                                         PageI of?
          Sacramento; City of
          Santa Ana; City of
          Santa Clara County Board of Supervisors
          Santa Cruz; County of
          San Francisco; City of
          San Jose; City of
          Silicon Valley Leadership Group
          Southern California Association of Governments 
          Sukow Engineering
          Tri City Engineering
          Transportation Agency for Monterey County 
          Ventura County Transportation Commission
          Wagner Engineering & Survey
          Yeh and Associates


          AAA of Northern California
          Auto Club of Southern California
          Howard Jarvis Taxpayers Association

                                      -- END --