Eleven months after leading a successful campaign against a ballot measure that would have repealed fuel tax hikes approved by the Legislature in 2017, Gov. Gavin Newsom is facing bipartisan criticism over his administration’s decision to cancel three road projects in the Central Valley and San Luis Obispo County.

Newsom has rejected the criticism that he had engaged in a “bait and switch” because he previously emphasized to voters in 2018 that at least 60 percent of the $5.2 billion generated annually by the 2017 tax hikes would go to roads and bridges, as specified in Senate Bill 1.

But his Sept. 20 executive order directed state transportation officials “to leverage the more than $5 billion in annual … spending for construction, operations and maintenance to help reverse the trend of increased fuel consumption and reduce greenhouse gas emissions” and to “reduce congestion through innovative strategies designed to encourage people to shift from cars to other modes of transportation.” 

Soon after, Caltrans – citing Newsom’s order – said the three road projects had been subject to “deletion” from a list of scheduled work at a savings of $32.5 million. It also said other road projects had been reduced in scope, creating a total savings of $61.3 million “to be held in reserve for priority rail projects and other priorities aligned with [the governor’s] executive order.”

Assemblyman Rendon says voters remembered ‘clear promises’

This led to criticism not only from Republican officials in the Central Valley and San Luis Obispo but from Assembly Speaker Anthony Rendon, D-Lakewood.

Gas taxes were raised “with some clear promises … that this money would be used … almost exclusively for roads and repairs,” he told the Los Angeles Times. “Now is not the time to go back on those promises.”

But Newsom said he would honor Senate Bill 1 exactly as it was written and said critics shouldn’t “conflate” his Sept. 20 executive order with the state’s “locked in” commitment to fix roads and bridges.

Nevertheless, Democrats in the Legislature have good reason to be wary about fallout from their support of the 2017 gas tax hike. One of their few setbacks in recent years as they have established lopsided majorities in the Assembly and Senate came in June 2018 when state Sen. Josh Newman, D-Fullerton, was recalled easily after a campaign that focused on his vote for the gas tax hike.

But the potency of the issue has been evident longer than that. In 2002, 69 percent of state voters backed Proposition 42, which made it more difficult for gas taxes to be shifted for use on general needs. In 2006, 77 percent of state voters supported Proposition 1A, which added even more restrictions.

Gas tax revenue diverted to general uses in 2010

Yet these measures were unable to block Gov. Arnold Schwarzenegger and the Legislature from raiding gas taxes again in 2010. Facing a huge budget deficit after the Great Recession had led to a nearly 20 percent drop in state revenue, the Republican governor and Democratic lawmakers and their lawyers came up with a plan to end state sales taxes on gasoline while sharply increasing excise taxes. Because the “gas tax swap” didn’t increase revenue, it was allowed to be enacted on a simple majority vote.

And since there were far fewer restrictions on gas excise taxes than gas sales taxes, lawmakers were able to take $1.8 billion in annual gas excise revenue for general uses.

Senate Bill 1 in 2017 eliminated the law setting up the tax swap.

Assemblyman Jim Frazier, D-Oakley, and Sen. Jim Beall, D-San Jose, propose a 17 cent per gallon tax increase to fund a $7.4 billion transportation program, with likely additional annual hikes after adoption because the rate is indexed to inflation. They also want to increase the tax on diesel fuels by 30 cents a gallon, with the same indexing provision, and to make it easier to get approvals for transportation infrastructure improvements.

Brown’s proposal — which went nowhere in a special session — was built on a 6 cent per gallon tax increase and other provisions that would have funded a $3.6 billion transportation plan.

Bitterness over 2010 gas tax swap hangs over debate

The huge problem facing any proposal to raise taxes of this sort is the need for two-thirds approval, which means Republican votes in both the Assembly and Senate are necessary. And Democrats lobbying for GOP support don’t just have to overcome traditional Republican opposition to higher taxes. There continues to be deep bitterness over the gas tax swap that GOP Gov. Arnold Schwarzenegger and Democratic lawmakers pulled off in 2010 to plug a $1.8 billion hole in the 2010-11 budget. Republicans aware of this history would struggle to believe that the tax hikes that Frazier and Beall seek for road repairs might not at some future date be used to pay for state salaries, pensions or other needs unrelated to potholes and aging bridges.

The background: Irate over previous diversions of gasoline sales taxes from road repairs to other uses, California voters twice this century passed ballot measures — Proposition 42 in 2002 and Proposition 1A in 2006 — that banned such use of gas sales tax revenue.

But gasoline excise taxes can be spent on general fund obligations. So in 2010, gas excise taxes were sharply raised and gas sales taxes sharply reduced. Because the move was revenue-neutral, Schwarzenegger and Democrats successfully argued that the maneuver only needed to pass on a simple majority vote — not the two-thirds vote needed for tax hikes.

As a result, each year, the state Board of Equalization announces whether it is raising or cutting state excise taxes on gasoline to honor the deal’s requirement that the 2010 gas tax swap be roughly revenue-neutral.

Recent coverage of the Frazier-Beall initiative has not detailed whether the 17 cent per gallon tax hike would be entirely in the gas sales tax or entirely in the gas excise tax or a combination of increases in each.  If it were in the gas sales tax, that would nominally mean the money could only be spent on road repairs and infrastructure improvement because of Propositions 42 and 1A. But another gas tax swap could enable the money to be diverted to the general fund by a simple majority of the Legislature in the future, at least if the governor was amenable.

Republican lawmakers are also likely to be wary of another part of the Democratic lawmakers’ proposal: a $165 yearly fee for owners of zero-emission vehicles to help pay for road improvements. While that’s higher than what most states with such fees charge, it’s only half of what the average U.S. car owner pays in gas taxes a year, according to data from 2013. 

The argument that zero-emission vehicles should pay more toward road maintenance is dismissed by greens who cite the environmental benefits of the vehicles. But as such vehicles become more common — and as states push gas taxes higher — owners of regular vehicles and free-market advocates are likely to cry foul.

Another California story —  politicians declaring the need for much more spending to repair infrastructure, starting with roads covered with potholes — is now akin to a weekly ritual. Gov. Jerry Brown, Assembly Speaker Toni Atkins, Los Angeles Mayor Eric Garcetti and San Diego Mayor Kevin Faulconer are among the many state politicians who have made this case.

But what’s not noted much is that the gas tax shuffle story is directly related to the infrastructure blues story. The reason the rates were adjusted in 2010 was to increase the amount of money raised by gas excise taxes, which can be used in the operating budget, and to reduce the amount of money raised by gas sales taxes. Because of Prop 42 and Prop 1A — two ballot measures that won easy victories from California voters in 2002 and 2006, respectively — gas sales taxes can only be used for road repairs, local transportation projects and a narrow range of needs.

The gas tax swap shifted $1.8 billion from infrastructure and transportation to the general fund. It passed the Legislature on March 4, 2010, on the strength of Democratic votes and with the support of Republican Gov. Arnold Schwarzenegger.

Five years later, Atkins is proposing a $52 a year road-user “fee” to raise $2 billion to pay for infrastructure. Her proposal has drawn a mixed to positive reaction from Democrats, some of whom have their own ideas about how to attack infrastructure needs.

But it has also won praise from those who say it’s about time the state government is taking the lead on infrastructure. The context that is rarely included, however, is that the $2 billion annual infrastructure shortfall was essentially created by the state government in 2010 — specifically, by Schwarzenegger and Democrats.

2010 was a brutal year on the budget front; the state’s spending plan for fiscal 2010-11 didn’t past until the 100th day of fiscal 2010-11. But the gas tax diversion would have been much more defensible if it had a sunset provision. Instead, the way the Legislature and Schwarzenegger handled the maneuver created a permanent new source of revenue for general government operations — despite the wishes of California voters who wanted the money spent on roads and transportation projects.