As state drivers’ changing habits undermined roughly a hundred years of gasoline taxes, California officials debuted a controversial new pilot program designed to make up the difference.

“The state of California is looking for 5,000 volunteers this summer for an experiment with potentially major pocketbook ramifications,” the Sacramento Bee noted. The so-called California Road Charge pilot program, proposed by the state Legislature, has tasked “Caltrans and other transportation officials to set up a nine-month test to see what it would be like if drivers paid for state road repairs based on how many miles they drive in their cars or trucks rather than how many gallons they buy at the pump.”

Aiming for a July start and a nine-month run, the program “already has a list of 4,300 people who are game,” according to Next City. “Participants will continue to pay the pump tax, but receive simulated monthly statements detailing how much they would pay under a road usage system.”

Losing gas

With gas prices, gas taxes and gasoline usage all sinking, lawmakers have labored to settle on a different way to collect revenue from road usage. “In California, drivers now pay 30 cents per gallon, plus 18 cents a gallon in federal tax,” the San Francisco Chronicle reported.

“Not only are politicians averse to raising the tax — which hasn’t been bumped up since 1994, with polls showing extreme distaste from voters — but also the continuing rise in fuel efficiency and the boom in electric vehicles ensure the steady evaporation of revenues even as more cars roll up more miles on the road. Gas taxes are expected to bring in $4.5 billion this fiscal year, 16 percent less than last year and 21 percent less than in 2014. Projections call for revenues to drop another 6.5 percent in the coming year.”

Just last month, regulators signaled the shifts to come by throwing their weight behind a further drop in the gas tax. “California drivers will pay 2.2 cents less per gallon of gasoline, starting in July, after a divided Board of Equalization voted to cut the excise tax,” according to U-T San Diego.

“‘Lowering the rate is the right thing to do and I’m sure Californians will welcome this reduction,’ board vice chair George Runner said in a statement after the agency voted 3-2 to pass the reduction that was recommended by BOE staff.”

Making the transition

From a regulatory standpoint, moving toward a per-mile tax would offer an additional advantage — a relatively smooth and seamless transition from a logistical and bureaucratic standpoint. Of the four vendors recruited to track mileage in the new pilot program, three “are already providing bonus services to fleet managers based on vehicle data,” according to Techwire.net.

“Azuga currently offers fleets a device they plug straight into a vehicle’s OBDII computer — a standard component in all vehicles made after 1996. Aside from automatically reporting mileage back to fleet managers, the computer is what alerts drivers to specific problems in the engine and can also offer information about what’s going on under the hood,” the site noted. “Two of the other companies signed up to track the mileage of participants in California’s test program, Intelligent Mechatronic Systems and EROAD, offer similar services. The fourth vendor, Arvato Mobility Solutions, will manage the accounts.”

Although privacy advocates have expressed skittishness and dismay, many Californians have grown accustomed to their driving habits being monitored electronically. California Road Charge will offer “the option to allow the state to monitor their in-vehicle computer, tracking where they go so they aren’t charged for the use of private or out-of-state roads,” Next City noted. “Recognizing that many will see this as an intrusion on their privacy, the state is testing other ways to collect this data, like periodic odometer reading verifications. California will also experiment with offering drivers weekly or monthly “all-you-can-drive” passes.”

In the meanwhile, Gov. Jerry Brown’s administration went ahead with huge cuts to the infrastructure budget. According to the Los Angeles Times, “state transportation officials have announced plans to cut funding for road and transit projects by $754 million over the next five years, the greatest reduction in two decades.” The drop, cutting more than a third into last year’s sum, cleared the California Transportation Commission as Brown “used his State of the State address to call on the Legislature to end the gridlock in negotiations over new taxes and fees for transportation projects,” the Times noted.

While gas taxes raked in 18 cents on the gallon in the recent past, the Times added, last year receipts plunged to 12 cents a gallon — with analysts predicting another drop this summer to just 10 cents:

“Each penny reduction in the gas tax decreases funding for state transportation projects by some $140 million a year. Because of the funding cut, the state for the first time in a decade was asking counties to terminate some of the 200-plus projects previously offered funding, according to Susan Bransen, chief deputy director for the commission.”

Skittish Dems

Election-year politics, however, have cast serious doubt on prospects for a new deal that would somehow replace the disappearing outlays. “In fact,” the Sacramento Bee noted, relative to last year, “the timing appears less favorable. Enacting a tax increase would require the support of at least some legislative Republicans, always difficult but likely more so amid the rancor of an election year. Nor is it clear that every Democrat in the Legislature will vote for a tax.” Since breaking the Democrats’ supermajority in Sacramento, Republicans have gained the ability to block legislative tax increases. “Although Democrats control both houses of the Legislature, Republican votes are needed to enact any tax measures, giving them leverage on the issue. If all Democrats were supportive” of an infrastructure hike, “a deal would need two Republican votes in the Assembly and one in the Senate,” according to the Associated Press.

While some Democrats fear they’ll be thrown out in a populist election season if they make the wrong move on taxes, Republicans have reiterated their concern that largesse elsewhere in the budget has put Californians in an untenable situation when it comes to government’s basic roads-and-repairs function. State Sen. Bob Huff, R-San Dimas, said Brown “did nothing except create an extraordinary session where he says you’ve got to raise taxes” last year, as the AP reported. “Here we are again with another $10-plus billion of revenue and once again, it’s ‘We need to bite the bullet and raise taxes to cover this,'” Huff said.

Brown’s proposal would impose $65 fees on drivers each year “and higher gas taxes to fund a $3.6 billion makeover for the state’s roads, bridges and highways,” as the San Francisco Business Times noted. “It plans to raise taxes on gas by 6 cents per gallon and 11 cents per gallon for diesel,” for an increase of some $1 billion in revenues:

“The increases will be based on the Consumer Price Index and will take $100 million out of the Department of Transportation’s budget. It also will look for $500 million from cap-and-trade revenue. […] Brown is hoping that will add up to $3.6 billion, with $1.6 billion slated for state highway improvements and $200 million doled out for improved trade corridors.”

The effort typified Brown’s approach to governance in his final term in office, working to strike a careful but forceful balance between restive Democrats to his left and enterprising Republicans to his right, eager for any opportunity to flex some political muscle. In a statement, spokesman Gareth Lacy underscored Brown’s hopes for another success threading the needle. “The administration’s proposal was put forth after engaging with Democrats, Republicans and lots of people who are concerned about adequate funding for our crumbling roads and highways,” he said, the Associated Press related. “It includes sensible reforms and sufficient revenue to improve our roads, bridges, public transit and trade corridors – all vital to boosting quality-of-life and economic competitiveness.”

Party politics

Seizing the opportunity to make a stand on principle, Sacramento Republicans immediately cast doubt on the plan’s future. “Brown gave the plan to Republicans on Thursday, but despite incorporating some of their proposals, the plan appeared unlikely to peel off Republican votes that would be required to boost taxes,” the Sacramento Bee reported. “The minority party has vowed to reject tax increases given California’s brimming budget, and party leaders in the Senate and the Assembly released statements on Thursday saying Brown’s call for increased taxes and a road user fee made his plan unsupportable.”

Republicans have resisted Democrats’ preferred approach, but California’s business lobby has pressed both parties to embrace new taxes and fees. “Last week, business organizations such as the California Chamber of Commerce and the Silicon Valley Leadership Group said any deal should seek to raise at least $6 billion annually by raising gas and diesel taxes and increasing vehicle registration and license fees,” the San Jose Mercury News reported.

Part of the rationale for increasing fees, instead of simply dialing up gas taxes, has centered around the growing popularity of hybrid and electric vehicles in California — and the state’s interest in squeezing revenue out of every car on the road. “We have these Teslas that are being sold and they don’t pay any gas tax,” complained state Sen. Jim Beall, D-San Jose, as CBS Sacramento noted.

Gas in California has remained higher on average than out-of-state, thanks to cap-and-trade fees and the state’s unique environmental rules about the blends of gasoline that must be sold. Current state taxes include an excise tax of 39 cents, between 30 and 42 cents in sales tax, and 10 cents for the cap-and-trade levy, as Watchdog Arena observed.

Brown stays secretive

At a recent news conference that left some observers hungry for detail scratching their heads, Brown refused to hint at a revenue source for the improvements. “I’m not going to say where the revenue’s going to come from, how we’re going to get it,” he said. “We’ll get it done, but I’m not going to put all my cards on the table this morning,” Brown said, according to ABC 7 News.

Brown was joined at the appearance by Assembly Speaker Toni Atkins, D-San Diego, who signaled separately that negotiations would be tough. “It will be a bumpy road, but our constituents expect us to work together and figure something out,” she told the San Francisco Chronicle.

To date, the governor has not let slip whether he would support or oppose a tax hike to make up the difference.

The puzzle — how to get more money from drivers when you want them out of their cars?

The problem of raising money from diminishing use of a product is becoming endemic in California. Previously, I’ve written that agencies that rely on tobacco tax revenue are scrambling for more money as tobacco use drops off. In the same vein, water agencies are watching their budgets shrink as consumers use less water in response to the drought.

With better mileage per gallon of gasoline for newer cars and the introduction of electric vehicles, gas tax revenue has been reduced.

The conundrum continues if seeking gas and diesel tax increases and maybe even a mileage charge on vehicles goes forward at the same time city and state planners concoct strategies to keep vehicles parked in the garage.

A proposal introduced Monday by the California Chamber of Commerce, the California Business Roundtable, the California Association of Counties, the League of California Cities, and the California Alliance for Jobs representing construction unions would raise revenue for infrastructure from gas tax and diesel tax increases, boosts in vehicle registration fees as well as cap-and-trade money.

The L.A. proposal is designed to get drivers out of their cars — but opponents of the plan say it will do nothing more than lead to congestion and frustrated drivers. As someone who has seen a nearby street lose a lane to bicycle traffic, I can attest to that concern.

Senate Bill 375, the Sustainable Communities and Climate Protection Act of 2008, is designed to reduce greenhouse gases by encouraging developers to build housing close to public transportation.

Advocates might argue both approaches are needed — more revenue to build and fix roads, fewer cars on the roads to reduce wear and tear on the asphalt.

But duel efforts to raise taxes and limit driving could make for disgruntled drivers and angry voters.

Consensus in Sacramento is that the roads are in bad shape and revenue is needed to attack the problem. In announcing the special session, Brown noted that annual available excise fuel revenues for roads are billions short of the revenue needed. Deferred road maintenance requires billions more.

Democratic solutions are focused on tax and fee increases. Discussions have revolved around an increase in the gas tax, vehicle license fee, and per mileage fee, among other ideas. One approach on the tax and fee front is Sen. Jim Beall’s Senate Bill 16, which would raise $3.5 billion through a combination of taxes and fees.

Republicans have taken a different approach. Noting that the state budget increased a whopping $7.5 billion over last year, they ask why hasn’t more revenue been dedicated to the roads. Priorities dictate that transportation needs must be cared for so that the California economy can thrive, which in turn would bring in added revenue to the state.

Assembly Republicans issued a nine-point proposal this week that they say could direct $6 billion in existing state funds to transportation infrastructure. Senate Republicans similarly have introduced legislation into the special session to use current state funds for roads.

Republican opposition could thwart attempts to raise taxes for the roads because it takes a two-thirds vote to raise taxes. Republicans would be in no mood to raise taxes if GOP ideas are given short shrift.

That’s where the pressure from Republican allies in the business community might come into play.

Business interests in Sacramento have been calling for transportation improvements for a long time. They are concerned that political gridlock would lead to more delay. Business community leaders have expressed openness to tax increases or new funding sources for roads under certain conditions.

California Chamber of Commerce president Allan Zaremberg told the L.A. Times’ George Skelton, “If Republicans want to vote for taxes for transportation, I’m absolutely fine with it. I just want to make sure the money is spent on transportation.”

Jim Wunderman, who heads the Bay Area Council, stated, “We’re open to funding ideas on transportation.  Our region is at a standstill.  That said, we don’t have anything specific to work with, so I haven’t asked the members.  But some of the bigger employers are desperate for transportation fixes, given the state of things.”

Business might conceivably try to influence a wider tax discussion when it engages on road taxes. Support the administration in a road-funding scheme while demanding that the administration vocally oppose other tax plans aimed at business currently under discussion such as increased property taxes on commercial property and an oil severance tax.

Like those troublesome dinosaurs in Jurassic World, the tax discussion in the special session may go beyond the fences intended keep them in and focused on the roads.

In recent years, California’s roadways have fallen into what analysts often agree is terrible shape. “Our streets and highways are in horrible condition and need at least $296 billion during the next five years for already ignored construction and repair projects,” the OC Weekly complained, noting that “a reported 87 percent of road pavement is rated as ‘at risk’ or ‘poor'” according to current estimates.

Republican relevance

“To the chagrin of Republicans,” the Weekly continued, “the Democrat-controlled Legislature has proposed an upcoming $168 billion budget with a measly $2 billion for roads when experts say the state should be spending at least $8 billion annually.”

But to the delight of Republicans, that gap — and California’s budgeting rules — has granted them a fresh round of political relevance.

The Golden State GOP cultivated a very public interest in California’s roads. In addition to providing the party with a coveted way to connect with voters, the stance has supplied Republicans with an unaccustomed degree of political muscle in Sacramento. To grease the wheels for the state budget, Gov. Jerry Brown hived off the state’s nearly $60 billion in road troubles for a special legislative session. But “additional revenue is impossible without support from Republicans because it requires a two-thirds vote in the Legislature,” as the Los Angeles Times noted.

A rush of plans

Although Assembly Republicans have offered billions more than those in the state Senate, both proposals adopted several similar paths to get there. On the chopping block, the Times reported, was cap-and-trade revenue, “recently expanded to include transportation fuel. In addition, they want to tap existing fees on truck drivers, which were redirected to the general fund during the state’s budget crises.”

“Republicans in the Assembly also want to eliminate 3,500 jobs at Caltrans, the state transportation agency, that legislative analysts identified as unnecessary. Thousands more vacant positions across state government would be cut as well, and all of the savings would be put toward roads.”

According to U-T San Diego’s Steven Greenhut, Assembly Republicans would pull $1 billion directly from cap-and-trade monies, estimating that an additional $1 billion in infrastructure spending could be saved from the better fuel efficiency that could result from better roads.

The Assembly GOP would also strip the California Transportation Commission from the Executive Branch, according to Capital Public Radio. Earlier, Assembly Republican Leader Kristin Olsen, R-Modesto, had telegraphed her caucus’s plan, urging that high-speed rail money be reallocated to correct the state’s problems with existing infrastructure.

Dueling agendas

The party hasn’t remained fully united on the issue of revenue neutrality. For some, the special session hasn’t turned out to be quite the boon the party imagined. “Many Republicans argue that the governor and Democratic leaders put together a balanced budget that doesn’t raise taxes – and then offloaded this big missing piece to a special session as a way to build support for tax increases,” as Greenhut recounted.

The behavior of some in the party gave ammunition to Republican critics. “Senate Republican leader Bob Huff of San Dimas expressed interest in a proposal from Sen. Jim Beall, D-San Jose, that includes a new annual $100 fee to owners of electric cars, making up for the fact that they don’t pay any gas tax,” as the Times noted.

Along with a host of co-authors, Huff has also introduced legislation that would constitutionally require transportation taxes to be allocated toward transportation expenses. Nevertheless, his willingness to raise additional revenues raised the ire of influential state conservatives.

The bill’s author, Sen. Jim Beall, D-San Jose, has made SB16 an urgency measure, which would put it in effect immediately rather than taking effect in January. Urgency bills require two-thirds approval by the Legislature, which means SB16 will need a few Republican votes to pass each house. The bill has passed two Senate committees without any Republican support so far.

Mix of taxes and fees

The bill would spread out how the revenue is collected by:

• Raising the 30-cent-per-gallon gasoline excise tax by 10 cents and raising the 13-cent tax on diesel by 12 cents per gallon. Those taxes are in addition to the federal 18.4-cent-per-gallon gas tax (24.4 cents for diesel).
• An increase in the vehicle license fee of 0.65 percent of the vehicle’s value to 1 percent of the value.
• A vehicle registration fee increase of $43 per vehicle to $78 per vehicle and adding a new $100 fee for zero-emission vehicles.

The taxes and fees are projected to raise $3.5 billion in the first year, gradually increasing to $3.9 billion in the fifth year. Five percent of the revenue would be set aside for counties that pass local transportation sales and use taxes, but which have not previously passed such taxes.

Justification for the increases

Beall told the Senate Governance and Finance Committee on May 6 that there’s an urgent need for more road funding because the longer repairs are put off, the greater the cost to fix them:

“The state transportation system is critical to California’s economic well being and enables us to move goods, people and ideas around the state. All of us who drive share the responsibility to maintain our roads. We use the roads, we wear them down.

“We must properly maintain them, because it’s cheaper than rebuilding a ruined freeway or a ruined street. California now faces a $59 billion backlog in state highways that will grow in absence of a solution. There is a sense of urgency and this is necessary.

“My bill, SB16, creates a much-needed, temporary funding plan to address the maintenance backlog of our aging system. My bill is based on four principles. First it establishes an equitable financing strategy. Everyone contributes their fair share for using our roads. This includes returning the [truck] weight fees from the general fund to road maintenance.

“Second, my bill includes protections to ensure that funding goes only to road maintenance. Third, it establishes efficiencies to Caltrans to ensure projects are completed on time and on budget. Finally, my bill provides funding at the state, county and city level to address road maintenance needs at all levels.

“SB16 will save the state money in the future and alleviate the need to raise even higher tax revenues in future years. We have a long way to go. But I think most everyone can agree on the needs. Let’s come together and address the issue now, instead of letting the problem grow and expecting someone else to resolve the issue later.”

Jennifer Whiting, representing the League of California Cities and the California State Association of Counties, echoed Beall’s comments.

“SB16’s combination of ensuring that existing transportation revenues fund transportation projects, and its targeted tax and fee increases, strike the right policy and fiscal balance needed to address this momentous challenge.

“In addition to the $59 billion shortfall for the state system, the local streets and road system is facing a $79 billion shortfall over the next 10 years. We don’t know that there’s a single solution to the entire problem. However, it’s very clear that we have to act now.

“A five-year delay in additional investment in the system will cost California taxpayers $11 billion. That’s just the act of inaction will cost us $11 billion over the next five years. The local system is critical to goods movement, farm-to-market needs and regional travel. SB16 is a critical component of fixing the system.”

Jose Mejio, representing the California State Council of Laborers, said increased road repair funding “would boost this economy with job creation in a domino effect for all of the various components that have to fit to be able to build infrastructure in California.” Beall said his bill will create 171,000 jobs.

Argument against the bill

Only one person testified against the bill: David Wolfe, representing the Howard Jarvis Taxpayers Association. He acknowledged that gas tax revenue has not been increasing at the rate it has in the past due to an increase in more fuel-efficient vehicles:

“And that problem is going to continue to get worse in the years to come, and it needs to be addressed. But it’s not addressed by doubling down on a tax and increasing a tax that’s very inequitable. It’s just not the way to do it. California has the second highest gas tax in the nation behind Pennsylvania. A discussion needs to be had with how our roads are funded.

“We have a $110 billion general fund budget. We have a $2 billion surplus right now. And we need to think about … spending more dedicated revenue on transportation projects. It worked 50 years ago with [Gov.] Pat Brown. And there’s no reason why, especially with more general fund revenue, it can’t work in that same way today.”

Only one committee member, Sen. John Moorlach, R-Orange, voted against the bill. He noted that California has many funding needs:

“We have a transportation problem. We have an unfunded pension plan problem. We have an unfunded retiree medical problem. We’ve got an unrestricted net deficit in this state of a $117 billion problem. So we’re just looking at one-quarter of our big problems.

“It seems to me it’s got to come all the way from the top in how we deal with all four of these segments. We can’t just say we’re going to raise taxes for all four of them.”

Moorlach also challenged the bill’s job creation claim. “That [increased funding] comes out of taxpayer pockets,” he said. “It seems like zero sum game. You’re spending a billion dollars here, but you’re taking it from somewhere else. At the end of the day there might be jobs lost as well.”

Only one committee member voted against the bill when it was considered by the Senate Transportation and Housing Committee on April 28: Sen. Ted Gaines, R-Eldorado Hills.

“I really feel with an improving economy, and even a recent report of $4 billion in additional revenue coming into our state treasury, why aren’t we spending tax revenue that’s already coming into the treasury and prioritize that infrastructure in California?” he said. “We’ve been able to do it historically. We’ve obviously fallen behind.”

If SB16 passes the Legislature it will likely be signed by Brown. In his 2015 inaugural address the governor discussed the need to have “the roads, highways and bridges in good enough shape to get people and commerce to where they need to go. … Each year, we fall further and further behind, and we must do something about it.”

The bill will next be considered by the Senate Appropriations Committee.