Date: November 1, 2016
Author(s): Martin Wachs, Anne Brown, Evan Moorman, Mark Garrett
Abstract
California has historically utilized fuel excise and sales taxes for transportation funding. In the mid-2000s, the Governor proposed a “Fuel Tax Swap”; the state would reduce fuel sales tax by 6% and increase the fuel excise tax in hopes of generating the same amount of revenue, with the excise tax then being used to pay debt from highway and rail bonds. This study analyzed the history of California’s transportation finance and highlights the need for more stable and secure state transportation funding. It was found that the fuel excise tax is less volatile because it is not based on the fuel price. Additionally, the initial excise tax change was based on annual projections and so was imperfect. Relying on taxes that vary with fuel price creates discrepancies in financial planning for long transportation projects. California still faces major transportation funding problems caused by large outstanding bonds for capital projects, and the declining real value of the fuel excise tax because of increasingly fuel-efficient cars, inflation, and rising construction costs.