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TRANSPORTATION. DISTRIBUTION OF EXISTING MOTOR VEHICLE
SALES AND USE TAX
Initiative Statute

THE QUESTION

Should 30 percent of the sales and use taxes raised from the sale or lease of motor vehicles be permanently allocated to specific transportation projects?

PROVISIONS

This measure redirects to transportation-related purposes 30 percent of the sales tax revenue from the lease and sale of new and used motor vehicles that currently goes to General Fund supported programs. Under the measure, these revenues would continue to be deposited in the General Fund and then transferred to a new Traffic Congestion Relief and Safe School Bus Trust Fund. The money in this new fund would be used for the purposes shown in Figure 1. These purposes include mass transit and highway improvements, replacement of certain existing school buses, local street and road repairs, public facilities for transit riders, senior and disabled transportation services, environmental mitigation, and bicycle and pedestrian improvements. The measure also identifies 45 transportation and environmental projects around the state that would receive specified amounts of money each year. These projects would receive a total of about $210 million in 2003-04, decreasing over time.

The measure requires money in the new fund to be transferred back to the General Fund in any year in which total General Fund revenues are less than those in the previous year. Additionally, the measure requires the transfer of a smaller amount from the General Fund to the new fund if the growth in General Fund revenues over the previous year is smaller than the amount to be transferred.

Agencies that are allocated money from the new fund can spend up to 2 percent of the money for administrative costs. The measure also requires an audit of expenditures from the fund to be conducted by a new, independent commission.

BACKGROUND

California levies a state sales tax of 6 percent on most goods sold in the state. (Local governments levy additional sales taxes, which are used for local purposes.) In 2000-01, California collected about $27 billion in state sales tax revenues, including about $3.4 billion from the sale and lease of new and used motor vehicles.

Most of the revenues from the state sales tax go to the state General Fund and are available for a variety of programs, including education, health, social services, and corrections. Less than 1 percent of the state sales tax revenue is dedicated to transportation purposes. Beginning in 2003-04, most of the state sales tax revenue generated from the sale of gasoline also will be used exclusively for transportation. As a result, about 4.5 percent of state sales tax revenues will be dedicated for transportation purposes.

California spends about $16.5 billion a year to maintain, operate, and improve its highways, streets, and roads and rail and transit systems. This money comes primarily from federal and state taxes (including state sales tax) on gasoline and diesel fuel, truck weight fees, and local taxes.

FISCAL EFFECT

This measure dedicates specified General Fund revenues to state and local transportation-related purposes of about $420 million in 2002-03, $910 million in 2003-04, and increasing amounts annually thereafter, depending upon the increase in the sale and leasing of motor vehicles. This would result in a corresponding reduction in funds available for General Fund supported programs.

This measure would also result in additional unknown administrative costs to various state and local agencies. These costs would likely be covered by the amounts that the measure allows each entity to spend for administrative purposes.

The California Budget Project prepared an analysis on Proposition 51. The following are excerpts from their report. This part of the analysis concentrates on the effect of the State Funding for the program. For a complete copy of the report go to www.cbp.org

Start of California Budget Project excerpts

Is General Fund Revenue Growth A Reasonable Way To Judge Whether The State Can Afford The Transfer?

Proposition 51 contains provisions intended to limit the impact of the transfer on other General Fund priorities in years when the state experiences slow growth or declines in revenues. In years with:

No or slow revenue growth: The transfer would be reduced if the Governor forecasts that current year General Fund revenues will fail to increase by an amount at least equal to the amount of the transfer. Any reduction in the size of the transfer would be allocated proportionately among the various purposes funded by the measure.

Revenue decline: The measure also allows for any balance in the fund to be transferred back to the General Fund if the May Revise forecast anticipates that revenues are expected to be lower than in the prior year.

While the measure reduces or suspends the transfer in years with slow growth or declines in revenues, suspension would not occur in many instances where the state faces a severe budget shortfall. This is because Proposition 51 does not take into account revenue growth needed to pay for increases in the cost of state services related to:

Inflation. By not taking into account the impact of inflation, this measure would result in an inflation-adjusted reduction in the funds available for state services in years where revenues barely exceeded the prior year's level;

Population, enrollment, and caseload increases in programs such as higher education, Medi-Cal, or corrections;

Reductions in federal aid that require an increase in state spending. For example, the state's share of Medi-Cal costs will increase in 2002-03 due to a change in the state-federal sharing ratio; this will increase the state's costs for Medi-Cal by approximately $174 million; or

Shifts in demand for state services related to economic or demographic shifts such as rising costs for public assistance during an economic downturn, or increased demand on higher education due to population growth trends.

While Proposition 51 includes a provision that "holds harmless" the level of the Proposition 98 guarantee, it would limit the resources available to fund the guarantee, thereby reducing revenues available for other programs and services, including health care, local government, public safety, and higher education. In recent years, the Legislature has "overfunded" the Proposition 98 guarantee, i.e., allocated more than the minimum amount required by the constitution. This was done largely because of recognition that the constitutional minimum guarantee was not providing districts with adequate resources to improve student achievement. By dedicating future General Fund revenues to the Trust Fund, Proposition 51 would limit the Legislature's ability to overfund the Proposition 98 guarantee, and what was established as a floor for school funding could become a ceiling.

Although Proposition 51 allows balances in the Trust Fund to be transferred to the General Fund in years when General Fund revenues decrease from the prior year, it provides for no flexibility to address a budget shortfall in years when revenues increase. Under current law, moneys in many special funds may be loaned to the General Fund in a budget crisis.⁵ These loans can help to minimize funding cuts in critical state programs. In the current crisis, the Governor proposes to borrow $1.0 billion from the Traffic Congestion Relief Fund to help address the $23.6 billion budget gap. However, Proposition 51 does not permit loans of Trust Fund balances to the General Fund under any circumstances, thereby limiting the options available to the Legislature and the Governor to address future shortfalls.

The state's current fiscal crisis illustrates the problems with the Proposition 51's provisions designed to protect the state's General Fund. The Governor's May Revision projects that the state will face a $23.6 billion budget shortfall for the 2001-02 and 2002-03 fiscal years. However, the May Revision also includes projections that General Fund revenues will increase by $10.5 billion between 2001-02 and 2002-03.⁴ If Proposition 51 were currently in effect, the provision designed to "safeguard" the General Fund would not apply in 2002-03, thereby increasing the magnitude of the state's fiscal problem by $460 million.

How Much Of The Budget Is Already Locked In?

Earmarking state resources for specific purposes reduces the state's ability to respond to changes in the state's fiscal circumstances and to adapt state spending to changing needs and priorities. In order to evaluate the impact of earmarking additional state General Fund resources, it is useful to examine how much flexibility the Legislature currently has over state spending. State revenues include those dedicated to special funds, which must be spent for specific purposes, and General Fund revenues that can be spent for any purpose.

One way to determine the level of legislative flexibility is to look how the state spends General Fund revenues. There is no precise definition of which state expenditures are mandatory and which expenditures are discretionary. At minimum, mandatory expenditures would include those required by or specified in the state Constitution (including revenues dedicated to specific purposes in the Constitution), expenditures mandated by voter-approved initiatives, and expenditures necessary to fulfill federal matching requirements. Even this definition is difficult to apply. For example, voters approved the "Three Strikes" initiative (Proposition 184 of 1994) imposing stiff prison terms on repeat offenders. While longer sentences increase state costs for corrections, there is no way to determine how much of the corrections budget goes for costs related to the "Three Strikes" initiative and how much goes for costs related to prisoners who committed crimes with sentences that could be modified by the Legislature.

Using a very minimal definition of mandatory spending, approximately two-thirds of state spending is mandatory and one-third (35 percent) is discretionary, i.e., expenditures over which the Legislature has control through the annual budget act. However, this estimate treats all expenditures for programs as fundamental to the operation of the state, such as the court system, transportation (including the Department of Motor Vehicles), higher education (other than Community College expenditures covered by the Proposition 98 guarantee), and corrections, among others, as "discretionary." In reality, the Legislature is much more constrained in its ability to reallocate General Fund spending.

A modestly expanded definition of "mandatory" spending that includes Legislative, Judicial, and Executive branch functions, tax collection, state air and water boards, forest fire protection, the Department of Motor Vehicles, corrections, and benefits paid to retired state employees, leaves 23 percent of state General Fund expenditures as discretionary. Even this expanded definition treats all state expenditures for the University of California and the California State University systems, housing, vehicle license fee reimbursements to local government, resources, and most state expenditures for environmental protection, among others, as discretionary.

End of California Budget Project excerpts

IMPACT OF YES OR NO VOTE

A YES vote means 30 percent of the sales and use tax revenues from the sale or lease of motor vehicles would be allocated annually by law to specific transportation projects as defined in the proposition.

A NO vote means 30 percent of the sales and use tax revenues from the sale or lease of motor vehicles would not be dedicated for specific transportation projects as defined in the proposition.

SUPPORTERS SAY

Proposition 51 will:

• Dedicate existing automobile sales taxes to fixing serious highway safety problems and severe traffic congestion.
• Replace thousands of school buses that do not meet federal safety and pollution standards, so our kids can ride to school safely.
• Reduce oil and gas pollution in our environment.
• Improve public transit, which will reduce congestion on our roads.

OPPONENTS SAY

Proposition 51 will:

• Earmark nearly $1 billion in tax monies for a long list of specified programs, which could not be changed by the Legislature even in a budget crisis.
• Require little accountability in the 45 specific programs written into this initiative, many of which benefit contributors to Proposition 51.
• Require that these projects be funded even if it means raising taxes or cutting vital services during a budget crisis.
• Tie up the state budget forever with 17 new categories of required spending despite the current state budget crisis.

SUPPORT AND OPPOSITION

Official ballot arguments in support are signed by Lieutenant Ed Gray, President, California Organization of Police and Sheriffs (COPS); Kirk Hunter, Co-Chair, School Transportation Coalition; Paul Burris, President, Partners for Highway Safety; Dana Rose, State Coordinator, California Safe Kids Network; Dr. John Balmes, M.D., American Lung Association of California; Arturo Venegas, Jr., Chief of Police, City of Sacramento.

Official ballot arguments in opposition are signed by Barbara Inatsugu, President, League of Women Voters of California; Lenny Goldberg, Executive Director, California Tax Reform Association; Lewis K. Uhler, President, National Tax Limitation Committee; Jon Coupal, President, Howard Jarvis Taxpayers Association.

For more information:

Supporters

Yes on 51- Citizens for Traffic Safety, (916) 313-4519, www.voteyesonprop51.org

Opponents

California Tax Reform Association, (916) 446-4300, www.votenoonprop51.org

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