Legislature passes gas-tax plan to reduce state budget deficit by $1.1 billion

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The Legislature on Thursday voted to pare more than $1 billion of California’s deficit through a complicated maneuver that would change how gasoline is taxed in California without altering the total amount collected in taxes at the pump. The plan would eliminate current restrictions for how gas taxes have to be spent, providing lawmakers the freedom to slice away at the state’s estimated $20-billion deficit. Gov. Arnold Schwarzenegger said Wednesday evening he had not yet reviewed the package and declined to say if he would sign it.

Funding for mass transit, such as bus and rail lines, would be substantially reduced this year. The plan would save the state an estimated $1.1 billion through June 2011.

Schwarzenegger had threatened to veto a similar proposal last week that would have replaced some of the current gas sales tax revenues with delays in corporate tax breaks. Lawmakers returned to the negotiating table in hopes of gaining the governor’s support for their new plan.

In an attempt to gain the governor’s support, Democratic lawmakers dropped the rollback of corporate taxes, as well as plans to allow local transit agencies to raise gasoline fees.

Under the plan passed Thursday, the existing sales tax on gasoline would be eliminated entirely and immediately replaced with a per-gallon excise tax at the same level.

All of which begs the question: Why switch in the first place?

The main reason: Because it allows lawmakers to sidestep voter-approved Proposition 42, which says that public transit has to receive 20% of gas sales-tax proceeds. After the tax swap, that requirement would disappear, allowing lawmakers to reduce transit funding. (To ensure some money for buses and rail, lawmakers did not raid the sales tax on diesel fuel, instead dedicating it to mass transit.)

Bottom line: The price at the pump would remain the same for drivers, mass-transit funding would be cut (though not as deeply as Schwarzenegger has proposed), local agencies would not be given new powers to raise gasoline fees and the state would chip away at its deficit.

-- Shane Goldmacher in Sacramento