Davis Plan Taps Gas-Tax Fund to Balance Budgets

Gov. Gray Davis is planning another assault on state transportation services by quietly arranging to siphon away even more gasoline sales tax revenues to keep California out of the red.

The move is opposed by public transit advocates and has angered Republican lawmakers, who contend that transportation needs are being forced to unnecessarily bear the brunt of the state’s economic woes.

Davis has proposed borrowing $2.5 billion--mostly in gas sales tax money--that had been earmarked for transportation to balance the next two budgets.

At the same time, the governor wants to cap so-called spillover funds that are designed to cover public transit needs.

These funds materialize on rare occasions when a combination of rising gas prices and a weakening economy trigger an obscure provision of an old law.

That law, enacted in 1971, was crafted in such a way as to prevent the general fund from reaping the type of windfall that Davis now proposes--a fact that has bolstered opposition to the idea.

Combined with significant sentiment in Sacramento that gasoline sales taxes should pay for transportation projects, Davis’ proposal is emerging as a lightning rod for debate in the current budget talks.

“We know it will be one of the more controversial parts of the budget,” said Mark Hill of Davis’ Department of Finance, “certainly for those people who have a recollection of the original intent of the 1971 legislation.”

Davis has proposed capping the spillovers during the next two fiscal years at $81 million for the first year and $37 million for the second.

Any revenues raised beyond those amounts, under the governor’s plan, would remain in the general fund rather than be transferred to the Public Transportation Account, which allocates money for transit projects and programs.

The result: Money earmarked for public transportation instead would be siphoned off to balance the state budget.

The Davis administration’s cap in 2001-02 is based on the assumption that the weighted, average price of gasoline this year will total about $1.87 per gallon, including tax.

If gas prices rise as high as $3 per gallon, as some analysts predict, the spillover could exceed the cap amounts by tens of millions of dollars. It is this money that Davis wants to keep in the general fund.

Finance officials contend that if gas prices play out as they predict, there will not be any extra money. But Steve Schnaidt of the Senate Transportation Committee said that if that were the case, there would be no need for a cap.

The governor’s plan would require two-thirds approval of the Legislature, and it may be difficult for Davis to hit that mark.

For one thing, Davis’ proposal is opposed by the California Transit Assn., which argues that it could reduce the money available to bolster transit services. Additional bus drivers, for example, could be hired to increase the frequency of buses traveling along established routes.

“When you have skyrocketing gas prices and a slumping economy,” said Joshua Shaw, the group’s executive director, “is exactly when more people might have to consider a bus or rail option that they might not otherwise have contemplated.”

The transit association is among those forcefully pointing out that the 1971 law imposing sales taxes on gasoline specifically was intended to prevent the state from using spillover money to pay for programs and services other than those benefiting public transit.

Davis’ plan also has received a cold reception from Assemblyman George Runner of Lancaster, the Republicans’ point man on the budget in the lower house.

“We are going to want to keep our commitments to transportation as much as we can,” Runner said. “What we don’t want is an electricity crisis and an accompanying financial slump to give way to a public transportation crisis.”

Assemblyman John Dutra, the Fremont Democrat who chairs the Assembly Transportation Committee, and his counterpart in the upper house, Sen. Kevin Murray, a Los Angeles Democrat, both would like to see Davis’ proposal revised so that any spillover funds generated beyond the cap are split between the general fund and the Public Transportation Account.

“At the very least, it would be fair to share the revenue beyond the [caps],” said Andrew Antwih, chief consultant for Murray’s committee.

Davis administration officials describe any revenues raised beyond the cap as a windfall and contend there are now no projects that need the extra money.

The decades-old law that created the spillover represents a classic case of partisan politics giving rise to a bureaucratic mess that continues to frustrate lawmakers.

Former Senate President Pro Tem James R. Mills, the San Diego Democrat who carried the bill 30 years ago, recalled the challenge he faced: trying to figure out a way to raise money for public transportation while knowing that then-Gov. Ronald Reagan would not sign a law that would require him to raise state taxes.

To provide Reagan with an out, according to Mills, a measure was crafted under which the state’s share of the overall sales tax would drop by a quarter of a percent. At the same time, however, California counties were allowed to raise their share of the sales tax by a quarter of a percent and to use the money, in most cases, to fund public transportation projects.

Sales taxes were extended to gasoline purchases to soften the hit on the state’s general fund. Mills said the state originally gave up about $130 million by reducing its share of the sales tax by a quarter of a percent, but gained about $136 million by imposing sales taxes on gasoline.

The $6-million difference, according to Mills, represented the spillover that materializes when sales tax revenues generated from gasoline purchases are greater than a quarter of a percent of all other sales.

“Originally the amount was very little,” Mills said of the spillover. “But as the cost of gasoline increases, the amount taken in by the state rises radically.”

That Mills’ measure did not directly dedicate the sales tax on gasoline to transportation projects has troubled lawmakers on both sides of the aisle. Sen. Tom Torlakson (D-Antioch) successfully carried a bill last year that called for gas sales tax revenues to be dedicated to transportation for five years.

Faced with a gloomy financial forecast, Davis is now proposing to defer the plan for two years to free up about $2.2 billion to balance the next two budgets. The governor wants to restore the borrowed money by extending Torlakson’s plan by two years to 2007-08.

David Ackerman, a lobbyist for Associated General Contractors, said that his clients are deeply concerned about the Davis plan and that a letter is being sent to the governor seeking assurances that any money borrowed from transportation will be repaid.

Dutra and Torlakson are each pushing ballot measures that would allow voters to decide whether to permanently dedicate the gas sales tax to transportation. Torlakson’s measure would lower the threshold needed for voters to approve local transportation sales taxes.

“The public is increasingly anxious to see [that] their taxes paid at the gas pump go to transportation purposes,” Torlakson said.