The Future of California Transportation Finance

Martin WachsUniversity of California,

Berkeley

The Future of California Transportation Finance

Martin WachsUniversity of California,

Berkeley

A Quiet RevolutionA Quiet RevolutionThe nature of transportation finance is changing

fundamentally & on a large scale

The change is happening gradually, without much public notice or broad discussion

Question: Is the current direction of change desirable or not?

Implication…I think the answer may well be “NO”

Local Streets & County Roads

Local Streets & County Roads

Financed largely by property taxes on residential and commercial land….and ought to be …..

Most benefits come from “access” to property: postal delivery, ambulance, fire, police, water, sewer, telephone service.

Access gives value to property & value should be “recouped”

Local streets & county roads carry tiny % of all traffic

History of Transportation Finance

History of Transportation Finance

Local Streets and County Roads: Transportation Finance: 90%++ of System

State Highways Bankrupting States in 1915-25 period; Fastest Growth of Autos and Roads Ever….Led to innovation of “User Fees.”

Tolls most Desirable User Fee in PrincipleMotor Fuel Taxes and Various “Car Taxes”

adopted as “Second Best” but Workable

History of Transportation Finance

History of Transportation Finance

Motor fuel taxes enormously popularSupported by wide variety of constituenciesAdopted in every state by 1940Federal motor fuel tax in thirtiesFundamental finance mechanism for Interstate

System in fifties

History of Transportation Finance

History of Transportation Finance

User fees in USA became associated with “trust funds” and non-diversion constitutional provisions in many states; Article XIX in California

Elastic definition of user fees allowed expansion to transit and to environmental mitigation in many states

“Hypothecation” not common worldwide

Motor Fuel TaxesMotor Fuel TaxesUsually expressed as “Cents per Gallon”Must be raised by act of legislatureRevenue does not rise automatically with

inflation as does income tax or sales taxImproving Fuel Economy lowers revenue per

mile of drivingRevenue declining precipitously in relation to

VMT

Quiet Revolution Under Way

Nationally…..and in California

Quiet Revolution Under Way

Nationally…..and in California

State legislatures reluctant to raise user feesIncreasingly reluctant to directly raise fees or

taxes at allPutting measures on ballot for voters to enact

instead of taking action in legislatures

Fuel Tax Changes, 1957-2002

Fuel Tax Changes, 1957-2002

Average of Fifty States

State Fuel Tax in 1957: 5.7¢/gal If adjusted for Inflation in 2002: 31.0¢/galActual Current Fuel Tax: 20.3¢/galDifference 10.7¢/gal

Survey of Fifty StatesSurvey of Fifty StatesNumber of states granting authority to local

governments…..All since 1970

15 States: Local motor fuel taxes33 States: Local vehicle license/registration fees33 States: Local option sales taxes15 States: Local income/payroll taxesA few others….severance taxes; impact fees; real estate

transfer taxes, mortgage recording taxes

Change is happening quickly

Change is happening quickly

44 Transportation Finance Ballot Measures in US in 2002

32 Local/Regional in Nature 9 Statewide

20 Dealt with sales taxes 5 Property taxes 1 Gasoline tax 9 Bond issues

Changes in State & Local Transportation

Revenue,1995-99

Changes in State & Local Transportation

Revenue,1995-99 (National Totals) Billion$/Year % Change State User Fees 36.2-42.7 +18% Local Property Taxes 5.2-6.4 +22%Local General Funds 12.3-15.9 +29%Other State Taxes 6.6-8.6 +30%Other Local Taxes 4.5-7.1 +58%State Borrowing 4.3-8.3 +92%

California’s Situation Not Terribly Different from

National Trends….But it’s a BIG State

California’s PopulationCalifornia’s Population

5

15

25

35

1960 1970 1980 1990 2000 2003

VMT in California(billions of miles)

VMT in California(billions of miles)

0

50

100

150

200

250

300

350

1966 1970 1980 1990 2000

0

2

4

6

8

10

12

14

16

18

20

19232¢

19273¢

19474.5¢

19536¢

19637¢

19839¢

199014¢

199418¢

Summary of Gas Tax Increases

California’s Gas Tax

-100%

-50%

0%

50%

100%

150%

200%

250%

VMT

Personal Income($1970)Population

Gas Tax ($1970)

TDA ($1970)

Percent Change

VMT

Personal Income

Population

Gas Tax

TDA

Growth in Gas and Sales Taxes Since 1970 Compared to VMT, Personal Income and Population

Fiscal Year

Percent Change in Self-Help Taxes Compared to Gas Tax

State Transportation Improvement Program

State Transportation Improvement Program

Local Option Sales TaxesLocal Option Sales Taxes

Most popular and fastest growingNational survey and detailed study of California

(18 Counties; 80% of Population)Read ballot measuresInterviewed proponents/opponents/administratorsExamined projects built and not built, studied

budgets and costs

Major Features of LOSTS

Majority vote or supermajority

Project lists/categoriesSunset dates/reauthorizationImplemented by local govts.

Major Features of LOSTS

Majority vote or supermajority

Project lists/categoriesSunset dates/reauthorizationImplemented by local govts.

Issues Raised by LOSTsIssues Raised by LOSTsMove away from user fee philosophySales Tax is broad based taxRegressiveConsistency with Regional Transportation PlansProject deliveryLocal authority and responsibilityFlexibility versus specificitySalience of issue of “trust”

Trust of Politicians is Big Issue

Trust of Politicians is Big Issue

California Poll by Balldassare:

“Do you think people in state government waste a lot of the money we pay in taxes, waste some of it, or don’t waste much of it?

52% A Lot 5% Not Much 41% Some 2% Don’t know

Comments from Citizens…..

Comments from Citizens…..

“The whole system is a mess”“Officials don’t listen to us”“We don’t know where our tax money goes”“I’d like to vote on everything so they don’t make decisions for

us”“Politicians fix only what gets them elected” “I don’t trust where the money will go.” I just don’t think it will

do any good.”

Issues Raised by LOSTSIssues Raised by LOSTSChristmas tree measuresPay to play measures may be even worse

(California Proposition 51)Dissociation between projects and efficiency of

management of system

Broader Questions Worth Asking

Broader Questions Worth Asking

Why won’t politicians act directly?Revenue is just revenue

User fees are not understood Term limits are an issue

Broader Questions Worth Asking

Broader Questions Worth Asking

Is user fee concept still valid and appropriate?• User fees provide incentives to efficiency• Motor fuel taxes were second best, and may be

declining • Technology to the rescue/ A new era of tolls• Attitudes changing toward tolls, if you get

what you pay for• But realistically, there is a long way to go

Long-Term Future Long-Term Future Replacement of Petroleum FuelsUse of Pricing as Incentive to Change Type of

FuelCharge for Use of Particular Road at Particular

TimeGPSS MonitoringPrivacy IssuesExperiments Under Way

The Transition is Underway, but Difficult to Understand

The Transition is Underway, but Difficult to Understand

GPSS Truck Use Charges in EuropeFuel Tax Still Valid for Decades in USAIssue of Double Taxation if Tolls are Charged on

Existing RoadsProbability of Tolls on NEW CAPACITYShift is Already Happening

California Needs toCalifornia Needs to

Realize that the shift to local option transportation taxes is a short-term interim measure;

In the reasonably short term there may be a need to raise taxes and tolls;

In the longer term – 20+ years – we need to change the entire basis of user fees;

I believe that electronic toll collection is where we are heading, but I am not completely certain of that.

THANK YOU!THANK YOU!ITS TIME FOR YOUR QUESTIONS AND COMMENTS.