Deep Cut Proposed for California's Gas Tax

A proposal to cut the gas tax by 21 percent would dig a huge hole in the state's transportation budget. It comes from a requirement in 2010 fuel tax swap legislation that doubled the excise tax while reducing the sales tax on gas by 6 percent.

2 minute read

February 19, 2015, 10:00 AM PST

By Irvin Dawid


Gas and Bikes

Richard Masoner / Cyclelicious / Flickr

In essence, because gasoline prices plummeted from last summer, dropping over $1 a gallon, the Board of Equalization (BOE) is tasked with maintaining the same level of gas tax revenue as had the sales tax and excise tax not been changed almost five years ago. The higher excise tax and lower sales tax has increased tax revenue, which BOE needs to address.

"The Board of Equalization released a proposal on Friday [Feb. 13] to reduce the per-gallon tax Californians pay on regular gas by 7.5 cents per gallon, a 21 percent cut from the current 36-cent excise tax," writes Jonathan Horn, economics reporter for U-T San Diego. "The new rate of 28.5 cents per gallon could be approved Feb. 24 and take effect July 1, the start of the 2015-16 fiscal year."

The board has been charged with setting the excise tax rate under a complex system approved in 2010 by the state legislature and then-Gov. Arnold Schwarzenegger called the fuel-tax swap The system allowed the state to take some money away from fixing roads to put toward future appropriations. To do this, California reduced the sales tax rate from 8.25 percent to 2.25 percent, and then made up for it by nearly doubling the excise tax rate from 18 cents per gallon to about 35 cents per gallon.

Horn describes the mechanics of adjusting the excise tax and history of gas tax revenue, which is tied to gasoline prices and consumption. "The excise rate is set to replace exactly what was lost under the old sales tax system," said Steve Gill, a professor of accountancy at San Diego State University. "In the short run, the tax can differ due to price estimates being off but it is required to be reconciled the next year."

The latest proposed rate represents a whirlwind for the fuel tax swap. Two years ago, the board increased that tax from 36 cents per gallon to 39.5 per gallon. Last year, the board lowered the excise tax rate back to 36 cents per gallon. The topsy turvy nature of the system has led to some Board of Equalization members to call the system a scheme, urging the state legislature to change systems. So far, there has been no action taken. [See BOE fuel tax chart (PDF)]

In Gov. Jerry Brown's inaugural address last month, one of the three infrastructure priorities he mentioned was tackling the enormous $59 billion problem of deferred highway and bridge maintenance. Reducing current gas tax revenue will not be helpful toward meeting that goal.

Friday, February 13, 2015 in U-T San Diego

View form second story inside Southdale Mall in Edina, Minnesota with escalators and model cars parked on downstairs floor.

The Mall Is Dead — Long Live the Mall

The American shopping mall may be closer to its original vision than ever.

March 21, 2024 - Governing

View of Austin, Texas skyline with river in foreground during morning golden hour.

The Paradox of American Housing

How the tension between housing as an asset and as an essential good keeps the supply inadequate and costs high.

March 26, 2024 - The Atlantic

Houston, Texas skyline.

Report: Las Vegas, Houston Top List of Least Affordable Cities

The report assesses the availability of affordable rental units for low-income households.

March 22, 2024 - Urban Edge

Close-up of hand holding charging cable moving toward charging port on electric car.

Undoing Biden's EV Rule

The partisan divide over how government should reduce greenhouse gas emissions was on full display after the Biden administration finalized its emissions standards rule for light and medium duty vehicles on March 20.

11 minutes ago - Office of U.S. Senator Dan Sullivan

Aerial view of high-rise buildings on waterfront in Boston, Massachusetts

Boston Moves Zoning Reform Forward

The ‘Squares + Streets’ plan creates form-based zoning templates for neighborhoods that promote mixed use and denser housing near transit.

1 hour ago - The National Law Review

Aerial view of Anchorage, Alaska downtown with mountains in background at golden hour.

Anchorage Leaders Debate Zoning Reform Plan

Last year, the city produced the fewest new housing units in a decade.

March 28 - Anchorage Daily News

News from HUD User

HUD's Office of Policy Development and Research

Call for Speakers

Mpact Transit + Community

New Updates on PD&R Edge

HUD's Office of Policy Development and Research

Urban Design for Planners 1: Software Tools

This six-course series explores essential urban design concepts using open source software and equips planners with the tools they need to participate fully in the urban design process.

Planning for Universal Design

Learn the tools for implementing Universal Design in planning regulations.