California's Gas Tax Continues to Plummet

[Updated 2/26/2016] California continues to be a sad outlier when it comes to states adjusting their gas taxes to take advantage of the lowest gas prices since 2009. When last year's six-cents tax decrease took effect on July 1, gas taxes went up in six states.

At least 10 states may increase gas taxes this year, California among them, but The Golden State may be the only one to see a gas tax decrease if the legislature is unable to arrive at an agreement as it did in 2015.

Last year, ten states increased gas taxes (see bottom of post), all but three had Republican governors. The July 1, 2016 decrease will mark the third time in as many years that the Board of Equalization has adjusted the gas tax downwards. In 2013, the adjustment was upwards.

Once California had the highest gas taxes in the nation, now it ranks fifth – per API [PDF] after Pennsylvania, Washington, New York, and Hawaii.

Alexei Koseff of The Sacramento Bee's Capitol Alert explains the mechanism and historic roots behind the BOE's annual adjustment known as the "fuel tax swap,"

Because of a strange bit of budget finagling in 2010 to pay off billions of dollars in transportation-related bonds without touching the struggling general fund, then-Gov. Arnold Schwarzenegger and lawmakers swapped the state’s sales tax on transportation fuel for an equivalent “gallonage tax.” As a result, the State Board of Equalization must annually adjust a per-gallon fee charged at the pump so that it rakes in what the sales tax otherwise would have.

The excise tax will drop 2.2 cents on July 1 from 30-cents-per-gallon to 27.8 cents. The current gas tax, which includes a 2.25 percent sales tax, was 40.62-cents per-gallon effective Jan. 1, per API [PDF]. Prior to the 2010 gas tax swap, the sales tax was 8.25 percent and the excise tax was 18 cents.

Effect on state transportation budget

"Californians consumed 14.921 billion gallons of gasoline last year, according to the board, which means each 1-cent adjustment to the tax is worth about $149.2 million," writes Koseff. "So the state is looking at approximately $328.3 million less for public roads and mass transit next year." [Emphasis added].

The Feb. 22 vote could have been worse for transportation infrastructure. An earlier post suggested the tax dip would be 4.1 cents. 

Hat tip to the MTC-ABAG Library

*The article was updated to describe the correct changes to the tax rate.