CSAC Bulletin Article

Housing, Land Use and Transportation 12/03/2010

Proposition 26 & the Transportation Tax Swap

CSAC, along with the Legislature and multiple transportation stakeholders, continues to analyze and understand the affects of Proposition 26 on the transportation tax swap enacted in March 2010 (AB X8 6 and AB X8 9). Recall that the transportation tax swap eliminated the sales tax on gasoline (Proposition 42 and spillover) and replaced it with a 17.3-cent increase in the excise tax on gasoline (Highway Users Tax Account or HUTA) and a 1.75 percent rate increase in the sales tax on diesel. 

Proposition 26 has a retroactive provision on the 2/3rds vote requirement. County counsel is concerned that this provision invalidates the replacement taxes enacted by the transportation tax swap, unless the Legislature validates those by a 2/3rds vote within 12 months of the enactment of Proposition 26. Further, they believe litigation would be required to reinstate the sales tax that funds both Proposition 42 and the transit spillover revenues.

The most effective path to provide certainty and avoid the risk of losing these transportation funds is to seek re-enactment of the taxes (AB X8 6 provisions) by a two-thirds vote of the Legislature recognizing that Proposition 22 now precludes a simple re-enactment of the two bill package adopted in March of 2010. Any re-enactment of the provisions that includes allocation of these funds for General Fund relief (AB X8 9 provisions) is now complicated by the fact that this is precluded by Proposition 22, which prohibits the use of transportation funds for General Fund relief or any other purpose other than for transportation whether through temporary borrowing or a permanent taking.

With over $2.5 billion a year in transportation funding at risk the Legislature and stakeholders need to work together cooperatively to enact a solution. The loss of this revenue would jeopardize transportation projects across California, threaten thousands of jobs, and negatively impact the overall economic wellbeing of the State given the multiplier affects from infrastructure investment. 

For a more detailed analysis of Proposition 26 and the transportation tax swap, please visit the CSAC website.

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