Gas Tax Swap - Transit Breaths A Sigh of Relief

At last, the more than a year long struggle of the California Transit Association yielded some positive results, when Governor Arnold Schwarzenegger reluctantly signed the laws (ABX8 6 and ABX8 9). The new laws eliminated the 6% sales tax on gasoline, part of which was dedicated to transit funding, and raises the excise tax from 17.7% to 35% on gasoline. The law bounds the state to provide subsidies to transit operators through steady funding for operations by using the sales tax on diesel to replenish the State Transit Assistance (STA) Fund. STA funds are the only source of state funding for public transportation operations, which help transit agencies pay for the fuel, maintenance, and workers needed to operate trains, buses, and ferries.

Background

Since 2000, billions of dollars in state public transportation funds have been redirected to general revenue funds to plug the holes there through the state budget process. The California Transit Association claims that over the decade almost $ 4 billion have been diverted from the state’s public transportation, and worst of it is that only in the last three years around $3 billion have been diverted. The advocates of public transit term this diversion as “raids” on the public transit. The heavy diversions led to state-wide reduction in service of transit, increased transit-fares, lay-offs of employees, and sufferings of traumatic situations both by poor people and also senior citizens.

Source: Metropolitan Transportation Commission, California.

The 2009-2010 state budget was a deep stab in the back of the transit operators and the public, when the State Legislature and Governor eliminated the STA fund entirely. The resentment widespread, as the elimination of STA compelled transit operators make tough decisions in fare-increase and service-reduction. For example, the Metropolitan Transit Development Board (MTDB) of San Diego increased the fare by as much as 150% on various routes, the monthly passes were increased by 10%-12%, the services frequency for many routes was curtailed and for other routes the night service was totally eliminated.

But during this time the California Transit Association has already approached the court and filed a law suit against the State of California, in 2007. The suit was aimed at recovering the already diverted funds to be spent for “mass transportation purposes”. The court decided upheld the association plea, but the state filed an appeal. In September 2009, California's Supreme Court rejected the state’s appeal and ruled that the state's redirection of public transit funds to help balance the budget was illegal.

The Gas Tax Swap Law and the STA:

The state’s approval of the Gas Tax Swap Law (swapping sales tax with excise on gasoline) ensures a minimum provision for SAT funds for supporting the operating costs of the public transit. While the elimination of sales tax on gasoline means annual loss of $100 million, the provision of minimum funds means “relative certainty” for the public transit agencies.

The transit agencies would be receiving a one-time allocation of $400 million for the operating funds under the STA program to provide relief for operations funding through Fiscal Year 2010-11. Allocations beginning in 2011-12 will fund the STA at a baseline of approximately $350 million per year, with that amount projected to grow in subsequent years.

While final disposition of the case is pending – including the possible repayment of at least some of the more than $3 billion diverted over the past three years – the new agreement provides STA funding at a minimum level that represents an 83 percent increase compared to average annual STA allocations over the past ten years.

As such the new law provides a sigh of relief to the transit patrons.