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California Republicans say that drivers can have smoother roads, more reliable public transit—and lower taxes.

In November, voters will get the chance to repeal a recent increase in the state gas tax and assorted vehicle fees. That tax hike—an extra 12 cents per gallon of gasoline, 20 cents per gallon of diesel, and two new vehicle registration fees—was signed into state law last year, part of a Democratic-led transportation package that directs an extra $5 billion per year toward the state’s dilapidated roads and highways.

Making voters pay more at the pump is a tough political sell, but Democrats and other defenders of the law argue that our infrastructure is long overdue for an upgrade. The gas tax hadn’t been increased in more than 20 years, while the cost of highway construction has tripled. You can’t get something for nothing, they say.

Not so, say supporters of the repeal, Proposition 6. Chief among them is John Cox, the Republican running to be California’s next governor.

“The Democrats decided to do the easy thing in their view, and that is just keep sticking their hands in the pockets of Californians,” he said, “instead of doing the hard work, which would have been standing up to the donors, standing up to the special interests, and using our money effectively and wisely.”

California, he added, “spends multiples of what other states spend on a mile of road.” In trying to sell voters on Prop. 6, which would also require voter approval for all future driving-related tax hikes, supporters like Cox make the following arguments:

• California transportation spending is out of whack compared to most other states.

• Bloated transportation agencies, public sector unions and red tape are to blame for those higher costs.

• Political leaders could cut that wasteful spending—saving taxpayers billions and rendering higher taxes unnecessary—if only they had the will and the courage.

These add up to a potentially enticing argument. The question is: Should voters believe it?

Prop. 6 skeptics are right to say that repealing the new taxes and fees will necessarily mean cutting back on something. Supporters have so far been a little vague on what that something is. Wasteful spending or vital public services? It’s entirely in the eye of the taxpayer.


The Cost of a California Highway

When asked for evidence that California can’t manage its transportation budget, the Cox campaign points to a recent report published by the libertarian Reason Foundation. According to its findings, the state government spends more than $471,000 per mile of road that it maintains. That’s nearly triple the national average of about $178,000. By this measure, California has the eighth-most-expensive state road system in the country.

Given that our roads are in such rough shape, and California also has among the highest gas taxes in the country, one might reasonably wonder whether drivers and taxpayers here are getting a raw deal.

The California Department of Transportation (Caltrans) argues that the report inflates the state’s true costs by measuring each state’s highway system simply by totaling its length. According to Caltrans, California highways have an average width of more than 3.4 lanes, compared to a national average of 2.4, which makes the same length of highway more expensive to maintain. In effect, the report treats a two-lane highway in Oklahoma the same as an equally long stretch of California’s Interstate 405—all 14 lanes of it.

The Reason report is a rare effort to compare across state agencies—because it’s difficult to do. Different state agencies are responsible for different aspects of the highway system, subject to different rules, and operate in vastly different climates, terrains and economies.

“More than 40 percent of the nation’s freight is moved through California, which has three of the nation’s top five busiest ports in Los Angeles, Long Beach and Oakland,” a spokesperson for Caltrans said in an email. That extra wear and tear adds to the state’s overall maintenance tab.

Asked if the federal government compares transportation spending across states, Doug Hecox, spokesman for the Federal Highway Administration, said different methodologies will produce wildly different estimates.

“There are many ways to bake a cookie, and everyone has a different recipe,” he said. “Welcome to my personal hell.”


What Drives the Cost?

Baruch Feigenbaum, author of the Reason report, agrees there are many reasons California roads might cost more—some within the state’s control, and some not.

Falling into the latter category: It’s more expensive to build and maintain roads in high-density urban areas, and California has some of the biggest in the country. The Sierra Nevada and a constantly eroding coastline require challenging and expensive engineering. And, yes, this is California, where wages and land values make everything cost more, transportation related or not.

“Obviously, it’s going to be more expensive to build a mile of roadway in California with labor than it is in Mississippi, regardless of some of the union issues,” said Feigenbaum.

But the high cost of labor is exacerbated by the higher levels of unionization in California, he said. Likewise, the state has tighter environmental regulations than most, which can saddle projects with delays and extra costs.

But where some see inefficiency, others see the preservation of the state’s most cherished values. And for every propeller of higher costs, there is a powerful constituency ready to defend it.

“One of the things that Californians love, that is part of our birthright, is our beautiful state with our beautiful environment,” said Russell Snyder, executive director of the California Asphalt Pavement Association, a trade group that represents road pavers and asphalt producers, and which opposes Prop. 6. “Environmental rules are easy to demonize, but they’re there for a reason.”

Other factors pushing up costs are less obvious, though no less fiercely guarded. In California, much of the major road work is done during off hours to limit the impact on commuters, said Margot Yapp, vice president at Nichols Consulting Engineers, a firm that works on transportation projects across the American West.

“Go travel in the summer in any other state, and construction—even on the interstate—happens in the daytime,” she said. But given the amount of congestion in California, shutting down highways at rush hour would spell certain gridlock and political backlash.

“As soon as you do pavings at night, every (cost) goes up—I would say, easily, by 30 percent,” said Yapp.

Feigenbaum, the Reason Foundation author, still insists Caltrans can cut costs. His suggestions: Caltrans should enter into more partnerships with private companies or take on some of the responsibilities now delegated to local and county organizations, reducing duplicative bureaucracies. In theory, he concluded, passing Proposition 6 would force the state to find those efficiencies.

But maybe only in theory.

“From a mathematical perspective, the state can do it, but from a political perspective, the state probably won’t,” he said.


Can We Cut the Fat?

Carl DeMaio begs to differ. This fall, the conservative talk-radio host—who chairs the political action committee pushing for the repeal—plans to file papers for a 2020 ballot measure, which he says would recoup the state’s budgetary losses from passing Prop 6 … without raising taxes.

The details have yet to be hashed out, but DeMaio proposes three savings: Dedicate all gas-tax revenue solely to road maintenance and improvement (right now, some goes to public-transportation projects and debt repayments); divert all car sales tax revenue to state transportation (now that money is treated like other sales tax and goes to general government expenses); and enact “efficiency reforms,” such as mandating that Caltrans employ more independent contractors.

But many state finance experts say finding savings is not that easy.

“It’s nonsense to the suggest that’s just money that’s laying there not being used,” said Michael Coleman, fiscal policy advisor to the League of California Cities, which opposes Prop 6. “If you’re going to be honest with the proposal, then you have to look at what the consequences of this are.”

A little more than half of sales-tax revenue from auto purchases goes to the state’s general fund, for example. If voters decide to divert that money to highway repairs, what could lawmakers cut to make up the difference?

Past ballot measures have placed spending requirements on K-12 education and budget reserves. Court orders and federal funding requirements put more restrictions on many health and social programs and corrections spending. Left on the chopping block are higher education, parks and recreation, public resources, and certain unprotected social welfare programs.

“You’re talking about a fairly small part of the budget,” said Coleman. “It’s remarkable how little discretion the Legislature actually has.”

The remaining sales-tax money that goes to cities and counties—a little less than half of the total haul—mostly goes toward local law enforcement and emergency services, jails, welfare payments and local transportation.

Those fighting against the new gas tax argue that because sales taxes on automobiles are levied on drivers, they should be spent solely on transportation.

As for the savings that DeMaio proposes to unearth by forcing state agencies to rely more on contractors, the state’s nonpartisan fiscal analyst is skeptical.

“When we’ve looked at the cost of contract versus state staff, we haven’t really been able to identify significant differences between the two,” said Paul Golaszewski, a transportation expert with the Legislative Analyst’s Office.

But DeMaio dismisses the idea that there isn’t at least $5 billion to be found somewhere in the state’s $139 billion general fund.

“I don’t think any voter out there is going to accept the notion that government is in prime efficient condition and can’t figure out how to do more with less,” he said.

He, John Cox, and the entire national Republican Party are counting on it. With many political pundits and data points projecting an electoral “blue wave” this November, opposition to the gas tax may be one of the GOP’s last breakwaters. In June, Democratic state Sen. Josh Newman was recalled from his north Orange County seat by a 16-point margin—a recall fueled by anger over his vote for the gas-tax bill. If voters turn out against Newman’s fellow Democrats in equal measure this fall, that could keep Democrats from flipping some of the most vulnerable GOP-held congressional seats in California, allowing Republicans to keep control of the House of Representatives.

“From a turnout and motivation perspective, this is a huge winner for Republicans,” said Jack Pandol, spokesperson for the National Republican Congressional Committee. “We’re going to make every Democrat in November own this tax.”

CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.

Published in Politics

California’s resistance began before there was a resistance.

When Gov. Jerry Brown unveiled his final budget on Jan. 10, it bookended eight years of a progressive march to reduce greenhouse gases, expand health care, grant more rights to undocumented immigrants and raise the minimum wage to $15 an hour. Along the way, voters have assented by passing temporary taxes on the rich—not once, but twice. The top marginal income tax rate is now 13.3 percent, the highest state income tax rate in the country.

In short, policies that are now labeled acts of resistance to President Donald Trump were alive and ascendant in California long before Trump won the White House. But the contrasts have become much more stark.

Instead of cutting taxes, the Democratic governor and his party’s legislative leaders have passed a gas tax to help pay for aging infrastructure. Instead of trying to shift government out of the healthcare marketplace, California is looking for a way to fund single-payer health care, including coverage for undocumented immigrants. Instead of criminalizing pot, the state is looking forward to collecting taxes on marijuana sales.

In the months between now and the June deadline for a final budget, the governor and the Legislature will hammer out details. The focus this year: what to do with an expected surplus of $6.1 billion—and there are definitely differing opinions all around. Republicans say return it to California’s 40 million residents as a nice tax refund. The governor's priority is to fill up the state’s rainy-day fund. Democratic legislators mostly want to spend it.

“We have a very different approach,” said Assemblyman Phil Ting, D-San Francisco, who chairs the Assembly Budget Committee. “Our focus, the people who we think need tax relief, are the working Californians who are making less than $25,000. That’s where we want to spend our money, making sure they have money to pay rent, to pay for food.”

Rather than giving out “huge corporate tax breaks and a huge tax break for the wealthiest in this country,” Ting has a long list of how he would like to spend that extra money, including:

• Increasing the state’s Earned Income Tax Credit, which puts money into the hands of the working poor.

• Expanding Medi-Cal health care for poorer Californians to cover all remaining uninsured residents, mostly undocumented immigrants.

• Expanding early education for 4-year-olds through preschool and transitional kindergarten programs.

• Increasing college aid.

• Expanding mental and social services to reduce the number of criminals who go on to re-offend.

As supportive as Brown might be of these Democratic aspirations, his administration is urging legislative leaders to proceed with caution. The state’s tax structure is more vulnerable than ever to the stock market gains and losses of its wealthiest citizens, and the governor said California must prepare for the next economic downturn, because a mild recession could wipe away at least $20 billion a year in revenues.

He also warns of uncertainty from Washington, D.C.

“There are certain policies that are radical departures from the norm, and California will fight those, whether it’s immigration or offshore drilling,” Brown said. “We don’t know what will happen. I wouldn’t want to portray a California-Washington battle, although there are some key differences, and we’ll espouse our values.”

Since Brown was elected to begin his second stint as governor in November 2010, the state has climbed out of the recession and enjoyed economic prosperity. The unemployment rate, which topped 12 percent, now stands at 4.6 percent. Since his return, California has added 2.4 million jobs, and hourly wages are up $4.76 an hour. The state, which carried a $25 billion deficit in his first year back, has enjoyed billion-dollar surpluses in recent years, and the state now has a rainy-day fund.

The governor’s proposed $190 billion budget is dominated by spending on education (29 percent) and health care (32 percent). Health care spending has been growing particularly fast since the state embraced the Affordable Care Act, also known as Obamacare. The act not only grew the marketplace for private health plans; it allowed states to expand their Medicaid health insurance programs for the poor.

Because California is among 30 states that expanded Medicaid, the federal government is paying at least 90 percent of the cost for newly eligible enrollees. That has allowed California to draw billions in extra funding from the federal government to bolster Medi-Cal, the state’s version of the national Medicaid program. As a result, the number of people without health coverage in the state has dropped to a historic low: from 17.6 percent in the 1980s to 7.6 percent in 2016. Today, one in three Californians is covered by Medi-Cal.

Public schools too have greatly benefited since the recession, with much of the extra spending on schools going to improve teachers’ salaries.

However, if the federal government doesn’t reauthorize the Children’s Health Insurance Program for 1.3 million children, that could add more than $850 million in costs to the state over two years.

Worse, if Republicans in Washington slash Medicaid funding in 2018, the state could lose between $25 billion and $50 billion, said Chris Hoene, executive director of the California Budget and Policy Center, a progressive think tank in Sacramento.

“The reality is California could not afford the scale of the cuts the GOP has been proposing,” Hoene said. “That’s going to put state leaders in a position of deciding who gets state services and how do they fund that.”

Other factors are straining the budget. For example, pension costs for public workers continue to be one of the fastest-growing liabilities—driven by lower investment-rate assumptions, higher health care costs and longer life spans.

Voters, too, could turn on Brown and lawmakers. Early polling suggests Republicans have a decent shot at repealing a gas tax hike that went into effect late last year. Brown said at a press conference Wednesday that he believes a repeal initiative could be defeated.

The Legislature’s nonpartisan budget analyst is also urging lawmakers not to commit to too many new spending programs.

“As it crafts the 2018-19 budget and future budgets, we encourage the Legislature to consider all of the uncertainty faced by the budget in future years and continue its recent practice of building its reserve levels,” the analyst wrote.

On the flipside, Republicans are calling for a tax refund, if not an outright repeal of state income taxes. They argue that California’s high taxes chase residents out of state.

“This surplus is a direct result of Capitol Democrats overtaxing hard-working Californians,” said Assemblyman Matthew Harper, R-Huntington Beach. “Rather than expanding an ever-growing list of government programs, our leaders should figure out a way to return that money to the people who earned it in the first place.”

Assemblyman Vince Fong, R-Bakersfield, said he plans to introduce tax cuts aimed at helping families and small businesses stay in California.

“As we see all too often now, we are losing families and small businesses to neighboring states that have tax burdens much lower than California’s high-priced tax code,” Fong said on Twitter. “We have an opportunity to change that.”

Brown dismissed the refund idea, saying it would only prompt service cuts to public schools and universities later. “If you want to budget responsibly, you need big surpluses in years that are good,” he said.

Still, there’s a growing sentiment that California may have to respond to recent changes in the federal tax plan, specifically a $10,000 cap on state and local deductions that will hit millions of households.

According to the state Finance Department, the average deduction for state and local income taxes alone is nearly $16,000 per return, while state and local property taxes average less than $6,000 per return. Because a portion of those taxes will no longer be deductible, it acts as double taxation for California taxpayers.

Senate President Pro Tem Kevin de León, who is running for U.S. Senate, introduced legislation Thursday to shield Californians from bearing the costs of the tax overhaul. The bill, dubbed Protect California Taxpayers Act, would allow taxpayers to make charitable deductions to the state and receive a dollar-for-dollar tax credit on the full amount of their contribution. By having residents donate to the state government as a charitable contribution, the contribution remains deductible on federal taxes.

“The Republican tax plan gives corporations and hedge-fund managers a trillion-dollar tax cut and expects California taxpayers to foot the bill,” de León said in announcing his legislation. “We won’t allow California residents to be the casualty of this disastrous tax scheme.”

Brown was particularly vocal against the GOP tax proposal, calling it a “tax monstrosity,” but the governor expressed reservations about whether the state could sidestep federal law.

“It looks interesting,” Brown said. “But two questions: Can it work? If it does work, can the Internal Revenue Service issue a regulation and completely subvert it?”

De León responded that he was confident it would work, because similar charitable deductions have already been given out for education-based contributions.

For now, state Democrats are in agreement about a common threat.

Whether it’s federal tax changes or entitlement cuts, the leader of the Assembly, Anthony Rendon, D-Paramount, said he’s most concerned Republicans in Congress and the Trump administration will take another swipe at liberal California in 2018. “We’re worried about the next shoe to drop.”

CALmatters is a nonpartisan, nonprofit media venture explaining California policies and politics.

Published in Politics