By Patrick Bergin
Copyright © 2001 by University of the McGeorge School of Law
JD, McGeorge School of Law, University of the Pacific
to be conferred May 2003
B.A., Government, California State University, Sacramento, 1996
California's transportation system is woefully under-funded and public highways, streets and roads have been hit the hardest. Although Californians pay a variety of transportation related taxes, the state has become bogged down in a myriad of transportation funding mechanisms and competing funding priorities. Currently, revenues derived from a multitude of taxes and fees paid by motor vehicle drivers are used to fund various government programs and are not specifically earmarked for transportation purposes. Thus, it is arguable that redirection of highway funds to non-transportation related programs has resulted in a sort of highway robbery upon the citizens of California.
On the March 2002 ballot, the State Legislature, through Proposition 42, will propose to permanently dedicate gasoline sales tax and use tax revenues for specific transportation purposes beginning in the 2008-2009 fiscal year. Although Proposition 42 appears straightforward, some of its terms may be considered vague, and its implementation could create public policy concerns. Notwithstanding such potential problems, if successful, Proposition 42 would dedicate funds for transportation related projects; primarily highways roads and streets.
A. Current Law
California's public streets and highways, once considered the best transportation system in the country, now rank near the bottom nationally because investment in the state's transportation infrastructure has failed to keep pace with increased vehicle travel and population growth. Transportation California: Meeting 21st Century Mobility Demands (last visited October 2, 2001) http://www.transportationca.com/research/bracesforinflux.html. According to the California Transportation Commission, the organization responsible for the allocation of funds for highway construction and mass transit improvements, the state's complex transportation system continues to be woefully under-funded. 1999 Annual Report to California Legislature, California Transportation Commission, p. 1 (December 8, 1999). The most neglected parts of our transportation system are California's highways, local city streets and county roads. (Id.)
The primary reason funding has been inadequate is that many car and fuel taxes have been diverted to other transportation programs, particularly mass transit. Overview of the 2001-2002 Budget Bill, Senate Committee on Budget and Fiscal Review, Subcommittee No.2, p. 2-10, 11 (February 1, 2001). Transportation related taxes that motorists pay are divided into three major categories: fuel excise taxes (also called "gas taxes" because it is a tax on the fuel itself prior to sale); sales taxes on gasoline and diesel fuels; and taxes and fees on the use of motor vehicles, including truck weight fees, vehicle registration fees and driver's license fees. Analysis of Proposition 2, State Legislative Analyst, at 1 (November 1998). Currently, the revenues from these three taxes are restricted generally to transportation purposes specified by the State Constitution. Cal. Const. Art. XIX. §2. Although the purpose for the funds is restricted, the distribution and allocation of these fees and taxes are handled by numerous government programs loosely related to transportation. Analysis of Proposition 2, State Legislative Analyst, p. 1 (November 1998). These programs include agricultural pest eradication; prevention of soil reduction and habitat loss; off highway vehicle use; functional needs of bicyclists; parking in State Parks; marine safety programs; environmental enhancement of existing transportation facilities and seismic studies on toll bridges. Provisions Concerning the Disposition of State Motor-Fuel Tax Receipts: California, Federal Highway Administration, p. 1-3 (January 1, 2001).
Proposition 42 would directly affect five provisions and programs in current law.
1. California Constitution, Article XIX
Article XIX of the State Constitution addresses motor vehicle revenues and includes provisions for fuel taxes and vehicle fees. Cal. Const. Art. XIX. The pertinent part of Article XIX, section 1, is divided into two subsections that address the allocation of fuel taxes. The first subsection restricts the use of fuel taxes to research, planning, construction, improvement, maintenance and operation of public streets and highways. The next subsection makes an identical authorization for use of the same funds for public mass transit, excluding operating costs. Article XIX, as discussed below, appears to have competing clauses with the new Article that is proposed by Proposition 42.
2. State Transportation Improvement Program
The current State Transportation Improvement Program (hereinafter "STIP") was created by 1997 Stat Ch. 622 (SB 45). The STIP process is designed to allow local transportation projects to compete with each other, as contrasted with the older practice of funding specific projects by Legislative fiat. Committee Analysis on SB 45, Senate Committee on Transportation, page 2 (March 10, 1997). Under the STIP, the Legislature allocates transportation funds to the various regions. (Id.) After this allocation, counties are generally responsible for deciding which projects get funded and which do not. (Id.) In larger, urbanized areas, regional governments handle this function. (Id.) (One such example is the Metropolitan Transportation Commission, the transportation planning, coordinating and financing agency for the nine-county San Francisco Bay Area.) Lisa Vorderbrueggen, Gas Taxes for Transit on Ballot, Contra Costa Times (July 28, 2001). These counties and regional governments review all the proposals for local transportation improvements and maintenance and determine which projects to fund, according to ever-changing local priorities. Committee Analysis on SB 45, Senate Committee on Transportation, p. 2 (March 10, 1997).
3. Traffic Congestion Relief Program
In 2000, the Legislature created the Traffic Congestion Relief Program (hereinafter "TCRP") by 2000 Stat Ch. 91 (AB 2928). Chapter 91 is a comprehensive traffic-congestion relief and transportation funding statute originally proposed by California Governor Gray Davis and later adopted by the Legislature. Floor Analysis of AB 2928, Assembly Rules Committee (June 16, 2000). Chapter 91, also known as the Traffic Congestion Relief Act of 2000, (hereinafter "2000 Act") appropriated $2 billion from the General Fund and sales tax fund in 2000-01 to the TCRP. The 2000 Act also shifted the state's sales tax on gasoline for the next five years (an estimated $5 billion) from the General Fund to the Transportation Investment Fund account within the TCRP. Therefore, the 2000 Act provides an estimated $7 billion for projects and services relating to mass transit, and local road repairs over a six-year period from 2000 to 2006. (Id.)
However, the 2000 Act included specific funding for 141 transportation projects or programs, some already partially and others fully-funded. (Id. at 3) One interesting issue is that Governor Davis selected these 141 projects, "according to criteria that he alone chose ¾ rather than given to the transportation planners and traffic engineers to spend as they thought best." Dan Walters, A Remarkable State Budget, Sacramento Bee, at A5 (July 3, 2000). Unlike the Legislative process and the various local STIP processes, the public was never invited to participate or comment when Governor Davis determined which projects to fund, leaving political commentators to speculate about the impact of campaign contributions on the funding of specific projects. Dan Walters, We Can Poke Fun at the Ozarks, But Their Highways Are Excellent, Sacramento Bee at A5 (October 14, 2001).
The 2000 Act allocates any gasoline sales tax funds that remain after Governor Davis' 141 projects are funded according to a 40/40/20 formula. Analysis of the 2001-2002 Budget Bill: Transportation, Legislative Analyst Office (2000). These remaining funds, originally estimated at $1.5 billion, were divided 40 percent to the STIP, 40 percent to local streets and roads, and 20 percent to the State's Public Transportation Account. (Id.) However, shortfalls and cost-overruns on these 141 projects may potentially reduce these remaining funds to zero. 1999 Annual Report to California Legislature, California Transportation Commission, at 20, 21 (December 8, 1999).
4. Transportation Refinancing Plan
Another program, the Transportation Refinancing Plan (hereinafter "TRP"), allows the General Fund to retain the sales tax on motor vehicle fuels for 2001-02 and 2002-03, and extends the period during which those revenues are to be allocated to the Transportation Investment Fund for two years (2006-07 and 2007-08). The TRP also allows for a variety of fund transfers and loans between transportation funds and the General Fund, with all loans to be repaid by 2007-08, when Proposition 42 will take effect.
5. Transportation Investment Fund
The Transportation Investment Fund (hereinafter "TIF"), also created by Chapter 91, provides a single account for all the sales tax on gasoline that now go to the state General Fund. Committee Analysis on AB 2928, Assembly Committee on Transportation (April 20, 2000). The purpose of this single account is to dedicate gasoline sales tax revenues to transportation purposes for five years, thus providing more funding for local streets and roads, increased funding for STIP, and added funding to the Public Transportation Account for transit operations. (Id.) The TIF, however, will become inoperative as of June 30, 2006 when the provision expires. Committee Analysis on ACA 9, Assembly Committee on Elections, Reapportionment and Constitutional Amendments (April 25, 2001). Without further action by the Legislature, once the TIF expires, the revenue will revert to the General Fund. (Id.) Assembly Bill 227 (Dutra) will extend the dedication for two years if Proposition 42 is approved by the voters in the 2002 Primary Election. (Id.)
Proposition 42 was placed on the ballot after approval by both houses of the Legislature. Known as Assembly Constitutional Amendment 4 (hereinafter "ACA 4"), the ballot measure was introduced by Assembly Member John Dutra (D- Fremont) originally as ACA 9 on March 13, 2001. ACA 9 was amended into ACA 4 in the State Senate on July 20, 2001. Senate Floor Analysis on ACA 4, Senate Committee on Rules (July 22, 2001). ACA 4 (as ACA 9) was heard in the Assembly Transportation Committee on April 16, 2001, and in the Assembly Committee on Elections, Reapportionment and Constitutional Amendments on May 21, 2001, but it bypassed consideration in any Senate policy committees. Legislative History ACA 4 http://www.leginfo.ca.gov/bilinfo.html (last visited October 2, 2001). However, the intent and language of the measure has been consistent throughout the Legislative process. (Id.)
If passed by the voters, Proposition 42 would add Article XIXB to the California Constitution to permanently dedicate the state's motor vehicle fuel sales taxes to transportation purposes beginning in 2008. Specifically, Proposition 42 would permanently transfer to the TIF the state's share of gasoline sales tax revenue. This revenue is currently deposited in the state's General Fund. Proposition 42 would require that, beginning 2003-04, use of TIF funds would be allocated pursuant to the following formula:
· Public transit and mass transportation (20 percent)
· Capital improvement projects subject to the STIP (40 percent)
· City street and highway maintenance (20 percent)
· County street and highway maintenance (20 percent)
Proposition 42 would further authorize a one-year suspension of revenue transfer from the General Fund to TIF if the Governor issues a proclamation that the transfer would have a significant negative effect on government functions supported by the General Fund. The Legislature must enact a statute, by a two-thirds vote in each house that suspends the transfer for one year. The Legislature would also be authorized to modify the allocation formula for the dedicated revenues through a statute passed by a two-thirds vote in each house.
A. Related Legislation
1. Assembly Bill 227 (John Dutra)
Assembly Bill 227 (Dutra) will extend, if approved by the Legislature, for two additional years provisions in current law that dedicate revenues from motor vehicle fuel sales taxes to state and local agencies for transportation purposes. Third Reading Analysis of AB 227, Assembly Committee on Rules, p. 1 (June 6, 2001). This bill is dependent upon the passage of Proposition 42. (Id.) Specifically, this bill directs that the TIF shall expire on June 30, 2008, rather than June 30, 2006. (Id.)
At first blush Proposition 42 clearly states what it intends to accomplish. In short, it would permanently dedicate the state's motor vehicle fuel sales taxes to transportation purposes. However, the text of Proposition 42 suffers from ambiguous terminology making it difficult to ascertain the full affect of the measure, despite its seemingly clear objectives. For example, none of the terms used in the measure are defined in the statute, which makes it difficult to predict exactly what the amendment will do. However, it is unlikely that Proposition 42 will be challenged on grounds that it contains ambiguous phrases alone.
A. Vague terminology
One ambiguity concerns whether the funds allocated for "public transit and mass transportation" include operating expenses. Proposition 42, California Secretary of State (October 2, 2001). Public transit agencies do not cover even half of their operating expenses with fare revenues, so they constantly need subsidies to pay their operating expenses. Arthur O'Sullivan, Urban Economics, 599 (3d Ed. 1996) (pointing out that nationwide public transit fares pay 34% of their costs). There will undoubtedly be pressure to use funds from the TIF to pay for salaries and energy costs rather than trains, railroad lines and buses. By its language, it is difficult to determine whether Proposition 42 prohibits the use of these funds for operating expenses. Assuming operating expenses are included in the definition of the phrase, Proposition 42 may be in direct conflict with Article XIX, which forbids the use fuel tax revenues for those types of expenses.
Another ambiguity is whether "street and highway reconstruction" includes capacity expansion. Proposition 42, California Secretary of State (October 2, 2001). Proposition 42 does not allow for new construction of highways and streets. However, arguably the greatest problem with California's transportation system is highway congestion. Background Sheet, Campaign to Pass Proposition 42, p. 1 (October 4, 2001). It is unclear whether this amendment will address that concern. It is not even clear what the term "reconstruction" refers to, because highway improvements - typically considered reconstruction - often involve the creation of new roadbed, possibly some distance from the original right-of-way. For this purpose, "reconstruction" may include activities that most observers would consider "construction."
A third drafting concern is whether the Governor's proclamation to suspend the transfer based on a "negative effect on the range of functions of government" is overly generic. Proposition 42, California Secretary of State (October 2, 2001). Under a plain reading of this phrase, nearly any allocation of funds from the General Fund to a special fund would create a negative effect on another function of government. Diverting transportation dollars from the General Fund clearly impacts education or corrections funding in a negative manner because the later programs are funded with General Fund revenues. Thus, a willing Governor and Legislature need only decide that some government project - any project - is under-funded in order to transfer funds out of the TIF into another government fund.
B. Why create Article XIXB instead of amending Article XIX?
A final drafting concern is whether Proposition 42's proposed Article XIXB would be better suited as a modification to the provisions of the current Article XIX. As currently written, the State Constitution expressly governs the use of motor vehicle fuel tax revenues and their allocation. Thus, Proposition 42 is clearly within the purview of existing Constitutional law because it deals with motor vehicle fuel tax revenue and the allocation of revenue.
However, the creation of a new article may be intended to provide an exclusive application of the new allocation of motor vehicle tax revenues without confusion from unrelated sections. Article XIX already contains two sections that appear loosely related to the scope of the entire article. Cal. Const. Art. XIX §§ 8, 9. Section 8, of the article, allows real property acquired by the expenditure of tax revenues by an entity other than the State to be used for local public parks. (Id.) Section 9 concerns the transfer of surplus state property located in coastal zones. The creation of a new Article would clearly avoid interpretation problems with existing sections.
Although the measure contains some vague terms and creates a possibly unnecessary Constitutional article, Proposition 42 appears to be fairly well drafted.
A. Federal Constitution
Proposition 42 does not raise any federal Constitutional issues.
B. State Constitution
While there are no state constitutional conflicts expressly raised by Proposition 42, there are two interesting issues that deserve attention.
1. In Competition with Article XIX
Proposition 42 appears to compete with existing clauses in Article XIX of the California
Constitution in the allocation of fuel tax revenues. As noted earlier, Article XIX
addresses revenue allocation for both public streets and highways and mass transit.
Both Article XIX and the proposed XIXB direct the revenue to specific and similar
purposes. This may not be a problem in practice, since Proposition 42 requires that
these revenues be used for certain purposes that are also listed in Article XIX. However,
it could render those similar sections redundant, creating a constitutional issue.
2. Suspension of the Amendment
If passed, this amendment would grant to the Legislature the ability to suspend the transfer or modify the allocation of transportation funds for a fiscal year. Thus, this constitutional amendment creates for itself a legislative loophole. The Legislature can avoid implementing the requirements of this constitutional provision with the approval of the Governor and two-thirds of the members of each house. This is precisely the same majority necessary to pass any appropriation from the General Fund. Cal. Const. Art. IV §12. In other words, the Legislature can avoid the spending limits imposed by Proposition 42 by the same majority required to spend funds on any project. Thus, if a program has sufficient support in the Legislature to be funded at all, the spending limitations of Proposition 42 will not provide any additional obstacle except the need for a routine vote to waive its provisions. From this perspective, the value of Proposition 42 is questionable at best.
The public policy debate behind Proposition 42 goes to the core of the transportation crisis facing California. It is matter of how and where to effectively spend transportation dollars.
A. Why not apply all of the tax revenue to roads?
The revenues generated by the gasoline taxes come from vehicles that use the highways and roads in the state. Yet, under Proposition 42, twenty percent (20%) of this money is diverted to mass transit projects like the Bay Area Rapid Transit (hereinafter "Bart"). It is arguable whether all of it should be used for road repair, maintenance, new construction and other highway related projects that benefit those who pay the fees and taxes. Furthermore, only a small minority of Californians, fewer than 2% of the state population, uses public transportation on a routine basis. Transportation California: Investments in Roads are More Effective in Providing Mobility in California Than Investments in Transit, http://www.transportationca.org/archives/transit_vs_highways.html. (last visited October 2, 2001). With such a small percentage of citizens using public transportation, it is questionable whether this is a good investment. An alternative public policy, although unlikely due to the high cost to consumers, would be to restructure public transit systems so that they will pay for themselves through fare revenues. Moreover, given the crisis facing our congested highways, it may make more sense to force mass transit users to subsidize road construction, instead of the other way around.
However, there is an economic and environmental justification for subsidizing mass transit. Since automobile users do not pay the external costs associated with highway congestion and pollution, thus encouraging more auto travel, mass transit should be subsidized to offset the artificially low cost of auto use. Arthur O'Sullivan, Urban Economics, page 600 (3d ED.1996). By subsidizing the cost of mass transit, it becomes a more attractive mode of travel for consumers. (Id. at 599) Under this rationale, the policy question then becomes whether the benefit of the subsidy (reasonable fares, decreased congestion and reduced air pollution) outweighs the cost (more financial resources going into mass transit and not into roads). In light of society's benefit as a whole when there is a reduction of air pollution alone, it seems that spending twenty percent on improvements to California's growing mass transit system might turn out to be a good investment.
B. Is this an example of ballot box budgeting?
California's initiative process is becoming a tool for "ballot box budgeting"; a situation
where voters make state budgeting decisions on a project by project basis. Over the
last decade, Californians have been presented with several opportunities to make specific
funding choices. For example, Proposition 98, which passed in 1988, established a
minimum level of state funding for school and community college districts. Analysis
of Proposition 98, State Legislative Analyst at 1, (1988). Three years ago, the passage
of Proposition 10 imposed an additional excise tax on cigarettes of 50 cents per pack,
thus making the total state excise tax 87 cents per pack. Analysis of Proposition
10, State Legislative Analyst at 1, (1998). The measure required that the revenues
generated by the new excise taxes be placed in a new special fund--the California
Children and Families First Trust Fund. (Id.)
As each initiative and referendum adds mandates, takes money out of the budget and sets it aside for special purposes, or otherwise restricts Legislative choices, it may become difficult for voters to know whom to hold accountable when funding problems occur. Voters generally lack the detailed knowledge of the state budget they need to be able to prioritize state spending through their votes on initiatives and referenda. Eric Lane, Men Are Not Angels, 34 Willamette L. Rev 579, 591 (1998). Furthermore, legislators have more information available to them "than do rank-and-file citizens" and may be better situated to decide funding issues for transportation programs. (Id. at 592) Proposition 42 may also set a bad precedent by restricting the ability or willingness of legislators to shift revenue in the future to address more pressing needs. However, as noted earlier, this may not be a problem since it requires a routine two-thirds vote.
Moreover, to fully understand the financial affect of Proposition 42, a voter must be knowledgeable of other fuel tax funding provisions and mechanisms in current law as well as other transportation projects. Proposition 42's dependency on other statutes, any of which may be amended or repealed, may create confusion about the ultimate effect of the measure. Furthermore, amendment of these other statutes might have a major impact on the implementation of Proposition 42. For example, if the STIP process were fundamentally changed to revert unused funds to the General Funds, the goal of permanently dedicated transportation funds to the transportation purposes could be lost.
C. Is the power to suspend really the power to destroy?
If passed, this amendment would grant to the Legislature and Governor the ability to suspend the transfer of tax revenues to the TIF for a fiscal year through independent legislation. In theory, a willing Legislature and Governor could suspend the transfer each year and send the funding elsewhere and further neglect transportation issues. Any suspension of fund transfers will be affected by the TRP, the refinancing plan that requires the funds to be repaid by 2008.
There is ample precedent for the routine suspension of constitutional provisions that were once considered critical checks and balances on the legislative process. For example, Article IV Section 8(b) states that "No bill may be passed until the bill with amendments has been printed and distributed to the members (of the Legislature)." Cal. Const. Art. IV §8. This provision is violated so often that it is no longer considered newsworthy when legislators complain that they were forced to vote on a bill that they had never had the opportunity to read.
D. Is it wise to pass a ballot proposition that will not become effective until 2008?
Beginning in 2003, all revenue from gasoline sales tax will be directed to the TIF until 2008. Beginning in 2008, the money collected in the TIF and all revenue from gasoline sales and use taxes will then be spent only on transportation projects. Although these types of delayed effective dates are common in the passage of legislation; this is especially controversial since Governor Davis will be term limited (2008) by the time the full effect of Proposition 42 is implemented. Thus, Governor Davis will gain whatever benefits may be derived from supporting this constitutional amendment, but his successor's hands would be constitutionally tied and his successor would have to deal with whatever problems might emerge from the implementation of the amendment's provisions. Governor Davis will have the freedom to redirect fuel tax dollars in whatever way he sees fit, subject to repayment of loans to the TIF. This possibility was realized in the summer of 2001, when Governor Davis recaptured the money that had been set aside for transportation to balance the 2001-2002 budget. Dan Walters We Can Poke Fun at the Ozarks, But Their Highways Are Excellent, Sacramento Bee p. A5 (October 14, 2001).
Proposition 42 creates a new constitutional amendment to counter the diversion of transportation tax dollars from transportation purposes. Proposed Article XIXB will permanently dedicate fuel tax revenues to a special fund to be used solely for specific transportation purposes. The amendment appears to be well drafted despite its vague terminology. It is free from constitutional conflict, but does create an interesting legislative loophole. There are several public policy considerations that deserve the attention of voters. However, in the final analysis, Proposition 42 should provide Californians with a solid foundation for future transportation funding.