What the fight over transit funding is really all about

March 17, 2010

You may be hearing or reading today that Gov. Arnold Schwarzenegger has said he will veto the Democrats’ plan to cut public transit funding. If that sounds odd, it’s because the real story is the reverse. The governor actually opposes to the bill because it gives too much to transit, in his view, not too little.

Both the governor and the Democrats agree that they should engineer some kind of complex gas tax swap in order to get around a decades-old law that has a formula that now requires the state to give hundreds of millions of dollars to transit. The state tried to circumvent this law in other ways in years past, but transit operators sued and won. If the law remains unchanged, transit is due a huge windfall at a time when the state is desperate for dollars.

So the latest idea is to simply repeal the sales tax on gas and replace it with an increase in the per-gallon excise tax that would generate close to the same amount of money. Why? Because revenue from the new tax would not be locked down for transit the way the sales tax is. The state then takes most of the money that would have gone to transit and uses it for other transportation purposes, mainly paying off construction bonds. This has the effect of freeing up unrestricted money in the general fund that would otherwise be used to pay off the bonds. That money can now be used for other programs, like education or health care or social services.

The governor wants to do all of this in a way that leaves gas taxes about 5 cents per gallon less than the are today. And his proposal would give nothing to transit.

Democrats argue, plausibly, that gas prices are set by the market, and if the state pulls out a nickel of tax, oil companies and gas stations will raise their prices by the same amount. If the the Democrats are right, consumers would still be spending the same amount on gas, but more of it would be going to the oil companies and less to the state, and to public transit.

The Democrats’ plan therefore is structured to leave the overall level of gas tax unchanged. They also throw in a shift in the sales tax on diesel. The end result is an immediate $400 million infusion for transit and a new, supposedly dedicated pot of money that would generate about $350 million a year for local transit operators in the future.

That’s a lot less than transit would get under the status quo. But it is more than the districts have received from the state for most of recent history. And the transit operators, recognizing that their legal options are limited, supported the bill.

The governor’s veto will send all sides back to the drawing board. And leave local transit in limbo, forced to plan for more cuts even as they hope for relief.

–Daniel Weintraub

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