Pedal to the metal: fuel prices spiral upward

Surging gasoline prices, now at $3.73 a gallon for unleaded regular, mean billions of sales tax dollars for the government treasuries-but the infusion of cash likely will have little impact on California's $18 billion budget shortage.

That's because of the nature of the way money is moved around in the state budget: Some pockets are tightly sewn.

In transportation, there is the oft-expressed will of voters to use tax money from fuel sales to be spent specifically on transportation-related programs. Twice this decade, California voters have demanded that fuel taxes be used to fix traffic jams and build roads and transportation systems – in 2002 with the passage of Proposition 42, and four years later with the passage of Proposition 1B.

Despite the restrictions, budget writers are trying to get at the money, and they made changes in the 2007-08 budget that reflect those attempts. "In particular, a portion of gasoline sale tax revenues will be diverted from transit programs to pay for certain transportation-related activities which previously were supported by the General Fund," the Legislative Analysts Office reported.
The two main transportation-funding pockets, the State Highway Account and the Public Transportation Account, get their money from different sources. Most of the Highway Account's funding comes from the state excise tax on fuel and fees from the truckers' scales. The Transportation Account gets its money from sales taxes on gasoline and diesel fuel, plus what is called the "spillover," which is revenue from the growth in sales taxes on fuel, when those taxes exceed the level of other goods. The idea behind the spillover, at least in part, is to make sure the Transportation Accounts gets the extra money when fuel costs spike.

But in the context of a $150 billion-plus budget, the raid on transportation funding may have only a marginal effect.

The belts are tightening even as fuel tax revenues come in at a dramatic clip. The Board of Equalization estimates that if gasoline prices rise to an average $4 a gallon, sales taxes on fuel would bring in $5 billion annually, even when accounting for a drop in usage because of the higher costs. That's at least a billion dollars more than comes in now, even with the huge gasoline price spikes.

"The trend we have seen is that it (fuel consumption) has been coming down for about two years. The price of a gallon of gasoline has gone up faster and in a greater degree than the decline in consumption. Therefore, even using fewer gallons means more sales tax revenue," said Board spokeswoman Anita Gore.

The higher costs mean "people have less discretionary money to spend on other items," she added. "You might spend that money for a full tank of gas rather than for a new outfit for work."
Last year, California drivers burned some 15.8 billion gallons of fuel in cars, pickups, motorcycles, trailers, big trucks and heavy construction equipment, or about 470 gallons per vehicle per year. That's about 200 million gallons less than the year before.

By one estimate, there are about 34 million vehicles in the state, registered and unregistered. Those include 22 million passenger vehicles, 4.5 million pickup trucks, 750,000 motorcycles, 3 million trailers and coaches, 2 million heavy duty commercial vehicles, which includes trucks subject to interstate registration; and 500,000 vehicles exempt from registration fees.

Figures on fuel sales taxes, tallied year by year, show a steady increase, regardless of any ups and downs in consumption, according to Gore's office.

In 2003, there was $2.1 billion in sales tax revenue and in 2004 it was $2.48 billion. The 2005 figure was 2.9 billion, while in 2006 it was $3.27 billion and it was $3.84 billion last year. There are no projections for 2008.alifornia gasoline is the most highly taxed in the country, according to, which tracks costs. Each gallon of California carries about 63 cents in taxes, including federal excise tax of 18.4 cents, state excise tax of 18 cents and a sales tax of roughly 7.25 percent per dollar. A gallon of diesel fuel is higher, because the excise tax on diesel, 24.4 cents, is 6 cents higher than on gasoline.

The level of excise tax stays the same, regardless of the per-gallon price. The sales tax, however, fluctuates according to price, and it varies from county to county, depending on local tax levels.

The tax money is divided up in a complex formula, but as a rule about 5 percent of the 7.25 sales tax goes the General Fund, which is the state's main treasury, and all of that money is used for transportation. Of the remaining 2.25 percent, 2 percent goes to local cities and counties for use primarily on transportation. The remaining .25 percent can be used for non-transportation purposes.

Want to see more stories like this? Sign up for The Roundup, the free daily newsletter about California politics from the editors of Capitol Weekly. Stay up to date on the news you need to know.

Sign up below, then look for a confirmation email in your inbox.


Support for Capitol Weekly is Provided by: