from J. Kevin Pedrotti, Legislative Advocate for the Golden State Builders Exchanges
Did he or didn’t he?
While likely not even measuring a blip on the public’s radar, the inside baseball of whether Able Maldonado will become the appointed Lt. Governor for the remaining 10 months of the term, will likely be decided by the courts. While the upper house easily voted to support their colleagues appointment, Maldonado’s fate was rendered uncertain by the Assembly. Maldonado failed to receive a majority of vote for approval, but he also was not rejected by a majority either. The Assembly’s clerk ruled the nomination failed since Maldonado didn’t receive 41 votes to confirm. The Governor’s legal team said that since the Assembly failed to affirmatively “reject” the nomination, Maldonado is the Lt. Governor. The Governor’s office has indicated they will go to court and Maldonado is playing it safe by not resigning his senate seat. So much for easing tensions going into another difficult budget year.
Budget
Current year budget changes are scheduled to be voted on next week. The tax-swap on fuels for funding transportation projects is taking form and signs are that is will be favorable for transportation construction interests. In summary, the current sales tax on gasoline would be eliminated the excise tax increased.
Currently, the 6% sales tax on gasoline and diesel generates $2.8 billion dollars for transportation. Under current law for 2010-11, these revenues would be divided as follows: $629 million for Highways; $629 for local streets and roads; and $1.65 billion for public transit.
The Governor is proposing to achieve $1.8 billion in General Fund savings by eliminating the current 6-percent state sales tax on gas and diesel ($2.8 billion in revenue loss ), and increase the fuel excise tax by 10.8 cents per gallon ($1.8 billion in revenue gain). This proposal then would essentially use new excise tax revenue maintain current funding for local streets and roads and highways but eliminate funding for local transit. General Fund savings would be achieved by using new excise tax revenue to support nearly $1 billion in debt service costs in 2010-11 and by scoring a reduction in the Proposition 98 guarantee, and subsequent reduction of K-12 funding of $868 million since fuel sales tax revenues are calculated into the Proposition 98 tax base. Finally, the Governor's proposal uses nearly $1 billion retained in the balance of the Public Transportation Account (PTA) for out year debt service and to fund the intercity rail and planning until balances are exhausted in 2011-12.
There are various options the Legislature is considering to amend this proposal to bring funding to areas underserved by the Governor's proposal and still retain general fund savings. Below are some options that are flexible and can be scaled to fit desirable outcomes:
Increase the excise tax above the Governor's level. Assuming the Governor's proposal, the maximum that the excise tax could be increased without impacting revenue neutrality is 35 cents. This change would provide $1 billion in new funding for highways streets and roads.
Build more robust growth into the tax. The Governor's proposal builds enough growth into the excise tax to fund future general fund debt service costs. The Legislature may want to increase that growth factor to provide increased funding for transportation in the future.
Retain a portion of the fuels sales. The sales tax on diesel generates roughly $300 million per year and is dedicated to State Transit Assistance. Assuming the Governor's proposal, the Legislature may want to consider retaining this tax for state and local transit. Additionally, another option would be to increase enough gasoline sales tax to generate almost $700 million without impacting revenue neutrality. This funding could be used for both transit and STIP projects.
Give local entities the ability to raise funds for transit. Unlike State excise tax, local fees are not restricted by Article XIX of the constitution and if given authority, local entities could pass them through a majority vote process.
Increase general Fund savings. The LAO has identified $160 in additional General Fund Savings by going back and paying more bond debt with PTA funds in the current year.
Independent Contractor Withholding
There is a huge coalition if interests opposing a proposal to withhold 3% of payments made to independent contractors. A similar proposal was vetoes by the Governor last year. We will wait and see whether the legislature decides to put this back on his desk.
J. Kevin Pedrotti
JK Pedrotti.,Inc.
925 L Street, Ste. 308
Sacramento, CA 95814
(916) 441-3111