The hidden costs of gas-tax legislation

gas prices 2For the last three weeks this column has focused on both the policies and politics of the $5.2 billion annual transportation tax increase. In the unlikely event that some have forgotten — or were on another planet — the taxes include a substantial hike in the car tax as well as a 12 cent increase in the gas tax.

However, as one might hear in a low-budget, late-night television ad, “But wait, there’s more!” Specifically, the gas-tax hike which politicians tell us is 12 cents per gallon — which is bad enough — in actuality could be as high as 19 cents gallon. How is that possible?

The explanation is a bit complicated but important to understand. It involves a convoluted process known as the “gas tax swap” passed by the Legislature and implemented by the California Board of Equalization in 2010.

The gas tax swap eliminated the state sales tax on gasoline and replaced it with what was supposed to be a revenue-neutral per-gallon excise tax. This made it more legally defensible for the state to repay Proposition 1B transportation bond debt when California was in the midst of recession. The BOE was tasked with adjusting the numbers every year in a “backward looking” process so that California would collect no more revenue from the excise tax than it would have collected from the sales tax had it not been eliminated.

But here’s the kicker: The tax hike just jammed through the Legislature in less than one week by Senate Bill 1 contains a provision that, beginning in July of 2019, adjusts the base excise tax to what it was in July 2010 when the gas tax swap started. Currently, the excise tax on gas is 27.8 cents a gallon. But in July of 2010 it was 35.3 cents a gallon. So as it stands right now, that’s a seven cents per gallon increase, on top of the new 12 cents per gallon tax.

To read the entire column, please click here.

Jon Coupal is president of the Howard Jarvis Taxpayers Association.

More sleight of hand with gas tax hikes

gas prices 2If Gov. Brown and members of the California Legislature think that the backlash against the car and gas tax increases will subside any time soon, they are mistaken. The controversy continues to dominate both traditional and social media and, in fact, the more that taxpayers learn about these transportation tax hikes the angrier they get.

Our political elites are learning that taxes on cars and gasoline remain very unpopular because they fall disproportionately on the working Californians — which is where the majority of voters reside. And the resentment might only grow when the taxes actually kick. Just wait until the bills from the DMV start showing up in the mail starting in January of next year and the gas tax increase starts even earlier in November of this year.

There are times when Californians are simply resigned to pay higher taxes imposed by Sacramento, but this might not be one of those times. Many are calling for a referendum of the tax hikes only to be disappointed with the news that, under the California Constitution, a tax increase can’t be repealed via a referendum. Nonetheless, it is possible that the tax package can be rolled back via an initiative and some groups are pondering that course of action. Other interests want more immediate action and are openly discussing recall efforts against some legislators who supported the tax package. …

To read the entire column, please click here.

Jon Coupal is president of the Howard Jarvis Taxpayers Association.

Sacramento Failing to Account for Predictable Changes

Photo courtesy Franco Folini, flickr

Photo courtesy Franco Folini, flickr

What is it with progressive politicians who believe that taxpayers won’t change their behavior because of tax policy? One would think that repeatedly seeing pie-in-the-sky revenue projections from big tax hikes that fall way short of reality would be a wake-up call.

In trying to project the impact of tax hikes on government revenues, the failure to account for predictable changes in behavior is called “static scoring.” And since many progressives mindlessly hew to this method of analysis, let’s call it “static cling.”

Static scoring is different from “dynamic scoring.” Dynamic scoring simply means taking into account predictable changes in behavior that result from tax increases (or tax cuts) to accurately project the amount of money that will be raised.

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Proposition 13 is the original victim of ‘fake news’

prop 13As Proposition 13 approaches its 39th birthday, it is still subject to the same dishonest attacks in the media that were used against it when it was on the ballot in 1978. Proposition 13 was one of the first victims of “fake news.”

“The bigwigs in labor and business went all out to defeat 13,” said its principle author, Howard Jarvis. “They tried to outdo one another in issuing doomsday prophecies about what passage of 13 would mean.” The media slavishly supported the exaggerated and dishonest claims, often endorsing them through editorials and by giving prominent placement to negative stories on the tax revolt.

The politicians, including Gov. Jerry Brown, and government agencies from top to bottom weighed in. Here is a typical example: Before the election, Alameda County Transit told the public that passage of Prop. 13 would result in the termination of 80 percent of its 2,000 employees. Two months later, the Fremont-Newark Argus reported on the aftermath of the passage of Proposition 13, “To date, no one in the district has been laid off and officials now believe there will be no massive layoffs.” The paper added that three local fire districts that anticipated losing one-half to three-fourths of its staff, had not lost a single firefighter to Prop. 13.

To read the entire column, please click here.

Politicians Failing to Spend Our Money to Fix Roads

los-angeles-freewaysConsider this argument from Sacramento politicians: California’s roads, freeways and bridges are crumbling. Our spending on transportation is so seriously inadequate that a gas tax increase and other taxes are desperately needed to save California from ruin.

If this sounds like the shrill arguments we are currently hearing to support an increase in California’s gas tax by another 12 cents a gallon and a hike in the car tax by nearly $40, you’re only half right. Those with long memories will recall that these were the identical arguments made in 1990 by Gov. George Deukmejian and transportation interests urging the passage of Proposition 111, a 9 cents-a-gallon tax increase combined with a 55 percent increase in truck weight fees.

Demonstrating that not much has changed in a quarter-century, promoters of Prop. 111 trotted out long lists of projects that would be completed with the billions of dollars in new revenue. Advertising focused on the benefits of Proposition 111, without ever mentioning taxes.

To read the entire column, please click here.

L.A. County Illegally Spending Taxpayer Money on Measure H Ads

Photo courtesy of channone, flickr

Photo courtesy of channone, flickr

Today, Los Angeles County voters will decide Measure H, a proposed sales tax increase to pay for homeless programs. This tax increase will be in addition to the property tax increase to pay for bonds for homeless programs just enacted by the city of Los Angeles last November with Measure HHH.

If you are wondering why Angelinos should tax themselves even more, you’re asking the right question. California is one of the most heavily taxed states in America with the highest income tax rate, the highest state sales tax and nearly the highest gas costs due to both the high excise tax on each gallon sold plus the additional costs embedded as a result of environmental regulations. And even with Proposition 13, California ranks in the top third among all states in per capita property taxes collected.

The inability of our political leaders to prioritize spending is driving both the state and our major cities into insolvency. If massive spending on homeless programs — assuming it does any good at all — is what the county wants to do, then it should reduce spending on other programs of a lower priority.

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California’s “Secure Choice” program is neither secure nor a choice

retirement_road_signCalifornia’s “Secure Choice” program sounds harmless enough: A voluntary program — at least for now — that would enroll private sector employees who currently don’t have a retirement plan into a state-run retirement savings account.

When the initial program was announced in 2012 with authorizing legislation, taxpayers were skeptical. Now that the program is even closer to fruition, there is greater reason to be concerned. The good news, however, is that the U.S. Congress is now threatening to pull the plug on this foolish endeavor.

The first question is why is this program even needed? While many public employees don’t pay into Social Security (most receive generous public retirement benefits instead) workers in the private sector do receive Social Security. One might complain that Social Security benefits are inadequate but, because the program is backed by the federal government (which has the power to print money) the benefits promised are almost certain to be forthcoming. Not only that, under federal law, there are many programs to assist private-sector workers whose employers don’t offer 401(k) or other employer-based plans. These include individual retirement accounts, both traditional and Roth IRAs. For workers without an employer retirement plan, there are generous limits on how much can be saved tax deferred.

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Increasing Water Supply Must Balance Conservation Measures

In a recent commentary, tax-fighter Jon Coupal exposed one of the hidden agendas behind Senate Constitutional Amendment 4, which was recently introduced in the California Legislature. Coupal writes: “They wish to charge those water users they perceive as ‘bad’ more per gallon than those users they perceive as ‘good.’ The beauty of ‘cost of service’ rates, however, is that they are fair for everyone: You pay for what you use.”

California’s consumers already endure tiered rates for electricity consumption, where if their electricity consumption goes beyond approved levels, they pay more per kilowatt-hour. At least with electricity, there is some rationale for tiered pricing, because when demand exceeds capacity the utility has to purchase power from the grid at the spot market rate. But in the case of water that’s a much harder case to make. Water prices are negotiated far in advance by water utilities.

The reason utilities want to charge tiered rates is so they can discourage “over-consumption” of water, in order for them to avoid running out of water during times of severe drought. What happened repeatedly over the past few years was that suppliers to many regional water districts could not meet their contracted delivery obligations. Understandably, water districts want to reduce total annual consumption so, if necessary, they can get by with, for example, only 60 percent of the amount of imported water they would otherwise be contractually entitled to.

Punitive rates for “overuse,” however, will effectively ration water, as only a tiny minority of consumers will be wealthy enough to be indifferent to prohibitively high penalties.

There is a completely different way for water districts to address this challenge. An optimal solution to California’s water supply issues should incorporate not only conservation, but also increasing supply. And to fund new supplies of water, utilities should experiment with tiered pricing that only incorporates moderate price increases. Doing this would mean a large portion of consumers will not be deterred from “overuse,” and the extra revenue they provide the utility could be used for infrastructure investment to increase supplies of water through myriad solutions – including runoff capture and enhanced aquifer storage, sewage treatment to potable standards, seawater desalination, and off-stream reservoir storage.

The following images excerpted from a spreadsheet provide a simplistic but illuminating example of how reasonable tiered pricing could, in aggregate, fund massive investment in additional supplies of water. In the first example, below, with assumptions highlighted in yellow, are water consumption profiles for a regional water utility district that engages in punitive pricing for overuse of water. As can be seen in the large yellow highlighted block to the center left, when unit costs for water are tripled for those consumers who “overuse” water, the number of “over-users” is a small 4 percent minority of all consumers, and the number of “super-users” is a minute 1 percent of all consumers. Consequently, the utility only collects $900,000 per month, barely 5 percent of its revenue from consumers, from households that are deemed to have overused water.

FINANCIAL IMPACT TO UTILITY OF PUNITIVE PRICING FOR “OVERUSE”

The next example, below, shows hypothetical consumption profiles for a regional water utility district that engages in reasonable pricing for overuse of water. Again, as can be seen in the the large yellow highlighted block to the center left, when unit costs for water are increased by 50 percent (instead of 300 percent) for those consumers who “overuse” water, the number of “over-users” is a significant 20 percent minority of all consumers, and the number of “super-users” is a substantial additional 10 percent of all consumers. Consequently, the utility collects $3,000,000 per month, 14 percent of its revenue from consumers, from households that are deemed to have overused water.

FINANCIAL IMPACT TO UTILITY OF REASONABLE PRICING FOR “OVERUSE”

This is a simplistic analysis, requiring caveats too numerous to mention. Utilities get much of their revenue from property taxes, not from consumer ratepayers, and fixed service fees still constitute most of the amount that appears on a typical household water bill. The utility’s internal cost for water, pegged here at $.20 per CCF, is actually calculated through a maddeningly complex and somewhat subjective cost-accounting exercise that takes into account the amortization of capital costs for treatment, storage and distribution facilities, operating costs, as well as actual contracted purchases from, for example, the California State Water Project. But there is a deeper debate over principles that these examples are designed to emphasize, one with profound consequences for our quality of life in the coming decades.

By implementing severe financial penalties to utility customers who “overuse” their water, electricity, or anything else, state regulators are effectively imposing rationing on all but extreme high-income households. Complying in the face of punitive rates for overuse requires consumers to submit to undesirable lifestyle adjustments including short duration, low-flow showers, low flow faucets that require long wait times for hot water to arrive through the pipes and long wait times to fill pots, remotely administered, algorithmically managed “affordable” times for washing dishes and laundry, mandated purchases of expensive new internet enabled appliances that are ridiculously difficult to simply turn on and use, require regular warranty payments because they break down so much, with annual fees imposed to update their software.

We don’t have to live this way. California’s residential households consume less than 6 percent of the water diverted and used in California for environmental, agricultural, and commercial purposes, yet by far they pay the most to maintain and upgrade this infrastructure. Indoor water overuse is a myth, as all indoor water is either being completely recycled by the sewage treatment utility, or should be. Raising rates causes consumers to under-use water, despite most of a utility’s costs being for the operations infrastructure, creating a vicious cycle of rate increases to maintain sustainable revenues. And when consumer water use is crammed down further and further, the overall system of water infrastructure is progressively downsized until there is not enough resiliency and overcapacity in the system to absorb a major disruption such as an earthquake, a dam failure, or acts of terrorism.

The conventional wisdom in California as expressed in policies enforced by an overwhelming majority of Democrats in the state Legislature is that we must live in “an era of limits.” But this motto, originally coined in the 1970’s by Governor Jerry Brown, is in direct conflict with the spirit and culture of Californians, as exemplified by the dreams they offer the world from Hollywood and the miraculous innovations they offer the world from Silicon Valley. The idea that California’s legislators cannot enact policies designed to increase supplies of water and energy enough to make life easier on the citizens they serve is absurd, and must be challenged.

Ed Ring is the vice president of policy research for the California Policy Center.

Is it time to abandon the Bear Flag?

Californias-state-flagThe Bear Flag, which first appeared as the symbol of the short-lived Bear Flag Republic in 1846, was made the official flag of California in 1911. The flag displays a California grizzly bear which, in a bit of irony, is extinct in California with the last sighting taking place in 1922.

Without any disrespect to what was a magnificent animal, perhaps it is time for a new emblem that more accurately reflects the current state of the state. Let’s consider the Oroville Dam as a more appropriate symbol. It’s large, not functioning well, parts are crumbling and it is putting the lives and property of thousands of Californians in jeopardy. To top it off, for over a dozen years, officials have been ignoring warnings that the now eroding emergency spillway was vulnerable to heavy rains.

Since the dam came on line in the late 1960s, and especially beginning with the first terms of Gov. Jerry Brown, California has shifted from a state that prioritized infrastructure improvement to one that focuses on entitlement programs, public employee compensation and environmental policies that stifle economic growth.

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Sen. Hertzberg Targets Homeowners With Higher Water and Sewer Rates

Storm_DrainIt’s no secret that tax-and-spend interests have hated Proposition 13 since its adoption by the voters in 1978. Immediately after passage, Prop. 13 was the target of numerous lawsuits and legislative proposals seeking to create loopholes that would allow government to grab more tax dollars from California citizens.

These constant attacks compelled taxpayer advocates to go back to the voters with multiple initiatives to preserve the letter and spirit of Prop. 13. These included Prop. 62 in 1986 (voter approval for local taxes); Prop. 218 (closing loopholes for local fees and so-called “benefit assessments”); and Prop. 26 (requiring “fees” to have some nexus to the benefits conferred on the fee payers).

However, the latest tax-grabber to treat homeowners as ATMs is state Senator Bob Hertzberg, D-Van Nuys. If he gets his way, Californians will be spending a lot more on water and sewer service. He seeks to do away with the critical “cost of service” requirements for water rates as well as treat “stormwater runoff” (the rain that runs down street gutters) the same as “sewer service,” opening the door to virtually unlimited — and unvoted — sewer rates.

To read the entire column, please click here.