Signature Uncertain on Transportation Financing Proposal

The Legislature sent Gov. Arnold Schwarzenegger on March 4 a complicated transportation-financing scheme that eliminates the sales tax on gasoline but increases the excise tax on it.

A spokeswoman for the GOP governor said Schwarzenegger hadn’t decided to sign the measures because lawmakers sent no legislation to help create jobs.

“Two months ago in his State of the State (speech), the governor said job creation must be our Number One priority,” said Rachel Arrezola, Schwarzenegger’s chief deputy press secretary.

“With unemployment likely to get worse, it’s imperative that the Legislature act now.”

Senate Democrats claim the measure they passed will create 18,000 based on a widely used estimate that $1 billion in highway spending creates 15,000 jobs.

The proposal, contained in ABX8 6 and ABX8 9, is a variation on a scheme Schwarzenegger proposed in his January budget. Schwarzenegger would have eliminated the 6 percent sales tax on gasoline, reducing state revenues by $2.8 billion but increasing the excise tax by nearly 13 cents to raise $1.8 billion.

The GOP governor said in his budget the $1 billion difference was a tax break for drivers.

Democratic lawmakers initially filled two-thirds of the $1 billion gap by delaying until 2011 a tax break allowing allied companies to swap various unused tax credits and limiting the use of net operating loss deductions in 2010 to 68 percent of income.

The two actions would have boosted state coffers by $655 million for the fiscal year beginning July 1.

However, Schwarzenegger objected and Democrats removed the provisions.

The second piece of the transportation-financing plan leaves the sales tax on diesel fuel, raising it from 5 percent to 6.75 percent, which represents $435 million in revenue. The excise tax on diesel would be lowered from 18 cents per gallon to 13.6 cents.

For the current fiscal year and the next one, $400 million of the sales tax on diesel would be earmarked for transit systems operations. In subsequent fiscal years, the annual funding falls to $350 million.

The state constitution prevents excise tax from being spent on anything other highway construction and mass transit right-of-way.

Primarily by using highway tax revenue to pay nearly $860 million in debt service, the package saves the state’s cash-poor general fund just under $1 billion in the fiscal year beginning July 1.

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