Government by "Magic 8 Ball"
State elected officials were never cut out to be gymnasts, but in executing complex tax maneuvers in recent years they’ve given the sport a try. In 2004, there was the contortionist “triple flip” of sales, property and general state taxes, followed by the “gas tax swap” in 2010.
In neither case did they exactly stick the landing.
The gas tax maneuver, in fact, is turning out to be a spectacular flop, as has been evidenced over the last two weeks.
On Feb. 24, the state Board of Equalization had to make its annual guess at what the average California gasoline price will be during the period from July 1, 2015, to July 1, 2016.
Board member Fiona Ma describes the process as “government by Magic 8 Ball.”
“We essentially ask our staff to take the Magic 8 Ball and ask, ‘What do you think gas prices will be?’” Ma told me. The only honest answer, she suggests, would be, “Not so sure. Check again.”
As it turns out, the classic fortune-telling toy was particularly cloudy this year.
When the staff put together its proposal in early February, gas prices stood at their lowest level in nearly eight years. The staff estimated the average price for the coming year to be $2.66 per gallon, and recommended as a result that gas taxes be reduced by 7.5 cents per gallon.
By the time the board voted a few weeks later, the price had already climbed to $2.80 per gallon, so the board adjusted the proposed tax cut to 6 cents per gallon.
In the week since the board’s action, average gas prices have gone up an additional 44 cents per gallon. If it turns out that by early next year prices at the pump have settled in near their average over the last five years — somewhere about $3.80 a gallon — the board just set up California for a fairly significant gas tax increase next year.
In the meantime, the board’s action reduced gas-tax revenue in California by about $1 billion next year — at a time when nearly 60 percent of state roads are in need of repair and Gov. Jerry Brown estimates there is a $59 billion backlog in deferred maintenance on streets and highways.
It also comes at a time when a poll by USC’s Dornsife College released last week showed traffic congestion to be residents’ No. 1 complaint about life in California.
The reason for the annual adjustment is that legislators in 2010 eliminated the state portion of the sales tax on gasoline.
Since the change was intended to be revenue-neutral, the law required that the per-gallon excise tax on gasoline be recalculated every year so that the total state tax on gasoline would remain fairly constant, in the range of 30 to 35 cents per gallon.
Such annual calculations were necessary because while the sales tax had been based on a percentage of the total price, the excise tax on each gallon is fixed. To keep the total amount of taxes at where they would have been under the old system, somebody had to estimate the future price of gas.
If this all seems ridiculously complicated, it is.
In an essay published after the vote, Board of Equalization member George Runner called the system “bizarrely complex.”
Across the country, states are struggling to keep up with highway maintenance, which has traditionally been funded by taxes on gasoline. As cars have become more fuel-efficient, the amount of taxes per mile driven has fallen, while the total amount of miles driven continues to increase.
As a result, over the last two years nine states have either increased gasoline taxes or indexed them to rise with inflation.
Such action is unlikely in California, because either approach would require a two-thirds vote of the Legislature.
So Californians are likely going to have to live with the convoluted system now in place. The question becomes how to make it better.
Ma suggests taking the decision on where to set the tax out of the hands of the Board of Equalization, a political body, and turning it over to an administrative agency, the Department of Finance.
It could adjust the tax multiple times a year, perhaps quarterly, based on actual prices as they fluctuate — as gas prices always do.
As it is, the state board has to take a wild guess, consulting advice that is no more reliable than that provided the Magic 8 Ball.
And that, Ma says, is “the cockamamie part” of the current system.
Timm Herdt writes from Sacramento for The Star. His political blog “95 percent accurate” is at www.TimmHerdt.com.