SB1: Loopholes and Inconsistencies in the Road Maintenance and Rehabilitation Act of 2017 (RMRA)

By Sheryl Hamlin

Passed with a Super Majority in Sacramento during the 2017 session, SB1 is a permanent series of new transit related taxes. Please refer to the text here.

This article will explain the allocations as well as language in the bill that is subject to interpretation.

Over a decade, SB1 expects to collect $57 billion in taxes and fees. This equals $1900 per person over ten years assuming 30 million residents of CA. For a family of four, this would be $760 annually. But, remember, this is a permanent tax so the use of a decade as a metric is misleading. SB1 does not sunset in a decade.

With the new taxes, gas in California will be comparable to international prices for gas. See this chart of international prices.

Seven Initial Annual Distributions Ad Infinitum

The bill enumerates seven annual distributions totaling $762 million as follows:

(1) $200,000,000 of the funds available for the program to fund road maintenance and rehabilitation purposes in counties that have sought and received voter approval of taxes or that have imposed fees, including uniform developer fees, as defined, which taxes or fees are dedicated solely to transportation improvements. These funds would be continuously appropriated for allocation pursuant to guidelines to be developed by the California Transportation Commission in consultation with local agencies. Section §2032(a)

(2) $100,000,000 of the funds available for the program to be available annually for expenditure, upon appropriation by the Legislature, on the Active Transportation Program. Section §2032(b)

(3) $400,000,000 of the funds available for the program to be available annually for expenditure, upon appropriation by the Legislature, on state highway bridge and culvert maintenance and rehabilitation. Section §2032(c)

(4) $25,000,000 of the funds available for the program to be annually transferred to the State Highway Account for expenditure on the freeway service patrol program. Section §2032(d)

(5) $5,000,000 of the funds available for the program that are not restricted by Article XIX of the California Constitution to be appropriated each fiscal year to the California Workforce Development Board to assist local agencies to implement policies to promote preapprenticeship training programs to carry out specified projects funded by the account. Section §2032(e)

(6) The bill would require $25,000,000 of the funds available for the program to be available annually for expenditure, upon appropriation by the Legislature, on local planning grants. Section §2032(f)

(7) $5,000,000 and $2,000,000 of the funds available for the program to the University of California and the California State University, respectively, for the purpose of conducting transportation research and transportation-related workforce education, Section §2032(g)

The distributions listed above and in the chart below appear to be fixed, are not linked to inflation and are subject to appropriation. There does not appear to be language about the funds in the event a particular item is not appropriated.

First Round of Distribution Plus Administration

Note that 2032(a) above is contingent on the county having a previous voter approved tax or development project.

Elephant in the Room: Escalating Administrative Costs

Section §2031.5 says the administrative costs are to be rebudgeted annually ad infinitum. The bill is silent about a cap on administration.

For each fiscal year, the annual Budget Act shall contain an appropriation from the Road Maintenance and Rehabilitation Account for the costs of administering this chapter.

Now consider that the annual estimated revenue is $5.2 billion. Subtracting .762 million leaves $4.438 billion. But there is NO estimate or maximum amount of administrative costs in the bill.

The amount for distribution is shown in the formula below with the administrative costs undefined in the bill and actually redefined with each budget cycle:

Potential Distribution = $5.7 billion – $762 million – $ ????? administrative costs

The LAO analyst kindly responded to the question about administrative costs as follows:

No, there is no formula. Administrative costs are appropriated in the annual budget act. From the Road Maintenance and Rehabilitation Account (created by SB 1), the 2018-19 budget provides $7.8 million to the Department of Motor Vehicles (for increased credit card transaction costs to collect the new transportation improvement fee) and $1.1 million to the State Controller’s Office (to ensure cities and counties are maintaining their historical spending on local streets and roads in order to be eligible to receive new SB 1 local streets and roads funds). In addition, in 2018-19, the California Transportation Commission is receiving about $1 million altogether from the Public Transportation and the State Highway Accounts for new SB 1 workload related to apportioning funding and implementing program guidelines.

Remainder to be Distributed

Per Section §2032 (h) the “Distribution” after the undisclosed administrative costs will be between the State Highway Account (50%) and the Cities and Counties (50%) as follows:

The bill would require the remaining funds available for the program to be allocated 50% for maintenance of the state highway system or to the state highway operation and protection program and 50% to cities and counties pursuant to a specified formula. The bill would impose various requirements on the department and agencies receiving these funds. The bill would authorize a city or county to spend its apportionment of funds under the program on transportation priorities other than those allowable pursuant to the program if the city’s or county’s average Pavement Condition Index meets or exceeds 80.

Distribution after Ad Infinitum “Fixed” entitlements and Administration

So at this point, the bill starts to send the funds down to the failing roads. With the unavailable costs of administration and an undisclosed “specified formula”, the monies to be distributed are simply estimates. A new section 2103 is added to the State Highway Code to flush out this “formula”.

Note that the bill is silent on the disposition of the funds from the first section in the event one or several of the seven enumerated disbursements is not appropriated.

California City Finance estimates the revenue at $5.2 billion annually and has estimated what the cities and counties cound receive. Read report here.

The California Legislative Analyst Office has produced this report: LAO SB1 Report

Loans: SB1 Repays $706,000,000 But Source Differs

Over the years, the State has borrowed monies from various transportation funds. SB1 contains language as to the repayment of some of those loans.

From the bill, the loan repayment is described differently in two places. One instance references the General Fund, while the other references the Budget Stabilization Account.

Section 16321. The amount of outstanding loans made pursuant to Section 14556.8 is seven hundred six million dollars ($706,000,000). This amount shall be repaid from the General Fund pursuant to subdivision (c) of Section 20 of Article XVI of the California Constitution no later than June 30, 2020, and upon repayment of this amount all loans authorized pursuant to Section 14556.8 and any associated interest shall be deemed repaid. The loans shall be repaid proportionately and in equal installments over three years. The Department of Finance shall prepare a loan repayment schedule, pursuant to which the outstanding loans shall be repaid by June 30, 2020, as follows:
(a) Two hundred fifty-six million dollars ($256,000,000) for transfer to the Public Transportation Account, to be allocated as follows:
(1) Up to twenty million dollars ($20,000,000) to local and regional agencies for climate change adaptation planning.
(2) The remainder to the Transit and Intercity Rail Capital Program as authorized in Part 2 (commencing with Section 75220) of Division 44 of the Public Resources Code.
(b) Two hundred twenty-five million dollars ($225,000,000) for transfer to the State Highway Account, for the State Highway Operation and Protection Program.
(c) Two hundred twenty-five million dollars ($225,000,000) is hereby continuously appropriated without regard to fiscal year to the Controller for apportionment to cities and counties for local streets and roads pursuant to the formula in paragraph (3) of subdivision (a) of Section 2103 of the Streets and Highways Code.

From the introduction of the bill, it reads:

This bill would identify the amount of outstanding loans from certain transportation funds as $706,000,000. The bill would require the Department of Finance to prepare a loan repayment schedule and would require the outstanding loans to be repaid pursuant to that schedule, as prescribed. The bill would appropriate funds for that purpose from the Budget Stabilization Account. The bill would require the repaid funds to be transferred, pursuant to a specified formula, to various state and local transportation purposes.

SB1 has language about repaying existing loans, but nothing about what triggered the repayment of these loans at this moment in time. In other words, there is no obvious correlation between SB1 and the loan repayment. Note that the League of California Cities cites the loan repayment as a source of revenue in their analysis with a slight error in amount. Clearly The League of CA Cities views the loan repayment as a benefit. Buy why now?

Proposition 69 (June 2018) Transportation Lockbox Account: Loopholes

The impetus for this bill was the passage of the RMRA or SB1. Prop 69 is silent on administrative costs per this text

Proposition 69 also exempts revenue from the RMRA from Gann Spending Limit which was part of the 1970’s tax revolt where Prop 13 and Prop 218 were also passed. The Gann Spending Formula attempts to limit the growth of government spending by a formula based on demographics.

While Proposition 69 may have allayed fears of voters who overwhelmingly supported it at the ballot box, it actually leaves loopholes for administrative costs and the overall growth of government spending.

Note that the text says:

c) All revenues specified in paragraphs (1) through (3), inclusive, of subdivision (a) of Section 7102 of the Revenue and Taxation Code, as that section read on June 1, 2001, shall be deposited no less than quarterly into the Public Transportation Account

Because the section 7102 refers to fuel, it would appear that only the fuel taxes are deposited into the Lockbox but not the license fees.

Proposition 6 November 2018: SB1 Gas Tax Repeal

Called the “David and Goliath” bill, citizens collected over 1 million signatures to qualify the Repeal of SB1 on the 2018 ballot. See the differences here between the Yes on 6 (repeal) and No on 6 (maintain SB1) donations.

SB1 was passed in Sacramento, not at the ballot box, using the Super Majority feature of the legislature. The citizens will now have a chance to weigh in on this multi-million dollar tax increase at the ballot box in November 2018.

More Information on SB1 from the State of California

The state has created the Rebuilding California website that has information on all SB 1 funding. The California Transportation Commission website also reports SB 1 funding information for programs administered by the commission with local government financial data, which includes city and county road expenditures, transit operator expenditures, and regional transportation agency expenditures.

In addition, the Governor’s Budget has expenditure information for all state agencies (including Caltrans) and fund condition statements for all state funds (including the Road Maintenance and Rehabilitation Account). The State Controller’s Office maintains a website with local government financial data, which includes city and county road expenditures, transit operator expenditures, and regional transportation agency expenditures.

The state website information was kindly provided by the LAO.

For more information on author click sherylhamlin dot com

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