March 2, 2018 – -In a surprise vote, the Board of Equalization rejected a staff proposal to increase the excise tax on gasoline by 4 cents per gallon.  This provides a hole of $617 million in Governor Brown’s proposed budget.  Normally, the Board of Equalization’s annual requirement to set fuel tax rates is almost automatic. It has tweaked recommendations, but it has not rejected them.

This time, two Board of Equalization members said they did not want to hike fuel taxes so soon after the Legislature’s adoption of a separate 12-cent per gallon gas tax that took effect in November. “I’ve never voted for a tax increase on gasoline for my constituents. It hurts them,” said board member Diane Harkey, a Republican who is running for Congress.  She was joined by Democrat Jerome Horton, who said the administration did not make a compelling case. “It’s the equity of it that I’m having pause,” he said, arguing that lower-income people with long commutes would suffer because of the extra tax.

The Legislature gave the Board of Equalization responsibility for fuel taxes in 2010, when the state shifted its model for collecting some taxes on fuel.  Previously, the state charged a sales tax based on the prices consumers pay. Now it charges an excise tax that levies a tax on each gallon purchased. The Board of Equalization is supposed to make sure that revenue from the excise tax does not exceed the total amount of money that the state would have collected from a sales tax on gasoline. It sets the rate each year based on projections from its staff.  The Board of Equalization loses that authority next year. The Legislature reclaimed oversight over gas taxes with Senate Bill 1, the bill that levied the new, special 12 cent per gallon gas tax.

The board’s decision leaves the fuel excise tax at 29 cents per gallon for another year. It would have climbed to 33 cents per gallon had the board approved the department’s recommendation.

Finance Department spokesman H.D. Palmer said the administration would account for the revenue loss in Brown’s May budget revision. Losing the 4-cent hike will cut $271 million for local road projects, $271 million for highways and $75 million for a maintenance program. That said, the state expects to collect an additional $5.4 billion for roads through the new gas tax, and the overall state budget is running a surplus that is expected to give the state $19 billion in reserves by July 1, 2019.