AgdaPkt 2006-06-05 - Laserfiche WebLink

Browse Search

WHAT ARE THE "SPILLOVER" FUNDS? Since 1971, state law has provided that rev- enues from the growth in sales tax on gasoline, to the extent they exceed the growth in other sales tax revenues, are to be transferred to the Public Transportation Account for public transit capital and operations. These funds, commonly known as the "spillover," do not flow to Proposition 42 and neither the Traffic Congestion Relief Program nor Proposition 42 has any impact on the spillover. In recent years, the Legislature has diverted $694 million of these spillover funds to the general fund and other purposes. The Transportation Development Act of 1971 created a statewide funding program for local public transportation services and facilities. One feature of this act involved the lowering of the state's sales tax rate by y,. percent and the exten- sion of the sales tax to gasoline, which had not been previously subject to the sales tax. This action was intended to be revenue neutral, but the act provided that any excess revenues to the state from this change would be transferred to the Public Transportation Account. The Board of Equalization and the Department of Finance are charged each year with determining the amount of the spillover: the difference between (a) a 5 percent state sales tax applied to all taxable goods except gasoline, and (b) a 4% percent state sales tax applied to all taxable goods including gasoline. Essentially, the spillover is generated when gasoline prices in- crease at a faster rate than all other taxable items. Hence we are presently seeing unprecedented amounts of revenue in the spillover. Neither the Traffic Congestion Relief Program of 2000, nor Proposition 42 altered the spillover provisions. Proposition 42 captures the sales tax on gasoline not subject to the spillover that had previously gone to the state general fund. Proposi- tion 42 revenues grow in tandem with the overall growth in total taxable sales. Proposition 42 does not interfere with the spillover. From its inception until FY 1985-86, the spillover provided revenues to public transit. But there was no spillover during most of the subse- quent 17 years. Over the last three years, the spillover has generated a significant source of funds that help the state deal with its general fund problems. This recent period of critical funding shortfalls initiated the diversion of the spillover funds to the general fund. Current law provides that such diversions, though limited, will continue in FY 2006-07. Under the FY 2005-06 Budget Agreement (now codified in Revenue and Taxation code 7102), in FY 2006- 07, the first $200 million of spillover would go to the state general fund. Any additional spillover revenue up to $125 million would go to the BATA, and any revenue beyond that to the Public Trans- portation Account Under the administration's proposal, the funds would be used to finance transportation pro- grams, a logical connection with sales tax on gasoline. The administration notes that specific provisions of Revenue and Taxation Code Section 7102 provide that the allocation of the spillover may be altered with a 2/3 vote of each house, and they argue that this proposal is consistent with the intentions of current law. Opponents of the Governor's proposal argue that spillover revenues are most needed for public transit when gas taxes are high and people seek alternative forms of transportation to their auto- mobiles. Opponents also note that this proposal is unprecedented in its use of the spillover as a long term on-going resource that in effect relieves fiscal burden on the general fund. The spillover has been diverted to the general fund in recent years, but only as a one-time remedy (or several- time remedy as the case may be) to the state's fiscal crisis. The expectation among most ob- servers has been that when the state's fiscal condition is restored, that the spillover will once again be transferred to the Public Transportation Account as was intended in the Transportation Development Act of 1971. Visit the League's Official Website--www.cacities.org PRIORITY FOCUS - PAGE 11 May 26, 2006 - Issue #21