Confronted with a $38 billion state budget deficit — a debt accumulated over the past three years — Democratic lawmakers in Sacramento are looking favorably towards a temporary sales tax increase.
Published: July, 2003
Confronted with a $38 billion state budget deficit — a debt accumulated over the past three years — Democratic lawmakers in Sacramento are looking favorably towards a temporary sales tax increase. One scenario that seems to be gaining momentum is a $10.7 billion bond package that would be backed by a six-year, half-cent sales tax increase statewide. If this option succeeds, it will bring the state’s minimum sales tax rate up from 7.25 percent to 7.75 percent and the maximum rate up from 8.75 percent to 9.25 percent. This compares to a national average rate of 7.2 percent, with the highest tax levied in Alabama (11 percent) and the lowest tax levied in Hawaii (4 percent).
In addition to a statewide mandatory 7.25 percent rate, California counties are authorized to levy up to 1.5 percent in local optional sales taxes, with the exception of San Francisco and San Mateo counties, which are authorized to levy up to 1.75 percent and 2 percent, respectively. Bay Area transportation leaders are watching the budget negotiations very closely as an increase in the statewide sales tax rate may hurt their own efforts to renew or begin local countywide sales tax measures for transportation. Since a State Supreme Court decision in 1995, such measures require a two-thirds vote of the people for passage.
Although sales taxes are more volatile than some other forms of transportation revenue, such as the gas tax, they form a critical piece of the revenue pie in the Bay Area. Currently, Alameda, Contra Costa, San Francisco, San Mateo, and Santa Clara each impose a temporary half-cent sales tax dedicated to transportation purposes. In addition, the Bay Area Rapid Transit (BART) counties, Alameda, Contra Costa and San Francisco — along with San Mateo and Santa Clara counties — each impose a permanent half-cent sales tax dedicated to transit operations. Collectively, these sales taxes generate close to $1 billion annually for Bay Area transportation purposes.
While Alameda and Santa Clara successfully extended their temporary measures in 2000 with margins comfortably in excess of the two-thirds vote requirement, Contra Costa, San Francisco, and San Mateo are each gearing up for campaigns to extend their own measures. San Francisco is placing its measure on the ballot this November, while Contra Costa and San Mateo are both planning for ballot measures in 2004. In addition, Marin County and Solano County are both considering placing new sales tax measures on the ballot in the next few years.
Will Bay Area voters say enough is enough when asked to vote on these local measures if the temporary sales tax increase is approved in Sacramento? Will a half-cent increase in the sales tax slow down economic recovery in the region, thereby placing a damper on overall sales tax revenue? These are the tough questions the transportation community will be asking from pollsters and economists over next few months. Stay tuned.
Rebecca Long is the Legislative Analyst for the Metropolitan Transportation Commission.
