Local option sales taxes

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A local option sales tax is a tax designated for a special purpose, levied at the citywide or countywide level. In the last several decades California has made ample use of LOSTs to fund the expansion of public transit. LOSTs usually take the form of an extra percentage appended to the standard sales tax and, as with all new revenue increases in California, must be approved by a 2/3 super-majority of voters. This super-majority requirement was the result of a 1997 court ruling that applied California's super-majority requirement to LOSTs. In 2015, local funding was the single biggest source of transit revenue in California (40.1% of all revenue). In Fiscal Year 2014-5, revenue from LOSTs eclipsed revenue from passenger fares for the first time since FY 2006-7.

Most LOSTs have specified lives and include a sunset date. In California, only five proposed LOSTs have been permanent, and of those, only four have passed--all in Los Angeles County. (Measure R initially included a sunset date, but Measure M made it permanent in 2016.)

History

According to research by Martin Wachs, Local Option Sales Taxes first gained popularity in the 1980s as a response to falling gas-tax revenues at the state and local level. Before 1980, it was rare for cities to allow local governments to levy and collect their own transportation taxes, but throughout the 1990s 21 states had adopted them in some form. Data from 1995-9 shows that while revenue from user fees increased by 18% during this period, revenue from "other local taxes (including local sales taxes) increased by 58%.

Wachs attributes the popularity of LOSTs to four major factors:

  • Direct local voter approval. The measures result in projects near voters' homes and workplaces, and provide tangible benefits.
  • Finite lives. Usually a LOST persists for 15-20 years before sunsetting, and then must be reauthorized. If the results do not live up to voters' expectations, they can choose not to renew the tax.
  • Specific lists of transportation projects. LOST revenues may only be used to fund specific programs, which limits politicians' ability to divert money to other projects. Voters know exactly what they are getting up front.
  • Local control over revenues.

"A California Invention"

Wachs calls LOSTs "a California invention." Its context derives from Proposition 13, which reduced the amount of property tax revenue available. As of 2019, California has more measures than any other state, a longer history than any other state, and has both more money needed and more money raised than any other state. Within California, Los Angeles County has the most measures--four are currently in place--and raises the most money through LOSTs of any county.

A New Politics of Transportation

Political Feasibility

Many measures have failed on their first attempts and then succeeded as second, third, or fourth tries. Mineta Transportation Institute research by Asha Weinstein Agrawal and Hilary Nixon shows that, nationally, people tend to vote for measures when they can clearly link benefits with their taxes, especially those with a local focus. Additionally, voters like to see provisions for government accountability. Some examples of this include public reporting requirements, review panels, and sunset dates. Voters seem especially enthusiastic when measures promise environmental and health benefits.

Political Finance

LOSTs have shifted the political nature of transportation finance. For example, in Riverside, Orange, and San Diego counties, environmental groups like the Sierra Club and NRDC vehemently opposed some early LOST measures. At the time their argument was that roads destroy the environment. In later measures, however, those same counties committed to spending money on acquiring land to mitigate transportation impacts on the environment under the Endangered Species Act. The environmental groups then encouraged their members and the public at-large to vote for those measures. The measures passed. Transportation advocates did not want to spend "transportation money" to protect the kangaroo rat, but they wanted the measure to pass, so they included a provision for protecting it.

Designing to Win

This concept has become a new way of designing LOSTs to win the super-majority vote. To do this, transportation planners spread the money geographically, especially to highly populated areas, so that enough votes are won to pass the measure. Additionally, they must spread the money across modal interests--not only highways and rail but also bikes, pedestrians, ferries, and services for the elderly and disabled. They must also spread the money over time but with care to ensure each constituency gets some early benefits. And lastly, they must balance among capital projects and operating projects to promise relief on many fronts for many interests.

Criticism

Because LOSTs are appended onto sales taxes, they have been criticized for their regressive effects. Even though poor people are more likely to use transit than the wealthy, the majority of low-income people still do the vast majority of their travel by car. Thus, they pay more of a regressive tax to fund a system they do not use themselves.

Wachs writes that LOSTs are "gradually but inexorably changing the way we finance transportation systems" by abandoning the principle of "user pays." Economists generally agree that "user fees have at least some tendency to induce more efficient use of the transportation system," unlike sales taxes which apply to all citizens equally. (Think of fuel taxes incentivizing drivers to buy hybrid or zero-emissions vehicles, or congestion pricing helping to smooth traffic flows in busy city centers.)

Finally, Wachs writes, "While transportation planners and engineers often apply analytical procedures like cost-benefit analysis to determine which investments should be selected, ballot measures...substitute election campaigns—sometimes called "beauty contests"—for analysis." This can distort priorities towards prestige "ribbon-cutting opportunities" and away from the nuts-and-bolts qualities of good service.

List of Major California LOSTs Since 2000

Jurisdiction Year Vote Margin Provisions
Santa Clara Co. 2000 70-30 30-year, 1/2-cent sales tax to extend BART to San Jose
San Diego 2004 67-33 Extends 1/2-cent sales tax to fund transit through 2028
Los Angeles County 2008 67-33 1/2-cent sales tax increase for 30 years to fund transit and roads
Santa Barbara County 2008 79-21 1/2-cent sales tax to support roads and transportation for 30 years
Sonoma and Marin Counties 2008 68-32 One-percent sales tax increase to fund SMART rail and trail project
Alameda County 2014 70-30 Increase transportation sales tax from 1/2 cent to 1 cent
Los Angeles County 2016 70-30 Raise sales tax by 1/2 percent to pay for transportation projects and renew additional 1/2-cent sales tax upon its expiration
San Francisco 2016 66-34 Raise sales tax by 0.75% to fund homelessness and road/transit improvements
Santa Clara County 2016 71-29 Increase transportation sales tax by 1/2 cent to fund BART expansion

All LOST information from http://www.cfte.org/elections/past