Local option sales taxes
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 anywhere from a majority to 2/3 of voters. 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.
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.
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 writers, "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
|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|