Massive Road Tax Really is a Pension Tax

Gov. Jerry Brown and Democratic legislators have caused a stir with their plan to increase taxes to pay for the state’s unquestionably decrepit infrastructure of roads and bridges. Instead of thinking of this as a new transportation tax, however, Californians should see it as a pension tax, given the extra money plugs a hole caused by growing retirement payments to public employees.

Consider this sobering news from the CalMatters’ Judy Lin in January: “New projections show the state’s annual bill for retirement obligations is expected to reach $11 billion by the time Brown leaves office in January 2019 – nearly double what it was eight years earlier.” That’s the state’s “annual bill,” i.e., the direct costs taken from the general-fund budget. That number doesn’t even include those “unfunded” pension liabilities that according to some estimates top $1 trillion.

That’s more than double the $5.2 billion a year the Brown administration hopes to raise from a plan that would boost gas taxes by 12 cents a gallon, raise the vehicle-license fee by $25 to $175 a year (depending on the value of the vehicle), impose a $100 annual fee on electric cars because they don’t currently pay gas taxes and include a large hike on diesel fuel. Money is fungible, so if the state overspends on pensions, it has to make it up somewhere else.

The story refers to the Public Employees’ Pension Reform Act of 2013, which was the governor’s only attempt in his administration to rein in pension costs. Because that reform applies to new state hires, it won’t produce noticeable savings for years, the article explains. As I’ve often noted, it also was unnecessarily modest and exceedingly cynical.

The governor’s original plan included some serious reform ideas, including a proposed hybrid system that nudged public employees away from the debt-laden “defined-benefit” plans they now enjoy toward a mixed plan that included some elements of a 401/k program. But he didn’t push for it. Instead, he caved in to his union allies.

Here’s where cynicism comes in: The transparent goal was not to fix the broken pension system, but to woo voter support for Proposition 30, the laughably titled “Temporary Taxes to Fund Education” initiative. The measure raised sales and income taxes. The “temporary” moniker is laughable because Prop. 30 backers asked voters to extend the income-tax portion of the taxes by a dozen years in 2016, and they obliged. (It’s a safe guess those taxes won’t just expire in 2030 – at least not without another union-backed attempt to extend them.)

At the time, the state budget crisis was in the news, as were soaring public-pension liabilities. Polling looked dismal for Brown’s pet tax increase, which was the linchpin of his effort to bring the state out of its deficit. He had to convince voters that the state was serious about reforming itself. And, voilà, the PEPRA legislation was born. Voters obliged by OK’ing the tax hike, and then legislators and the governor quickly moved past the pension issue.

Fast forward five years and the state has another big problem. Its general-fund budgets have remained balanced. But Democrats and Republicans alike have been complaining about the estimated $130-billion backlog in infrastructure of all types, especially after the crumbling emergency spillway at Oroville Dam caused the evacuation of 188,000 people in the Sacramento Valley this year. And once again the governor turns to a tax-increase plan.

Polling shows the public dubious of the tax plan. Californians oppose the myriad tax-hike proposals, but overwhelmingly agree (61 percent) with Republicans that instead of raising taxes, the California Department of Transportation,Caltrans, should “make better use of revenue.” Instead of seeking voter approval for a tax hike, the governor needs only convince a supermajority of legislators in a Legislature where Democrats hold supermajorities in both houses and where a handful of Republicans in swing districts might be on the fence. He also needs to hold onto a handful of moderate Democrats in tough districts who are not certain “yes” votes on any type of tax increase.

The joint Assembly and Senate GOP statement is on point: “Our state has become increasingly unaffordable for ordinary Californians. We can fix our roads and bridges by simply ensuring that the billions of dollars that drivers are already paying in transportation fees and taxes are actually used for transportation purposes, rather than being swept into the state’s general fund.”

The governor noted that, yes, roads cost money and compared it to ignoring a leaky roof on one’s house – it gets worse if you ignore it. True, but Brown does the same dance each year. He introduces a budget that dramatically underfunds transportation, then holds it hostage to a tax hike. He continues to raise salaries for public employees, which also raises those pension contributions, but he won’t deal with roads and bridges without a tax. And he won’t deal with pension costs and other major problems that would free up money for roads.

And he won’t reform the way Caltrans currently is spending its money. The Legislative Analyst’s Office in 2014 noted that Caltrans is “overstaffed by about 3,500 full-time equivalents beginning in 2014-15 at a cost of more than $500 million.” The Sacramento Bee’s Dan Walters put it more directly when he referred to union “featherbedding” at the agency.

Not much has been done in the ensuing years to fix that problem borne of outsized union influence, yet the governor is back crying poormouth and insisting the state’s hard-pressed workers increase their monthly gas outlays.

Furthermore, California taxpayers receive a really poor bang for the buck when it comes to transportation thanks to the state’s ill-performing bureaucracy and outdated union rules. “California spends over $400,000 per state-controlled mile of road. Texas, in contrast, spends less than half that – $177,000 per mile,” according to Reason Foundation’s Baruch Feigenbaum, writing in the Orange County Register last October.

It’s not just unions that are at fault, of course. Gov. Brown remains fixated on building the $68-billion-plus High Speed Rail system that is supposed to connect Los Angeles to San Francisco. If the governor had as much zeal for fixing freeways and levees as he has for a system that seems unnecessary (Southwest Airlines will get you from San Francisco to Los Angeles in around half the time of the best estimates of the proposed bullet train), the state might have more cash to deal with the problem.

The Howard Jarvis Taxpayers Association points out that general-fund spending has gone up $36 billion in the last six years and that additional money has not been used for transportation. There always are other spending plans, even though infrastructure – rather than new social spending – is supposed to be one of state government’s top priorities.

Even the current proposal has some odd “infrastructure” line items. As the California Policy Center’s Marc Joffe points out, the $52.4 billion plan (over 10 years) would spend $7.5 billion on public transportation and $1 billion on bicycle and pedestrian lanes. Those items have value, of course, but the tax hike is supposed to fund critical priorities.

The good news is the state finally is getting serious about addressing its long-neglected infrastructure backlog, but let’s not forget the backlog wouldn’t be nearly as large had our state’s leaders dealt seriously with its growing pension problem – or at least tried to take on union interests that misspend scarce resources and drive up the cost of repairs. Think about that when you watch your own transportation costs mushroom.

Steven Greenhut is a contributing editor for the California Policy Center. He serves as the Western region director for the R Street Institute and writes a weekly column for the Orange County Register.