Falling oil and gas prices are affecting both California and Texas’s transportation funds.
The drop in the price of gasoline has created a $754 million shortfall in California’s anticipated transportation revenue over the next five years, according to a report released by the California Transportation Commission on Jan. 21. The commission cut the state Department of Transportation’s budget due to the shortfall, which will likely lead to delayed or eliminated projects.
California has an “adjustable” gas tax, comprised of a cents-per-gallon base state excise tax plus a 2.25 percent sales tax on motor fuel purchases (reduced from the state’s 6 percent general sales tax). To ensure the sales tax percentage on motor fuel does not affect the overall cost of taxes paid at the pump when compared to the previous tax structure, the state’s excise tax on fuel is adjusted annually so that any change in the variable-rate percentage is revenue neutral.
Meanwhile, falling oil prices in Texas have led to a shortfall of several hundred million dollars in expected transportation funding, according to state Comptroller Glenn Hegar.
In 2014, Texas voters approved Proposition 1—a measure to redirect half of the revenue generated by oil and gas severance taxes from the state’s general Rainy Day Fund to the State Highway Fund. The amendment was expected to generate approximately $1.2 billion per year for construction and maintenance of public roads.
But due to the decrease in oil prices, Hegar informed the House Select Committee on Transportation on Jan. 20 that revenue from Prop 1 is expected to fall to $594 million in Fiscal Year 2017. Hegar anticipates that revenue will increase to $740 million in the next fiscal year, though still remain well shy of the funding originally expected from the 2014 amendment.
Despite the shortfall, he remained confident that the long-term economic outlook for the state highway fund is still positive, especially given new revenue from 2015’s transportation funding amendment, Proposition 7, which will direct $2.5 billion into the state’s transportation fund once Texas’s general sales tax revenue exceeds $28 billion in the fiscal year. Beginning in September 2019, 35 percent of motor vehicle sales tax revenue over the $5 billion threshold will be used for transportation projects.
Earlier this year, Kentucky cut $112.5 million from the state Transportation Cabinet budget due to lower revenue than projected from the state gas tax.