Bay Area transit measure tests voters’ taste for high taxes

from Dan WaltersCalMatters

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The three biggest sources of revenue for California governments are personal income, real estate and retail sales taxes — and raising them ranges from difficult to impossible.

Raising income tax rates requires legislative approval by a two-thirds majority vote or voter approval by ballot. After winning a second term as governor in 2010, Jerry Brown convinced voters to do so temporarily increasing taxes on high-income Californians (and a token sales tax increase) to close the budget deficit.

A ballot measure in 2016 extended that additional income tax through 2030. Public employee unions and their allies are likely to seek another extension through a 2028 ballot measure.

Property tax rates have been frozen by the state constitution thanks to the passage of the Proposition 13 in 1978, and attempts to repeal or change property tax limits failed at the polls.

That leaves sales taxes, split between state and local governments, as the state’s most flexible tax.

The current basic rate is 7.25% on taxable goods and that is in some rural counties. State law caps any additional sales tax at 2 percentage points, so theoretically the highest statutory rate, including local, voter-approved increases, is 9.25%.

however actual sales tax rates vary up to 10.75% because local officials routinely ask the Legislature to exceed the 2% cap, and the requests are almost certain to be granted.

This month, Gov. Gavin Newsom signed bills authorizing three jurisdictions to exceed the cap, including 1% increase in San Luis Obispo County and a 0.25% increase for the Monterey-Salinas Transit District.

The third and most important would be a 0.5 percent increase in Alameda, Santa Clara, San Mateo and Contra Costa counties, plus 1 percent in the City and County of San Francisco, all to support Bay Area Rapid Transit and other transit services in the San Francisco Bay Area.

The Bay Area measure, Senate Bill 63would keep the new levies — expected to raise just over $1 billion a year — for 14 years if approved by voters. This is the result of several years of efforts by political and civil leaders in the region strengthening transit systemswhich led to a drop in travel and ticket revenue during the COVID-19 pandemic.

It is uncertain how the issue will be presented to voters in the Bay Area. Under current law, if the newly formed Transportation Revenue Measuring District were to put the tax increase on next year’s ballot, it would require two-thirds approval, which could be difficult to muster.

However, the state Supreme Court has declared, albeit indirectly, that tax increases are on the initiative petition ballot require only a simple majority for approvaland many of the local additional taxes of late years have been introduced by initiative to take advantage of this sentence.

Last year the court invalidated a ballot measure that would have reversed the policy on tax votes. Anti-tax groups such as the Howard Jarvis Taxpayers Association are plans another such measure for 2026.

Supporters of a transit tax increase in the Bay Area are apparently willing to use the initiative process if polls show it’s the only path to passage. If passed, sales taxes would reach 11 percent in some cities and counties, near the highest retail sales taxes in the country.

The Tax Foundation, a Washington-based organization that tracks tax policy, says Louisiana, at 10.11 percent, has the highest average sales tax of any state. He estimates that California’s average is 8.98%, the seventh highest in the nation.

So, one might wonder, at what point does a high sales tax rate become a factor in consumer decisions? Some Bay Area cities and counties will test this if the proposed transit tax is enacted.

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.