The budget proposes to eliminate the state's 6 percent sales tax on fuel. The proposal also increases the state's excise tax on fuel by 10.8 cents per gallon in 2010-11, which would generate roughly $1 billion less in revenues than under current law. The new excise tax revenues would fund a different mix of transportation purposes, including paying for a substantial portion of the state’s transportation bond debt service on an ongoing basis, while eliminating transit-related funding.

Last Updated:	1/22/2010
Budget Issue:	The budget proposes to eliminate the state's 6 percent sales tax on fuel. The proposal also increases the state's excise tax on fuel by 10.8 cents per gallon in 2010-11, which would generate roughly $1 billion less in revenues than under current law. The new excise tax revenues would fund a different mix of transportation purposes, including paying for a substantial portion of the state’s transportation bond debt service on an ongoing basis, while eliminating transit-related funding.
Program:	Crosscutting
Finding or Recommendation:	The Governor’s proposal has merit due to the ongoing General Fund benefit. We recommend that the Legislature consider modified versions of the proposal that would likewise achieve ongoing General Fund benefit but would also maintain funding for transportation purposes at or near current levels to fund the state’s substantial transportation needs.

Please see our handout for a detailed description of the proposal and some LAO options.