Tax vote ‘has nothing to do with California infrastructure’

A referendum could repeal tax increases that would have provided roughly $54 billion in funding for transportation improvements over the next decade.

Voters will head to the polls in California this November to decide on a measure that once again shows how infrastructure often turns into a political football for legislators.

“There’s a political battle going on here which has nothing to do with California infrastructure,” Kelly DePonte, managing director at San Francisco-based placement agent Probitas Partners, told Infrastructure Investor. “There is a large amount of funding coming into the ‘pass Proposition 6’ camp from outside California, and the speculation is that Republicans are doing that to get enough people to the polls for the midterm elections.”

The future of California’s infrastructure funding seemed certain after the Democrat-controlled legislature passed the Road Repair and Accountability Act of 2017, which increased the gasoline and diesel taxes by 12 cents and 20 cents a gallon respectively. The law was designed for California to invest around $54 billion in transportation infrastructure over the next 10 years and was enshrined further in June when voters approved a measure to limit spending those tax revenues on nothing but roads and bridges.

Now, through a new measure called Proposition 6, Republican proponents are trying to undo all of that.

In addition to repealing the tax increases dedicated to transportation improvement, Proposition 6 would also add a requirement that future tax increases must be approved by popular vote as well, which “highlights the extent to which voter initiatives can limit the state of California’s operating flexibility”, Fitch Ratings said in a report.

While advocates for Proposition 6 view the measure as a way for a popular vote to decide how public money is spent, others are viewing it as short-sighted planning by opportunistic politicians.

California has not widely adopted public-private partnerships compared with other states, DePonte explained, and it is unclear if the Road Repair and Accountability Act would invite more private investments anyway. “It’s not necessarily beneficial one way or another,” he said.

But, DePonte added, it is a clear-cut case where infrastructure planning is made dependent on the next election cycle, which can certainly have a chilling effect on investors interested in that market.

“Proposition 6 is being positioned as ‘we don’t like taxes; therefore, we want to reject it’. The argument revolves around taxes instead of fixing infrastructure,” he said. “Most referendums are fairly short, and there’s no forum to discuss alternatives. It’s yes or no, with no consideration for everything the legislature has already studied and debated.”

Proponents for the measure have not yet offered a detailed plan for replacing lost tax revenue that many Californians agree needs to be spent on infrastructure. As of now, Proposition 6 states that lost revenue can be made up by taking away from other parts of the budget.

DePonte said it is possible politicians could turn to private investors should voters approve the measure, but for now, like the referendum, that seems “unpredictable”, he said. “Opportunities for the private sector are still very much in the air.”