Bay Area business leaders made headlines recently by floating a new $100 billion “mega tax increase” that would break the record for transportation tax increases in the region, and extract still higher tax increases from Bay Area commuters.  

New $1 increased Bay Area bridge toll hikes took effect on January 1, 2019, which increased tolls to $7 on the Bay Bridge during rush hour, and to $6 on the Antioch, Benicia-Martinez, Carquinez, Dumbarton, Richmond-San Rafael and San Mateo-Hayward bridges.  

But if recent history in California politics tells us anything, it is that successful tax hikes beget higher and higher tax hikes, and still “bolder and bolder” tax proposals that will continue to increase the already exorbitant cost of living and doing business in the State of California.

This latest iteration is a very interesting case study because it clearly demonstrates several key issues with regard to taxing and spending in the State of California at both the local and state levels of government.

Let’s start with the headline of the San Jose Mercury News report that helped break this story.  The June 9, 2019 headline reads “Mega-Measure: $100 billion traffic-busting tax plan for the Bay Area taking shape,” states the report.  

The proposal is being floated by the same group of liberal business leaders that put together the Regional Measure 3 proposal to hike bridge tolls by $3 on most Bay Area bridges, which was approved by most Bay Area counties in June 2018.

The two key business groups behind the new proposal are the Bay Area Council and the Silicon Valley Leadership Group.  

The idea behind the new “mega tax increase” is to create a truly regional transit system that would seamlessly connect the Bay Area’s network of rails, buses and ferries, but the specifics of the plan is still in the concept and feedback gathering phase, according to the San Jose Mercury News.

“But any plan likely would include significant improvements to BART and Caltrain service, including a second cross-bay tube or bridge for BART, providing relief for trains that bottleneck in West Oakland.  There could be a vast network of toll lanes that ring the bay and radiate to the north, east and south, sharing lanes with buses, and a more robust expansion of the Bay Area’s ferry network,” states the San Jose Mercury News report.

The details of the plan, including the tax funding sources and uses, will supposedly be developed over the next several months and finalized by the end of 2019.   

As a long-time Oakland resident and former lead research consultant for the BART contract negotiations, I know how critical public transit is to the Bay Area and the huge financial needs for future investment in the system.  

A second trans-Bay BART tunnel is critical, given that the system is at capacity with the single-tunnel, and certainly more could and should be done to more easily connect the various pieces of the Bay Area public transportation system.  

But at the same time, as a professor of public finance, I do not think this “business as usual” approach to transportation funding is working and is likely to succeed in delivering on the promises made by proponents, and ultimately deliver for Bay Area commuters and businesses.  

Perhaps most importantly, there continues to be a complete lack of a discussion about how to bring down or at least contain construction and operating costs, particularly labor costs including fringe benefits (i.e. health care and pension costs).  

Given the huge funding needs and costs associated with these proposals, a real effort needs to be made to truly save on costs over the long-run on both the construction side, and the operating side, including all impact transit systems such as BART, AC Transit, SF Muni etc.  

To illustrate, I believe that if the growth of these fringe benefit costs for member agencies was slowed to inflation, or even the rate of revenue growth, there would be more than enough money in existing resources to pay for this new proposal, plus more left over to fund other key priorities—that is how big a problem cost overruns in pension and health care are for these public agencies.  (Note: I have not run these specific figures, but could easily demonstrate the dramatic cost savings from such a proposal. This example is intended for illustrative purposes only.)

Proponents continue to be silent on these cost-containment issues because the coalition behind these tax increases continues to rest on a grand bargain between big business and labor unions, who agree on the desire for more transportation funding, but have little or no interest in containing costs, which are ultimately paid by taxpayers.   

In the absence of significant cost reform, such as pension, health care, and other operating costs, the poor and middle-class taxpayers and small businesses will undoubtedly pay the brunt of the tax increases, if not all of them, but will realize a very low return on their investment–possibly even a zero or negative return over the long-run.   

The Bay Area economy depends on a functional transportation system, but the best thing we can currently do for the region’s transportation system and business climate is to find a new paradigm for doing things that re-examines and challenges some of the “sacred cows” of public transportation finance and public employee benefit costs.  

Furthermore, in the state’s emerging political climate where the state’s “affordability crisis” is a top issue in public opinion polls, real political questions are raised about how many more times this transportation tax and spend coalition, and others like it, can continue to go to the well to raises taxes and fees on average taxpayers and small businesses before voters simply say we are done.

The recent resounding defeat of Measure EE in Los Angeles County definitely shows many California voters have reached the point of “taxuration” to quote the words of one of the state’s leading anti-tax advocates in Sacramento.  

Moreover, at the state level in Sacramento, it is also common for big business interests to partner with the labor unions to effectively increase taxes on average Californians and small business owners (i.e. Proposition 55 (2016), recent gas and car tax increases (2016), and the 2016 cap and trade compromise which provided exceptions for big business but not small business).

This begs the question:  Should the California business community shoulder at least part of the blame for California’s ever-increasing tax rates?  

But I would argue that this old liberal tax and spend paradigm is gradually breaking down in California, and carries increasingly high political risks for political actors who fail to heed taxpayer warnings regarding fairness, over taxation, and government spending effectiveness.

I believe it would be in the best interests of the state’s business community as a whole over the long-term to try to forge a new strategy with regard to public taxation, including transportation taxes, that provides for increased taxpayer fairness, reasonable rates, and program effectiveness, while at the same time better accomplishing their goals of an improved transportation system and business climate for all.