OPINION

How will Newsom’s gas tax relief work? At $100 per car, that's $3B out of state budget

Dan Walters
CalMatters Commentary
High gas prices are posted at a full service gas station in Beverly Hills, Calif., Sunday, Nov. 7, 2021. The average U.S. price of regular-grade gasoline jumped by 5 cents over the past two weeks, to $3.49 per gallon. The price at the pump is $1.30 higher than a year ago. Industry analyst Trilby Lundberg of the Lundberg Survey said Sunday the rise comes as the cost of crude oil and ethanol surges. Nationwide, the highest average price for regular-grade gas is in the San Francisco Bay Area, at $4.77 per gallon. The lowest average is in Houston, at $2.98 per gallon. (AP Photo/Damian Dovarganes)

It’s time once again for some fun with numbers, in this case, data surrounding the sharp spike in gas prices.

Although the recent uptick in fuel prices varies from community to community and even station to station, a good estimate of the increase, perhaps a bit conservative, is $1 per gallon. It’s mostly due to global oil markets reacting to the Russian invasion of Ukraine and efforts to punish Russian President Vladimir Putin with economic sanctions.

Last week in his State of the State address, Gov. Gavin Newsom dropped his previous proposal to offset the gas price increase with a very small “pause” in a scheduled state gas tax increase.

“Now, it’s clear we must go further,” Newsom said. “That’s why, working with legislative leadership, I’ll be submitting a proposal to put money back in the pockets of Californians to address rising gas prices.”

That was it — no details, just a vague promise. While we await some indication of what Newsom intends, let’s put a buck-a-gallon price increase in numerical perspective:

  • Californians own and drive 29 million automobiles and light trucks, such as pickups and SUVs;
  • Each year, they rack up 330 billion miles of automotive travel, an average of about 11,000 miles per vehicle;
  • Motorists burn 15 billion gallons of gasoline each year, which averages out to 517 gallons of fuel for each vehicle (43 gallons per month) and an average of 21 miles to the gallon;
  • Therefore, on average Californians are paying an extra $43 per month to drive, if one assumes the price increase has been $1 per gallon.

Higher costs for refueling their cars can certainly be painful to those in lower-income brackets or those, such as long-distance commuters, who are running up high mileage counts. But unto itself, $43 a month shouldn’t be a critical issue for many Californians.

That said, we tend to focus on sharp price increases in everyday commodities, such as gasoline, as an indicator of high inflation. It’s a squeaky wheel in political terms — and politicians feel compelled to grease the wheel or face a popular backlash.

So what can Newsom and legislators do to offset higher gas prices in this election year?

The tax increase pause Newsom originally proposed would have cost about $500 million or a $17 annual savings per vehicle, hardly worth doing.

However, fully offsetting the jump could be a major hit on the state budget. At $1 per gallon, it would require the state to rebate about $15 billion to motorists for a full year — almost exactly what the prison system costs — or just over $500 per vehicle.

The trick will be to make rebates large enough to have some positive psychological response from California motorists but small enough to avoid a major budget impact.

Would $100 per car — enough, perhaps for one 20-gallon fillup — sufficiently impress Californians that their politicians’ hearts are in the right place? Even that relatively small amount would cost the state budget about $3 billion.

Rebates of any size would be relatively easy to distribute if done on a per-vehicle basis, since the state already has data on vehicle ownership.

It would become infinitely more complex to focus relief for those who are feeling price increases most keenly, such as low-income motorists or super commuters. That could become a bureaucratic nightmare on a par with the dysfunctional Employment Development Department.

The rebate promise is now on the agenda and it will be a very interesting situation to monitor.

CALmatters Commentary Columnist Dan Walters

CalMatters is a public interest journalism venture committed to explaining how California's state Capitol works and why it matters.