A tax train wreck

If you thought California’s budget had problems already, just wait. A decision by the U.S. Supreme Court on Wednesday, along with rulings to come on more than a dozen lawsuits filed after the Legislature’s highly creative budget-balancing act last summer, threaten to divert billions of dollars from vital state services.

Wednesday’s decision concerned a case that began even before the current budget crisis hit. In 2007, the Legislature raided $1.2 billion in state gasoline tax funds that were supposed to be dedicated to mass transit, and used the money instead to repay transportation loans and pay for other items normally covered by the general fund. Transit advocates sued, and an appeals court ruled in their favor. That’s no surprise, because the money grab was legally very questionable -- voters have repeatedly opted to set aside gas tax money for specific transit purposes. The state lost its final appeal when the Supreme Court declined to hear the case.

It’s unclear what will happen now. The state may be forced to come up with more than $3 billion for transit agencies -- the money from 2007, plus $2 billion that was diverted last year and this year. That would mean slashing other programs even further than they have been already. Should we take the money from schools? Health programs for the indigent? Prisons? What’s more, the transit case may be just the tip of the iceberg. Teachers, doctors, state workers, redevelopment agencies and even Senate leader Darrell Steinberg (D-Sacramento) have sued the state. The price tag could be huge.

The underlying problem is twofold. First, California voters are fond of dedicating tax money to specific programs, apparently because they don’t trust the Legislature to do the job properly. That means that when times are bad, as they are this year, lawmakers can’t reallocate money to keep crucial services funded. At least not without getting sued. That brings up the second part of the problem: To balance the budget during a crisis, lawmakers intentionally raid dedicated funds. Their assumption is that any lawsuits will take years to wend their way through the courts, and by the time they’re resolved, the state might be in a position to repay the money. This is a crazy way to run a state.

In the short term, we urge state officials and the plaintiffs in the transit case, the California Transit Assn., to reach a settlement in which the state promises to end its raids on gas tax funds but doesn’t have to repay the money it has already seized. In the long term, California’s taxing and spending structure must be reformed to end these absurd shell games.