Existing law requires the Department of Motor Vehicles to procure and distribute bicycle license indicia and registration forms to all counties and cities that have adopted a bicycle licensing ordinance or resolution. Existing law prohibits a city or county that adopts a bicycle licensing ordinance or resolution from prohibiting the operation of an unlicensed bicycle. Existing law defines bicycle for these purposes.

This bill would make a technical, nonsubstantive change to this provision.

SENATE COMMITTEE ON REVENUE AND TAXATION

Senator Jerry McNerney, Chair

2025 - 2026 Regular

Transportation funding: Greenhouse Gas Reduction Fund: Motor Vehicle Fuel Account

Eliminates the 25% continuous appropriation from the Greenhouse Gas Reduction Fund to the High‑Speed Rail Authority, redirects those proceeds to the Motor Vehicle Fuel Account, and directs the California Department of Tax and Fee Administration to reduce the per-gallon Motor Vehicle Fuel Tax excise tax rate to account for the redirected appropriation.

Background

Prior to 2017, the Board of Equalization (BOE) administered both motor vehicle and diesel fuel taxes. In that year, the Legislature enacted the Taxpayer Transparency and Fairness Act, which created the California Department of Tax and Fee Administration (CDTFA) and shifted all of the BOE’s statutory tax administration functions to the newly formed Department (AB 102, Committee on Budget). As a result, CDTFA now operates almost all tax and fee programs previously administered by BOE, including motor vehicle and diesel fuel taxes. While taxpayers register, file returns, and pay taxes to CDTFA, the Controller processes gasoline tax payments and refunds, and the Office of Tax Appeals considers appeals.

Section Two of Article XIX of the California Constitution provides that revenues from taxes on motor vehicle fuels, less refunds and costs of administration, be deposited into the Highway Users Tax Account (HUTA). Portions of these revenues flow to cities and counties through the HUTA and the Road Maintenance and Rehabilitation Account. Revenue from the diesel fuel tax is transferred into the State Transportation Fund to construct and maintain public roads and mass transit systems, while Motor Vehicle Fuel Tax (MVFT) revenues flow to the State Transportation Fund to construct and maintain public roads and mass transit systems, airports, and waterways. Revenue from the MVFT is also allocated to the Aeronautics Account, Harbors and Watercraft Revolving Fund, Off-Highway Vehicle Trust Fund, and Department of Food and Agriculture Fund.

Excise taxes on fuel. The excise tax on motor vehicle fuel (gasoline) was first enacted in 1923, and was quickly followed by an excise tax on use fuel (diesel and other non-gasoline vehicle fuels) in 1927. The excise tax rates on gasoline increased several times to $0.07 per gallon by 1963. In 1969, the MVFT was amended by adding the Aircraft Jet Fuel Tax, establishing a $0.02 per gallon rate for aircraft jet fuel.

In 1990, Proposition 111 increased the excise tax rates on gasoline and use fuel from $0.09 to $0.14 per gallon, with annual increases of $0.01 over four years, until the rate reached $0.18 per gallon in 1993 (SCA 1, Garamendi, 1990). Starting in 1994, the rates were indexed to inflation to maintain their value. In 1995, the Diesel Fuel Tax became operative, which removed the excise tax on diesel under the Use Fuel Tax and instead subjected it to an excise tax under the Diesel Fuel Tax (SB 840, Presley, 1994). The excise tax rates on gasoline and diesel were subsequently altered in 2010 by the “fuel tax swap”, Propositions 22 and 26, and in 2017 by SB 1 (Beall).

The “Fuel Tax Swap” (ABx8-6). In 2010, the Legislature enacted a “Fuel Tax Swap” (ABx8-6, Committee on Budget, 2010). One of the primary motivating factors behind the Fuel Tax Swap is that the Constitution permitted gasoline excise taxes to pay debt service on highway bonds, but prohibited using sales taxes for this purpose. ABx8-6 exempted 6% of the sales taxes on gasoline and swapped it with a variable “price-based” per-gallon excise tax on motor vehicle gasoline, which reduced the sales tax to 2.25% and increased the gasoline excise tax rate by $0.173. The Swap also increased the diesel sales tax by 1.75%, to a total of 9.25%, and reduced the excise tax on diesel fuels from $0.18 to $0.136 to avoid any overall increase in tax collections, and to adjust the excise tax rate each year to maintain revenue neutrality. The excise and sales tax on aircraft jet fuel was unaffected by this legislation.

Propositions 22 and 26 (2010). In opposition to the Fuel Tax Swap, voters passed Propositions 22 and 26. Proposition 26 tightened the definition of taxes and required a two-thirds legislative vote to impose new taxes. Proposition 22 amended the Constitution to prohibit the state from borrowing or redirecting fuel excise taxes, local government property taxes, and public transit funds. The Legislature re-adopted the Fuel Tax Swap in 2011 with the required two-thirds vote and revised it to include new funding sources (AB 105, Committee on Budget, 2011).

Road Repair and Accountability Act of 2017 (SB 1). In response to significant underinvestment and deferred maintenance on California’s streets and roads, the Legislature enacted SB 1 (Beall, 2017). Specifically, SB 1:

• Increased the MVFT by $0.12 per gallon beginning November 1, 2017;
• Eliminated the annual adjustment to the MVFT required by the "Fuel Tax Swap";
• Reestablished the $0.173 per gallon rate set in ABx8-6 beginning July 1, 2019;
• Increased the diesel excise tax by $.20 beginning November 1, 2017;
• Increased the sales on diesel by 4%; and
• Requires BOE (now CDTFA) to adjust gasoline and diesel excise tax rates annually based on the California Consumer Price Index (CCPI), beginning July 1, 2020.

Global Warming Solutions Act of 2006 (AB 32). The California Air Resources Board (CARB) currently administers the Global Warming Solutions Act of 2006, which requires California to reduce its greenhouse gas (GHG) emissions to at least 40 % of 1990 levels by 2020 (AB 32, Nunez, 2006; extended to 2030 by AB 398, Garcia, 2018). AB 1279 (Muratsuchi, 2022) subsequently set a carbon neutrality target by 2045, and requires direct GHG emissions to be reduced to 85% below 1990 levels by 2045. Under AB 32, CARB is authorized to use “market-based compliance mechanisms” to reduce GHG emissions to target levels. The main market-based approach CARB administers is the Cap-and-Trade Program, launched in 2012, which sets a statewide limit on most sources of GHGs and allocates or sells GHG credit allowances to GHG emitters. According to a 2025 report from the Legislative Analyst’s Office, the Program generates $4.2 billion in revenue annually, which is deposited into the Greenhouse Gas Reduction Fund (GGRF). 25% of annual revenue in the GGRF is appropriated to the high‑speed rail project administered by the California High‑Speed Rail Authority (HSRA).

California high-speed rail project. The HSRA is responsible for planning, designing, building, and operating the nation’s first high-speed rail system, envisioned to connect San Francisco and Los Angeles in under three hours with a completion date of 2020. The project has experienced significant delays and cost overruns, with current cost estimates of $128 billion and completion not expected until 2040. The project receives funding from: Proposition 1A (2008) bonds; 25% of California's cap-and-trade auction revenue; and federal grants. ​The Governor’s Proposed 2024‑25 Cap‑and‑Trade Spending Plan proposes a $912 million continuous appropriation from GGRF to the high-speed-rail project.

Future of the Cap-and-Trade Program. Although the current cap-and-trade program does not expire until 2030, Governor Newsom proposed in the 2025-2026 budget to extend the program sooner rather than later to provide greater certainty and attract stable investment. The proposal to renew the program sooner rather than later has become a renewed point of importance since President Trump signed the "Protecting American Energy from State Overreach" executive order, which targeted California's cap-and-trade program, among other policies.

Seeking to reduce the MVFT rate while maintaining the same level of funding for the Motor Vehicle Fuel Account, the author proposes to eliminate the 25% GGRF continuous appropriation to the High‑Speed Rail Authority and redirect those proceeds to the Motor Vehicle Fuel Account to subsidize a reduced per-gallon MVFT rate correlating to the redirected appropriation.

Proposed Law

Senate Bill 94 eliminates, on June 30, 2026, the 25% continuous appropriation of the annual proceeds from the GGRF to the High‑Speed Rail Authority and redirects those proceeds, beginning in the 2026–27 fiscal year, to the Motor Vehicle Fuel Account through December 31,  2030. SB 94 requires the CDTFA to reduce the MVFT rate annually by a percentage correlating to redirected GGRF proceeds. SB 94 shall remain operative only until April 1, 2031, and as of that date is repealed.

State Revenue Impact

CDTFA estimates that sales and use tax revenue loss from this bill is $37.02 million in FY 2026-27. This estimate is based on the statewide local sales and use tax of 2.25% and the average local special district taxes of 1.461%. CDTFA would incur absorbable administrative costs of $50,000.

Comments

1. Purpose of the bill. According to the author, “The high speed rail project started with the passage of Proposition 1A in 2008. And it was sold to the votes as 800 miles connecting San Francisco to Los Angeles. And it would only cost $9.95 billion. Currently, there is no completion date in sight. It is projected costs have skyrocketed to an estimated total of $128 billion, this year, alone, the project needs $7 billion. In essence, the high-speed rail project is a financial train wreck. It has eroded public confidence in what our state can achieve. I believe there are endless opportunities of how better to use over $100 billion dollars here in California.”

2. Cost adjustments. State law requires inflation adjustment of many different tax rates to ensure that the revenues that fund public services are maintained at levels necessary for public agencies to pay for the goods and services they require, including the MVFT rate. However, recent gasoline and diesel fuel price increases have caused significant strain for many Californians. SB 94 reduces the MVFT rate, but in doing so, it eliminates a substantial appropriation of money for the HSRA, which, while not currently operational, could be a valuable part of the state’s future transportation infrastructure. Additionally, the measure’s relief is temporary, which means that consumers will only experience a reduction in gas prices until December 31, 2030, which is only half of FY 2030-31. The Committee may wish to consider the tradeoff between the tax reductions granted by SB 94 and the transportation funding reductions to the HSRA.

3. Revenue implications. If the MVFT is reduced, the amount of sales tax collected on each gallon of fuel also declines. Since gasoline is exempt from the state portion of the sales and use tax, these loss in revenue is concentrated to local sales tax revenue as follows:

4. Who benefits? The MVFT is imposed on certain suppliers and wholesalers who remove gasoline at the refinery or terminal rack, import it into the state, sell it to an unlicensed person, or remove or sell it by a gasoline fuel blender. Therefore, this rate reduction benefits suppliers and wholesalers of gasoline and their customers, but they are not required to pass on tax savings in reduced prices for motorists.

5. Who loses? If the HSRA lost the 25% appropriation from the GGRF, it would struggle to finish even the Central Valley segment of the high-speed rail system, threatening the viability of the entire system. Unless HSRA can generate alternative funding, Californians would lose thousands of clean-energy construction jobs and a major long-term solution to traffic congestion and air pollution. Redirecting the 25% appropriation from the GGRF to reduce the MVFT undermines the fund’s goal of cutting emissions by making fossil fuel use more affordable. The bill encourages more fuel consumption and diverts funding away from high-speed rail, a transportation alternative that can significantly reduce GHGs by replacing car and plane trips. According to Climate Action Now, SB 94 would “represent a drastic and damaging reversal of California’s transportation and climate priorities.”

6. Estimation issues: SB 94 directs CDTFA to estimate the annual MVFT rate reduction authorized under this bill. However, the revenue from the MVFT and the cap-and-trade program varies yearly. As a result, it may be difficult for CDTFA to collect enough information to calculate an accurate rate. Additionally, because the rate reduction is based on estimates that may differ from actual revenue, it may lead to a rate reduction that results in too little or too much tax revenue collected.

7. Excise tax rates and revenue. In fiscal year 2023-24, the excise tax rate per gallon on gasoline was $0.579 (raising $7,816,550,000), $0.185 on aircraft jet fuel (raising $4,699,000), and $0.44 on diesel (raising $1,492,912,000). Effective July 1, 2025, the excise tax rate per gallon under the MVFT is $0.596 and under the Diesel Fuel Tax is $0.454. The federal fuel excise taxes are currently $0.184 per gallon on gasoline and $0.244 per gallon on diesel fuel. The current prepayment sales tax rate per gallon is $0.08 for gasoline, $0.15 for aircraft jet fuel, and $0.445 for diesel.

8. Related legislation. AB 1058 (Gonzalez, 2025) would suspend imposition of the MVFT for one year, require that all savings be passed on to the end consumer, and make the violation of this requirement an unfair business practice. AB 1268 (Macedo, 2025) would authorize the Governor, upon determining that increasing the rate would impose an undue burden on low-income and middle-class families, to suspend the inflation adjustment to the MVFT tax rate scheduled on or after July 1, 2026.

9. Double-referred. The Senate Rules Committee ordered a double referral of SB 94: first to the Revenue and Taxation Committee and second to the Committee on Environmental Quality.

Support and Opposition

(4/20/25)

Support: None received.

Opposition: Climate Action California.

-- END --