The price of a gallon of gas costs dramatically more in California than in the rest of the country for a variety of reasons, but government meddling, rising home costs and steep taxes are playing a significant role.
Republicans are threatening to turn a recently passed gas tax increase into a millstone to wrap around the necks of vulnerable Democrats. Years of tax increases, pricey fees and a lack of infrastructure in California could provide the pressure required to give those threats some legitimacy.
Former Democratic Gov. Gray Davis of California has experience with such recriminations. He was recalled in 2003 for mishandling the state’s budget and increasing California’s car registration fees — it was only the second such recall election in U.S. history. Actor Arnold Schwarzenegger ultimately won the election in November of that same year.
A similar situation is unfolding today. Democratic Gov. Jerry Brown signed a law in 2017 imposing a 12-cents a gallon increase and raising the tax on diesel fuel by 20 cents a gallon. It also implements an additional charge to annual vehicle license fees ranging from $25 to $175, depending on the car’s value.
Brown sold the bill as a way to fix the state’s roads, but reports show the bulk of the money has not gone to street upkeep. California’s Transportation Agency announced in April grants to recipients for some $2.6 billion of the transit funding raised through the law. The awards include $28.6 million for 40 electric buses and $40.5 million for light-rail vehicles in Sacramento. Nearly 28 projects were awarded cash from the gas tax increase. None of them involves road upkeep.
Opponents of Brown’s law managed to place a voter referendum on the November ballot to repeal the gas tax. It would reportedly lower the price of gasoline in the state to $2 a gallon by 2021, Politico reported. Republicans have now collected more than 1 million signatures, even though only 365,880 were needed to put it on the ballot.
Here are some of the factors that affect California’s pump prices.
Taxes, Taxes and More Taxes — California’s gas tax is figured as a percentage of the whole price. Thus, when there’s an increase in the underlying price of fuel, the sales tax also increases. The State Board of Equalization, which is responsible for administering California’s tax policies, sometimes annually adjusts the state’s two excise taxes to help offset changes in the sales tax.
“State and federal laws like the recently approved gas tax, the Low Carbon Fuel Standard and other fuel-related taxes and fees add a little over 92 cents to each gallon of gas and have a profound impact on California’s businesses and communities,” Kara Siepmann, a spokeswoman for the Western States Petroleum Association, told The Daily Caller News Foundation.
Anti-trust laws prevent the WSPA from commenting directly on specific policies and their potential effects on gas and oil prices. But Siepmann cited state and federal data showing fees and taxes make for nearly $1 a gallon, while the average U.S. gas tax amounts to just over 52 cents per gallon.
California currently ranks seventh highest in the country when it comes to total taxes and fees, according to figures calculated by the American Petroleum Institute. And the recent increase makes California the second-highest gas tax in the country behind Pennsylvania. California’s gas tax would increase from 40 to 52 cents per gallon.
Draconianly Strict Fuel-Formula Mixture — California’s strict environmental rules mandate gasoline sold within the state be produced according to strict formulas designed to reduce pollution. Unfortunately for citizens, the exotic formula makes a gallon of gas more expensive and difficult to produce. Few refineries outside the state are equipped to produce it.
Worse yet, the gasoline formula changes multiple times a year, switching from a winter recipe to a summer blend designed to slow down evaporation. The summer blend is even more expensive and trickier to make, thereby elevating the risk of refinery mishaps. Refiners also use up inventories of either blend before the switch, increasing the risk of price volatility.
No Interstate Pipelines, Few Refineries — Interstate pipelines could funnel gasoline quickly and cheaply to California, but no such pipelines connect West Coast refineries to the Golden State. The state must therefore get the bulk of its fuel from ship or truck.
Only when pump prices are soaring inside California is it worth it to pay those transportation costs for refiners capable of producing California’s gasoline formula. The state’s refineries also tend to keep inventories tighter than the national average, federal energy statistics show.
As a result, prices surge quickly when a disruption occurs from events such as machinery breakdowns, power outages or labor problems. Imports of gas into California increased to more than 10 times their typical level after an explosion in 2015 took an ExxonMobil refinery in the state offline. State officials accepted thousands of barrels of refined oil from Russia and India at the time.
California Gas Stations Are Disappearing — California officials have increasingly rezoned land leading to more housing developments and fewer service stations. Exploding housing prices prompted the decision, if for no other reason than to relieve the problem and lower rent prices.
Median monthly rent for a single-bedroom home in San Francisco is roughly $3,400, according to industry tracker Zumper. Median rent for a similar home in Las Vegas, meanwhile, is $925 and $945 in Phoenix. Subsequently, more than 23 gas stations have closed in San Francisco since 2010.
There are also 40 percent fewer gas stations in San Francisco than there were just a decade earlier. Fewer stations mean less access for drivers and a lack of competition among retailers — more than 90 percent of California’s 10,000 gas stations are owned by major corporations like Exxon and Chevron.
Antagonistic to Fossil Fuels — San Francisco, Oakland and San Mateo opened a lawsuit asserting five oil companies, including Exxon and Chevron, should pay huge sums of money for contributing to man-made global warming. Oakland has also sought to prevent energy companies in Wyoming and Montana’s Powder River Basin from transporting their coal from the city’s ports to international markets.
California faces a tough situation if the lawsuits miss their mark. Nearly 40 percent of the state’s crude oil is produced inside the Golden State, even though California lacks refineries. Exxon, Chevron and others being sued will almost certainly pull out of California if the litigation is successful. The oil industry also contributes $66 billion of gross income for 2.7 percent of the state’s gross domestic product.
State lawmakers are also teeing off against traditional automakers. Assemblyman Phil Ting, for instance, introduced a bill in January that would, if passed, ban the sale of gas-powered cars produced after 2040. He said California drivers must adopt electric vehicles if the state is going to reduce greenhouse gas emissions. Ting wants a full shift to electric vehicles.
Californians haven’t gotten the memo. Electric vehicle sales in California amount to less than five percent of the state’s overall car sales, despite the Golden State’s title as a champion for the electric vehicle market. Analysts, meanwhile, said the market for these types of vehicles is not anywhere near large enough to overcome gas-powered vehicles. The state’s belligerent attitude toward fossil fuels places a lot of downward pressure on California’s already taxed energy market.
Lack of Political Party Diversity — The Democratic Party owns super-majorities in both chambers of the California State Legislature. Democrats have maintained a death grip on the state since 1998, when an overwhelming number of Californians voted for Davis, a Democrat who was later recalled over rising gas prices, among other issues.
Six of eight Democratic candidates for statewide offices won in 1998, which allowed the party to increase its majority in the State Assembly from 43 to 48 and in the State Senate from 23 to 25. The party made further inroads across the state during the 2012 elections, winning races in traditionally Republican areas. San Diego, once a Republican stronghold, elected a Democratic mayor for the first time since 1988.
The lack of political parity in California makes injecting different ideas into the state nearly impossible, Dave Hackett, an expert on fuel and transportation issues in California, told TheDCNF. He is the president of Stillwater Associates, a consulting firm focused on helping energy companies.
“Why aren’t normal market forces driving down the prices?” Hackett rhetorically asked before answering. “It began when one party got control of the legislature. They took all of it in the one direction the one party wanted to go in without the other party off-setting,”
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