The COVID-19 pandemic dramatically affected the ability of localities to pay for their transportation systems. We explore the effects of the pandemic on local option sales taxes (LOSTs), an increasingly common revenue source for transportation in California and across the U.S. LOSTs have many advantages over alternative finance instruments, including that they can raise prodigious amounts of revenue. However, LOSTs rely on consumer spending, which lags during times of economic weakness. This is precisely what we observed in California counties during the initial months of the pandemic. LOST revenues did recover after the initial economic shock of COVID-19, albeit to a lower level than they would likely have otherwise. LOST revenue trends during the pandemic were affected by national and regional economic conditions and government policy as well. This public health crisis illustrates both the pitfalls and resilience of LOSTs during economic downturns and recoveries. The lessons from the pandemic’s effects on LOSTs will be useful for policymakers and analysts in preparing for inevitable future crises and associated economic turbulence.
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This estimate includes expenditures from transportation planning agencies, city streets, county roads, transit operators, and special districts for transit and roads .
In New York, Ohio, and Tennessee, local governments are allowed to use LOSTs as a source of general revenues (i.e., for non-transportation purposes). Other states that allow LOSTs are divided between those that specifically require an enumerated project list (e.g., Arizona, California, South Carolina, and Wyoming) and those that allow funds to be dedicated to broad project categories like “road improvements” (e.g., Florida, Iowa, Louisiana, New Mexico, Oklahoma, and Texas) .
Spending rules are laid out in the LOST ballot proposition approved by voters. Local return funds may come with categorical spending requirements, but localities retain some level of autonomy regarding spending decisions. For example, Alameda County’s Measure B allocates both local return funds and formula-based Americans with Disability Act funding to localities within the county .
When a county has multiple LOSTs, Fig. 2 plots their average.
Any finance mechanism that does not account for the ability to pay when charging contributors is likely to be regressive with respect to income (except perhaps consumption taxes on luxury goods). For example, motor fuel taxes are also regressive with respect to income, although they may be less regressive than sales taxes . In California, the regressivity of sales taxes is somewhat mitigated by the fact that food and transit fares (paid disproportionately by low-income travelers ) are exempt from sales taxes [2, 6].
An ideal surface transportation funding mechanism might account for variation in the marginal social costs of travel by location, time of day, axle weight of vehicle, and vehicle emission profile. Ideally, more socially expensive trips should cost travelers more than less socially expensive trips, which should encourage more socially optimal travel overall.
Vehicle miles traveled fees and congestion pricing generate revenues that could be used to directly address the disproportionate harms to low-income residents and people of color (such as using congestion fees on a specific roadway to fund transit improvements along that roadway). Sales taxes lack this ability, as the place and time of their collection has almost no direct relationship to where and on what types of projects the revenues are spent .
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This research was conceived and commenced by UCLA Distinguished Professor Emeritus Martin Wachs, our treasured mentor and colleague, who passed away unexpectedly in April 2021. We are grateful to have collaborated with Professor Wachs on this study.
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King, H., Amberg, N., Wasserman, J.L., Taylor, B.D., Wachs, M. (2023). LOST and Found: The Fall and Rise of Local Option Sales Taxes for Transportation in California Amidst the Pandemic. In: Loukaitou-Sideris, A., Bayen, A.M., Circella, G., Jayakrishnan, R. (eds) Pandemic in the Metropolis. Springer Tracts on Transportation and Traffic, vol 20. Springer, Cham. https://doi.org/10.1007/978-3-031-00148-2_5
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