LOST and Found: The Fall and Rise of Local Option Sales Taxes for Transportation in California Amidst the Pandemic

Abstract

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.