University of California Institute of Transportation Studies

The COVID-19 pandemic dramatically affected transportation systems, including the ability of localities to pay for them. We explore the effects of the pandemic and the associated economic turbulence 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, and they can raise prodigious amounts of revenue. However, LOST funding relies on consumer spending. During times of economic weakness, spending and therefore LOST revenues will lag. This is precisely the pattern we observe in California counties during the initial months of the pandemic. Fortunately for local transportation budgets, LOST revenues recovered after the initial economic shock of COVID-19, albeit at a lower level than they likely would 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 economic fluctuations.