(Bloomberg) -- California is set for an automatic increase in its fuel tax July 1 after Governor Gavin Newsom failed to convince lawmakers to pause the hike, part of his plan to bring relief to residents in the state with the most expensive gasoline. 

Negotiations continue on a broader proposal for rebates sent directly to vehicle owners. 

Democratic legislative leaders, who had to act this week to delay the annual inflation-indexed tax increase, said in a statement that they saw “pitfalls” in performing a temporary act that would result in limited relief and fewer funds for road repair. The pause was expected to decrease fuel tax revenue by $523 million in 2022-23 based on an estimated 5.6% inflation rate, according to the budget document released by the governor’s office in January. 

“We are working through our budget process and keeping an eye on revenues, so that we can offer a workable plan for easing the inflationary pinch that Californians are feeling,” Senate President pro Tempore Toni G. Atkins and Assembly Speaker Anthony Rendon said in a joint statement. “We stand ready to act as soon as the governor joins us in supporting a plan that provides stronger relief for California families.”

Newsom, a first-term Democrat running for re-election this year, has also proposed an $11 billion package that includes $400 refunds to personal car and truck owners, with a maximum of $800 for up to two cars. Legislators have proposed limiting rebates based on income.

That plan is set to be worked out in Newsom’s revised budget for the next fiscal year, which must be released by mid-May. 

“Helping offset the impact of inflation on California residents remains a top priority for the governor, and his revised budget will include proposals to help Californians keep pace with rising costs,” Newsom’s press office said in a statement. “The sooner we can move this package through the legislative process, the sooner we can deliver needed relief to Californians.”

Californians pay the highest gas prices in the nation, although the cost has declined from a month ago. The average price of a gallon of regular gasoline is $5.68, compared with $4.13 nationally, according to data Wednesday from AAA, the nation’s largest motoring organization.

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