March Budget Update
March 1, 2011
Overview – Actions this week
On Thursday, March 24, the Governor approved more than $11 billion in budget solutions, of which $8.2 billion reflect reduced expenditures. These were budget trailer bills approved the previous week, pending action while the Governor continued discussions with a key group of Republicans concerning the rest of the package.
AB 105 – Fuel Tax Swap
The approved bills include our much-needed re-enactment of the 2010 Fuel Tax Swap, in the form of AB 105. With the approval of this measure, transportation programs will see our dedicated tax revenues in place and with last year’s passage of Proposition 22, the vast majority of these revenue sources will be protected from future budget manipulations.
The approval of AB 105 means:
- Transit – The changes in the diesel fuel taxes will take effect July, providing local transit agencies with $330 million in STA funding in the budget year and funding for Intercity Rail and other Caltrans programs.
- Local Roads – the 44% share of the excise tax, consistent with what Proposition 42 would have provided will be available.
- State Programs – The STIP and the SHOPP components will be funded.
In other good news, the CTC will be able to project with more certainty than in recent years the amounts of funding that will be available in the ongoing 2012 STIP development process.
The following is a link to the final analysis of AB 105, which provides more details on the impacts of the bill:
The revenue elements of the Governor’s preferred budget resolution package (extension of temporary taxes – personal income, sales and VLF – enacted in 2009 and the multi-national tax basis change) together with his proposed elimination of Redevelopment funds remain to be addressed.
The original goal was to wrap up action on all of the expenditure cuts and revenue proposals this week in time to meet the election law requirements for a statewide election on June 7; however, it appears that time may have run out of a June 7 ballot and leaders are looking at possibly June 14 for the election.
Beyond this, in anticipation, that approval of the revenue components to solve the $26 billion budget deficit may not garner enough votes in the Legislature, it appears that the Governor may be preparing to proceed with an initiative to enact the tax extensions and other items he still needs to balance the budget. This would require gaining the necessary signatures in a very short time frame and qualifying the measures in several months in order to permit the voters an opportunity to consider them on the November ballot. In addition, it is speculated that the governor would also include measures pertaining to pension reform and a modification on the current cap on spending.
If the legislature fails to adopt the revenue proposals in the coming days and the Governor elects to pursue the initiative approach, then the state will be confronted with a number of other challenges. In essence, in spite of the approval of the $11 billion in cuts and other solutions, the state will not have a balanced budget. This will make it difficult for the state to undertake the traditional cash flow borrowing it needs to in the summer of each year to better match the inflow of revenues with state spending. This would in turn also make it difficult for the state to market GO Bonds in the Fall, including Proposition 1B and others important to transportation programs. Additionally, the lack of cash flow capacity will likely mean that many vendors, etc. will see the return of IOUs in lieu of direct cash payments.
Proposed Budget provides ongoing, stable transportation financing
January 11, 2011
On Monday, Governor Jerry Brown proposed a series of budget actions to address the state’s ongoing fiscal crisis. Bert Sandman, former Transportation California Executive Director, commented:
“In the context of an otherwise bleak – but blunt – series of proposed budget actions, the Transportation Industry is grateful that the Governor has taken great care to ensure that California’s motorists and transit users will not be confronted with delays and deferrals of funds needed to keep California moving and our construction industry workers employed.
“The proposed budget provides for an ongoing stable transportation financing environment, funded by highway users that will generate tens of thousands of jobs in the coming year. We know from experience over the past several years that for every $1 billion invested in our transportation program at the state and local levels, 18,000 jobs are created.
“In addition, the Governor’s budget recognizes the critical need for the Legislature to revalidate existing transportation revenues in the aftermath of Proposition 26’s passage last November. These funds construct, operate, maintain and rehabilitate facilities on our state highways, local streets and roads, and public transit systems. This network is vitally important in keeping our state’s economy moving forward.
“Transportation California, representing the private construction trade unions, contractors and vendors who build and maintain California’s highway and transit systems, very much appreciates the opportunity to contribute ideas on the state transportation budget in the weeks ahead. We anticipate working with the Brown administration to ensure transportation funds continue to flow in the coming months consistent with last year’s historic revision to transportation finance under the Fuel Tax Swap.”
Transportation and the State Budget Crisis
December 28, 2010
It is no secret that the Great Recession has hit California hard. The State is facing a Budget shortfall of more than $25 billion, while local government is hurting and unemployment remains well above 12%. The situation has been compounded by the passage of several measures on the November ballot that will change the rules of the game. It is in this unsettled environment that transportation advocates must move forward to close the gap between critical transportation needs and available revenues.
Every State program will be tested and squeezed to bring State finances back into balance. Fortunately, transportation has, for the most part, been removed from the State General Fund with most State transportation monies–primarily, the gasoline excise tax–going into constitutionally protected accounts that may only be used for transportation purposes. Moreover, there is virtually no room to cut transportation budgets.
One question raised by the passage of Proposition 22, which protects local government and transportation revenues, is how the debt service on transportation bonds will be covered, since the measure does not allow debt service to be paid with gasoline excise taxes. This change would revert responsibility for $1.6 billion in bond costs to the General Fund if no other action is taken. To offset this amount, the Schwarzenegger Administration is proposing to use truck weight fee revenues to pay the transportation bond debt service, and to backfill the transportation programs funded by weight fees with gasoline excise tax revenues. This rearrangement of fund usage should have no material impact on transportation programs. This new “weight fee” swap would essentially be a wash for transportation, and it appears likely to pass.
A more vexing question is the potential impact of Proposition 26, which requires all tax measures to be approved by a two-thirds legislative vote. This could put the “gasoline tax swap”, which eliminated the State sales tax on gasoline and replaced it with a corresponding increase in gasoline levies. This could mean that the new replacement portion could be in jeopardy after November, 2011. Intensive legal analysis is underway, but this could become a big issue.
“The State is in dire fiscal condition,” commented former Transportation California Executive Director, Bert Sandman, “and the only way out is to grow the economy. A sound transportation system is the foundation for that economic growth.
“In 2011, we will be fighting to not only protect transportation funds from diversion to other purposes, but also for action to put in place reliable new revenue streams to build the kind of transportation system we must have for the future.”
Californians approve Prop. 22 with 61% of vote
November 10, 2010
Voters approved Proposition 22, which prohibits the state from borrowing or taking funds used for transportation, redevelopment, or local government projects and services.
The measure was supported by the League of California Cities and various other organizations including Transportation California and the California Alliance for Jobs.
Voters also approved Prop 26, which redefines many state-authorized fees as taxes and alters the voter approval threshold from a majority to two-thirds. It remains to be determined what impact Propositions 22 and 26 will have on the gas tax swap legislation enacted earlier in 2010.
Many counties placed local measures before voters to increase vehicle registration fees by up to $10 per vehicle for transportation programs. In the Bay Area, measures passed in Alameda, Marin, Santa Clara, San Francisco counties and failed in Contra Costa and Sonoma counties.
Transportation California announces new leadership team to spearhead new funding efforts
August 23, 2010
Transportation California has geared up to begin a new drive to support enactment of stable new revenue sources to fill the state’s multi-billion dollar transportation funding gap.
Former Transportation California Chairman Bert Sandman is returning as full-time Executive Director of the organization, which unites the construction industry, key labor organizations, business and the transportation community. Sandman served as Transportation California’s Chairman from 1997 to 2003 and played a key leadership role in the Proposition 42 campaign. An industry veteran, Sandman has spent the past 40 years in civil construction and has headed major firms, including Teichert, ARB, Inc. and American Civil Constructors. He is also a former Chair of the Contractors State License Board.
Transportation California’s new Chairman is John Franich, Group Vice President of Granite Construction. Jose Mejia of the California State Council of Laborers serves as Vice Chairman. Linda Clifford of C.C. Myers, Inc. is Treasurer and Tim Cremins of the California-Nevada Conference of Operating Engineers is Secretary. Robert Sears of Vulcan Materials also sits on the Transportation California Executive Committee.
“This organization is unique in its ability to coalesce business and labor in working for the single priority of assuring adequate funding for the infrastructure that is vital for moving people, goods and services in California,” Sandman said. “We have accomplished a great deal over the past 20 years, but there is a lot more to do if we are going to have and maintain the kind of 21st Century transportation system needed to support the state’s economy and the qualify of life for our people.”
Mark Watts of Smith, Watts and Company continues as Transportation California’s legislative Advocate and Doug Jeffe of Issues Management Network directs the organization’s communications programs.
“We are fortunate to have strong board leadership and a solid professional team,” Sandman said. “Since passage of the State’s infrastructure bond package in 2006, our industry has been playing defense to fend off funding cuts resulting from the fiscal meltdown in Sacramento. We have been relatively successful in safeguarding existing revenue streams, but the need is so great that we have to go on offense to win support for the kind of revenue increases that are essential to make our transportation system whole.”
Governor's Revised Budget Proposal Borrows from Transportation Accounts, but Spares Projects
May 18, 2010
May 18, 2010 — In the face of an almost $20 billion shortfall for 2010-11, Governor Schwarzenegger has released a draconian revised Budget proposal that calls for significant cuts in education, human services and other State programs and once again borrows from State Transportation accounts to help fill the gap.
Specifically, with regard to transportation, the Governor’s Budget proposal would:
- Lend $650 million from the Highway Users Tax Account to the General Fund, to be repaid by June 30, 2013. These funds had not yet been earmarked for specific transportation projects or programs and were available on a one-time basis as a result of earlier legislation to transition from the sales tax on gasoline to an increased excise tax on gasoline.
- Extend the date for repayment of loans from the State Highway Account to the General Fund from June 2011 to June 2012. This will have no impact on projects planned for 2010.
- Re-direct $42 million from Caltrans capital support staffing costs to highway maintenance activities. These capital outlay expense savings would be made possible by staffing reductions, increased use of contract services and project delivery efficiencies.
- Provide an increase of $100 million in High Speed Rail funding to meet federal matching requirements.
“The bad news is that some transportation funds would be delayed under this proposal,” said Mark Watts, Executive Director of Transportation California. “The good news is that projects on the books will not be impacted and the dollars would be repaid into transportation accounts within the next few years. This budget process has a long way to go and it remains to be seen what the final product will look like.”
In April, a major shift in transportation funding was enacted that effectively replaced the sales tax on gasoline with a 17.3 cent-per-gallon gasoline tax increment. This “gas tax swap” effectively removed transportation from the General Fund and put future funding on a basis that will not be subject to General Fund shortfalls and diversions. The April legislation also includes an annual adjustment to assure that the gas tax covers the full amount that would have been generated by the sales tax on gasoline under Proposition 42. All gas tax monies must be dedicated to transportation under Article XIX of the State Constitution.
The new tax structure will generate over $400 million in new road and highway funding in 2011-12 and more than $3 billion over the next decade. Debt service on transportation bonds will be paid through these new excise tax revenues, relieving the General Fund by $1.1 billion over the next two years. After payment of debt service, new excise tax funds will be split 44% for the State Transportation Improvement Program (STIP), 12% for State Highway Operations and Protection Program (SHOPP) and 44% for local streets and roads.
The sales tax on diesel was retained and increased to provide an ongoing funding source for transit and will be increased from 5% to 6.75% in 2011-12. The fuel tax on diesel will be reduced from 18 cents per gallon to 13.6 cents per gallon. The package also designated an additional $400 million for transit operations and fully funded intercity rail.
“The April revamping of transportation funding provided a sounder foundation for transportation funding and took a great stride in removing transportation from the General Fund’s fiscal morass,” Watts said. “Not to be underestimated, the new package will result in increased funding for streets and highways over the next several years. The Legislature and the Governor deserve credit for working out this complex and creative restructuring.
“While we now have a more straightforward funding mechanism in place for transportation, we are still short billions of dollars each year in terms of what is needed to maintain and update our transportation system. This is a step in the right direction, but we will only make real strides by establishing a significant, permanent increase in the transportation revenue stream that will allow us to meet the needs of the people of California.”
Budget proposal hits transit and threatens highway programs
January 8, 2010
Jan. 8, 2010 — The 2010-11 Budget proposal unveiled by Governor Arnold Schwarzenegger on January 8 includes provisions that will divert State support for public transit and rearrange and revamp the structure of fuel sales and excise taxes.
Provisions of the Budget proposal prepared by the State Department of Finance include:
- Elimination of the State sales tax on gasoline—the revenue source for Proposition 42
- Enactment of additional 10 cents per gallon excise taxes to cover lost STIP and local roads revenue and debt service
- Annual gas tax increases to cover the growth in debt service
- Carry-over of Public Transit Account funds to cover future debt service on Proposition 1B transit and High Speed Rail bonds
- Maximum implementation of Proposition 1B projects
Transportation California Executive Director Mark Watts has issued the following statement assessing the impact of the Department of Finance proposals on transportation.
“Governor Schwarzenegger has been a staunch advocate for transportation infrastructure as essential to California’s economy and quality of life. Clearly, the State faces a daunting fiscal challenge, but it is particularly concerning that the budget being proposed by the Department of Finance appears to be a giant step backward. This is a time when we need to focus more resources on transportation—not less. This budget scheme is out of synch with the Governor’s policies and direction over the past five years.
“The Finance Budget plan would eviscerate public transportation and could leave our highway programs on extremely shaky financial ground. With regards to the Budget and transportation, we hope that the Administration and the Legislature will go back to the drawing board. The answer is not to resort to fiscal gimmickry, but rather to put in place significant new revenue sources to rebuild our transportation system and, in the process, rebuild our economy.
“A recent study of The Road Information Program—a national transportation think tank—showed that our over-crowded and inadequately maintained streets and roads are costing the average California motorist upwards of $2,000 a year in added repair costs, reduced fuel efficiency, wear and tear and lost time. For about a quarter of that amount, we could finance what needs to be done to once again have a first-class transportation system in this state.”
Click here to link to the Department of Finance Budget Page.
State's transportation investment deficit costs Californians $40 billion a year
December 17, 2009
Transportation California says new and reliable
Funding sources could provide relief to motorists
A report issued today by a Washington-based transportation think tank demonstrates that California’s decades of neglect of its transportation infrastructure amounts to an annual burden of $40 billion a year for the motoring public.
TRIP, a national transportation research organization, estimates that roadways that lack desirable safety features, travel capacity and/or pavement in good condition cost the state’s drivers approximately $40 billion annually in traffic crashes, higher vehicle operating costs and congestion-related delays.
“Even with the efforts of the governor and the legislature over the past several years, we still have a huge gap – which this report clearly shows – and it’s hitting the public where it hurts,” said Transportation California Executive Director Mark Watts.
Despite the short-term boost from the federal stimulus program, California’s funding to improve and rehabilitate bridges and major roadways stands at $1.5 billion a year. Current needs average $5.5 billion a year. Transit needs are now $8.6 billion annually, but funding is $1.7 billion a year.
“We are short nearly $11 billion annually to meet our transportation needs,” Watts said. “This report shows that our failure to close this transportation investment deficit is costing us nearly four times that much.”
Safety, congestion and road conditions are an issue in every part of the state. In “Future Mobility in California,” TRIP documents that 68 percent of California’s urban highways are congested, and vehicle travel is expected to increase by another 20 percent by 2025. The statewide cost of congestion, according to TRIP, is $18.7 billion annually.
TRIP also reports that California has the second highest share of roads in poor condition in the nation – 35 percent. (New Jersey is No. 1.) The extra vehicle operating costs created by these poor roads totals $13.5 billion annually in California. In addition, 29 percent of the state’s bridges and overpasses need significant repair or rehabilitation.
The traffic fatality rate on the state’s non-Interstate rural roads is more than three times higher than the fatality rate on all other roads and highways in the state. Roadway characteristics – such as lane width, lighting, signage, guardrails, paved shoulders, rumble strips and other features – can reduce the number of serious traffic crashes. According to TRIP, the cost of serious traffic crashes in which roadway characteristics were a contributing factor was approximately $7.6 billion in California in 2008.
Watts pointed out that voters in counties up and down the state have voted to approve local sales tax measures to support transportation. “The evidence is there that voters want to see transportation improvements and are willing to pay for them. Those local expenditures, coupled with state programs and the federal stimulus program, are producing some positive results, but they amount to far less than we need to right the system,” he said.
The rising cost of construction materials has eroded the buying power of the gasoline tax, which is the primary source of funding for California’s safety and rehabilitation programs. The price of key materials used in highway construction increased by 33 percent between October 2004 and October 2009.
“A robust federal transportation package and a new and reliable state revenue source are essential to provide relief to the motoring public,” Watts said.
The current federal transportation program was extended to December 18. Congress will need to authorize a new federal surface transportation program or extend the current program to allow federal highway dollars to continue to be provided to the states.