State Budget Update

Governor’s May Revise Diverts Even More Transit Funds than January Budget

June 5 , 2007

The Administration’s May Revise of the FY 2007-08 state budget shifts $1.3 billion in public transit funds to the General Fund — a $188 million increase over the January budget — as part of an effort to balance the budget. The table below indicates the three new categories of expenditures that the Administration proposes to fund using public transit funds.

Proposed Diversion (in millions)	January Budget	May Revise	Change
Home to School Transportation (Department of Education)	$627	$830	+$203
Regional Center Transportation (Department of Developmental Services)	$144	$129	-$15
Transportation Bond Debt Service	$340	$340	—
Total	$1,111	$1,299	+$188

The fund shift would include almost all of the spillover, which is now projected to be $827 million, as well as $482 million in other Public Transportation Account (PTA) funds, some of which were already committed to transit capital projects in the State Transportation Improvement Program (STIP). Click here (Excel) for a list of Bay Area STIP projects that would likely not receive an allocation next year under the proposal. The budget subcommittees for education in both houses rejected the home to school transportation proposal. In the Senate transportation subcommittee, the entire $1.3 billion diversion was rejected. The Assembly, on the other hand, approved the use of PTA funds to cover the cost of Regional Center Transportation and transportation bond debt service for a total of $469 million, but rejected the home to school transportation diversion.

State Transit Assistance Funding Largely Restored by Budget Subcommittees

The May Revise proposed using no spillover funds for the STA Program in FY 2007-08 and beyond. For the Bay Area, this would result in a loss of $145 million in STA funds that would otherwise be available for public transit service or capital improvements. Both the Senate and Assembly budget subcommittees rejected this proposal and provide for an STA funding level of $619 million. For comparative purposes, STA funding in the current year is $630 million, but this was by far the highest STA funding level ever received, due in part to the spillover as well as Proposition 42 loan repayments. Click here (Excel) for the shares for transit operators under these different scenarios.

Long Term “Spillover” Fix Proposed by Assembly Budget Subcommittee

In exchange for giving the General Fund $469 million in FY 2007-08, the Assembly Budget Subcommittee adopted a long-term fix to the volatile and unreliable spillover fund. The spillover is a formula that is triggered when gasoline prices grow at a faster rate than the price of other goods in the economy. The proposal would fold the spillover into Proposition 42, affording it the same legal protections that now apply under Proposition 1A. Because the spillover is fully dedicated to transit under current law, the proposal would give transit a larger share of the overall Proposition 42 funding pie, changing the splits as shown in the table below:

	Current Law	Assembly Proposal
STIP	40%	35%
Local Streets and Roads	40%	30%
PTA	20%	35%

In order for cities and counties to be held harmless under this proposal, total Proposition 42 revenues would need to be about $2 billion; Department of Finance estimates that they will reach $2.5 billion in FY 2008-09, resulting in an 18 percent increase for local streets and roads and a 38 percent increase in the STIP. This topic will be considered by the budget conference committee and will likely be a final negotiating point for the state budget.

High Speed Rail Funding Falls Far Short of Amount Sought by Agency

The High Speed Rail Authority (HSRA) is seeking $103 million in FY 2007-08 for right of way purchases and route-specific engineering work. The Governor’s May Revise provided only $5.2 million, but the Assembly Budget subcommittee increased this to $50 million. The Senate Budget Subcommittee did not provide any additional funding above the May Revise, leaving it up to the budget conference committee to settle on a final amount.

Administration Seeks Three-Year Appropriation Authority for Bonds

With regard to bond implementation, the budget revises the appropriations for Proposition 1B programs upwards by $700 million, including a higher level of funding for the Corridor Mobility Improvement Account (CMIA), the STIP, Air Quality, Port and Transit Security, and Intercity Rail. Overall the May Revise proposes $11.5 billion in appropriation authority for Proposition 1B over three years, though only $4.1 billion is anticipated to be needed FY 2007-08. The Administration seeks three-year appropriation authority in order to ensure maximum flexibility for the bond’s programs and prevent projects from being held up due to lack of sufficient appropriation authority. The Legislative Analyst’s Office has raised concerns about this approach, recommending a $3.5 billion appropriation in the budget year, while also allowing for 25% augmentations of the amount estimated to be needed in FY 2008-09.

Main Legislative Update page