State Budget Update

State Budget Delivers Major Blow to Public Transit

August 2007

Transit Raid: $1.3 billion in PTA Funds Diverted to General Fund

The FY 2007-08 state budget delivers very bad news for public transit, diverting a total of $1.26 billion from the Public Transportation Account (PTA) to the General Fund. This consists of a $626 million diversion of the spillover (out of a total $826 million) and a $633 million diversion of other PTA funds. While transportation has frequently been hit hard in recent years, in prior years the burden was shared across modes — through a diversion of Proposition 42 funds which affect highways and local streets and roads as well as public transit. Due in part to the enormous size of the spillover (all of which is supposed to go to public transit), as well as the passage of Proposition 1A last November, which provides greater protection of Proposition 42 funds, public transit bore the entire brunt this year.

Governor Vetoes An Additional $100 Million in STA Funding

While the budget that the Legislature submitted to the Governor preserved $200 million in spillover funds for State Transit Assistance (STA), Governor Schwarzenegger used his line-item veto to reduce STA funding by $100 million, providing a total STA funding level of $316 million statewide. STA funds are the only source of state funding for transit operations and are therefore highly prized funds that can translate into direct service level improvements, unlike fund that are restricted to capital expenditures. According to the Administration, this reduction was made in order to free up funding in the PTA to provide an adequate level of funding to meet the cash flow needs of transit capital projects in the State Transportation Improvement Program (STIP). Total STA funding for the Bay Area is $111 million, $110 million less than the region would have received if all of the spillover had flowed according to statute, but $35 million more than the worst-case scenario proposed by the Governor in the May Revise. Click here for the final STA funding level for Bay Area transit operators.

Mass Transportation Fund Established to Offset General Fund’s Transportation-Related Costs

In order to avoid legal problems that could be associated with transferring the spillover directly into the General Fund, SB 79 creates a new fund, known as the Mass Transportation Fund. The specific General Fund costs to be offset with PTA funds in FY 2007-08 are shown below:

(Dollars in millions)

*Programs*	Amount
Home to School	99
General Obligation (GO) Bond Debt Service	948
General Fund Reimbursement of Prop. 42 Loan Repayment	83
Regional Center Transportation	129
Total	1,259

Long Term Spillover Diversion

A budget trailer bill (SB 79) also includes a significant policy change that specifies how the spillover will be treated in future years. It provides that beginning in FY 2008-09, 50 percent of all spillover revenues will be used to offset General Fund-related transportation costs, such as those noted above. The remaining 50 percent will be split 2/3 to STA and 1/3 to the STIP and intercity rail. Since these are statutory provisions (rather than constitutional ones), they are subject to change in future legislation, including future budget bill language. Only time will tell whether this “deal” to provide the PTA with half of the spillover will have any staying power.

Minimum Proposition 42 Repayment

The budget also modifies current law to provide that in any given year, the General Fund is obligated to repay no more than 10 percent of prior Proposition 42 suspensions. Under Proposition 1A, approved by the voters last November, the General Fund was required to pay at least 10 percent, but the budget adjusts this to make 10 percent the maximum, rather than the minimum.

High Speed Rail

The budget provides $20 million for the High-Speed Rail Authority partially from balances in a 1990 rail bond, Proposition 116 (passed by the voters in 1990). This is significantly lower than the $103 million sought by the agency to keep all of its planned right of way purchases and engineering work on schedule.

Proposition 1B Implementation

One of the key trailer bills in the 2007 session is SB 88, which provides guidance for the administration of bond funding for FY 2007-08. The bill contains a number of requirements that are applicable to all Proposition 1B funds, including the following:

The useful life of projects must be identified in the project nomination process.
Applications must include project delivery milestones, including but not limited to start and completion dates for environmental clearance, land acquisition, design, construction, bid award, construction completion, and project closeout.
Project sponsors who have received funds must report twice a year on the activities and progress made towards implementation of the project. This information will be forwarded to the Department of Finance.
If it is determined that project costs will exceed the approved budget, the recipient agency must provide a plan to the administering agency for down-scoping the project to remain within budget or finding alternative fund sources to meet the cost increase.
Within six months of a project becoming “operable” the recipient agency shall provide a report to the administering agency on the final costs of the project as compared to the approved budget, and the performance outcomes, as compared to those described in the original application.

Funding for New Bond Programs

The table below shows how much funding the budget appropriates to various new bond programs. Note that no funds are provided for the Trade Corridor Improvement Fund or State Local Partnership Program.

FY 2007-08 Funding for Proposition 1B & 1C Programs

Local Streets and Roads	950
Public Transit	600
Corridor Mobility Improvement Account	608
Transit Security	101
Port Security	41
Local Bridge Seismic	14
Highway 99	14
State Transportation Improvement Program	727
State Highway Operation and Protection Program	403
Intercity Rail	188
Highway-Railroad Crossing Safety	123
School Bus Retrofit	193
Air Quality (Port-Related)	250
Regional Housing and Infill Incentives (Prop. 1C)	300
Transit Oriented Development (Prop. 1C)	95
Total	$4,607

Who’s In Charge?

The bill provides that the California Transportation Commission will be the administrator for all Proposition 1B bond programs except for the following: the Public Transportation Modernization, Improvement and Service Enhancement Account (PTMISEA), which will be administered by Caltrans; the Port and Transit Security programs, which will be administered by the Office of Emergency Services and the Office of Homeland Security; and the Local Street and Road Improvement, Congestion Relief and Traffic Safety Account, which will be administered by the State Controller.

Bay Area Public Transit Will Receive $215 million in Bond Funds

Of the $600 million appropriated statewide for the PTMISEA, the Bay Area will receive approximately $215 million, including $157 million for the revenue-share portion — which goes directly to transit operators — and almost $58 million for the population-share. Click here for an estimate of the amounts by operator. The bill requires that transit projects funded by the bond have a useful life of 15 years or more, except that up to 10 percent of bond proceeds may be spent on projects with a useful life of 10-15 years. Our understanding is that this test would apply to each individual bond issuance for Proposition 1B.

Transit Security Funds

Of the $100 million appropriated statewide, $60 million is for the formula-based transit security and emergency response program, $25 million is for a competitive ferry emergency response program, and $15 million is for a competitive intercity rail program. Pursuant to SB 88, an operator who is eligible to receive funds under the intercity rail program may not also claim funds under the formula-based program. Consequently, it appears that the Altamont Corridor Express (ACE) train would therefore need to choose from the two programs. Assuming ACE remained in the formula-based program, in which all funds would go directly to transit operators, the region would receive approximately $21.5 million. Click here for the estimated shares for each operator.

Local Road Repairs A Big Winner in Budget

The budget appropriates $950 million of the total $2 billion available from the bond package to cities and counties for the Local Street and Road Improvement, Congestion Relief and Traffic Safety Account. The League of California Cities and the California State Association of Counties (CSAC) both supported a distribution that would have allocated $550 million to cities and $400 million to counties. [UPDATE 9-11-07] This was incorporated into AB 196 last week and now awaits the Governor's signature. Click here for detailed information on each jurisdiction’s share of funds.

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