State Budget Update

Overview of FY 2010-11 State Budget

On October 8, 2010, the California Legislature approved a spending plan for FY 2010-11 — 100 days into the fiscal year. This year’s delay was the longest on record, as the Legislature struggled to close a stubborn deficit resulting from a structural imbalance between state revenues and expenditures and a slow recovery from the recession.

Some Long-Term Reform, But Mostly Short-Term Fixes

The FY 2010-11 State Budget reduced spending by $8.4 billion, helping to close about 43 percent of the shortfall. The Legislature also made use of many one-time fixes, including $2.7 billion in borrowing and transfers from special funds (including about $870 million from transportation funds), a reduction in education funding that must ultimately be repaid, and optimistic assumptions about federal funds. With regard to long-term changes, the budget includes some pension reforms and a requirement to place on the 2012 ballot a measure to strengthen the state’s rainy day fund.  Nevertheless, the Legislative Analyst’s Office determined that “well over two-thirds of the Legislature’s 2010-2011 budget solutions are one-time or temporary in nature. This means that California will continue to face sizable annual budget problems in 2010-2012 and beyond.”

Transportation Elements – A Statewide View 

The FY 2010-11 budget contains few surprises related to transportation, keeping intact the funding levels anticipated as a result of the gas tax swap (AB 9 of the Eighth Extraordinary Session; Chapter 12, Statutes of 2010), adopted last March. The primary objective of the swap was to enable transportation funds to help close the General Fund’s budget shortfall. By swapping the gasoline sales tax for an excise tax, the Legislature circumvented the voter-approved restrictions that applied to the sales tax on gasoline and created a revenue source that could be used to pay for debt service on highway-related general obligation bonds (Proposition 1B, 2006) and to make loans to the General Fund.

Lower Debt Service Costs Result in More Loans, Rather than Direct Transfers, from Transportation Funds

The budget retains the shift of $1.3 billion in gasoline excise taxes from the Highway Users Tax Account (HUTA) to the General Fund.  At the time the swap was enacted, about $600 million of the $1.3 billion was to be used for debt service expenses for highway bonds, while $650 million was a loan that was required to be repaid to the HUTA within three years.  As a result of debt service costs coming in $111 million lower than expected, the budget raised the loan by a like amount, to a total of $761 million, so that the General Fund would continue to receive $1.3 billion in HUTA revenue.

The Governor vetoed language that distributed the HUTA loan according to the gas tax swap’s formula of 44%:44%:12% for the State Transportation Improvement Program (STIP), local streets and roads, and the State Highway Operation and Protection Program (SHOPP), respectively. His veto message stated that restoration of the highway system should be the top priority for transportation funds. In addition to the HUTA loan, the budget also lends the General Fund $80 million from the State Highway Account and   $28 million from the Public Transportation Account (PTA), both of which must be repaid with interest by June 30, 2014.

Budget Restricts STIP to Highway Program

While funding for the State Transportation Improvement Program (STIP) is unchanged relative to what was assumed in March, the budget imposes new constraints on project eligibility in the STIP that set a troubling precedent. The budget appropriates $781 million to the STIP from the SHA and Proposition 1B, but restricts these funds to highways. Prior to the gas tax swap, the STIP received significant funding from Proposition 42, which was mode-neutral and continuously appropriated. This allowed the California Transportation Commission to allocate funds to projects based on local and regional priorities. Prior to Proposition 42, mode-neutral language allowing SHA funds to be spent on highways or mass transportation was routinely included in the budget. The budget’s unnecessary rigidity poses a particular concern this year since transit projects in the STIP face a $33 million shortfall in PTA funding as a result of the swap. 

Local Streets & Roads Funding Unchanged

Funding for local streets and roads is unchanged relative to what was assumed in March, when the gas tax swap was adopted. We estimate that Bay Area cities and counties will receive approximately $313 million. Of that total amount, almost $90 million will be deferred until April 28, 2011, due to provisions in AB 5 of the Eighth Extraordinary Session (Chapter 1, Statutes of 2010), a companion bill to the gas tax swap. For detail by city and county of the funding amounts anticipated, click here and for the amount of deferrals, click here.

Governor Reduces & Restricts High-Speed Rail Connectivity Funds

The Governor reduced high-speed rail connectivity funds for local rail operators and intercity rail. For the local connectivity funds, the appropriation was cut from $146 million to $38 million, while intercity rail was scaled back from $88 million to $62 million. The veto message specified that the appropriation was strictly for positive train control projects. Given the much broader eligibility provided in the voter-approved high-speed rail bond measure, it is unclear whether the Governor has the authority to limit project eligibility through a veto message. Bay Area projects that could be in jeopardy due to this provision include Bay Area Rapid Transit (BART) replacement of 200 cars ($30 million) and San Francisco Municipal Transportation Authority’s Central Subway extension ($27 million), both of which were programmed for funding in FY 2010-11. 

No Additional State Transit Assistance Provided in FY 2010-11

The draft budget does not contain any additional State Transit Assistance appropriation, as the $400 million that was appropriated last March as part of the gas tax swap was a lump-sum payment intended for FY 2009-10 and FY 2010-11. The next STA installment will be made in FY 2011-12.

Budget Appropriates $4 Billion for Proposition 1B

The budget appropriates about $4 billion in Proposition 1B (2006) bond funds across multiple departments, including the major bond categories affecting our region:

• $1.5 billion for Public Transportation Modernization, Improvement, and Service Enhancement Account (PTMISEA).
• $537 million for Corridor Mobility Improvement Account (CMIA)
• $469 million for the State Transportation Improvement Program (STIP)
• $290 million for Trade Corridors Improvement Fund
• $182 million for State Highway Operation & Protection Program (SHOPP)
• $240 million for State Local Partnership Program
• $216 million for Highway-Railroad Grade Separation
• $100 million for Transit System Safety, Security & Disaster Response

Funding & Legislative Oversight for Doyle Drive Public-Private Partnership

The budget includes a $1.1 billion appropriation from various fund sources, with an option to increase by an additional $46.5 million, for availability payments related to the Presidio Parkway Public-Private Partnership approved by the California Transportation Commission on May 20, 2010. The budget requires that at least 60 days prior to executing a final lease agreement, Caltrans or the San Francisco County Transportation Authority (SFCTA) submit it to the Legislature and the Public Infrastructure Advisory Commission for review. Before this submission, Caltrans or SFCTA must conduct at least one public hearing near the proposed facility. The budget further provides that funds are only available for expenditure after the lease agreement is executed.  

Trailer Bill Authorizing Advertising on Changeable Messages Signs Fails Senate

While a transportation trailer bill (SB 854) containing a number of significant policy changes was approved by the Assembly, it failed passage in the Senate. Among other items, the bill would have authorized Caltrans, subject to approval from the Federal Highway Administration, to enter into agreements with private companies to construct, maintain and operate changeable messages signs and advertise on the signs. This would be a significant change given that these signs are currently limited to traffic information, public awareness campaigns and safety alerts. The bill gave priority to traffic information and emergency notifications over advertising and gave the Legislature the ability to appropriate advertising revenue retained by the department. Given that the bill’s failure was due mainly to other elements, this proposal may reemerge next year.

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