State Budget Update

FY 2011-12 State Budget
Transportation Highlights

August 2011
Governor Jerry Brown signed the $86 billion FY 2011-12 state budget on June 30, 2011. Here are some highlights of the budget from a transportation point of view.

Local Road and Public Transit Funding Increased in FY 2011-12 State Budget

In stark contrast to prior years, public transportation and local streets and roads were spared the deep cuts that hit many programs across California in the FY 2011-12 state budget. In fact, both areas will receive more state funding in FY 2011-12 than the prior year. This is largely due to protections that were enshrined in the State Constitution by Proposition 22, passed by 61 percent of voters last November.

In the Bay Area, cities and counties will receive approximately $346 million for local street and road improvements, including pothole repairs, sidewalk and bicycle lane projects, and other critical maintenance needs – about $30 million more than in FY 2010-11. For more details, click here (PDF). Bay Area public transit operators will receive approximately $150 million from the State Transit Assistance (STA) program, almost double their share for the prior year (considering they received a one-time payment of $144 million to cover both FY 2009-10 and FY 2010-11). Click here (PDF) for a detailed breakdown of the revenue-based funding provided to Bay Area transit operators and here (PDF) for a breakdown of the population-based STA funds. 

Budget Defers Until June 2021 Repayment of $1 Billion in Transportation Loans

However, the budget is certainly not all good news for transportation. A budget trailer bill adopted as part of the final budget (AB 115) diverts $866 million from the one remaining source of transportation funding that is not explicitly protected by Proposition 22 — vehicle weight fees. It also forgives a $132 million loan from the State Highway Account (SHA) to the General Fund and postpones until June 30, 2021 repayment of a number of SHA loans totaling $921 million that were originally due to be repaid within the next four years.

Transportation stakeholders expected the diversion of vehicle weight fees — a key component of the comprehensive deal to reenact the gasoline tax swap (first adopted in March 2010) in order to conform to the provisions of Propositions 22 and 26 (November 2010).  However, the loan forgiveness and deferral of the SHA loan repayment will cut $1 billion in funds in the next 10 years for projects scheduled in the State Transportation Improvement Program (STIP) and highway rehabilitation projects in the State Highway Operation and Protection Program (SHOPP). Based on actions taken to date by the California Transportation Commission (CTC), the loan provisions are expected to reduce funding for the 2012 STIP by about $500 million. Because the STIP is a five-year program, the impact of this reduction can be spread out over multiple years, but in the short term, the CTC is asking project sponsors to collectively identify at least $100 million in near-term projects for deferral to FY 2013-14 and beyond.

Governor Eliminates State Support for Local Project Development Work

Project schedules are also expected to be delayed as a result of the Governor’s line-item veto of 47.5 Caltrans positions (equivalent to a savings of $6.4 million) assigned to work on project initiation documents (PIDs) for projects sponsored by local agencies. Given that local agencies control 75 percent of funding in the STIP, this cutback could have a disproportionate impact on state highway improvement projects prioritized by local agencies. Unless those agencies can identify existing or new resources to complete the PIDs, projects will be delayed.  

Governor Cuts $147 Million in High-Speed Rail Connectivity Funds

Another unwelcome and surprising cut to the budget was the veto of high-speed rail connectivity funding.  The Governor reduced the appropriation of high-speed rail connectivity funds from $154 million to $7 million, restricting the remaining funds to positive train control safety projects. The veto message was almost identical to that used by Governor Schwarzenegger in his reduction of the same item in last year’s budget, namely that the projects that were proposed to be funded “appeared unrelated to the high speed rail project or an integrated rail plan.” However, the project eligibility provided for in Proposition 1A distributes the funds to rail operators by formula and provides broad project eligibility. For the Bay Area, the reduction translates to a cut of at least $27 million in funding for the San Francisco Municipal Transportation Authority’s Central Subway Project and a $32 million cut in funding for Phase 1 of the Bay Area Rapid Transit District’s (BART) rail car replacement project. 

Dissolve or Pay Up: Redevelopment Agencies’ Funding Diverted

Another troubling consequence of this year’s state budget is the diversion of funds that would otherwise have been available to redevelopment agencies for various infrastructure improvements. Specifically, as part of the overall budget deal, the Legislature enacted two trailer bills related to redevelopment, ABx1 26 and AB x1 27 (with the “x1” denoting that they were part of the “First Extraordinary” legislative session, rather than the “regular session”). ABx1 26 abolishes all redevelopment agencies on October 1, while ABx1 27 allows an agency to stay in existence if a it agrees to begin sharing its property tax dollars with the state. The budget deal assumes $1.7 billion in FY 2011-12 as a direct payment to help balance the state budget and another $400 million a year starting in 2012-13 for local services and schools that would otherwise be funded by the state.

This diversion of redevelopment funding removes a critical source of funding for transit-oriented development. Approximately 75 percent of the Bay Area’s Priority Development Areas (PDA) are within redevelopment agency boundaries. As a result, the state’s diversion of this revenue will eliminate a major source of PDA funding that could delay proposed development or potentially bring it to a halt altogether. As expected, the League of California Cities and the California Redevelopment Agency Association have already filed suit to challenge these bills in court, arguing that they are in violation of Proposition 22 (November 2010).

Budget Appropriates $3.3.Billion for Proposition 1B Projects

The budget includes roughly $3.3 billion in Proposition 1B expenditures. But more important than the appropriation amount is the question of how much revenue from future bond sales will be allocated to Proposition 1B projects, and how those funds will be distributed within the various competing programs. In June, MTC sent a letter (PDF) to the Governor Brown urging him to support a large bond sale in order to prevent delays to ready-to-go transportation projects.

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