Most government budget crises get bailed out by increasing tax revenue, and the current situation in California appears to be no exception. With tax receipts on the rise throughout California, Gov. Arnold Schwarzenegger was able to throw several billion dollars into the kitty as part of the “May revise” - the annual revision of the governor's budget proposal to the Legislature.
The surprise is that he threw the money at transportation instead of education. Though faced with daily television attack ads from the state teachers' union, Schwarzenegger gave education only about $100 million. Meanwhile, he has earmarked about $1.3 billion to fund Proposition 42 - the 2002 ballot initiative that sets aside sales tax on gasoline for transportation projects but which has been suspended by the Legislature every year since. Another $2.5 billion will go toward reducing the budget deficit.
The governor's plan has highlighted the increasing tension between local governments and educators, who increasingly must lobby in Sacramento for pieces of the same pie. But Schwarzenegger may also have painted himself into a corner on transportation, because he now must decide which Davis-era, Democrat-driven transportation projects he wants to fund under Proposition 42. The governor also appears to be picking a fight with the Legislature over how the money is spent, because he is tying the transportation funding to a package of three bills that Republicans like and Democrats don't. The truth of the matter is, even if he gets what we wants, he's still surrounded by Democrats and must, to a certain extent, move on a Democratic agenda.
It's no secret that the state's transportation construction accounts are almost broke. Most State Transportation Improvement Plan (STIP) projects have been postponed for at least two years, and STIP funding - usually well in excess of $1 billion a year - dropped to less than $300 million in 2004-05. Virtually no funds are currently flowing into design and construction of highway projects by Caltrans.
Schwarzenegger rationalized the idea of putting funds into transportation construction rather than operating funds for education by arguing that the revenue boost is a one-time bump of several billion dollars caused by a recent tax amnesty. In so doing, he is attempting to differentiate himself from Gov. Gray Davis, who got the state into a bind by using rapidly increasing revenues in the years of the Internet bubble to fund increases in state operating programs that benefited his labor union supporters.
Schwarzenegger's strategy has been supported by nonpartisan Legislative Analyst Elizabeth Hill, though her staff contended that the tax amnesty portion of the revenue increase was a minor portion of the overall rise. But Schwarzenegger has run into stiff partisan opposition in the Legislature itself. “This governor just doesn't get it,” said Assembly Speaker Fabian Nunez, a Democrat and former labor union official.
But that is not the end of it. Schwarzenegger has tied funding Proposition 42 to passage of his “GoCalifornia” proposal - a package of three bills designed to speed up the highway construction process mostly through privatization. The three bills are:
o AB 850 (Canciamilla), which would permit private companies to build more toll roads.
o AB 1266 (Niello), which would permit Caltrans to start building a project when the first phase is designed, rather than waiting for the entire project to be designed.
o SB 705 (Runner), which would permit Caltrans to let design-build contracts for transportation projects.
The last two bills are meant to address the Caltrans project delivery problem - the fact that transportation projects get stuck in a bottleneck inside the agency at the design and environmental review stage. But the Runner bill in particular is likely to face opposition, as it would take some projects out of the hands of unionized engineers at Caltrans. Contracting out design work has been a major issue between Caltrans and the union for several years, especially as the project delivery problem has gotten worse.
Even if the Legislature approves Schwarzenegger's budget and the GoCalifornia bills - both of which are big ifs - the governor still faces the tough political question of which projects to fund under the Transportation Congestion Relief Program (TCRP).
By funding Proposition 42, Schwarzenegger does not get full discretion over how to spend the money. The measure requires that about half of the money go to fund at least some of the 141 projects contained in the TCRP, with the remainder split between the STIP, local road improvements, and public transit.
The problem for Schwarzenegger is that the TCRP list of 141 projects is a Democratic list devised by the Davis administration in 2000. The Davis list - jokingly called the “G-TIP” at the time - favored urban Democratic areas at the expense of suburban and rural Republican areas, and tended to provide about 30% of the funding required for very large projects - enough to drive the STIP funds in their direction (see CP&DR Insight, July 2000, August 2003). This list was memorialized with the passage of Proposition 42 in 2002; however, no allocations have been made since that time because Proposition 42 has been suspended each year in the name of a “budget emergency.”
One of the first things Schwarzenegger tried to do after ousting Davis in 2003 was to jettison the TCRP, but he failed. Now he is faced with having to pick and choose from among Davis's pet projects.
Business, Transportation, and Housing Secretary Sunne McPeak has been coy about which TCRP projects would get funded, saying only that it is up to the California Transportation Commission. But the CTC is made up of gubernatorial appointees, most of whom come from the construction and development industry. In its most recent report to the Legislature, the CTC identified about 40 TCRP projects ready for construction, totaling about $1 billion in TCRP funding. The two biggest projects are the Wilshire Boulevard busway in Los Angeles and a set of high-occupancy vehicle lanes in the “Orange Crush,” where the 5, 55 and 22 freeways meet in Orange County. All of the other large projects are rail or bus projects, including grade separations for Alameda Corridor East; a light-rail project in North San Diego County; and significant passenger rail improvements in Los Angeles County. Few highway projects - and few Northern California projects - are on the list.
It is entirely possible, of course, that Schwarzenegger will not get what he wants on transportation. The Democratic Legislature, backed by the teachers union, might shift the money to education. Or the Democrats may stand in the way of the GoCalifornia bills, forcing Schwarzenegger to act on his threat not to restore Proposition 42. But even if everything goes his way, the Republican governor and his transportation commissioners will still be stuck funding a list of urban Democratic projects. So in this case, maybe Gray Davis will have the last laugh after all.
