For planners, developers and local government officials, Gov. Arnold Schwarzenegger's budget proposal for 2005-06 might be as important for what it does not contain as for what it does contain.

Notably, the budget does not have a new shift of funds away from local government, nor does the budget lay a new round of unfunded mandates on the locals. Instead, Schwarzenegger proposes to close a big part of the projected $9 billion deficit by slashing education and social service funding by nearly $4 billion. Still, he did reduce transportation spending by $1.5 billion, mostly through a suspension of Proposition 42, the 2002 initiative that directed gasoline sales tax revenue to road and transit projects.

John Shirey, executive director of the California Redevelopment Agency, said it is important to remember that the budget for 2005-06 already has a shift of revenue from cities and counties to schools. The shift was part of the Proposition 1A agreement, in which state officials agreed not to raid local coffers in the future if cities and counties contributed $1.3 billion during this budget year and next. Voters overwhelmingly approved Proposition 1A last November.

“We already gave $1.3 billion, and $250 million of that came from redevelopment agencies,” Shirey said. “It's kind of like it is forgotten already.”

While most analysts say the 2005-06 budget proposal is more “honest” than past budgets, the spending proposal does not quite match the State of the State speech that Schwarzenegger gave shortly before delivering the budget. In his speech, Schwarzenegger emphasized the need to improve the state's infrastructure.

“Californians can't get from place to place on little fairy wings. This is a car-centered state. We need roads,” the governor said. “Like Gov. Pat Brown before me, I intend to see that the government builds the roads that Californians need.”

Yet the budget directs $1.3 billion worth of gasoline sales tax and $200 million in a public transportation account to the general fund. Part of the problem is that $1.2 billion that the governor had hoped to get from casino-owning Indian tribes has not materialized because of disputes with the tribes.

Much like the Proposition 1A deal, the budget calls for a constitutional amendment that would prevent future Proposition 42 raids, starting with the 2007-08 fiscal year.

Although transportation advocates have been slow to criticize the governor's budget, state lawmakers are raising questions.

“We can't get around, as he said, on little fairy wings. But you can't build roads on little fairy wings either,” Senate Transportation and Housing Committee Chairman Tom Torlakson (D-Antioch) told the Contra Costa Times.

Indeed, the governor delivered his speech only one day after the California Transportation Commission (CTC) issued its annual report to the Legislature - a report that stated right up front, “California's transportation program is in crisis and on the verge of collapse.” The report dwells on unfunded needs, project delays, economic damage due to congestion, and an uncertain future. If the state continues to suspend Proposition 42, “many, perhaps most,” of the projects in the State Transportation Improvement Program will be deleted, CTC Chairman Bob Balgenorth warned the Legislature.

The proposed budget does promise to pay the Proposition 42 diversions back to transportation accounts, but over 15 years. And the budget does include $2.7 million for an environmental impact report on the proposed high-speed rail project.

In his speech, Schwarzenegger tied transportation to housing - an interesting juxtaposition considering that the state Senate has combined the transportation and housing committees this year, and because local government officials have long complained that Sacramento leaders have failed to see the link between the two.

“We need roads and affordable housing,” Schwarzenegger told lawmakers. “The median price of a home in California is $460,000. That's too much. A home of your own is part of the American dream. I believe in such dreams, so I will proposed legislation that eliminates regulatory and legal hurdles that delay construction and increase the costs of new housing.”

On the day the budget was released, Business, Transportation and Housing Secretary Sunne McPeak and Housing and Community Development (HCD) Director Lucy Dunn conducted a conference call with a number of housing lobbyists and stakeholders. However, McPeak and Dunn declined to hang specific details on the governor's promise besides saying that California Environmental Quality Act (CEQA) reform would be part of the housing package. In late January, an HCD spokeswoman confirmed that details were still being finalized.

A number of Capitol insiders who are typically part of the housing policy debate said they have heard little from the administration, and the anxiety level appears to be rising in Sacramento.

“It sounds like everybody is going in their own direction,” said DeAnn Baker, a housing and transportation lobbyist for the California State Association of Counties.

“People keep saying we have a housing crisis. But we not only have a housing crisis, we have a transportation crisis, we have an infrastructure investment crisis,” Baker said. “Just don't go out and tell us to zone for housing without any understanding of what it takes to make housing happen.”

Christine Minnehan, a housing lobbyist for the Western Center on Law and Poverty, noted that Schwarzenegger spoke only to home ownership, even though 45% of the state's residents are renters, many of whom spend more than half of their income for housing.

For more than six months, McPeak has been talking about a homeownership initiative, Minnehan said, “But until you see words on paper, what do you say? We have nothing to respond to.”

“I'm not seeing anything that helps people who are really over the edge,” Minnehan added. “I don't hear anything about people who are paying that much [half or more] of their income for housing and will never, ever buy a house.” In fact, the budget proposes a 70% reduction in a tax relief program for low-income seniors and disabled renters and homeowners, she noted.

Outside of transportation and housing issues, the governor's budget includes a major reduction in spending on the Cal-Fed Bay Delta project. That reduction was not a surprise, and Cal-Fed officials have already started leaning more on farmers, water districts and the federal government for funding. Ongoing natural resource-related spending would remain roughly the same, although capital investment would shrink dramatically because of a reduction in available bond money.

Of course, no one knows for certain how much of the budget proposal will survive. If the California Teachers Association and education supporters wage full-scale war, the administration and lawmakers may take another look at city and county revenues.

“This budget is ambitious,” the CRA's Shirey said. “It's not going to be easy to get passed.”

The Legislative Analyst's Office (LAO) suggested that it should not be passed. The LAO found that Schwarzenegger's proposal to give the governor the authority to make across-the-board, mid-year budget cuts made little sense. The LAO also questioned a provision that would prohibit future education spending reductions that violate Proposition 98 guarantees.

“[T]he administration suggests that a key problem is that state spending is on autopilot,” wrote Brad Williams, the LAO's director of fiscal forecasting and budget overview. “If the Legislature believes that this is the case, the solution would not be placing more spending on cruise control - as the administration is proposing for Proposition 98 and other areas of the budget. The solution would be to eliminate these types of provisions that limit the Legislature's and governor's authority to make annual budgetary decisions.”

John Shirey, California Redevelopment Association, (916) 448-8760.
DeAnn Baker, California State Association of Counties, (916) 327-7500.
Christine Minnehan, Western Center on Law and Poverty, (916) 442-0753.
Governor's budget:
Legislative Analyst's office budget report:
California Transportation Commission annual report: