Crosscutting Issues


Fund Conditions for

Resources Programs

The state uses a variety of special and bond funds to support the departments, conservancies, boards, and programs that regulate and manage the state's natural resources. In this section, we provide a status report on selected special funds and bond funds supporting these programs. For purposes of this review, we divided the funds into three categories: (1) resources special funds, (2) park-related bonds, and (3) bonds for water programs.

Resources Special Funds

The budget proposes to spend most of the special funds projected to be available in 1998-99 for resources protection. Approving the Governor's spending proposals would leave about $33 million for legislative priorities based on revenue projections contained in the budget. However, the use of some of the remaining funds may be statutorily restricted to specific purposes.

Furthermore, recent revenue projections show that the Governor's proposals may result in oversubscribing the Natural Resources Infrastructure Fund. Funding the Governor's proposals could leave even fewer funds for legislative priorities.

Figure 6 (see next page) summarizes the amount of funds available for expenditure in 1998-99 for selected special funds, the Governor's proposed expenditures from these funds, and the balances available after the Governor's proposed expenditures. Approval of the Governor's spending proposals would leave limited funds available for legislative priorities. This is especially the case because the Legislature may wish to retain some of the projected reserves in the accounts to meet contingencies such as revenue shortfalls or unanticipated expenditures. This would further reduce the amount of funds available for appropriation by the Legislature in 1998-99. Moreover, some of the remaining funds can only be used for specific purposes, as required by statute. For instance, about half ($8.7 million) of the projected balance in the Fish and Game Preservation Fund is dedicated statutorily and can only be used for activities related to certain species. As a result, the Legislature's flexibility in expending these funds for resources projects is limited.
Figure 6
Selected Special Funds

Resources Programsa

1997-98 and 1998-99

(In Millions)

Special Funds 1997-98


Resources Expenditures Balances
Natural Resources

Infrastructure Fund

$8.7 $28.6b $28.6

Salmon and Steelhead

Trout Restoration Account

3.0 8.0 8.0

Environmental License

Plate Fund

18.4 26.0 24.1 $1.9
Public Resources Account 24.0 29.1 23.4 5.7
Habitat Conservation Fund 42.6 37.1 30.0 7.1
Fish and Game

Preservation Fund

87.4 96.7 79.1 17.6c
aBased on Governor's budget.
bAmount reflects resources after transfer of $18.8 million to Habitat Conservation Fund.
cIncludes reserve for dedicated accounts ($8.7 million) and nondedicated accounts ($8.9 million).

Resources Trust Fund. The Resources Trust Fund (RTF) was created by Chapter 293, Statutes of 1997 (SB 271, Thompson). Funds in RTF are to be allocated to preserve and protect the natural and recreational resources of the state. The RTF is funded from the tidelands revenues remaining after specified amounts are deposited into the General Fund and the California Housing Trust Fund, as shown in Figure 7. The RTF's share of

the tidelands revenues is $30.3 million in the current year and projected to be $55.4 million for 1998-99. The trust fund is split into two separate accounts: the Salmon and Steelhead Trout Restoration Account (SSTRA) and the Natural Resources Infrastructure Fund (NRIF).

Chapter 293 requires that the first $8 million from RTF be deposited into SSTRA to be appropriated to the Department of Fish and Game (DFG) for the recovery of salmon and steelhead trout. Of the $8 million, at least 87.5 percent ($7 million) must be allocated as project grants through the DFG fisheries management grant program. The grants are to be awarded for activities that improve fish habitat in coastal water utilized by salmon and anadromous trout, and are to emphasize the development of coordinated watershed improvement activities. The remaining 12.5 percent may be used for project administration costs incurred by DFG.

The remaining RTF money ($47.4 million in 1998-99) will be deposited in NRIF for preserving and protecting natural and recreational resources. Chapter 293 identifies four priorities for project funding, but does not mandate that the funds be used for these priorities, or in any specific order. The priorities are: environmental review and monitoring by DFG; Natural Community Conservation Plan (NCCP) acquisitions; Habitat Conservation Fund (HCF) funding requirements; and expenditure for nonpoint source pollution control programs. Funds not appropriated to these priorities will be spent on natural and recreational resources.

For 1998-99, the budget proposes to transfer $18.8 million to HCF, leaving $28.6 million in NRIF. These funds will be used as follows: $10.5 million for environmental review, $1.6 million for NCCP acquisitions, $1 million for nonpoint source pollution control, and the remaining $15.5 million for the preservation of natural and recreational resources, including water quality monitoring.

As we discuss under the State Lands Commission write-up (Item 3560), more recent projections by the commission show lower tidelands revenues in 1998-99. As a consequence, NRIF will receive $9 million less than projected in the Governor's budget. This would require the administration to revise its resources expenditure proposals for 1998-99 so that NRIF would not be oversubscribed.

Environmental License Plate Fund (ELPF). The ELPF derives its funding from the sale of personalized motor vehicle license plates by the Department of Motor Vehicles. Funds from ELPF can be used for the following purposes:

The budget proposes expenditures totaling $24.1 million from ELPF, an increase of $5.7 million (31 percent) over estimated current-year spending. The increase is the net result of (1) an increase of $5.6 million in California Tahoe Conservancy activities, (2) an increase of $1.7 million for local assistance in the Department of Conservation, and (3) a reduction in ELPF funding for local assistance and capital outlay in the Department of Parks and Recreation. The proposed ELPF expenditures will leave a balance of $1.9 million at the end of 1998-99.

Public Resources Account, Cigarette and Tobacco Products Surtax Fund (PRA). The PRA receives 5 percent of the Cigarette and Tobacco Products Surtax Fund (C&T Fund) revenues. Generally, PRA funds must be used in equal amounts for (1) park and recreation programs at the state or local level and (2) habitat programs and projects.

The budget projects $29.1 million in PRA resources in 1998-99 and proposes expenditures from PRA for the various departments totaling $23.4 million. This is a slight decrease of $0.6 million (2.5 percent) from the estimated current-year expenditure level. Specifically, the budget proposes to (1) increase by $2 million the Department of Conservation's support and local assistance to conserve agricultural land, (2) increase the State Water Resources Control Board's PRA funding by $931,000 for watershed management coordinators, (3) increase PRA support for DFG by $447,000, (4) provide $800,000 to the Department of Education for the Environmental Education Grant program, and (5) reduce the Department of Parks and Recreation's PRA funding for local assistance and capital outlay by $4.8 million.

Habitat Conservation Fund. The HCF was created by Proposition 117, the California Wildlife Protection Act of 1990. The proposition requires that the fund receive annual revenues of $30 million primarily for wildlife habitat acquisitions and improvements. To provide this funding level, Proposition 117 requires transfers of (1) 10 percent of funds from the Unallocated Account, C&T Fund, and (2) additional funds from the General Fund in order to provide a total of $30 million. Proposition 117 allows the Legislature to substitute for the General Fund the transfer of other appropriate funds.

The budget proposes to transfer $30 million into the HCF in 1998-99, including $11.2 million from the Unallocated Account, C&T Fund, and $18.8 million from NRIF. Until the current year, HCF had been funded with a combination of money from the Unallocated Account, ELPF, and PRA. With the creation of NRIF, money from the new account is being used to fund HCF in the current and budget years.

The budget proposes total HCF expenditures of $30 million in 1998-99--$12.6 million (30 percent) less than estimated current-year expenditures. This reduction in expenditures is primarily due to prior-year appropriations being expended in the current year. The proposed expenditures from HCF include (1) $21 million for support and capital outlay projects of the Wildlife Conservation Board, (2) $4 million for capital outlay projects of the State Coastal Conservancy, (3) $4.5 million for local assistance and capital outlay for parks in the Department of Parks and Recreation, and (4) $500,000 for the activities of the California Tahoe Conservancy.

Fish and Game Preservation Fund (FGPF). The FGPF derives most of its revenues from fishing and hunting licenses, tags, and permits. Money in FGPF is used to support DFG activities to protect and preserve fish and wildlife, including the acquisition and construction of projects for these purposes. Certain revenues are restricted to be used for specific purposes or species. For instance, the cost of hunting and sport fishing programs is to be financed out of hunting and sport fishing revenues. The costs of commercial fishing programs are to be paid solely out of revenues from commercial fishing taxes and license fees.

For 1998-99, the budget proposes FGPF expenditures of $79.1 million. This amount is $8.3 million (or 9.5 percent) less than estimated current-year expenditures. Of the amount, $66 million is proposed to be spent from nondedicated funds and the remaining $13.1 million from dedicated revenues.

Park-Related Bonds

There will be almost no park bond funds available for park projects in 1998-99.

Park development projects and land acquisitions have traditionally been funded by various bonds passed by the voters. The availability of bond funds has contributed to the Legislature's flexibility in funding its priorities in past years. This is because the Legislature has been able to free up funds in ELPF and PRA by using bond funds to the greatest extent possible to fund various projects.

Figure 8 shows the amount available in selected park bond funds and the expenditures proposed for 1998-99. Because almost all park bond funds are depleted, the budget projects minimal bond funds available for park projects in 1998-99.

Figure 8
Selected Park Bond Funds

Resources Programsa

1997-98 and 1998-99

(In Millions)

Bond Funds 1997-98


Resources Expenditures Balances
Parklands Fund of 1980 $0.1 $2.6 $2.6

Parklands Fund of 1984 4.4 0.1 -- $0.1
Fish and Wildlife Habitat

Enhancement Fund


State Coastal Conservancy

Fund of 1984

1.0 0.5 0.5

California Wildlife, Coastal

Parkland Conservation

Fund of 1988

26.4 3.6 3.2 0.4
Wildlife and Natural Areas

Conservation Fund of 1988




River Parkway Subaccount

Proposition 204

26.0 1.0 1.0

aBased on the Governor's budget.

Water Bonds

The budget proposes expenditures of about $185 million from various water bonds for water quality, water supply, and ecosystem restoration projects. No bond funds are available in the budget year for (1) the state's unmet share of costs for federally authorized flood control projects and (2) state matching funds for federal safe drinking water loans and grants. The budget proposes no funding from other sources for these purposes.

As indicated in Figure 9, the budget reflects expenditures totaling $184.9 million in 1998-99 from various water bonds for (1) safe drinking water; (2) water supply, including water conservation, water recycling, and groundwater recharge; (3) wastewater treatment and other water quality projects; and (4) Bay-Delta improvements, including fish and wildlife restoration and delta levee rehabilitation. This is a decrease of $131.9 million, or 42 percent, from estimated current-year expenditures from bonds for these purposes. Most of this decrease reflects a depletion or near depletion of a number of the Proposition 204 bond fund accounts (mostly funds for flood control purposes) at the end of 1997-98. Proposition 204--the Safe, Clean, Reliable Water Supply Act of 1996--provides $995 million for various water-related purposes, habitat restoration in the Bay-Delta, wastewater treatment, water recycling and conservation, and local flood control and prevention.

Safe Drinking Water. The budget projects total expenditures of $19.1 million in 1998-99, leaving a balance of $44.3 million at the end of 1998-99. There are pending grant applications that would spend much of this balance in future years. About $700 million in federal loans and grants will be available over the next seven years (including $76 million in the budget year) to upgrade public water systems in the state in order to meet safe drinking water standards. These federal funds will require a 20 percent state matching contribution. However, existing safe drinking water bond funds are not authorized to serve as a state match for these federal funds. The budget proposes no funding from other sources to provide for this state match. Unless local governments or new funding sources (such as bonds) provide the matching funds, California will not receive these federal dollars. There are bond proposals to provide these matching funds. These include AB 1180 (Battin), which provides a framework for a bond measure to provide matching funds, and the Governor's proposed $1.3 billion water management bond (discussed below), which provides matching funds of an unspecified amount.

Water Supply. The budget projects total expenditures of $76 million, including $39.3 million from Proposition 204 funds, for water supply and

recycling projects. This leaves a balance of $71.2 million, mainly for new projects.

Wastewater Treatment and Other Water Quality Projects. The budget proposes $55.2 million in expenditures to fund wastewater treatment, agricultural drainage treatment, seawater intrusion control, and other water quality projects in 1998-99. This leaves a balance of $102.3 million, mainly for new projects.

Figure 9
Selected Water Bond Fundsa

(In Millions)

Resources Expenditures Balances
Safe drinking water
1986 California Safe Drinking Water Fund $130.2 $8.5 $21.7
1988 California Safe Drinking Water Fund 33.2 10.6 22.6
Subtotals ($63.4) ($19.1) ($44.3)
Water supply/water recycling
1986 Water Conservation and

Water Quality Fund

$28.1 $26.3 $1.8
1988 Clean Water and

Water Reclamation Fund

6.8 4.4 2.4
1988 Water Conservation Fund 22.6 6.0 16.6
Safe, Clean, Reliable Water Supply Fundb 89.7 39.3 50.4
Subtotals ($147.2) ($76.0) ($71.2)
Wastewater treatment/water quality
1984 State Clean Water Fund $30.4 $7.5 $22.9
Safe, Clean, Reliable Water Supply Fundb 127.1 47.7 79.4
Subtotals ($157.5) ($55.2) ($102.3)
Bay-Delta improvements
Safe, Clean, Reliable Water Supply Fundb $476.5 $34.6 $441.9
Flood control and prevention
Safe, Clean, Reliable Water Supply Fundb



Totals $844.6 $184.9 $659.7
aBased on Governor's budget.
bProposition 204.
cFunds in Proposition 204 subaccount depleted at end of 1997-98.

Bay-Delta Improvements. Proposition 204 bond funds provide a total of $583 million for projects specifically related to the Bay-Delta, mainly for ecosystem restoration. The budget proposes expenditures of $34.6 million in 1998-99, leaving a balance of $441.9 million.

Flood Control and Prevention. The costs of federally authorized, locally sponsored flood control projects are shared by the federal government (65 percent), state government (25 percent), and local government (10 percent). Due to the state's budget condition in recent years, however, the state has been unable to pay fully its share of costs for these flood control projects. Proposition 204 provided $60 million to pay some of the arrears owed to local agencies; however, these funds will be depleted by the end of 1997-98. According to the Department of Water Resources (DWR), the unpaid amount on the state's share of costs will be about $151 million at the end of 1997-98. The budget provides no funding to pay any of this unpaid amount, which DWR projects will increase to about $172 million by the end of the budget year. According to DWR, the lack of funds for the state share has caused construction to stop on a number of flood control projects.

$2.1 Billion in New Resources Bonds Proposed

The administration proposes new bonds totaling $2.1 billion, to be placed on either the June or November 1998 ballot, for various resources-related purposes, including water supply and water quality projects, state park improvements, coastal protection, and wildlife conservation. There is little detail available regarding these proposals.

Despite past expenditures of bonds, there remain significant resources-related funding demands. For example, the administration estimates a need of about $11 billion for public water systems to comply with safe drinking water standards. There are also significant funding demands in other areas, including local flood control. The administration is proposing to meet some of these needs through proposed new bond funding.

Proposed New Resources Bonds. The administration proposes two new resources bonds to be placed on either the June or November 1998 ballot. However, the budget proposes no expenditures in the budget year from these proposed bonds. Few details have been provided about these proposed measures; below, we provide a summary of each based on available information.

Setting Resources Infrastructure

Funding Priorities

As discussed in the previous section, park bond funds are essentially depleted and there are unmet funding needs for certain types of water projects, including for local flood control and safe drinking water protection. In 1998, the Legislature will be evaluating a number of bond proposals to address funding needs for resources infrastructure. In this section, we provide a framework for constructing an estimate of resources infrastructure needs and setting funding priorities to assist the Legislature in evaluating these proposals.

Bond Proposals. As we discuss in the previous section, the administration has proposed two resources bonds totaling $2.1 billion. In addition, the Legislature will likely be considering other legislative proposals to provide bond funds for resources infrastructure, including flood protection, coastal waters and rivers, safe drinking water, and parks.

What Bond Funds Remain Available?

Since 1970, voters have approved $5.2 billion in park and water bonds. Most park bond funds are depleted; about $660 million of water bond funds will remain available for allocation at the end of 1998-99.

$5.2 Billion in Resources Bonds Approved Since 1970. As shown in Figure 10 , since 1970 voters have approved $2.9 billion for water bonds and $2.3 billion for park and habitat bonds. While the $1 billion bond approved in 1996 (Proposition 204) is generally referred to as a water bond, it does provide funds for park and habitat conservation. This recognizes that conserving open space and wildlife habitat may affect water quality and supply and vice versa.

Most Park and Habitat Bond Funds Are Depleted. As the figure shows, the last major park and habitat bond was approved in 1988, creating a gap of about ten years during which no new park and habitat bonds have been approved. As a consequence, bond funds for these purposes are now essentially depleted.

Figure 10
Park, Habitat, and Water Bonds

Approved by Votersa

(In Millions)
Year Park and


Water Total
1970-71 $60 $250 $310
1973-74 250 250 500
1975-76 280 175 455
1977-78 -- 375 375
1980-81 285 -- 285
1982-83 85 -- 85
1983-84 455 -- 455
1984-85 -- 400 400
1985-86 100 150 250
1986-87 -- 100 100
1987-88 776 -- 776
1988-89 -- 200 200
1996-97 -- 995 995
Totals $2,291 $2,895 $5,186
aExcludes years in which no bond was approved.

Some Water Bond Funds Remain, But Are for Unmet Needs. Of the $2.9 billion of water bonds, about $660 million will remain available for allocation at the end of 1998-99. Of this amount, about $390 million is exclusively for ecosystem restoration projects in the Bay-Delta. However, as discussed in the previous write-up, there are a number of unmet funding needs, including local flood control and safe drinking water protection.

Constructing A Needs Estimate

To construct an estimate of resources infrastructure needs, we recommend a framework that includes: (1) establishing specific goals, (2) determining who should meet the resources infrastructure needs and how they should be met, and (3) establishing a project-specific needs inventory.

The Capital Outlay and Infrastructure Report. The Department of Finance (DOF) prepares annually a capital outlay and infrastructure report in order to assess the state's infrastructure needs. This report projects for all state programs over a ten-year period the state's potential infrastructure needs for capital outlay, deferred maintenance, and local assistance for capital improvements. The most recent report covers 1997-98 through 2006-07 and identifies a need of $7.7 billion for resources and environmental protection programs.

Our review shows that the report does not provide a complete or reliable estimate of ten-year capital outlay needs. Specifically, we find that departments vary in their methodologies for estimating needs, and that, in some instances, the estimates are not comprehensive and coordinated among departments. In most instances, the estimates are not based on established plans and goals to implement the Legislature's resources priorities. Without such plans or goals, it is not possible to determine (1) if the estimates represent real needs to achieve stated goals or (2) the relative priority of the needs.

How Needs Estimate Should Be Constructed. We have recommended in the past (please see our Analysis of the 1996-97 Budget Bill, page B-13) that the Legislature take steps to ensure that the state's programs for land resources conservation--including the acquisition and development of open space and wildlife habitat--are coordinated, based on clear priorities, and directed towards the achievement of long-term goals. We have also recommended (please see our Analysis of the 1995-96 Budget Bill, page I-13) that the Legislature take a more comprehensive and proactive approach with regard to state infrastructure planning and financing.

Consistent with these recommendations, we outline below a process to construct an estimate of resources infrastructure needs.

Step 1: Establish Specific Goals. The Legislature must first identify its overall goals relative to resources. Current law declares broad state policies, for example, to maximize public coastal access and to protect marine resources and land resources, including fish and wetlands. In most instances, however, the state lacks specific goals for implementing these policies. For example, the state has not established goals for the number of coastal access points per capita in different coastal areas, or for the specified acreage of coastal wetlands to be maintained or restored. Specific goals have been established only in a few instances, for example, a statutory goal was set in 1988 to double the natural production of salmon and steelhead trout.

Without specified goals, both the Legislature and departments are less able to determine and prioritize the steps (or programs) necessary to ultimately implement statutory policies, or evaluate the effectiveness in implementing those policies.

An appropriate mechanism for establishing such goals would be the comprehensive statewide environmental plan required under current law. Current law requires the Governor to prepare and update every four years this plan which contains an overview--looking 20 to 30 years ahead--of state growth and development, and a statement of goals relating to land use, conservation of natural resources, and air and water quality. (However, no Governor has submitted such a plan to the Legislature since 1978.)

Step 2: Determine Who Should Meet Resources Infrastructure Needs and How to Meet These Needs. The second step to constructing the needs estimate is to identify the programs (activities) needed to achieve the goals identified in the statewide environmental plan and how these programs ought to be implemented. Specifically, the Legislature should consider the appropriate role of state government relative to federal and local governments and the private sector in carrying out these programs, and the cost-effectiveness of the proposed activities.

Step 3: Establish Project-Specific Needs Inventory. Once short- and long-term state goals are established and the appropriate role of state capital outlay expenditures in meeting those goals determined, then individual departments should be directed to develop a project-specific inventory of capital needs for each program they operate. For each project, departments should provide a cost estimate and time line for completion of the project, identify potential funding sources, and estimate the project's impact on future state operations and maintenance costs. The DOF should be responsible for evaluating the merit of these projects and their estimated costs and potential funding sources. The DOF should provide to the Legislature annually in the Governor's budget a prioritized list of projects to be funded over the next ten years, linking this list to the accomplishment of specific state goals.

Setting Funding Priorities

In establishing funding priorities, the Legislature should give priority to projects that protect public health and safety, fulfill statutory requirements, address broad state goals, or provide savings. The state should only fund those projects for which ongoing funding for support and maintenance is reasonably assured.

We think that the framework discussed above should be applied to determine the state's infrastructure needs in other program areas as well, including education, corrections, and health and welfare. The Legislature will then have the necessary information to determine funding priorities among these needs, given that the state's revenues and borrowing capacity are limited.

Establishing state funding priorities among disparate programs is ultimately a legislative policy decision. To ensure that the state gets the "biggest-bang-for-the-buck" from its capital expenditures, we recommend that the Legislature apply consistent criteria in establishing its funding priorities and developing a statewide infrastructure financing plan across all programs. In prioritizing projects, it is important to assess any negative consequences that would result from not funding a project. In our view, the Legislature should use the following criteria in establishing funding priorities, both across all program areas and within resources programs specifically.

Choice of Financing Mechanism

There is a range of mechanisms to finance infrastructure needs. The choice among these mechanisms depends on cash flow requirements and the policy decision as to who should pay for a particular project. We recommend that future bond measures provide flexibility to the Legislature to address high priority needs over time. This should be done by providing broad categories of eligible projects in these measures, and leaving funding allocations to specific departments and projects to be made in the annual budget process.

The Legislature has available to it a range of mechanisms for financing its infrastructure needs. There are two basic considerations for the Legislature in determining the appropriate financing mechanism: (1) the merits of pay-as-you-go funding versus borrowing, and (2) who pays. We discuss these considerations below and make recommendations regarding future bond measures.

Pay-As-You-Go Versus Borrowing. The choice between using pay-as-you-go fund sources versus bond funds (borrowing) to finance a given infrastructure project depends largely on cash flow requirements and the desired distribution of costs among parties. Using bond funds results in higher costs for a given project then using a pay-as-you-go approach, because of the cost to the state of paying interest on the bonds. However, bonds may be the appropriate financing mechanism to address cash flow needs in certain circumstances. These include instances where an infrastructure project has a high cost and there are not sufficient revenues available over the construction period to meet cash flow requirements. To the extent a project can be completed in stages, this may address some cash flow requirements and alleviate the need for bond financing.

Another consideration in choosing between pay-as-you-go and borrowing is the distribution of costs among generations of taxpayers. To the extent that future generations will benefit from the project, it may be appropriate to use bond financing since those future generations will thereby shoulder some of the project's costs through payment of principal and interest on the bonds.

Who Pays. In our Analysis of the 1992-93 Budget Bill, (page IV-19), we provide a framework for financing resources and environmental programs that is applicable to financing resources infrastructure projects. First, in cases where an identified population or group--as opposed to the population as a whole--benefits from the infrastructure expenditure, it may be appropriate to finance the expenditure, in whole or in part, from fees levied on that group. For example, people who use state park facilities might be charged fees to partially offset the costs of developing state park facilities.

In some instances, private activities degrade a natural resource and necessitate capital investment to prevent the degradation and/or restore the resource. In these instances, it may be appropriate to levy fees on those activities to defray some of these capital costs. For example, parties generating wastewater should help pay for the capital costs of treating that wastewater.

General purpose funds--including the General Fund--are an appropriate means for financing projects that benefit the entire population, such as projects that maintain the state's biological diversity by protecting fish and wildlife habitat. In addition to the General Fund, there are two other funds which are available for a broad range of purposes and are appropriate means for financing projects that benefit a broad base of the population. These include special funds such as the Public Resources Account and Environmental License Plate Fund. Often with fee-based funds, the authorized uses are relatively narrow. In contrast, general purpose funds can be used for broader purposes, thereby providing the Legislature with greater flexibility in addressing its relative funding priorities.

Using funds for infrastructure--whether by paying-as-you-go or borrowing--reduces their availability for funding state operations. Accordingly, the Legislature should consider the extent to which these funds should be devoted to funding infrastructure projects, over a multiyear period, versus funding other state services and programs.

Providing Greater Flexibility in Future Bonds. Given the number of circumstances under which bond financing is appropriate (as discussed above), bonds are likely to continue to be an important source of funding for resources infrastructure. Past bonds have been relatively specific, with funds designated specifically to certain geographic locations or allocated for use by specific agencies or programs. This limits the Legislature's ability to address highest priority needs over time. Accordingly, we recommend that the Legislature in future bond measures only indicate what categories of projects shall be eligible for funding, but make specificallocations--both among departments and for specific projects--as part of the budget process. This approach is consistent with a prior recommendation that we have made relative to the use of bonds for construction of state facilities generally. Specifically, we have recommended that the Legislature consider placing an appropriately sized "State Facilities Bond Act" on the ballot, because this mechanism would provide the Legislature with flexibility to address the facilities needs of any state agency on a priority basis. (Please see our Analysis of the 1997-98 Budget Bill, page H­15.)

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