Legislative Analyst's Office

Analysis of the 2002-03 Budget Bill

California Infrastructure Plan

Existing law requires the Governor to submit, beginning in 2002, a five-year infrastructure plan in conjunction with the budget. The plan, however, was not submitted with the 2002-03 Governor's Budget. Without this plan the Legislature does not have information it needs to make informed decisions about capital outlay proposals in the budget. Accordingly, we recommend the Legislature defer approval of new capital outlay projects until the infrastructure plan has been submitted and the Legislature has had an opportunity to review it. We also recommend the Legislature appoint a select committee to make recommendations on how the Legislature might effectively respond to the infrastructure plan when it is submitted.

Chapter 606, Statutes of 1999 (AB 1473, Hertzberg), requires the Governor to submit a five-year infrastructure plan in January of each year, beginning in 2002, in conjunction with submission of the Governor's budget. The plan is required to contain the following information for the ensuing five-year period:

The funding proposal must identify the specific funding sources to be used, such as the General Fund, special funds, general obligation bonds, and lease-payment bonds. If the proposal plans the issuance of new state debt, it must evaluate the impact of the issuance on the state's overall debt position. Any capital outlay or local assistance appropriations proposed for funding in the Governor's budget must derive from and be encompassed by the proposal contained in the first year of the plan.

The required infrastructure plan was not submitted in January. The Governor's budget indicates that ". . . given the slowdown in the state's economy and General Fund revenue shortfalls, committing funds for a comprehensive statewide infrastructure plan is impractical." The budget also states: "The planning work, thus far undertaken, needs to undergo significant revisions to reflect current economic conditions."

We have a number of concerns with these statements:

Why the Plan Is Important

Currently, the Legislature does not have complete information about the condition of the state's infrastructure, the demands for new capital investment, and the amount of funding needed to address the state's facility requirements. Without this, it is difficult for the Legislature to assess its policies, priorities, and funding criteria against the administration's. The state also loses other key benefits that a plan can provide. The process of developing an infrastructure plan focuses attention on important policy issues, such as state and local funding responsibilities for different programs. Development and annual updating of the plan also highlights areas where there is a need to generate additional information about infrastructure programs in order to make informed funding decisions.

The Legislature now must make capital investment decisions on projects without information about how a project and its cost relate to all other infrastructure proposals. Below, we discuss: (1) options available to the Legislature in addressing budget-year proposals without the plan and (2) how the Legislature can prepare to deal with the information provided in future infrastructure plans.

What Should the Legislature Do?

Addressing Budget-Year Infrastructure Proposals. Given the absence of the infrastructure plan, the Legislature cannot see how capital outlay proposals in the Governor's budget fit together with the state's long-term infrastructure needs and costs. This is particularly important in the budget year because the Governor is proposing over $670 million of capital investment funded by lease-payment bonds in order to stimulate the current economy and there is over $600 million in general obligation bond- financed projects. The Legislature is being asked to approve a large amount of debt financing without knowing if the projects proposed are the highest priority on a statewide basis, and what the impact of the financing will be on the state's future ability to fund infrastructure needs.

We believe it is especially important for the Legislature to have an adequate infrastructure plan before it, given the funding decisions it needs to make to respond to the Governor's budget proposals. Accordingly, we recommend that, pending receipt of an adequate infrastructure plan, the Legislature defer funding for all new projects (with the exception of those to correct critical fire and life safety deficiencies). While the vast majority of the budget-year infrastructure proposals are for previously funded projects, this recommendation would still affect projects costing in the hundreds of millions of dollars.

Addressing Legislative Needs in Responding to an Infrastructure Plan. When the Legislature receives a plan--whether later this year or next January--it will want to use the information in the plan as effectively as possible. We recommend the Legislature establish a select committee to consider institutional changes that would help it to best respond to the Governor's future infrastructure plans. Some measures that a select committee could consider are:

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