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:

• Identification of new and renovated infrastructure requested by state agencies to fulfill objectives identified in strategic plans.
• Aggregate funding for transportation infrastructure identified in the State Transportation Improvement Program.
• Infrastructure needs for K-12 public schools.
• Instructional and instructional support infrastructure for the three segments of higher education.
• For all of the infrastructure identified, the plan is required to provide an estimate of its cost and a proposal for funding it. If the funding proposal does not provide for all of the infrastructure identified, the plan shall indicate the priorities and criteria used to select the infrastructure it does propose to fund.

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:

• The state has already committed significant resources--in the form of added staff in the Department of Finance and time spent by departments over the past two years--in developing the plan. We do not believe the state has to commit additional funds in order to meet the statutory requirement.
• For the most part, an infrastructure plan should be independent of economic conditions and the state's current funding capabilities. The plan should reflect infrastructure needs, and when these are known, the Legislature and the administration can respond accordingly.
• Finally, the Governor's own proposed capital program belies the implicit message in the budget that an infrastructure plan is not as important in fiscally tough times. The budget's proposed spending on infrastructure is far in excess of appropriations in the 2001-02 Budget Act. An infrastructure plan would have been a critical tool assisting the Legislature in responding to these significant budgetary requests--whether contained in the budget bill or special legislation.

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:

• Legislative Policies, Priorities, and Criteria. Annual enunciation of the Legislature's infrastructure policies, priorities, and criteria by house or joint resolution would provide useful information about the Legislature's intentions in addressing the state's infrastructure challenges. This could provide institutional memory for the houses, insights for the administration, and guidance for legislative staff.
• Capital Budget Subcommittees. Establishment of capital budget subcommittees to consider infrastructure needs on a programmatic basis would unify consideration of capital outlay proposals in a way that would allow the Legislature to consider project proposals within the context of statewide infrastructure needs and funding strategies.
• Infrastructure Fund. Establishment of an infrastructure trust fund with a prescribed funding mechanism could provide an important and stable funding source for infrastructure needs in the future.