Legislative Analyst's Office Analysis of the 2003-04 Budget Bill

Overview

Total state-funded expenditures for transportation programs are proposed to be significantly lower, by 6.6 percent, in 2003-04 than estimated current-year expenditures. The decline is primarily from lower expenditures for transportation projects as the result of (1) no funding for the Traffic Congestion Relief Program proposed for 2003-04, and (2) a projected cash shortfall in the State Highway Account in the current and budget years.

For traffic enforcement, the budget proposes no growth in the expenditure level of the California Highway Patrol and the Department of Motor Vehicles. The budget also projects a significant shortfall in the Motor Vehicle Account in 2003-04 and proposes increasing various fees to generate about $163 million in 2003-04 to avert a deficit in the account.

Expenditure Proposal and Trends

Budget Proposal. The budget proposes total state expenditures of about $6.4 billion for all transportation programs and departments under the Business, Transportation and Housing Agency in 2003-04. This is a reduction of $454 million, or 6.6 percent, below estimated expenditures in the current year.

Historical Trend. Figure 1 shows total state-funded transportation expenditures from 1996-97 through 2003-04. As the figure shows, these expenditures are projected to increase by about $1.6 billion, or 33 percent, from 1996-97 through 2003-04. This represents an average annual increase of 4.2 percent. Figure 1 also displays the spending for transportation programs adjusted for inflation (constant dollars). On this basis, expenditures are estimated to increase by 12 percent from 1996-97 through 2003-04, at an average annual rate of 1.7 percent.

As Figure 1 shows, state-funded transportation expenditures increased each year from 1996-97 through 2000-01, after which expenditures have declined. This expenditure trend reflects a combination of factors. First, state-funded expenditures by the Department of Transportation (Caltrans) increased steadily from 1996-97 through 2000-01 due to increasing expenditures (both support and capital outlay) for highway improvements, including the seismic retrofit of state highways and bridges. Second, in 2000-01, under the Traffic Congestion Relief Program (TCRP), the state allocated $400 million in General Fund money for local streets and road improvements. The drop in budget-year expenditures reflects mainly the budget proposal to suspend funding for TCRP projects in 2003-04. Third, from 1996-97 through 2002-03, state funding for both the California Highway Patrol (CHP) and the Department of Motor Vehicles (DMV) grew steadily. Over the period, expenditures for the CHP grew by 43 percent and those for DMV grew by 32 percent, or at an average annual rate of 6.2 percent and 4.7 percent, respectively.

Figure 1 also shows that transportation expenditures as a share of state expenditures have remained relatively stable since 1996-97. In 2003-04, proposed transportation expenditures will constitute about 7.1 percent of all state expenditures.

Of the 2003-04 state transportation expenditures, about $5.1 billion is proposed for programs administered by the state and $1.1 billion is for subventions to local governments for streets and roads. Another $200 million will be for debt-service payments on rail bonds issued under Propositions 108 and 116 of 1990 and seismic retrofit bonds issued under Proposition 192 of 1996.

Spending by Major Program

Figure 2 (see next page) shows spending for the major transportation programs in detail. Specifically, the budget proposes expenditures of about $6.4 billion (from all fund sources including federal and bond funds and reimbursements) for Caltrans in 2003-04—a reduction of $673.6 million, 9.5 percent, below estimated current-year expenditures. The lower expenditure level reflects primarily reductions in two areas. First, expenditures on the TCRP would decrease by about $375 million due to the proposed suspension of the program in 2003-04. Second, expenditures from the State Highway Account (SHA) would be lower than the current-year level by about $265 million due to a projected cash shortfall in the account.

Spending for the CHP is proposed at $1.2 billion—$4.6 million, 0.4 percent, lower than the current-year level. Most of the expenditures, about 84 percent, would come from the Motor Vehicle Account (MVA). This is a significant drop from past years, when typically about 90 percent of CHP expenditures came from the MVA. The budget proposes to reduce CHP's support from the MVA in order to address a projected shortfall in the account. Instead, the budget proposes to fund from surcharges on intrastate telephone calls about $72 million in CHP activities related to responding to 9-1-1 emergency calls and to public safety activities. The budget also anticipates that about $75 million of the MVA expenditures in 2003-04 would subsequently be reimbursed by federal funds available for homeland security enhancements.

For DMV, the budget proposes expenditures of about $682 million—$4.3 million, 0.6 percent, less than in the current year. These expenditures would be mainly from the MVA and vehicle license fees (VLFs). Total departmental expenditures in 2003-04 would remain relatively the same as the current year, with funding coming more from the MVA and less from VLFs, compared to the current year. 

Additionally, the budget proposes to fund the State Transit Assistance (STA) program in 2003-04 at $100.4 million, which is $4.5 million, or 4.7 percent, more than the current-year level. Annual STA funding is determined based on a statutory formula, and the level varies depending on anticipated revenues into the Public Transportation Account (PTA). The slightly higher 2003-04 funding level reflects the projected increase in diesel and gasoline sales tax revenues into the PTA. The amount, however, does not include about $42 million that otherwise would be made available to the program under Proposition 42. This is because the budget proposes to suspend in 2003-04 the transfer of gasoline sales tax revenue to transportation purposes required by Proposition 42.

Major Budget Changes

Figure 3 highlights the major changes proposed for 2003-04 in various transportation programs.

Caltrans. As the figure shows, the budget proposes to suspend the transfer of about $1 billion from the General Fund to the Transportation Investment Fund as required by Proposition 42, passed by the voters in March 2002. The budget also proposes to forgive $500 million in loan repayment from the General Fund to the Traffic Congestion Relief Fund (TCRF) planned for 2003-04. These proposals would leave no funding for the TCRP in the budget year. Correspondingly, the budget proposes to reduce staff support for the program by 1,214 personnel years and $128.6 million in 2003-04.

In addition, the budget proposes to reduce various Caltrans expenditures in order to address a projected SHA cash shortfall. Specifically, the budget proposes to reduce staff support and noncritical operating expenses by about $209 million and local assistance expenditures by $109 million in 2003-04. These reductions are in addition to current-year actions that include a reduction of $307 million in the loan to the TCRF and a reduction of about $90 million in SHA funding for local streets and roads.

The budget also proposes to consolidate staff support for the High Speed Rail Authority into Caltrans. For the budget year, Caltrans would continue to oversee the environmental clearance work for a high-speed rail system at a cost of about $1.8 million.

The CHP and DMV. For both CHP and DMV, the budget proposes to maintain expenditures at essentially the current-year level. As Figure 3 shows, both departments would have very slight reductions in expenditures with no major program changes in the budget year. However, even with these levels of expenditures, the MVA is projected to face a significant shortfall in 2003-04 if corrective actions are not taken. The budget proposes to increase vehicle registration fees, fees for driver licenses and identification cards, as well as fees charged for various types of transactions in order to raise an additional $163 million in 2003-04. In addition, the budget proposes to shift about $72 million in CHP support from the MVA to revenues from surcharges on intrastate telephone calls. Specifically, $41 million would come from an increase in the State Emergency Telephone Number rate to cover CHP's costs to handle cellular 9-1-1 phone calls. Another $31 million would be generated from a new surcharge to cover CHP's costs to provide protective services and conduct search and rescue activities.