Analysis of the 2004-05 Budget Bill Legislative Analyst's Office February 2004

Overview

Total state-funded expenditures for transportation programs are proposed to be lower, by 4.3 percent, in 2004-05 than estimated current-year expenditures. This decline is primarily from lower expenditures for transportation projects as the result of no funding for the Traffic Congestion Relief Program, which the budget proposes to repeal. In addition, following the current year's partial suspension, the budget proposes to suspend in 2004-05 the full Proposition 42 transfer of about $1.1 billion from the General Fund to transportation programs.

For traffic enforcement, the budget proposes no growth in the expenditure levels of the California Highway Patrol and the Department of Motor Vehicles. However, the level of service, in terms of staffing, provided by these departments would be lower.

Expenditure Proposal and Trends

Budget Proposal. The budget proposes total expenditures of about $6.7 billion from all state funds for transportation programs and departments under the Business, Transportation and Housing Agency in 2004-05. This is a reduction of $301 million, or 4.3 percent, below estimated expenditures in the current year. The reduction is mainly due to lower capital expenditures for both state and local transportation projects as a result of the proposed repeal of the Traffic Congestion Relief Program (TCRP).

The seemingly modest reduction, however, masks the real impact of the budget proposal. Specifically, the budget proposes to suspend the transfer of about $1.1 billion in gasoline sales tax revenue to transportation programs, as required by Proposition 42. This would be the second year in which Proposition 42 is suspended in whole or in part. In the current year, the Proposition 42 transfer is partially suspended: only $289 million is being made available to transportation, with the remaining $856 million to be transferred for transportation by June 30, 2009. In contrast, the suspension proposed for the budget year would provide no deferred repayment. Absent the budget's proposed suspension of Proposition 42, transportation expenditures in 2004-05 would be significantly higher than the current year. In fact, together with other proposals to use transportation funds to help the General Fund, a total of about $2 billion would be diverted from transportation in the current and budget years combined.

Historical Trends. Figure 1 shows total state-funded transportation expenditures from 1997-98 through 2004-05. As the figure shows, over the period, these expenditures are projected to increase by $1.7 billion, or 33 percent. 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 1997-98 through 2004-05, at an average annual rate of 1.6 percent.

As Figure 1 shows, state-funded transportation expenditures increased each year from 1997-98 through 2003-04, but would drop in 2004-05. This expenditure trend was driven by a combination of factors. First, state-funded expenditures by the Department of Transportation (Caltrans) increased significantly from 1997-98 through 2000-01—at an average annual rate of about 14 percent—due to increasing expenditures (both support and capital outlay) for highway improvements, including the seismic retrofit of state highways and bridges. Also in 2000-01, under the TCRP, the state allocated $400 million in General Fund money for local streets and road improvements. Since 2000-01, state transportation funding has been diverted each year to help the state General Fund. These diversions total about $2.2 billion through the current year. As a result, state-funded transportation expenditures have remained relatively flat. With the budget proposals to repeal TCRP and to suspend $1.1 billion in Proposition 42 transfer, expenditures are projected to decline in 2004-05.

Second, from 1997-98 through 2003-04, state funding for both the California Highway Patrol (CHP) and the Department of Motor Vehicles (DMV) grew considerably. Specifically, CHP expenditures grew about 48 percent, from $804 million in 1997-98 to $1.2 billion in 2003-04. The DMV expenditures grew more modestly throughout the period, by about 27 percent.

The growth in CHP expenditures is driven mainly by increases in the cost of employee (primarily uniformed staff) salaries and benefits. Additionally, beginning in 2001-02, the department increased its staff and overtime expenditures in order to enhance its statewide security activities after September 11, 2001. The growth in DMV expenditures was also mainly to accommodate higher employee compensation costs.

For 2004-05, the budget proposes slight decreases in both CHP and DMV expenditures as a result of lower anticipated reimbursements and elimination of one-time expenditures.

As a share of total state expenditures, Figure 1 also shows that transportation expenditures have declined since 1998-99 after a slight increase in 1997-98. In 2004-05, proposed transportation expenditures will constitute about 6.9 percent of all state expenditures—the lowest level over the eight-year period.

Spending by Major Program

Figure 2 shows spending for the major transportation programs and departments from all fund sources, including state, federal, and bond funds, as well as reimbursements.

Caltrans. The budget proposes total expenditures of about $7.3 billion in 2004-05—a reduction of $1.1 billion, or 13 percent, below estimated current-year expenditures. The lower expenditure level reflects primarily reductions in two areas. First, as the budget proposes to repeal the TCRP, there would be no expenditures on the program in 2004-05. Second, the budget shows a drop of $836 million in federally funded expenditures in 2004-05 below the current-year level. This significant decrease in federal reimbursements somewhat overstates the real impact of the reduction. This is because part of the reduction is the result of a change in how Caltrans accounts for federal expenditures between the current and the budget years. (Adjusting for this change, the decrease would be smaller—about $500 million instead.) 

The overall reductions are offset to a limited extent by anticipated increased expenditures of bond funds. Specifically, the budget proposes to issue Grant Anticipation Revenue Vehicles (GARVEE) bonds, backed by anticipated future federal funds, in both the current and budget years. The budget anticipates expenditures of these bond monies to be about $133 million in the current year, and about $492 million in 2004-05.

CHP and DMV. Spending for the CHP is proposed at about $1.3 billion—$14 million, or 1.1 percent, lower than the estimated current-year level. About 90 percent of all CHP expenditures would come from the Motor Vehicle Account (MVA). For DMV, the budget proposes expenditures of $705 million—$14 million, or 2 percent, less than in the current year. These expenditures would be funded primarily from the MVA and the Motor Vehicle License Fee Account.

While expenditures would be only slightly lower than the current year for both departments, the level of service provided by each (measured in terms of staffing), would be much lower. This is because employee compensation costs are anticipated to be higher in 2004-05 due to scheduled salary increases for uniformed officers and higher health insurance for all employees. To pay for the higher costs, both departments would have to reduce total staffing levels by holding some positions vacant. In the case of CHP, 126 personnel-years, mostly in uniformed staff, would not be funded. For DMV, an additional 95 personnel-years would not be funded. For both departments, the staffing cutback would be in addition to the positions eliminated pursuant to Control Section 4.10 and Executive Order D-71-03 in the current year. The reduction would likely mean reduced traffic patrol by CHP officers and longer wait times at DMV offices.

Transit Assistance. The budget proposes to fund the State Transit Assistance (STA) program in 2004-05 at $101.4 million, which is $3.2 million, or 3.1 percent, less 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 lower 2004-05 funding level reflects the projected decrease in diesel sales tax revenue into the PTA. In addition, the amount does not include about $45 million that otherwise would be made available to the program under Proposition 42.

Rail Bond. In addition, the budget proposes to repeal Chapter 697, Statutes of 2002 (SB 1856, Costa), the High Speed Passenger Train Bond Act that is scheduled to be on the November 2004 ballot. The bond act, subject to voter approval, would authorize $9.95 billion in general obligation bonds for the development of a high speed passenger train system in the state.

Major Budget Changes

Figure 3 highlights the major changes proposed for 2004-05 in various transportation programs.

Caltrans. The major changes proposed in the budget would affect mostly local transportation projects. As Figure 3 shows, the budget projects a reduction of $1.2 billion in federally reimbursed expenditures on local transportation projects in 2004-05. As mentioned earlier, the drop is overstated due to the department's change in the methodology used to account for federal expenditures. The budget also proposes no expenditures on TCRP projects due to the proposed repeal of the program. Compared to the current year, there would be a reduction of $296 million in these expenditures, mostly on local projects.

The reductions in expenditures on local transportation projects would be offset to some extent by a projected increase of $310 million in expenditures for state highway projects from all fund sources, including GARVEE bonds.

CHP and DMV. As Figure 3 shows, the budget proposes only minor reductions in expenditures for both CHP and DMV. For CHP, reimbursed expenditures for enhanced security activities are expected to be lower by about $13.4 million. For DMV, a reduction of $10.3 million is in one-time current-year expenditures to refund vehicle license fees paid by certain motorists.