Analysis of the 2005-06 Budget Bill
Legislative Analyst's Office
This year, we address transportation funding issues in The 2005-06 Budget: Perspectives and Issues. We note that the Governor's budget includes a number of proposals that will affect transportation funding in the budget year and future years. We also recommend that the administration provide information by April 1 to the Legislature that would allow it to determine (1) the effect of the Governor's proposals on the size of the transportation program and (2) funding needs for the Traffic Congestion Relief Program in 2005-06. Please see the Perspectives and Issues for a full discussion. What follows here is a brief summary of our analysis and conclusions.
Budget Proposes Continued Transportation Aid to General Fund. The 2005-06 budget includes a number of proposals that will affect transportation funding not only in the budget year, but also in future years. First, the budget proposes to use transportation funds to provide $1.5 billion in aid to the General Fund in 2005-06. Second, the budget anticipates tribal gaming bonds will repay some transportation loans in the budget year instead of the current year. Third, the administration proposes to increase the sta bility of transportation funding in the long run by prohibiting the suspension of Proposition 42 transfers to transportation beginning 2007-08. However, it also proposes to delay certain loan repayments to transportation by repaying the loans over 15 years, instead of as currently scheduled for repayment in the next few years.
State Transportation Funding Is Already Limited and Uncertain. State transportation funding has been limited in recent years due to several factors. These factors include repeated suspension of Proposition 42 and a decline in the value of the excise tax on gasoline and diesel fuel. These and other factors have reduced the state's allocations of funding for new projects by billions of dollars. As a result, some transportation needs are now being met through borrowing, which reduces funding available for other transportation projects both now and in the future. In addition, some actions taken in the 2004-05 budget have increased uncertainty for transportation funding in the near term. These actions include an attempt to transfer rental and sale income from transportation to the General Fund and an assumption that tribal gaming bonds would generate $1.2 billion for transportation in the current year.
Governor's Proposals Raise Further Transportation Issues. The administration's 2005-06 proposals to use transportation funding to aid the General Fund will further constrain near-term funding for transportation programs and increase program uncertainties in the short term. The Traffic Congestion Relief Program (TCRP) will be particularly affected, and it is uncertain whether there will be sufficient funding in the budget year to continue work on TCRP projects. We recommend that the administration provide information by April 1 to the Legislature that would allow it to determine (1) the effect of the Governor's proposals on the size of the transportation program and (2) TCRP project funding needs in 2005-06.
Over the long run, the proposal to prohibit the suspension of Proposition 42 transfers to transportation would provide added stability at the expense of the General Fund. However, another component of the administration's proposal to reform the state budget, namely the across-the-board reduction provision, could lessen that stability and increase the volatility of Proposition 42 funding. We have previously recommended a means of stabilizing transportation funding without affecting the General Fund. Specifically, our recommendation is to repeal Proposition 42, replace it with an increase in the gas tax, and adjust the gas tax for inflation. These actions would provide about the same amount of money to transportation as Proposition 42 while freeing up General Fund revenues for nontransportation purposes.
See Perspectives and Issues for Detail. For a complete discussion of transportation funding issues related to the Governor's budget, please see "Part V" of The 2005-06 Budget: Perspectives and Issues.