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Analysis of the 2006-07 Budget BillLegislative Analyst's Office
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The Secretary for Business, Transportation, and Housing oversees the following 14 departments that develop and maintain the state�s transportation infrastructure, promote traffic safety, promote housing availability in the state, and regulate state-licensed financial entities as well as managed health care:
Business and Regulatory Departments
Transportation Departments
Housing Departments
In addition, the secretary�s office also manages a number of economic development programs, such as the Infrastructure Bank, the Film Commission, the Small Business Loan Guarantee Program (SBLGP), and the Tourism Commission.
The budget requests $29�million (and 60 personnel-years) for the secretary�s operations in 2006-07. This represents a 13�percent increase over estimated current-year expenditures. The largest proposed augmentation is for the Tourism Commission, which we discuss below. The proposed budget includes $16�million from the General Fund, with the remainder coming from a number of special funds and reimbursements. The budget also proposes to repay a 2002-03 loan from the SBLGP of $10.7�million.
We recommend that the Legislature reject the proposal to expand the state�s General Fund subsidy of the tourism industry from $7.3�million to $10�million. The industry has not contributed its targeted share and the value of the subsidy is questionable. In addition, we recommend the adoption of budget bill language making the state�s existing contribution contingent on industry making its targeted contributions. (Reduce Item 0520-001-0001 by $2.7�million.)
Background. The California Tourism Marketing Act (Chapter�871, Statutes of 1995 [SB 256, Johnston]) establishes the framework for the Tourism Commission, which provides domestic and international marketing of California as a tourism destination. The act creates a public-private funding model in which the state provides General Fund spending and the tourism industry provides funding through a voluntary assessment. The law establishes minimum annual funding targets-$7.3�million from the state and $25�million from the industry (a funding ratio of 23�percent to 77�percent). Neither the state nor industry, however, are obligated to provide funding. Due to budget constraints, the state did not make any contributions in 2003-04 or 2004-05. In those years, the industry provided roughly $7�million in contributions. The 2005-06 Budget Act provides $7.3�million in General Fund support to the Tourism Commission, with industry assessments providing an additional $11�million (a funding ratio of 40�percent to 60�percent).
Proposal to Increase State Support. The Governor�s budget proposes a General Fund augmentation of $2.7�million, to bring annual state support to a total of $10�million. The industry has committed to maintaining 60�percent of total funding, which would raise its contribution to $15�million.
Proposal Does Not Meet Funding Ratio of Marketing Act. As noted above, state law establishes a minimum annual funding target of $25�million from industry to match the state�s contribution of $7.3�million. The industry can voluntarily raise its contribution by vote.
Industry Subsidy Questionable. The state�s contribution to the marketing program is a subsidy of the state�s tourism industry. The administration asserts that the state-funded marketing program generates additional state tax revenues. To date, however, we have not seen evidence that the subsidy actually significantly affects tourists� behavior on the margin.
Recommend Rejecting the Administration�s Proposal. Given the state�s overall budget situation and the intent of state law, we recommend that the Legislature reject the administration�s proposal to increase General Fund support for the tourism marketing program. In addition, we recommend the adoption of budget bill language making the $7.3�million General Fund contribution contingent on the industry providing its targeted contribution level of $25�million. If the industry determines that an expansion of the marketing program will provide the industry with cost-effective benefits, then it should be willing to fund the increase on its own.