Analysis of the 2008-09 Budget Bill: Transportation

Overview

The Governor’s budget shows a total of $13.4 billion in state–funded expenditures for transportation programs in 2008–09. This amount is somewhat lower, by $150 million, or 1.1 percent, than estimated current–year expenditures. The decrease is primarily due to lower expenditures for state and local transportation improvements funded by monies other than bond funds.

Expenditure Proposal and Trends

Budget Proposal. The budget shows total expenditures of $13.4 billion from all state funds, including special funds and bond funds, for transportation programs and departments under the Business, Transportation and Housing Agency in 2008–09. This is a net decrease of $150 million, or 1.1 percent, below estimated expenditures in the current year. The net decrease is the result of both increases and decreases in transportation expenditures, the major components of which are:

• $540 million in additional transportation capital expenditures for primarily highway improvements by the Department of Transportation (Caltrans).
• $188 million in additional assistance to local transit systems for operations and capital improvements.
• $44 million in additional support for the California Highway Patrol (CHP) and $21 million in additional support for the Department of Motor Vehicles (DMV).
• $950 million less in state funding for local street and road improvements.

Looking just at state–funded expenditures on highways, streets and roads, the budget proposes total support that is about $400 million less in 2008–09 than the estimated current–year level. This decrease results from two changes. First, the budget proposes $540 million more in expenditures on highways and road improvements under Caltrans due to the availability of Proposition 1B bond funds. (Proposition 1B, passed in November 2006, authorizes the issuance of about $20 billion in general obligation [GO] bonds for transportation purposes.) Second, the budget proposes no Proposition 1B funds for counties and cities to improve local streets and roads in 2008–09, compared to the $950 million appropriated for these activities in the current year. Specifically, the budget assumes the current–year amount would not be fully expended for a couple of years, and thus, no additional funding would be needed in 2008–09.

For assistance to local transit systems, the budget proposes a net increase of $188 million. First, the budget proposes funding the State Transit Assistance (STA) program in 2008–09 at $743 million, in accordance with current law. This funding—from the Public Transportation Account (PTA) which derives its revenue from gasoline and diesel sales tax—would be available mainly for operational assistance. The proposed amount is about $439 million more than in the current year. Second, the budget proposes $350 million in Proposition 1B bond funds for transit capital improvements in 2008–09. This is a drop of $250 million compared to $600 million provided in the current year.

Historical Trends. Figure 1 shows total state–funded transportation expenditures from 2001–02 through 2008–09. As the figure shows, over the period these expenditures are projected to more than double, increasing by $6.7 billion. This represents an average annual increase of 10 percent. Figure 1 also displays the spending for transportation programs adjusted for inflation (constant dollars). On this basis, expenditures are estimated to increase by 48 percent from 2001–02 through 2008–09, at an average annual rate of 5.8 percent.

As Figure 1 shows, state–funded transportation expenditures stayed relatively constant from 2001–02 through 2003–04. Since then, these expenditures increased steadily through 2006–07 and jumped significantly in 2007–08, increasing by 40 percent, as a result of the infusion of Proposition 1B funds. Total expenditures are proposed to drop slightly in 2008–09.

Figure 1 also shows that an increasing proportion of state–funded expenditures in the budget year will be paid from bonds. In 2008–09, bonds will account for almost 30 percent of all state–funded expenditures for transportation. At the same time, expenditures from other nonbond state sources are expected to decrease in 2008–09, by about $850 million (8.3 percent) below the current–year level.

The expenditure trend shown in Figure 1 reflects a combination of changes. First, state–funded expenditures by Caltrans, mainly on state highways, have increased at an average annual rate of 12 percent since 2001–02. From 2001–02 through 2003–04, these expenditures had stayed about $3.7 billion each year. In 2007–08, these expenditures are estimated at $7.8 billion, and projected to be $8.4 billion in the budget year. As a result, spending by Caltrans has made up an increasing proportion of total state–funded transportation expenditures. Through 2003–04, Caltrans expenditures accounted for about 54 percent of state–funded expenditures on all transportation programs. The proportion has increased since then—to 62 percent in the current and budget years. This growth is mainly the result of several factors. Specifically, substantial amounts of transportation funds were loaned to the General Fund in the early 2000s through 2004–05. After that, repayments for some of the loans have allowed transportation expenditures to increase. Additionally, since 2005–06, transportation has received the full amount of gasoline sales tax revenues required under Proposition 42. The passage of Proposition 1B in 2006 has provided a further infusion of funds for transportation expenditures under Caltrans.

Second, the same factors that have driven up Caltrans expenditures in recent years—the repayment of past loans, full funding of Proposition 42, and availability of bond funds—have also enabled the increase in state–funded expenditures for local street and road improvements as well as for transit improvements. Additionally, continued high gasoline and diesel prices in the last couple of years have generated more sales tax revenues for state funding of transit, including assistance provided through the STA program.

Third, increasing support for the CHP has also contributed to the growth in state–funded expenditures for transportation programs. Specifically, CHP’s support grew by about 79 percent from 2001–02 through 2007–08 (at an average annual rate of about 10 percent), and is proposed to grow by 2.6 percent in 2008–09 over the current year. The growth is driven mainly by increases in the costs of employee (primarily uniformed staff) salaries and benefits. Additionally, the department has increased its staff, in particular traffic patrol staff, annually in the last two years. The budget proposes to continue the expansion in 2008–09, by adding 120 patrol officer positions and 44 other support positions.

Compared to the CHP and Caltrans, growth in state–funded expenditures for DMV has been modest. From 2001–02 through 2007–08, expenditures grew by 35 percent, or at an average annual rate of 5.2 percent. The growth has mainly been to implement various statutes and to modernize the department’s overall information technology system. The budget proposes a 2 percent increase in 2008–09 over the current–year level, to fund essentially the same level of program activities.

As a share of total state expenditures, transportation expenditures have stayed slightly below 7 percent through 2003–04, and increased thereafter, as shown in Figure 1. In 2007–08, transportation expenditures are estimated to account for a larger proportion—about 9.3 percent—of all state–funded expenditures, and are proposed to increase to about 9.5 percent in 2008–09.

Spending by Major Programs

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

Caltrans. The Governor’s budget proposes total expenditures of $13.9 billion in 2008–09—about $262 million, or 1.9 percent, less than estimated current–year expenditures. As Figure 2 shows, bond–funded (mainly Proposition 1B) expenditures are proposed to increase by $1.9 billion, while expenditures from other state sources will drop by about $1.4 billion. Of the total proposed expenditures, about $3.6 billion will come from bond funds, $1.5 billion from the General Fund (as required under Proposition 42) and $3.3 billion from other state funds (primarily State Highway Account). The budget also anticipates expenditures of $3.9 billion to be funded from federal monies, and $1.6 billion to be reimbursed, mainly for work related to Bay Area toll bridges.

 

CHP and DMV. Spending for CHP is proposed at $1.9 billion, 2.6 percent higher than the current–year estimated level. About 90 percent of all CHP expenditures would come from the Motor Vehicle Account (MVA). The modest increase includes support to add 120 traffic officers and 44 support staff.

For DMV, the budget proposes expenditures of $958 million— $19 million (2 percent) more than the current year. About 55 percent of the expenditures would come from MVA, which derives its revenues mainly from vehicle registration and driver license fees. Another 37 percent would be funded from vehicle license fees.

Transit Assistance. Current law allocates a portion of the annual PTA revenues to transit operators under the STA program, mainly for operational assistance. Due to high fuel prices, the budget projects significant revenue into PTA and correspondingly high funding of STA, at $743 million in 2008–09.

The state also provides funding assistance to transit operators for capital improvements, such as construction of rail tracks and facilities, and acquisition of equipment. Proposition 1B includes $3.6 billion in GO bond funds for transit capital improvements. The budget proposes to spend $350 million of those funds in 2008–09.

Major Budget Changes

Figure 3 highlights the major changes proposed for 2008–09 in various transportation programs.

 

Caltrans. The budget proposes significantly higher expenditures for capital outlay and local assistance to be funded with Proposition 1B bonds. At the same time, expenditures funded with other sources, including federal money, nonbond state funds and reimbursements are proposed to be lower by $1.7 billion.

The budget is proposing to issue $20 million in Clean Renewable Energy Bonds to convert certain Caltrans facilities to use solar energy in order to reduce utility costs. Savings will be used to pay off the zero–interest bonds over 16 years. The department is also proposing $5 million to hire parolees to pick up litter along state highways.

CHP and DMV. The CHP is requesting $21.6 million to expand the number of patrol officers in 2008–09 by 120 and add 44 other staff to support these officers. This will be the third consecutive year of adding patrol staff. At the same time, the budget proposes to reduce by $40 million the department’s support funding to reflect anticipated savings as a result of vacancies, mainly in patrol officer positions. The budget is also requesting $80 million to fully fund employee compensation and retirement costs.

For DMV, the budget proposes $4 million to establish a consolidated telephone service center and to relocate one field office and one hearing office for the driver safety program. The budget also requests $616,000 to implement newly enacted legislation.

In addition, the budget proposes to increase vehicle registration fees by $11 per vehicle and to double penalties for late vehicle registration in order to bolster revenues to the MVA. The budget projects that the fee and penalty increases will result in additional revenue of $385 million in 2008–09 and $522 million annually thereafter.

Transit Assistance. The budget proposes a significant increase of about $439 million in the STA program which provides operational assistance to transit systems. The increase is due, in part, to projected high fuel sales tax revenue (into the PTA) which funds the program. Additionally, the increase over the current–year level is also due to substantial amounts of PTA funds being used to help the General Fund in 2007–08, thereby funding STA at a lower level than otherwise would have occurred.

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