Balancing the 2009–10 Budget

Using Transportation Funds To Help the General Fund

The Governor’s budget includes several proposals to use transportation funds to help the state address a significant General Fund deficit. In total, as Figure 4 shows, the budget proposes to provide an additional $193 million in General Fund help in the current year. This amount is over and above the $1.6 billion in assistance to the General Fund already provided as part of the 2008–09 budget enacted last September. For 2009–10, the budget proposes to provide about $1 billion in additional help to the General Fund. In this section, we briefly describe the Governor’s proposals and offer our recommendations for achieving additional General Fund relief.

Eliminate STA to Provide $541 Million for Home–to–School and Regional Center Transportation. As discussed earlier, the PTA has funded home–to–school and regional center transportation in the past couple of years. These activities have traditionally been General Fund expenditures. In 2008–09, PTA funds, together with spillover revenue (in the Mass Transportation Fund [MTF]), will provide a total of almost $1.4 billion to pay for home–to–school and regional center transportation and to repay the General Fund for transportation debt service payments. In the budget year, the Governor proposes to fund regional center transportation at the current level ($138 million) and provide $403 million for home–to–school expenditures from the PTA and MTF.

The PTA also funds the STA program, which provides operating assistance to transit operators. For 2008–09, STA is funded at $306 million. However, because spillover revenue is expected to be substantially lower than projected in the current year and minimal in the budget year, the administration proposes to statutorily eliminate the STA program beginning in 2008–09, in order to sustain the planned level of General Fund relief. This would reduce STA disbursements by $153 million (assuming half–year savings) in the current year and provide no transit operator assistance in future years.

Given the state’s fiscal condition, the continued use of PTA funds for home–to–school and regional center transportation is reasonable. We recommend the Legislature suspend STA funding for the current and budget years. (Later in this report, we discuss the proposal to eliminate the program on an ongoing basis. Please see the “State Transit Assistance” section of this report.)

Redirect $202 Million in Tribal Gambling Revenue to General Fund. As shown in Figure 4, the Governor proposes to redirect about $202 million in tribal gambling revenues to the General Fund in 2008–09 and 2009–10 combined. These revenues, amounting to $100.8 million per year, are dedicated in statute to repay outstanding transportation loans. Absent the Governor’s proposal, the revenues would fund highway rehabilitation projects under the State Highway Operation and Protection Program (SHOPP) and transportation projects in the Traffic Congestion Relief Program (TCRP). To ensure that projects are not affected, the budget proposes that the redirection occur only if the state receives federal economic stimulus funding for transportation.

Given the severity of the state’s fiscal problem, the Governor’s proposal is reasonable, and we recommend that it be adopted. In fact, we had previously proposed the same budget–balancing option to the Legislature.

Shift $452 Million in Vehicle License Fee Revenue to Public Safety Programs. The DMV collects vehicle license fees for the counties. Historically, the department has retained a portion of the fee revenues to cover its administrative costs. The 2008–09 Budget Act appropriates $359 million of vehicle license fees revenues to support DMV operations—a figure that represents about 37 percent of the department’s total operating budget. The Governor’s 2009–10 budget proposes to shift this funding to local public safety programs that would otherwise be funded by the General Fund. Specifically, the Governor’s proposal would shift $92 million in the current year and $359 million in the budget year. To backfill the hole in DMV’s budget created by the shift of vehicle license fees monies, the Governor proposes to increase the vehicle registration fee by $12, raising it from $56 to $68.

The Governor’s proposal assumes that the vehicle registration fee increase would be effective in April 2009. At this point, however, we do not think it is reasonable to assume that effective date. This is because it takes DMV about 90 days from enactment of legislation to implement a fee increase. Given the lag time required to implement a fee increase, the opportunity for any current–year General Fund relief from the proposed shift of VLF monies expires by early April 2009.

In our recent report 2009–10 Budget Analysis Series, titled Criminal Justice Realignment, we discuss the concept of expanding upon the Governor’s shift of vehicle license fees revenues to realign criminal justice programs to local government.

LAO Alternative Proposals

In addition to these administration proposals to achieve General Fund savings, we offer two additional recommendations for the Legislature to consider to help address the state’s severe fiscal problems.

Sweep Non–Article XIX Funds in MVA. The MVA supports the activities of the CHP, DMV, and ARB. The MVA derives its revenues from a variety of sources, but mostly from vehicle registration and driver license fees. The budget estimates that, in 2008–09, MVA revenues will total about $2.4 billion.

Under Article XIX of the State Constitution, any revenues from fees and taxes on vehicles or their use—such as driver license and vehicle registration fees—can only be used for vehicle–related programs. However, other MVA revenues, such as those from various miscellaneous services provided by DMV to the public or businesses, are not subject to the constitutional restriction. As such, these revenues can be used for general purposes.

The budget estimates that non–Article XIX revenues would be $117 million in 2008–09 and $119 million on 2009–10. Based on our projection of MVA revenues and expenditures, we estimate that $70 million can be transferred to the General Fund each year for 2008–09 and 2009–10 without having an adverse impact on programs funded from MVA. Accordingly, we recommend transferring $70 million to the General Fund for each of the two years.

Suspend Local Airport Grants. Revenues generated by the state’s excise tax on aircraft and jet fuel fund various state grant programs available to general aviation airports in the state. Annually, roughly $4 million is allocated through these grant programs to local airports. The largest program funded with this money is the Annual Credit Grant, which provides $10,000 annually to each of 149 general aviation airports for either capital projects or operating expenses. The other grant programs provide funding for specific capital projects or land acquisition. These funds are usually used as a small match (typically 2.5 percent of project costs) for federal funds.

Many of the airports that receive state grants have multimillion dollar budgets, and have the option of increasing fees to users of airport facilities to provide any necessary federal matching funds in the near term. Airports that cannot raise fees might be able to delay their projects for a year. Thus, we do not think suspending the grant programs for one year would have significant adverse impacts on local airports. Accordingly, we recommend suspending the airport grant program for the budget year and using the $4 million for General Fund relief.