California's Looming Transportation Funding Crisis

Posted on 26 November 2012

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By Robert Cruickshank

The passage of Prop 30 has stopped the bleeding at California's K-12 schools, at least for the time being. The $6 billion in revenues it raises won't fully backfill the nearly $10 billion in cuts made to K-12 education since 2008, nor will it restore the huge funding cuts made to the community college, CSU and UC systems in that same time. But it's a start.

Transportation funding faces a crisis too. It has been slashed over that same amount of time, and even before that, revenues weren't keeping pace with basic road maintenance needs nor were they sufficient to fund the level of mass transit that the state desperately needs. Years of reckless tax cuts had led to cuts in these important programs and transportation services, leaving California vulnerable to the impact of rising gas prices while existing infrastructure deteriorates.

In 2006, alarmed at the backlog of projects that had accumulated, Governor Arnold Schwarzenegger and the Legislature placed Proposition 1B on the ballot, funding a wide range of projects around the state. (One side effect was that the high speed rail bond vote was again delayed, to 2008, which worked out pretty well.) But because of Schwarzenegger's anti-tax ideology, there was no funding source for these projects - they were funded by bonds. That's a sensible way to fund infrastructure, but it avoided the deeper revenue problem.

Schwarzenegger himself was a primary cause of that problem. In 2003 he ran for governor in the recall election on a platform of cutting the Vehicle License Fee. He won that election and legislators were panicked into giving him his reckless tax cut. The VLF had helped fund local governments, including their transportation budgets, but when it was cut $6 billion was lost from state funds. Schwarzenegger pledged to backfill the VLF cut, but that just created a budget deficit that was never filled - until the passage of Prop 30. That has made it difficult to properly fund transportation projects in California and contributed greatly to the state's ongoing fiscal problems.

Still, the VLF cut remains a problem. It had been at a 2% rate from the 1940s to 1998 and it didn't create any hardship for Californians, didn't stop the sale of automobiles, didn't stop the housing industry. In 1998 the VLF rate was cut by outgoing Governor Pete Wilson and a legislature hungry to win the public's favor during a boom economy. Budget wonks were horrified, but the dot com boom masked the problem - until 2002, when the recession eliminated the revenue spike and revealed the underlying problem that the 1998 tax cuts were unsustainable. Governor Gray Davis and the legislature agreed to restore the pre-1998 VLF rate, which helped set up Schwarzenegger's recall campaign.

So as California looks to build a sustainable budget, the VLF ought to be on the table. And work on that front has already been under way. Earlier this month, State Senator Ted Lieu sat down with the editorial board of the Los Angeles Daily News to discuss a proposal that had been in the works for several months - a restoration of the Vehicle License Fee to its longstanding 2% rate in order to fund transportation beyond the expiration of Prop 1B next year. The plan had been to put this before voters at the November 2014 election. But Lieu noted that with Democrats now having a two-thirds supermajority in the legislature, they could just enact it themselves.

Lieu's sensible proposal ignited a firestorm of criticism from the anti-tax forces, still smarting from having gotten their asses kicked at the November election. The Daily News editorialized that Lieu should abandon the plan but did not seriously grapple with the underlying problem that Lieu identified.

Last Monday, Lieu announced he was dropping the plan, releasing the following statement:

Investment in California's complex transportation system paved the way for our economic growth over the last 60 years. Unfortunately, this system is now in crisis. Investments in transportation infrastructure have fallen drastically behind, jeopardizing the state's future economic growth and stability. According to a recent assessment by the California Transportation Commission, rehabilitation and reconstruction of our aging state highway system is underfunded by more than $5 billion a year. Local street repair is additionally underfunded by $1.8 billion a year.

In an attempt to address one of California's most critical economic needs, last year I started to brainstorm with Transportation California and other stakeholders on ways to bridge the enormous gap in transportation infrastructure needs. Key features would include constitutional protections so the funding can only be used for its intended purpose; an equitable formula to provide needed revenue to state, local and transit projects; and a requirement that voters approve the revenue stream. A proposal was being developed to place on the 2014 ballot a proposition to essentially revert the Vehicle License Fee to its prior rate of 2 percent, which was the rate from 1948 to 2004, to provide a stable funding source for transportation and infrastructure.

However, over the last few weeks California's political landscape has changed. I have listened carefully to those who have contacted my office or me. Additionally, more stakeholders weighed in on this important issue. As a result, I will not be introducing the proposal. Instead, I will work with transportation stakeholders and the public next year on alternative ways to mitigate the transportation infrastructure problem. This problem is not going to go away and will only worsen when the final installment of depleted Proposition 1B funds are allocated next year. I am open to any suggestions and if you have any, please feel free to contact me or my office.

The problem remains, of course. Democrats are going to lose their supermajority if they don't use it to solve ongoing problems - see here for a fuller explanation of that argument - so let's hope this isn't a sign that Democrats will be too conservative with their new power.

One thing that would help: a constitutional fix that would help local governments fund transportation. It looks like transportation funding measures in Alameda County and Los Angeles County will fail despite getting 65% of the vote. This is an utterly ridiculous situation, as 65% would be a huge win in any other election. Democrats ought to propose a constitutional reform package to voters that would include eliminating the two-thirds rule for tax increases, especially for local revenue proposals.

As gas prices continue rising, as climate change continues to worsen, and as Californians shift away from driving, it's more important than ever that transportation get the funding it needs. A VLF restoration would be a good method to raise that revenue. If not that, then something else. Democrats have a chance to solve this problem, and they ought to take it.

Robert Cruickshank writes on California politics at Calitics and California High Speed Rail Blog. This article was originally published at California High Speed Rail Blog.

There is no proof that education really needs all the billions that the author says will be restored becaause of Prop 30. The legislature should use the bvllins to lower the deficit and put some money away in a rainy-day fund.