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object(Timber\Post)#3711 (44) { ["ImageClass"]=> string(12) "Timber\Image" ["PostClass"]=> string(11) "Timber\Post" ["TermClass"]=> string(11) "Timber\Term" ["object_type"]=> string(4) "post" ["custom"]=> array(5) { ["_wp_attached_file"]=> string(14) "OP_605SAOP.pdf" ["wpmf_size"]=> string(6) "958300" ["wpmf_filetype"]=> string(3) "pdf" ["wpmf_order"]=> string(1) "0" ["searchwp_content"]=> string(102795) "Occasional Papers Understanding Infrastructure Financing for California Shelley de Alth Kim Rueben June 2, 2005 The California 2025 project www.ca2025.org, conducted with support of the William and Flora Hewlett Foundation, addresses issues that will affect the state of the State in 2025. The Technical Report series provides more information on topics discussed in chapters of the project’s major report, California 2025: Taking on the Future (Hanak and Baldassare, eds., PPIC, 2005). Public Policy Institute of California The Public Policy Institute of California (PPIC) is a private operating foundation established in 1994 with an endowment from William R. Hewlett. The Institute is dedicated to improving public policy in California through independent, objective, nonpartisan research. PPIC's research agenda focuses on three program areas: population, economy, and governance and public finance. Studies within these programs are examining the underlying forces shaping California’s future, cutting across a wide range of public policy concerns, including education, health care, immigration, income distribution, welfare, urban growth, and state and local finance. PPIC was created because three concerned citizens – William R. Hewlett, Roger W. Heyns, and Arjay Miller – recognized the need for linking objective research to the realities of California public policy. Their goal was to help the state’s leaders better understand the intricacies and implications of contemporary issues and make informed public policy decisions when confronted with challenges in the future. David W. Lyon is founding President and Chief Executive Officer of PPIC. Thomas C. Sutton is Chair of the Board of Directors. Copyright © 2005 by Public Policy Institute of California All rights reserved San Francisco, CA Short sections of text, not to exceed three paragraphs, may be quoted without written permission provided that full attribution is given to the source and the above copyright notice is included. PPIC does not take or support positions on any ballot measure or on any local, state, or federal legislation, nor does it endorse, support, or oppose any political parties or candidates for public office. Research publications reflect the views of the authors and do not necessarily reflect the views of the staff, officers, or Board of Directors of the Public Policy Institute of California. Summary Over the last decade, many observers have questioned whether or not California’s future is endangered by a lack of infrastructure spending. Answering this question requires a basic understanding of current levels of infrastructure financing and spending patterns. It is also important to consider how these levels and patterns have changed over time and how they compare to those in the rest of the country. California spending on infrastructure was $931 per capita in 2002, about the same level of spending as the rest of the country. This figure reflects a recent increase in capital expenditures that now resembles the levels of the 1950s and 1960s, the heyday of California public projects. However, our current spending priorities differ from those of other states. In particular, more of our capital spending is used for water supply, natural resources, and community development projects, and a smaller portion is dedicated to highway and road projects. Until recently, California was also spending substantially less on education facilities, but from 1997 to 2002, California increased such spending 70 percent in real per capita terms. This money may provide less than it used to, largely because the costs of building have also increased. Overall, local governments in California provide more infrastructure than their counterparts in the nation as a whole. However, this does not mean that the money is raised locally. Proposition 13, passed in 1978, hindered local government’s ability to raise money through the property tax, and local governments receive a substantial amount of pass-through money from the federal and state government. Yet local governments have also found new ways to raise capital funds, including optional sales taxes for transportation (passed at the county level) and an increased reliance on local bonds for school facilities. State revenue sources for infrastructure projects have also changed over time. Currently, very little general fund revenue is used directly for infrastructure projects. This is in part due to the expanded use of the general fund to pay for education operating expenditures. Instead, state capital projects are largely financed with general obligation (GO) and revenue bonds. In 2002-2003, bond funds made up over three-quarters of state capital outlay sources, a majority of which was used to finance school facilities. However, the ability to pass large bonds to finance projects has been severely curtailed by an estimated debt service ratio of around 7 percent for the next five years. A prudent debt ratio—general fund debt payments divided by general fund revenues—is usually thought to be 6 percent or less. This increased debt service level is partly due to the passage of recent large GO bonds for education, resources, and housing. Additionally, the state refinanced much of its outstanding debt to avoid current payment obligations, and voters authorized $15 billion for the Economic Recovery Bond to pay off short-term debt to balance the state budget. Voter support for state and local bonds has greatly increased facility funding on schools. Since 1998, the state has passed over $28 billion in GO bonds to finance K-12 school construction and modernization. The state also revamped its distribution system in 2000, creating a waiting list of projects for school districts that applied after a given bond’s funds were allocated. In addition, the state has earmarked a portion of these funds for districts with overcrowded -i- schools. These changes have made it easier for large urban school districts to qualify for state matching funds. In addition, voters approved Proposition 39 in 2000, a measure that lowered the voter threshold for passing local school bonds from two-thirds to 55 percent. Thus far, school districts have approved over $20 billion in new funds, about half of which would not have been approved if the two-thirds supermajority were required. Yet some concerns remain about the distribution of these funds and whether or not they are going to the districts with the most urgent needs. Capital expenditures for higher education have also increased dramatically. Over the last four years, almost $4 billion of state general obligation bonds have been approved. In addition, UC and CSU have attracted private funds for capital projects. Following the passage of Proposition 39, community college districts also approved over $9 billion in local bonds. However, capital spending makes up only 9 percent of higher education costs, and recent state budget cuts have affected operating budgets dramatically, resulting in higher student fees. Even so, California public colleges remain some of the most affordable in the country, and the fee hikes partially reflect the fact that fees had been flat for eight years prior to 2003. In California, water infrastructure has historically been built through large-scale federal and state programs financed largely with user fees. Environmental sustainability and habitat restoration have received increasing emphasis and bond funding, but affordable water for agriculture and a growing population are still top priorities. Collaborative arrangements like CALFED, which bring an array of concerned parties to the table, seek on-going water supply solutions by following a “beneficiary pays” principle. Growing concerns, however, include the ability of local governments to ensure high-quality water, manage storm water, and avoid waterway pollution. Although federal funds historically have been used to provide clean water, the ultimate responsibility for this may rest with local governments who, given the increasing requirement for voter approval for general fees and assessments, may be left responsible for costly cleanups with no clear source of revenue. California spending for new transportation projects has declined relative to previous levels and to those in the rest of the country. The traditional sources of revenue, the federal and state gasoline taxes, are not indexed to inflation or the cost of gasoline and have eroded over time. Transportation funding has relied increasingly on sales tax revenues, especially at the county level. Because the tax is levied on all residents and on all goods, this arrangement weakens the link between those who pay for transportation and those who use it. These taxes now face an increased voter approval requirement for passage and renewal. In addition, increasing shares of transportation revenues are going to maintenance and mass transit projects. In November 2002, voters passed Proposition 42, which earmarks the sales tax on gasoline for transportation projects, but recent funding cuts and borrowing from transportation funds have curtailed infrastructure projects. Although transportation funding has fallen in recent years, funding mechanisms that return to a user-based approach, such as gas tax increases and toll collection, could be used to pay for new roads. Going forward, it will be important for Californians to decide which programs are worth funding and how to finance them. These challenges are heightened by two major considerations. First, local governments are increasingly responsible for capital projects, and coordination efforts will become more complicated. Second, as voters continue to make policy - ii - at the ballot box, it will become increasingly important for them to understand how their decisions affect budget trade-offs related to infrastructure funding and other spending priorities. - iii - Contents Summary Figures Tables Acknowledgments PAYING FOR CALIFORNIA’S INFRASTRUCTURE Infrastructure Financing Methods Local Financing Infrastructure Spending Patterns Spending from State Budget Funds Federal Transfers for Infrastructure K-12 EDUCATION HIGHER EDUCATION WATER SUPPLY AND QUALITY Water Quality TRANSPORTATION Local Revenue Sources Conclusion References Appendix A: Data Tables Appendix B: Data Sources and Methods Census of Governments California State Budget California Local Governments -v- i vii ix xi 1 1 3 4 6 9 11 15 19 22 23 27 30 33 35 41 41 41 43 Figures Figure 1 Figure 2 Figure 3 Figure 4 Figure 5 Figure 6 Figure 7 Figure 8 Per Capita State and Local Capital Outlay Expenditures, 1957-2002 California versus U.S. State and Local Capital Outlay, 1997 and 2002 State Capital Outlay Expenditures, 1965-1966 and 2002-2003 Distribution of State General Obligation Bonds for Infrastructure, 1972– 2004 California’s Debt Service Ratio, 1991-1992 to 2009-2010 California per Pupil School Infrastructure Spending, 1959-2002 California versus U.S. Real Capital Outlay on Highways (per 1000 VMT) California Counties That Ever Passed a Local Transportation Sales Tax - vii - Tables Table 1 Table 2 Table 3 Table 4 Table 5 Table 6 Table 7 Table 8 Table 9 Table 10 Table 11 Table 12 Table 13 Table 14 Table 15 State Bond Types, Typical Uses, and Outstanding Amounts State Revenue Sources for Infrastructure Financing Federal Grants for Major Physical Capital Investment State K-12 Education General Obligation Bonds, 1974-2004 Local K-12 School Facility Bonds since Proposition 39 State Higher Education General Obligation Bonds, 1972-2004 Distribution of Recent State Bond Funds to Higher Education System State Capital Outlay Revenue for Higher Education, 1996-1997 through 2000-2001 Local Community College Facility Bonds since Proposition 39 State Water General Obligation Bonds, 1972-2004 Recent Water-Related State General Obligation Bonds State Transportation Revenues for Capital Outlay, 2002-2003 State and Federal Gas Tax Rates State Ballot Measures for Transportation Capital Outlay Funds, 1990-2004 Local Transportation Revenues, 1999-2000 - ix - Acknowledgments Funding for this project was generously provided by the William and Flora Hewlett Foundation as part of the Public Policy Institute of California’s California 2025 project. We wish to thank many people who provided valuable feedback on an earlier draft of this report and guidance as we delved into the budget and Controller data. Multiple analysts from the Legislative Analyst’s Office reviewed this report and advised us in our research. These include Dana Curry, Mark Newton, and Mac Taylor. Henry Wulf, Donna Hirsch, Jeffrey Little, and Steve Poyta of the U.S. Census Bureau, Governments Division answered our questions and confirmed that capital data were missing for some special districts in 2002. Alice Fong and Anita Tomasovitch of the State Controller’s Office helped us understand why information was missing and provided us with additional information for 2002 to help us augment the Census data. Ellen Hanak (Public Policy Institute of California) provided expertise on water topics and offered helpful guidance for the overall analysis. Finally, we would like to thank Peter Richardson for his excellent editorial skills. Any remaining errors in consolidation of the numbers or interpretation are our own. - xi - Paying for California’s Infrastructure As a first step toward understanding California’s infrastructure needs over the next two decades, this paper examines how California’s state and local governments pay for projects and services. It also examines spending levels and priorities now and how they compare to those in earlier periods and in the rest of the country. Finally, it summarizes recent changes in infrastructure financing generally and in four specific sectors —K-12 education, higher education, water supply and quality, and transportation —and how California’s decisions have been affected by the ongoing state budget crisis. Infrastructure Financing Methods There are three basic ways to pay for infrastructure: pay-as-you-go, leasing and private provision, and borrowing. Under pay-as-you-go financing, the government pays for a project out of current revenues. No borrowing occurs, and no interest is paid. This approach limits spending to cash on hand and therefore renders many large projects infeasible. Currently, California uses pay-as-you-go funding principally from federal subventions and transfers, which are distributed on a revenue-sharing basis. Another way to provide infrastructure is for the government to contract with the private sector. Under this approach, private firms may provide services directly to the general public, such as with the provision of waste disposal services; or the government can lease public property to private companies, allow them to pay for improvements, and then receive the improved property at the end of the lease agreement. Airport parking lots, for example, are often financed this way. Much of California’s infrastructure financing is based on borrowing. By issuing bonds and paying them off over 20 or 30 years, governments can undertake large projects that could not be paid for out of current revenues. Interest payments on these bonds can double the nominal cost of a project, but the cost in real dollars is lower. For large capital projects, borrowing has the added advantage of matching the long-term costs of such projects to their long-term benefits. In effect, the various generations that will benefit from an infrastructure project contribute to its financing. Infrastructure borrowing is done with general obligation (GO) or revenue bonds. When the state or local government issues GO bonds, it pledges to use its general revenues to pay back the interest and principal, and this debt is backed by the full faith and credit of the issuing government. Revenue bonds, in contrast, are paid back with a revenue stream generated from the infrastructure project itself—for example, tolls generated from a toll road or water fees for a pipeline project—or with special assessments for specific projects. The interest rate for GO bonds depends on the economic and fiscal health of the issuing government; for revenue bonds, rates reflect the expected profitability of the project. At the state level, GO bonds require a simple majority vote; local GO bonds generally require approval from a supermajority in that jurisdiction, with vote requirements varying by the use of the bond revenue. -1- GO bonds can be separated into two types: self-liquidating and nonself-liquidating. Self-liquidating bonds are backed by project-generated revenue streams (such as mortgages for veterans’ housing) and are generally not included when calculating debt-service ratios. Nonself-liquidating bonds are paid back with general fund revenues (Table 1). We have included the Economic Recovery Bond, which was passed in March 2004 and allows the government to borrow up to $15 billion, in the category of nonself-liquidating debt even though it will be repaid with dedicated sales tax revenues because the services these revenues would have otherwise provided must now be funded with other revenues.1 In addition, the Economic Recovery Bond will be included in estimating California’s future debt load, and the state is responsible for repayment from the general fund if the dedicated sales tax revenues are not adequate. Table 1 State Bond Types, Typical Uses, and Outstanding Amounts ($ billions) Types of bonds Uses State pays debt service Voter approval required Amount outstanding 12/97 Amount outstanding 7/04 General Education facilities, obligation seismic retrofit, (nonself- parks, water projects, liquidating) Economic Recovery Bond General Veterans’ housing, obligation (self- 1959 California liquidating) water debt Revenue bonds State Water Project additions, college dorms, non-public projects Lease-payback Prisons, college revenue bonds facilities, state office buildings Y N N Y Y $14.9 $43.9 Y 3.8 2.2 N 22.2 10.9 N 6.4 7.3 SOURCES: Legislative Analyst’s Office (1998) and California State Treasurer (2004). Revenue bonds are paid for with specific funds and are not backed by the full faith and credit of the state; thus they do not require voter approval. Lease-payback revenue bonds, however, are a subset of revenue bonds that mirror a lease-financing agreement. The debt is used to construct a government-owned facility, and the debt repayment is seen as equivalent to what the government would have needed to pay in rental costs for the space if they had leased it from the private sector. The bond costs are paid for by general fund revenue. These bonds do 1 This categorization of the Economic Recovery Bond is open for interpretation. For instance the State Treasurer’s Office classifies the bond as self-liquidating, since it is not repaid from the general fund. -2- not require voter approval because the courts have ruled that the lease revenue mechanism does not create constitutional debt but is equivalent to a rental obligation. However, the payments are included by rating agencies in the calculation of California’s debt ratio. State general obligation debt is mainly repaid with general fund revenues from existing tax sources. Because this repayment is not explicitly linked to higher taxes, voters are not always aware that new projects will lead to either new taxes or spending cuts in other parts of the budget. As the state becomes more reliant on debt financing, maintaining future spending on operations may be threatened because of the need to pay off the existing debt burden. Local Financing Local governments also finance infrastructure through bonds and dedicated revenue streams. However, when local governments issue general obligation bonds they are usually repaid with voter-approved property tax increases. Local revenue bonds – used extensively for water and sewer projects – are repaid with revenues from services, local sales and parcel taxes, developer and user fees, and benefit assessments. These myriad of revenue sources are also used to provide some spending directly on infrastructure projects, most notably local sales tax revenues for transportation projects. Local governments also receive state and federal money that is passed through to local governments for local projects in a variety of sectors. Over the last generation, statewide ballot initiatives have limited local governments’ ability to raise tax revenue.2 Passed in 1978, Proposition 13 capped the property tax rate at 1 percent, limited changes in property value assessments to when property is sold, and required a two-thirds majority for the passage of special taxes. In 1986 voters approved a statutory measure that required voter approval (a simple majority) for passing other general taxes. Some counties have also passed sales taxes for transportation projects. Initially, these sales taxes required approval by a majority of voters and were considered general taxes, but the courts have decided that such taxes are special taxes and therefore now require a two-thirds supermajority for passage or renewal. User fees and special assessments are also used to provide infrastructure for local governments. These fees may vary with consumption (as with fees for electricity or water) or may be assessed as a flat monthly charge. User fees do not require voter approval if they do not exceed the “reasonable cost of providing service.” User fees that exceed a reasonable cost require the same level of voter approval as a special assessment, which local governments can levy for public-benefit-related services like flood control and streetlights. Following the passage of Proposition 218 in 1996, special assessments require a two-thirds majority of voters or a simple majority of property owners for passage. There are ongoing debates and court battles over the differences between user fees, special assessments, special taxes, and general taxes, as well as what is a “reasonable” cost for a service, but it is clear that local governments increasingly face the need for public approval to carry out new or ongoing projects. The one area in which raising new funds has become easier for local governments in recent years is K-14 education. In November 2000, voters approved Proposition 39, which 2 For more information on these statewide limitations on local revenues see Rueben and Cerdán (2003). -3- decreased the supermajority requirement for local school bond measures from two-thirds to 55 percent.3 Although there is talk of statewide initiatives to lower the passage rate for other types of local GO bond measures, none has been approved so far. Finally, local governments have also relied on development fees for infrastructure financing. The local government can negotiate these fees while approving new developments, which are asked to bear the burden for new services. However, this approach is more difficult to use if local governments wish to build new infrastructure in existing areas. Infrastructure Spending Patterns Infrastructure spending in California has varied over time as the result of changes in public attitudes, revenue availability, and population demands.4 The Pat Brown era (1959-1967) is often seen as a boom period of infrastructure building and was characterized by increased federal spending, bipartisan support for infrastructure, and increased tax revenues. Since that time, the political support for infrastructure provision has changed. Beginning in the late 1960s, per capita state and local capital outlays declined in California, reaching a low point following the passage of Proposition 13 in 1978. Although this decline was more dramatic in California, it was similar to capital outlay expenditure patterns found in the United States as a whole (Figure 1). 5 The drop in infrastructure spending predated Proposition 13 and reflected temporary declines in both federal capital funds and school capital spending because of a decline in the size of the school-age population. Per capita capital expenditures began increasing again in 1982, with dramatic increases in the last few years. In 2002, California spent $931 per person on capital compared to $917 in the country as a whole. This is over one-third more than the amount spent in 1997 and one-quarter more on a real per capita basis than was spent in 1967— the former high point in California infrastructure spending. California has also always spent more of its capital funds locally than the rest of the country. In 2002, local governments carried out 83 percent of capital expenditures in California compared to 65 percent in the country as a whole. There has been a shift in where this money is coming from, with California’s state government funding an increasing share of local projects. 3 This lower majority requirement comes with additional restrictions on the bond funds including an enumeration of projects that will be funded and the presence of a voter oversight committee. In addition, the lower requirement is available only if the bond is proposed during an election where a federal, state, county, or city election is also occurring. 4 To examine infrastructure spending over time, we use U.S. Census Bureau, Governments Division data available from 1957-2002 in five-year increments. Because of changes in state Controller reporting methodology in 2002, there is missing information in the Census numbers on capital expenditures for nontransportation special districts. We have therefore augmented the Census numbers with information from the Controller’s office about changes in net assets for special districts. Appendix Tables A1, A2, and A3 provide more information from the U.S. Census Bureau, Governments Division on the level and composition of spending in California and the United States for capital and non-capital expenditures. 5 Unless otherwise noted, all dollar amounts are given in 2003 dollars. -4- Figure 1 Per Capita State and Local Capital Outlay Expenditures, 1957-2002 Expenditures (2003 per capita $) 1000 900 California total United States total California local Governor Pat Brown era Proposition 13 800 700 California total 600 U.S. total 500 California local 400 U.S. local 300 200 100 0 1957 1962 1967 1972 1977 1982 1987 United States local 1992 1997 2002 SOURCES: U.S. Census Bureau, Governments Division (1957-2002); California State Controller (2001-2002). Although California’s overall per capita spending levels now approximate those in the rest of the country, how the state spends that money has diverged from the national pattern (Figure 2). In 1997, California spent significantly more than the United States as a whole on resources and community development ($95 per capita versus $56) and water ($79 versus $34)6 and less on highways and roads ($92 versus $176) and educational facilities ($140 versus $175). By 2002, California was still spending less on highways and roads ($156 versus $233) and more on water and resources (including levee, irrigation, and drainage special districts). However, California had almost caught up with the nation as a whole for spending on educational facilities ($239 versus $250). 6 Although California is currently and historically has spent more on water projects than the nation as a whole, California water project spending is on par with that of other arid Western states. -5- Expenditures (2003 per capita $) Figure 2 California versus U.S. State and Local Capital Outlay, 1997 and 2002 1000 900 800 700 600 500 400 300 200 100 0 CA 1997 US CA 2002 US Other Resources / Community Development Sanitation / Sewer Water Transit Highways Education SOURCES: U.S. Census Bureau, Governments Division (1997, 2002); California State Controller (2001-2002). Spending from State Budget Funds The spending priorities reflected in California’s state budget have also changed over time. In 1965-1966, transportation infrastructure took the largest share of the state’s capital expenditures, and spending on resources (mainly water) was the next largest slice. K-12 capital constituted only 9 percent of state spending but now makes up 69 percent of capital outlay (Figure 3), a result of the shifts in state and local responsibilities occurring after Proposition 13.7 7 For more information on the level and composition of state infrastructure spending from state general and special funds see Appendix Table A4. -6- Figure 3 State Capital Outlay Expenditures, 1965-1966 and 2002-2003 1 9 6 5 -1 9 6 6 O ther K -12 E d u c a t io n 4 % 9% H igher E duc atio n 11% R eso urces 24% T rans po rtatio n 52% K - 12 E d u c a t io n 69% 2 0 0 2 -2 0 0 3 O ther 0% T ra n s p o rta tio n 22% R es o urc es 5% H ig h e r E d u c a tio n 4% Total state spending (2003 $s): $5,789 million Real per capita spending: $307 Total state spending (2003 $s): $10,607 million Real per capita spending: $299 SOURCE: California Department of Finance (1967-1968 and 2004-2005). Likewise, the state’s capital funding sources have changed significantly since the early 1960s. Most notably, the state has moved away from pay-as-you-go financing, with a corresponding increase in reliance on bonds (Table 2). The amount of direct payments from the general fund for infrastructure payments has plummeted from the level found in the early 1960s, with general fund revenues now mainly being used to pay back debt.8 Special funds are usually limited to specific programs, with the State Highway Account being the largest. Federal funds make up a significant portion of the state’s pay-as-you-go infrastructure funds ($1.5 billion in 2002-2003, about 45 percent of capital outlay revenue excluding K-12 local assistance) and provide money to local governments to pay for highways, mass transit, flood control, and veterans’ homes.9 8 It is important to note that the shift in how California funds infrastructure makes comparisons in how much general fund revenues are being spent on infrastructure projects somewhat misleading. In the ad campaigns favoring Proposition 53 (on the October 2003 ballot), proponents highlighted this decline in general fund spending without recognizing the larger role of special funds and shift to bonds to pay for new investment. 9 California Budget Project (1999); Legislative Analyst’s Office (February 2004); California Department of Finance (2004-2005). -7- Table 2 State Revenue Sources for Infrastructure Financing (2003 $ millions) General Fund Special Funds Bond Funds Federal Funds 1960-1961 1965-1966 2002-2003 13.5% 1.8% 0.9% 44.2% 27.9% 7.5% 15.8% 42.2% 77.5% 26.6% 28.0% 14.1% Total real $ amount $4,104 Amount per capita $259 $5,789 $307 $10,607 $299 NOTE: Includes K-12 local assistance for facilities. SOURCES: California Department of Finance (1962-63, 1967-68, and 2004-05). Since 1972 California voters have approved $82.6 billion (nominal $) in GO bonds for various purposes (Figure 4). About 45 percent of this amount has been used to finance K-12 school construction. The next largest categories are natural resources ($15 billion) and higher education ($10 billion). Figure 4 Distribution of State General Obligation Bonds for Infrastructure, 1972–2004 V e te ra n s Ho m e Loan S e is m ic 7 % 3% O th e r 9% Pu b lic S a f e ty 5% N a tu r a l Res ourc e s 17% T r a n s p o r ta tio n 3% K - 1 2 S c h o o ls 45% H ig h e r Ed u c a tio n 11% NOTE: The figure does not include the Economic Recovery Bond. SOURCE: California Department of Finance, (2004-2005); updated by authors. The increase in reliance on bond funding has implications for the state’s debt service ratio – the portion of annual general fund revenues that are devoted to principal and interest -8- Ratio of general fund debt to revenues payments on debt. This ratio was at 3 percent in 2002-2003, lower than usual because of the recent refinancing of outstanding debt in response to the state budget shortfalls. In March 2004, Californian’s passed an additional $27.3 billion of general obligation bonds; half of this will finance school infrastructure, and the other half will help solve the state’s current budget crisis. In November 2004, voters approved an additional $3 billion initiative to fund stem cell research and $750 million for children’s hospitals. The result will be increasing debt service ratios, rising above 7 percent in 2007-2008 and remaining at that level until after 2010 (Figure 5). A reasonable debt service ratio is 6 percent or less (Legislative Analyst’s Office, February 2004). This suggests that California’s capacity for new bonds is limited in the near term, since more money must be earmarked to repay debt in the next few years. Figure 5 California’s Debt Service Ratio, 1991-1992 to 2009-2010 8% 7% 6% 5% 4% 3% 2% 1% 0% 1991-92 1993-94 1995-96 1997-98 1999-00 2001-02 2003-04 2005-06 2007-08 2009-10 NOTE: Includes general obligation bonds passed in 2004, including payments on the Economic Recovery Bond. SOURCE: Legislative Analyst’s Office (December 2004). Federal Transfers for Infrastructure While we are unable to isolate federal transfers to California for capital and non-capital projects, it is instructive to examine how overall federal spending on state and local capital -9- projects has changed over time.10 Currently federal transfers for state and local capital projects have surpassed peak levels found in the late 1970s. Federal capital funds dipped in the 1980s, but this was a limited decline in federal funds that reversed in the late 1990s (Table 3). Table 3 Federal Grants for Major Physical Capital Investment Real per capita capital grants Percent capital grants for: Highways Urban mass transport Airports Community development Natural resources and environment Housing assistance Other non-defense Defense 1960 1965 1970 1975 1980 1985 1990 1995 $88.0 $120.7 $139.2 $129.1 $167.6 $149.8 $136.6 $162.8 88% 80% 61% 42% 40% 51% 51% 49% 0% 0% 2% 6% 9% 10% 12% 9% 2% 1% 1% 3% 3% 3% 4% 5% 3% 12% 23% 23% 26% 20% 14% 13% 3% 3% 5% 21% 22% 14% 12% 9% 0% 0% 0% 0% 0% 0% 5% 15% 4% 3% 8% 5% 1% 1% 1% 1% 0% 0% 0% 0% 0% 0% 1% 0% 2000 $176.2 51% 11% 3% 12% 7% 15% 0% 0% Real per capita capital grants Real per capita total grants to state and local governments Percent of total federal grants allocated for capital $88.0 $120.7 $139.2 $129.1 $167.6 $149.8 $136.6 $162.8 $176.2 $186.0 $264.1 $474.7 $590.6 $678.6 $636.9 $679.8 $925.4 $1031.0 47% 46% 29% 22% 25% 24% 20% 18% 17% SOURCE: Office of Management and Budget, (2004). However federal money now funds different types of capital. In the 1950s and 1960s, the bulk of federal capital transfers went to highways. Beginning in the 1970s funds were increasingly used for other projects including mass transit, community and regional development projects, and natural resource and environment projects, with highway and road projects receiving 40 percent of funds in 1980, down from a high of nearly 90 percent of capital transfers. The share of money for highways increased during the 1980s, and highway and road projects currently make up about half of all federal transfers for capital. Recently funds for housing assistance have increased as large federal housing projects have been replaced with different options in subsidized housing. The other major change is a reallocation in the importance of capital grants in federal spending priorities. Federal grants today largely focus on redistributive programs and payments to individuals, including Medicaid and welfare programs. Thus the federal government is still involved in infrastructure projects, but its focus has shifted to fund a wider array of projects over the last forty years. 10 Overall California received $34 billion from federal formula grants in 2001 or 12 percent of all federal grants, a share proportional to California’s share of the U.S. population, but much of this money was for non-capital expenditures. For more information on California’s share of overall federal funds see Ransdell (2002). -10- K-12 Education To flesh out our picture of infrastructure spending, we turn now to specific sectors, beginning with K-12 education. Most education spending is for operating expenditures and is done at the local level. In 1999-2000, local school districts spent $5.0 billion on capital outlay and $39.8 billion on operating expenditures.11 Per student outlays on school facilities have been anything but steady over the last 30 years. Even before the passage of Proposition 13, school capital financing was falling (Figure 6). Per pupil capital spending began to increase in the mid-1990s, well before the lower supermajority requirement for local school bond measures was passed. Between 1999 and 2002, local governments increased per pupil capital spending by over $140. This additional level of spending reflects the growing support for schools generally and school facilities specifically. Figure 6 California Per Pupil School Infrastructure Spending, 1959-2002 $1,200 $1,000 Proposition 13 $800 2003 $ per pupil $600 $400 $200 $1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 SOURCE: California Department of Education (1959-2002). 11 We rely on California local government controller data and state budget information to calculate the annual spending levels in each sector. For more information on expenditure sources for our highlighted sectors see Appendix Table A5. -11- By 1986, K-12 capital finance relied more or less equally on state bond money, local bonds, and developer and other local fees.12 This pattern continued into the 1990s, with local districts paying for just over two-thirds of capital outlay costs for K-12 education through a combination of local general obligation bonds (32%), developer fees (11%), and other sources (27%) (Brunner and Rueben, 2001), and with state GO bonds covering the remaining third. During the recent past, voters have been willing to pass large state GO bonds to fund K12 education (Table 4).13 Prior to recent reforms, however, this funding system suffered from some serious weaknesses, with school districts uncertain when funding would be available and how much to expect. Although the State Allocation Board’s decision-making process has changed frequently, it historically allocated bond money on a first-come, first-served basis on a bond-by-bond basis. Moreover, it required matching funds from localities.14 Until 2000, school districts needed to reapply each time a bond was passed. This money was usually depleted entirely before new bonds were authorized, creating a “hill and valley” revenue stream, which impaired districts capacity to plan and raise local supplemental funds. Table 4 State K-12 Education General Obligation Bonds, 1974-2004 ($ millions) Years No. proposed 1974-80 1981-85 1986-90 1991-95 1996-00 2001-04 3 2 5 3 2 2 No. passed 1 2 5 2 2 2 Amount proposed 700 950 4,000 3,800 8,725 21,400 Amount passed 150 950 4,000 2,800 8,725 21,400 Real amount proposed (2003 $) 1,601 1,423 5,253 4,524 9,176 21,573 Real amount passed (2003 $) 419 1,423 5,253 3,400 9,176 21,573 Total 17 14 $ 39,575 $ 38,025 $ 43,551 $ 41,244 Moreover, the finance system led to considerable inequities, with many California children schooled in inadequate facilities. In 2001, one in three children attended schools that were overcrowded or in need of modernization, with estimated costs to correct these problems at $30 billion (Legislative Analyst’s Office, 2001). Following litigation surrounding the distribution of Proposition 1A funds (passed in 1998), the state revamped its formula for distributing bond funds, specifically allocating a portion of new bonds for school districts with critically overcrowded schools and maintaining a list of projects to be funded from one bond 12 Following the passage of Proposition 13 in 1978, it was unclear how school districts would locally finance new facilities. Several reforms occurring in the mid 1980s reestablished local funding sources. For more information see Brunner and Rueben (2001). 13 Some state bond measures combined financing for K-12 and higher education. In this section, however, we list the funds solely for K-12 districts. We will discuss higher education financing in the next section. 14 Hardship funds were allowed for school districts that could show an inability to raise local funds. For more information on the details surrounding specific limits on school facility finances see Brunner and Rueben (2001). -12- pool to the next. The new formula also limited the state match to a certain amount per pupil for each type of district. After these changes were put into place, voters passed Proposition 47 in 2002 and Proposition 55 in 2004, which authorized $21.4 billion in new state bond funds for K-12 facilities. These funds included money to fund existing approved projects off the Proposition 1A waitlist ($4.8 billion), projects in critically overcrowded schools ($4.1 billion), modernization projects in existing schools ($3.7 billion), and new construction to accommodate projected growth in enrollments ($8.8 billion). Although there is a per pupil cap on state contributions, most money is still distributed on a matching basis, so school districts with higher property values are able to raise more local funds, thereby possibly becoming eligible for more state money.15 However, hardship funds still assist districts that are unable to raise their local match. Concerns about the ability to raise local revenues have been lessened in the last few years. Since the passage of Proposition 39, which lowered the vote requirement for the passage of school bonds in local elections from two-thirds to 55 percent, school districts passed more than 250 bond measures for more than $20 billion. Slightly less than half of these measures would not have passed without the lower supermajority requirement (Table 5). Table 5 Local K-12 School Facility Bonds since Proposition 39 ($ billions) Passed Not passed Proposed Passed with less than 2/3 Number Amount ($) 256 20.3 50 1.7 306 22.1 119 9.9 In the aftermath of Proposition 39, the state may wish to examine its role in financing school facilities. The Legislative Analyst’s Office has suggested allocating state education capital funds on an ongoing per pupil basis and moving away from a reliance on bond revenues, which would address equity concerns and provide a predictable facility revenue stream (2001). Alternatively, state revenues could be allocated based on a local match that takes into account the fact that the same tax rate raises different amounts of revenues across different districts (because of differences in assessed property values across different districts). The state could equalize this system by using state money to top off the revenues raised by a given local property tax increase to equalize levels across the state. This would give lower-wealth districts a higher state match rate for new construction programs. Although the increased level of state and local bond funding seems promising for schools, we are allocating much of the next decade’s school infrastructure funds today. In particular, if there are future unexpected demographic shifts, some growing districts may find that they are unable to provide adequate facilities once the current funds have been spent. The increased surge in funds has also had at least one unintended consequence: The costs of 15 There is a limit on the level to which school districts can raise property tax rates, so districts with lower property values may be constrained in how much state funding they will be able to receive. -13- building schools have increased dramatically, with the demand for construction exceeding the supply of school construction firms. Therefore, higher costs may produce fewer classrooms than originally anticipated. This pattern might have been avoided if money had been allocated on a more regular basis. -14- Higher Education A mix of federal, state, and local district sources finance the University of California (UC), California State University (CSU), and California community college (CCC) capital outlays. State funds for capital and operating expenditures totaled about $10.7 billion in 19992000 and came from education bonds, earmarked special funds, and the state general fund. Student fees and private funds now augment state funds, adding $1.4 billion for capital and $8.2 billion in operating expenditures in 1999-2000. Similar to patterns found in K-12 education, higher education spending is predominantly for operating expenses. The ratio of capital to operating expenses is 9 percent.16 As with overall capital spending, capital outlays for higher education declined rapidly during the 1970s, especially after the passage of Proposition 13, but increased during the late 1980s and 1990s. U.S. Census Bureau data for higher education capital outlay show a real per student spending peak of $1,652 in 1967 and a trough of $592 in 1982. By 2002, California was spending $767 per full-time student. Before Proposition 13, local community college districts funded their own building programs through local bonds and property taxes with some matching funds from the state. Roughly 10 to 15 percent of UC and CSU capital funding came from federal sources through the 1963 Higher Education Facilities Act. Tideland oil revenues from state-owned land also financed UC, CSU, and CCC capital outlays. These revenues were deposited in the Capital Outlay Fund for Public Higher Education (COFPHE) and totaled $964 million (in nominal dollars) between 1965 and 1986—about 19 percent of all higher education capital outlay spending in that period (California Postsecondary Education Commission, 2002). Following the passage of Proposition 13, community colleges lost the ability to propose new local bond measures, and federal funds for UC and CSU dried up in the 1980s. Also in 1985, oil prices dropped dramatically, decreasing revenue available from the Tideland Oil Fund. The state then shifted to using bond measures to fund higher education infrastructure projects. In 1986, the legislature proposed and voters passed Proposition 56, a bond measure for higher education raising $400 million. This was the first time state bond funds were used to fund facilities for UC or CSU. State bond measures are now used regularly to fund higher education capital outlays (Table 6). Until 1996, measures for higher education and K-12 capital outlays were proposed separately, but because of stronger voter support for K-12 bonds, propositions are now joint K-University bond acts. 16 For more information on expenditure sources for higher education see Appendix Table A5. - 15 - Table 6 State Higher Education General Obligation Bonds, 1972-2004 ($ millions) Date Proposition Amount # proposed Nov-72* Jun-76* Nov-86 Nov-88 Jun-90 Nov-90 Jun-92 Jun-94 Mar-96+ Nov-98+ Nov-02+ Mar-04+ 1 4 56 78 121 143 153 1C 203 1A 47 55 160 150 400 600 450 450 900 900 975 2,500 1,650 2,300 Real amount proposed (2003 $) 572 359 568 794 562 562 1,093 1,012 1,043 2,616 1,675 2,300 Real amount passed (2003 $) Y N Y Y Y N Y N Y Y Y Y Total $ 11,435 $ 13,157 $ 11,223 * These bond measures are for community colleges only. + These bond measures also include K-12 money. Before 2000, higher education bond funds had been split into thirds for UC, CSU, and CCC. Proposition 47 (2002) and Proposition 55 (2004), which made nearly $4 billion available for higher education projects, increased the community college share to 40 percent, with UC and CSU receiving 30 percent each (Table 7). Table 7 Distribution of Recent State Bond Funds to Higher Education System ($ millions) Community Colleges CSU UC Prop 47 (11/02) 746 496 408 Prop 55 (3/04) 920 690 690 Total 1,666 1,186 1,098 Total $ 1,650 $ 2,300 $ 3,950 - 16 - UC has been fairly successful in securing private money for capital building, raising $4.6 billion through private and other nonstate funds from 1996-1997 through 2000-2001 (Table 8). Additionally UC can finance new research facilities through bonds backed by future research revenue, a step recently recommended by the Legislative Analyst’s Office (June 2004). The CSU system has been less successful in private fundraising, raising only $258 million from nonstate funds over this same period. Table 8 State Capital Outlay Revenue for Higher Education, 1996-1997 through 2000-2001 ($ millions) State General & GO Bonds Revenue Bonds Other Nonstate Total COFPHE Funds & Special Funds Funds UC CSU CC 10.0 35.6 981.9 945.9 1,004.5 195.9 11.7 1.5 4,621.8 258.3 * 5,809.6 1,251.4 1,006.0 Total 45.6 2,932.4 209.0 4,880.1 $ 8,067.0 * Community College numbers do not include local district revenues, which are discussed below. SOURCE: California Postsecondary Education Commission (2002). Although community colleges have not raised substantial amounts of private money, the passage of Proposition 39 has helped them raise over $9 billion in local district bonds since 2001 (Table 9). Nearly three-quarters of these measures would not have passed if the two-thirds supermajority had been required. Table 9 Local Community College Facility Bonds since Proposition 39 ($ billions) Passed Not passed Proposed Passed with less than 2/3 Number Amount ($) 46 9.1 5 1.0 51 10.0 33 6.6 The recent state budget crisis has caused California to re-examine its previous levels of support for higher education. Campuses have had to make reductions in services, increase class sizes and raise student fees. However California tuition and fees are still lower than the average costs faced by students in other states, and community college fees remain among the lowest in the country. While the budget crisis is forcing students to pay more and campuses to cut back, infrastructure for higher education is not as threatened as operating budgets. In addition, California may want to consider adoption of systematic student fee increases to avoid - 17 - the swings in tuition rates caused by the current policy of leaving tuition constant until a period of budgetary stress and then raising rates dramatically. - 18 - Water Supply and Quality California water resources are used for agricultural, residential, industrial, environmental, recreational, and other purposes. To accommodate these various uses, California has a vast infrastructure system for water supply, conveyance, and quality control. In 1999-2000, capital spending for water supply and water quality totaled $4.7 billion, and operating expenses totaled $9.6 billion. About one-third of this spending is used for sewer systems and wastewater treatment centers. 17 City water agencies and nearly 1,300 local water districts and other entities spend most of this money either to provide water directly or to meet water standards for municipal wastewater discharge. User fees are the largest source of both city and special district funds. In 1997-1998, cities brought in $4.1 billion in water and sewer service charges, or 80 percent of city water and sewer functional revenues (California State Controller, 1997-98). Water special districts brought in $4.3 billion in fees, nearly 60 percent of water district total revenues in this year (Legislative Analyst’s Office, 2002b). Average yearly water fees in 2003 were $363, and only 3 percent of communities faced fees greater than 1.5 percent of median household income (Hanak and Barbour, 2005). Although local water utilities are primarily responsible for delivering water to end users, several state and federal projects established significant conveyance and storage infrastructure during the mid-twentieth century to supply these local utilities. These include the federal Central Valley Project (CVP), the State Water Project (SWP), and the federal Colorado River Project. These projects have authority to levy fees and charges for capital costs. The U.S. Bureau of Reclamation (USBR) constructed the CVP beginning in 1937 and still controls the facilities. The project was financed through federal appropriations and repayments from water users, including agriculture, municipal and industrial users, and power customers. Total construction costs totaled $3.3 billion in nominal dollars as of 1999 (Dowall and Whittington, 2003). The Colorado River Project, also administered by USBR, allocates water from the Colorado River among the Western states, with California historically receiving a significant share. The California Department of Water Resources (DWR) runs the SWP, which furnishes a substantial portion of the water supplies for urban Southern California as well as agricultural users in the southern San Joaquin Valley. Construction on these conveyance and storage facilities began in the 1960s, when voters approved a $1.75 billion general obligation bond ($8.2 billion in 2003 dollars) to finance initial construction. Water supply contractors became responsible for repayment of this GO bond and passed on these costs to users in the form of fees. Subsequently, revenue bonds have been used to finance additional SWP facilities in Southern California and along the central coast and are also paid off with user fees. California voters have been asked to approve 15 statewide water-related GO bonds over the last 30 years, and have done so for all but one of these, for a total of $9.9 billion (Table 10). The vast majority of these bonds have focused on water-quality-related issues, for both urban supply (“drinking water”) and wastewater (usually called “clean water”) programs. The most 17 For more information on expenditure sources for water supply and quality see Appendix Table A5. - 19 - recent bonds have also focused on ecosystem restoration and grants to local water districts to increase water use efficiency and augment local supplies (Table 11). Table 10 State Water General Obligation Bonds, 1972-2004 ($ millions) Date Proposition # Purpose Jun-74 Jun-76 Jun-78 Nov-84 Nov-84 Jun-86 Nov-86 Nov-88 Nov-88 Nov-88 Nov-90 Nov-96 Mar-00 Mar-02 Nov-02 2 Clean Water 3 Drinking Water 2 Clean Water & Conservation 25 Clean Water 28 Drinking Water 44 Water Quality & Conservation 55 Drinking Water 81 Drinking Water 82 Conservation 83 Clean Water & Reclamation 148 Water Supply 204 Water Supply 13 Drinking, Clean Water, Watershed & Flood 40 Clean Water 50 Supply, Clean Water, Drinking Water & Wetlands Amount proposed 250 175 375 325 75 150 100 75 60 65 380 995 1,970 300 3,440 Real amount Real amount proposed passed (2003 $) (2003 $) 698 Y 419 Y 753 Y 473 Y 109 Y 213 Y 142 99 79 86 475 1,064 2,008 Y Y Y Y N Y Y 305 3,492 Y Y Total $ 5,295 $ 10,416 $ 9,942 - 20 - Table 11 Recent Water-Related State General Obligation Bonds ($ millions) Bond Fund 1996 Safe, Clean, Reliable Water Supply Bond Act CALFED Water Supply Wastewater Bay-Delta Improvement & Flood Control 2000 Safe Drinking Water, Clean Water, Watershed Protection, and Flood Protection Act CALFED Water Supply & Conservation Drinking Water Wastewater Flood Control & Watershed 2002 California Clean Water, Clean Air, Safe Neighborhood Parks, and Coastal Protection Act Water Quality & Restoration 2002 Water Quality, Supply and Safe Drinking Water Projects Coastal Wetlands Purchase and Protection Bond Act CALFED Water Supply & Integrated Regional Management Drinking Water (Includes Desalination & Water Security) Wastewater Coastal Protection & Colorado River Management Prop # 204 13 Amount $ 995 453 117 235 190 $ 1970 250 535 70 355 760 40 $ 2600 * 300 50 $ 3440 825 640 585 370 1020 * The remaining $2300 of Proposition 40 funded nonwater-related projects. A large portion of the most recent bonds –- $1.5 billion –- has been allocated to the CALFED program, a multiagency state and federal effort to restore the Bay Delta fisheries, ensure water and environmental quality, and secure the water supply. Representatives include urban, environmental, agricultural, and other interests. CALFED does not directly control or manage water supply but attempts to coordinate activities of various water actors in the state, including the CVP, SWP, and local agencies. CALFED’s long-term financial plan follows a “beneficiary pays” principle, with project benefits and costs as closely correlated as possible to avoid or minimize subsidies. However, to date, the state bond funds have been the primary revenue source, with relatively little money forthcoming from either federal sources or local users. CALFED partners have recently completed a 10-year finance plan that allocates costs among federal, state and local authorities. In October 2004, federal legislation authorized $395 million from 2005 to 2010 to support the federal share of CALFED expenditures. - 21 - Water Quality The recent state bonds also provide substantial resources to help local agencies improve water quality, a shift from the policy in the 1990s, during which relatively limited state funding was available. In the first decade following the passage of the federal Clean Water Act of 1972, federal grants provided more than 75 percent of the capital costs for upgrading wastewater systems to meet the new water quality standards. This program was then substantially downsized and converted into a Clean Water State Revolving Fund, with 20 percent state matching funds, to provide low-interest loans to wastewater utilities. In 1996, the California Safe Drinking Water State Revolving Fund was established to assist water utilities. California spent $134.6 million in federal funds for water quality in 1999-2000. Currently Congress is considering bills that would provide additional federal money for local water treatment plant infrastructure, motivated by September 11 security issues and concerns raised by local governments and environmental groups regarding the growing costs of clean water programs. The State Water Resources Control Board (SWRCB) administers clean water programs, covering wastewater and storm water runoff. The recent passage of Propositions 13, 40, and 50 has greatly increased the state’s ability to provide local assistance for clean water projects. In 2003-2004, estimated expenditures from these bond funds total $559 million, or three-quarters of the estimated $750 million in local assistance from the SWRCB. The Department of Health Service’s (DHS) Office of Drinking Water administers the state’s safe drinking water programs. Here, too, bond funds are dramatically increasing spending. In 1999-2000 – before the bonds – it lent $21.3 million to local entities for drinking water projects (half of which was from federal sources) and made a small number of capital grants. The DHS drinking water budget appropriation in 2003-2004 includes $115 million in local assistance from the recently passed Proposition 50, representing one-third of that year’s DHS environmental control local assistance budget. Whereas user fees are a straightforward local funding source for water and wastewater systems, there are questions about the funding of a relatively new area of water quality regulation – storm water. It is uncertain whether increases in local charges to pay for storm water management require two-thirds voter or property-owner approval for the increase or implementation of property-related fees or assessments. If more stringent voting standards are required, without federal or state subsidies, local governments will be responsible for meeting standards but will lack clear options for raising revenue. Another question involves funding for the restoration of fish and wildlife habitats. Recent state bonds and efforts such as the CALFED Environmental Water Account, which buys and stores water to mitigate competing environmental and water user needs, show the public’s and state’s willingness to fund water for the environment. To meet the continued funding requirements of the CALFED program and new ecological challenges, however, funding mechanisms will have to keep pace. - 22 - Transportation How people and goods travel through California will help determine the state’s quality of life and continued prosperity. Transportation infrastructure financing has undergone dramatic shifts since the large-scale freeway projects of the 1950s and 1960s. Although the overall level of spending on highways and roads is now comparable to that of the earlier period, less of this money is now spent on construction and more is spent on operations. In 1967 and 2002, the combined capital and operating expenses for highways and roads totaled $315 and $332 per capita, respectively. In 1967, $231 went to capital, versus only $156 more recently. Mass transit has, meanwhile, emerged as a key sector. In 1972, California spent $20 per capita on transit construction; in 2002, it spent twice that.18 In 1999-2000, capital outlay spending on highways and roads was evenly divided between state and local projects, with each spending slightly less than $1.9 billion.19 Much of the local spending is allocated by cities and counties but is coordinated through regional transportation planning agencies, which receive revenue from the federal and state government. For transit, state and local capital outlay spending in 1999-2000 was $2.6 billion—about 65 percent of operating expenditures ($4.0 billion). Virtually all of the transit capital money is spent locally, although much of it comes from federal and state sources. Capital spending on mass transit was unusually high that year largely because of federal grants and local funds for the Bay Area Rapid Transit Authority (BART) and the Los Angeles County Metro Transportation Authority to complete extension projects. In 2001-2002, total transit capital expenditures fell to $1.5 billion, a more representative level of recent transit infrastructure financing. New freeway construction has faced increasing challenges over the past forty years as costs have risen, revenues have eroded over time, and financing has shifted away from a user fee approach. California real highway capital outlay spending per 1000 vehicle-miles traveled (VMT) declined dramatically from 1965 to 1980 and has remained relatively constant since (Figure 7). National trends have followed a similar pattern though the decline was less extreme. U.S. real per 1,000 VMT capital spending on highways was $22.3 and California’s spending was $15.8 in 2000. 18 These real per capita numbers are based on U.S. Census Bureau reported figures, which can be found in Appendix Table A1. 19 For more information on expenditure sources for highways, roads, and transit see Appendix Table A5. - 23 - Figure 7 California versus U.S. Real Capital Outlay on Highways (per 1000 VMT) 2000 $ per 1000 VMT $60 $50 $40 $30 $20 $10 $0 1965 CA 1970 1975 US 1980 1985 1990 1995 2000 NOTE: Includes federal, state and local capital outlay expenditures. SOURCES: Authors' calculations based on capital outlay and federal VMT data from the Federal Highway Administration (various years) and California VMT data provided by the California Department of Transportation (2004). While spending declined in terms of vehicle mile traveled, costs of construction and maintenance rose dramatically because of more stringent freeway design standards, skyrocketing right-of-way costs, new environmental planning costs, and rising labor costs. The cost of constructing a new highway mile in the 1990s is estimated to be three times higher than the cost during the early 1960s.20 Traditional sources of revenue for transportation have been user fees such as federal and state fuel taxes, sales taxes on fuel, vehicle registration fees, motor vehicle weight fees, drivers’ license fees, and tolls. These revenues are deposited into special funds administered by the state and earmarked for transportation, including the Federal Highway Trust Fund, State Highway Account, and the Public Transportation Account. About one-third of the state gas and diesel tax is distributed to local governments for streets and roads; the remainder is deposited into the State Highway Account. California’s federal gas and diesel tax contributions are deposited into the Federal Highway Trust Fund and redistributed. Additionally, 4.75 percentage points of the 6 percentage point sales tax on diesel fuel has historically been 20 For a description of the methodology behind this calculation see Hanak and Barbour (2005). - 24 - allocated to the Public Transportation Account for transit operating expenses and improvements (Legislative Analyst’s Office, 2002a). Table 12 shows the most recent revenue sources for state capital outlay transportation spending. Note that this does not include state or federal money passed through to local governments for capital, including most transit capital funding. Table 12 State Transportation Revenues for Capital Outlay, 2002-2003 ($ millions) Highway Bond Funds Seismic Retrofit Bond Act of 1996 Special Funds State Highway Account Toll Bridge Seismic Retrofit Account Traffic Congestion Relief Fund Federal Trust Fund Transit Special Funds State Highway Account Public Transportation Account Traffic Congestion Relief Fund $ 32.3 32.3 $ 725.8 486.3 190.9 48.6 $ 1,480.7 1.4% 32.0% 65.2% $ 31.7 23.7 0.3 7.7 1.4% Total $ 2,270.5 100.0% SOURCE: California Department of Finance (2004-2005). State and federal gasoline and diesel taxes are still important – funding about half of transportation spending and raising more than $3 billion each in California annually. However, fuel tax increases have been sporadic and politically difficult to pass, making it hard to maintain revenues in real terms (Table 13). Additionally, this revenue source has become less reliable over time. Even with dramatic increases in vehicle travel, fuel consumption (and therefore real tax revenue) has declined because of increasing vehicle fuel efficiency. - 25 - Table 13 State and Federal Gas Tax Rates (cents per gallon) Year California Federal Total 1950 4.5 1.5 6.0 1951 2.0 6.5 1953 6.0 8.0 1956 3.0 9.0 1959 4.0 10.0 1963 7.0 11.0 1983 9.0 9.0 18.0 1987 9.1 18.1 1990 14.0 14.1 28.1 1991 15.0 29.1 1992 16.0 30.1 1993 17.0 18.4 35.4 1994 18.0 36.4 2003 18.0 18.4 36.4 Total Real (2003) 45.8 46.0 55.1 60.9 63.2 66.1 33.3 29.3 39.6 39.3 39.5 45.1 45.2 36.4 SOURCE: California Department of Transportation. The federal highway program used to be the largest source of federal aid to the states, and the federal share of state and local capital spending on highways reached 46 percent in 1960. But since the mid-1960s, federal money has shifted away from highway development and toward transit, local roads, and operations and maintenance. Federal authority has also devolved to regional transportation agencies and local control. The current mix of transportation financing still represents a primarily pay-as-you-go system. But as gasoline tax revenue and federal funds have eroded, the state has turned to ballot initiatives to fund transportation capital projects (Table 14). In 1990 and 1996, voters approved GO bonds for rail transit ($3 billion) and seismic upgrades of bridges and highways ($2 billion). Californians also approved Proposition 42 in 2002, which earmarked 80 percent of the 6 percent state sales tax on gas to be spent on transportation projects, including highway improvement and repairs, mass transit, and local road and street repairs. (That revenue had previously been allocated to the general fund.) Proposition 42 is estimated to raise about $1.2 billion per year in revenues for transportation. However, the funds can be allocated back to the general fund by a two-thirds majority vote of the Legislature, and this occurred at least partially in each of the subsequent budget years to help address the state’s budget crisis. - 26 - Table 14 State Ballot Measures for Transportation Capital Outlay Funds, 1990-2004 ($ millions) Date Jun-90 Jun-90 Jun-90 Nov-92 Jun-94 Nov-94 Mar-96 Nov-02 Proposition # Amount Real amount proposed proposed (2003 $) 108 116* 122 156 1A 181 192 42+ 1,000 1,250 1,990 2,487 300 375 1,000 1,214 2,000 2,249 1,000 1,124 2,000 2,139 6% sales tax Passed Purpose Y Rail Transit Y Rail Transit Y Seismic N Rail Transit N Seismic N Rail Transit Y Seismic Y Infrastructure * $29.9 million of Proposition 116 was allocated to the Alameda Corridor project, which facilitated shipping container rail transportation. + Proposition 42 allocated most of the existing 6 percent sales tax on gasoline for transportation projects. Although voters have passed bond measures and initiatives to earmark funds for transportation, it is unclear in practice how this will translate into transportation capital funding in the near term. Future Proposition 42 funds are not guaranteed, repayment of loans from the general fund are uncertain, seismic retrofit costs have turned out to be higher than expected, federal fund levels are unknown, and a conversion to ethanol fuel will lower federal apportionments unless legislative action is taken.21 Raising gas taxes will be difficult politically given the current level of gasoline prices and the relatively small amount of money raised by a one cent per gallon increase in the fuel tax. While a large amount of money is still being expended for transportation, funds for new projects are extremely limited, and we may not be adequately planning for the future. Local Revenue Sources The decline in state gas tax revenues and federal funds has also prompted some local governments to seek new funding sources through the primary option at their disposal – a state sanctioned optional sales tax.22 Historically, local governments funded street and road construction predominantly through local general fund revenues (largely from property taxes) and their share of the gasoline tax pass-through from the state. In 1971, state voters also passed a ¼ cent general sales tax on all sales to fund local transit, which is deposited into each county’s 21 Currently the excise tax on gasohol is lower than that on gasoline, with the decrease in excise tax being between 3 and 5.5 cents per gallon depending on the amount of ethanol in the mix. 22 Counties that have passed additional sales taxes for transportation usually pass a ½ cent rate for roads, and in the counties served by BART and in Los Angeles, another ½ cent tax has been passed for mass transit projects. - 27 - Local Transportation Fund; this tax raised about $1 billion for transit operating and capital funds in 1999-2000 (Table 15). Since 1978, twenty counties approved local supplemental sales taxes of between ¼ and 1 percent dedicated for highway, street, road, and transit projects. Table 15 Local Transportation Revenues, 1999-2000 ($ billions) Optional local sales tax (¼ to 1 cent sales tax) Local Transportation Fund (¼ cent sales tax) Transit fares, property taxes & local operating assistance Other local funds 2.6 34.7% 1.0 13.3% 1.4 18.7% 2.5 33.3% Total $ 7.5 NOTE: Other local funds include local general funds, bond proceeds, fines and forfeitures, and road taxes. SOURCE: Legislative Analyst’s Office (2000). The optional county sales taxes are now the largest local revenue source for transportation, constituting one-third of local revenues; in 2003, they nearly equaled state gasoline excise tax revenues. Because much state revenue is distributed with a match requirement, the ability to raise local sales taxes affects the distribution of state transportation funds as well. Getting voter approval for introducing or renewing this funding source has become more difficult since 1995, when the voter threshold shifted from a simple majority to a twothirds supermajority. Bay Area and Southern California counties have been most successful in passing these supplemental sales taxes (Figure 8). Nineteen counties currently have county sales taxes for transportation, an additional 15 counties have tried and failed to pass a tax at least once, and San Benito County had passed a sales tax in 1988 that expired in 1998. Marin and Sonoma Counties recently passed transportation sales taxes in November 2004 after failing to pass taxes in multiple earlier elections, and it has taken other counties several attempts to pass or renew these taxes. - 28 - Figure 8 California Counties That Ever Passed a Local Transportation Sales Tax SOURCE: Surface Transportation Policy Project (2002); updated by authors. Recent state budget shortfalls also affect local transportation funding. Some local government transit districts are facing a loss of funds as part of the Governor’s negotiated deal with local governments. Under this deal, local governments forgo $1.3 billion in local property taxes in each of the next two years in exchange for support of a ballot measure to safeguard local funds in future years. It is clear that local governments are playing a larger role in transportation funding through the local sales taxes. The primary concern raised by this is the new supermajority requirement and the ability of counties to maintain these taxes. There are also geographical equity issues raised by the fact that these local taxes are largely concentrated in coastal communities. Additionally, increasing reliance on sales tax revenue further divorces transport use from transportation financing. Allocating the costs of transport to users of the system encourages more efficient behavior and can reduce negative effects, such as congestion. Forward-thinking strategies on transportation financing that consider the incentives on system use will be crucial to consider as California prepares for its transportation future. - 29 - Conclusion California currently spends about as much as the rest of the country on infrastructure projects, but less on transportation infrastructure and more on water and resources than other states. California’s current level of spending surpasses that of the 1960s, but again, the priorities have shifted. Over the last decade, support for K-12 facilities has increased dramatically. Going forward, there are still important questions to be addressed. Should school districts be more responsible for facilities financing in the aftermath of Proposition 39? Should the state become less reliant on bond financing for school facilities and shift to an annual per pupil allocation of funding? Should revenues be distributed in a way to reflect differences in district wealth? Should state distributions be based more on future predicted growth or current enrollments? In higher education, where facilities represent a relatively small percentage of total higher education spending, questions of overall access are likely to be more pressing. Should admissions criteria be re-examined? Should higher education switch to more year-round programs? How should admissions decisions be made? How should tuition levels be set? California continues to spend more than the national average of its infrastructure dollars on water supply and quality, although spending levels are in line with other Western states. Water users bear most of these costs, but rates are relatively low as a percentage of household income, and most water districts and municipalities have been able to meet their revenue needs. Going forward, the main water financing issues center around water quality and ecosystem restoration. Local governments are largely responsible for ensuring water quality, but because the costs of controlling storm-water runoff are not linked directly to benefits received by specific households, local governments could face a two-thirds vote requirement to pass new fees. Thus local authorities may be faced with clean-up costs without a clear way of paying for them. For ecosystem improvements, the question is whether voters will continue to support state bonds, since contributions by the federal government and water users have been relatively limited. Transportation infrastructure seems to be the main area where California has fallen behind in investment. Today, many more highway dollars are used for maintenance rather than new construction. Transportation revenues are also increasingly allocated to mass transit programs that may or may not be cost-effective. Furthermore, traditional sources of revenue are declining in real terms. Federal and state fuel taxes, which currently raise 36.4 cents per gallon of gasoline, have not increased since 1994, and although Californians are driving more, increased fuel efficiency and higher project costs have further eroded the real value of the fuel tax revenue. Increasingly, highway, road, and transit infrastructure is financed with other taxes, most notably dedicated county sales taxes. Renewal of these sales taxes might now face opposition as vote requirements have changed to require a two-thirds majority for passage or renewal. General sales taxes do not tie road use to the cost of providing roads, nor do they promote the efficient use of transportation infrastructure as much as a user-based gas tax or toll does. Transportation questions go beyond the arithmetic of funding sources. How much of transportation costs should the actual users of transportation pay? How does building new - 30 - highways affect growth and congestion? Should transportation revenues go for roads or mass transit? These questions must be answered as California considers its infrastructure future. Finally, California’s increasing reliance on debt financing in recent years to help solve the state’s budget crisis also limits the state’s options in undertaking new projects. Our current debt load is projected to be about 7 percent for the next five years, higher than the level deemed prudent by credit rating agencies, which can limit our future ability to undertake new projects at the state level. Local governments also are faced with an increasingly restrictive environment for raising new revenues as voter approval is required for a growing list of sources. As new infrastructure projects are examined, these constraints might mean that new options for funding infrastructure will be necessary. - 31 - References Brunner, Eric, and Kim Rueben, Financing New School Construction and Modernization: Evidence from California, Occasional Paper, Public Policy Institute of California, San Francisco, California, June 2001. California Budget Project, Budget Brief: CA’s Public Investment Gap, 1999, available at www.cbp.org/1999/bb990901.html. California Department of Education, J-200 expenditure data, 1959-2002, available at www.cde.ca.gov/ds/fd/fd/. California Department of Finance, Governor’s Budget & Budget Summary, Sacramento, California, 1962-63, 1967-68, 1986-87, 1998-99, 2001-02, 2004-05. California Department of Finance, Chart K-7 and K-8 (General Obligation Bonds) from Governor’s Budget 2004-05, available at www.dof.ca.gov/html/bud_docs/backinfo.htm. California Department of Transportation, Fact Sheet: Important Events in California’s History, available at www.dot.ca.gov/hq/paffairs/about/cthist.htm. California Department of Transportation, Historical Vehicle Miles Traveled data, e-mailed from Luk Lee, 2004. California Postsecondary Education Commission, Fiscal Profiles, 2002, available at www.cpec.ca.gov/completereports/2003reports/FiscalProfiles2002.asp. California State Controller, Counties Annual Report, Cities Annual Report, School Districts Annual Report, Special Districts Annual Report, Streets and Roads Annual Report, Transit Operators & NonTransit Claimants Annual Report, Sacramento, California, 1996-97, 1997-98, 1999-00, 2001-02. California State Controller, Special District data on Total Fixed Assets for 2001 and 2002, emailed from Alice Fong, August 2004. California State Treasurer, “General Fund Supported Debt,” available at www.treasurer.ca.gov/Bonds/gfdebt.pdf, July 1, 2004. Chancellor’s Office, California Community Colleges, Fiscal Data Abstract, Sacramento, California, 1999-00. Dowall, David E., and Jan Whittington, Making Room for the Future: Rebuilding California’s Infrastructure, Public Policy Institute of California, San Francisco, California, 2003. Federal Highway Administration Office of Policy Information, Federal Highway Statistics, Tables HF-202C and VM-201, various yrs, available at www.fhwa.dot.gov/policy/ohpi/hss/ hsspubs.htm Hanak, Ellen, and Mark Baldassare, eds., California 2025: Taking on the Future, Public Policy Institute of California, San Francisco, California, 2005. - 33 - Hanak, Ellen, and Elisa Barbour, Sizing Up the Challenge: California’s Infrastructure Needs, Occasional Paper, Public Policy Institute of California, San Francisco, California, 2005. Legislative Analyst’s Office, A Primer on State Bonds, February 1998, available at www.lao.ca.gov/1998/013098_bonds/0298_state_bonds.html. Legislative Analyst’s Office, California Travels, May 2000, available at www.lao.ca.gov/2000/051100_cal_travels/051100_cal_travels_intro.html. Legislative Analyst’s Office, A New Blueprint for California School Facility Finance, May 2001, available at www.lao.ca.gov/2001/school_facilities/050101_school_facilities.html. Legislative Analyst’s Office, Proposition 42 Analysis, March 2002a, available at www.lao.ca.gov/ballot/2002/42_03_2002.htm. Legislative Analyst’s Office, Water Special Districts: A Look at Governance and Public Participation, March 2002b, available at http://www.lao.ca.gov/2002/water_districts/ Special_Water_Districts.html. Legislative Analyst’s Office, Analysis of the 2004-05 Budget Bill, “Capital Outlay Overview,” February 2004, available at http://www.lao.ca.gov/analysis_2004/cap_outlay/ co_01_ov_anl04.htm#_1_1. Legislative Analyst’s Office, Funding UC Research Facilities, June 2004, available at http://www.lao.ca.gov/2004/uc_fac_fclty/062304_uc_fac_res.htm. Legislative Analyst’s Office, Latest Debt Service Ratio projections, e-mailed from Brad Williams, December 2004. Office of Management and Budget, The Budget for Fiscal Year 2005, Washington, D.C., 2004. Historical Tables 9.6, 12.3. Ransdell, Tim, California’s Share of Federal Formula Grants, 1991-2001, Public Policy Institute of California, San Francisco, California, 2002. Rueben, Kim, and Pedro Cerdán, Fiscal Effects of Voter Approval Requirements on Local Governments, Public Policy Institute of California, San Francisco, California, 2003. Surface Transportation Policy Project, 2002, available at www.transact.org/ca/default.htm. U.S. Bureau of Labor Statistics, Producer Price Index, Materials and Components for Construction, WPUSOP2200, available at www.bls.gov. U.S. Census Bureau, Governments Division, Census of Governments, Compendium of Government Finances and Individual Unit Files, Washington, D.C., 1957-1997; State by Type of Government data files, 2002, available at www.census.gov/govs/www/estimate02.html. U.S. Census Bureau, Population Division, Population Estimates by State, Washington, D.C., 19572003. - 34 - Appendix A: Data Tables Table A1 Historical Per Capita State and Local Capital Outlay and Non-Capital Outlay Spending (real per capita 2003 $), California California Capital Outlay Higher Education K-12 Education Highways Sanitation/Sewer Water Transit Resources/ Comm. Development Other Total State Total Local Total 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 22.5 43.4 51.4 31.0 38.2 28.5 40.4 37.4 39.7 35.5 121.5 126.1 95.4 63.7 53.8 19.8 49.0 80.4 100.7 203.7 166.0 199.2 230.8 185.6 66.5 65.5 83.7 110.0 91.6 156.0 18.5 19.8 22.4 31.3 41.1 44.0 39.1 55.2 58.0 50.2 30.9 56.5 48.3 44.4 32.0 31.1 57.7 76.8 79.3 73.2 -- 1.2 38.5 19.5 5.8 15.4 21.1 43.3 43.9 39.0 31.3 75.5 149.0 73.9 54.5 64.5 78.7 81.8 95.2 137.2 94.3 485.0 176.8 308.2 107.8 629.4 216.6 412.7 109.0 744.7 303.9 440.8 128.2 577.7 191.0 386.7 82.4 374.4 83.5 290.9 90.1 358.9 83.5 275.3 160.8 530.6 131.4 399.2 173.6 658.4 137.7 520.7 173.9 682.4 120.7 561.7 236.3 931.2 160.7 770.5 Non-Capital Outlay Higher Education K-12 Education Highways Sanitation/Sewer Water Transit Resources/ Comm. Development Other Total State Total Local Total 67.0 337.2 54.2 7.9 32.2 -78.9 171.9 467.4 62.0 10.1 45.2 23.2 91.7 212.9 653.5 84.2 13.1 59.9 25.2 107.5 250.5 835.8 85.0 42.0 78.7 34.4 153.0 328.6 753.0 85.4 42.4 75.3 52.8 128.2 336.4 689.2 80.1 56.7 84.2 69.0 149.7 371.6 846.3 113.5 78.1 117.9 80.7 200.7 397.8 970.4 132.9 122.4 135.5 101.7 242.6 362.1 555.5 950.8 1339.5 116.7 176.6 138.6 155.0 153.5 180.4 121.8 153.0 253.8 300.4 685.4 1038.3 1521.2 2025.8 2061.8 2190.1 2813.3 3522.9 3533.5 4723.8 1262.8 1909.8 2677.6 3505.2 3527.5 3655.4 4622.2 5626.2 5630.8 7584.1 323.8 587.7 878.1 1066.7 1242.1 1331.3 1624.0 2077.3 2078.4 3036.7 939.0 1322.2 1799.5 2438.5 2285.4 2324.1 2998.3 3548.8 3552.4 4547.4 NOTE: 2002 data are augmented with additional local capital outlay data from the State Controller’s Office. See Appendix B for a description of the methodology. SOURCES: U.S. Census Bureau, Governments Division (1957-2002); California State Controller (2004); U.S. Census Bureau, Population Division (1957-2003); Bureau of Labor Statistics price index. - 35 - Table A1 continued Historical Per Capita State and Local Capital Outlay and Non-Capital Outlay Spending (real per capita 2003 $), United States United States Capital Outlay Higher Education K-12 Education Highways Sanitation/Sewer Water Transit Resources/ Comm. Development Other Total State Total Local Total 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 13.5 76.6 145.4 18.0 20.9 3.3 19.8 24.3 77.6 179.0 22.7 23.4 2.3 35.8 55.4 90.2 214.7 25.9 24.0 7.4 32.3 50.7 82.2 210.0 40.4 23.1 8.4 54.9 28.3 57.2 126.3 49.4 20.6 16.9 37.3 24.5 47.5 120.5 43.1 24.5 20.4 42.2 35.5 67.3 163.7 49.2 35.4 24.0 48.4 43.6 103.6 176.9 51.5 36.3 27.6 51.5 44.2 130.8 176.0 44.5 34.1 29.4 55.6 62.2 187.4 233.3 47.9 44.0 40.6 75.4 54.5 352.1 144.1 208.0 65.5 430.7 185.1 245.7 101.1 550.9 262.4 288.5 119.4 589.3 260.1 329.2 118.4 454.4 170.7 283.7 120.3 442.9 155.6 287.3 147.1 570.7 214.8 355.9 158.9 650.0 238.7 411.3 162.7 677.3 233.4 444.0 226.7 917.5 317.0 600.5 Non-Capital Outlay Higher Education K-12 Education Highways Sanitation/Sewer Water Transit Resources/ Comm. Development Other Total State Total Local Total 41.1 254.7 72.7 7.3 23.3 14.8 40.0 79.4 377.4 86.7 9.9 29.8 17.5 51.7 147.7 537.1 102.0 31.5 34.8 21.8 83.7 219.2 712.0 113.7 42.1 40.5 30.5 84.2 233.1 662.9 105.7 45.5 43.6 39.4 87.0 251.1 653.8 108.4 55.9 51.2 53.6 108.0 311.4 838.6 138.6 75.8 71.2 67.5 140.5 356.9 371.1 490.6 978.4 1022.6 1261.8 143.7 145.3 173.8 107.6 118.2 130.8 81.9 87.8 101.2 76.2 74.1 91.5 169.0 181.6 223.6 521.0 726.6 899.8 1410.4 1580.7 1743.0 2258.0 2926.5 3026.2 3826.9 975.1 1378.9 1858.4 2652.6 2797.9 3024.9 3901.6 4840.3 5026.9 6300.2 328.2 468.9 640.2 973.6 1125.1 1247.5 1600.5 2136.1 2229.6 2910.4 646.9 910.0 1218.2 1679.0 1672.7 1777.4 2301.0 2704.2 2797.3 3389.7 NOTE: 2002 data are augmented with additional local capital outlay data from the State Controller’s Office. See Appendix B for a description of the methodology. SOURCES: U.S. Census Bureau, Governments Division (1957-2002); California State Controller (2004); U.S. Census Bureau, Population Division (1957-2003); Bureau of Labor Statistics price index. - 36 - Table A2 Total Capital Outlay and Non-Capital Outlay Spending, 1996-1997 ($ millions) California Higher Education K-12 Education Highways Sanitation/Sewer Water Transit Resources/ Comm. Development Other Total Capital spending 1,220.0 3,094.3 2,814.4 1,782.7 2,437.1 1,349.4 2,926.4 Percent State capital of total spending capital outlay 5.8 893.6 14.8 3.6 13.4 1,531.6 8.5 4.1 11.6 0.0 6.4 0.0 14.0 558.7 Local capital spending 326.3 3,090.6 1,282.8 1,778.6 2,437.1 1,349.4 2,367.7 Non-capital Capital to spending non-capital spending ratio 11,127.4 0.11 29,216.0 0.11 3,586.6 0.78 4,257.9 0.42 4,715.6 0.52 3,743.2 0.36 7,799.2 0.38 5,344.6 25.5 716.9 4,627.7 108,579.4 $20,968.9 100.0 $3,708.5 $17,260.4 $173,025.4 0.05 0.12 United States Higher Education K-12 Education Highways Sanitation/Sewer Water Transit Resources/ Comm. Development Other Total Capital spending 11,279.1 33,411.4 44,961.7 11,367.3 8,720.4 7,499.2 14,187.9 Percent State capital of total capital outlay 6.5 9,787.1 19.3 1,127.7 26.0 32,726.4 6.6 615.4 5.0 28.8 4.3 2,237.5 8.2 3,221.6 Local capital 1,492.0 32,447.9 12,235.4 10,751.9 8,691.6 5,261.8 10,966.2 Non-capital Capital to spending non-capital spending ratio 94,781.9 0.12 261,187.0 0.13 37,100.2 1.21 30,182.0 0.38 22,415.9 0.39 18,936.7 0.40 46,374.6 0.31 41,560.1 24.0 9,855.0 31,540.9 772,919.9 $172,987.2 100.0 $59,599.5 $113,387.7 $1,283,898.1 0.05 0.13 SOURCES: U.S. Census Bureau, Governments Division (1997). - 37 - Table A3 Total Capital Outlay and Non-Capital Outlay Spending, 2001-2002 ($ millions) California Higher Education K-12 Education Highways Sanitation/Sewer Water Transit Resources/ Comm. Development Other Total Capital spending 1,223.6 7,021.4 5,379.0 1,731.5 2,525.0 1,345.7 4,731.7 Percent of total capital outlay 3.8 21.9 16.8 5.4 7.9 4.2 14.7 State capital spending 688.1 0.0 2,989.5 4.7 0.0 0.0 848.0 Local capital spending 535.5 7,021.4 2,389.5 1,726.7 2,525.0 1,345.7 3,883.7 Non-capital Capital to spending non-capital spending ratio 19,152.1 0.06 46,181.5 0.15 6,087.8 0.88 5,344.0 0.32 6,219.5 0.41 5,276.1 0.26 10,358.6 0.46 8,147.9 25.4 $32,105.8 100.0 1,010.5 7,137.4 162,865.6 $5,540.8 $26,565.1 $261,485.1 0.05 0.12 United States Higher Education K-12 Education Highways Sanitation/Sewer Water Transit Resources/ Comm. Development Other Total Capital spending 17,647.9 53,150.8 66,169.7 13,596.6 12,493.6 11,513.8 21,389.8 Percent of total capital outlay 6.8 20.4 25.4 5.2 4.8 4.4 8.2 State capital 15,365.2 490.0 49,271.5 678.4 222.2 3,911.2 4,830.1 Local capital 2,282.7 52,660.8 16,898.1 12,918.3 12,271.3 7,602.7 16,559.7 Non-capital Capital to spending non-capital spending ratio 139,162.3 0.13 357,922.1 0.15 49,297.8 1.34 37,104.4 0.37 28,708.5 0.44 25,954.4 0.44 63,427.3 0.34 64,294.1 24.7 15,150.5 49,143.7 1,085,540.7 $260,256.3 100.0 $89,919.0 $170,337.3 $1,787,117.6 0.06 0.15 NOTE: U.S. Census Bureau data are augmented with additional local capital outlay data from the State Controller’s Office. See Appendix B for a description of the methodology. SOURCES: U.S. Census Bureau, Governments Division (2002); California State Controller (2004). - 38 - Table A4 State Budget Capital Outlay Expenditures over time (actual $ millions, real per capita 2003 $) Transportation Resources Higher Education K-12 Education Corrections Health & Human Services General Govt & Other Total 1965-66 actual 659.38 308.63 133.51 112.40 7.63 7.46 1965-66 real per capita 159.84 74.82 32.36 27.25 1.85 1.81 1984-85 actual 892.97 73.15 74.75 443.24 86.84 14.14 1984-85 real per capita 48.34 3.96 4.05 24.00 4.70 0.77 2002-03 2002-03 actual real per capita 2301.95 64.87 537.00 15.13 453.55 12.78 7263.10 204.68 9.96 0.28 1.90 0.05 37.31 9.04 17.15 0.93 39.80 1.12 $1,266.3 $307.0 $1,602.2 $86.7 $10,607.3 $298.9 NOTE: K-12 education capital outlay is state money given as local assistance to fund local school district capital outlay. Expenditures do not include non-governmental cost funds. SOURCES: California Department of Finance (1967-1968, 1986-1987, 2004-2005). - 39 - Table A5 California State Budget and Local Controller data, 1999-2000 K-12 Education Operating Expenditures Capital Outlay Local Assistance School Districts 39,784 5,000 State Budget 218 1 32,863 Total 40,002 5,001 Capital/ Operating 13% Higher Education Community College Districts Operating Expenditures 4,429 Capital Outlay 219 Local Assistance State University Total Budget Funds * 10,312 436 3,087 8,214 1,378 22,954 2,033 Capital/ Operating 9% Water Cities Special Local State Districts Total Budget Water Supply & Drinking Water Operating Expenditures 2,127 Capital Outlay 571 Local Assistance Sewer & Other Water Quality Operating Expenditures 1,795 Capital Outlay 754 Local Assistance 3,763 2,253 1,274 706 + 5,890 2,824 3,069 1,460 332 460 93 339 230 Total 6,223 3,284 3,408 1,460 Capital/ Operating 53% 43% Highways, Streets, Roads Operating Expenditures Capital Outlay Support Capital Outlay Local Assistance Local Entities State Budget 2,165 1,888 1,026 887 1,774 860 Total 3,191 887 3,662 Capital/ Operating 90% Transit Operating Expenditures Capital Outlay Local Assistance Local Entities State Budget 3,891 2,523 89 45 453 Total 3,979 2,568 Capital/ Operating 65% * See Appendix B for a definition of University Funds. + Special district sewer capital outlay is estimated; see Appendix B for the methodology. SOURCES: California Department of Finance (2001-2002); California State Controller (1999-2000); Chancellor’s Office (1999-2000). - 40 - Appendix B: Data Sources and Methods Census of Governments Fiscal information for state and local government totals in California and the United States was obtained from the U.S. Census Bureau, Governments Division, Census of Governments, Vol. 4, Compendium of Government Finances, 1957, 1962, 1967, 1972, 1977, 1982, 1987, 1992, and 1997, and 2002 data files available at www.census.gov/govs/www/ index.html. This information contains fiscal data for all state and local governments in the United States including states, counties, municipalities and townships, school districts, and special districts surveyed by the U.S. Census Bureau for the U.S. Department of Commerce. To obtain real figures, we deflate by the Producer Price Index for Materials and Components for Construction provided by Bureau of Labor Statistics, WPUSOP2200. To obtain per capita figures, we divide by California and United States annual Population Estimates and ten-year Census counts provided by the U.S. Census Bureau, Population Division. Price indices and population estimates used in a given fiscal year represent the later year of the fiscal year. Census of Governments special district capital outlay data for 2002 were incomplete, because of a reporting change of fixed assets by the California State Controller. To correct for this problem, we have added in $3,042,672,000 to the special district capital outlay totals and in the respective sectors of Resources/Community Development, Water, Sanitation/Sewer, and Other for both California and the United States. This amount was compiled from data supplied by the California State Controller for Total Fixed Assets by special district type in 2001 and 2002; we calculated the change in fixed assets between the two years and used these totals to augment what was reported by the Census of Governments for California and United States special district capital outlay. Census data are useful for comparisons of total, state, and local expenditures over time and between California and the rest of the United States. However, certain sector totals for capital outlay cannot be tracked consistently over time. For instance, the “Water supply” expenditure category only includes local government expenditures prior to 1977, not state or federal water supply expenditures. Additionally prior to 1982 the Compendium of Government Finances does not list capital outlay expenditures for Police protection, Fire protection, Health, Public Welfare, or Sanitation. These expenditures can be calculated from raw data files in 1972 and 1977, but the 1960s raw files do not allow this calculation. Thus to avoid differences in definitions and incomplete comparisons, we do not use the Census of Governments data to compare expenditures by function over time, but it is useful for total expenditure comparisons. California State Budget Fiscal information on more detailed state-level expenditures and revenues was obtained from the California Department of Finance, Governor’s Budget, 1962-63, 1967-68, 1986-87, 200001, and 2004-05. The budget of a given fiscal year contains actual expenditures for the fiscal year two years previous (i.e., the 2004-05 budget contains 2002-03 actual expenditures). - 41 - For total expenditures we use numbers reported in the Budget Appendix Schedule 9. These totals include General, Special, Bond, and Federal Funds but do not include reimbursements from other levels of government or non-governmental cost funds (i.e., student fees for UC, privately raised funds for UC and CSU, certain transportation funds, and other funds that are not included in budget totals). For expenditures of individual function categories (i.e., Transportation, Education), we have added non-governmental cost fund expenditures to reported budgetary expenditures by reviewing Department and Agency budgets. Reimbursements remain excluded. In the case of higher education, the state budget lists revenue sources that are not in fact collected at the state level. Appendix Table A5 refers to these as “University Funds”; they include Higher Education Fees and Income, Nonfederal University Funds, Nonfederal Extramural Funds, Hastings Fund, Hastings Extramural Fund, Other Unclassified Funds (State Operations & Capital Outlay), CSU Colleges Dormitory Revenue Fund, CSU Parking Revenue Fund, State University Continuing Education Revenue Fund, and the Special Deposit Fund. The following state departments are included in each function category listed in Appendix Table A5: Transportation: California Transportation Commission (Transit), Department of Transportation (excluding Aeronautics and Transportation Planning and Administration, which cannot be allocated between Highways and Transit), High-Speed Rail Authority (Transit), Special Transportation Programs (Transit) Water Supply and Drinking Water: Department of Water Resources, Department of Health Services Office of Drinking Water Sewer and Water Quality: State Water Resources Control Board Higher Education: California Postsecondary Education Commission, University of California, Hastings College of Law, California State University, Board of Governors of the California Community Colleges, California Student Aid Commission Education: Department of Education, State Contributions to the State Teachers’ Retirement System, School Facilities Aid Program, Commission on Teacher Credentialing In 1962-63 and 1967-68 the budget format is different. General, Special, and Bond Fund capital expenditures are taken from the Capital Outlay Budget Schedule 1 for each category. Federal Fund expenditures are taken from Schedule 2. Other funds not included in overall budget totals are not included. All capital expenditures including the State Building Program, District Fair Construction Program, State Highway Program, Wildlife Conservation Program, Parks and Recreation Acquisition and Development Program, and California Water Facilities Program are included. For K-12 education, local assistance “Payments to Schools Districts” from the State School Building Aid Fund, Public School Building Loan Fund, and State School Construction Fund are included as capital outlays. - 42 - California Local Governments Fiscal information on more detailed local-level expenditures and revenues was obtained from the California State Controller’s Office Annual Financial Reports for Counties, Cities, Special Districts, School Districts, Streets and Roads, and Transit Operators, 1999-00, and the Chancellor’s Office of California Community Colleges Fiscal Data Abstract, 1999-00. Appendix Table A5 details local government data in each function category for operating expenditures and capital outlay. K-12 school district expenditures are reported in the School Districts Annual Report; capital outlay is reported in Figure 12, and operating expenditures are total expenditures minus capital outlay. Higher education community college district expenditures are reported in the Chancellor’s Office Fiscal Data Abstract; the capital outlay total is reported in Table VII, and operating expenditures are “total expenditures and other outgo” minus capital outlay. Water local expenditure data are reported in the Cities Annual Report and Special Districts Annual Report; capital outlay and operating expenditures are reported in Table 7 for cities, and capital outlay (classified as “additions to fixed assets”) and operating expenditures are reported in Tables 22 and 23 for special districts. Highways, streets, and roads expenditures are reported in the Streets and Roads Annual Report; capital outlay (classified as “construction and rights of way”) is reported in Figure 1, and operating expenditures are calculated as total expenditures minus capital outlay. Transit expenditures are reported in the Transit Operators and Non-Transit Claimants Annual Report; capital outlay (classified as “capital additions to equity”) is reported in Figure 5, and operating expenses are reported in Figure 10. - 43 - PUBLIC POLICY INSTITUTE OF CALIFORNIA Board of Directors Thomas C. Sutton, Chair Chairman & CEO Pacific Life Insurance Company Edward K. Hamilton Chairman Hamilton, Rabinovitz & Alschuler, Inc. Gary K. Hart Founder Institute for Education Reform California State University, Sacramento Arjay Miller Dean Emeritus Graduate School of Business Stanford University Ki Suh Park Design and Managing Partner Gruen Associates Constance L. Rice Co-Director The Advancement Project Walter B. Hewlett Director Center for Computer Assisted Research in the Humanities David W. Lyon President and CEO Public Policy Institute of California Raymond L. Watson Vice Chairman of the Board Emeritus The Irvine Company Carol Whiteside President Great Valley Center Cheryl White Mason Vice-President Litigation Legal Department Hospital Corporation of America Advisory Council Clifford W. Graves General Manager Department of Community Development City of Los Angeles Daniel A. Mazmanian C. Erwin and Ione Piper Dean and Professor School of Policy, Planning, and Development University of Southern California Elizabeth G. Hill Legislative Analyst State of California Dean Misczynski Director California Research Bureau Hilary W. Hoynes Associate Professor Department of Economics University of California, Davis Andrés E. Jiménez Director California Policy Research Center University of California Office of the President Norman R. King Executive Director San Bernardino Associated Governments Rudolf Nothenberg Chief Administrative Officer (Retired) City and County of San Francisco Manuel Pastor Professor, Latin American & Latino Studies University of California, Santa Cruz Peter Schrag Contributing Editor The Sacramento Bee James P. Smith Senior Economist RAND Corporation PUBLIC POLICY INSTITUTE OF CALIFORNIA 500 Washington Street, Suite 800 O San Francisco, California 94111 Phone: (415) 291-4400 O Fax: (415) 291-4401 www.ppic.org O info@ppic.org" } ["___content":protected]=> string(106) "

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" ["_permalink":protected]=> string(98) "https://www.ppic.org/publication/understanding-infrastructure-financing-for-california/op_605saop/" ["_next":protected]=> array(0) { } ["_prev":protected]=> array(0) { } ["_css_class":protected]=> NULL ["id"]=> int(8486) ["ID"]=> int(8486) ["post_author"]=> string(1) "1" ["post_content"]=> string(0) "" ["post_date"]=> string(19) "2017-05-20 02:38:02" ["post_excerpt"]=> string(0) "" ["post_parent"]=> int(3697) ["post_status"]=> string(7) "inherit" ["post_title"]=> string(10) "OP 605SAOP" ["post_type"]=> string(10) "attachment" ["slug"]=> string(10) "op_605saop" ["__type":protected]=> NULL ["_wp_attached_file"]=> string(14) "OP_605SAOP.pdf" ["wpmf_size"]=> string(6) "958300" ["wpmf_filetype"]=> string(3) "pdf" ["wpmf_order"]=> string(1) "0" ["searchwp_content"]=> string(102795) "Occasional Papers Understanding Infrastructure Financing for California Shelley de Alth Kim Rueben June 2, 2005 The California 2025 project www.ca2025.org, conducted with support of the William and Flora Hewlett Foundation, addresses issues that will affect the state of the State in 2025. The Technical Report series provides more information on topics discussed in chapters of the project’s major report, California 2025: Taking on the Future (Hanak and Baldassare, eds., PPIC, 2005). Public Policy Institute of California The Public Policy Institute of California (PPIC) is a private operating foundation established in 1994 with an endowment from William R. Hewlett. The Institute is dedicated to improving public policy in California through independent, objective, nonpartisan research. PPIC's research agenda focuses on three program areas: population, economy, and governance and public finance. Studies within these programs are examining the underlying forces shaping California’s future, cutting across a wide range of public policy concerns, including education, health care, immigration, income distribution, welfare, urban growth, and state and local finance. PPIC was created because three concerned citizens – William R. Hewlett, Roger W. Heyns, and Arjay Miller – recognized the need for linking objective research to the realities of California public policy. Their goal was to help the state’s leaders better understand the intricacies and implications of contemporary issues and make informed public policy decisions when confronted with challenges in the future. David W. Lyon is founding President and Chief Executive Officer of PPIC. Thomas C. Sutton is Chair of the Board of Directors. Copyright © 2005 by Public Policy Institute of California All rights reserved San Francisco, CA Short sections of text, not to exceed three paragraphs, may be quoted without written permission provided that full attribution is given to the source and the above copyright notice is included. PPIC does not take or support positions on any ballot measure or on any local, state, or federal legislation, nor does it endorse, support, or oppose any political parties or candidates for public office. Research publications reflect the views of the authors and do not necessarily reflect the views of the staff, officers, or Board of Directors of the Public Policy Institute of California. Summary Over the last decade, many observers have questioned whether or not California’s future is endangered by a lack of infrastructure spending. Answering this question requires a basic understanding of current levels of infrastructure financing and spending patterns. It is also important to consider how these levels and patterns have changed over time and how they compare to those in the rest of the country. California spending on infrastructure was $931 per capita in 2002, about the same level of spending as the rest of the country. This figure reflects a recent increase in capital expenditures that now resembles the levels of the 1950s and 1960s, the heyday of California public projects. However, our current spending priorities differ from those of other states. In particular, more of our capital spending is used for water supply, natural resources, and community development projects, and a smaller portion is dedicated to highway and road projects. Until recently, California was also spending substantially less on education facilities, but from 1997 to 2002, California increased such spending 70 percent in real per capita terms. This money may provide less than it used to, largely because the costs of building have also increased. Overall, local governments in California provide more infrastructure than their counterparts in the nation as a whole. However, this does not mean that the money is raised locally. Proposition 13, passed in 1978, hindered local government’s ability to raise money through the property tax, and local governments receive a substantial amount of pass-through money from the federal and state government. Yet local governments have also found new ways to raise capital funds, including optional sales taxes for transportation (passed at the county level) and an increased reliance on local bonds for school facilities. State revenue sources for infrastructure projects have also changed over time. Currently, very little general fund revenue is used directly for infrastructure projects. This is in part due to the expanded use of the general fund to pay for education operating expenditures. Instead, state capital projects are largely financed with general obligation (GO) and revenue bonds. In 2002-2003, bond funds made up over three-quarters of state capital outlay sources, a majority of which was used to finance school facilities. However, the ability to pass large bonds to finance projects has been severely curtailed by an estimated debt service ratio of around 7 percent for the next five years. A prudent debt ratio—general fund debt payments divided by general fund revenues—is usually thought to be 6 percent or less. This increased debt service level is partly due to the passage of recent large GO bonds for education, resources, and housing. Additionally, the state refinanced much of its outstanding debt to avoid current payment obligations, and voters authorized $15 billion for the Economic Recovery Bond to pay off short-term debt to balance the state budget. Voter support for state and local bonds has greatly increased facility funding on schools. Since 1998, the state has passed over $28 billion in GO bonds to finance K-12 school construction and modernization. The state also revamped its distribution system in 2000, creating a waiting list of projects for school districts that applied after a given bond’s funds were allocated. In addition, the state has earmarked a portion of these funds for districts with overcrowded -i- schools. These changes have made it easier for large urban school districts to qualify for state matching funds. In addition, voters approved Proposition 39 in 2000, a measure that lowered the voter threshold for passing local school bonds from two-thirds to 55 percent. Thus far, school districts have approved over $20 billion in new funds, about half of which would not have been approved if the two-thirds supermajority were required. Yet some concerns remain about the distribution of these funds and whether or not they are going to the districts with the most urgent needs. Capital expenditures for higher education have also increased dramatically. Over the last four years, almost $4 billion of state general obligation bonds have been approved. In addition, UC and CSU have attracted private funds for capital projects. Following the passage of Proposition 39, community college districts also approved over $9 billion in local bonds. However, capital spending makes up only 9 percent of higher education costs, and recent state budget cuts have affected operating budgets dramatically, resulting in higher student fees. Even so, California public colleges remain some of the most affordable in the country, and the fee hikes partially reflect the fact that fees had been flat for eight years prior to 2003. In California, water infrastructure has historically been built through large-scale federal and state programs financed largely with user fees. Environmental sustainability and habitat restoration have received increasing emphasis and bond funding, but affordable water for agriculture and a growing population are still top priorities. Collaborative arrangements like CALFED, which bring an array of concerned parties to the table, seek on-going water supply solutions by following a “beneficiary pays” principle. Growing concerns, however, include the ability of local governments to ensure high-quality water, manage storm water, and avoid waterway pollution. Although federal funds historically have been used to provide clean water, the ultimate responsibility for this may rest with local governments who, given the increasing requirement for voter approval for general fees and assessments, may be left responsible for costly cleanups with no clear source of revenue. California spending for new transportation projects has declined relative to previous levels and to those in the rest of the country. The traditional sources of revenue, the federal and state gasoline taxes, are not indexed to inflation or the cost of gasoline and have eroded over time. Transportation funding has relied increasingly on sales tax revenues, especially at the county level. Because the tax is levied on all residents and on all goods, this arrangement weakens the link between those who pay for transportation and those who use it. These taxes now face an increased voter approval requirement for passage and renewal. In addition, increasing shares of transportation revenues are going to maintenance and mass transit projects. In November 2002, voters passed Proposition 42, which earmarks the sales tax on gasoline for transportation projects, but recent funding cuts and borrowing from transportation funds have curtailed infrastructure projects. Although transportation funding has fallen in recent years, funding mechanisms that return to a user-based approach, such as gas tax increases and toll collection, could be used to pay for new roads. Going forward, it will be important for Californians to decide which programs are worth funding and how to finance them. These challenges are heightened by two major considerations. First, local governments are increasingly responsible for capital projects, and coordination efforts will become more complicated. Second, as voters continue to make policy - ii - at the ballot box, it will become increasingly important for them to understand how their decisions affect budget trade-offs related to infrastructure funding and other spending priorities. - iii - Contents Summary Figures Tables Acknowledgments PAYING FOR CALIFORNIA’S INFRASTRUCTURE Infrastructure Financing Methods Local Financing Infrastructure Spending Patterns Spending from State Budget Funds Federal Transfers for Infrastructure K-12 EDUCATION HIGHER EDUCATION WATER SUPPLY AND QUALITY Water Quality TRANSPORTATION Local Revenue Sources Conclusion References Appendix A: Data Tables Appendix B: Data Sources and Methods Census of Governments California State Budget California Local Governments -v- i vii ix xi 1 1 3 4 6 9 11 15 19 22 23 27 30 33 35 41 41 41 43 Figures Figure 1 Figure 2 Figure 3 Figure 4 Figure 5 Figure 6 Figure 7 Figure 8 Per Capita State and Local Capital Outlay Expenditures, 1957-2002 California versus U.S. State and Local Capital Outlay, 1997 and 2002 State Capital Outlay Expenditures, 1965-1966 and 2002-2003 Distribution of State General Obligation Bonds for Infrastructure, 1972– 2004 California’s Debt Service Ratio, 1991-1992 to 2009-2010 California per Pupil School Infrastructure Spending, 1959-2002 California versus U.S. Real Capital Outlay on Highways (per 1000 VMT) California Counties That Ever Passed a Local Transportation Sales Tax - vii - Tables Table 1 Table 2 Table 3 Table 4 Table 5 Table 6 Table 7 Table 8 Table 9 Table 10 Table 11 Table 12 Table 13 Table 14 Table 15 State Bond Types, Typical Uses, and Outstanding Amounts State Revenue Sources for Infrastructure Financing Federal Grants for Major Physical Capital Investment State K-12 Education General Obligation Bonds, 1974-2004 Local K-12 School Facility Bonds since Proposition 39 State Higher Education General Obligation Bonds, 1972-2004 Distribution of Recent State Bond Funds to Higher Education System State Capital Outlay Revenue for Higher Education, 1996-1997 through 2000-2001 Local Community College Facility Bonds since Proposition 39 State Water General Obligation Bonds, 1972-2004 Recent Water-Related State General Obligation Bonds State Transportation Revenues for Capital Outlay, 2002-2003 State and Federal Gas Tax Rates State Ballot Measures for Transportation Capital Outlay Funds, 1990-2004 Local Transportation Revenues, 1999-2000 - ix - Acknowledgments Funding for this project was generously provided by the William and Flora Hewlett Foundation as part of the Public Policy Institute of California’s California 2025 project. We wish to thank many people who provided valuable feedback on an earlier draft of this report and guidance as we delved into the budget and Controller data. Multiple analysts from the Legislative Analyst’s Office reviewed this report and advised us in our research. These include Dana Curry, Mark Newton, and Mac Taylor. Henry Wulf, Donna Hirsch, Jeffrey Little, and Steve Poyta of the U.S. Census Bureau, Governments Division answered our questions and confirmed that capital data were missing for some special districts in 2002. Alice Fong and Anita Tomasovitch of the State Controller’s Office helped us understand why information was missing and provided us with additional information for 2002 to help us augment the Census data. Ellen Hanak (Public Policy Institute of California) provided expertise on water topics and offered helpful guidance for the overall analysis. Finally, we would like to thank Peter Richardson for his excellent editorial skills. Any remaining errors in consolidation of the numbers or interpretation are our own. - xi - Paying for California’s Infrastructure As a first step toward understanding California’s infrastructure needs over the next two decades, this paper examines how California’s state and local governments pay for projects and services. It also examines spending levels and priorities now and how they compare to those in earlier periods and in the rest of the country. Finally, it summarizes recent changes in infrastructure financing generally and in four specific sectors —K-12 education, higher education, water supply and quality, and transportation —and how California’s decisions have been affected by the ongoing state budget crisis. Infrastructure Financing Methods There are three basic ways to pay for infrastructure: pay-as-you-go, leasing and private provision, and borrowing. Under pay-as-you-go financing, the government pays for a project out of current revenues. No borrowing occurs, and no interest is paid. This approach limits spending to cash on hand and therefore renders many large projects infeasible. Currently, California uses pay-as-you-go funding principally from federal subventions and transfers, which are distributed on a revenue-sharing basis. Another way to provide infrastructure is for the government to contract with the private sector. Under this approach, private firms may provide services directly to the general public, such as with the provision of waste disposal services; or the government can lease public property to private companies, allow them to pay for improvements, and then receive the improved property at the end of the lease agreement. Airport parking lots, for example, are often financed this way. Much of California’s infrastructure financing is based on borrowing. By issuing bonds and paying them off over 20 or 30 years, governments can undertake large projects that could not be paid for out of current revenues. Interest payments on these bonds can double the nominal cost of a project, but the cost in real dollars is lower. For large capital projects, borrowing has the added advantage of matching the long-term costs of such projects to their long-term benefits. In effect, the various generations that will benefit from an infrastructure project contribute to its financing. Infrastructure borrowing is done with general obligation (GO) or revenue bonds. When the state or local government issues GO bonds, it pledges to use its general revenues to pay back the interest and principal, and this debt is backed by the full faith and credit of the issuing government. Revenue bonds, in contrast, are paid back with a revenue stream generated from the infrastructure project itself—for example, tolls generated from a toll road or water fees for a pipeline project—or with special assessments for specific projects. The interest rate for GO bonds depends on the economic and fiscal health of the issuing government; for revenue bonds, rates reflect the expected profitability of the project. At the state level, GO bonds require a simple majority vote; local GO bonds generally require approval from a supermajority in that jurisdiction, with vote requirements varying by the use of the bond revenue. -1- GO bonds can be separated into two types: self-liquidating and nonself-liquidating. Self-liquidating bonds are backed by project-generated revenue streams (such as mortgages for veterans’ housing) and are generally not included when calculating debt-service ratios. Nonself-liquidating bonds are paid back with general fund revenues (Table 1). We have included the Economic Recovery Bond, which was passed in March 2004 and allows the government to borrow up to $15 billion, in the category of nonself-liquidating debt even though it will be repaid with dedicated sales tax revenues because the services these revenues would have otherwise provided must now be funded with other revenues.1 In addition, the Economic Recovery Bond will be included in estimating California’s future debt load, and the state is responsible for repayment from the general fund if the dedicated sales tax revenues are not adequate. Table 1 State Bond Types, Typical Uses, and Outstanding Amounts ($ billions) Types of bonds Uses State pays debt service Voter approval required Amount outstanding 12/97 Amount outstanding 7/04 General Education facilities, obligation seismic retrofit, (nonself- parks, water projects, liquidating) Economic Recovery Bond General Veterans’ housing, obligation (self- 1959 California liquidating) water debt Revenue bonds State Water Project additions, college dorms, non-public projects Lease-payback Prisons, college revenue bonds facilities, state office buildings Y N N Y Y $14.9 $43.9 Y 3.8 2.2 N 22.2 10.9 N 6.4 7.3 SOURCES: Legislative Analyst’s Office (1998) and California State Treasurer (2004). Revenue bonds are paid for with specific funds and are not backed by the full faith and credit of the state; thus they do not require voter approval. Lease-payback revenue bonds, however, are a subset of revenue bonds that mirror a lease-financing agreement. The debt is used to construct a government-owned facility, and the debt repayment is seen as equivalent to what the government would have needed to pay in rental costs for the space if they had leased it from the private sector. The bond costs are paid for by general fund revenue. These bonds do 1 This categorization of the Economic Recovery Bond is open for interpretation. For instance the State Treasurer’s Office classifies the bond as self-liquidating, since it is not repaid from the general fund. -2- not require voter approval because the courts have ruled that the lease revenue mechanism does not create constitutional debt but is equivalent to a rental obligation. However, the payments are included by rating agencies in the calculation of California’s debt ratio. State general obligation debt is mainly repaid with general fund revenues from existing tax sources. Because this repayment is not explicitly linked to higher taxes, voters are not always aware that new projects will lead to either new taxes or spending cuts in other parts of the budget. As the state becomes more reliant on debt financing, maintaining future spending on operations may be threatened because of the need to pay off the existing debt burden. Local Financing Local governments also finance infrastructure through bonds and dedicated revenue streams. However, when local governments issue general obligation bonds they are usually repaid with voter-approved property tax increases. Local revenue bonds – used extensively for water and sewer projects – are repaid with revenues from services, local sales and parcel taxes, developer and user fees, and benefit assessments. These myriad of revenue sources are also used to provide some spending directly on infrastructure projects, most notably local sales tax revenues for transportation projects. Local governments also receive state and federal money that is passed through to local governments for local projects in a variety of sectors. Over the last generation, statewide ballot initiatives have limited local governments’ ability to raise tax revenue.2 Passed in 1978, Proposition 13 capped the property tax rate at 1 percent, limited changes in property value assessments to when property is sold, and required a two-thirds majority for the passage of special taxes. In 1986 voters approved a statutory measure that required voter approval (a simple majority) for passing other general taxes. Some counties have also passed sales taxes for transportation projects. Initially, these sales taxes required approval by a majority of voters and were considered general taxes, but the courts have decided that such taxes are special taxes and therefore now require a two-thirds supermajority for passage or renewal. User fees and special assessments are also used to provide infrastructure for local governments. These fees may vary with consumption (as with fees for electricity or water) or may be assessed as a flat monthly charge. User fees do not require voter approval if they do not exceed the “reasonable cost of providing service.” User fees that exceed a reasonable cost require the same level of voter approval as a special assessment, which local governments can levy for public-benefit-related services like flood control and streetlights. Following the passage of Proposition 218 in 1996, special assessments require a two-thirds majority of voters or a simple majority of property owners for passage. There are ongoing debates and court battles over the differences between user fees, special assessments, special taxes, and general taxes, as well as what is a “reasonable” cost for a service, but it is clear that local governments increasingly face the need for public approval to carry out new or ongoing projects. The one area in which raising new funds has become easier for local governments in recent years is K-14 education. In November 2000, voters approved Proposition 39, which 2 For more information on these statewide limitations on local revenues see Rueben and Cerdán (2003). -3- decreased the supermajority requirement for local school bond measures from two-thirds to 55 percent.3 Although there is talk of statewide initiatives to lower the passage rate for other types of local GO bond measures, none has been approved so far. Finally, local governments have also relied on development fees for infrastructure financing. The local government can negotiate these fees while approving new developments, which are asked to bear the burden for new services. However, this approach is more difficult to use if local governments wish to build new infrastructure in existing areas. Infrastructure Spending Patterns Infrastructure spending in California has varied over time as the result of changes in public attitudes, revenue availability, and population demands.4 The Pat Brown era (1959-1967) is often seen as a boom period of infrastructure building and was characterized by increased federal spending, bipartisan support for infrastructure, and increased tax revenues. Since that time, the political support for infrastructure provision has changed. Beginning in the late 1960s, per capita state and local capital outlays declined in California, reaching a low point following the passage of Proposition 13 in 1978. Although this decline was more dramatic in California, it was similar to capital outlay expenditure patterns found in the United States as a whole (Figure 1). 5 The drop in infrastructure spending predated Proposition 13 and reflected temporary declines in both federal capital funds and school capital spending because of a decline in the size of the school-age population. Per capita capital expenditures began increasing again in 1982, with dramatic increases in the last few years. In 2002, California spent $931 per person on capital compared to $917 in the country as a whole. This is over one-third more than the amount spent in 1997 and one-quarter more on a real per capita basis than was spent in 1967— the former high point in California infrastructure spending. California has also always spent more of its capital funds locally than the rest of the country. In 2002, local governments carried out 83 percent of capital expenditures in California compared to 65 percent in the country as a whole. There has been a shift in where this money is coming from, with California’s state government funding an increasing share of local projects. 3 This lower majority requirement comes with additional restrictions on the bond funds including an enumeration of projects that will be funded and the presence of a voter oversight committee. In addition, the lower requirement is available only if the bond is proposed during an election where a federal, state, county, or city election is also occurring. 4 To examine infrastructure spending over time, we use U.S. Census Bureau, Governments Division data available from 1957-2002 in five-year increments. Because of changes in state Controller reporting methodology in 2002, there is missing information in the Census numbers on capital expenditures for nontransportation special districts. We have therefore augmented the Census numbers with information from the Controller’s office about changes in net assets for special districts. Appendix Tables A1, A2, and A3 provide more information from the U.S. Census Bureau, Governments Division on the level and composition of spending in California and the United States for capital and non-capital expenditures. 5 Unless otherwise noted, all dollar amounts are given in 2003 dollars. -4- Figure 1 Per Capita State and Local Capital Outlay Expenditures, 1957-2002 Expenditures (2003 per capita $) 1000 900 California total United States total California local Governor Pat Brown era Proposition 13 800 700 California total 600 U.S. total 500 California local 400 U.S. local 300 200 100 0 1957 1962 1967 1972 1977 1982 1987 United States local 1992 1997 2002 SOURCES: U.S. Census Bureau, Governments Division (1957-2002); California State Controller (2001-2002). Although California’s overall per capita spending levels now approximate those in the rest of the country, how the state spends that money has diverged from the national pattern (Figure 2). In 1997, California spent significantly more than the United States as a whole on resources and community development ($95 per capita versus $56) and water ($79 versus $34)6 and less on highways and roads ($92 versus $176) and educational facilities ($140 versus $175). By 2002, California was still spending less on highways and roads ($156 versus $233) and more on water and resources (including levee, irrigation, and drainage special districts). However, California had almost caught up with the nation as a whole for spending on educational facilities ($239 versus $250). 6 Although California is currently and historically has spent more on water projects than the nation as a whole, California water project spending is on par with that of other arid Western states. -5- Expenditures (2003 per capita $) Figure 2 California versus U.S. State and Local Capital Outlay, 1997 and 2002 1000 900 800 700 600 500 400 300 200 100 0 CA 1997 US CA 2002 US Other Resources / Community Development Sanitation / Sewer Water Transit Highways Education SOURCES: U.S. Census Bureau, Governments Division (1997, 2002); California State Controller (2001-2002). Spending from State Budget Funds The spending priorities reflected in California’s state budget have also changed over time. In 1965-1966, transportation infrastructure took the largest share of the state’s capital expenditures, and spending on resources (mainly water) was the next largest slice. K-12 capital constituted only 9 percent of state spending but now makes up 69 percent of capital outlay (Figure 3), a result of the shifts in state and local responsibilities occurring after Proposition 13.7 7 For more information on the level and composition of state infrastructure spending from state general and special funds see Appendix Table A4. -6- Figure 3 State Capital Outlay Expenditures, 1965-1966 and 2002-2003 1 9 6 5 -1 9 6 6 O ther K -12 E d u c a t io n 4 % 9% H igher E duc atio n 11% R eso urces 24% T rans po rtatio n 52% K - 12 E d u c a t io n 69% 2 0 0 2 -2 0 0 3 O ther 0% T ra n s p o rta tio n 22% R es o urc es 5% H ig h e r E d u c a tio n 4% Total state spending (2003 $s): $5,789 million Real per capita spending: $307 Total state spending (2003 $s): $10,607 million Real per capita spending: $299 SOURCE: California Department of Finance (1967-1968 and 2004-2005). Likewise, the state’s capital funding sources have changed significantly since the early 1960s. Most notably, the state has moved away from pay-as-you-go financing, with a corresponding increase in reliance on bonds (Table 2). The amount of direct payments from the general fund for infrastructure payments has plummeted from the level found in the early 1960s, with general fund revenues now mainly being used to pay back debt.8 Special funds are usually limited to specific programs, with the State Highway Account being the largest. Federal funds make up a significant portion of the state’s pay-as-you-go infrastructure funds ($1.5 billion in 2002-2003, about 45 percent of capital outlay revenue excluding K-12 local assistance) and provide money to local governments to pay for highways, mass transit, flood control, and veterans’ homes.9 8 It is important to note that the shift in how California funds infrastructure makes comparisons in how much general fund revenues are being spent on infrastructure projects somewhat misleading. In the ad campaigns favoring Proposition 53 (on the October 2003 ballot), proponents highlighted this decline in general fund spending without recognizing the larger role of special funds and shift to bonds to pay for new investment. 9 California Budget Project (1999); Legislative Analyst’s Office (February 2004); California Department of Finance (2004-2005). -7- Table 2 State Revenue Sources for Infrastructure Financing (2003 $ millions) General Fund Special Funds Bond Funds Federal Funds 1960-1961 1965-1966 2002-2003 13.5% 1.8% 0.9% 44.2% 27.9% 7.5% 15.8% 42.2% 77.5% 26.6% 28.0% 14.1% Total real $ amount $4,104 Amount per capita $259 $5,789 $307 $10,607 $299 NOTE: Includes K-12 local assistance for facilities. SOURCES: California Department of Finance (1962-63, 1967-68, and 2004-05). Since 1972 California voters have approved $82.6 billion (nominal $) in GO bonds for various purposes (Figure 4). About 45 percent of this amount has been used to finance K-12 school construction. The next largest categories are natural resources ($15 billion) and higher education ($10 billion). Figure 4 Distribution of State General Obligation Bonds for Infrastructure, 1972–2004 V e te ra n s Ho m e Loan S e is m ic 7 % 3% O th e r 9% Pu b lic S a f e ty 5% N a tu r a l Res ourc e s 17% T r a n s p o r ta tio n 3% K - 1 2 S c h o o ls 45% H ig h e r Ed u c a tio n 11% NOTE: The figure does not include the Economic Recovery Bond. SOURCE: California Department of Finance, (2004-2005); updated by authors. The increase in reliance on bond funding has implications for the state’s debt service ratio – the portion of annual general fund revenues that are devoted to principal and interest -8- Ratio of general fund debt to revenues payments on debt. This ratio was at 3 percent in 2002-2003, lower than usual because of the recent refinancing of outstanding debt in response to the state budget shortfalls. In March 2004, Californian’s passed an additional $27.3 billion of general obligation bonds; half of this will finance school infrastructure, and the other half will help solve the state’s current budget crisis. In November 2004, voters approved an additional $3 billion initiative to fund stem cell research and $750 million for children’s hospitals. The result will be increasing debt service ratios, rising above 7 percent in 2007-2008 and remaining at that level until after 2010 (Figure 5). A reasonable debt service ratio is 6 percent or less (Legislative Analyst’s Office, February 2004). This suggests that California’s capacity for new bonds is limited in the near term, since more money must be earmarked to repay debt in the next few years. Figure 5 California’s Debt Service Ratio, 1991-1992 to 2009-2010 8% 7% 6% 5% 4% 3% 2% 1% 0% 1991-92 1993-94 1995-96 1997-98 1999-00 2001-02 2003-04 2005-06 2007-08 2009-10 NOTE: Includes general obligation bonds passed in 2004, including payments on the Economic Recovery Bond. SOURCE: Legislative Analyst’s Office (December 2004). Federal Transfers for Infrastructure While we are unable to isolate federal transfers to California for capital and non-capital projects, it is instructive to examine how overall federal spending on state and local capital -9- projects has changed over time.10 Currently federal transfers for state and local capital projects have surpassed peak levels found in the late 1970s. Federal capital funds dipped in the 1980s, but this was a limited decline in federal funds that reversed in the late 1990s (Table 3). Table 3 Federal Grants for Major Physical Capital Investment Real per capita capital grants Percent capital grants for: Highways Urban mass transport Airports Community development Natural resources and environment Housing assistance Other non-defense Defense 1960 1965 1970 1975 1980 1985 1990 1995 $88.0 $120.7 $139.2 $129.1 $167.6 $149.8 $136.6 $162.8 88% 80% 61% 42% 40% 51% 51% 49% 0% 0% 2% 6% 9% 10% 12% 9% 2% 1% 1% 3% 3% 3% 4% 5% 3% 12% 23% 23% 26% 20% 14% 13% 3% 3% 5% 21% 22% 14% 12% 9% 0% 0% 0% 0% 0% 0% 5% 15% 4% 3% 8% 5% 1% 1% 1% 1% 0% 0% 0% 0% 0% 0% 1% 0% 2000 $176.2 51% 11% 3% 12% 7% 15% 0% 0% Real per capita capital grants Real per capita total grants to state and local governments Percent of total federal grants allocated for capital $88.0 $120.7 $139.2 $129.1 $167.6 $149.8 $136.6 $162.8 $176.2 $186.0 $264.1 $474.7 $590.6 $678.6 $636.9 $679.8 $925.4 $1031.0 47% 46% 29% 22% 25% 24% 20% 18% 17% SOURCE: Office of Management and Budget, (2004). However federal money now funds different types of capital. In the 1950s and 1960s, the bulk of federal capital transfers went to highways. Beginning in the 1970s funds were increasingly used for other projects including mass transit, community and regional development projects, and natural resource and environment projects, with highway and road projects receiving 40 percent of funds in 1980, down from a high of nearly 90 percent of capital transfers. The share of money for highways increased during the 1980s, and highway and road projects currently make up about half of all federal transfers for capital. Recently funds for housing assistance have increased as large federal housing projects have been replaced with different options in subsidized housing. The other major change is a reallocation in the importance of capital grants in federal spending priorities. Federal grants today largely focus on redistributive programs and payments to individuals, including Medicaid and welfare programs. Thus the federal government is still involved in infrastructure projects, but its focus has shifted to fund a wider array of projects over the last forty years. 10 Overall California received $34 billion from federal formula grants in 2001 or 12 percent of all federal grants, a share proportional to California’s share of the U.S. population, but much of this money was for non-capital expenditures. For more information on California’s share of overall federal funds see Ransdell (2002). -10- K-12 Education To flesh out our picture of infrastructure spending, we turn now to specific sectors, beginning with K-12 education. Most education spending is for operating expenditures and is done at the local level. In 1999-2000, local school districts spent $5.0 billion on capital outlay and $39.8 billion on operating expenditures.11 Per student outlays on school facilities have been anything but steady over the last 30 years. Even before the passage of Proposition 13, school capital financing was falling (Figure 6). Per pupil capital spending began to increase in the mid-1990s, well before the lower supermajority requirement for local school bond measures was passed. Between 1999 and 2002, local governments increased per pupil capital spending by over $140. This additional level of spending reflects the growing support for schools generally and school facilities specifically. Figure 6 California Per Pupil School Infrastructure Spending, 1959-2002 $1,200 $1,000 Proposition 13 $800 2003 $ per pupil $600 $400 $200 $1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 SOURCE: California Department of Education (1959-2002). 11 We rely on California local government controller data and state budget information to calculate the annual spending levels in each sector. For more information on expenditure sources for our highlighted sectors see Appendix Table A5. -11- By 1986, K-12 capital finance relied more or less equally on state bond money, local bonds, and developer and other local fees.12 This pattern continued into the 1990s, with local districts paying for just over two-thirds of capital outlay costs for K-12 education through a combination of local general obligation bonds (32%), developer fees (11%), and other sources (27%) (Brunner and Rueben, 2001), and with state GO bonds covering the remaining third. During the recent past, voters have been willing to pass large state GO bonds to fund K12 education (Table 4).13 Prior to recent reforms, however, this funding system suffered from some serious weaknesses, with school districts uncertain when funding would be available and how much to expect. Although the State Allocation Board’s decision-making process has changed frequently, it historically allocated bond money on a first-come, first-served basis on a bond-by-bond basis. Moreover, it required matching funds from localities.14 Until 2000, school districts needed to reapply each time a bond was passed. This money was usually depleted entirely before new bonds were authorized, creating a “hill and valley” revenue stream, which impaired districts capacity to plan and raise local supplemental funds. Table 4 State K-12 Education General Obligation Bonds, 1974-2004 ($ millions) Years No. proposed 1974-80 1981-85 1986-90 1991-95 1996-00 2001-04 3 2 5 3 2 2 No. passed 1 2 5 2 2 2 Amount proposed 700 950 4,000 3,800 8,725 21,400 Amount passed 150 950 4,000 2,800 8,725 21,400 Real amount proposed (2003 $) 1,601 1,423 5,253 4,524 9,176 21,573 Real amount passed (2003 $) 419 1,423 5,253 3,400 9,176 21,573 Total 17 14 $ 39,575 $ 38,025 $ 43,551 $ 41,244 Moreover, the finance system led to considerable inequities, with many California children schooled in inadequate facilities. In 2001, one in three children attended schools that were overcrowded or in need of modernization, with estimated costs to correct these problems at $30 billion (Legislative Analyst’s Office, 2001). Following litigation surrounding the distribution of Proposition 1A funds (passed in 1998), the state revamped its formula for distributing bond funds, specifically allocating a portion of new bonds for school districts with critically overcrowded schools and maintaining a list of projects to be funded from one bond 12 Following the passage of Proposition 13 in 1978, it was unclear how school districts would locally finance new facilities. Several reforms occurring in the mid 1980s reestablished local funding sources. For more information see Brunner and Rueben (2001). 13 Some state bond measures combined financing for K-12 and higher education. In this section, however, we list the funds solely for K-12 districts. We will discuss higher education financing in the next section. 14 Hardship funds were allowed for school districts that could show an inability to raise local funds. For more information on the details surrounding specific limits on school facility finances see Brunner and Rueben (2001). -12- pool to the next. The new formula also limited the state match to a certain amount per pupil for each type of district. After these changes were put into place, voters passed Proposition 47 in 2002 and Proposition 55 in 2004, which authorized $21.4 billion in new state bond funds for K-12 facilities. These funds included money to fund existing approved projects off the Proposition 1A waitlist ($4.8 billion), projects in critically overcrowded schools ($4.1 billion), modernization projects in existing schools ($3.7 billion), and new construction to accommodate projected growth in enrollments ($8.8 billion). Although there is a per pupil cap on state contributions, most money is still distributed on a matching basis, so school districts with higher property values are able to raise more local funds, thereby possibly becoming eligible for more state money.15 However, hardship funds still assist districts that are unable to raise their local match. Concerns about the ability to raise local revenues have been lessened in the last few years. Since the passage of Proposition 39, which lowered the vote requirement for the passage of school bonds in local elections from two-thirds to 55 percent, school districts passed more than 250 bond measures for more than $20 billion. Slightly less than half of these measures would not have passed without the lower supermajority requirement (Table 5). Table 5 Local K-12 School Facility Bonds since Proposition 39 ($ billions) Passed Not passed Proposed Passed with less than 2/3 Number Amount ($) 256 20.3 50 1.7 306 22.1 119 9.9 In the aftermath of Proposition 39, the state may wish to examine its role in financing school facilities. The Legislative Analyst’s Office has suggested allocating state education capital funds on an ongoing per pupil basis and moving away from a reliance on bond revenues, which would address equity concerns and provide a predictable facility revenue stream (2001). Alternatively, state revenues could be allocated based on a local match that takes into account the fact that the same tax rate raises different amounts of revenues across different districts (because of differences in assessed property values across different districts). The state could equalize this system by using state money to top off the revenues raised by a given local property tax increase to equalize levels across the state. This would give lower-wealth districts a higher state match rate for new construction programs. Although the increased level of state and local bond funding seems promising for schools, we are allocating much of the next decade’s school infrastructure funds today. In particular, if there are future unexpected demographic shifts, some growing districts may find that they are unable to provide adequate facilities once the current funds have been spent. The increased surge in funds has also had at least one unintended consequence: The costs of 15 There is a limit on the level to which school districts can raise property tax rates, so districts with lower property values may be constrained in how much state funding they will be able to receive. -13- building schools have increased dramatically, with the demand for construction exceeding the supply of school construction firms. Therefore, higher costs may produce fewer classrooms than originally anticipated. This pattern might have been avoided if money had been allocated on a more regular basis. -14- Higher Education A mix of federal, state, and local district sources finance the University of California (UC), California State University (CSU), and California community college (CCC) capital outlays. State funds for capital and operating expenditures totaled about $10.7 billion in 19992000 and came from education bonds, earmarked special funds, and the state general fund. Student fees and private funds now augment state funds, adding $1.4 billion for capital and $8.2 billion in operating expenditures in 1999-2000. Similar to patterns found in K-12 education, higher education spending is predominantly for operating expenses. The ratio of capital to operating expenses is 9 percent.16 As with overall capital spending, capital outlays for higher education declined rapidly during the 1970s, especially after the passage of Proposition 13, but increased during the late 1980s and 1990s. U.S. Census Bureau data for higher education capital outlay show a real per student spending peak of $1,652 in 1967 and a trough of $592 in 1982. By 2002, California was spending $767 per full-time student. Before Proposition 13, local community college districts funded their own building programs through local bonds and property taxes with some matching funds from the state. Roughly 10 to 15 percent of UC and CSU capital funding came from federal sources through the 1963 Higher Education Facilities Act. Tideland oil revenues from state-owned land also financed UC, CSU, and CCC capital outlays. These revenues were deposited in the Capital Outlay Fund for Public Higher Education (COFPHE) and totaled $964 million (in nominal dollars) between 1965 and 1986—about 19 percent of all higher education capital outlay spending in that period (California Postsecondary Education Commission, 2002). Following the passage of Proposition 13, community colleges lost the ability to propose new local bond measures, and federal funds for UC and CSU dried up in the 1980s. Also in 1985, oil prices dropped dramatically, decreasing revenue available from the Tideland Oil Fund. The state then shifted to using bond measures to fund higher education infrastructure projects. In 1986, the legislature proposed and voters passed Proposition 56, a bond measure for higher education raising $400 million. This was the first time state bond funds were used to fund facilities for UC or CSU. State bond measures are now used regularly to fund higher education capital outlays (Table 6). Until 1996, measures for higher education and K-12 capital outlays were proposed separately, but because of stronger voter support for K-12 bonds, propositions are now joint K-University bond acts. 16 For more information on expenditure sources for higher education see Appendix Table A5. - 15 - Table 6 State Higher Education General Obligation Bonds, 1972-2004 ($ millions) Date Proposition Amount # proposed Nov-72* Jun-76* Nov-86 Nov-88 Jun-90 Nov-90 Jun-92 Jun-94 Mar-96+ Nov-98+ Nov-02+ Mar-04+ 1 4 56 78 121 143 153 1C 203 1A 47 55 160 150 400 600 450 450 900 900 975 2,500 1,650 2,300 Real amount proposed (2003 $) 572 359 568 794 562 562 1,093 1,012 1,043 2,616 1,675 2,300 Real amount passed (2003 $) Y N Y Y Y N Y N Y Y Y Y Total $ 11,435 $ 13,157 $ 11,223 * These bond measures are for community colleges only. + These bond measures also include K-12 money. Before 2000, higher education bond funds had been split into thirds for UC, CSU, and CCC. Proposition 47 (2002) and Proposition 55 (2004), which made nearly $4 billion available for higher education projects, increased the community college share to 40 percent, with UC and CSU receiving 30 percent each (Table 7). Table 7 Distribution of Recent State Bond Funds to Higher Education System ($ millions) Community Colleges CSU UC Prop 47 (11/02) 746 496 408 Prop 55 (3/04) 920 690 690 Total 1,666 1,186 1,098 Total $ 1,650 $ 2,300 $ 3,950 - 16 - UC has been fairly successful in securing private money for capital building, raising $4.6 billion through private and other nonstate funds from 1996-1997 through 2000-2001 (Table 8). Additionally UC can finance new research facilities through bonds backed by future research revenue, a step recently recommended by the Legislative Analyst’s Office (June 2004). The CSU system has been less successful in private fundraising, raising only $258 million from nonstate funds over this same period. Table 8 State Capital Outlay Revenue for Higher Education, 1996-1997 through 2000-2001 ($ millions) State General & GO Bonds Revenue Bonds Other Nonstate Total COFPHE Funds & Special Funds Funds UC CSU CC 10.0 35.6 981.9 945.9 1,004.5 195.9 11.7 1.5 4,621.8 258.3 * 5,809.6 1,251.4 1,006.0 Total 45.6 2,932.4 209.0 4,880.1 $ 8,067.0 * Community College numbers do not include local district revenues, which are discussed below. SOURCE: California Postsecondary Education Commission (2002). Although community colleges have not raised substantial amounts of private money, the passage of Proposition 39 has helped them raise over $9 billion in local district bonds since 2001 (Table 9). Nearly three-quarters of these measures would not have passed if the two-thirds supermajority had been required. Table 9 Local Community College Facility Bonds since Proposition 39 ($ billions) Passed Not passed Proposed Passed with less than 2/3 Number Amount ($) 46 9.1 5 1.0 51 10.0 33 6.6 The recent state budget crisis has caused California to re-examine its previous levels of support for higher education. Campuses have had to make reductions in services, increase class sizes and raise student fees. However California tuition and fees are still lower than the average costs faced by students in other states, and community college fees remain among the lowest in the country. While the budget crisis is forcing students to pay more and campuses to cut back, infrastructure for higher education is not as threatened as operating budgets. In addition, California may want to consider adoption of systematic student fee increases to avoid - 17 - the swings in tuition rates caused by the current policy of leaving tuition constant until a period of budgetary stress and then raising rates dramatically. - 18 - Water Supply and Quality California water resources are used for agricultural, residential, industrial, environmental, recreational, and other purposes. To accommodate these various uses, California has a vast infrastructure system for water supply, conveyance, and quality control. In 1999-2000, capital spending for water supply and water quality totaled $4.7 billion, and operating expenses totaled $9.6 billion. About one-third of this spending is used for sewer systems and wastewater treatment centers. 17 City water agencies and nearly 1,300 local water districts and other entities spend most of this money either to provide water directly or to meet water standards for municipal wastewater discharge. User fees are the largest source of both city and special district funds. In 1997-1998, cities brought in $4.1 billion in water and sewer service charges, or 80 percent of city water and sewer functional revenues (California State Controller, 1997-98). Water special districts brought in $4.3 billion in fees, nearly 60 percent of water district total revenues in this year (Legislative Analyst’s Office, 2002b). Average yearly water fees in 2003 were $363, and only 3 percent of communities faced fees greater than 1.5 percent of median household income (Hanak and Barbour, 2005). Although local water utilities are primarily responsible for delivering water to end users, several state and federal projects established significant conveyance and storage infrastructure during the mid-twentieth century to supply these local utilities. These include the federal Central Valley Project (CVP), the State Water Project (SWP), and the federal Colorado River Project. These projects have authority to levy fees and charges for capital costs. The U.S. Bureau of Reclamation (USBR) constructed the CVP beginning in 1937 and still controls the facilities. The project was financed through federal appropriations and repayments from water users, including agriculture, municipal and industrial users, and power customers. Total construction costs totaled $3.3 billion in nominal dollars as of 1999 (Dowall and Whittington, 2003). The Colorado River Project, also administered by USBR, allocates water from the Colorado River among the Western states, with California historically receiving a significant share. The California Department of Water Resources (DWR) runs the SWP, which furnishes a substantial portion of the water supplies for urban Southern California as well as agricultural users in the southern San Joaquin Valley. Construction on these conveyance and storage facilities began in the 1960s, when voters approved a $1.75 billion general obligation bond ($8.2 billion in 2003 dollars) to finance initial construction. Water supply contractors became responsible for repayment of this GO bond and passed on these costs to users in the form of fees. Subsequently, revenue bonds have been used to finance additional SWP facilities in Southern California and along the central coast and are also paid off with user fees. California voters have been asked to approve 15 statewide water-related GO bonds over the last 30 years, and have done so for all but one of these, for a total of $9.9 billion (Table 10). The vast majority of these bonds have focused on water-quality-related issues, for both urban supply (“drinking water”) and wastewater (usually called “clean water”) programs. The most 17 For more information on expenditure sources for water supply and quality see Appendix Table A5. - 19 - recent bonds have also focused on ecosystem restoration and grants to local water districts to increase water use efficiency and augment local supplies (Table 11). Table 10 State Water General Obligation Bonds, 1972-2004 ($ millions) Date Proposition # Purpose Jun-74 Jun-76 Jun-78 Nov-84 Nov-84 Jun-86 Nov-86 Nov-88 Nov-88 Nov-88 Nov-90 Nov-96 Mar-00 Mar-02 Nov-02 2 Clean Water 3 Drinking Water 2 Clean Water & Conservation 25 Clean Water 28 Drinking Water 44 Water Quality & Conservation 55 Drinking Water 81 Drinking Water 82 Conservation 83 Clean Water & Reclamation 148 Water Supply 204 Water Supply 13 Drinking, Clean Water, Watershed & Flood 40 Clean Water 50 Supply, Clean Water, Drinking Water & Wetlands Amount proposed 250 175 375 325 75 150 100 75 60 65 380 995 1,970 300 3,440 Real amount Real amount proposed passed (2003 $) (2003 $) 698 Y 419 Y 753 Y 473 Y 109 Y 213 Y 142 99 79 86 475 1,064 2,008 Y Y Y Y N Y Y 305 3,492 Y Y Total $ 5,295 $ 10,416 $ 9,942 - 20 - Table 11 Recent Water-Related State General Obligation Bonds ($ millions) Bond Fund 1996 Safe, Clean, Reliable Water Supply Bond Act CALFED Water Supply Wastewater Bay-Delta Improvement & Flood Control 2000 Safe Drinking Water, Clean Water, Watershed Protection, and Flood Protection Act CALFED Water Supply & Conservation Drinking Water Wastewater Flood Control & Watershed 2002 California Clean Water, Clean Air, Safe Neighborhood Parks, and Coastal Protection Act Water Quality & Restoration 2002 Water Quality, Supply and Safe Drinking Water Projects Coastal Wetlands Purchase and Protection Bond Act CALFED Water Supply & Integrated Regional Management Drinking Water (Includes Desalination & Water Security) Wastewater Coastal Protection & Colorado River Management Prop # 204 13 Amount $ 995 453 117 235 190 $ 1970 250 535 70 355 760 40 $ 2600 * 300 50 $ 3440 825 640 585 370 1020 * The remaining $2300 of Proposition 40 funded nonwater-related projects. A large portion of the most recent bonds –- $1.5 billion –- has been allocated to the CALFED program, a multiagency state and federal effort to restore the Bay Delta fisheries, ensure water and environmental quality, and secure the water supply. Representatives include urban, environmental, agricultural, and other interests. CALFED does not directly control or manage water supply but attempts to coordinate activities of various water actors in the state, including the CVP, SWP, and local agencies. CALFED’s long-term financial plan follows a “beneficiary pays” principle, with project benefits and costs as closely correlated as possible to avoid or minimize subsidies. However, to date, the state bond funds have been the primary revenue source, with relatively little money forthcoming from either federal sources or local users. CALFED partners have recently completed a 10-year finance plan that allocates costs among federal, state and local authorities. In October 2004, federal legislation authorized $395 million from 2005 to 2010 to support the federal share of CALFED expenditures. - 21 - Water Quality The recent state bonds also provide substantial resources to help local agencies improve water quality, a shift from the policy in the 1990s, during which relatively limited state funding was available. In the first decade following the passage of the federal Clean Water Act of 1972, federal grants provided more than 75 percent of the capital costs for upgrading wastewater systems to meet the new water quality standards. This program was then substantially downsized and converted into a Clean Water State Revolving Fund, with 20 percent state matching funds, to provide low-interest loans to wastewater utilities. In 1996, the California Safe Drinking Water State Revolving Fund was established to assist water utilities. California spent $134.6 million in federal funds for water quality in 1999-2000. Currently Congress is considering bills that would provide additional federal money for local water treatment plant infrastructure, motivated by September 11 security issues and concerns raised by local governments and environmental groups regarding the growing costs of clean water programs. The State Water Resources Control Board (SWRCB) administers clean water programs, covering wastewater and storm water runoff. The recent passage of Propositions 13, 40, and 50 has greatly increased the state’s ability to provide local assistance for clean water projects. In 2003-2004, estimated expenditures from these bond funds total $559 million, or three-quarters of the estimated $750 million in local assistance from the SWRCB. The Department of Health Service’s (DHS) Office of Drinking Water administers the state’s safe drinking water programs. Here, too, bond funds are dramatically increasing spending. In 1999-2000 – before the bonds – it lent $21.3 million to local entities for drinking water projects (half of which was from federal sources) and made a small number of capital grants. The DHS drinking water budget appropriation in 2003-2004 includes $115 million in local assistance from the recently passed Proposition 50, representing one-third of that year’s DHS environmental control local assistance budget. Whereas user fees are a straightforward local funding source for water and wastewater systems, there are questions about the funding of a relatively new area of water quality regulation – storm water. It is uncertain whether increases in local charges to pay for storm water management require two-thirds voter or property-owner approval for the increase or implementation of property-related fees or assessments. If more stringent voting standards are required, without federal or state subsidies, local governments will be responsible for meeting standards but will lack clear options for raising revenue. Another question involves funding for the restoration of fish and wildlife habitats. Recent state bonds and efforts such as the CALFED Environmental Water Account, which buys and stores water to mitigate competing environmental and water user needs, show the public’s and state’s willingness to fund water for the environment. To meet the continued funding requirements of the CALFED program and new ecological challenges, however, funding mechanisms will have to keep pace. - 22 - Transportation How people and goods travel through California will help determine the state’s quality of life and continued prosperity. Transportation infrastructure financing has undergone dramatic shifts since the large-scale freeway projects of the 1950s and 1960s. Although the overall level of spending on highways and roads is now comparable to that of the earlier period, less of this money is now spent on construction and more is spent on operations. In 1967 and 2002, the combined capital and operating expenses for highways and roads totaled $315 and $332 per capita, respectively. In 1967, $231 went to capital, versus only $156 more recently. Mass transit has, meanwhile, emerged as a key sector. In 1972, California spent $20 per capita on transit construction; in 2002, it spent twice that.18 In 1999-2000, capital outlay spending on highways and roads was evenly divided between state and local projects, with each spending slightly less than $1.9 billion.19 Much of the local spending is allocated by cities and counties but is coordinated through regional transportation planning agencies, which receive revenue from the federal and state government. For transit, state and local capital outlay spending in 1999-2000 was $2.6 billion—about 65 percent of operating expenditures ($4.0 billion). Virtually all of the transit capital money is spent locally, although much of it comes from federal and state sources. Capital spending on mass transit was unusually high that year largely because of federal grants and local funds for the Bay Area Rapid Transit Authority (BART) and the Los Angeles County Metro Transportation Authority to complete extension projects. In 2001-2002, total transit capital expenditures fell to $1.5 billion, a more representative level of recent transit infrastructure financing. New freeway construction has faced increasing challenges over the past forty years as costs have risen, revenues have eroded over time, and financing has shifted away from a user fee approach. California real highway capital outlay spending per 1000 vehicle-miles traveled (VMT) declined dramatically from 1965 to 1980 and has remained relatively constant since (Figure 7). National trends have followed a similar pattern though the decline was less extreme. U.S. real per 1,000 VMT capital spending on highways was $22.3 and California’s spending was $15.8 in 2000. 18 These real per capita numbers are based on U.S. Census Bureau reported figures, which can be found in Appendix Table A1. 19 For more information on expenditure sources for highways, roads, and transit see Appendix Table A5. - 23 - Figure 7 California versus U.S. Real Capital Outlay on Highways (per 1000 VMT) 2000 $ per 1000 VMT $60 $50 $40 $30 $20 $10 $0 1965 CA 1970 1975 US 1980 1985 1990 1995 2000 NOTE: Includes federal, state and local capital outlay expenditures. SOURCES: Authors' calculations based on capital outlay and federal VMT data from the Federal Highway Administration (various years) and California VMT data provided by the California Department of Transportation (2004). While spending declined in terms of vehicle mile traveled, costs of construction and maintenance rose dramatically because of more stringent freeway design standards, skyrocketing right-of-way costs, new environmental planning costs, and rising labor costs. The cost of constructing a new highway mile in the 1990s is estimated to be three times higher than the cost during the early 1960s.20 Traditional sources of revenue for transportation have been user fees such as federal and state fuel taxes, sales taxes on fuel, vehicle registration fees, motor vehicle weight fees, drivers’ license fees, and tolls. These revenues are deposited into special funds administered by the state and earmarked for transportation, including the Federal Highway Trust Fund, State Highway Account, and the Public Transportation Account. About one-third of the state gas and diesel tax is distributed to local governments for streets and roads; the remainder is deposited into the State Highway Account. California’s federal gas and diesel tax contributions are deposited into the Federal Highway Trust Fund and redistributed. Additionally, 4.75 percentage points of the 6 percentage point sales tax on diesel fuel has historically been 20 For a description of the methodology behind this calculation see Hanak and Barbour (2005). - 24 - allocated to the Public Transportation Account for transit operating expenses and improvements (Legislative Analyst’s Office, 2002a). Table 12 shows the most recent revenue sources for state capital outlay transportation spending. Note that this does not include state or federal money passed through to local governments for capital, including most transit capital funding. Table 12 State Transportation Revenues for Capital Outlay, 2002-2003 ($ millions) Highway Bond Funds Seismic Retrofit Bond Act of 1996 Special Funds State Highway Account Toll Bridge Seismic Retrofit Account Traffic Congestion Relief Fund Federal Trust Fund Transit Special Funds State Highway Account Public Transportation Account Traffic Congestion Relief Fund $ 32.3 32.3 $ 725.8 486.3 190.9 48.6 $ 1,480.7 1.4% 32.0% 65.2% $ 31.7 23.7 0.3 7.7 1.4% Total $ 2,270.5 100.0% SOURCE: California Department of Finance (2004-2005). State and federal gasoline and diesel taxes are still important – funding about half of transportation spending and raising more than $3 billion each in California annually. However, fuel tax increases have been sporadic and politically difficult to pass, making it hard to maintain revenues in real terms (Table 13). Additionally, this revenue source has become less reliable over time. Even with dramatic increases in vehicle travel, fuel consumption (and therefore real tax revenue) has declined because of increasing vehicle fuel efficiency. - 25 - Table 13 State and Federal Gas Tax Rates (cents per gallon) Year California Federal Total 1950 4.5 1.5 6.0 1951 2.0 6.5 1953 6.0 8.0 1956 3.0 9.0 1959 4.0 10.0 1963 7.0 11.0 1983 9.0 9.0 18.0 1987 9.1 18.1 1990 14.0 14.1 28.1 1991 15.0 29.1 1992 16.0 30.1 1993 17.0 18.4 35.4 1994 18.0 36.4 2003 18.0 18.4 36.4 Total Real (2003) 45.8 46.0 55.1 60.9 63.2 66.1 33.3 29.3 39.6 39.3 39.5 45.1 45.2 36.4 SOURCE: California Department of Transportation. The federal highway program used to be the largest source of federal aid to the states, and the federal share of state and local capital spending on highways reached 46 percent in 1960. But since the mid-1960s, federal money has shifted away from highway development and toward transit, local roads, and operations and maintenance. Federal authority has also devolved to regional transportation agencies and local control. The current mix of transportation financing still represents a primarily pay-as-you-go system. But as gasoline tax revenue and federal funds have eroded, the state has turned to ballot initiatives to fund transportation capital projects (Table 14). In 1990 and 1996, voters approved GO bonds for rail transit ($3 billion) and seismic upgrades of bridges and highways ($2 billion). Californians also approved Proposition 42 in 2002, which earmarked 80 percent of the 6 percent state sales tax on gas to be spent on transportation projects, including highway improvement and repairs, mass transit, and local road and street repairs. (That revenue had previously been allocated to the general fund.) Proposition 42 is estimated to raise about $1.2 billion per year in revenues for transportation. However, the funds can be allocated back to the general fund by a two-thirds majority vote of the Legislature, and this occurred at least partially in each of the subsequent budget years to help address the state’s budget crisis. - 26 - Table 14 State Ballot Measures for Transportation Capital Outlay Funds, 1990-2004 ($ millions) Date Jun-90 Jun-90 Jun-90 Nov-92 Jun-94 Nov-94 Mar-96 Nov-02 Proposition # Amount Real amount proposed proposed (2003 $) 108 116* 122 156 1A 181 192 42+ 1,000 1,250 1,990 2,487 300 375 1,000 1,214 2,000 2,249 1,000 1,124 2,000 2,139 6% sales tax Passed Purpose Y Rail Transit Y Rail Transit Y Seismic N Rail Transit N Seismic N Rail Transit Y Seismic Y Infrastructure * $29.9 million of Proposition 116 was allocated to the Alameda Corridor project, which facilitated shipping container rail transportation. + Proposition 42 allocated most of the existing 6 percent sales tax on gasoline for transportation projects. Although voters have passed bond measures and initiatives to earmark funds for transportation, it is unclear in practice how this will translate into transportation capital funding in the near term. Future Proposition 42 funds are not guaranteed, repayment of loans from the general fund are uncertain, seismic retrofit costs have turned out to be higher than expected, federal fund levels are unknown, and a conversion to ethanol fuel will lower federal apportionments unless legislative action is taken.21 Raising gas taxes will be difficult politically given the current level of gasoline prices and the relatively small amount of money raised by a one cent per gallon increase in the fuel tax. While a large amount of money is still being expended for transportation, funds for new projects are extremely limited, and we may not be adequately planning for the future. Local Revenue Sources The decline in state gas tax revenues and federal funds has also prompted some local governments to seek new funding sources through the primary option at their disposal – a state sanctioned optional sales tax.22 Historically, local governments funded street and road construction predominantly through local general fund revenues (largely from property taxes) and their share of the gasoline tax pass-through from the state. In 1971, state voters also passed a ¼ cent general sales tax on all sales to fund local transit, which is deposited into each county’s 21 Currently the excise tax on gasohol is lower than that on gasoline, with the decrease in excise tax being between 3 and 5.5 cents per gallon depending on the amount of ethanol in the mix. 22 Counties that have passed additional sales taxes for transportation usually pass a ½ cent rate for roads, and in the counties served by BART and in Los Angeles, another ½ cent tax has been passed for mass transit projects. - 27 - Local Transportation Fund; this tax raised about $1 billion for transit operating and capital funds in 1999-2000 (Table 15). Since 1978, twenty counties approved local supplemental sales taxes of between ¼ and 1 percent dedicated for highway, street, road, and transit projects. Table 15 Local Transportation Revenues, 1999-2000 ($ billions) Optional local sales tax (¼ to 1 cent sales tax) Local Transportation Fund (¼ cent sales tax) Transit fares, property taxes & local operating assistance Other local funds 2.6 34.7% 1.0 13.3% 1.4 18.7% 2.5 33.3% Total $ 7.5 NOTE: Other local funds include local general funds, bond proceeds, fines and forfeitures, and road taxes. SOURCE: Legislative Analyst’s Office (2000). The optional county sales taxes are now the largest local revenue source for transportation, constituting one-third of local revenues; in 2003, they nearly equaled state gasoline excise tax revenues. Because much state revenue is distributed with a match requirement, the ability to raise local sales taxes affects the distribution of state transportation funds as well. Getting voter approval for introducing or renewing this funding source has become more difficult since 1995, when the voter threshold shifted from a simple majority to a twothirds supermajority. Bay Area and Southern California counties have been most successful in passing these supplemental sales taxes (Figure 8). Nineteen counties currently have county sales taxes for transportation, an additional 15 counties have tried and failed to pass a tax at least once, and San Benito County had passed a sales tax in 1988 that expired in 1998. Marin and Sonoma Counties recently passed transportation sales taxes in November 2004 after failing to pass taxes in multiple earlier elections, and it has taken other counties several attempts to pass or renew these taxes. - 28 - Figure 8 California Counties That Ever Passed a Local Transportation Sales Tax SOURCE: Surface Transportation Policy Project (2002); updated by authors. Recent state budget shortfalls also affect local transportation funding. Some local government transit districts are facing a loss of funds as part of the Governor’s negotiated deal with local governments. Under this deal, local governments forgo $1.3 billion in local property taxes in each of the next two years in exchange for support of a ballot measure to safeguard local funds in future years. It is clear that local governments are playing a larger role in transportation funding through the local sales taxes. The primary concern raised by this is the new supermajority requirement and the ability of counties to maintain these taxes. There are also geographical equity issues raised by the fact that these local taxes are largely concentrated in coastal communities. Additionally, increasing reliance on sales tax revenue further divorces transport use from transportation financing. Allocating the costs of transport to users of the system encourages more efficient behavior and can reduce negative effects, such as congestion. Forward-thinking strategies on transportation financing that consider the incentives on system use will be crucial to consider as California prepares for its transportation future. - 29 - Conclusion California currently spends about as much as the rest of the country on infrastructure projects, but less on transportation infrastructure and more on water and resources than other states. California’s current level of spending surpasses that of the 1960s, but again, the priorities have shifted. Over the last decade, support for K-12 facilities has increased dramatically. Going forward, there are still important questions to be addressed. Should school districts be more responsible for facilities financing in the aftermath of Proposition 39? Should the state become less reliant on bond financing for school facilities and shift to an annual per pupil allocation of funding? Should revenues be distributed in a way to reflect differences in district wealth? Should state distributions be based more on future predicted growth or current enrollments? In higher education, where facilities represent a relatively small percentage of total higher education spending, questions of overall access are likely to be more pressing. Should admissions criteria be re-examined? Should higher education switch to more year-round programs? How should admissions decisions be made? How should tuition levels be set? California continues to spend more than the national average of its infrastructure dollars on water supply and quality, although spending levels are in line with other Western states. Water users bear most of these costs, but rates are relatively low as a percentage of household income, and most water districts and municipalities have been able to meet their revenue needs. Going forward, the main water financing issues center around water quality and ecosystem restoration. Local governments are largely responsible for ensuring water quality, but because the costs of controlling storm-water runoff are not linked directly to benefits received by specific households, local governments could face a two-thirds vote requirement to pass new fees. Thus local authorities may be faced with clean-up costs without a clear way of paying for them. For ecosystem improvements, the question is whether voters will continue to support state bonds, since contributions by the federal government and water users have been relatively limited. Transportation infrastructure seems to be the main area where California has fallen behind in investment. Today, many more highway dollars are used for maintenance rather than new construction. Transportation revenues are also increasingly allocated to mass transit programs that may or may not be cost-effective. Furthermore, traditional sources of revenue are declining in real terms. Federal and state fuel taxes, which currently raise 36.4 cents per gallon of gasoline, have not increased since 1994, and although Californians are driving more, increased fuel efficiency and higher project costs have further eroded the real value of the fuel tax revenue. Increasingly, highway, road, and transit infrastructure is financed with other taxes, most notably dedicated county sales taxes. Renewal of these sales taxes might now face opposition as vote requirements have changed to require a two-thirds majority for passage or renewal. General sales taxes do not tie road use to the cost of providing roads, nor do they promote the efficient use of transportation infrastructure as much as a user-based gas tax or toll does. Transportation questions go beyond the arithmetic of funding sources. How much of transportation costs should the actual users of transportation pay? How does building new - 30 - highways affect growth and congestion? Should transportation revenues go for roads or mass transit? These questions must be answered as California considers its infrastructure future. Finally, California’s increasing reliance on debt financing in recent years to help solve the state’s budget crisis also limits the state’s options in undertaking new projects. Our current debt load is projected to be about 7 percent for the next five years, higher than the level deemed prudent by credit rating agencies, which can limit our future ability to undertake new projects at the state level. Local governments also are faced with an increasingly restrictive environment for raising new revenues as voter approval is required for a growing list of sources. As new infrastructure projects are examined, these constraints might mean that new options for funding infrastructure will be necessary. - 31 - References Brunner, Eric, and Kim Rueben, Financing New School Construction and Modernization: Evidence from California, Occasional Paper, Public Policy Institute of California, San Francisco, California, June 2001. California Budget Project, Budget Brief: CA’s Public Investment Gap, 1999, available at www.cbp.org/1999/bb990901.html. California Department of Education, J-200 expenditure data, 1959-2002, available at www.cde.ca.gov/ds/fd/fd/. California Department of Finance, Governor’s Budget & Budget Summary, Sacramento, California, 1962-63, 1967-68, 1986-87, 1998-99, 2001-02, 2004-05. California Department of Finance, Chart K-7 and K-8 (General Obligation Bonds) from Governor’s Budget 2004-05, available at www.dof.ca.gov/html/bud_docs/backinfo.htm. California Department of Transportation, Fact Sheet: Important Events in California’s History, available at www.dot.ca.gov/hq/paffairs/about/cthist.htm. California Department of Transportation, Historical Vehicle Miles Traveled data, e-mailed from Luk Lee, 2004. California Postsecondary Education Commission, Fiscal Profiles, 2002, available at www.cpec.ca.gov/completereports/2003reports/FiscalProfiles2002.asp. California State Controller, Counties Annual Report, Cities Annual Report, School Districts Annual Report, Special Districts Annual Report, Streets and Roads Annual Report, Transit Operators & NonTransit Claimants Annual Report, Sacramento, California, 1996-97, 1997-98, 1999-00, 2001-02. California State Controller, Special District data on Total Fixed Assets for 2001 and 2002, emailed from Alice Fong, August 2004. California State Treasurer, “General Fund Supported Debt,” available at www.treasurer.ca.gov/Bonds/gfdebt.pdf, July 1, 2004. Chancellor’s Office, California Community Colleges, Fiscal Data Abstract, Sacramento, California, 1999-00. Dowall, David E., and Jan Whittington, Making Room for the Future: Rebuilding California’s Infrastructure, Public Policy Institute of California, San Francisco, California, 2003. Federal Highway Administration Office of Policy Information, Federal Highway Statistics, Tables HF-202C and VM-201, various yrs, available at www.fhwa.dot.gov/policy/ohpi/hss/ hsspubs.htm Hanak, Ellen, and Mark Baldassare, eds., California 2025: Taking on the Future, Public Policy Institute of California, San Francisco, California, 2005. - 33 - Hanak, Ellen, and Elisa Barbour, Sizing Up the Challenge: California’s Infrastructure Needs, Occasional Paper, Public Policy Institute of California, San Francisco, California, 2005. Legislative Analyst’s Office, A Primer on State Bonds, February 1998, available at www.lao.ca.gov/1998/013098_bonds/0298_state_bonds.html. Legislative Analyst’s Office, California Travels, May 2000, available at www.lao.ca.gov/2000/051100_cal_travels/051100_cal_travels_intro.html. Legislative Analyst’s Office, A New Blueprint for California School Facility Finance, May 2001, available at www.lao.ca.gov/2001/school_facilities/050101_school_facilities.html. Legislative Analyst’s Office, Proposition 42 Analysis, March 2002a, available at www.lao.ca.gov/ballot/2002/42_03_2002.htm. Legislative Analyst’s Office, Water Special Districts: A Look at Governance and Public Participation, March 2002b, available at http://www.lao.ca.gov/2002/water_districts/ Special_Water_Districts.html. Legislative Analyst’s Office, Analysis of the 2004-05 Budget Bill, “Capital Outlay Overview,” February 2004, available at http://www.lao.ca.gov/analysis_2004/cap_outlay/ co_01_ov_anl04.htm#_1_1. Legislative Analyst’s Office, Funding UC Research Facilities, June 2004, available at http://www.lao.ca.gov/2004/uc_fac_fclty/062304_uc_fac_res.htm. Legislative Analyst’s Office, Latest Debt Service Ratio projections, e-mailed from Brad Williams, December 2004. Office of Management and Budget, The Budget for Fiscal Year 2005, Washington, D.C., 2004. Historical Tables 9.6, 12.3. Ransdell, Tim, California’s Share of Federal Formula Grants, 1991-2001, Public Policy Institute of California, San Francisco, California, 2002. Rueben, Kim, and Pedro Cerdán, Fiscal Effects of Voter Approval Requirements on Local Governments, Public Policy Institute of California, San Francisco, California, 2003. Surface Transportation Policy Project, 2002, available at www.transact.org/ca/default.htm. U.S. Bureau of Labor Statistics, Producer Price Index, Materials and Components for Construction, WPUSOP2200, available at www.bls.gov. U.S. Census Bureau, Governments Division, Census of Governments, Compendium of Government Finances and Individual Unit Files, Washington, D.C., 1957-1997; State by Type of Government data files, 2002, available at www.census.gov/govs/www/estimate02.html. U.S. Census Bureau, Population Division, Population Estimates by State, Washington, D.C., 19572003. - 34 - Appendix A: Data Tables Table A1 Historical Per Capita State and Local Capital Outlay and Non-Capital Outlay Spending (real per capita 2003 $), California California Capital Outlay Higher Education K-12 Education Highways Sanitation/Sewer Water Transit Resources/ Comm. Development Other Total State Total Local Total 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 22.5 43.4 51.4 31.0 38.2 28.5 40.4 37.4 39.7 35.5 121.5 126.1 95.4 63.7 53.8 19.8 49.0 80.4 100.7 203.7 166.0 199.2 230.8 185.6 66.5 65.5 83.7 110.0 91.6 156.0 18.5 19.8 22.4 31.3 41.1 44.0 39.1 55.2 58.0 50.2 30.9 56.5 48.3 44.4 32.0 31.1 57.7 76.8 79.3 73.2 -- 1.2 38.5 19.5 5.8 15.4 21.1 43.3 43.9 39.0 31.3 75.5 149.0 73.9 54.5 64.5 78.7 81.8 95.2 137.2 94.3 485.0 176.8 308.2 107.8 629.4 216.6 412.7 109.0 744.7 303.9 440.8 128.2 577.7 191.0 386.7 82.4 374.4 83.5 290.9 90.1 358.9 83.5 275.3 160.8 530.6 131.4 399.2 173.6 658.4 137.7 520.7 173.9 682.4 120.7 561.7 236.3 931.2 160.7 770.5 Non-Capital Outlay Higher Education K-12 Education Highways Sanitation/Sewer Water Transit Resources/ Comm. Development Other Total State Total Local Total 67.0 337.2 54.2 7.9 32.2 -78.9 171.9 467.4 62.0 10.1 45.2 23.2 91.7 212.9 653.5 84.2 13.1 59.9 25.2 107.5 250.5 835.8 85.0 42.0 78.7 34.4 153.0 328.6 753.0 85.4 42.4 75.3 52.8 128.2 336.4 689.2 80.1 56.7 84.2 69.0 149.7 371.6 846.3 113.5 78.1 117.9 80.7 200.7 397.8 970.4 132.9 122.4 135.5 101.7 242.6 362.1 555.5 950.8 1339.5 116.7 176.6 138.6 155.0 153.5 180.4 121.8 153.0 253.8 300.4 685.4 1038.3 1521.2 2025.8 2061.8 2190.1 2813.3 3522.9 3533.5 4723.8 1262.8 1909.8 2677.6 3505.2 3527.5 3655.4 4622.2 5626.2 5630.8 7584.1 323.8 587.7 878.1 1066.7 1242.1 1331.3 1624.0 2077.3 2078.4 3036.7 939.0 1322.2 1799.5 2438.5 2285.4 2324.1 2998.3 3548.8 3552.4 4547.4 NOTE: 2002 data are augmented with additional local capital outlay data from the State Controller’s Office. See Appendix B for a description of the methodology. SOURCES: U.S. Census Bureau, Governments Division (1957-2002); California State Controller (2004); U.S. Census Bureau, Population Division (1957-2003); Bureau of Labor Statistics price index. - 35 - Table A1 continued Historical Per Capita State and Local Capital Outlay and Non-Capital Outlay Spending (real per capita 2003 $), United States United States Capital Outlay Higher Education K-12 Education Highways Sanitation/Sewer Water Transit Resources/ Comm. Development Other Total State Total Local Total 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 13.5 76.6 145.4 18.0 20.9 3.3 19.8 24.3 77.6 179.0 22.7 23.4 2.3 35.8 55.4 90.2 214.7 25.9 24.0 7.4 32.3 50.7 82.2 210.0 40.4 23.1 8.4 54.9 28.3 57.2 126.3 49.4 20.6 16.9 37.3 24.5 47.5 120.5 43.1 24.5 20.4 42.2 35.5 67.3 163.7 49.2 35.4 24.0 48.4 43.6 103.6 176.9 51.5 36.3 27.6 51.5 44.2 130.8 176.0 44.5 34.1 29.4 55.6 62.2 187.4 233.3 47.9 44.0 40.6 75.4 54.5 352.1 144.1 208.0 65.5 430.7 185.1 245.7 101.1 550.9 262.4 288.5 119.4 589.3 260.1 329.2 118.4 454.4 170.7 283.7 120.3 442.9 155.6 287.3 147.1 570.7 214.8 355.9 158.9 650.0 238.7 411.3 162.7 677.3 233.4 444.0 226.7 917.5 317.0 600.5 Non-Capital Outlay Higher Education K-12 Education Highways Sanitation/Sewer Water Transit Resources/ Comm. Development Other Total State Total Local Total 41.1 254.7 72.7 7.3 23.3 14.8 40.0 79.4 377.4 86.7 9.9 29.8 17.5 51.7 147.7 537.1 102.0 31.5 34.8 21.8 83.7 219.2 712.0 113.7 42.1 40.5 30.5 84.2 233.1 662.9 105.7 45.5 43.6 39.4 87.0 251.1 653.8 108.4 55.9 51.2 53.6 108.0 311.4 838.6 138.6 75.8 71.2 67.5 140.5 356.9 371.1 490.6 978.4 1022.6 1261.8 143.7 145.3 173.8 107.6 118.2 130.8 81.9 87.8 101.2 76.2 74.1 91.5 169.0 181.6 223.6 521.0 726.6 899.8 1410.4 1580.7 1743.0 2258.0 2926.5 3026.2 3826.9 975.1 1378.9 1858.4 2652.6 2797.9 3024.9 3901.6 4840.3 5026.9 6300.2 328.2 468.9 640.2 973.6 1125.1 1247.5 1600.5 2136.1 2229.6 2910.4 646.9 910.0 1218.2 1679.0 1672.7 1777.4 2301.0 2704.2 2797.3 3389.7 NOTE: 2002 data are augmented with additional local capital outlay data from the State Controller’s Office. See Appendix B for a description of the methodology. SOURCES: U.S. Census Bureau, Governments Division (1957-2002); California State Controller (2004); U.S. Census Bureau, Population Division (1957-2003); Bureau of Labor Statistics price index. - 36 - Table A2 Total Capital Outlay and Non-Capital Outlay Spending, 1996-1997 ($ millions) California Higher Education K-12 Education Highways Sanitation/Sewer Water Transit Resources/ Comm. Development Other Total Capital spending 1,220.0 3,094.3 2,814.4 1,782.7 2,437.1 1,349.4 2,926.4 Percent State capital of total spending capital outlay 5.8 893.6 14.8 3.6 13.4 1,531.6 8.5 4.1 11.6 0.0 6.4 0.0 14.0 558.7 Local capital spending 326.3 3,090.6 1,282.8 1,778.6 2,437.1 1,349.4 2,367.7 Non-capital Capital to spending non-capital spending ratio 11,127.4 0.11 29,216.0 0.11 3,586.6 0.78 4,257.9 0.42 4,715.6 0.52 3,743.2 0.36 7,799.2 0.38 5,344.6 25.5 716.9 4,627.7 108,579.4 $20,968.9 100.0 $3,708.5 $17,260.4 $173,025.4 0.05 0.12 United States Higher Education K-12 Education Highways Sanitation/Sewer Water Transit Resources/ Comm. Development Other Total Capital spending 11,279.1 33,411.4 44,961.7 11,367.3 8,720.4 7,499.2 14,187.9 Percent State capital of total capital outlay 6.5 9,787.1 19.3 1,127.7 26.0 32,726.4 6.6 615.4 5.0 28.8 4.3 2,237.5 8.2 3,221.6 Local capital 1,492.0 32,447.9 12,235.4 10,751.9 8,691.6 5,261.8 10,966.2 Non-capital Capital to spending non-capital spending ratio 94,781.9 0.12 261,187.0 0.13 37,100.2 1.21 30,182.0 0.38 22,415.9 0.39 18,936.7 0.40 46,374.6 0.31 41,560.1 24.0 9,855.0 31,540.9 772,919.9 $172,987.2 100.0 $59,599.5 $113,387.7 $1,283,898.1 0.05 0.13 SOURCES: U.S. Census Bureau, Governments Division (1997). - 37 - Table A3 Total Capital Outlay and Non-Capital Outlay Spending, 2001-2002 ($ millions) California Higher Education K-12 Education Highways Sanitation/Sewer Water Transit Resources/ Comm. Development Other Total Capital spending 1,223.6 7,021.4 5,379.0 1,731.5 2,525.0 1,345.7 4,731.7 Percent of total capital outlay 3.8 21.9 16.8 5.4 7.9 4.2 14.7 State capital spending 688.1 0.0 2,989.5 4.7 0.0 0.0 848.0 Local capital spending 535.5 7,021.4 2,389.5 1,726.7 2,525.0 1,345.7 3,883.7 Non-capital Capital to spending non-capital spending ratio 19,152.1 0.06 46,181.5 0.15 6,087.8 0.88 5,344.0 0.32 6,219.5 0.41 5,276.1 0.26 10,358.6 0.46 8,147.9 25.4 $32,105.8 100.0 1,010.5 7,137.4 162,865.6 $5,540.8 $26,565.1 $261,485.1 0.05 0.12 United States Higher Education K-12 Education Highways Sanitation/Sewer Water Transit Resources/ Comm. Development Other Total Capital spending 17,647.9 53,150.8 66,169.7 13,596.6 12,493.6 11,513.8 21,389.8 Percent of total capital outlay 6.8 20.4 25.4 5.2 4.8 4.4 8.2 State capital 15,365.2 490.0 49,271.5 678.4 222.2 3,911.2 4,830.1 Local capital 2,282.7 52,660.8 16,898.1 12,918.3 12,271.3 7,602.7 16,559.7 Non-capital Capital to spending non-capital spending ratio 139,162.3 0.13 357,922.1 0.15 49,297.8 1.34 37,104.4 0.37 28,708.5 0.44 25,954.4 0.44 63,427.3 0.34 64,294.1 24.7 15,150.5 49,143.7 1,085,540.7 $260,256.3 100.0 $89,919.0 $170,337.3 $1,787,117.6 0.06 0.15 NOTE: U.S. Census Bureau data are augmented with additional local capital outlay data from the State Controller’s Office. See Appendix B for a description of the methodology. SOURCES: U.S. Census Bureau, Governments Division (2002); California State Controller (2004). - 38 - Table A4 State Budget Capital Outlay Expenditures over time (actual $ millions, real per capita 2003 $) Transportation Resources Higher Education K-12 Education Corrections Health & Human Services General Govt & Other Total 1965-66 actual 659.38 308.63 133.51 112.40 7.63 7.46 1965-66 real per capita 159.84 74.82 32.36 27.25 1.85 1.81 1984-85 actual 892.97 73.15 74.75 443.24 86.84 14.14 1984-85 real per capita 48.34 3.96 4.05 24.00 4.70 0.77 2002-03 2002-03 actual real per capita 2301.95 64.87 537.00 15.13 453.55 12.78 7263.10 204.68 9.96 0.28 1.90 0.05 37.31 9.04 17.15 0.93 39.80 1.12 $1,266.3 $307.0 $1,602.2 $86.7 $10,607.3 $298.9 NOTE: K-12 education capital outlay is state money given as local assistance to fund local school district capital outlay. Expenditures do not include non-governmental cost funds. SOURCES: California Department of Finance (1967-1968, 1986-1987, 2004-2005). - 39 - Table A5 California State Budget and Local Controller data, 1999-2000 K-12 Education Operating Expenditures Capital Outlay Local Assistance School Districts 39,784 5,000 State Budget 218 1 32,863 Total 40,002 5,001 Capital/ Operating 13% Higher Education Community College Districts Operating Expenditures 4,429 Capital Outlay 219 Local Assistance State University Total Budget Funds * 10,312 436 3,087 8,214 1,378 22,954 2,033 Capital/ Operating 9% Water Cities Special Local State Districts Total Budget Water Supply & Drinking Water Operating Expenditures 2,127 Capital Outlay 571 Local Assistance Sewer & Other Water Quality Operating Expenditures 1,795 Capital Outlay 754 Local Assistance 3,763 2,253 1,274 706 + 5,890 2,824 3,069 1,460 332 460 93 339 230 Total 6,223 3,284 3,408 1,460 Capital/ Operating 53% 43% Highways, Streets, Roads Operating Expenditures Capital Outlay Support Capital Outlay Local Assistance Local Entities State Budget 2,165 1,888 1,026 887 1,774 860 Total 3,191 887 3,662 Capital/ Operating 90% Transit Operating Expenditures Capital Outlay Local Assistance Local Entities State Budget 3,891 2,523 89 45 453 Total 3,979 2,568 Capital/ Operating 65% * See Appendix B for a definition of University Funds. + Special district sewer capital outlay is estimated; see Appendix B for the methodology. SOURCES: California Department of Finance (2001-2002); California State Controller (1999-2000); Chancellor’s Office (1999-2000). - 40 - Appendix B: Data Sources and Methods Census of Governments Fiscal information for state and local government totals in California and the United States was obtained from the U.S. Census Bureau, Governments Division, Census of Governments, Vol. 4, Compendium of Government Finances, 1957, 1962, 1967, 1972, 1977, 1982, 1987, 1992, and 1997, and 2002 data files available at www.census.gov/govs/www/ index.html. This information contains fiscal data for all state and local governments in the United States including states, counties, municipalities and townships, school districts, and special districts surveyed by the U.S. Census Bureau for the U.S. Department of Commerce. To obtain real figures, we deflate by the Producer Price Index for Materials and Components for Construction provided by Bureau of Labor Statistics, WPUSOP2200. To obtain per capita figures, we divide by California and United States annual Population Estimates and ten-year Census counts provided by the U.S. Census Bureau, Population Division. Price indices and population estimates used in a given fiscal year represent the later year of the fiscal year. Census of Governments special district capital outlay data for 2002 were incomplete, because of a reporting change of fixed assets by the California State Controller. To correct for this problem, we have added in $3,042,672,000 to the special district capital outlay totals and in the respective sectors of Resources/Community Development, Water, Sanitation/Sewer, and Other for both California and the United States. This amount was compiled from data supplied by the California State Controller for Total Fixed Assets by special district type in 2001 and 2002; we calculated the change in fixed assets between the two years and used these totals to augment what was reported by the Census of Governments for California and United States special district capital outlay. Census data are useful for comparisons of total, state, and local expenditures over time and between California and the rest of the United States. However, certain sector totals for capital outlay cannot be tracked consistently over time. For instance, the “Water supply” expenditure category only includes local government expenditures prior to 1977, not state or federal water supply expenditures. Additionally prior to 1982 the Compendium of Government Finances does not list capital outlay expenditures for Police protection, Fire protection, Health, Public Welfare, or Sanitation. These expenditures can be calculated from raw data files in 1972 and 1977, but the 1960s raw files do not allow this calculation. Thus to avoid differences in definitions and incomplete comparisons, we do not use the Census of Governments data to compare expenditures by function over time, but it is useful for total expenditure comparisons. California State Budget Fiscal information on more detailed state-level expenditures and revenues was obtained from the California Department of Finance, Governor’s Budget, 1962-63, 1967-68, 1986-87, 200001, and 2004-05. The budget of a given fiscal year contains actual expenditures for the fiscal year two years previous (i.e., the 2004-05 budget contains 2002-03 actual expenditures). - 41 - For total expenditures we use numbers reported in the Budget Appendix Schedule 9. These totals include General, Special, Bond, and Federal Funds but do not include reimbursements from other levels of government or non-governmental cost funds (i.e., student fees for UC, privately raised funds for UC and CSU, certain transportation funds, and other funds that are not included in budget totals). For expenditures of individual function categories (i.e., Transportation, Education), we have added non-governmental cost fund expenditures to reported budgetary expenditures by reviewing Department and Agency budgets. Reimbursements remain excluded. In the case of higher education, the state budget lists revenue sources that are not in fact collected at the state level. Appendix Table A5 refers to these as “University Funds”; they include Higher Education Fees and Income, Nonfederal University Funds, Nonfederal Extramural Funds, Hastings Fund, Hastings Extramural Fund, Other Unclassified Funds (State Operations & Capital Outlay), CSU Colleges Dormitory Revenue Fund, CSU Parking Revenue Fund, State University Continuing Education Revenue Fund, and the Special Deposit Fund. The following state departments are included in each function category listed in Appendix Table A5: Transportation: California Transportation Commission (Transit), Department of Transportation (excluding Aeronautics and Transportation Planning and Administration, which cannot be allocated between Highways and Transit), High-Speed Rail Authority (Transit), Special Transportation Programs (Transit) Water Supply and Drinking Water: Department of Water Resources, Department of Health Services Office of Drinking Water Sewer and Water Quality: State Water Resources Control Board Higher Education: California Postsecondary Education Commission, University of California, Hastings College of Law, California State University, Board of Governors of the California Community Colleges, California Student Aid Commission Education: Department of Education, State Contributions to the State Teachers’ Retirement System, School Facilities Aid Program, Commission on Teacher Credentialing In 1962-63 and 1967-68 the budget format is different. General, Special, and Bond Fund capital expenditures are taken from the Capital Outlay Budget Schedule 1 for each category. Federal Fund expenditures are taken from Schedule 2. Other funds not included in overall budget totals are not included. All capital expenditures including the State Building Program, District Fair Construction Program, State Highway Program, Wildlife Conservation Program, Parks and Recreation Acquisition and Development Program, and California Water Facilities Program are included. For K-12 education, local assistance “Payments to Schools Districts” from the State School Building Aid Fund, Public School Building Loan Fund, and State School Construction Fund are included as capital outlays. - 42 - California Local Governments Fiscal information on more detailed local-level expenditures and revenues was obtained from the California State Controller’s Office Annual Financial Reports for Counties, Cities, Special Districts, School Districts, Streets and Roads, and Transit Operators, 1999-00, and the Chancellor’s Office of California Community Colleges Fiscal Data Abstract, 1999-00. Appendix Table A5 details local government data in each function category for operating expenditures and capital outlay. K-12 school district expenditures are reported in the School Districts Annual Report; capital outlay is reported in Figure 12, and operating expenditures are total expenditures minus capital outlay. Higher education community college district expenditures are reported in the Chancellor’s Office Fiscal Data Abstract; the capital outlay total is reported in Table VII, and operating expenditures are “total expenditures and other outgo” minus capital outlay. Water local expenditure data are reported in the Cities Annual Report and Special Districts Annual Report; capital outlay and operating expenditures are reported in Table 7 for cities, and capital outlay (classified as “additions to fixed assets”) and operating expenditures are reported in Tables 22 and 23 for special districts. Highways, streets, and roads expenditures are reported in the Streets and Roads Annual Report; capital outlay (classified as “construction and rights of way”) is reported in Figure 1, and operating expenditures are calculated as total expenditures minus capital outlay. Transit expenditures are reported in the Transit Operators and Non-Transit Claimants Annual Report; capital outlay (classified as “capital additions to equity”) is reported in Figure 5, and operating expenses are reported in Figure 10. - 43 - PUBLIC POLICY INSTITUTE OF CALIFORNIA Board of Directors Thomas C. Sutton, Chair Chairman & CEO Pacific Life Insurance Company Edward K. Hamilton Chairman Hamilton, Rabinovitz & Alschuler, Inc. Gary K. Hart Founder Institute for Education Reform California State University, Sacramento Arjay Miller Dean Emeritus Graduate School of Business Stanford University Ki Suh Park Design and Managing Partner Gruen Associates Constance L. Rice Co-Director The Advancement Project Walter B. Hewlett Director Center for Computer Assisted Research in the Humanities David W. Lyon President and CEO Public Policy Institute of California Raymond L. Watson Vice Chairman of the Board Emeritus The Irvine Company Carol Whiteside President Great Valley Center Cheryl White Mason Vice-President Litigation Legal Department Hospital Corporation of America Advisory Council Clifford W. Graves General Manager Department of Community Development City of Los Angeles Daniel A. Mazmanian C. Erwin and Ione Piper Dean and Professor School of Policy, Planning, and Development University of Southern California Elizabeth G. Hill Legislative Analyst State of California Dean Misczynski Director California Research Bureau Hilary W. Hoynes Associate Professor Department of Economics University of California, Davis Andrés E. Jiménez Director California Policy Research Center University of California Office of the President Norman R. King Executive Director San Bernardino Associated Governments Rudolf Nothenberg Chief Administrative Officer (Retired) City and County of San Francisco Manuel Pastor Professor, Latin American & Latino Studies University of California, Santa Cruz Peter Schrag Contributing Editor The Sacramento Bee James P. Smith Senior Economist RAND Corporation PUBLIC POLICY INSTITUTE OF CALIFORNIA 500 Washington Street, Suite 800 O San Francisco, California 94111 Phone: (415) 291-4400 O Fax: (415) 291-4401 www.ppic.org O info@ppic.org" ["post_date_gmt"]=> string(19) "2017-05-20 09:38:02" ["comment_status"]=> string(4) "open" ["ping_status"]=> string(6) "closed" ["post_password"]=> string(0) "" ["post_name"]=> string(10) "op_605saop" ["to_ping"]=> string(0) "" ["pinged"]=> string(0) "" ["post_modified"]=> string(19) "2017-05-20 02:38:02" ["post_modified_gmt"]=> string(19) "2017-05-20 09:38:02" ["post_content_filtered"]=> string(0) "" ["guid"]=> string(52) "http://148.62.4.17/wp-content/uploads/OP_605SAOP.pdf" ["menu_order"]=> int(0) ["post_mime_type"]=> string(15) "application/pdf" ["comment_count"]=> string(1) "0" ["filter"]=> string(3) "raw" ["status"]=> string(7) "inherit" ["attachment_authors"]=> bool(false) }