Policy Study

Addressing California’s Transportation Needs

Problems with Proposition 1B and Alternative Approaches

Executive Summary

California’s population is projected to reach 48 million by 2030, an increase of 11 million people. The majority of this growth will occur in the state’s three major urban regions (Los Angeles, San Francisco, and San Diego). Vehicle miles traveled by individuals will increase by 30 to 50 percent in these regions, with truck traffic growing even faster, especially in greater Los Angeles. Yet California’s urban freeway systems are already nearing capacity, with pervasive congestion during ever-lengthening peak periods.

By 2030, if current long-range transportation plans are implemented, congestion in the three largest urban areas will be much worse than today’s already intolerable levels. The Los Angeles metro area already leads the nation in congestion, with the Bay Area ranking fourth. To eliminate the most severe congestion requires adding enough highway capacity to more than keep pace with projected growth in vehicle travel. A recent Reason Foundation study projects that between now and 2030, California would need to add 13,132 new lane-miles to do this. That amount of new capacity would cost $122 billion, or about $5 billion per year over 25 years.

While these are not small numbers in any sense, they are reasonable in the grand scheme of transportation spending. In response to this growing crisis, California’s leaders have offered a dismal response.

Proposition 1B, the Highway Safety, Traffic Reduction, Air Quality, and Port Security Bond Act of 2006, would authorize more than $19.9 billion in General Obligation debt, with an annual debt service of $1.3 billion and a total cost to taxpayers of approximately $38.9 billion. The funds would be spent as follows:

  • $4.5 billion to congested highway capacity projects
  • $2 billion to highways, local roads and public transit systems
  • $2 billion to local roads
  • $1 billion to State Route 99 through the Central Valley
  • $1.75 billion to local transportation projects and to state highways.
  • $4 billion to capital projects for local transit systems and intercity rail systems.
  • $2 billion to goods movement via ports, highways and rail
  • $1.2 billion to reduce air emissions and replace/retrofit old school buses.
  • $1.1 billion to security and disaster response on transit systems and in publicly owned ports and harbors
  • $325 million to railroad crossings and to retrofit local bridges and overpasses

While that is an impressive looking list and it would seem that $19.9 billion could make a substantial improvement to the state’s transportation system, only a limited portion of this money will be used to invest in new infrastructure, and an even smaller portion for new roads and highways. Most funds may go to ongoing maintenance and rehabilitation and to other noninfrastructure uses such as retrofitting buses or improving security on local transit systems. And since most of the money will be apportioned by the legislature if Proposition 1B is approved, we should expect plenty of it to go to local pork barrel projects.

This attention to California’s transportation infrastructure is overdue, but good intentions and recognition of the problem alone do not make good public policy. In reality, this bond proposal is an easy way for California’s leaders to look as if they’re addressing the congestion problem while passing the buck on to future generations and making very little in the way of real long-term improvement.

Californians recognize these doubts. In spite of the overwhelming support for the bond among state leaders and groups like AAA, the Chamber of Commerce, etc., the latest PPIC survey shows only 50 percent of likely voters say they would vote yes on Proposition 1B if the election were held today.

Even more damning is an innovative survey conducted by researchers from San Jose State University and Portland State University as a project for the Mineta Transportation Institute at San Jose State University. They surveyed Californians on different ways to fund transportation projects, and their question about using general obligation bonds like that of Proposition 1B explained that “paying off the bonds from the state’s general fund over 30 years would use money that otherwise might be spent for other state programs and services.” With that reality included, only 29.9 percent of those surveyed said they would support using general obligation bonds like Proposition 1B.

Fundamental problems with the approach of Proposition 1B include:

  • Roads should be funded by user fees. General obligation bonds paid out of general tax revenues require many Californians to pay for roads they will never use and don’t need. Gasoline taxes at least come close to relating how much you pay to how much you use the system. The use of direct fees-tolls-to pay for many new roads and lanes is increasingly popular with drivers and makes the most economic sense. Gas tax funds could then focus on roads that cannot be toll funded.
  • Proposition 1B is a drop in the bucket that would decrease momentum for long-term solutions. Many argue that something is better than nothing, but based on impact, 1B would be very close to doing nothing. The bond will not provide congestion relief on interstate freeways. A portion of the funds would be unavailable to the most of the state- $1 billion is devoted specifically to State Route 99. An unknown portion of a $2 billion component of the bond devoted to traffic safety and congestion relief may be spent on public transit. But conventional transit is unlikely to offer much in the way of congestion relief and Proposition 1B’s passage would not change that reality. If the bond passes many will be satisfied that “something” has been done about transportation when what we really need is a radical overhaul of California’s approach to transportation infrastructure.
  • Essential infrastructure ought to be a priority for general revenue funding. By allowing the legislature to bond for essential infrastructure, taxpayers remove the pressure on the legislature to prioritize the general budget. In 1960-1961 bonds accounted for only 16 percent of infrastructure funding, but by 2002-2003 the figure had grown to 76 percent. Voters have approved bond after bond, and yet here we are again. An expert panel assembled by USC’s Keston Institute “believes that the Department of Finance is singling out transportation to pay a disproportionate share of the General Fund deficit.” This bond would allow our leaders to lean on the crutch of borrowing yet again and continue their habit of shortchanging transportation in the general fund.
  • Proposition 1B allows poor prioritization to continue. State leaders and local MPOs have refused to make cutting congestion a priority. Officials hope to slow congestion’s rate of growth, but they fully expect conditions to grow much worse in the future. Policymakers claim they simply do not have the money to actually make conditions better, but that is not the case. The MPOs for our state’s three largest regions (Los Angeles, San Francisco, San Diego) plan to spend $265 billion over the next couple of decades, but the majority will go toward transit, not toward reducing congestion on our roads. Our MPOs do have the money necessary to actually reduce congestion by 2030.
    • Los Angeles plans to spend 58 percent of transportation funds on transit. Devoting the same percentage to expanding capacity would eliminate gridlock by 2030.
    • San Francisco plans to spend 64 percent of transportation funds on transit. Devoting just 25 percent of planned funds to expanding capacity would eliminate gridlock by 2030.
    • San Diego plans to spend 49 percent of transportation funds on transit. Devoting just 24 percent of planned funds to expanding capacity would eliminate gridlock by 2030.
  • California’s bonded indebtedness is already at record levels. The state issued 2.5 times as much debt in FY 2005-06 as it did in FY 1995-96, and over 10.5 times as much as in FY 1985-86. We have already authorized the state to go nearly $80 billion in debt. It is fiscally risky to increase the state’s level of debt by the amount proposed in this and the other bond measures on the November ballot.

There are three main parts to the way California ought to be approaching our transportation infrastructure needs.

First, make better use of current funds. Proposition 1B is a pork-laden mess and much less than half the money will go to projects that will relieve congestion. That is typical of our transportation spending. While transit is important and needs appropriate funding, current spending plans allocate very disproportionate funds to transit. The three largest metro areas plan to spend about $154 billion on transit over the next 25 years, vs. $109 billion on roads, and most of the road money will go to maintenance and upgrades, not new capacity. If even one-third of the money going to transit were shifted to roads we could get three to five times more congestion relief than Proposition 1B will accomplish.

Second, give transportation its share of the budget. We used to devote a reasonable share of the general fund to transportation infrastructure. Now, even though the state budget has grown considerably, we don’t devote the same share of general fund revenue to infrastructure that we used to. If Proposition 1B passes, we will pay $38.9 billion to get less than $20 billion in current funds for projects, and we’ll be paying for that with about $1.33 billion each year out of the general fund. It makes more sense to take a responsible look at our bloated budget and cut less essential spending so that we could allocate about $4-5 billion per year out of the general fund for what is surely one of the most core functions of the state. Some bonding for large infrastructure investments might still be good policy, but prioritizing spending of the revenue we have should come first. We have plenty of good examples of such an approach. Nineteen counties in California have put in place local sales taxes for local transportation funding and used them to combine pay-as-you-go financing with bonding.

Third, California is falling far short of making full use of public-private partnerships for transportation projects. We are far behind states like Virginia, Massachusetts, and Florida in outsourcing highway maintenance, which would free up gas tax funds to help fund new road projects. More importantly, the private sector would happily invest capital in providing major new highway projects. If we aggressively pursued PPPs and tolled some of the new facilities and lanes added, private capital could fund at least 25 percent of what the bond could do if all the bond funds were spent on roads.

We recommend improving an existing public-private partnership law to incorporate state-of-the-art learning on this issue. The legislation would authorize both CalTrans and other levels of government (cities, counties, joint powers authorities, etc.) to initiate toll-funded transportation infrastructure projects, and permit them to partner with the private sector to carry out such projects, using both RFPs and procedures for dealing with unsolicited proposals. The appropriate approval process would occur within the responsible government entity (the MPO, or CalTrans, for example). This would enable California to enter the global capital markets, as well as tap worldclass expertise for modernizing its vitally important highway system. With the private sector to provide investment for these large-scale projects, scarce public money can be spent on things only the public sector can do.