Back in January, Gov. Arnold Schwarzenegger – still stinging from a unanimous round of losses in the 2005 special election – decided to focus on infrastructure as a way to change the subject and exhibit political leadership as he prepared to run for re-election. Calling his idea the “Strategic Growth Plan,” he called for a huge set of bond issues over the next decade to supplement other infrastructure funding in order to meet the state’s growth needs (see CP&DR Insight, February 2006).

Politically, Schwarzenegger’s strategy worked. Sacramento has talked of little else in the planning and development arena this year besides “the infrastructure bond.” In the end, the Democrats decided it was good politics to sign on.

As a result, this November California voters will be asked to approve a $37 billion bond package (in four different pieces) endorsed by both Schwarzenegger and the Democrats. The components, roughly speaking, are:

• $20 billion for transportation
• $10 billion for education
• $4 billion for flood protection
• $3 billion for housing

This is approximately $1,000 per resident – a lot even in California. There is no question that if the bond package passes (along with an open space bond that qualified via initiative), the resulting projects will have a profound impact on the way California grows. But the nature of that impact isn’t clear. The bond package contains little in the way of new policy language about growth management.

If the state follows existing laws and policies – for example, the requirements of AB 857, passed in 2002 – the bonds could create a new set of infrastructure policies focused much more on smart growth goals. AB 857 requires all state actions to promote three growth goals – infill development where possible, compact development on greenfield sites, and preservation of agricultural and open space land. However, pressure to use state infrastructure bonds for pork barrel purposes usually is so strong that such goals fall by the wayside. As it stands, most of the money that could be devoted to smart growth purposes is contained in a $1 billion pot of funds in the housing bond; another half billion is in the environmentalist-sponsored open space bond.

Schwarzenegger’s original package focused almost exclusively on transportation, education, and flood protection. The Democratic criticism was that the package ignored housing and parks/open space – two areas of “infrastructure” that have traditionally been identified more with Democrats than Republicans. In the end, Schwarzenegger caved on housing, as everyone knew he must, given high housing prices and the power of the homebuilding lobby with the Republicans.

But the Democrats folded on parks and open space. In order to put the state’s bond package on the ballot, Democratic lawmakers agreed to focus the natural resources bond on only levee protection and flood control, rather than attempting to expand it to include parks and open space.

However, environmentalists have placed a separate $5.4 billion parks/open space bond on the ballot this fall – a measure they were working on long before Schwarzenegger introduced his proposal last January. Meanwhile, a long-delayed $10 billion bond for high-speed rail will be delayed again. Passed by the Legislature in 2002, the bond was originally scheduled for 2004, then bumped to 2006. Now it will likely be postponed again to 2008 because it is not part of Schwarzenegger’s infrastructure vision.

Unlike local bonds, state bonds do not increase taxes. State bonds are, in effect, a pre-allocation of the state’s general fund, requiring the state to pay principal and interest on the bonds before available funds are spent for other purposes. And when the state passes huge bond issues such as those proposed this year, the money is not borrowed all at once. If the bond package and the open space bond pass, the state will likely borrow the money over a period of several years.

When interest groups such as environmentalists qualify a bond measure for the ballot, it’s generally clear to the voters what they are buying. That’s because the enviros have to specify the uses of the money to gain the support of the local organizations who help gather signatures to place the measure on the ballot. (For parks and open space bonds, this is typically called the “park barrel” approach.)

But when the Legislature places bond measures on the ballot, it’s not always so clear what the money is going to be used for. That’s because the Legislative deal often occurs late at night after lengthy negotiations. This year, the bond package passed the Legislature at 12:30 a.m., and even some of those involved admit to being a bit fuzzy on the details.

More than half the money will go to transportation – a switch from recent years, when K-12 education has gotten the biggest chunk – and this huge pot of funds holds vast potential to encourage either sprawl or smart growth. More than $6.5 billion is earmarked for large projects to be determined by the California Transportation Commission, including a $2 billion infusion into the cash-starved State Transportation Improvement Program and a new $4.5 billion pot of money focused on high-congestion highway corridors. But another $4 billion would be earmarked for rail and bus capital expenditures, presumably allowing local transit agencies to complete big-ticket lines in the Bay Area and Los Angeles. Other pots include $1 billion to local governments for transportation improvements, $1 billion for the Highway 99 corridor, and $2 billion for “trade corridors” (see Public Development).

The $4 billion flood control bond would flow almost entirely to levee reinforcement in the Central Valley – an issue that became hot after Hurricane Katrina struck Louisiana. Unlike past efforts, the $10 billion school bond has significant pots of money for special purposes, such as charter school facilities ($500 million) and small schools (a $200 million fund that could promote smart growth). Most of the funds, however, are allocated to K-12 and higher education modernization, and new construction and will flow through the Department of Education.

Which brings us to the housing bond. Schwarzenegger got reamed by homebuilders and affordable housing advocates for leaving housing out of the original infrastructure bond proposal – especially because funds available under 2002’s Proposition 46 are running out. As approved by the Legislature, about $2 billion of the $3 billion housing bond would replenish existing state housing programs.

The other $1 billion would go for infill and smart growth. As usual, the details are vague, but $850 million is earmarked for “regional planning, housing, and infill” and another $200 million for infrastructure improvements in older urban neighborhoods that would receive infill development. However, not even Department of Housing and Community Development officials are clear yet as to what the $850 million would be used for.

Meanwhile, the environmentalist-sponsored open space bond contains a pot of $580 million for “sustainable communities.” This money would go mostly to local parks but about $200 million would go to joint use and “smart land use” projects.

The bottom line: If voters approve the bonds, most of the money will probably be doled out in pork barrel fashion, with little consideration for the impact on the state’s overall growth patterns. The transportation bond is tilted toward highways, not transit. Some small but significant pots of money could be available for infill and smart growth, especially in the housing bond. If a Democrat beats Schwarzenegger, it’s possible that the new administration could use AB 857 as a smart growth lever. But if interest rates keep going up and housing production slows down, even that seems unlikely.