The Schwarzenegger administration's proposed state budget for the 2010-11 fiscal year promises more of the same, as the spending plan mostly mirrors the current year's version in regards to local government funding, infrastructure and land conservation.

The spending plan provides no money for local transit, offers no subventions to counties for implementing the Williamson Act agricultural land conservation program, and again tries to eliminate the Governor's Office of Planning and Research (OPR). The governor has also resurrected a proposal for additional offshore oil drilling leases in the Santa Barbara Channel, with the $100 million in annual lease revenues funding state park operations. 

The state budget will be the dominant issue in Sacramento during the 2010 legislative year, just as it was during 2009. A number of legislative priorities have already been washed away amid the red ink. State Senate President Pro Tempore Darrell Steinberg (D-Sacramento) is limiting senators to eight bills this year, rather than the typical 20. Steinberg himself pulled the plug on his SB 500, which would have established a permanent funding source for affordable housing.

Although the governor has not formally proposed taking additional revenues from cities, counties or redevelopment agencies, rumors persist that a new $2 billion shift away from redevelopment agencies is in the works.

The state is facing a shortfall of about $20 billion for the current and next fiscal year. The administration proposes to bridge the gap partly by getting the federal government to provide an additional $6.9 billion and to allow the state to divert $1 billion in federal money designated for elderly and disabled people to other programs. Thus far, Congress and the Obama administration have been cool to the state's pleas. In a budget analysis, the state Legislative Analyst's Office (LAO) said, "While the odds seem favorable for some federal relief sought by the administration, we believe that the likelihood of Washington agreeing to all of the governor's requests is almost non–existent."

Under one proposal, the state would eliminate the 5% (temporarily 6%) sales tax on gasoline and add 10.8 cents per gallon to the existing 18-cent gasoline excise tax. This proposal would do two things: It would eliminate a dedicated funding source for transit capital development and operations, saving the state $1.5 billion. Second, because the gas sales tax goes into the general fund but excise tax revenues flow to a special fund, the state's Proposition 98 obligation to schools (which is based on the general fund) would be reduced.

The proposal appears to be a direct reaction to a court ruling last year in which the Third District Court of Appeal held that the state had to pay back about $1.2 billion it diverted from transit agencies during the 2007-08 fiscal year. Although the state has continued the diversion in years since, the court ruled that Proposition 42 and Proposition 1A from 2006 protect the revenues for transit purposes.

League of California Cities Executive Director Chris McKenzie said the governor would "destabilize local infrastructure funding." Plus, he noted, the state just last year attempted to take $1 billion in gas excise tax revenue that was legally dedicated to local governments for road maintenance.

"This is just the kind of Byzantine proposal that we've seen from the state over and over again in recent years that erodes voter confidence in state government," McKenzie said.

Although the California Transit Association is fighting the governor's plan vigorously, spokesman Jeff Wagner noted, "This proposal exists only as a proposal advanced by the governor. It is, frankly, hard for us to see how the leadership in the Legislature will accept this when it results in a net decrease in revenues for the short-term."

In addition, the governor would shift money currently available for highway expansion into maintenance and rehabilitation accounts, according to the LAO, which suggests increasing the gas tax.

On a different front, the governor has proposed continuing the elimination of subventions to counties that implement the Williamson Act, which provides tax breaks to agricultural landowners who agree not to develop their land for at least 10 years (see CP&DR, August 15, 2009). Since lawmakers approved that plan last summer, a number of counties have stopped enrolling new properties in the land conservation program.

Also like last year, the governor has proposed eliminating OPR. That plan went nowhere last year because lawmakers declined to approve legislation to shift statutory duties to other agencies. Still, the governor has revived the issue. Department of Finance language is murky, but OPR's duties would apparently be handed to the Natural Resources Agencies and the Department of Housing and Community Development. 

The oil-drilling-for-parks proposal may be the most intriguing idea contained in the governor's budget. One year ago, the State Lands Commission voted 2-1 against allowing Plains Exploration and Production Company (PDX) to tap the Tranquillon Ridge Field off the Santa Barbara County coast. Although state law prohibits new oil drilling in state waters, PDX proposed slant drilling from an existing oil platform to reach Tranquillon Ridge. The drilling would provide the state with about $1.8 billion over 14 years, including $100 million up front. In addition, PDX in 2008 cut a deal with local environmental groups in which the oil company agreed to shut down three other platforms in the area and to donate 3,900 acres to the Trust for Public Land. The groups, including the influential, Santa Barbara-based Environmental Defense Center, agreed to endorse the drilling.

Schwarzenegger attempted to go around the State Lands Commission – composed of the lieutenant governor, the controller and the finance director – last year, but lawmakers refused to cooperate. Since then, John Garamendi resigned as lieutenant governor after winning a seat in Congress, and Schwarzenegger nominated Republican state Sen. Abel Maldonado to be lieutenant governor. Assuming Controller John Chiang maintains his opposition to the PDX project, Maldonado could be the swing vote. However, Maldonado is from Santa Maria, and oil drilling is controversial along the Central Coast. He voted against the project last year.

While many state and national environmental organizations oppose the oil drilling, they also oppose Schwarzenegger's state parks closures and cutbacks. Schwarzenegger now proposes to use $140 million of the oil drilling revenues for parks during the 2010-11 fiscal year and to continue dedicating the revenue to parks.

The LAO has urged lawmakers to take action on a spending and revenue plan by the end of March because time will be needed to enact proposals and to get measures related to social services and education spending on the June ballot.

In the meantime, advocacy groups are working on their own ballot measures. The League of California Cities, the California Redevelopment Association and the California Transit Association are gathering signatures on a measure that would add further protections to local government, redevelopment, transportation, and transit revenues. A group called Conservation Strategy Group supports a measure that would add $18 to vehicle registration fees, with the revenue designated for state parks in exchange for free access to state parks. Numerous other measures are circulating that would require reassessment of commercial properties, reduce the two-thirds vote required in the Legislature for the budget, and otherwise alter how the state makes budget decisions.

Resources:
Legislative Analyst's Office: www.lao.ca.gov.
Governor's proposed budget: www.ebudget.ca.gov.
California Transit Association: www.caltransit.org.
Secretary of State's initiative and referendum list: www.sos.ca.gov/elections/ballot-measures/initiative-referendum-status.htm.