Major efforts are under way to provide money to upgrade and expand infrastructure in California, but even some backers of the funding proposals appear skeptical that state lawmakers will approve anything major this year. There are two approaches in Sacramento these days. One would make it easier for local government to raise revenue by reducing the two-thirds voter requirement for special taxes and local bonds. The second approach relies on state bonds. More than a dozen bills in the Legislature take one of these two approaches. But there are major hurdles these measures must cross to become law. Changing the voter threshold requires amending the state constitution — and tinkering with Proposition 13 — and any constitutional amendment needs a two-thirds vote in the Legislature. Therefore, a handful of Republican votes are needed in both houses. Bill sponsors and Democratic authors acknowledge those votes will be tough to round up. Even if the constitutional amendments survive the Legislature, they would require state voter approval. The state budget deficit of roughly $30 billion could decrease the possibility of passing the bonds, both in the Legislature and at the ballot box. California's debt service is about 4% of the state budget, which is on the low side of the historic level. But whether lawmakers will vote for billions of dollars worth of bond indebtedness when the state is facing its biggest budget deficit since the Depression is uncertain. Plus, the March 2004 ballot already has a $12.3 billion school bond, as well as a measure that calls for the state to adopt a pay-as-you-go strategy. The November 2004 ballot already has a $9.95 billion high-speed rail bond. California's need for capital investment is indisputable. Numerous state panels, interest groups and academics have documented both the backlog in providing public facilities and the demands of accommodating about 1,500 additional California residents every day for the next 40 years. A comprehensive study of the state's highway, water and education facilities released in March by the Public Policy Institute of California (PPIC) paints a picture of near desperation. "The state is out of highway capacity, mobility is plummeting, and access to educational facilities is becoming even more difficult despite the realization of the overarching importance of having a well-educated labor force," PPIC's David Dowel and Jan Whittington wrote in their study. "The crunch in the water sector is coming at the precise time of an awareness that water resources must be managed differently — balanced among environmental, urban and agricultural sectors." In "Making Room for the Future: Rebuilding California's Infrastructure," Dowall and Whittington reported that California has dramatically reduced its capital investment in recent decades. From 1945 to 1970, annual per capita investment in capital facilities ranged from $100 to $160 (in 1996 dollars). By the late 1990s, that investment was at $30 annually per person (in 1996 dollars), which was actually an increase from the 1980s and early 1990s. At the same time that investment has shrunk, the state has failed to plan, or at least failed to follow plans. Capital investment is based on the "pork-barrel method," Dowall and Whittington charged. "Three forces put the brakes on California's infrastructure program," the PPIC researchers wrote. The first was the opposition to public spending by Ronald Reagan, who was governor from 1967 through 1974. During Reagan's term in office, the environmental movement blossomed. And in 1978, voters approved Proposition 13, which required two-thirds voter approval for new local taxes and bond measures. Dowel and Whittington make five major recommendations: • Develop coordinated, regional land use, transportation and infrastructure plans. • Introduce demand management, such as higher bridge tolls during peak hours, discounted or free transit passes, pricing that encourages water conservation, and year-round higher-education. • Raise user fees, such as the gasoline tax and vehicle license fees, while also implementing offsets so that poor people are not disproportionately impacted. • Improve project accountability and delivery. • Earmark money for operating and maintaining capital facilities up front. Some of these proposals appear to be a bit radical for state lawmakers and the administration. It is difficult to imagine, for example, anyone in Sacramento embracing the recommendation that California double the gasoline tax over five years. Still, some bills introduced this year inch toward the PPIC model. Several bills consider both land use planning and transportation. Lawmakers are talking about a modest increase in the gasoline tax. And more efficient project delivery is a hot topic, especially at Caltrans. Bills that seek to lower the voter threshold for local sales taxes to fund transportation projects have appeared in various forms in the Legislature for about five years. The Assembly has been a graveyard for those bills. Pressure is mounting, though. Eighteen counties — which have about 85% of the state's population — have a sales tax override for transportation. Half a dozen of these taxes are scheduled to expire within five years, and a majority of the taxes will expire within 10 years. If taxes that expire by 2010 are not renewed, local transportation agencies would not get a projected $48 billion over 20 years, according to a fact sheet from the Office of Sen. Tom Torlakson (D-Martinez). In the Bay Area, roughly 60% of transportation funding comes from local sales tax overrides. The original taxes were adopted with majority approval of the local electorate. However, the state Supreme Court in 1995 ruled that these special taxes require two-thirds voter approval under Proposition 62 from 1986 (Santa Clara County Local Transportation Authority v. Guardino, 11 Cal.4th 220; see CP&DR Legal Digest, November 1995). Since then, Santa Clara, Alameda and Riverside counties have received the necessary two-thirds vote for a sales tax override. All were extensions of an existing tax. Last November, however, new or extended sales taxes received majority approval, but fell short of the two-thirds threshold, in Fresno, Merced and Solano counties. "Achieving the two-thirds threshold is extremely difficult," said Laura Stuchinsky, director of housing and transportation for the Silicon Valley Manufacturing Group. The business organization is supporting efforts in the Legislature to lower the threshold to majority vote or 55%. "The only way we're going to be able to meet the transportation needs of Californians is to at least have the option of extending a sales tax measure," Stuchinsky said. If the Legislature does not approve a measure this year, Silicon Valley Manufacturing Group will pursue an initiative that reduces the voter threshold in 2004, Stuchinsky said. Two bills, SCA 11 (Alarcon) and ACA 14 (Steinberg), encompass several topics. They would allow a majority of voters to impose special taxes or issue bonds for transportation, housing, and open space — and allow local governments to use up to 25% of new revenues for anything. The idea is to provide money for related things, said Kristi Kimball, deputy California director for the Surface Transportation Policy Project, which is sponsoring the bills. California does not always get the most out of its transportation investments, Kimball contended. She pointed to the unwillingness in some communities to allow high-density, mixed-use development near rail transit stations. "For transportation investments to work well, they need to be well-aligned with the land use policies of a community," she said. The California Chapter of the American Planning Association (CCAPA) appears to agree. "Cities and counties need options to raise local revenue to support smart growth and encourage housing production," CCAPA President Collette Morse said early this year. "We are calling for lower voting requirements on local general obligation bonds." Meanwhile, first-term Assemblyman Lloyd Levine (D-Van Nuys) has introduced two bills that do not carry the "smart growth" tag but still intend to get more money in local government accounts. Assembly Constitutional Amendment 9 would cut the voter threshold for special taxes from two-thirds to a simple majority, while ACA 11 would allow approval of local general obligation bonds for infrastructure with a 55% vote. "Given California's lack of commitment to dedicate money to infrastructure, we need to make it easier for folks at the local level if they feel they have needs to address," said Marc Engstrom, a Levine aide. At least five lawmakers, all Democrats, have introduced measures to reduce the voter threshold for imposition of local taxes (see sidebar). The bills emphasize different things (transportation, housing, open space, "smart growth planning," etc.), and some allow for majority approval rather than 55% approval. Sources at the Capitol said it is likely — but not certain — that the authors will negotiate on a consensus bill. If there is a consensus bill, it will probably take the 55% route because state voters in 2000 approved a measure allowing school bond passage with 55% approval. Eight months earlier, state voters rejected a measure allowing school bond passage with a simple majority. But before voters get the opportunity to decide, Democrats will need to win several Republican votes in the Legislature. That seems doubtful. Republicans also are reluctant to support bond proposals, which, like constitutional amendments, require a two-thirds vote of both houses to qualify for the ballot. Instead, many Republicans have endorsed last year's pay-as-you-go ACA 11 (Richman), which requires the state to set aside money for infrastructure, depending on the state's fiscal health. If voters approve that constitutional amendment next March, the state would set aside 1% of revenues for state and local infrastructure as soon as the 2006-07 fiscal year. The set-aside would grow slowly until it reached 3% of total revenues. Proposed bonds cover the spectrum — transportation, water and sewer facilities, housing, economic development. The largest is Torlakson's SB 321, a $15 billion super bond that would provide a mix of grants and loans for a number of things that Torlakson has championed during recent years, including public transit, bicycle and pedestrian facilities, better distribution of jobs, and infrastructure for infill and mixed-use developments. A more typical bond has been proposed by another East Bay lawmaker. Assemblyman Joe Canciamilla, D-Pittsburg, has introduced a $7.9 billion water bond. It would provide money for almost every type of water project imaginable — additional surface water and groundwater storage, cleanup of groundwater, sewage treatment facilities, desalination plants, watershed management, flood control and more. The bond would provide money for the state's first major investments in water storage in more than 30 years. Administrators of the Cal-Fed Bay-Delta Project would decide on the water storage projects to be funded. Environmental groups are already lining up against the bill because of the water storage provisions; however, a coalition of environmental justice groups has endorsed the bond. A Senate Local Government Committee bill analysis questions whether now is the time for large bonds. "Facing an unprecedented and staggering budget deficit, legislators must rethink their fiscal priorities," the analysis states. "Can legislators embrace more state general obligation bonds and still cut state spending and raise revenues? Will the obligations for paying the bonds' principle and interest cut into the remaining general fund?" Lawmakers' answers to those questions during the coming months are likely to have a significant impact on funding for infrastructure in California. Legislating For Dollars Numerous bills in the Legislature address infrastructure funding. Here are some of the most important proposals. • ACA 7 (Dutra) reduces the voter requirement for a local sales tax override to fund transportation projects from two-thirds to 55%. • ACA 9 (Levine) lowers the voter requirement for any special tax from two-thirds to majority. The bill also raises the voter requirement for general taxes from majority to two-thirds. • ACA 11 (Levine) allows local governments to issue general obligation bonds — which would increase property taxes — for infrastructure projects if 55% of voters approve. Those bonds currently require a two-thirds vote. • ACA 14 (Steinberg) lowers the voter approval requirement for a special tax imposed by a local government from two-thirds to majority. The special tax revenue would have to fund local infrastructure or quality of life projects, including affordable housing development, open space acquisition and an undefined category called "neighborhood improvements." • AB 93 (Canciamilla) is a $7.9 billion water bond. The bond would provide money for a wide variety of water-related projects, including $2.1 million for a new "surface water storage account." • AB 427 (Longville) deletes a 20-year limitation on sales tax overrides that fund transportation projects. • AB 531 (Kehoe) is a $10 billion infrastructure and economic development bond, which the Infrastructure and Economic Development Bank would administer. • AB 740 (Pavley) places a $2.9 billion air, water and coastal protection bond on the 2004 ballot. Among other things, the bond would provide $200 million for urban stormwater runoff projects, $50 million for small community wastewater projects, $50 million for small community groundwater protection projects, and $300 million for upgrading rivers and parkways. • AB 1066 (Liu) is a $700 million bond to fund seismic safety projects at local government buildings. The bond would be on the ballot in 2004. • AB 1412 (Wolk) allows about 25 specified cities to impose a quarter-cent or half-cent sales tax with approval of two-thirds of voters. • SCA 2 (Torlakson) reduces the voter requirement for local sales tax overrides for transportation and "smart growth planning" from two-thirds to majority. • SCA 11 (Alarcon) lowers the voter requirement for local governments to issue general obligation bonds from two-thirds to simple majority. The bonds could fund infrastructure projects, construction of affordable housing and open space acquisition. The bill also reduces the voter requirement for special taxes to fund these things from two-thirds to simple majority. • SB 21 (Machado) provides detailed administrative guidelines for awarding money from Proposition 50, a $3.4 billion water and coastal protection bond approved in 2002 (see CP&DR Public Development, April 2002). Among other things, the bill provides preferences for poor communities and projects that provide a "net environmental benefit." • SB 321 (Torlakson) is a $15 billion bond to fund a wide variety of things. It would provide $8 billion for transportation projects, including projects cut short when the state abandoned the Traffic Congestion Relief Fund. The California Infrastructure and Economic Development Bank would get $4 billion, half specifically to facilitate development in urban and older suburban areas. The bond also would provide $3 billion for housing — $2.5 billion for the existing multi-family housing program, and $500 million for a four-county program in the Bay Area and northern San Joaquin Valley to improve the jobs-housing balance. • SB 518 (Escutia) sets new rules for allocating money from Proposition 50. The bill provides preferences for projects that benefit certain high-density areas that rely on groundwater and projects that aid poor communities. The bill also exempts poor communities from matching fund requirements. • SB 566 (Scott) raises the cap on the local sales tax override in Los Angeles County from 1.5% to 2%. Contacts: Laura Stuchinsky, Silicon Valley Manufacturing Group, (408) 501-7851. Marc Engstrom, Office of Assemblyman Lloyd Levine, (916) 319-2040. Kristi Kimball, Surface Transportation Policy Project, (415) 956-7835. Office of Sen. Tom Torlakson, (916) 445-6083. Public Policy Institute of California infrastructure report: www.ppic.org/main/publication.asp?i=399