This constitutional amendment sets aside a specific percentage of General Fund revenues for "pay-as-you-go" infrastructure funding. It would transfer an increasing share of General Fund revenues each year to a Twenty-First Century Infrastructure Investment Fund, created by the measure. The transfers would begin in 2006-07, or the first year thereafter in which revenues increase by at least four percent over the prior year, after adjusting for inflation. One percent would be set aside the first year, with the percent transferred rising gradually to three percent and then remaining fixed.

The Fund would be allocated by the Legislature and divided equally between state and local projects for acquisition, construction, rehabilitation, modernization, or renovation of infrastructure. It would not be used for K-12 school and community college district projects. The Proposition 98 school funding guarantee would be unchanged.

Calculations of the amount to be transferred each year would be based on estimates by the Department of Finance and are complicated, making it difficult to estimate what transfers would actually occur in the future, and fluctuations in the amount are likely to be substantial. The scheduled increases in the percent of General Fund revenues transferred could be delayed or accelerated, depending on the rate of revenue growth. The amount transferred would be reduced or eliminated in years when revenues decline. Other adjustments would reduce the transfer amount when General Fund revenue growth is less than the percent growth in the Proposition 98 school funding guarantee and would cap the transfers so that the total of the transfers plus debt payment for bonds would not exceed 7.5 percent of revenue. The Legislative Analyst estimates the transfers to be roughly $850 million in 2006-07, growing to several billions of dollars in future years.

The state now funds state-owned infrastructure including:

• water resources (reservoirs, pumping and hydro-electric power plants, pipelines, levees, etc.)
• transportation (highways, bridges)
• higher education campuses and facilities
• natural resources (parks, forest fire stations, agricultural inspection stations)
• criminal justice (prisons and camps, juvenile institutions, crime laboratories)
• health services (mental health hospitals, development centers and public health laboratories)
• general state offices.

It has also historically provided funds for local infrastructure needs, including K-12 and community college construction, local streets and roads, parks, wastewater treatment, flood control and jails. These generally require a match of local funds. Funds are used both for construction and renovation of facilities.

In its 2003 state Infrastructure Plan, the Department of Finance estimates infrastructure needs for state-owned facilities, K-12 schools, community colleges, and local transportation systems at $54 billion over the next five years, with more than half of those needs in the area of transportation.

Transportation (highways and mass transit) is the only major state infrastructure program that now has dedicated sources of revenue, such as state gas taxes and federal funds. Approximately $2.3 billion per year has been spent from these revenues over the last five years. Other programs may be paid for by direct appropriations from the General Fund (about $275 million annually over the last five years), but most are funded through general obligation or lease-revenue bonds. Bond proceeds have been used for approximately $4.2 billion in capital expenditures annually over the past five years.

This measure was placed on the ballot by ACA 11 (Richman and Canciamilla) of 2002. It was passed by the legislature on the last night of the 2002 session as part of that year's budget package.

Some have argued that pay-as-you-go is preferable because it saves the money required to pay for interest on bonds. Proponents of this measure also argue that infrastructure needs are not being met, and that requiring a set amount to be set aside each year for those needs will provide a more stable source of funding and make for a better planning process. However, according to a chart from the Legislative Analyst's Office (LAO) showing how the process would have worked if it had been in effect over the past 20 years, there would have been considerable variations as a result of the various budget-related triggers. That calls into question how stable and predictable the process would actually be, and how well it could be used for projects that must be planned and contracted for over a number of years. The triggers take into account inflation, but not other factors such as population growth and maintenance of service levels, and might not keep the transfers from happening even if there were budget shortfalls. 

LWVC POSITIONS

League positions in areas such as Education, Land Use, Transportation and Water have been the basis for past League support of financing for infrastructure programs, primarily in the natural resources area. The League has generally supported bond measures to finance those projects. For most of those areas, our positions call for comprehensive long-range planning. Our State and Local Finances position does not directly speak to what role pay-as-you-go financing should play in financing such projects. The Position in Brief simply calls for "long-range finance methods that meet current and future needs while taking into account the cumulative impact of public debt."

League positions in opposition to the measure are support for "a process which maintains statutory authority over tax sources, rates and expenditures" and for "flexibility of revenue". The League approves "adoption of designated 'earmarked' funds and taxes only in those situations where social benefit significantly outweighs the loss of flexibility". This measure does retain the Legislature's authority to decide how the money is spent each year, but it earmarks a set amount of the General Fund for infrastructure without raising any new revenue to pay for it, meaning that the money will come at the expense of other programs. The programs that depend most heavily on the General Fund and are most likely to take cuts tend to be in the areas of health and social services. The discretionary portion of the General Fund is estimated by the nonpartisan California Budget Project at less than 25 percent. There is no sunset provision, which we advocate for earmarked funds. We opposed both Propositions 49 and 51 on the November 2002 ballot because they earmarked funds from the General Fund. This measure, unlike those, does not allocate the money in specific ways. It does, however, give the Legislature the power to appropriate the local funding to specific local projects. 

This measure is also a constitutional amendment, which goes against our Constitution position opposing "provisions which inhibit flexibility of governmental action to meet changing conditions" and "which earmark tax funds for special purposes." Our State and local finance position is unequivocal:"'earmarking' in all cases statutory rather than in the state constitution" (4.j).

• This is no time for a new program which earmarks part of the General Fund. The state budget will be tight for some time to come, even if the economy starts to recover soon. Projections are that the state will face multibillion dollar deficits for the next several years. That will mean that each year there will be hard choices to make between a number of critical programs, and we should not tie the hands of the legislature and governor.



• Prop 53 locks in spending increases out of limited existing revenues. It does not raise new revenue. The money will come at the expense of other important services such as education, health care and public safety.



• Comprehensive long-range planning is critical to building the state's infrastructure--its transportation system, water delivery systems, power plants, health service facilities, etc. Proposition 53 fails to provide stable and predictable funding which is the key to long-range planning.



• Despite the protections for hard times built into Proposition 53, it could require significant appropriations even in years when the state faces a serious budget crisis. Using data from the LAO, the California Budget Project notes that if Proposition 53 had been in effect in 1991-92 when the state faced an estimated $14.3 billion gap, a transfer of $285 million to infrastructure would still have been required. They estimate that in 1994-95 and 1995-96, when the state still faced shortfalls, transfers totaling $1.4 billion would have been required under Proposition 53.



• Although the Proposition 98 education funding guarantee would not be directly affected by Proposition 53, the earmarking of a portion of existing resources would make it more difficult for the Legislature to appropriate any more than the constitutionally guaranteed minimum for K-14 education.

The rebuttal to the supporters' arguments was signed by Jack O'Connell, State Superintendent of Public Instruction.

Marion Taylor, LWVC Legislation Director, mtayl0r@sbcglobal.net

Trudy Schafer, LWVC Program Director/Advocate, tschafer@lwvc.org
Eric Wooten, LWVC Advocacy Aide, eric@lwvc.org
820 12th Street, Suite 220, Sacramento 95814
Phone: 916-442-9210

Proposition 53: Should California Earmark General Fund Revenues for Infrastructure? California Budget Project, August 2003. Available from CBP at 916-444-0500 and at www.cbp.org/props.htm

Proposition 53: California Twenty-First Century Infrastructure Investment Fund. Legislative Analyst's Office analysis for the Voter Information Guide (state ballot pamphlet), August 2003. Available at www.lao.ca.gov/initiatives/2003/53_10_2003.htm.

Note: Please adapt this letter to your own community and check your local paper's word limit for published letters.

Editor:

Proposition 53 is a bad approach to a good cause. Yes, California's infrastructure--its transportation system, water delivery systems, power plants, health facilities, etc.--needs stable funding. However, Proposition 53 is not the way to solve this problem.

Proposition 53 is a constitutional amendment which would earmark an increasing portion of the state's General Fund to infrastructure projects, starting at one percent in 2006-07, and increasing to three percent. The Legislature would allocate the money, half to state projects, half to local projects, as it wishes, with no planning or accountability required.

The truly discretionary portion of the state's General Fund is now less than 25 percent. Let's not earmark more of it, especially not in an era of tight budgets. Vote NO on Proposition 53.

Sincerely,

(your name)