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FUNDS DEDICATED FOR STATE AND LOCAL INFRASTRUCTURE
Legislative Constitutional Amendment

THE QUESTION

Should the California Constitution be amended to require specified percentages of General Fund revenues to be committed to pay-as-you-go infrastructure projects for state and local governments?

THE SITUATION

California has hundreds of billions of dollars invested in public infrastructure. This includes facilities and structures for water resources, transportation, higher education, natural resources, criminal justice, health services, and office space. In addition, the state provides funds for local infrastructure, including K-12 schools and community colleges, streets and roads, parks, water treatment, flood control, and jails. This infrastructure, from time to time, requires modernization or expansion. State infrastructure needs are estimated at $54 billion over the next five years.

At present the only major dedicated revenues are for transportation (highways and mass transit). In the past five years the state has spent about $2.3 billion annually on that infrastructure. Most state infrastructure projects use funds from general obligation bonds that must be presented to the voters for approval, or lease-revenue bonds approved by the legislature and repaid out of rent payments. The state has spent about $4.2 billion of bond proceeds annually over the past five years. Direct General Fund appropriations, called “pay-as-you-go financing,” have totaled about $275 million annually in the past five years.

THE PROPOSAL

• establishes an infrastructure investment fund and commits a percentage of the General Fund for “pay-as-you-go” infrastructure projects
• requires the Legislature to allocate the funds annually–50 percent for state-owned projects and 50 percent for local government projects, other than schools and community colleges
• transfers 1 percent of General Fund revenues to the infrastructure fund beginning with the 2006-07 fiscal year, and increases transfers to the fund annually over several years to a maximum of 3 percent of General Fund revenues. Transfers would be subject to increase, decrease, or suspension with revenue increases and decreases.
• reduces the transfer rate if growth in the Proposition 98 school funding guarantee exceeds the percentage growth in revenue. Caps transfers so that total of transfers plus debt payment for bonds would not exceed 7.5 percent of revenue.

FISCAL EFFECT

The amount of transfers from the General Fund to the infrastructure fund is difficult to determine. The Legislative Analyst’s estimate for 2006-07 is $850 million, increasing to several billion dollars when transfers reach the 3 percent maximum rate.

SUPPORTERS SAY

• The Legislature has failed to keep up with critical infrastructure needs such as highways, water systems, and universities in California, and that is damaging both our economy and our quality of life.
• Proposition 53 would meet those needs without raising taxes by requiring a stable pay-as-you-go system of infrastructure financing.

OPPONENTS SAY

• Less than 30 percent of the state budget is currently discretionary. Proposition 53 locks in spending increases out of limited existing revenues, meaning that the money will come at the expense of other important services such as education, health care and public safety.
• It is a blank check with no oversight or guidelines, which will allow more pork barrel spending by the Legislature.

For more information:

Supporters: Yes on California’s Future, Yes on Prop 53; 916-444-5701; www.yeson53.org
Opponents: California Tax Reform Association; 916-446-4300

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