A panel of experts convened by the Keston Institute for Public Finance and Infrastructure Policy last week illuminated some sobering realities regarding the funding of California’s infrastructure. Despite billions approved by the voters in 2006, only 5 percent of those funds have been released to agencies to spend.
Two years ago, as the various bond proposals began to surface, the institute proposed some simple guidelines for selecting projects: leverage other funding sources, provide environmental remediation and be part of a regional or statewide solution.
Unfortunately another “not exactly” occurred. Instead of the bonds serving as seed capital to attract much-needed private investment and pooled public funds, they have become the “main event.”
Additionally, rather than being a key part of project selection, environmental effects are dealt with during the review process, where California Environmental Quality Agency related issues are sure to cause delays.
Finally, any sense of system-wide or regional solutions went out the window as various communities of interest tried to elbow their way to the front of the line.
Although the process will no doubt improve as the procurement pipeline opens up, the long-term view is not rosy.
The financial impact of California’s ongoing structural budget’s inability to provide essential infrastructure cannot be ignored. Because the debt service (principal and interest payments) for general obligation bonds is paid from the state’s general fund, funding infrastructure in this fashion is unsustainable. Each dollar paid for debt service is a dollar unavailable for other programs.
Faced with funding popular, and often obligatory, programs in education and public safety, or building and maintaining infrastructure, guess what the Legislature will do.
As long as bonds are one of the multiple pots of money from which to fund infrastructure, they quickly can become the de facto sole source. Current revenues allocated to transportation or flood control can be shifted to other programs to balance shortfalls and the loss backfilled with bond monies. This occurred during the current budget cycle with transit funding, and who knows what it will look like with housing and construction in a downturn.
Faced with recurring deficits, one logically might consider some combination of spending cuts and revenue increases. But with the Legislature refusing to touch this imponderable problem, we need to look at what else we can do.
We can start from the premise that infrastructure conveys benefits. Some of these benefits accrue to society in general and some to one group more than others. When state and federal politicians lost the stomach to increase these taxes to keep up with inflation, we needed other sources of funding.
Who Benefits And Who Pays
Enter the “self-help” counties and the directed sales taxes of Proposition 42 with less of a connection between who benefits and who pays. These funds were never enough to close the enormous backlog of needs, so the infrastructure bonds were proposed where everyone gets to pay, regardless of how much (or how little) they benefit.
As an alternative to the “everybody pays” model of general debt, the state should look to revenue-backed debt supported by user fees. In the case of highways, this would mean widespread use of direct tolls or “shadow tolls” possibly paid from revenues generated by an increase in the gas tax. These toll roads could be operated by a private entity through a public-private partnership that the governor favors or a public or quasi-public infrastructure corporation. The form doesn’t matter. Doing it does.
If the 2006 bond funds are frittered away on pet projects that don’t add up to a workable whole or used covertly to balance the budget, will anyone be surprised when next time they’re asked to support infrastructure, the voters just say “No!”?
Richard G. Little is director of the Keston Institute for Public Finance and Infrastructure Policy at USC, a non-partisan research center.