Governor Faces Dilemma Over Highway Construction Funds

Gov. George Deukmejian, about midway through his second term, faces a growing $3.5-billion deficit in the state’s highway construction program, the same predicament his predecessor, Edmund G. Brown Jr., encountered at a similar juncture in his governorship.

Republican Deukmejian, like Democrat Brown at the same point, is under strong pressure to support an increase in the gasoline tax.

Highway officials say the choice is simple: Either raise the tax or face the prospect of not having enough money for new highway construction in future years. For that reason, Department of Transportation Director Robert K. Best calls 1989 “the year of truth for us.”

In 1981, the middle of Brown’s second term, the deficit in the five-year State Transportation Improvement Program stood at $2.5 billion. The state Transportation Commission was warning then that it would run out of money for construction in a year.

Running Up a Deficit

Today, the deficit in the five-year plan is $3.5 billion. And officials say they will run out of money for construction in 18 months.

Brown, who had strongly resisted earlier efforts to raise taxes, was forced in the end to support an increase of the tax from 7 cents to 9 cents a gallon.

But Brown saw to it that the tax increase did not take effect until Jan. 1, 1983, the day Deukmejian took office. “You just don’t like to raise taxes on your shift, no matter how strong the justification,” recalled B. T. Collins, Brown’s chief of staff at the time.

Deukmejian’s solution is to allow the question of a tax increase to go on the ballot and ask voters to decide. The governor’s own preference is to raise money for the highway program through bonds, but voters narrowly defeated a Deukmejian-backed $1-billion bond issue in last June’s primary election.

Decline in Quality

Without new money, state officials say, the quality of California’s highway system will decline and the problem of traffic-clogged freeways will only get worse.

“As the problem grows worse, Californians are going to see it reflected in increased congestion, potholes in the street that aren’t filled, lack of money for mass transit, and delays in new projects,” said Assemblyman Richard Katz (D-Sepulveda), chairman of the Assembly Transportation Committee.

Katz also cautions that the state could lose as much as $15 billion in federal matching funds if it is forced to halt or sharply curtail highway construction, since Washington matches state dollars on eligible highway construction projects on an 8-to-1 or 9-to-1 basis.

Katz today intends to unveil a proposal for a 5-cent increase in the gasoline tax, along with other recommendations to improve the state highway system. He said he is supported by Assembly Speaker Willie Brown (D-San Francisco). “The Speaker is committed to moving the (highway funding) bill through our house,” he said.

Last week, Senate President Pro Tem David A. Roberti (D-Los Angeles) announced support for a 10-cent increase in the gasoline tax and comparable increases in other highway user fees that would raise $10 billion by the year 2000 for highway construction and mass transit projects.

The budget problem has been building steadily in recent years, its full impact tempered by a previous surplus of nearly $1 billion in the State Highway Account, the pool of money built up by highway taxes and fees to finance highway construction and other transportation projects.

But the California Transportation Commission is saying that the financial reserve is down to $290 million and will be exhausted within 18 months.

The anticipated $3.5-billion deficit represents the difference between the estimated cost of already planned transportation projects over the next five years--about $16 billion--and the state and federal revenues that will be available to finance them.

Not Enough Funds

“Right now, we don’t have adequate funds to complete all the projects we’re committed to over the next five years,” Caltrans Director Best said.

Best said the projected funding shortfall does not immediately endanger any specific projects because there is enough money to finance all the projects scheduled for this year.

As it stands today, Los Angeles and Orange counties are in line to receive $2.2 billion for 364 different projects over the next five years, ranging from construction of miles of new freeways to the redesigning of freeway interchanges.

The kinds of projects involved include the Century Freeway project in Los Angeles County, which still is $700 million short of completion; construction of elevated bus and car-pool lanes on the Harbor Freeway, at a cost of $550 million, and the widening of the Ventura Freeway in the San Fernando Valley, at $46 million. In Orange County, $150 million is scheduled to be spent to widen Interstate 5 in Santa Ana, $48 million to widen a portion of Interstate 405 and another $35 million as the state’s share for the construction of toll roads. Presumably, some of these projects could be affected by the funding shortage.

Different Viewpoint

Some say the problem is not as severe as Katz and Best are portraying it.

One lobbyist familiar with Caltrans budgets, who requested anonymity, said the agency historically “over-programs” in the fifth year, meaning that it adds expensive projects at the end of the five-year plan despite knowing there is not enough money to finance them. By doing this, highway officials can maintain constant pressure for a gasoline tax increase. The Legislature, in effect, institutionalized this practice by passing legislation last year requiring Caltrans to plan projects even if there is no money available.

Contributing to the problem is the stability of the gasoline tax. Because it is based on per-gallon consumption, it does not go up with inflation. And because today’s cars get better mileage, the amount of tax the average driver pays is actually going down.

William T. Bagley, a former legislator who now sits on the state Transportation Commission, said: “Mileage per gallon has doubled in the last 20 years. Many Californians are paying less than they did 20 years ago, simply because they used to drive cars that averaged 15 m.p.g., and now they drive cars that average 30 m.p.g.”

Political Difficulties

Another problem is the politically difficult matter of getting any tax-increase measure through the Legislature. In just about every legislative session in recent years, some legislators have introduced bills to raise the gas tax. But the proposals never got off the ground. Even last year, when Deukmejian said he would not stand in the way if the Legislature wanted to put through a gasoline tax increase proposal, lawmakers were unable to reach agreement on a specific bill.

Complicating the issue further is the voter-approved state spending limit. With state government operating just under the limit now, the new money from a gasoline tax increase could not be spent even if the tax was increased. Voters must approve any modification of the spending limit.

Thus if the gas tax issue eventually does go before voters, the electorate also will be asked to modify the spending limit.

In addition to the state’s 9-cents-a-gallon gasoline tax levy, the federal government adds another 9 cents a gallon. The state tacks on a 6% sales tax, but the sales tax revenues are considered general revenues and are spent on projects other than transportation.