Funding of Promised Road Work in Doubt : Transportation: The costly earthquake-safety program is eating up much of the revenue from voter-approved gas tax increases, Nestande warns.

Less than a year after voters approved a gasoline tax hike to finance a mammoth road and rail-building program, transportation officials are warning that funding for many projects--including highway work planned in Orange County--is being eroded by the demands of high-cost earthquake-safety work.

In a letter to Gov. Pete Wilson and state legislators, Transportation Commission Chairman Bruce Nestande said that unless lawmakers approve a tax increase or other new source of revenue for transportation, many projects that were promised voters when they approved Propositions 111, 108 and 116 last June would have to be delayed and perhaps canceled. The three propositions authorized a phased-in, 9-cent-a-gallon tax increase and a $3-billion bond program to help raise $18.5 billion for a 10-year transportation-improvement program.

The specter of an additional tax increase for transportation brought a sharp rebuke in the Assembly from Transportation Committee Chairman Richard Katz (D-Sylmar). He said it would be a betrayal of the voters to ask them to pay higher taxes after they recently approved the gas-tax increase. He acknowledged that the new transportation program may soon face a financial crisis but said it could be met without a tax increase.

“I think you have to show the taxpayers something before you ask them for more money,” Katz said. “The commission needs to show voters we are making progress (on new construction projects) before they start crying for more money.”

His position, however, is at odds with that of his counterpart in the Senate, Transportation Committee Chairman Quentin Kopp (I-San Francisco), who has proposed a temporary 2-cent-per-gallon gas tax increase to finance the earthquake-safety program. The tax increase, which would expire after 30 months, already has received the endorsement of Californians for Better Transportation, an influential organization of business and transportation interests.

A spokesman for Gov. Wilson said the governor was not prepared to take a position on the transportation-financing issue.

Characterizing his letter as a “cautionary flag,” Nestande said, like many private industries, the state’s transportation program has been beset by higher costs at a time when revenues are falling below projections. He said the program might have survived most of the financial setbacks had it not been hit with a staggering bill to pay for the seismic retrofitting of bridges and other roadway structures.

Nestande, a former Orange County supervisor and state assemblyman, said it was too early to know what specific projects would have to be canceled or delayed if the transportation program is not given additional financing. He said hearings would have to be conducted to determine priorities and local transportation agencies would probably be asked for new recommendations.

“What I’ve attempted to do is to raise the issue, to alert everybody that the financial integrity of the blueprint (transportation program) that went a long way in addressing many of California’s needs in both surface and rail transportation is now in jeopardy,” Nestande said in an interview.

Transportation officials in Orange County said the funding shortfall could seriously slow work on several projects, in particular the ambitious effort to continue widening work on the Santa Ana Freeway into Anaheim and beyond.

Stanley T. Oftelie, executive director of the Orange County Transportation Commission, said many of the current and planned highway projects are already “locked in” with state money and funds from Measure M, the county’s sales tax surcharge for transportation projects. But work on the Santa Ana Freeway north of the Garden Grove Freeway could be slowed dramatically, and other projects could also be hurt.

“The issues Bruce has raised are extremely serious,” Oftelie said. “The cost of the earthquake retrofit far exceeds anything that was considered a year ago. . . . It will have a significant impact on Orange County.”

The program that was supposed to take transportation into the 21st Century, may have to start cutting back in the early 1990s, Nestande said, because of a series of financial reversals, including:

* An expensive seismic retrofitting program, conceived after the Oct. 17, 1989, Loma Prieta earthquake collapsed a section of the Nimitz Freeway in Oakland, killing 42 people. Shoring up the support structures on elevated roadways is projected to cost more than $1 billion instead of the $500 million originally estimated. One study showed it could cost as much as $3.4 billion.

* A reduction in fuel consumption brought on by a statewide economic slump that is causing gasoline tax revenues to drop $277 million below initial estimates for 1991 and 1992.

* Costs for highway projects approved in 1988 and now under construction that have soared in the intervening years. Once thought to cost $5 billion, the price for the projects has turned out to be $800 million higher.

* A shortage in the revenue expected to be raised from a quarter-cent sales tax that was put in effect for 13 months to pay for damages associated with the 1989 earthquake. While $380 million was supposed to be earmarked for roadway repair and retrofitting, Nestande said that when the proceeds from the tax were finally tallied, transportation only got $175 million.

In addition to those reversals, the Department of Finance is advocating a plan that would require the principal and interest on voter-approved rail bonds be paid out of transportation funds instead of the state’s general fund. The general fund is supported by the bulk of state taxes and pays for the day-to-day operation of government and the services it provides.

If highway funds are used to service the debt on the bonds, Nestande said the costs could be up to $400 million a year. That figure includes $2 billion in bonds that has yet to go before voters.

As chairman of the gubernatorial commission that allocates funds for transportation projects, Nestande said he is not promoting any particular plan for increasing transportation revenues, but he suggested several sources lawmakers could consider. Unlike most state programs, transportation is almost entirely self-supporting through gasoline and other fuel taxes and truck weight fees.

To pay for seismic retrofitting, he said, lawmakers could reinstate the quarter-cent sales tax that expired Dec. 31, 1990; they could issue revenue anticipation notes that would be paid off by future gas taxes, or they could accelerate the phase-in of the 9-cent-per-gallon gas tax. The tax increased 5 cents per gallon on Aug. 1, 1990, and is set to go up 1 cent per gallon every January for the next four years. At present, 6 cents of the tax is in effect.

If none of these measures can win legislative approval, then Nestande urged lawmakers to “revisit the seismic retrofitting issue.”

He said laws passed soon after the earthquake, when memories were fresh, gave the seismic retrofitting of highway structures top priority for state transportation funds, ensuring that they would be first in line to receive financing.

As a result, he said, quake safety construction threatens to gobble up much of the new gas tax money, leaving little for the other projects that voters believed that they were approving.

“If we leave everything precisely as it is right now with seismic retrofitting having priority over all other projects . . . then there will be very, very little new dollars and the commitment that was made in the 1990 (transportation propositions) is not going to be filled,” Nestande said.

But Katz predicted “that won’t happen,” particularly in a Legislature which remembers the roller-coaster history of seismic retrofit programs. After previous earthquakes, he said, retrofitting programs were at first pushed vigorously and then put on the “back-burner” when public interest waned. When the 1989 quake struck, multicolumned structures like those that failed on the Nimitz Freeway were still on the list to be considered for retrofitting, he said.

Katz said he is promoting a bill that would keep the retrofitting program from bleeding other projects by providing new funding through the issuing of revenue anticipation notes. He acknowledged that the notes, when paid off in 1998 or 1999, would reduce funding that may be needed for projects in those years.