Doubt Cast on Funding of Promised Highway Projects : Transportation: 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 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 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/or 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 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 said it was too early to know what specific projects would have to be canceled or delayed if the transportation program is not able to get 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 the raise the issue, to alert everybody . . .,” Nestande said in an interview.

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 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 they were approving.