Gas Tax Hike for Roadwork Urged

California’s roads and highways have fallen into such disrepair that the state’s legislative analyst urged lawmakers Wednesday to reject Gov. Arnold Schwarzenegger’s proposed $2-billon cut in transportation funding and increase the gas tax.

In her annual review of the state budget, analyst Elizabeth G. Hill again cautioned lawmakers, as she did in a preliminary report last month, that the governor’s $99-billion budget suffered from overly optimistic projections. Even if those projections came true, she said, the budget would still be $780 million out of balance in the coming fiscal year and face a $7-billion shortfall by mid-2005.

Hill criticized the governor’s plan for not ending the state’s chronic “structural imbalance” between what it spends and what it receives in revenue.

And she delivered some discouraging economic news, projecting a slower recovery that would result in $1.1 billion less revenue than originally forecast through next fiscal year California gets most of its revenue from personal income, corporate and sales taxes -- all of which decline in difficult economic times.

For nearly two decades, Hill has been the Legislature’s nonpartisan analyst, looked to by both Democrats and Republicans for expert advice as they craft a state spending plan. Her annual budget reviews not only assess the governor’s proposals but offer the Legislature alternatives to consider.

Hill’s firm warning Wednesday to lawmakers not to raid the transportation budget will probably resonate in the Capitol, because Democrats are already balking at the cuts even though the governor has been pressing legislators to pass the budget quickly. The constitutional deadline for budget passage is not until June 30.

Hill said the declining condition of California’s roads is costing taxpayers billions of dollars in lost time, wasted gasoline and expensive vehicle repairs.

“We’re very concerned that if you don’t have a healthy transportation system, it is hard to keep the economy moving forward,” she said.

Hill said lawmakers have already taken $2.2 billion out of transportation projects to help close budget deficits over the last three years.

“Transportation projects have been planned and started expecting these funds, but they have not materialized,” her report said, noting also that the state has a backlog of $587 million worth of pavement maintenance work.

Assembly Budget Committee Chairman Darrell Steinberg (D-Sacramento) said: “She recognizes there is a negative economic impact to many of these cuts. The conventional wisdom is that only increased taxes harm our economy. The truth of the matter is: Cutting back on strategic investments in our people and our infrastructure will also harm the economy.”

State Department of Finance spokesman H.D. Palmer said the governor’s proposed reductions represented tough choices that had to be made in a difficult budget year. Schwarzenegger hopes to restore many of the cuts in the future, he added. “What the governor has said regarding the overall budget applies to this as well: We didn’t get into this deficit in a year, and it is probably going to take us more than a year to get out of it,” Palmer said.

The analyst concluded that taxpayers were spending more than $4.7 billion a year in wasted fuel and time as a result of traffic congestion, “causing higher costs and reduced profits for businesses, potentially reducing economic output and jobs.”

Hill said the Road Information Program, a nonprofit group that analyzed statistics from the federal government, ranked Los Angeles’ and San Jose’s streets as the nation’s worst.

The group -- backed by road builders -- found that California had six of the 10 U.S. urban areas with the highest proportion of rough roads. As a state, California ranks second only to Massachusetts in the group’s survey of unacceptably rough roads -- with drivers here characterizing a quarter of the state’s roads that way.

According to Hill’s analysis, drivers in Los Angeles already pay an average of more than $700 in vehicle repairs each year because state roads are in such bad condition. And she cited a federal finding that every $1 billion spent on transportation projects generates about 26,000 jobs.

Hill recommended that lawmakers ask voters to repeal Proposition 42, which directs the state’s sales tax on gasoline to road construction but also allows Sacramento to suspend those payments in austere times. She is proposing as an alternative adding 6 cents a gallon to the gas tax to pay only for transportation projects.

Assemblyman Keith Richman (R-Northridge), a moderate who is working with Democrats on budget solutions, said that although he did not support such a tax increase, he planned to fight the governor’s transportation proposal. “If we want to regain credibility with voters, we can’t continue to transfer money dedicated to transportation into the general fund,” he said.

On other fronts, Hill advised the Legislature to reject the $1.3 billion property tax shift that the governor has proposed in which the state would take money away from local governments to reduce the deficit.

She said the Legislature should not use its authority over property taxes as a “state rainy day fund.” But her report suggests that the state cut local government elsewhere to make up the difference, including taking a share of vehicle license fees, sales taxes and redevelopment money.

Administration officials say they are open to such alternatives, and are working with local government officials on proposals.

Regarding schools, Hill recommended that lawmakers reduce funding for kindergarten through 12th grade beyond the $2 billion the governor has already proposed. She suggested that the state cut $966 million more that will be owed to schools by midsummer but would be paid back beginning a year later under the governor’s plan.

As for higher education, however, she urged the Legislature to scale back the governor’s proposal for a 40% increase in graduate student fees. She recommended a 30% increase.

Hill backed Schwarzenegger’s proposal for a 10% increase in undergraduate student fees in the University of California and California State University systems. She also endorsed the governor’s plan to increase community college fees to $26 per unit from $18.

Hill urged lawmakers to adopt a long-term policy that would link fees at all three systems of higher education to a fixed percentage of the cost of educating those students.

Even with the proposed increases, the analyst’s report said student fees at all three levels of higher education in California would still be lower than the nationwide average of comparable public universities and colleges.

Hill urged lawmakers to turn down Schwarzenegger’s proposed elimination of funding for outreach programs that encourage disadvantaged students to attend UC and CSU. She suggested shifting money from community colleges to create a $30-million program to assist disadvantaged students at high schools with low college preparation rates. And she said lawmakers should reject limits the governor wants to impose on the state’s Cal Grant financial aid program for students.

Hill’s phonebook-size critique of Schwarzenegger’s budget was being circulated around the Capitol as the governor campaigned for his $15-billion deficit-reduction bond proposal, which will appear on the March 2 ballot.

The analyst’s report serves as another reminder that even if voters approved the bond issue -- on the ballot as Proposition 57 -- and the Legislature passed all of the governor’s recommendations, a budget gap of $7 billion would reemerge by mid-2005.

Administration officials say they are developing long-range budget reforms that will pare that deficit by billions of dollars. Hill has urged them to step forward with those proposals as quickly as possible, so the Legislature can begin reviewing them.

The report also took aim at several of the governor’s plans for saving money through program cuts and generating new revenue. Hill is skeptical that the state can get $4 billion that the budget anticipates from cutting prison costs, scaling back the Medi-Cal health insurance program and taking a share of Indian casino profits.

“There are some significant budget threats that could increase the size of the shortfall,” Hill said.

Also at risk of falling through, she said, is the nearly $1 billion in bonds that the governor proposes selling to pay the state’s contribution to the pension fund for government workers. A similar bond issue has been blocked by a Superior Court judge as unconstitutional.

The analyst reduced her estimate of revenue that will come into the state for the next fiscal year by $1.1 billion, because wage growth in the first half of fiscal 2003-04 was weaker than earlier assumed.

Hill said the economy alone cannot generate enough additional revenue to close the structural gap between what the state spends and what it takes in. Even with modest economic growth, she said: “We cannot grow our way out of this.”