The 2014-15 Budget: a Review of the 2014 California Five-Year Infrastructure Plan

The 2014-15 Budget: A Review of the 2014 California Five-Year Infrastructure Plan MAC TAYLOR • LEGISLATIVE ANALYST • FEBRUARY 10, 2014 Summary On January 13, the Governor released California’s Five-Year Infrastructure Plan, the first statewide infrastructure plan released by the administration since 2008. The plan proposes state spending on infrastructure projects through 2018-19. In this brief, we review the administration’s plan and commend the administration’s renewed focus on infrastructure. We also find that the plan raises some important policy issues related to the financing and maintenance of state infrastructure and serves as a valuable starting point for legislative discussions. We also note, however, that the plan does not include some key information and suggest some changes that could make the plan more helpful to the Legislature. In addition, given the size of the state’s infrastructure investments and their long-term nature, we recommend that the Legislature take a more active role in considering infrastructure in a comprehensive way. In order to assist the Legislature, we suggest some broad questions it may find helpful in guiding future discussions, such as how best to determine the state’s long-term policy and infrastructure goals, how the state should prioritize competing infrastructure needs, and what policy changes have the potential to reduce demand for new infrastructure. We further suggest that the Legislature consider how, as an institution, it addresses infrastructure issues—for example, by creating a joint infrastructure committee. WHAT INFRASTRUCTURE DOES THE STATE HAVE? As shown in Figure 1 (see next page), the criminal justice, health services, and general state’s major infrastructure includes a diverse government office space. array of capital facilities associated with the In addition to the state government following program areas: transportation, higher infrastructure investments shown in Figure 1, education, water resources, natural resources, the state has historically provided funds for local 2014-15 BUDGET public infrastructure. These include such areas construction, local streets and roads, local parks, as K-12 school construction, community college wastewater treatment, flood control, and county jails. IMPORTANCE OF MULTIYEAR STATEWIDE PLANNING AND DECISION MAKING Recently, there has been renewed interest infrastructure, particularly because of aging in California for additional investments in facilities and roads, as well as an ever-increasing state population. However, Figure 1 the state faces many Major State Infrastructure competing priorities for Transportation funding as it emerges • More than 50,000 miles of highway and freeway lanes. from recession—including • 7.8 million square feet of Department of Transportation offices, shops, materials paying down budgetary laboratories, and maintenance facilities. liabilities, addressing • 170 Department of Motor Vehicles offices. • 103 California Highway Patrol area offices. long-term liabilities, Criminal Justice building a reserve, and • 34 prisons and 42 correctional conservation camps. restoring cuts to various • 4 youthful offender institutions (3 facilities and 1 conservation camp). state programs. As the • Roughly 20 million square feet managed by the judicial branch. state faces these difficult • 11 crime laboratories. choices, it is especially Water Resources important for it to have • 34 storage facilities, lakes, and reservoirs. an effective infrastructure • 20 pumping plants. • 4 pumping-generating plants. planning and decision- • 5 hydroelectric power plants. making process that • 700+ miles of canals and pipelines—State Water Project. includes well-conceived, • 1,595 miles of levees and 55 flood control structures in the Central Valley. timely, and comprehensive Natural Resources infrastructure plans as • 280 state park units containing 1.6 million acres and over 4,400 miles of trails. • Over 500 CalFire facilities (including 228 forest fire stations, 39 fire/conservation well as active legislative camps, and 13 air attack bases). engagement. • 16 agricultural inspection stations. Significant Higher Education Infrastructure Demands. • 10 University of California campuses. Much of the state’s • 23 California State University campuses. immense stock of Health Services existing infrastructure • 5 mental health hospitals. is aging and in need of • 4 developmental centers. repair or replacement. General State Office Space For example, four out • 556 state-owned office structures covering 23 million square feet. of five state hospitals • 941 leases for 13 million square feet of state office space. and about 70 percent of 2 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET the Department of Forestry and Fire Protection’s infrastructure decisions within policy areas since forest fire stations are more than 50 years old. infrastructure investments are frequently driven In many cases, the state has under-invested in by specific programmatic needs. However, these routine maintenance and repairs, resulting in compartmentalized decision-making processes further deterioration of facilities. For example, the can also make it difficult for the Legislature to California Department of Transportation estimates effectively assess—from a statewide perspective— that 16 percent of the state’s highway lane miles are the trade-offs of different projects or proposals in poor condition. As discussed in more detail below, across policy areas. the administration has identified about $65 billion Previously, the Legislature recognized worth of projects resulting from state agencies the challenges posed by having this having deferred routine and preventive maintenance compartmentalization of infrastructure planning in the past. Furthermore, the state population and decision making. In 1999, the Legislature continues to grow—the administration currently passed Chapter 606, Statutes of 1999 (AB 1473, estimates that it will reach 50 million by 2050— Hertzberg), to require the administration to which drives additional demands on infrastructure. consolidate planning information into a statewide Infrastructure Planning Is Fragmented. infrastructure plan to be released annually with the Historically, the state’s infrastructure planning Governor’s January budget proposal. The purpose and decision-making processes have been very of the requirement is to ensure that the Legislature fragmented. Most infrastructure planning occurs has a regularly updated, centralized compilation in individual state departments. Departments and prioritization of projects across programs often develop internal assessments of their to better assess the range and scale of the state’s infrastructure needs, as well as develop planning infrastructure needs, as well as to determine its documents designed to address their highest own funding priorities. infrastructure priorities. If approved by the Infrastructure Investments Are Often Large Department of Finance (DOF), proposals for and Long Term. The state’s fragmented approach funding these priorities are heard in different to infrastructure planning and decision making budget subcommittees, depending on the is especially problematic because infrastructure particular program areas. In addition, most investments typically involve large expenditures— large infrastructure projects are often financed with even small state projects costing millions with bonds, which are focused on specific of dollars and bond proposals typically totaling program areas (such as transportation or billions of dollars. Since 2000, the voters have higher education). In some cases, these bond authorized roughly $96 billion in new general measures are approved by the Legislature, obligation bonds. Furthermore, infrastructure typically through the policy committee process, choices have long-term implications as they are and in other cases, the measures are put on the often funded with debt that is repaid over 25 or ballot directly by voters through the initiative 30 years. This debt is typically repaid using the process. Consequently, infrastructure proposals state’s General Fund, which also funds state are routinely reviewed, debated, and funded programs like education, corrections, and health separately and through differing processes, and human services. Consequently, the funding depending on the circumstances of the choices of today have cost implications on the funds specific proposals. It is sensible to make many available for other state programs for decades. www.lao.ca.gov Legislative Analyst’s Office 3 2014-15 BUDGET OVERVIEW OF THE 2014 INFRASTRUCTURE PLAN Capital Infrastructure Proposal. California’s transportation projects. The remaining capital Five-Year Infrastructure Plan presents the spending identified in the plan is proposed in administration’s infrastructure funding priorities. the areas of criminal justice, natural resources, The plan identifies about $57 billion in capital education, health and human services, and general infrastructure funding in the period from government. The plan does not include funding 2014-15 through 2018-19. As shown in Figure 2, that was appropriated in previous years (even if it the bulk of these expenditures ($53 billion) is for will be spent within the five-year period) or state transportation, split roughly equally between funding for most types of local infrastructure the state’s high-speed rail project and other (such as local streets and roads). Thus, the Figure 2 Administration’s Capital Outlay Proposal (All Funds, in Millions) Proposed Amount Program Area/Department 2014‑15 2015‑16 2016‑17 2017‑18 2018‑19 Total Transportation Caltrans $6,209.0 $5,256.0 $5,344.0 $5,304.0 $5,312.0 $27,425.0 High-Speed Rail Authority 250.0 25,331.0 — — — 25,581.0 Other 1.7 28.7 52.9 164.2 164.2 411.7 Subtotals ($6,460.7) ($30,615.7) ($5,396.9) ($5,468.2) ($5,476.2) ($53,417.7) Criminal Justice Judicial Branch $162.5 $103.0 $946.6 $83.5 — $1,295.6 Corrections and Rehabilitation 157.6 126.5 21.8 11.7 $59.4 377.0 Subtotals ($320.1) ($229.5) ($968.4) ($95.2) ($59.4) ($1,672.6) Natural Resources Conservancies $191.0 $136.0 $112.0 $110.0 $90.0 $639.0 Water Resources 113.5 58.2 8.1 — — 179.8 Other 59.3 11.5 36.4 57.8 109.5 274.6 Subtotals ($363.8) ($205.7) ($156.5) ($167.8) ($199.5) ($1,093.4) Education State Special Schools — $7.5 $31.0 $46.0 $41.6 $126.2 California State University $5.8 — — — — 5.8 Community Colleges 19.2 80.1 — — — 99.3 Subtotals ($24.9) ($87.6) ($31.0) ($46.0) ($41.6) ($231.2) General Government Military $7.4 $43.7 $2.8 $0.9 $9.3 $64.0 Food and Agriculture — — 2.0 5.7 49.9 57.6 Other 21.1 2.7 19.9 9.4 1.0 54.0 Subtotals ($28.4) ($46.4) ($24.7) ($15.9) ($60.2) ($175.6) Health and Human Services State Hospitals $17.2 $16.4 $12.1 $68.2 $37.0 $151.0 Subtotals ($17.2) ($16.4) ($12.1) ($68.2) ($37.0) ($151.0) Totals $7,215.2 $31,201.3 $6,589.6 $5,861.3 $5,874.0 $56,741.5 4 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET administration’s plan is not currently designed to infrastructure needs as personnel growth, changes be a comprehensive tally of the state’s spending on in evidence and records retention responsibilities infrastructure from 2014-15 through 2018-19. and requirements, and the need to retrofit locker The plan proposes to fund capital rooms to accommodate women. The plan proposes infrastructure from a variety of sources. Most of $398 million over the coming five years to work the plan—$32 billion, or 57 percent—is proposed to address those needs through a statewide office to be from federal funds. Most of the remaining replacement program. amount would be from various special funds Deferred Maintenance Proposal. In addition ($12 billion)—almost all for transportation—and to capital outlay, the plan proposes $815 million bond funds ($6 billion). Only $300 million would from various fund sources to address statewide be funded directly from the General Fund. deferred maintenance needs that it estimates at In addition, for many state departments, about $65 billion (see Figure 3). Of this spending, the plan provides general descriptions of $337 million is proposed to repay a General their existing facilities, the major drivers of Fund loan from the Highway Users Tax Account, infrastructure needs (such as program expansions with the monies allocated for state highway or aging infrastructure), and proposals for new pavement rehabilitation and maintenance, traffic infrastructure. For example, for the California management mobility, and local streets and Highway Patrol (CHP), the plan identifies roughly roads projects. Additionally, the plan includes 2 million square feet of state-owned and leased $188 million for the K-12 Schools Emergency facilities, including over one hundred area offices. Repair Program and $175 million for community The plan describes the major drivers of CHP’s colleges (to be split equally between maintenance Figure 3 Administration’s Deferred Maintenance Proposal (Dollars in Millions) Amount of Amount of Percent of Identified Department/Program Proposed Funding Identified Need Need Funded Caltrans $337 $59,000 0.6% K-12 Schools Emergency Repair Program 188 — — California Community Colleges 175 — — Parks and Recreation 40 1,540 2.6 Corrections and Rehabilitation 20 959 2.1 Judicial Branch 15 2,000 0.8 Developmental Services 10 175 5.7 State Hospitals 10 69 14.5 General Services 7 105 6.7 State Special Schools 5 28 17.9 Military 3 86 3.5 Forestry and Fire Protection 3 27 11.1 Food and Agriculture 2 — — UC and CSU — 573 — Othera — 45 — Totals $815 $64,607 1.3% a Includes California Highway Patrol, Department of Fish and Wildlife, Department of Veterans Affairs, California Science Center, Department of Motor Vehicles, and California Conservation Corps. www.lao.ca.gov Legislative Analyst’s Office 5 2014-15 BUDGET projects and instructional support, such as support the deferred maintenance needs of nine replacement of library materials and classroom departments. Finally, the plan proposes $15 million projectors). The Governor’s budget also includes a from the State Court Facilities Construction Fund total of $100 million from the General Fund to help to address maintenance projects within the courts. LAO REVIEW OF THE PLAN In this section, we describe some important facility improvement district levies, and parcel policy issues raised by the administration’s 2014 taxes. Moreover, Proposition 39 (enacted by infrastructure plan, as well as identify some areas voters in 2000) increased the ability of school and where it does not provide key information. We community college districts to help fund their then point out some possible ways to make the infrastructure by reducing the vote requirement plan more helpful to the Legislature as it makes for local bond measures from two-thirds to infrastructure decisions. 55 percent. (Since 2000, districts have been very successful in passing these local bond Plan Raises measures, with about 80 percent of all measures Important Policy Issues being approved by voters.) Assuming the state The plan serves an important role by raising continues to share the cost of local projects with some key policy issues for legislative consideration. school and community college districts, we have In particular, the plan raises questions about (1) the recommended an alternative financing mechanism. appropriate roles of state versus local governments Rather than using traditional state bonds, we have in funding some infrastructure, (2) whether recommended providing districts with an annual the state is overly reliant on bond financing for per-pupil facilities grant that could be used for any infrastructure, and (3) how to address large allowable facilities purpose (see A New Blueprint backlogs of deferred maintenance in state facilities. for School Facility Finance, 2001). We also note that legislative discussion State Versus Local Responsibilities of appropriate state versus local funding A key consideration for the state is how much responsibilities is pertinent to other types of of its budget to devote to local infrastructure (for infrastructure (such as local streets and roads, jails, example, schools and parks) versus infrastructure and parks). For example, in recent years, the line with more substantial statewide implications between state and local responsibility for funding (for example, University of California [UC] and operating parks has become increasingly campuses, state courts, or state prisons). The blurred as (1) the state has developed some parks Governor proposes to begin conversations on that serve predominately local or regional needs, the responsibility of the state in paying for local and (2) some local governments have entered into infrastructure in two specific areas—school agreements to operate state parks. The Legislature and community college facilities. Our office may want to consider what the ongoing state has noted the ability of school and community role should be in funding infrastructure in these college districts to raise local revenue for their areas—examining such factors as the amount of projects through local bonds, developer fees, statewide interest and responsibility in the area, 6 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET the ability of local agencies to fulfill certain needs As the plan notes, to the extent that the state without state assistance, and the capacity of the undertakes additional borrowing, it will affect the state to fund these needs (versus funding its own state’s debt-service ratio (DSR), which is the portion infrastructure needs). of the state’s annual General Fund revenues that must be set aside for debt-service payments and Reliance on Bond Funding therefore are not available to support other state The plan also includes discussion of the state’s programs. The state’s DSR has changed over time, approach to funding infrastructure. Specifically, the as shown in Figure 4. We believe that there is no plan notes that the state has increased its reliance one right level of DSR. The DSR simply provides on debt to fund capital projects, which has resulted an indication of the relative priority of debt service in cost pressures to the state’s General Fund (the and infrastructure compared to other spending source of repayment for virtually all bonds). from the General Fund, with a higher DSR Accordingly, in the plan, the administration indicating an increased prioritization of spending focuses on existing revenue streams—mostly on infrastructure financing relative to other federal funds, special funds, and already authorized programs. Thus, we think it is important for the bond funds—for its funding proposals. The plan Legislature to consider how much it is comfortable does not propose the addition of any new taxes or investing in infrastructure and relying on debt as a Graphic Sign Off new general obligation bonds. funding source given these trade-offs. Secretary The state’s funding approach for infrastructure Focus on Deferred Maintenance Analyst projects is an important consideration for the Legislature. It must determine its preferred mix of For the first time, the infrastructure plan MPA debt and “pay-as-you-go” financing, recognizing includes information on deferred maintenance Deputy that there is no one “right” approach. The use of needs. This represents an important addition borrowing for infrastructure projects is somewhat to the plan, as it acknowledges that the state’s more expensive than paying for them up front infrastructure program should not only involve because of the additional costs for interest. However, Figure 4 because most state facilities General Fund Debt-Service Ratioa are intended to provide 7% benefits over many years, it Authorized, but Unsold is reasonable that future as 6 well as current taxpayers help 5 fund them. Furthermore, 4 given the volume of the state’s 3 infrastructure needs and 2 other competing priorities Bonds Already Sold (including debt service on 1 existing bonds), it is likely that 85-86 90-91 95-96 00-01 05-06 10-11 15-16 20-21 bonds will continue to play a Projected major role in infrastructure a Ratio of annual General Fund debt-service payments to General Fund revenues and transfers. funding well into the future. www.lao.ca.gov Legislative Analyst’s Office 7 ARTWORK #140054 Template_LAOReport_mid.ait 2014-15 BUDGET constructing new projects, but also maintaining consider whether there is alternative or additional existing ones to ensure that they can continue to funding for deferred maintenance from sources serve the public into the future. Over the years, other than the General Fund (such as bond funds, appropriate maintenance of infrastructure has private donations, or user fees). The Legislature been a chronic problem for the state. In times could also provide guidance on the priorities for of fiscal stress—when the state is facing cuts to spending these deferred maintenance dollars within programs and services—maintenance funding is departments. While the highest priority projects especially prone to being reduced or redirected to might reasonably differ by department based on other priorities. However, deferred maintenance is their different missions and types of facilities, problematic because when repairs to key building the Legislature might want to have departments and infrastructure components are delayed, prioritize certain types of projects for 2014-15, such facilities can eventually require more expensive as those that address safety issues, reduce state investments, such as emergency repairs (when liability, and prevent higher state costs in the future. systems break down), capital improvements Finally, as the Legislature reviews the (such as major rehabilitation), or replacement. administration’s deferred maintenance proposal, As a result, while deferring annual maintenance it will want to consider its options for how to best avoids expenses in the short run, it often results in ensure that departments are completing necessary substantial costs in the long run. routine and preventive maintenance on an ongoing While the Governor’s inclusion of deferred basis. For example, departments could report what maintenance funding is commendable, specific factors led to their deferred maintenance the proposed funding would only address problems, including insufficient maintenance about 1 percent of the need identified in the funding in the base budget or diversion of funds infrastructure plan. The Legislature may want to provided for maintenance to other areas of ask the administration whether it has developed operations. Once the root causes were identified, a strategy for addressing the remaining deferred the Legislature could consider policies to address maintenance backlog. In addition, the Legislature them, such as by requiring departments to create will want to ensure that the allocation of funds plans to address their maintenance needs, set in the plan is consistent with legislative priorities. aside a certain amount of funding specifically We note that some departments have a noticeably for maintenance, and not redirect maintenance greater portion of their deferred maintenance funding towards other priorities. needs funded in the plan than other departments. Plan Does Not Include For example, the plan proposes to fund roughly Some Key Information 18 percent of the State Special Schools’ identified need, but only roughly 2 percent of the California As we discuss below, the administration’s plan Department of Corrections and Rehabilitation’s does not include some important information (CDCR’s) identified need. Differing funding levels required under current state law. Specifically, the may make sense. However, it is unclear how the 2014 infrastructure plan does not include the list administration prioritized the distribution of funds of infrastructure needs reported by departments, across departments and whether, for example, as well as certain details required for education the prioritization used reflects differences in programs. severity of need. The Legislature may also want to 8 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Plan Does Not Include Infrastructure determine how best to address these facilities Needs Reported by Department moving forward. Accordingly, we recommend that the Legislature request the administration to Current law requires that the annual include this information in future plans. infrastructure plan include the complete list of infrastructure needs identified by each state Incomplete Information for Higher Education department. This requirement was adopted to The plan also does not include the allow the Legislature to understand the full scope infrastructure needs or proposed funding for the of the state’s infrastructure demands and to UC system or, after 2014-15, for the California State make judgments about whether it agrees with the University (CSU) system. The administration’s administration’s choices regarding which projects rationale for excluding this information is that should receive funding. capital funding is now incorporated into UC’s main However, the 2014 infrastructure plan only appropriation rather than budgeted separately, and includes a list of projects proposed for funding, the administration proposes a similar approach not the full list of needs identified by individual for the CSU system. We have expressed several departments, which was included in prior concerns with this funding approach. It removes infrastructure plans. We recognize that identifying project review and oversight from the regular the state’s infrastructure needs and separating them budget process. This, in turn, makes weighing the from “wants” is a difficult task. The administration relative benefits of higher education infrastructure indicates that omitting the full list is consistent versus other state infrastructure priorities even with budget practices for departmental operating more difficult. It also merely shifts debt from the budgets. While this may be the case, existing statute state as a whole to a segment of the state, without specifically requires that the annual infrastructure a guarantee that shifting the debt in this way will plan include the identification of infrastructure benefit either the state or the segments in the long requested by state departments. We believe that run. We believe including the needs and funding such information could help the Legislature as it for higher education in the infrastructure plan, evaluates infrastructure needs and funding choices. consistent with statute, would be valuable. Incomplete Information for K-12 Education Ways to Make the Plan The plan is statutorily required to cover More Helpful infrastructure needs, associated costs, and a The plan is an important tool for the funding proposal for schools (as well as the state Legislature as it considers infrastructure decisions. higher education systems). This year’s plan does not We recognize that it is not feasible or desirable identify school infrastructure needs. According to for the plan to include all possible information on the administration, this is because of the challenges state-funded infrastructure. To do so would require in quantifying those needs due to the variation in too many resources and would produce a document local school district needs. Despite the number of that would be unwieldy. However, we think there school facilities and the variation in their condition, are a few additional types of information that, past plans have made an attempt to address these while not currently required, would add significant issues. A more complete understanding of school value and should be considered for inclusion in facility conditions and differences in districts’ local future plans. revenue-raising capacity would help the Legislature www.lao.ca.gov Legislative Analyst’s Office 9 2014-15 BUDGET State Spending on Local issues, leaving substantial uncertainty regarding Infrastructure Projects the specifics of how the administration intends to address them and how this will affect the state’s The plan generally focuses on state financial capacity for other projects. For example, infrastructure. However, the state provides one of the administration’s infrastructure priorities substantial funds for local infrastructure in areas is water. In January 2014, the administration such as local streets and transit, resources and released a Water Action Plan, which is a five-year environmental protection, and K-12 public schools plan that addresses key water challenges facing the and community colleges. In the decade ending in state. For example, the Water Action Plan calls for 2010, more than half of the state’s infrastructure the implementation of the Bay Delta Conservation spending was administered by local agencies. Much Plan (BDCP), which proposes water reliability and of the state’s spending on local infrastructure environmental restoration components estimated is paid for through bonds. In the current year, to cost about $25 billion. The infrastructure plan for example, roughly half of the state’s general notes that funding for the BDCP is not included obligation bond debt-service payments are for K-12 because it is “off-budget.” However, the draft public schools and community colleges. BDCP estimates approximately $4 billion of The administration has proposals that involve this cost will come from state funds, including local infrastructure spending. For instance, already authorized bonds, future bonds, and other the Governor’s budget for 2014-15 proposes state funds and thus will have to go through the $500 million in lease-revenue bonds for local jail Legislature’s appropriation process. Some of these construction to help counties address the impact state funds are expected to be needed within the of the 2011 realignment of jails. This proposal is in next five years; yet, the infrastructure plan does addition to $1.7 billion in lease-revenue bonds that not appear to include any of these costs. It would the Legislature has approved since 2007 to fund jail be helpful if the plan included these expected construction and modification. For comparison expenditures. Additionally, we note that the state purposes, the Governor’s proposed $500 million has infrastructure responsibilities and obligations for jail funding is greater than the $377 million in in other areas, such as for restoration of the Salton capital spending that the Governor proposes for Sea, which are not included in the plan. CDCR over the coming five years. Despite the large amount of new funding proposed for county jails Additional Project Details in 2014-15, it is not included in the infrastructure The plan could also be improved by the plan. Due to the scale of state spending on addition of some detail for each project listed. In local infrastructure and its effects on the state’s particular, it could be helpful if the list of proposed debt-service obligations, it would be valuable if it projects in the plan included the current phase were included in the plan. (such as design or construction). This information Additional Detail on Significant Projects would be useful to have at a project level so that policymakers could more easily see how many new In the five years covered by the plan, the projects are envisioned in the plan. In addition, it Legislature is likely to face decisions on some would be useful to see how each project in the plan emerging infrastructure issues that are high would be funded, particularly given the limited priorities for the administration. However, the funding available. While this information may plan does not include much detail on some of these 10 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET be available in individual capital outlay budget information would include, it might make sense for change proposals, it would be helpful for it to be the administration to make it available in another consolidated in the annual infrastructure plan easily accessible way (for example, through DOF’s so that the Legislature could look at the totality website) rather than including such information in of projects. Given the amount of detail this the actual infrastructure plan. LEGISLATIVE ENGAGEMENT ON LONG-TERM INFRASTRUCTURE PLANNING AND DECISION MAKING Given the importance of addressing specific objectives—such as reducing hours of infrastructure holistically and the challenges traffic delay or vehicle miles traveled, reducing associated with doing so, it is important for the carbon emissions, or achieving higher college Legislature to engage on this issue. In the following completion rates. While the Legislature has already section, we suggest some questions the Legislature articulated goals in a variety of areas, it has not may wish to consider as it does so. We also propose consolidated them or fully evaluated them in a possible institutional change—the establishment the context of how they will affect infrastructure of infrastructure committees, which could decisions. For instance, the Legislature has promote more active and coordinated legislative expressed its commitment to achieving reductions involvement on this issue. in greenhouse gas emissions through the passage of AB 32 and other related legislation, which is Questions for Legislative Consideration likely to affect state infrastructure decisions around Infrastructure is an issue that cuts across transportation and energy efficiency of state policy areas. It can be difficult to know how to buildings, among other things. Statewide goals and best approach it given its scale and complexity. objectives are important since they should drive In order to help the Legislature as it attempts choices regarding which infrastructure areas or this challenging task, we suggest several broad large projects merit particular state focus. questions the Legislature may find helpful in How Should the State Prioritize Competing guiding its future discussions. Infrastructure Needs? As it considers its policy What Are the State’s Long-Term Policy and infrastructure goals, the Legislature will also and Infrastructure Goals? The Legislature wish to consider how specific infrastructure needs will want to debate and define statewide policy should be prioritized and weighed against each goals and objectives and how they affect other. The state currently lacks such a methodology, infrastructure. For instance, broad policy goals making it difficult to establish the relative might include improving transportation access importance of projects across program areas. or mobility, ensuring water reliability, addressing The Legislature may wish to articulate certain environmental challenges, or improving access overarching priorities. For example, it may want to to educational opportunities. Within those goals, decide to give preference to projects or proposals the Legislature might want to consider setting that address broad state goals, reduce future www.lao.ca.gov Legislative Analyst’s Office 11 2014-15 BUDGET state costs, protect health and safety, fulfill legal funding sources besides the General Fund, such requirements, or leverage other funding streams. as special funds and user fees. For example, the Which Needs Should Be Addressed by the Legislature has increased criminal and civil fines State? The Legislature will also want to consider and fees to support new court facilities. which needs should be addressed by the state and What Are Ongoing Costs Associated which should be left to local agencies or private With Infrastructure Decisions? Finally, the entities. As mentioned previously, given the large Legislature will want to think about the ongoing scale of the infrastructure needs across the state, costs associated with projects and proposals. it is important for the Legislature to think about Investments in new infrastructure typically result the extent to which it can continue to sustain its in ongoing increased operating costs for staffing, historical role in funding infrastructure that meets utilities, and maintenance of new facilities. For predominately local needs. example, additional prison facilities require more How Can Policy Changes Reduce Demand for correctional officers and inmate health care staff, New Infrastructure? As it considers infrastructure and the acquisition of park land frequently requires investments, the state may want to explore policy additional park employees to operate and maintain changes that reduce demand for state-funded facilities, trails, and roads for public use. On the infrastructure. Such demand management policies other hand, some infrastructure investments include better utilization of existing facilities and can actually reduce costs by lowering facility higher user fees. For instance, higher education operational costs or enhancing the efficiency policies could place a greater emphasis on distance of program delivery. For instance, building education and improved use of facilities during the renovations or replacements can reduce energy summer. Similarly, transportation policies could use and ongoing maintenance needs, which can promote more efficient use of the state’s existing result in savings that can at least partially offset the highway system and potentially reduce the demand capital costs. for limited funds to build new facilities such as Legislature May Want to Create by improving traffic flow and encouraging more Infrastructure Committees efficient use of roadways. What Funding Approaches Should the State As discussed previously, there are many Use? The Legislature may also want to consider key policy questions related to infrastructure the appropriate method for funding the state’s that need to be addressed. The administration’s infrastructure projects and whether it agrees infrastructure plan provides a valuable starting with the Governor’s cautious approach to taking point, but the usefulness of this and future on new General Fund commitments, including infrastructure plans will largely be determined by debt obligations. As mentioned previously, how the Legislature decides to incorporate them infrastructure spending, whether pay-as-you-go into its policymaking processes. spending or debt-service payments, come at We believe that, given the importance and the expense of spending on other areas. Thus, complexity of these issues, it is critical that the infrastructure financing choices represent policy Legislature consider how, as an institution, trade-offs that the Legislature will have to make. it addresses infrastructure issues. We have The Legislature may want to explore not only recommended in the past that the Legislature funding approaches, but also the feasibility of other establish committees to deal with capital outlay 12 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET issues. For example, the creation of a joint • Determining which local or other non-state infrastructure policy committee would provide programs should receive funding. one such mechanism for the Legislature to • Developing institutional expertise in make its decisions regarding capital priorities. capital outlay topics such as financing, These priorities could be reflected in resolutions construction delivery methods, and cost outlining the Legislature’s key policies in assessing escalation. infrastructure proposals. The policy committee’s membership could include the chairs of relevant • Considering whether the Legislature policy and budget committees (transportation, would benefit from changes to future education, et cetera) to ensure policies adopted by infrastructure plans and creating the committee are applied throughout different legislation to facilitate those changes when program areas. Some important considerations and necessary. decisions for the policy committee could include: There are many different ways the Legislature • Assessing the state’s infrastructure data could respond to the annual infrastructure and creating legislation to improve data report and the related budgetary proposals collection when necessary. of the administration—a joint infrastructure • Reviewing the administration’s committee represents just one possible approach. What is critical, however, is that the Legislature infrastructure plan and monitoring the independently engages with the administration on state’s progress in implementing the plan. the issue of infrastructure and helps move the state • Setting priorities for infrastructure to a less fragmented infrastructure planning and spending across programs. decision-making process. • Analyzing proposed bond acts to ensure they fit within priorities, plans, and funding capabilities. www.lao.ca.gov Legislative Analyst’s Office 13 2014-15 BUDGET 14 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET www.lao.ca.gov Legislative Analyst’s Office 15 AN LAO B R I E F LAO Publications This brief was prepared by Helen Kerstein and reviewed by Brian Brown. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This brief and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 16 Legislative Analyst’s Office www.lao.ca.gov