The 2022-23 Budget: Transportation Infrastructure Package

2022-23 BUDGET The 2022-23 Budget: Transportation Infrastructure Package Summary Governor Proposes $4.9 Billion General Fund for Various Transportation Purposes. The Governor’s budget includes a total of $4.9 billion in General Fund for a package of proposals to support various transportation infrastructure projects, including transit and rail, grade separation, active transportation, climate adaptation, and highway conversion. The proposed package includes (1) $3.4 billion that was agreed to in the 2021-22 budget package, but was reverted to the General Fund because subsequent legislation was not enacted as required, and (2) $1.5 billion that would be allocated between programs from last year’s package and a new set of proposed programs. Assessment of Proposals. Based on our initial assessment of the Governor’s proposed package, we have four main findings. First, we find that the proposed spending on transportation infrastructure could complement new federal transportation funding that the state is expected to receive from the Infrastructure Investment and Jobs Act (IIJA) that was enacted in November 2021. Second, we find that it is important to consider the merits and trade-offs of using a competitive process to allocate the transit and rail funding, particularly in terms of ensuring funding allocations are distributed equitably across all regions of the state. Third, we find that although the new proposed programs have merit, the programs could benefit from evaluations to measure the extent to which they are meeting their core objectives. Finally, we note that the proposed spending is excluded from the state appropriations limit (SAL), which limits the Legislature’s flexibility to reallocate funding from the Governor’s transportation infrastructure package to other purposes. Recommendations. As a result of the above findings, we have several recommendations for legislative consideration. In order to maximize available funding for transportation, we recommend the Legislature consider the Governor’s proposed package in context of the anticipated federal funding, to ensure state funds are used strategically—supporting legislative priorities where federal funds are not as significant or absent, as well as helping California be competitive in receiving discretionary federal grants. In addition, we recommend the Legislature consider geographic equity in transit and rail funding, to the extent that the Legislature prioritizes that some level of base funding for the projects should be provided to all regions of the state. We also recommend the Legislature require evaluations of the new proposed programs to ensure the administration provides key information regarding programmatic outcomes to inform future policy and funding decisions. Lastly, we recommend the Legislature be mindful of SAL considerations in assessing the Governor’s proposed package, as any reallocations of this funding will need to be for a similarly SAL-related purpose. GABRIEL PETEK | LEGISLATIVE ANALYST FEBRUARY 2022 www.lao.ca.gov 1 2022-23 BUDGET BACKGROUND Overview of California’s Transportation of proposals focused on various transportation System. California’s transportation system improvements. Provisional budget language consists of streets, highways, railways, airports, made these funds available on the condition that seaports, bicycle routes, and pedestrian pathways. subsequent legislation to guide funding allocations All of these various modes provide people and be enacted by October 10, 2021. Given that no businesses the ability to access destinations such legislation was enacted by this date, the and move goods and services throughout the $3.4 billion reverted back to the General Fund, state. Funding for the state’s transportation as required in the budget act. system comes from numerous local, state, and Governor’s Proposal federal sources, and private investments. State funding primarily comes from various fuel taxes Provides $4.9 Billion General Fund for Various and vehicle fees that are dedicated to specified Transportation Purposes. The Governor’s budget transportation purposes. Most of the state’s includes a total of $4.9 billion in General Fund transportation funding is dedicated to maintaining, resources for CalSTA and Caltrans to implement rehabilitating, and improving state highways and a package of proposals focused on transportation local streets and roads, with a smaller amount infrastructure. (In addition to this package, the dedicated to supporting transit operations and Governor continues to request $4.2 billion in capital improvements. bond funds for the state’s high-speed rail project.) As shown in Figure 1, the proposed package Funding for 2021-22 Transportation Package includes the $3.4 billion agreed to in the 2021-22 Reverted Back to General Fund. The 2021-22 budget package that was subsequently reverted budget package included a total of $3.4 billion in to the General Fund, as well as an additional General Fund for the California State Transportation $1.5 billion that would be allocated between Agency (CalSTA) and the California Department of programs from last year’s package and a new set of Transportation (Caltrans) to implement a package proposed programs. Figure 1 Governor’s Proposed Transportation Infrastructure Package General Fund (In Millions) Approved in 2021-22 Budget, but Reverted Additional Proposed Total Proposed Activity Department to General Funda Augmentations Package Statewide transit and rail projects CalSTA $1,000 $1,000 $2,000 Southern California transit and rail projects CalSTA 1,000 250 1,250 Grade separation projects CalSTAb 500 — 500 Active Transportation Program Caltransc 500 — 500 Climate adaptation programs Caltransc 400 — 400 Highways to Boulevards Pilot Program Caltrans — 150 150 Bicycle and pedestrian safety projects Caltrans — 100 100 Totals $3,400 $1,500 $4,900 a Funds reverted to the General Fund because subsequent legislation to allocate the funds was not enacted by October 10, 2021, as required in the 2021-22 budget. b Funds would be competitively awarded through CalSTA, but $250 million included in Caltrans budget to reflect that some portion of funding would be spent on the state highway system. c Programs in Caltrans budget, but the California Transportation Commission would have role in creating program guidelines and awarding funding. CalSTA = California State Transportation Agency and Caltrans = California Department of Transportation. 2 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET The components of the Governor’s transportation • Climate Adaptation Programs infrastructure package include the following: ($400 Million). The Governor’s budget includes funding for (1) Caltrans to plan and • Statewide Transit and Rail Projects implement state climate adaptation projects, ($2 Billion). The Governor’s budget includes (2) CTC to administer a new competitive grant funding for the Transit and Intercity Rail program to implement local climate adaptation Capital Program (TIRCP), which allocates projects, and (3) Caltrans to administer grants through a competitive process for a new competitive program to support capital improvements on intercity rail and local adaptation planning that identifies transit (bus and rail) systems to reduce transportation system vulnerabilities and greenhouse gas emissions, vehicle miles climate-related risks. traveled, and congestion. Funding would be allocated by CalSTA to all regions of the • Highways to Boulevards Pilot Program state—including Southern California, which ($150 Million). The Governor proposes has a specific set aside in the Governor’s allocating funding to Caltrans for a new pilot budget (discussed below). program that would provide competitive planning and implementation grants to local • Southern California Transit and Rail entities for the conversion or transformation of Projects ($1.3 Billion). The Governor underutilized highways to benefit residents of proposes funding through TIRCP for projects underserved communities. specifically within the Southern California region. As part of the transportation budget • Bicycle and Pedestrian Safety Projects package approved last year, this funding was ($100 Million). The Governor’s budget originally set aside to support critical projects includes funding for bicycle and pedestrian for the 2028 Los Angeles Olympic Games. safety projects through Caltrans’ Highway Under the Governor’s proposed package, the Safety Improvement Program. Funding would use of the funding would be available for any be split evenly between state and local eligible transit and rail project in the broader projects, with local projects being selected on Southern California region. a competitive basis. • Grade Separation Projects ($500 Million). Reflects Anticipated Federal Infrastructure The Governor’s proposal includes funding Funds. In addition to the funding in the above through TIRCP specifically for high-priority package, the Governor’s budget includes grade separations—projects that create a a five-year federal fund augmentation for physical separation between railroad tracks Caltrans’ Capital Outlay Program and Local and roadways. Assistance Program associated with the Federal • Active Transportation Program (ATP) Infrastructure Investment and Jobs Act (IIJA) ($500 Million). The ATP, which is administered enacted in November 2021—$1.7 billion in by the California Transportation Commission 2021-22 and increasing annually each year to (CTC) and Caltrans, provides grants to local $2.2 billion in 2025-26. (These amounts include and regional entities through a competitive the formula-based funding the state is expected process for projects that encourage to receive from IIJA for electric vehicle charging an increased use of active modes of infrastructure, which we assess in a forthcoming transportation, such as biking and walking. brief.) Future Caltrans budget proposals related to Similar to last year’s package, the Governor IIJA are expected in the coming months, such as proposes allocating the requested funding for the Capital Outlay Support Program. (Please to support high-scoring projects that did not see the box on the next page for more detailed receive funding in previous ATP grant cycles. information on the transportation funding the state According to CTC, the cost to fund all of the is anticipated to receive from IIJA.) projects that had clearly met the evaluation criteria would be about $1.5 billion. www.lao.ca.gov 3 2022-23 BUDGET Assessment Trade-Offs in Using Competitive Process to Distribute Transit and Rail Funding. The state State Spending Could Complement currently has several programs that fund transit Increased Federal Funds. As mentioned above, and rail projects, with some allocating funds IIJA is expected to provide the state with a competitively and others providing formula-based significant increase in formula-based transportation funding. As previously discussed, the Governor funding over a five-year period. At the same time, proposes to distribute additional funding for transit the act also will make available over $100 billion and rail projects through TIRCP, a competitive in new funding for federal competitive grants grant program. Under TIRCP, applications for nationwide. We find that spending state resources funding are selected based on how well they meet on transportation infrastructure provides an the grant criteria. While a competitive allocation opportunity for the state to complement and process could better ensure that the highest quality leverage the anticipated federal funding—both projects are funded, it also could result in funding formula-based and competitive. In particular, allocations that are not distributed equitably across state spending could complement federal funds all regions of the state. Moreover, as proposed, by focusing on state priorities where funding from Southern California would be the only geographic IIJA might not be as large or available. Additionally, region in the state guaranteed to receive some level state spending could better position state and local of funding for transit and rail projects. Alternatively, projects in obtaining competitively awarded federal distributing funds for transit and rail projects grants, such as by providing the funding needed to through a formula-based program, such as the advance project readiness and feasibility. State Transportation Improvement Program or the State Transit Assistance program, would ensure that every region receives some level of funding. Overview of New Federal Funding for Transportation In November 2021, the federal government enacted the Infrastructure Investment and Jobs Act (IIJA), a $1.2 trillion spending package for various types of infrastructure, including transportation, energy, water, and broadband. Within IIJA, there is a new five-year federal surface transportation reauthorization that replaced the expired Fixing America’s Surface Transportation (FAST) Act. In total, IIJA authorizes $567 billion in spending for federal transportation programs over five years, which is an increase of $274 billion above previous FAST Act spending levels over five years. Funding will go to existing and new federal transportation programs (formula-based and competitive) that support highways, transit, rail, and freight. California is estimated to receive almost $40 billion from formula-based transportation programs over five years under IIJA, which is an increase of $10 billion when compared to previous allocations from the FAST Act. Specifically, the state is estimated to receive the following in guaranteed formula-based transportation funding: (1) $29.5 billion from federal-aid highway programs ($19.4 billion under the FAST Act), (2) $9.5 billion from federal transit programs ($8.1 billion under the FAST Act), and (3) $384 million from a new federal program to support the expansion of electric vehicle charging infrastructure. Funding the state receives from federal-aid highway programs largely is provided to Caltrans. Historically, 60 percent of the funding is used for state activities—such as highway maintenance and rehabilitation—and 40 percent is apportioned to local agencies. In contrast, most of the funding from federal transit programs is allocated to transit agencies in the state directly from the federal government. 4 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET New Highways to Boulevards Pilot Program transportation infrastructure package meets the and Climate Adaptation Programs Have definition of capital outlay under the SAL, and so Merit, but Lack Evaluation Components. this spending is excluded under the Governor’s The Governor’s budget includes funding and budget. As a result, the Legislature has limited budget trailer legislation to establish the Highways flexibility to reallocate funding from this proposal to to Boulevards Pilot Program and several climate other purposes that would not be excluded. That is, adaptation programs. Overall, we find that the Legislature would generally need to repurpose these programs appear reasonable and could the associated funding for other SAL-related provide several benefits. For instance, the climate purposes, such as tax reductions or an alternative adaptation programs would support state and local excluded expenditure. (In our recent report, The transportation systems in planning for and adapting 2022-23 Budget: Initial Comments on the State to climate change impacts—such as from sea-level Appropriations Limit Proposal, we cover SAL rise undermining coastal roadways and bridges. issues in more detail.) Moreover, the Highways to Boulevards Pilot Recommendations Program would support local entities in planning and implementing projects that increase access Consider Governor’s Proposed Package to biking, walking, transit infrastructure, and green in Context of Anticipated Federal Funds. space in underserved communities by converting or Over the next several years, California is expected modifying underutilized highways. to receive a significant amount of federal funding for transportation. The Legislature will want In addition, we find that allocating one-time to consider how additional state funding for funding to these new programs would provide transportation infrastructure can complement these the opportunity to pursue and pilot different federal funds—supporting legislative priorities types of projects of varying scope to help guide where federal funds are not as significant or are future budget and policy decisions. However, as absent—as well as how state funding can help currently proposed, the budget trailer legislation California be competitive in receiving discretionary to implement these programs does not include federal grants. any statutory requirements for Caltrans to evaluate programmatic outcomes. In order to guide future Consider Geographic Equity in Transit and legislative decisions, we find that it is particularly Rail Funding. If the Legislature believes that important for the state to conduct robust program some level of base funding for transit and rail evaluations to measure the extent to which new projects should be provided to all regions of the programs are meeting their core objectives. state, it could consider allocating a portion of the Having these evaluations would better inform the proposed funding for transit and rail projects on a Legislature on the successes and challenges of formula-basis, or providing additional dedicated the programs, and, in turn, guide whether (and at funds for different regions. For example, the what level) to continue funding these programs, Legislature could provide some of the funding or if any programmatic modifications are needed. for transit and rail projects through existing For instance, if enhancing multimodal connectivity formula-based programs, such as the State along state highways is an objective of the Transportation Improvement Program or the State Highways to Boulevards Pilot Program, it should be Transit Assistance program, to ensure some level of evaluated—using measurable metrics—to assess geographic funding equity across the state. the extent to which the program meets this goal. Require Robust Evaluations of New Programs Proposed Spending Excluded From State Funded. We recommend the Legislature add Appropriations Limit (SAL). The California requirements—through budget trailer legislation— Constitution limits how the state can spend for program evaluations of any new transportation revenues that exceed a specific threshold. programs that are established and funded in the Appropriations for capital outlay are excluded budget. For example, to the extent the Legislature from the limit. The proposed spending in the approves funding for the proposed Highways to www.lao.ca.gov 5 2022-23 BUDGET Boulevards Pilot Program and climate adaptation Consider SAL Implications. In considering the programs, it could require Caltrans to evaluate and proposed transportation infrastructure package, report on the outcomes of each program. These we recommend the Legislature be mindful of SAL requirements could include measuring specific considerations. In particular, if the Legislature were metrics that the Legislature would find useful in to reject or approve a lower amount of General Fund (1) determining whether the programs are meeting spending than the administration on transportation their intended objectives and (2) guiding future infrastructure, it likely would need to repurpose the budget and policy decisions regarding how to associated funding to other SAL-related purposes. support these efforts going forward. 6 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET www.lao.ca.gov 7 2022-23 BUDGET LAO PUBLICATIONS This report was prepared by Frank Jimenez and Eunice Roh, and reviewed by Anthony Simbol. 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 report 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, California 95814. 8 LEGISLATIVE ANALYST’S OFFICE