The transportation component of the Strategic Growth Plan is the cornerstone of a 20-year vision to rebuild and maintain a transportation system that can keep pace with California’s growing population and economy. Boosted by voter approval of Propositions 1A and 1B on the November 2006 ballot, investment in long-overdue transportation improvements will help overcome decades of chronic underinvestment in one of the state’s most important economic assets. However, construction will be delayed and $1 billion more costly if the design-build authority requested by Caltrans to streamline design and permitting for transportation projects is not authorized. The Administration will be re-introducing legislation seeking design-build authority in conjunction with appropriation of Proposition 1B funding.

Additionally, the $19.9 billion in general obligation bonds authorized in Proposition 1B represents only one-fifth of the funding available for transportation infrastructure investments. If leveraged successfully with federal, local and private-sector resources, Proposition 1B funds could produce over $100 billion in total funding for traffic congestion relief and goods movement over the next 10 years. Maximizing the use of Proposition 1B dollars necessitates additional statutory authority to require matching funds and enter into public-private partnerships. The Administration will be re-introducing legislation seeking expanded authority to enter into public-private partnerships in conjunction with the appropriation of Proposition 1B funding.

The inadequacies of California’s current funding methods have contributed to the underinvestment in the state’s transportation network. Per-gallon taxes on gasoline and diesel fuel and truck weight fees are the dominant sources of funding for transportation system maintenance and expansion. While increasing vehicle efficiency over the years provides valuable energy and environmental benefits, declining revenues per vehicle mile traveled, coupled with inflation and skyrocketing construction costs, cause revenue sources to fall short of the state’s transportation system needs. Consequently, chronic underinvestment increases congestion and has resulted in California having some of the most distressed highway and road conditions in the United States.



Part of the gap has been filled with voter-approved local-option sales taxes and the Proposition 42 sales tax on gasoline. In addition, passage of Proposition 1A by California voters in November 2006 ensures that Proposition 42 revenues will be directed solely for transportation purposes. However, these sources are far from sufficient. Between 1994, when gas tax rates were last adjusted, and 2005-06, travel on the State Highway System increased by 27 percent, from 144.2 billion to 183.4 billion vehicle miles. Similarly, vehicle miles traveled on local streets and roads increased 12 percent over the same period from 127.6 billion to 143 billion. Collectively, state highways and local streets and roads support nearly 20 percent more traffic today than just 12 years ago.

Over the same time frame, while state gas tax revenues have increased about 21 percent, transportation system construction costs have far exceeded inflation. The California Highway Construction Cost Index compiled by Caltrans shows that actual construction costs have increased by 200 percent in the same period. As shown in Figure 3, the ongoing revenue shortfall for both new construction and maintenance at the state and local levels causes the state’s transportation system to fall further and further behind each year relative to needed improvements.

Recognizing these structural realities, the Administration has developed the transportation element of the Strategic Growth Plan to better leverage investment in the state’s transportation system, improve utilization of existing assets and improve maintenance. The integration of these activities will reduce congestion levels over the next decade while accommodating future population growth and facilitate continued economic growth. The Administration’s original proposal was estimated to reduce congestion by 18 percent. Caltrans estimates that the plan as currently funded will reduce congestion an overall 11.0 percent from 2005 levels by 2015-16. The Administration proposes to maximize the leverage of state and local funding with public-private partnerships and achieve a minimum of 14.5 percent congestion reduction.

Accomplishments to Date

The Governor’s Budget proposes a total of $7.7 billion in appropriations from these bonds to be allocated to projects over the next three years. Additionally, $523 million is proposed to be appropriated for high-benefit projects that are ready to construct in 2006-07. While many of the programs funded by Proposition 1B bonds are new and will require implementing legislation, project nominations, based on the guidelines already adopted by the California Transportation Commission (CTC) for the corridor mobility program, are due by January 15, 2007 from local transportation authorities and from Caltrans. Proposition 1B requires the CTC to select projects by March 1, 2007. The CTC has also adopted guidelines for the programming of the $2 billion for the State Transportation Improvement Program (STIP) and the $1 billion for State Route (SR) 99. Regional Transportation Agencies and Caltrans will submit project proposals in April 2007 for the STIP and by January 16, 2007 for SR 99. The Administration is also delivering the State Goods Movement Action Plan, which will help guide the use of the $2 billion in trade corridor project funding.

Other programs will begin implementation later in the spring or in 2007-08. As projects are selected for funding, appropriation levels and expenditure estimates will need to be adjusted. Four Proposition 1B programs are not reflected in the Governor’s Budget (Intercity Rail, Transit Security, Trade Infrastructure Air Quality, and Port Security) because the Administration is considering program implementation approaches and gathering information on funding needs. It is expected that proposals to appropriate bond funds for these programs will be made in the Spring Finance Letter process or in later budget cycles as needs are demonstrated and program implementation details are worked out.

Spending proposed in the Governor’s Budget from Proposition 1B is summarized in Figure 4. The Administration is proposing legislation that will ensure that this historically large investment in transportation is used for the projects that produce the most congestion relief, safety, pollution reduction, and improvement of system operation. Legislation will require agencies responsible for these programs to ensure that projects are evaluated objectively for potential performance, that there are sufficient funds to construct, operate and maintain the projects, that the public has substantial opportunities for input, and that performance is documented and reported on an ongoing basis. Competitive programs will provide priority to projects that leverage more matching funds and can be completed sooner.

Federal Funds

The Governor’s Budget proposes to use a combination of the tribal gaming revenues and $205 million in federal funds received for past emergencies and reallocated from other states for additional pavement rehabilitation projects in the State Highway Operations and Protection Program in 2006-07 and 2007-08. Additionally, the Budget adds $85 million from existing resources to increase ongoing maintenance of state highways.

The new bond resources will be used in conjunction with existing transportation revenues from state and federal gas taxes, weight fees, tribal gaming funds, and Proposition 42 funds totaling $14.75 billion in capital spending in 2007-08. In the next ten years, the transportation component of the SGP is projected to result in 515 new High Occupancy Vehicle lanes, 700 new highway lanemiles, 4,760 miles of rehabilitated lanes, 480 miles of new commuter lines, 240,000 more transit riders, and a 120-percent increase in intercity rail riders.

The increase in resources provided by the Proposition 1B bonds and other transportation resources is displayed in Figure 5.

Public-Private Partnerships and Design-Build

Legislation approved in the last session authorizing the use of public-private partnerships was not sufficient to allow effective use of public-private partnerships to bring substantial private capital and savings to transportation projects. Additionally, legislation providing general designbuild authority was not enacted. The public-private partnership legislation limited use to a few projects that primarily serve large trucks and that require individual approval by the Legislature. There are significant opportunities to bring substantial new resources into the state through user fees and private-sector project delivery and operation.

Many forms of public-private partnerships have been developed worldwide and are increasingly being used by other states to substantially increase current capital investment and provide for long-term efficiencies and better performance in the operation of public infrastructure. Broad authorizing legislation, leveraging the Proposition 1B bond funds and authorizing tolls, container fees or other user fees, could bring in as much as $17 billion to fund goods movement projects, construct high occupancy/toll lanes, and fund pollution-reduction projects associated with goods movement. The legislation must allow substantial flexibility for administering agencies to negotiate the best possible deals for the state. The legislation should also authorize publicpublic partnerships and public-private partnerships that do not involve user tolls but provide for performance-based payments from public funds. Caltrans estimates these arrangements could provide an additional 3.5-percent reduction in congestion and 210 more highway lane-miles over the performance outcomes that can be achieved without these new financing and project delivery tools. Without such flexibility, it is likely that these potentially large resources will not be available to California, and congestion and pollution in urban areas-especially near the state’s major ports-will not be materially improved.

Maintaining What We Build

While the bonds and the funds they can leverage will provide substantial congestion relief, state and local needs for maintenance, rehabilitation and operation cannot be adequately funded with currently available resources. State-owned distressed pavement has increased from roughly 21 percent of the total system in 2001 to 27 percent in 2006, and could increase to 40 percent by 2015-16 unless planned efforts to focus existing resources on pavement rehabilitation are undertaken. Even when these planned actions are implemented, however, about a third of the State Highway System will remain in distress unless additional resources are identified. Local street and road maintenance backlogs of many billions of dollars reportedly exist and are growing. The Department’s State Highway Operations and Protection Program (SHOPP) does not have sufficient resources to adequately and effectively operate and preserve the State Highway System. Most of the funds in the bonds and Proposition 42 cannot be used for these purposes. Fuel tax revenues, which are the primary source of funding for these purposes, are likely to increase slowly or actually decline with the growing use of alternative fuels and increasing fuel efficiency in new vehicles. As the SGP is implemented, the Administration will work with interested parties and the Legislature to develop more information about the scope of the problem and long-term solutions.