Finance—The Critical Link

Shifting Sands The Evolution of Surface Transportation Finance

The California Experience

UCLA Policy and Research Symposium Series

Lake Arrowhead, CA

October 19-21, 2003

Presented by

Arthur BauerArthur Bauer & Associates, Inc.

Presentation Objectives

• Trace evolution of transportation finance in California

• Identify/interpret the context in which transportation funding policy was made

• Suggest how to interpret today’s policy environment

0

5

10

15

20

25

30

35

40

California’s Population1900-2000

The Beginning—1900-1920

• Primitive public finance structure

• Property tax basis of state and local funding

• Three state bond acts

– 1909 $18M– 1915 $14M– 1919 $40M

• By 1923, $42M in county bonds available for roads

1900 Census

California’s Ten Largest Counties

County Population % of State Pop

1

2

3

4

5

6

7

8

9

10

San Francisco

Los Angeles

Alameda

Santa Clara

Sacramento

Sonoma

Fresno

San Joaquin

San Diego

San Bernardino

Top Ten Total

State Total

342,782

170,298

130,197

60,216

45,915

38,480

37,862

35,452

35,090

27,929

924,221

1,485,053

23

11

9

4

3

3

3

2

2

2

62

The Beginning—1900-1920

• Cost overruns due to the decision to build 4” concrete highways

• Counties paid propor-tional share of debt service

• State funds were being consumed by highway program

Context• 1900—780 cars• 1910—44,120 cars• 1920– 604,187 cars

• 1910 gross receipts tax for state; property tax for counties

• By 1923, 8% of state general funds for highway debt service

• In 1923, “horsepower” tax on vehicles generated $10.4 M Total state revenues=$46M

• $16M in county debt service for road bonds

Building the Foundation1920-1940

• Road financing out of control

• Benefits of high-ways easily assign-able to users

• Gas tax settled on as an equitable and convenient revenue tool

Registered Motor Vehicles

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1

2

3

4

1920 1930 1940

Millions

Building the Foundation1920-1940

• 1923, 2¢ gas tax– 1 ¢ to the state– 1 ¢ to counties

• 1927, 1¢ gas tax increase to the state.

• North/South split 0

1

2

1920 1930 1940

Billions of Gallons of Motor Vehicle Fuel Sold

Building the Foundation1920-1940

• Cities – 1/4 ¢ for state

highways in cities

– 1/4 ¢ for major city streets

• 1938, Article 19 put into the state constitution

Summary• Related use and

benefits

• Ensured geographic equity

• Shared with counties

• Shared with cities

• Segregated gas tax and motor vehicle fees from state general fund

Financing the Freeways1945-1965

• $’s needed to rebuild roadway infra-structure depleted during WW II

• Need to accom-modate growth in population & travel

• “Let’s get out of the muddle”

02,000

4,0006,0008,000

10,000

12,00014,00016,000

1940 1960

Pop Drivers MV

Growth in Key Variables

Financing the Freeways1945-1965

• 1947, 1.5¢ post WW II gas tax increase

• 1953, 1.5¢ increase for a total of 6¢/gal.

• 1963, 1¢ increase to 7¢/gal.

• Cities and counties get 49%; state 51% of gas tax revenues

• Geographic equity—county and district minimums

Related Activities

• 1944 Congress authorizes the Interstate Highway System

• 1956 Federal Interstate Highway system/ Federal Highway Trust Fund established

• California Freeway and Expressway System

• 1962 3-C Planning Process mandated by Congress

Urban California Asserts Itself

• 1962, Baker v. Carr

• 1964, Reynolds v. Sims

• 1966, California elects a legislature based on “one person; one vote principle”

• San Francisco’s “freeway revolt”

• BART 0

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100

150

200

250

300

350

Growth in Vehicle Miles Traveled--1966-2000

Urban California Asserts Itself• 1968—California Clean Air

Act• 1970—North/Split moves to

60% South/40% North• 1970—MTC• 1970—CEQA• 1971—Transportation

Development Act• County transit sales taxes• 1973—AB 69 Caltrans/

Regional Planning• 1974—Article 19 opened

for rail transit• 1976—CTC/County

Commissions/STIP5

15

25

35

1960 1970 1980 1990 2000

California’s Populationmillions

Ballot Box Policy Making• 1978–Proposition 13• 1981-Last gas tax imposed

by legislature• 1984—Self-Help sales taxes• 1990—Prop 111 doubling of

gas tax by bailout• Re-emergence of bonds for

funding transportation– 1988—Prop 78-failed– 1990—Props 108/116– 1992—Rail-failed– 1994—Rail-failed– 1996—Seismic Retrofit

• 1996–Proposition 218 and 2/3’s vote requirement

Overview of Initiative Process

• 1911—76% of voters approve initiative process at a special election

• Between 1911 and 2000, 290 initiatives qualified

• Since 1978, 127 initiatives qualified for the ballot

Devolution

• Orange County toll roads

• Proposition 111/Local government loses

• Emergence of CMA’s

• SB 45 and the 75%-25% split between state and regions for prioritization of projects

• Projects must be in regional plans/flexibility encouraged

• CTC’s ability to prioritize limited

Federal Program Supports Regions

• Federal statutes, ISTEA/TEA, mirrors California policy direction

• Flexibility

• Projects must be in RTP

• Federal air quality regulations enter into transportation planning and project prioritization

Erosion of Firewalls

• General fund crises of early 1990’s and early 2000’s saw concept of special funds eroded

• TCRP and Proposition 42 further linked transportation funding and general fund

• General fund/special fund concepts become muddy

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2

4

6

8

10

12

14

16

18

20

23

27

31

35

39

43

47

51

55

59

63

67

71

75

79

83

87

91

95

99 3

19232¢

19273¢

19474.5¢

19536¢

19637¢

19839¢

199014¢

199418¢

Summary of Gas Tax Increases

Largest Counties:1900 & 20001900 Census

California’s Ten Largest Counties

County Population % of State Pop

1

2

3

4

5

6

7

8

9

10

San Francisco

Los Angeles

Alameda

Santa Clara

Sacramento

Sonoma

Fresno

San Joaquin

San Diego

San Bernardino

Top Ten Total

State Total

342,782

170,298

130,197

60,216

45,915

38,480

37,862

35,452

35,090

27,929

924,221

1,485,053

23

11

9

4

3

3

3

2

2

2

62

2000 Census

California’s Ten Largest Counties

County Population % of State Pop

1

2

3

4

5

6

7

8

9

10

Los Angeles

Orange

San Diego

San Bernardino

Santa Clara

Riverside

Alameda

Sacramento

Contra Costa

Fresno

Top Ten Total

State Total

9,519,338

2,846,289

2,813,833

1,709,434

1,682,585

1,545,387

1,443,741

1,223,499

948,816

799,407

24,532,329

33,871,648

28

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8

5

5

5

4

4

3

2

72

Summary• Transportation funding policy cannot be

separated from larger political issues

• Transportation funding policies meet the investment needs of the time enacted

• Funding and institutional arrangements are linked

• Incrementalism is a feature of the evolution of funding policy

• Transportation objectives become less important as funding policies are linked to secondary objectives