The Public Policy Institute of California (PPIC) has released a new report in which it urges less reliance on state general obligation (GO) bonds to fund infrastructure improvements. The report, "Paying For Infrastructure: California's Choices," recommends reducing the voter requirement for local bonds from two-thirds to 55%, more user fees and expanded experimentation with public-private partnerships.
The Schwarzenegger administration has estimated the state needs to spend $500 billion over the next 20 years to update and expand transportation systems, schools, water facilities and other public infrastructure. California relies more than most states on local and regional agencies to build and manage infrastructure, according to the PPIC report. However, Proposition 13 requires two-thirds voter approval for passage of local general obligation bonds, and Proposition 218 requires two-thirds voter approval of any "property related" fees and limits those fees to the proportional cost of providing service.
State bonds require only majority voter approval, which makes them an appealing alternative, the PPIC report says. Voters have approved $54 billion worth of state bonds in recent years; however, each new bond places a new obligation on state general fund revenues, the PPIC noted. Moreover, agencies might not spend bond funds in the most efficient fashion, the report said.
The PPIC pointed to voters' decision in 2000 to reduce the approval threshold for local school bonds from two-thirds to 55%, which has dramatically increased funding for K-12 school construction and community college facilities. "[L]owering the supermajority threshold for all local GO bonds and special taxes would maintain the safeguards of a supermajority vote for new fiscal obligations while improving Californians' ability to fund essential local infrastructure," wrote Ellen Hanak, the report's primary author.
The PPIC urged more user fees for things such as transportation infrastructure and water supply, which increasingly are funded with GO bonds even though the projects have specific beneficiaries. PPIC also suggested raising the 18-cent-per-gallon gas tax – a proposal that was part of the recently approved state budget plan until the very last minute.
Researchers found California lags other states and countries in the use of public-private partnerships, or P3s. These could include private sector contracts to run public facilities, design-build contracts for project construction and possibly operation, and private equity participation in project financing. "Although P3s are not a panacea, California would benefit from expanding its opportunities with these tools," the report concluded.
The report is available on the PPIC website.