June 2005

California 2025: Taking On the Future

by Ellen Hanak and Mark Baldassare

Ellen Hanak is a research fellow for the Public Policy Institute of California (PPIC) and can be reached at hanak@ppic.org. Mark Baldassare is director of research for PPIC and can be reached at baldassare@ppic.org. PPIC is a private, nonprofit organization dedicated to improving public policy in California through independent, objective, nonpartisan research. For more information, visit www.ppic.org. This article is excerpted with permission from the PPIC publication of the same name, which was released in June 2005.

When the Proposition 13 tax limitations were passed in 1978, the "era of spending limits" had officially begun, and infrastructure investment headed into the steady decline that was not reversed until the 1990s.

In recent years, the combination of record state budget deficits and political paralysis in Sacramento has once again threatened to limit investment in infrastructure and planning for the future. The monies that would otherwise flow to infrastructure have been diverted to pay for existing programs and mounting state debts. Meanwhile, the Democrats and Republicans in the Legislature and the executive and legislative branches have quarreled over current fiscal priorities and have been unable to agree on a forward-thinking plan.

Infrastructure Needs and Payoffs

Further, the infrastructure policy-making process has become more and more complex. Governance today involves state, local and regional infrastructure agencies. With a plethora of local special districts in California, often organized on a single-function basis (for example, transportation, water, air quality), the lines of political authority and ultimate decision-making are often blurred. Today, when the state makes infrastructure decisions, many more private and nonprofit interest groups also seek a seat at the table - groups that range from environmentalists to neighborhood organizations to labor and business representatives. Policy-making is more contested, as community activists and interest groups have made increasing use of such tools as local and state voter initiatives and litigation to press for various causes. As a result, the approval process for both small and large infrastructure projects can be a time-
consuming and difficult exercise of competing political wills.

In the current political and fiscal climate, policy-makers are considering a variety of new governance strategies and different institutional goals. Planners are shifting their priority from building new physical capacity for meeting future infrastruc ture needs, seeking instead to encourage more efficient use of existing systems and resources. In this context, both funding and planning authority are also pushed downward from state to regional agencies and local governments - an approach that promotes greater flexibility, strategic manage ment and policy integration. A regional emphasis on infrastructure planning also seems appropriate in a large state with a multitude of distinct regions (for example, Los Angeles, Sacramento Metro, San Joaquin Valley, Inland Empire, Orange County, San Diego), each with its own large populations and geographic areas.

The institutional obstacles to a new regional approach are also formidable. The complexity of new decision-making structures can hamper decision-making. However, we have also learned hat effective collaborative arrangements are possible and that the agreements reached through this type of process may actually balance state, regional and local concerns more effectively than either imposed or top-down solutions. The state has an important role to play in creating a new governance system by providing more of a policy focus, funding mechanisms and institutional support for local and regional decision-making. The state government in California still lags behind other states’ efforts in this regard.

In 2004, the release of Governor Schwarzenegger’s California Performance Review, with its more than 1,000 specific recommendations for improving the efficiency of state government, underscores our central message that broad governance and fiscal reform are essential ingredients in today’s arena of infrastructure planning. Among the proposals is the establishment of a new state Infrastructure Department with a broad mission to oversee the planning for a broad array of sectors - point ing to the importance of integrating future planning, complementary programs and financing mechanisms.

The transition from massive statewide engineering projects to a broader consideration of the costs and effects of potential investments across metropolitan areas ultimately seems a healthy and appropriate one in such a mature and highly devel oped state as California. The protections now offered to environmental values, community participation, mitigation of the harms of projects, and fiscal restraint are important values to most residents. State leaders today must sometimes secure political agreements not just on how to allocate more services and facilities but also on how beneficiaries of state services can make do with less. Moreover, the priorities that are now being placed on equity issues for low-income communities in infrastructure decisions - which were not always part of institutional thinking in earlier eras - require a governance process that offers opportunities for inclusiveness and time for full debate.

The Public’s Views on Growth, Governance and Policy Options

As their top priorities for the future, most Californians name the three types of infrastructure projects that we focus on in the California 2025: Taking On the Future publication: school facilities, surface transportation and water systems. There is also public consensus that the state government should focus on finding efficient and cost-effective solutions in all three arenas. For instance, when they are asked to consider the policy tradeoffs, they favor more efficient use of existing freeways and highways instead of building more major roads (see Figure 4). They support efforts to use existing public educational facilities more efficiently rather than building more public schools (see Figure 5), and they favor relying on conservation of the current water supply rather than building new dams and water storage systems. Indeed, this perspective is consistent with our other survey findings about public finance and the budget, which indicate a public belief that state government is so wasteful that the same level of services could be provided even if there are fewer resources available. The public’s preferences for "demand manage ment" rather than "bricks and mortar" also parallel many of the themes that are discussed elsewhere in the California 2025 report.

Public attitudes toward new tax increases and user fee proposals - along with an appetite for governance reform and insistence on equitable planning - will be a major force in shaping infrastructure planning for the state’s future. A majority of Californians believe that their governments lack adequate funding for roads, school facilities and other infrastructure projects, but would they support tax increases to prepare for future growth? Many voters reject the idea of increasing their taxes unless they know exactly how these tax dollars will be spent. Surprisingly, given their anti-tax reputation, many Californians say they would be willing to increase their local sales tax for roads and public transit projects and would support a 20-year bond measure to pay for local school construction projects. With certain assurances that their money will be put to appropriate uses, and especially if there are governance systems in place to make public officials accountable for their spending decisions, many voters appear willing to set aside their distrust and invest in the future. They are willing to act against their political instincts because they believe that their economic future and quality of life are at stake.

Californians also seem highly conscious of the fact that growing economic inequali ties threaten the future of the state for everyone. Many are even agreeable to the idea that policies should provide for uneven investments in public schools and infrastructure that favor the least advantaged minority and low-income commu nities over more affluent communities. Keeping the equity perspective in the mix will be a necessary ingredient in future policy-making, given that overcoming inequities is a part of the challenge faced in achieving good educational outcomes and increasing economic opportunities in the state.

A major task ahead is finding a way to restore the public’s trust and confidence in their state and local governments. To do so will require an unprecedented effort by the state’s leadership. It will be a challenge to overcome the apathy, disinterest, cyni cism and pessimism that has been pervasive for decades. The public’s lack of confidence cuts short any serious discussions of forward planning, which then makes it difficult to reach any consensus on goals. The solution may ultimately lie in a set of political, governance, institutional and fiscal reforms that will make state and local government actions more transparent, accountable, efficient and responsive to the people that they serve. Some say that the best opportunities for an overhaul of state and local governments are present in the post-recall era in California. To date, however, the focus has been reaching consensus on balancing the state budget.

In closing, despite the clear signs of success in some infrastructure sectors, and population and economic trends that will ease the growth in demand for public facilities, California faces the future without a clear mandate on how much or how to raise funds for infrastructure projects to accommodate an expected 10 million new residents. We also uncovered a "human infrastructure" issue with major implications for the future - a growing need for college-educated workers for our changing economy and a likely shortfall in highly educated adults in the fastest-growing population groups.

In the California system of public finance and governance, much will depend on the voters’ willingness to raise taxes or pay higher user fees for new future-oriented proposals. The public acceptance of policies that promote socioeconomic progress in low-income and minority communi ties and shift from a local to a regional focus in infrastructure planning will also be critical in determining the state’s future. Major political and policy shifts will no doubt require courageous leadership, but this quality has always surfaced whenever California has taken a giant step into the future.