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BUDGET UPDATE from page 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gov. Schwarzenegger proposed in January and in his May revision to the FY 2006-07 budget to provide early repayment of $920 million in Prop. 42 funds. His proposal was to allocate $410 million to the Traffic Congestion Relief Program (TCRP), $255 million to the State Transportation Improvement Program, and $255 million to cities and counties for local streets and roads (half for cities, half for counties). The League strongly supports the Governor's proposal. The $255 million for local streets and roads will provide the only Proposition 42 funding dedicated to cities and counties for the local system for the budget year. Senate Approves Reduced Repayment Senate Budget Subcommittee #4 recently approved repayment at the level of $460 million (half of the Governor's proposal), with the re- quested repayment allocation proportionally reduced (approximately $205 million to the Traffic Congestion Relief Fund, $127.5 million to local streets and roads and $127.5 million to the STIP). The subcommittee cited the recently enacted package of bills to place infrastructure bonds on the November 2006 ballot as background for its recommendation. The subcommittee specifically noted that SB 1266 includes $19.9 billion in bonds for transportation and SCA 7 further restricts the ability of the Governor and the Legislature to suspend Proposition 42 during a fiscal crisis, and provides for repayment of all past Proposition 42 loans no later than June 30, 2016. Subcommittee background materials further referenced that a FY 2006-07 repayment at the level of $460 million would still provide a significant prepayment of the amount due in FY 2007-08 and would more than double the annual repayment amount required in SCA 7. Assembly Supports $920 Million, But Shifts Allocations Earlier this week, the Assembly Budget Sub- committee #5 recommended repayment of the $920 million in the Governor's proposal, but shifted the allocations. According to subcommittee background materials, at the time of the Governor's proposal it was estimated that the payment to the STI P and local streets and roads would include the full principal amount of $232 million and an interest amount of $23 million for a total payment of $255 million for each. This resulted in an estimated $410 million for the TCRP. However, the Legislative Analyst's Office indicates that the Controller has updated the interest amounts owed, and the STIP and local streets and roads would actually receive $13 million in interest payments, for a total payment of $245 million for each. The subcommittee, on a unanimous vote, passed repayment of $920 million as follows: $308 million to the TCRP; $245 million to the STIP; $245 million to local streets and roads; and $122 million to the Public Transit Account. What's Next? Due to the differing recommendations by the subcommittees, the Proposition 42 repayment issue will now go to the full Budget Conference Committee consisting of members of both houses of the legislature. It is unclear when the repay- ment issue will be addressed, but the League will continue to advocate for full repayment for local streets and roads. Other Budget Issues-Spillover Revenues and the Public Transportation Account Cities with transit agencies will be interested in the Governor's proposal to divert $669 million in FY 2006-07 to transportation debt funding and the Bay Bridge seismic retrofit project rather than to the Public Transportation Account (PTA). The funds he proposes to use are known as "spillover" funds: revenues from the growth in sales tax on gasoline, to the extent they exceed the growth in Continued on Page 9 PAGE 8 - PRIORITY FOCUS May 26, 2006 . Issue #21 Visit the League's Official Website--www.cacities.org