Tracking the Transportation Bond: A Study of 2006’s Proposition 1B

Proposition 1B, part of California’s largest general obligation bond package ever offered on a single ballot, is closing in on the end of its 10-year lifespan. The 2006 program is poised to leave a legacy of improvement in the Bay Area, bolstered by multiple completed and committed transportation infrastructure projects.

Before that legacy becomes final, voters will weigh another high-profile bond initiative in November. This time, it’s a $7.5 billion water bond to alleviate California’s drought woes and advance water delivery. There’s been hemming and hawing about the water bond — just like there was eight years ago when Proposition 1B was on the ballot. Underlying each cause is concern about whether bond measures are a good way to finance big projects.

Transportation experts interviewed by the Bay Area Monitor discussed the positives and negatives, noting benefits of a cash infusion against the reality of repayment. Certainly, 2006’s Proposition 1B and the current water bond are difficult to compare apples-to-apples. But the upcoming election should compel voters to scrutinize the efficacy of bond financing, and Proposition 1B offers a worthwhile case study.

Proposition 1B was made up of $19.9 billion in general obligation bonds to relieve traffic congestion and improve goods movement, air quality, safety, and security of the transportation system. It was part of a $37.3-billion smorgasbord of infrastructure investment programs covering housing (Proposition 1C), education (Proposition 1D), and flood control (Proposition 1E) that was being promoted by then Governor Arnold Schwarzenegger.

About 61.6 percent of California voters approved Proposition 1B as residents sought solutions to modernize infrastructure and expand public transit. In the Bay Area, the measure gained an average of 62.9 percent support among the nine counties (Contra Costa County provided the most support with 67 percent, while Napa County was at the bottom with 56.5 percent).

“At the time, we were riding the peak of the economy and a ton of people were sitting behind the wheel in congestion,” said Jim Earp, executive director at the California Alliance for Jobs, a Sacramento-based coalition of heavy construction companies and trade unions that supported Proposition 1B.

While no one argued the importance of alleviating traffic snarls, opponents did voice concern about whether the measure was fiscally responsible. The official argument against it in the Secretary of State’s 2006 voter guide — penned by Michael Villines, the 29th District’s assemblymember at the time — estimated Proposition 1B could saddle the state with $32 billion in debt.

To be sure, there are several reasons that make it hard to say how or if that figure will be significant. For one thing, not all the bonds have been issued from the $19.9 billion total. In addition, the cost of bonds depends on interest rates in effect when they are sold and the time period over which they are repaid.

And repayments are underway. Proposition 1B debt service for fiscal years 2008 to 2014 has been paid to the tune of approximately $2.8 billion, according to figures from the State Treasurer’s Office.

A current repayment schedule based on the amount of bonds issued so far indicates it will cost about $29.8 billion to pay off both the principal ($13.5 billion) and interest ($16.3 billion) over a 36-year repayment period ending in fiscal year 2044. (This does not reflect Proposition 1B debt service for a sale expected to close October 7).

There also was concern in 2006 about whether California residents would experience an increase in taxes when it came time to pay the bonds back. But currently, California’s general fund is growing, reducing the need to raise taxes to avoid spending cuts on critical state needs for debt repayment. General fund appropriations are $108 billion for the 2014-2015 budget — a 12 percent jump from the prior year.

“The situation is healthier now, and there’s less discussion about near term trade-offs [for debt payback],” said Ellen Hanak, an economist and senior fellow at the Public Policy Institute of California. “But it’s always a factor to consider.”

Another factor to consider is that California has financing alternatives, such as “user fees,” which include taxes on gas and tolls on roads and bridges. Confronted with these fees when they drive, residents think more about their transportation usage and the impact they have on congestion, Hanak indicated.

“If you’re paying [for a bond measure] through sales and income tax, there’s no incentive to behave differently on the road,” she said.

In any case, with Proposition 1B’s approval now well in the rearview mirror, Bay Area residents don’t have to look far to notice big transportation changes. The Bay Area received $4.8 billion — nearly 25 percent of the transportation bond’s total — with the biggest pieces of the pie going toward public transportation ($1.28 billion), corridor mobility ($1.1 billion), and transit security ($489 million), according to Metropolitan Transportation Commission (MTC) figures.

Proposition 1B “was more than a one-time cash infusion,” said Anne Richman, director of programming and allocations at MTC. “It was substantial enough to make a difference. The negative is that it’s coming to an end.”

Proposition 1B also paved the way for partially completed projects to move forward. That includes $91.1 million to build the fourth bore of the Caldecott Tunnel, an East Bay project completed last fall.

“The $20 billion got the projects off the shelf and made them a reality,” said Earp, who claimed that every $1 billion spent on public infrastructure creates 18,000 to 20,000 jobs.

Among other recent projects, the Jameson Canyon widening project finished in September. It doubled Highway 12’s width between Napa and Solano counties, helped, in part, by $68.9 million in Proposition 1B funding. Beyond that, multiple Bay Area cities are benefitting from traffic light synchronization, transit equipment upgrades, the addition of high-occupancy vehicle lanes, and seismic retrofits on local bridges.

“It really has been a blessing in disguise for a lot of areas in California,” said Andre Boutros, executive director at the California Transportation Commission (CTC), which was responsible for administering $11.625 billion in bond funds with the passage of Proposition 1B.

A host of other projects are in process, too. The San Francisco Municipal Transportation Agency’s Central Subway Project — which will extend the T Third Line from Caltrain’s 4th Street Station to Chinatown when service commences in 2019 — will have received a total of $307 million once the October 7 bond sale goes final. Another $19.3 million went toward rebuilding Doyle Drive in San Francisco. It will be done next year.

Cecily O’Connor is a freelance journalist based in Corte Madera.