Buried within Proposition 76, the "Live Within Our Means" budget reform initiative, is a provision that would prohibit the borrowing of special fund dollars to cover General Fund shortfalls. With this common-sense proposal, state lawmakers would no longer be able to balance budgets by raiding funds earmarked for infrastructure investment.

Take, for example, the raids on transportation funds over the past three years.

In 2002, voters approved Proposition 42, a measure requiring the allocation of gasoline sales-tax revenue to the Transportation Investment Fund (TIF) for highway-improvement projects. It also contained a provision that if General Fund revenues greatly declined in a given fiscal year, then the TIF could be partially or fully suspended, with the moneys loaned to the General Fund for current expenditures.

Although this provision allowed the legislature flexibility in budget planning, it turned the TIF into a piggy bank lawmakers could crack into for a quick score.

Governors lead raid

In 2003, the first year the gas taxes were earmarked for the TIF, the General Fund faced an operating shortfall of more than $11 billion. Seizing the opportunity, Gov. Gray Davis and the legislature took $811 million of the $1.1 billion collected in 2003. While the short-term fix gave the legislature easy cash, it added another debt obligation to future budgets since the loan had to be paid back by 2009.

When a budget deficit again threatened in 2004, the fund was raided again, this time under the approving eye of Gov. Schwarzenegger. The General Fund absorbed all of the TIF's $1.2 billion, a sum required to be repaid by 2008. As the string of shortfalls continued in the 2005 budget, the governor yet again wanted to dip into the Prop. 42 money.

His January budget plan called on the state to suspend the $1.3 billion in the TIF, but as the year progressed and revenue forecasts brightened, he dropped the plan. The budget bill signed last month secured all the TIF funding for the first time and included a repayment schedule for prior years' loans.

But this is only a temporary reprieve.

Back on the road

The fiscal picture for 2006 is deficit-ridden, with an estimated gap of $6 billion. And with the $15 billion credit card obtained under Proposition 57 near its limit, California can't sell more bonds to fill the gap. That leaves the potential for more special-fund raids.

But Prop. 76 would forbid legislators from using special funds as a General Fund reserve, ensuring that the TIF will be used for transportation projects only. Prop 76 will strengthen the Budget Stabilization Account, the state's "rainy day" fund. It requires 25 percent of any excess revenues above the proposed spending cap to be allocated to the account, for future deficits.

Earmarked transportation funds should be used to fix roads, not to pay for current expenditures. It's time to stop the raids.

Anthony P. Archie is a Pacific Research Institute public policy fellow in business and economic studies. He can be reached at aarchie@pacificresearch.org.