Legislative Analyst's Office Analysis of the 2002-03 Budget Bill

Department of Transportation (2660)

The Department of Transportation (Caltrans) is responsible for planning, coordinating, and implementing the development and operation of the state's transportation systems. These responsibilities are carried out in five programs. Three programs--Highway Transportation, Mass Transportation, and Aeronautics--concentrate on specific transportation modes. Transportation Planning seeks to improve the planning for all travel modes and Administration encompasses management of the department.

The budget proposes expenditures of $9 billion by Caltrans in 2002-03. This is about $1.2 billion, or 15 percent, more than estimated current-year expenditures. This is largely due to a significant projected increase in capital improvements on state highways.

Highway Transportation

Budget Proposes Major Increase in Highway Program Expenditures

The budget proposes expenditures of $7.5 billion for the highway transportation program, about $1.2 billion, or 19 percent, more than estimated current-year expenditures. This includes a 65 percent increase in proposed capital outlay expenditures.

The major responsibilities of the highway program are to design, construct, maintain, and operate state highways. In addition, the highway program provides local assistance funds and technical support for local roads. For 2002-03, the budget proposes $7.5 billion for the highway transportation program, approximately 83 percent of the department's proposed budget. This is an increase of $1.2 billion, or 19 percent, over estimated current-year expenditures. This is due to a sizable increase in projected expenditures for capital outlay, as discussed below.

Of the $7.5 billion, the budget proposes $3.3 billion in capital outlay expenditures, an increase of 65 percent above estimated 2001-02 levels. This increase is primarily due to estimated expenditures for projects to be delivered in the five-year State Transportation Improvement Program (STIP). Although this proposed increase is large, it is misleading. This is because Caltrans has historically overestimated its capital outlay expenditures for the budget year when submitting its budget proposals, as described in the following section.

As shown in Figure 1, Caltrans expects that state funds would support about $3.7 billion (50 percent) of highway program expenditures in the budget year. Federal funds would fund about $3.4 billion (46 percent) of the program, while the remaining $307 million (4 percent) would be paid through reimbursements, primarily from local governments.

Low Capital Outlay Expenditures Signal Project Delay

While the budget projects a large increase in highway capital outlay expenditures, past experience suggests that this projection is overstated. In fact, actual capital outlay expenditures averaged 75 percent of projected capital outlay expenditures over the past seven years. Most of the discrepancy appears to lie in the fact that Caltrans' projections assume that projects will proceed on schedule, while in reality large capital projects are often delayed.

Actual Capital Outlay Expenditures Below Projections. As noted above, the budget projects that Caltrans' highway capital outlay expenditures will grow from $2 billion in 2001-02 to $3.3 billion in 2002-03, a 65 percent increase. However, over the past seven years, Caltrans has consistently projected capital outlay expenditures above its actual expenditures. In fact, actual capital outlay expenditures averaged 75 percent of projected capital outlay expenditures from 1994-95 through 2000-01. On average, this is $826 million per year lower than projected. The difference has fluctuated widely, ranging from $1.6 billion below the projected amount in 1999-00 to a seven-year low of $285 million below projected in 2000-01, as illustrated in Figure 2.

Capital Outlay Expenditure Projection Likely Too Optimistic. Discussions with Caltrans indicate that a primary reason for this large difference between projected and actual expenditures is that Caltrans' projections assume that projects will proceed according to project schedules at the time the budget is prepared. However, in reality capital outlay projects are often delayed.

Because Caltrans' projections are based on ideal schedules and past experience reveals large differences between projected and actual capital outlay expenditures, we believe that the budget's projected 65 percent increase in capital outlay expenditures is overstated.

Capital Outlay Support Request Will Be Amended

We withhold recommendation on $1.3 billion requested for capital outlay support staff because staffing needs will be revised during the May Revision when more accurate information on workload for the State Transportation Improvement Program will be available.

Withhold Recommendation on Capital Outlay Support. The budget proposes $1.3 billion to fund capital outlay support, a 0.1 percent increase from current-year estimated expenditures. However, the department indicates that it will provide new estimates in the spring as part of the May Revision. By that time, the department will have more accurate estimates regarding the amount of project development work that will be performed during 2002-03. Pending receipt of new workload estimates, we withhold recommendation on the department's capital outlay support request.

Information Technology Integration Plan Has Merit; Funding for Projects Is Premature

We recommend that $75 million in State Highway Account funds requested for four information technology projects be rejected because the scopes, costs, and time frames for the projects will not be finalized until after the budget year (August 2003). (Reduce Item 2660-002-0042 by $75 million).

The budget proposes $77.4 million in one-time State Highway Account funds for various information technology (IT) projects. Specifically, the budget requests $2.4 million to contract for the development of an IT Enterprise Integration Plan with the following components:

• A department-wide ("enterprise") IT strategic plan.
• A plan to implement four specific enterprise projects, as described below.
• A plan to integrate the four projects.
• A reestimation of the scopes, costs, and time-lines of the four projects.

Another $75 million is requested to develop and implement four department-wide IT projects over three years. These include:

• A financial management system.
• A construction management system.
• A land management system.
• A contract payment system.

Information Technology Enterprise Integration Plan Warranted. In the Analysis of the 2001-02 Budget Bill, we reviewed the organizational and fiscal structure of IT at Caltrans. We found that IT implementation in the department is fragmented and lacks standardization and coordination. (Please see pages A-55 through A-69 of the 2001-02 Analysis.) As such, we think that an integration plan as proposed would be useful to avoid any gaps and lack of coordination among the four areas that the department is proposing to implement. Accordingly, we recommend approval of the $2.4 million requested for the integration plan.

Funding for Individual Projects Premature. Discussions with the administration indicate that the integration plan must be completed before beginning the four proposed department-wide projects. This is because the integration plan could result in changes in the scopes, costs, and time-lines for the projects. The administration anticipates the plan will be completed in August 2003. Because the final scopes, costs, and time-lines for the four department-wide projects would not be known for another 18 months and the projects would not begin until 2003-04, funding in 2002-03 is premature. Accordingly, we recommend that the $75 million request for the automation projects be rejected.

Stormwater Management Cost Not All Justified

The budget requests $23.4 million and 167.5 personnel-years for stormwater management activities. We recommend the deletion of $838,000 because (1) training of contractors should be reimbursed and (2) the department did not provide any workload justification for $600,000 of the request. (Reduce Item 2660-007-0042 by $838,000 and increase reimbursement by $238,000.)

The federal Clean Water Act requires that the discharge of pollutants into waters of the United States from any point source comply with a National Pollutant Discharge Elimination System (NPDES) permit. Pollutant discharges from Caltrans facilities include various metals, petroleum products, pesticides, and general litter. In July 1999, Caltrans received a statewide NPDES permit from the State Water Resources Control Board (SWRCB) for stormwater discharges from the state highway system and any other Caltrans facilities. Prior to the statewide permit, Caltrans had nine regional permits that governed activities in its 12 districts. In order to comply with the statewide permit, Caltrans is required to annually submit a statewide plan for implementation. The SWRCB approved Caltrans' current Stormwater Management Plan (SWMP) in May 2001.

Budget Proposes $23 Million in New Funding. In order to comply with requirements of the SWMP, the budget proposes an augmentation of $23.4 million in the budget year ($22.4 million ongoing) and 167.5 personnel-years. This augmentation would increase Caltrans' annual level of effort on prevention and cleanup of stormwater pollution from $62 mil lion and 168 personnel-years to $85 million and 336 personnel-years. The proposal covers several types of activities, as indicated in Figure 3.

Our review shows that overall the department needs additional resources to carry out its stormwater management responsibilities. However, as we discuss here and in the following section, we believe that part of the request is not adequately justified and other aspects require further review before the actual funding and staffing levels required are known.

Contractors Should Pay for State-Provided Training. Caltrans proposes to spend $238,000 per year to instruct construction contractors on their stormwater pollution-prevention responsibilities. Caltrans must perform this activity to be in compliance with the SWMP. However, we believe that the private firms receiving this training would benefit economically by knowing what stormwater management activities contractors are required to perform in the course of constructing highway facilities. As such, we think that they should compensate Caltrans for the cost of developing and delivering the training. Therefore, we recommend that $238,000 requested for this purpose be funded from reimbursements.

Some Activities Not Adequately Justified. Caltrans proposes to spend $600,000 per year to review leases of highway rights-of-way ("airspace") to make sure these leases do not worsen stormwater pollution. Caltrans indicated that these activities are required by the SWMP. Our review how ever, shows that the SWMP requires only a one-time review of all airspace leases, to be completed by January 1, 2002. It does not call for an annual review of all such leases. Furthermore, the department indicated that the review has indeed been completed. Thus, the requested amount will not be needed for 2002-03.

Ongoing Stormwater Management Costs Need Workload Justification

We recommend the adoption of budget bill language directing the Department of Finance to report to the Legislature on the results of its review of Caltrans' stormwater management activities. Additionally, we recommend the adoption of budget bill language to provide $13.5 million and 154 personnel-years from Caltrans' budget-year request for various stormwater management activities on a one-time (rather than permanent) basis and to direct Caltrans to justify future requests based on the budget-year workload.

Finance Should Advise the Legislature of Review Findings. Of the $23.4 million requested for stormwater management activities, $250,000 is designated to reimburse the Department of Finance for an annual review. The review is intended to help the administration and the Legislature better evaluate the long-term cost implications of Caltrans' compliance with the Clean Water Act. In order to ensure that the review findings are shared with the Legislature, we recommend the following budget bill language in Item 2660-007-0042:

Of the funds appropriated in this item, $250,000 shall be used by the Department of Transportation to enter into an interagency agreement with the Department of Finance for an implementation review of the Department of Transportation's stormwater management practices. The Department of Finance shall provide a preliminary report of its findings to the Legislature by January 10, 2003 and a final report by July 1, 2003.

Level of Ongoing Funding Needs Further Review. Caltrans will have to implement various procedures to comply with its current SWMP. Some of the procedural changes will affect highway maintenance practices and therefore mitigation workload activities. However, Caltrans is at the current time uncertain as to the exact amount of workload or funding that will be required to implement these procedures. Thus, it is not able to provide workload justifications for $850,000 requested for project-specific treatment controls and $12.6 million requested for its highway maintenance program.

Without a better workload basis, we think that the requested amounts should not be approved as ongoing expenditures. Rather, the department should be required to justify these funds in future years based on workload experience. Therefore, we recommend that $13.5 million and 154 personnel years requested for maintenance activities and project-specific treatment controls be funded as one-time expenditures, for 2002-03 only. Furthermore, we recommend the adoption of budget bill language that directs Caltrans to provide workload justification for any 2003-04 funding request for these purposes, as follows:

Item 2660-007-0042. Of the amount appropriated in this item, $13,478,000 is provided for 2002-03 on a one-time basis. To the extent these expenditures are proposed in 2003-04, the Department of Transportation shall provide justification for the expenditures based on workload experience for 2002-03. Such justification shall be provided no later than January 10, 2003 as part of the Governor's budget proposal.

Fleet Greening Proposal Too Ambitious

We recommend a reduction of $1 million requested for certain emission reduction strategies for Caltrans' vehicles because the costs of these actions outweigh the benefits. We further recommend budget bill language requiring the reversion of any unexpended funds proposed for diesel retrofit because it is uncertain that the proposed strategy would be verified by the Air Resources Board in time for it to be used. (Reduce Item 2660-031-0042 by $1,036,000.)

The budget proposes one-time expenditure of $10 million to reduce pollutant emissions in Caltrans' vehicles (referred to as "fleet greening"). This is the second year of Caltrans' fleet greening effort. In the current year, the Legislature provided $20 million to perform similar activities.

Costs of Some Proposed Actions Outweigh the Benefits. Two actions Caltrans proposes in order to reduce emissions are the use of liquefied petroleum gas (LPG) equipment in place of certain diesel equipment at a total cost of $150,000 and the purchase of hybrid gas/electric passenger cars instead of gasoline-powered cars at a cost of $886,000. While each of these actions would reduce pollutant emissions from these sources, our review shows that the costs of these actions outweigh the measurable benefits. Specifically, Caltrans estimates that buying certain LPG equipment instead of diesel would cost $3,000 more per vehicle, but the value of the emissions reduction over the life of each vehicle would be less than $400. Similarly, purchasing hybrid cars instead of the standard gasoline models would cost an extra $5,500 per vehicle, but the estimated value of the emissions reduction and lower fuel costs over the life of the vehicle would be about $2,300. We do not believe the state should pursue strategies that are not cost-effective. Therefore, we recommend that the Legislature deny $1 million for these purchases.

Diesel Retrofit Money Cannot Yet Be Expended. Of the current-year funding for fleet greening, Caltrans planned to use $11 million to retrofit diesel engines to reduce emissions of oxides of nitrogen (NOx). However, the Air Resources Board (ARB) has not yet verified and approved the technology the department planned to use as a viable NOx emission-reduction strategy, and Caltrans has therefore not been able to implement this portion of its fleet greening initiative. As of January 2002, the department has spent $8.4 million on other actions to reduce vehicle emissions. It now plans to revert the funds it cannot expend.

The budget proposes providing $5.5 million in the budget year for diesel engine retrofit and for staff overtime to oversee the retrofit work. At the time this analysis was prepared, ARB estimated that the verification of the proposed technology is unlikely to occur before early 2003. If the verification does not occur before the end of the budget year, Caltrans will again be unable to begin retrofitting diesel engines. To ensure that the proposed funds are not redirected to other purposes, we recommend the following budget bill language in Item 2660-031-0042:

Any portion of the $5,494,000 appropriated in this item for diesel engine retrofit and staff overtime that is unexpended for the approved emission reduction purposes at the end of the fiscal year shall revert to the fund from which it was appropriated.

Encroachment Permit Fees Do Not Cover Costs

The fees Caltrans charges private companies for issuing encroachment permits cover only about two-thirds of the cost of the program. We recommend the enactment of legislation to require that the fees charged to private companies for encroachment permits cover the total cost of issuance.

Staff Augmentation Warranted by Workload Increase. Caltrans issues encroachment permits to governmental agencies and private companies for construction and nontransportation activities within the state highway system's right-of-way. Two years ago, the Legislature approved an increase of 34.5 personnel-years for two years to handle an increase in encroachment permitting workload. This augmentation was justified by a 22 percent increase in permitting workload from 1994-95 to 2000-01. Caltrans now projects that this increase in workload will be permanent rather than temporary, and therefore requests that the staff increase be made permanent. Our review of the workload data shows that the request is warranted.

Fees Charged Do Not Cover Expenses. While state law forbids Caltrans from charging fees for encroachment permits granted to government agencies, it does allow the department to charge private companies for these permits, provided the total fees collected do not exceed the cost of re viewing permit applications from private companies. While Caltrans does charge private companies a fee for this service, our review shows that the total fees collected cover only about two-thirds of the cost of reviewing private-company permit applications. In fact, from 1995-96 through 2000-01, the average annual cost of issuing permits to private companies has been $6.6 million, but the fees collected have averaged only $4.1 million per year, as indicated in Figure 4. Over these six years, the state has provided $15 million worth of this service to private companies free of charge.

Caltrans indicates that the reason for this discrepancy is that the department charges companies only for the time they spend reviewing permit applications and overseeing the permitted activities, along with related overhead, but not for other costs associated with reviewing permits, such as some travel costs and answering inquiries from private companies.

We believe that fees charged for a service provided by the state should cover the costs of that service. Therefore, we recommend the enactment of legislation directing the department to charge encroachment permitting fees to private companies that cover but do not exceed the total cost of providing this service.

Project Delivery

Project delivery is arguably the most critical variable in Caltrans' mission to improve mobility. Because of concerns over project delays, the Legislature requires our office to report on the department's progress in delivering projects as they are scheduled for construction in the STIP and the State Highway Operation and Protection Program (SHOPP).

In the following section, we discuss a number of key issues related to project delivery, including STIP and SHOPP delivery in the 2000-01 year, project delivery for the seismic retrofit program, environmental review of STIP and SHOPP projects, and Caltrans' use of contractors.

Caltrans Project Delivery Mixed

In 2000-01, Caltrans delivered 97 percent of programmed State Transportation Improvement Program (STIP) projects, and almost 100 percent of programmed expenditures. However, in terms of the sheer number of STIP projects delivered, it dropped 62 percent from the previous year due to extensive rescheduling of projects by Caltrans prior to 2000-01. Additionally, the department delivered 94 percent of programmed State Highway Operation and Protection Program (SHOPP) projects, equivalent to 91 percent of programmed expenditures. Local agencies delivered 83 percent of programmed STIP projects and expenditures.

In the Analysis of the 2001-02 Budget Bill, we adopted the California Transportation Commission's (CTC's) definition of project delivery. This definition compares the number of projects that were allocated funding by CTC to the number of projects programmed in the STIP or SHOPP for delivery in that year. (Please see page A-37 of the 2001-02 Analysis.)

Figure 5 summarizes the number of projects Caltrans delivered ("allocated funding") compared to the number programmed in the STIP and SHOPP. Figure 6 shows delivery in terms of dollar volume.

Caltrans Delivered 97 Percent of STIP Projects Programmed for 2000-01, But Many Fewer Than Previous Year. According to information provided by CTC, in 2000-01 Caltrans delivered 97 percent of STIP projects that were programmed for delivery in that year, as shown in Figure 5. These are projects that primarily expand highway capacity. In terms of expenditures (Figure 6), the department delivered $215 million, the same level as was programmed for delivery in 2000-01.

While the percentages noted above are commendable, the number of projects delivered in 2000-01 was far less than the number delivered in the previous year. In fact, the 38 delivered projects in 2000-01 represent a 62 percent drop from the 101 projects delivered in 1999-00. Likewise, the dollar value of delivered projects dropped 66 percent from $636 million to $215 million. Our review shows that Caltrans was able to deliver close to all of its commitment because in 1999-00 it rescheduled a record number of STIP projects to be delivered in later years. Specifically, $788 million worth of projects were rescheduled, $646 million of which was for projects originally programmed to be delivered in 2000-01. As a result, the delivery goal for 2000-01 shrank significantly. This practice has continued in the current year. Specifically, Caltrans rescheduled $611 million worth of projects at the end of 2000-01, again reducing its STIP project delivery goal.

The SHOPP Project Delivery Remains Strong. With respect to SHOPP projects, the department delivered 242 projects, or 94 percent of the projects that were programmed for delivery. The SHOPP projects provide safety, operation, or rehabilitation improvements to the state highway system. In terms of funding allocations, the department delivered $1.1 billion, or 91 percent of the amount in programmed funds. In general, SHOPP projects are far less complicated from a design standpoint and require less extensive environmental review. This makes them, in general, easier to deliver on schedule than STIP projects.

Department Delivered Some Projects Programmed for Different Years. Figures 5 and 6 only show delivery of projects programmed for 2000-01. They do not include the delivery of projects scheduled for delivery in other years. In 2000-01, the department delivered three projects ahead of schedule and four projects that had originally been programmed for delivery in 1999-00. With these projects, STIP delivery in 2000-01 totaled $244 million. With respect to SHOPP projects, the department delivered seven projects that were advanced from future years and no projects from prior years.

We support the department's practice of advancing projects ahead of schedule when possible. However, we do not include these projects in our main calculations because the Legislature's primary concern has been how well Caltrans meets its intended delivery schedule, which more closely reflects its original priority of projects. Likewise, including delivery of delayed projects would not provide a true representation of Caltrans' project delivery.

Local Agencies Deliver 83 Percent of Programmed Expenditures. Under Chapter 622, Statutes of 1997 (SB 45, Kopp), local agencies are responsible for determining how to spend 75 percent of STIP funds. To the extent that local agencies decide to spend their share of STIP funds on highway capacity improvements, they have traditionally depended on Caltrans to deliver the projects. However, to the extent that they choose to spend their share of funds on transit projects or local road improvements, they are responsible for that delivery.

In 2000-01, local agencies delivered 569, or 83 percent, of the local street and road or mass transit projects programmed in the STIP for delivery during 2000-01. These projects totaled $450 million. Like Caltrans, however, local agencies also delivered a significant amount of projects that were scheduled for different years. Specifically, local agencies delivered 170 projects from future and prior years, totaling $65 million. These additional projects bring total delivery by local agencies to $515 million.

Local Agencies Continue Strong Expenditure of Federal Funds. While their STIP project delivery did not match the percentages achieved by Caltrans, local agencies' expenditure of federal funds which they receive directly has improved significantly. In the first two years of the 1997 federal transportation act, the Transportation Equity Act for the 21^st Century, local agencies underspent their allotment of federal funds by 41 percent and 57 percent, respectively. As a result, by October 1999, local agencies had accumulated $1.2 billion in unexpended federal allocations. In 1999-00, however, local agencies markedly increased their expenditure of federal funds, obligating $1.2 billion, or 154 percent of their share of federal funds. In 2000-01, local agencies obligated $1.1 billion, or 124 percent of their share of federal funds. As a result, the amount of unexpended federal funds has been reduced to about $600 million. This is a big improvement toward lowering the backlog to a reasonable level of between $100 million and $200 million.

Seismic Retrofit of Toll Bridges Delayed; Retrofit of Other Bridges Almost Complete

Phase 1 of the highway bridge seismic retrofit program is complete. Phase 2 is 98 percent complete, but work will not be completed on some bridges until 2008. Seismic retrofit of the state-owned toll bridges has been delayed.

Caltrans inspects all state and local bridges at least once every two years. Since 1971, when the Sylmar earthquake struck the Los Angeles area, Caltrans has had an ongoing bridge retrofit program. The retrofit program involves a variety of different improvements, depending on the needs of the particular structure. The improvements include strengthen ing the columns of existing bridges by encircling certain columns with a steel casing, adding pilings to better anchor the footings to the ground, and enlarging the size of the hinges that connect sections of bridge decks to prevent them from separating during an earthquake.

Following the 1994 Northridge earthquake, Caltrans expanded its seismic retrofit program for state highway bridges, creating a Phase 1 and a Phase 2 program. Phase 1 included 1,039 bridges identified for strengthening after the 1989 Loma Prieta earthquake at a total cost of $800 million, as shown in Figure 7. These projects were completed by May 2000. Phase 2 consists of an additional 1,155 bridges that were identified for strengthening following the Northridge earthquake. To date, Caltrans has completed the work on 1,133 (98 percent) of the Phase 2 bridges and estimates Phase 2 construction costs to be $1 billion. However, Caltrans estimates some Phase 2 projects will not be completed until 2008 due to more complex retrofit and replacement work on a number of these bridges.

Schedule Continues to Slip for Toll Bridge Retrofit. Caltrans is also retrofitting seven of the state's toll bridges for seismic safety, as shown in Figure 8. As Figure 8 indicates, the scheduled completion dates for the retrofit of several bridges are now much later than Caltrans' original projections. (For the estimated costs of this retrofit work, please see the "Condition of Transportation Funds" in the "Crosscutting Issues" section of this chapter.)

Caltrans indicates that the delays in the retrofit work are due to numerous factors, and each bridge's delays are unique. For example, the east span of the Bay Bridge has been delayed more than three years from its original projected completion date. Caltrans indicates that this delay is due partly to the United States Navy's initial refusal to grant an encroachment permit to allow Caltrans to drill on Yerba Buena Island and partly to Caltrans' inability to release the bid for the first contract on the east span until a federal loan was approved.

The west span of the Bay Bridge, on the other hand, has been delayed almost five years from its original completion date, which Caltrans indicates is due in part to safety issues with the ongoing work on the bridge. As a further example, the Richmond-San Rafael Bridge was delayed four and a half years according to Caltrans because the department redesigned the retrofit schedule to reduce the potential for legal claims and to reduce the scope of work in environmentally sensitive locations during certain seasons. Because many of the factors causing delays are unanticipated, it is thus likely that Caltrans could encounter more delays as projects progress.

Completion of STIP Environmental Documents Has Improved, But SHOPP Completion Rate Has Declined

Caltrans has taken several steps to streamline its environmental review process. In 2000-01, Caltrans improved the completion of scheduled State Transportation Improvement Program environmental documents. However, the completion rate for State Highway Operation and Protection Program environmental documents decreased sharply from the previous year.

One of the factors contributing to delays in project delivery is the cumbersome environmental review process. In recent years, the department has worked with state and federal agencies in an attempt to streamline the process.

Some Environmental Streamlining Actions Have Been Taken, But Much Work Remains. In July 2001, Caltrans made a formal proposal to the United States Department of Transportation (U.S. DOT) suggesting actions that both Caltrans and U.S. DOT could take to streamline environmental review. These suggestions included, among other things:

• Setting specific deadlines for Federal Highway Administration (FHWA) review of environmental documents.
• Expanding Caltrans' ability to coordinate directly with federal resource agencies as an agent of FHWA.
• Developing a formal tracking system for movement of environmental work products among Caltrans and federal agencies.
• Establishing a Caltrans environmental document quality assurance program to ensure that documents meet a minimum quality level before they are submitted to FHWA for review.

The U.S. DOT responded favorably to Caltrans' proposal and committed to work with Caltrans and federal resource agencies to further develop these recommendations and implement them once they were finalized. Caltrans indicates that work is currently progressing on several of the proposals, but it does not have a projected date as to when they will be finalized and implemented.

In addition to these streamlining efforts, beginning in 1999-00, Caltrans received funding for 22 positions at state and federal resource agencies to help expedite environmental review of Caltrans projects. As of January 2002, all but seven of these positions were filled.

Sixty-One Percent of STIP Environmental Documents Completed. Our review of the number of environmental documents completed for STIP projects last year reveals some improvement. Of 89 environmental documents the department planned to complete during 2000-01 (including some that were originally scheduled for prior years), 54 were completed. The remaining 35 rolled forward to 2001-02 and beyond. This completion rate (61 percent) represents an improvement over previous years, as indicated in Figure 9. However, much work remains to be done to streamline delivery of environmental documents.

Environmental Document Delivery for SHOPP Projects Falls. While STIP environmental document delivery in 2000-01 improved over the previous year, delivery of environmental documents for SHOPP projects worsened. Specifically, Caltrans delivered 101 of 150 planned SHOPP environmental documents, for a 67 percent delivery rate. By comparison, the department was much more successful in 1999-00, delivering 190 SHOPP environmental documents compared to its planned delivery of 164 documents. Caltrans managed to exceed its goal in that year by advancing several documents that were originally scheduled to be completed in future years.

Limited Use of Private Contracting for Project Delivery; Funds Redirected to Other Uses

Although Caltrans projected large increases in contracting in 2000-01, the level of contracting for engineering work fell far short of the amount budgeted. A substantial part of the funds not expended for contracting was redirected to other purposes. We recommend amending budget bill language to direct the department to revert all funds not used for private contracting.

Caltrans uses private consultants on an ongoing basis to perform various aspects of project development and design work for which Caltrans has limited or no expertise, such as in the area of hydraulics and seismic retrofit of certain structures. Proposition 35, passed by the voters in November 2000, broadened Caltrans' ability to contract out for architectural and engineering services under certain circumstances.

Level of Contracting Substantially Lower Than Budgeted. Following the passage of Proposition 35, Caltrans projected a large increase in its level of contracting for capital outlay support work. As illustrated in Figure 10, for 2000-01, Caltrans' engineering contract budget was $163 million, a 68 percent increase over the previous year. However, our review shows that actual contracting expenditures for that year were significantly lower--only $54 million. Likewise, $232 million was budgeted for contracting in the current year, but Caltrans has expended only $35 million through December 2001. Based on this level of expenditure, we estimate that Caltrans will spend only about $70 million on contracting by the end of the current year.

Contracting Does Provide Flexibility. Caltrans indicates that the largest single factor accounting for the $109 million difference between its budgeted and actual level of expenditures on contracting in 2000-01 was an overestimate of the amount of Traffic Congestion Relief Program (TCRP)-related work the department would be called upon to perform. Thus, budgeting this activity as contract work rather than using state staff gave Caltrans the flexibility to not expend funds on support for projects it could not yet begin.

Some Money Used for Other Purposes. While Caltrans did not spend the funds on contracting, it did not revert all of them either. In fact, of the $109 million not spent on private contracting in 2000-01, Caltrans reverted only $77 million. The remaining $32 million was redirected to cover other Caltrans costs. We believe that Caltrans' ability to redirect substantial amounts of funds not used for contracting reduces the Legislature's ability to hold Caltrans accountable for the use of funds approved in the budget.

Recommend Budget Language to Limit Caltrans Ability to Redirect Funds. The proposed budget bill includes language that requires Caltrans to revert funds budgeted for architectural and engineering contracts that are encumbered but unexpended at the end of 2002-03. To provide greater accountability, we recommend that this language in Item 2660-001-0042 be revised to direct Caltrans to revert all unexpended contracting money:

The funds appropriated in Schedule (2) for specialty consultant contract resources and for architectural and engineering consultant contract resources for capital outlay support that are unencumbered for that purpose or that are encumbered for such contracts but unexpended at the end of the fiscal year shall revert to the fund from which they were appropriated.

Intercity Rail Program

The intercity rail program was established to provide motorists traveling long distances with a safe, efficient, and cost-effective transportation alternative to the automobile. Currently, the state supports and funds intercity rail passenger services on three corridors--the Pacific Surfliner (formerly the San Diegan) in Southern California, the San Joaquin in the Central Valley, and the Capitol in Northern California. All train routes are supplemented and integrated by a dedicated feeder bus service.

The Capitol service is administered by the Capitol Corridor Joint Powers Authority (CCJPA), which started on July 1, 1998, following the enactment of the Intercity Passenger Rail Act of 1996 (Chapter 263, Statutes of 1996 [SB 457, Kelley]). Caltrans administers service on the remaining two rail corridors. In addition to providing for the operation of service, Caltrans and CCJPA also plan for the capital improvements needed to upgrade the respective corridors to provide expanded service. Both Caltrans and CCJPA contract with Amtrak for the operation and maintenance of the intercity rail service.

Budget Requests No New Service and No Increase in Baseline Funding. For 2002-03, the budget requests $73.1 million for Amtrak to provide intercity rail service. The request includes $23.6 million for the Capitol Corridor, $28.5 million for the San Joaquin, and $21 million for the Pacific Surfliner. These are the same amounts as budgeted for 2001-02. In addition, Caltrans will spend $24.9 million for track improvements. These expenditures are funded from a $91 million appropriation in the current-year budget.

Caltrans' state rail plan published in October 2001 calls for service expansions on two of the three intercity rail lines (the Capitol and the Pacific Surfliner) in 2002-03, but the department is not proposing funding for new train service at this time due to a decline in projected revenues in the Public Transportation Account. (Please see the "Condition of Transportation Funds" in the "Crosscutting Issues" section for a discussion of the account condition.) The department indicates that it will reevaluate its revenue projections and may revisit this issue this spring.

Costs for Existing Intercity Rail Service Will Be Updated

We withhold recommendation on $73.1 million requested to support existing intercity rail service because the amount needed will likely be different from current estimates. Specifically, more current cost estimates will be forthcoming from Amtrak in March 2002. We recommend that the department provide the updated cost estimates at budget hearings. Based on that information, the Legislature should adjust the amount of support for intercity rail services accordingly.

The budget requests $73.1 million to support Amtrak's costs for continuation of intercity rail services in 2002-03. The budget request is based on cost estimates provided by Amtrak in 2001. We understand that Amtrak will provide Caltrans with updated estimates in March 2002. Accordingly, we withhold recommendation on $73.1 million for intercity rail services. We further recommend that Caltrans provide the updated cost estimates at budget hearings and that the Legislature adjust the proposed appropriation based on the updated information.