Summary of LAO Findings and Recommendations on the 2010-11 Budget

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	Program	Budget Issue	LAO Finding Or Recommendation	Last Updated
Go Back	Department of Transportation	Issuance of GARVEE bonds	Reject the request.	5-11-10

Detailed Narrative
GARVEE bonds are bonds issued by the state that would be repaid by future federal funds that Caltrans expects to receive. The Governor's budget requests $680 million in federal funds to pay principal ($495 million) and interest ($185 million) on GARVEE bonds to be issued in 2010-11 for several major highway repair projects in the State Highway Operation and Protection Program (SHOPP). Notably, Caltrans received GARVEE authority in the current year that it has not used due to the availability of federal stimulus funds and from savings due to more competitive construction bids. Similarly, Caltrans indicates that it may not need the requested GARVEE authority in 2010-11 if the department continues to achieve construction bid savings. Specifically, Caltrans indicates that it has realized about $600 million in savings in the current year for the SHOPP program. These savings will be available to fund additional projects in 2010-11. Additionally, the California Transportation Commission estimates that Caltrans may see total bid savings of about $1 billion in the SHOPP over the next couple of years. Thus, the department will have up to $1.6 billion in additional capacity to fund projects from traditional pay-as-you-go sources. In light of the availability of traditional funding for these projects, GARVEE financing (which includes interest costs) does not appear to be needed. Accordingly, we recommend rejecting the request.

Detailed Narrative

GARVEE bonds are bonds issued by the state that would be repaid by future federal funds that Caltrans expects to receive. The Governor's budget requests $680 million in federal funds to pay principal ($495 million) and interest ($185 million) on GARVEE bonds to be issued in 2010-11 for several major highway repair projects in the State Highway Operation and Protection Program (SHOPP).

Notably, Caltrans received GARVEE authority in the current year that it has not used due to the availability of federal stimulus funds and from savings due to more competitive construction bids.

Similarly, Caltrans indicates that it may not need the requested GARVEE authority in 2010-11 if the department continues to achieve construction bid savings. Specifically, Caltrans indicates that it has realized about $600 million in savings in the current year for the SHOPP program. These savings will be available to fund additional projects in 2010-11. Additionally, the California Transportation Commission estimates that Caltrans may see total bid savings of about $1 billion in the SHOPP over the next couple of years. Thus, the department will have up to $1.6 billion in additional capacity to fund projects from traditional pay-as-you-go sources. In light of the availability of traditional funding for these projects, GARVEE financing (which includes interest costs) does not appear to be needed. Accordingly, we recommend rejecting the request.