The budget proposes expenditures of $5.5 billion by Caltrans in 1996-97. This is about $184 million, or 3.5 percent, more than estimated current-year expenditures.
The budget proposes a modest overall increase in expenditures for the Highway Transportation program. The increase is the net result of decreases in capital outlay support and the State-Local Transportation Partnership Program, and increases in other program areas, including capital outlay.
Of the total expenditures proposed in the department's budget, $5 billion is for the Highway Transportation program. This is an
increase of $178 million, or 3.7 percent, over estimated current-year expenditures.
As shown in Figure 9, Caltrans expects that state funds will support $2.4 billion (48 percent) of highway program expenditures. Federal funds make up $2 billion (40 percent) of the program budget, and the remaining $620 million (12 percent) is reimbursements, primarily from local governments.
Increases in Most Highway Programs. The budget proposes to increase most of the individual programs within the highway program. Caltrans proposes the largest increase--$163 million, or 6.4 percent, more than current-year expenditures--for highway capital outlay projects. The budget proposes smaller increases to other highway programs, including program development, operations, and maintenance.
| Figure 9 Department of Transportation Highway Transportation Budget Summary 1994-95 Through 1996-97 (Dollars in Millions) |
||||
|---|---|---|---|---|
| Actual 1994-95 | Estimated 1995-96 | Proposed 1996-97 | Percent Change From 1995-96 |
|
| Expenditures | ||||
| Capital outlay support | $710 | $702 | $660 | -6.0% |
| Capital outlay projects | 2,203 | 2,534 | 2,697 | 6.4 |
| State-Local Transportation Partnership | 129 | 181 | 120 | -33.7 |
| Local assistance | 703 | 570 | 643 | 12.8 |
| Program development | 42 | 60 | 64 | 6.7 |
| Legal a | -- | 49 | 62 | 26.5 |
| Operations | 128 | 110 | 126 | 14.5 |
| Maintenance | 596 | 660 | 672 | 1.8 |
| Distributed technical & equipment services | (268) | (205) | (216) | (5.4) |
| $4,511 | $4,866 | $5,044 | 3.7% |
| State funds | $1,736 | $2,198 | $2,424 | 10.3% |
| Federal funds | 2,317 | 2,042 | 2,000 | -2.1 |
| Reimbursements | 458 | 626 | 620 | -1.0 |
| a Beginning in 1995-96, Caltrans has moved Legal from Administration to Highway Transportation. | ||||
Reductions to Two Programs. The budget proposes reductions in two areas: capital outlay support and the State-Local Transportation Partnership. Caltrans proposes to reduce capital outlay support by $42 million, or 6 percent, compared to current-year levels, continuing the department's current-year reductions in engineering design staff. (We discuss the proposal for capital outlay support in greater detail in a later section.)
The budget anticipates a $61 million (34 percent) reduction in expenditures for the State-Local Transportation Partnership Program (SLTPP), a local assistance program for highway construction. The Blueprint legislation created the SLTPP and set funding at $200 million per year. However, as in the current year, Caltrans proposes to lower the funding for new projects to $100 million per year, in light of the shortfall in STIP funding. (See our discussion of the funding shortfall in the Crosscutting Issues section of this chapter.)
The department's capital outlay support workload model is unreliable and Caltrans modifies its results freely. We recommend that the Legislature adopt Budget Bill language directing Caltrans to fund an independent evaluation of its workload model.
Caltrans Workload Model Is Unreliable. Caltrans uses a statistical model to estimate its capital outlay support staff requirements, based upon the number, size, and complexity of scheduled projects. For 1996-97, this workload model calculated a higher staffing requirement than in the current year. However, Caltrans reduced the modeled workload by 19 percent in order to attain the staffing level proposed in the budget. Caltrans reports that it made the adjustments in order to account for anticipated efficiencies and shortcomings in the model. While we agree that the department's model overestimates staffing needs and fails to enforce efficiency improvements (further discussed in our 1995-96 Supplemental Analysis, pages 6-8), the department did not present an analytical basis for its adjustments. Thus, we are unable to evaluate whether the adjusted capital outlay support level of 7,697 personnel-year equivalents (PYEs) is appropriate to deliver programmed projects, or whether it is too high or too low.
Model Lacks Credibility. In order for the department to deliver projects on schedule, Caltrans must have an adequate level of capital outlay support staff. It is also essential that the department budget capital outlay support efficiently and without excess staff, because support expenditures reduce the level of funds available for capital outlay. Furthermore, in order for the Legislature to accept the department's budget proposals, proposed staff levels must be based upon analytically sound principles, rather than seemingly arbitrary adjustments.
In the past, the Legislature has accepted the results of Caltrans' model as a reasonable projection of capital outlay support workload and has budgeted accordingly. However, we feel that the Legislature can no longer confidently accept the department's workload projections, particularly since the department itself believes that major adjustments are necessary. As a result, Caltrans lacks any clear basis upon which to justify that its proposed level of capital outlay support staff is appropriate.
Recommend Independent Evaluation. We believe that Caltrans must, therefore, improve its workload forecasting models and practices. Accordingly, we recommend that the Legislature adopt the following Budget Bill language, directing Caltrans to fund an independent audit that will evaluate the department's workload forecasting methods and propose improvements:
From the funds appropriated in this item, Caltrans shall fund, through interagency agreement with the Bureau of State Audits, an audit of the department's models and budgeting practices for developing capital outlay support staffing needs. The audit shall evaluate Caltrans' current budget model and practices and shall recommend improvements. The Bureau shall submit the audit report to Caltrans and the Legislature not later than March 1, 1997.
The budget proposes a reduction of 881 personnel-year equivalents (PYEs) for highway capital outlay support due to (1) less seismic retrofit engineering, (2) anticipated efficiencies in project development, (3) transfer of responsibilities to construction contractors, and (4) reduced reimbursed engineering on locally funded projects. Should efficiencies not materialize, project delivery in subsequent years may be delayed. We recommend that, at budget hearings, Caltrans clarify the need to continue accepting certain categories of reimbursed work.
Lower Staff Proposed for 1996-97. The budget proposes 7,697 PYEs of work for the highway capital outlay support program--a decrease of 881 PYEs (10 percent) from the amount estimated in the current year. Capital outlay support staff provide engineering, right-of-way acquisition, environmental clearance, technical support, and construction oversight on highway capital improvements.
Figure 10 illustrates both the source of the 7,697 PYEs, as well as Caltrans' proposed use for the PYEs. In order to achieve a reduction totaling 881 PYEs, Caltrans proposes to reduce state staff by 447 PYEs, reduce contracting out by 359 PYEs, and eliminate student assistants for a reduction of 75 PYEs.
| Figure 10 Department of Transportation Capital Outlay Support Staffing a 1994-95 Through 1996-97 (Personnel-Year Equivalents) |
||||
|---|---|---|---|---|
| Actual 1994-95 | Estimated 1995-96 | Proposed 1996-97 | Proposed Change From 1995-96 |
|
| Sources | ||||
| State staff | 7,664 | 7,401 | 6,954 | -447 |
| Cash overtime | 319 | 299 | 299 | -- |
| Student assistants | 88 | 75 | -- | -75 |
| Engineering consultant contracts | 541 | 803 | 444 | -359 |
| 8,612 | 8,578 | 7,697 | -881 |
| Uses | ||||
| Basic STIP program | 5,916 | 5,261 | 5,308 | 46 |
| Pre-STIP state projects | 376 | 269 | 268 | -1 |
| Seismic retrofit | 1,314 | 2,091 | 1,288 | -803 |
| Regional Measure 1 | 48 | 111 | 284 | 173 |
| Locally funded projects | 311 | 202 | 190 | -13 |
| Local tax measure projects | 647 | 643 | 360 | -183 |
| 8,612 | 8,578 | 7,697 | -881 |
| a Excludes program's share of Caltrans' administrative functions. | ||||
Less Staff for Seismic Retrofit. Figure 10 also shows how Caltrans proposes to distribute 7,697 PYEs among the various categories of transportation projects. The basic state program (STIP, State Highways Operation and Protection Plan [SHOPP], and Traffic Systems Management [TSM]) remains relatively stable, with a slight increase of 42 PYEs. Locally funded and local tax measure project staffing declines due to the policy to reduce reimbursed work. The largest change is in seismic retrofit, which Caltrans proposes to reduce by 803 PYEs because the department expects workload to decline as most retrofit projects move into construction. The reduction of seismic retrofit staff accounts for all of the reduction in engineering consultant contracts shown in Figure 10. (We discuss capital outlay support for seismic retrofit in greater detail in a later section.)
Lower Staff Based on Anticipated Efficiencies. One reason that Caltrans offers for adjusting 1996-97 workload downwards is because of anticipated efficiencies in project delivery. The department has purchased and is implementing project management software that it believes will allow the department to more efficiently manage individual projects and allocate staff among projects, thereby reducing the overall need for capital outlay support staff. In addition, the department indicates that it intends to revise project development procedures in order to reduce overall capital outlay support costs. For instance, the department indicates that it will increase planning early in the project development cycle, in order to minimize late project scope changes that necessitate redesign and increase cost. However, Caltrans has not fully determined and implemented these efficiency improvements. The department acknowledges that, should it fail to realize the anticipated efficiency improvements, project delivery in subsequent years could be delayed due to insufficient staff.
Transferred Responsibilities May Save Little. Caltrans also reduced its workload by 81 PYEs in order to transfer two responsibilities from state staff to the construction contractors that build highway projects. Caltrans generally prepares a traffic management plan for each project in order to minimize the impact of project construction upon traffic. Caltrans proposes to reduce its staff for this function and instead require construction contractors to prepare traffic management plans. Similarly, Caltrans proposes to transfer responsibility for quality control and materials testing on construction projects from state staff to construction contractors.
While Caltrans is able to reduce its staff expenses for these two activities, we believe that contractors may increase their construction bids in order to account for their new responsibilities. Savings in Caltrans' support budget would therefore be partially or fully offset by increases in capital outlay expenditures. Furthermore, Caltrans will need to retain some staff to review contractor-developed traffic management plans and to monitor and certify contractors' ability to perform materials testing and quality control. Thus, in the short run at least, we do not believe that large savings will result from Caltrans' proposal, although ultimately, competition between contractors may result in reduced bid prices for these responsibilities.
Less Reimbursed Work. For the current year, Caltrans proposed to sharply cut reimbursed capital outlay support work that it performs for local transportation agencies. Caltrans indicated that it believes that project development for locally funded transportation improvements should be provided by local agencies or private sector engineers, rather than Caltrans. The Legislature concurred with the department's policy, and directed the department to fulfill all existing commitments for reimbursed work but not enter into any new agreements.
As shown in Figure 11, Caltrans proposes 101 reimbursed PYEs for 1996-97 in order to continue work on these commitments. This is a reduction of 163 PYEs from the estimated current-year level. In 1996-97, Caltrans' work on these projects will primarily be construction oversight, and as projects reach completion the department's workload in this area will drop to zero.
| Figure 11 Department of Transportation Reimbursed Capital Outlay Support Staffing 1995-96 and 1996-97 (Personnel-Years Equivalents) |
|||
|---|---|---|---|
Estimated 1995-96 | Proposed 1996-97 | Change from 1995-96 |
|
| Complete existing commitments | 264 | 101 | -163 |
| Continuing program | 185 | 149 | -36 |
| Jointly funded traffic signals | (5) | (6) | (1) |
| Oversight of private toll roads | (8) | (8) | (--) |
| Provide right-of-way expertise | (96) | (85) | (-11) |
| Construction oversight | (76) | (50) | (-26) |
| STIP projects with local contributions | (--) | (--) | (--) |
| 449 | 250 | -199 |
Caltrans Proposes Continuing Program. Although Caltrans will let its reimbursed involvement in large projects expire, it proposes to continue a smaller reimbursed program in five specific areas. Figure 11 shows that for 1996-97 Caltrans proposes 149 PYEs for this "continuing program" of reimbursed work. The department advises that its involvement in these areas is necessary in order to meet statutory direction and to ensure the integrity of the state highway system. For instance, the department reports that, while it will no longer fully staff construction oversight for locally funded projects, it will provide up to three PYEs of reimbursed construction oversight in order to ensure project quality.
We note that for 1996-97, Caltrans proposes no reimbursed PYEs for new STIP projects with local contributions; however, Figure 11 shows this category because under Caltrans' proposal the department would accept new reimbursed STIP work in the future if requested.
Caltrans Should Clarify Need For "Continuing Program". While we believe that the department's argument for maintaining a small ongoing program of reimbursed work has merit, we also note that the
Legislature clearly stated its intention that Caltrans not accept new reimbursed work. We therefore recommend that, at budget hearings, Caltrans clarify the need for a continuing program of reimbursed work in its five proposed categories, so that the Legislature may determine if there is any need to modify its policy.
We recommend a reduction of $4.4 million in operating expenses due to Caltrans' lower level of state staff. (Reduce Item 2660-001-0042 by $4.4 million.)
Staff Reduced, But Not Operating Expenses. While Caltrans proposes to reduce the number of state staff in capital outlay support, the department did not make a corresponding reduction in operating expenses and equipment associated with these staff. In previous years, Caltrans has added operating expenses for facilities, computer equipment, training, travel, and related expenses whenever it added staff. As Caltrans reduces its staff, we believe that the department should reduce associated operating expenses as well.
Recommend Operating Expense Reduction. Caltrans argues that it has already made large reductions in operating expenses as a result of legislative budget reductions in previous years and cannot sustain a further reduction associated with these positions. However, we note that in its proposed budget the department converted 296 PYs into operating expense dollars in order to correct for what it believed to be past imbalances between the number of PYs and the operating expense budget. Having thus aligned its budget, we believe that Caltrans should reduce operating expenses along with PYs in order to maintain the correct balance. Based upon the average operating expense dollars per staff that Caltrans proposed in previous budget adjustments, we recommend that the Legislature reduce Caltrans' budget by $4.4 million.
Caltrans completed construction on 90 percent of Phase 1 bridges by its December 1995 target. Phase 2 bridges are currently under design, but Caltrans has delivered few for construction. We find that the department is unlikely to meet its design and construction delivery schedules for Phase 2 seismic retrofit. Additionally, the department will be unable to expend the planned $820 million for construction of Phase 2 seismic retrofit projects in 1996-97. We recommend that the department report at budget hearings on its assessment of the Phase 2 delivery schedule.
Following the 1994 Northridge earthquake, Caltrans expanded and revised its retrofit program for state highway bridges, creating a Phase 1 program and a Phase 2 program. Phase 1 includes bridges that Caltrans identified in its first screening, following the 1989 Loma Prieta earthquake. Caltrans identified 1,039 bridges for Phase 1 and set a target of December 31, 1995 to complete construction on all Phase 1 bridges.
The Phase 2 program includes bridges that Caltrans added as a result of an additional screening process that followed the Northridge earthquake. Phase 2 currently includes 1,179 bridges and Caltrans has set targets of June 30, 1996 to complete bridge retrofit design work, and December 31, 1997 to complete construction on all Phase 2 bridges. Caltrans indicates that some bridges are likely to miss this construction deadline, but believes that 90 percent delivery is an achievable goal.
Phase 1 Nearing Completion. As Figure 12 illustrates, construction is complete for 933 Phase 1 bridges, which represents 90 percent success in meeting Caltrans' construction target. An additional 97 bridges are under contract for construction. However, nine Phase 1 bridges are not yet under construction. Caltrans reports that the causes of delay vary for these bridges, including scope and cost changes, coordination with local jurisdictions, or timing in relation to other seismic retrofit or highway construction projects.
| Figure 12 Seismic Retrofit Program Scope and Progress As of December 31, 1995 |
|||
|---|---|---|---|
| (Dollars in Millions) | |||
| Number of Bridges | |||
| Phase 1 | Phase 2 | ||
| Retrofit construction complete | 933 | 59 | |
| Under contract for construction | 97 | 139 | |
| Design engineering complete | 2 | 40 | |
| Engineering not complete | 7 | 941 | |
| 1,039 | 1,179 | |
| Estimated construction cost | $763 | $1,050 | |
| Construction complete target | 12/95 | 12/97 | |
Phase 2 Construction Is Slow. Figure 12 shows that a total of 198 Phase 2 bridges are either under construction or have been completed, as of December 31, 1995. The majority of Phase 2 bridges are in various stages of engineering design. Caltrans initially set targets to construct $50 million of Phase 2 bridges in 1994-95, $500 million in 1995-96, and $500 million in 1996-97. However, halfway through 1995-96, the department's reports to the CTC indicate that it has expended only $80 million. The department now indicates that it expects to expend $200 million in the current year, $820 million in 1996-97, and $20 million in 1997-98.
Caltrans reports that it has revised its approach to the Phase 2 program, and intends to concentrate on design engineering in 1995-96 and construction in 1996-97. While this shift in strategy would partially explain the low construction expenditures in 1994-95 and 1995-96, we believe that other factors contributed. Initially, Caltrans lacked a project-specific workplan for Phase 2 bridges, which we believe hindered the department's ability to accurately estimate staffing requirements and to manage the engineering effort. In addition, Caltrans repeatedly changed its staffing plan for Phase 2, which may have delayed seismic project delivery. Initially the department planned to contract out design work, but then decided to train Caltrans engineers to perform specialized seismic work. The department now indicates that it found this approach inadequate and has turned again to consultant engineers to augment Caltrans staff.
Higher Current-Year Staff. Figure 13 shows the level of capital outlay support staff that Caltrans has allocated for seismic retrofit design and construction oversight. Caltrans estimates that it will apply 1,141 PYEs towards Phase 2 seismic retrofit in the current year. This is 274 PYEs (32 percent) above the level that Caltrans initially proposed. Caltrans has not identified any previously unanticipated workload that justifies this increased current-year staffing level, nor has it accelerated project delivery schedules compared to last year. We believe that the higher current-year staffing level for Phase 2 results from slow initial progress and also from the department's initial difficulty in accurately estimating staffing requirements. In order to provide the higher current-year staffing level for Phase 2, Caltrans contracted for 250 PYEs of engineering consultants, using a one-time appropriation of funds that Caltrans received from a state anti-trust lawsuit against petroleum companies.
Lower Staff for 1996-97. Figure 13 shows that for 1996-97 Caltrans proposes a total of 1,288 PYEs for seismic retrofit capital outlay support, 803 PYEs fewer than in the current year. Caltrans anticipates reducing by 363 PYEs its use of seismic retrofit consultants while the remaining reduction will be to state staff that will be either reassigned to other areas or eliminated through attrition. For Phase 1, the budget proposes 108 PYEs to complete lingering bridges. The department also proposes 857 PYEs for Phase 2 and indicates that, because it anticipates completing bridge retrofit design in June 1996 virtually all Phase 2 PYEs in the budget year will be dedicated to construction oversight.
| Figure 13 Department of Transportation Seismic Retrofit Staffing 1994-95 Through 1996-97 (Personnel-Year Equivalents) |
|||
|---|---|---|---|
| Actual 1994-95 | Estimated 1995-96 | Proposed 1996-97 |
|
| Highway bridge seismic retrofit | 1,237 | 1,557 | 965 |
| Phase 1 | (749) | (415) | (108) |
| Phase 2 | (488) | (1,141) | (857) |
| Toll bridge seismic retrofit | 77 | 534 | 302 |
| Local bridge seismic retrofit | -- | -- | 20 |
| Seismic research | -- | -- | 1 |
| 1,314 | 2,091 | 1,288 |
Phase 2 Delivery Is Unlikely. Despite the current-year staff increase for Phase 2 design, past experience suggests that the department will be unable to achieve its optimistic schedule for project design and capital outlay expenditures. Should the department miss its June 1996 target to complete bridge design, it would require a higher staff level in 1996-97 to complete backlogged work. Furthermore, we believe that the department will most likely not accomplish $820 million in Phase 2 capital outlay expenditures in 1996-97, even if there is no slippage. As a result, capital outlay expenditures are likely to be lower than predicted in 1996-97 and higher in 1997-98, and the Governor's Budget again does not present a realistic picture of what the department will accomplish.
In order that the Legislature can better assess the department's ability to meet its target for design and construction completion, and hold the department accountable for its delivery plans, we recommend that, at budget hearings, the department provide its assessment of its progress in meeting design and construction targets for Phase 2 seismic retrofit.
The costs to retrofit toll bridges have increased from $650 million to about $2 billion, and construction is likely to extend well beyond 1997. The Seismic Retrofit Bond Act of 1996 (Proposition 192 on the March ballot), if approved by voters, would provide only $650 million for these costs, and no fund source has been identified for additional retrofit costs. We recommend that, prior to budget hearings, Caltrans provide an updated time schedule and estimate of expenditures for design and construction.
Caltrans determined that seven of the state's nine toll bridges require structural retrofit to protect against damage in a strong earthquake (the Dumbarton and Antioch bridges do not require retrofit). Due to the unprecedented complexity of retrofitting the large toll bridges, Caltrans has for several years maintained a program of research, and has recently begun retrofit design and some preliminary construction projects. Throughout this period, Caltrans has maintained that toll bridge retrofit could be completed for a total of $650 million, including both design engineering and construction costs.
Retrofit to Cost Close to $2 Billion. Caltrans now reports that its research reveals toll bridge retrofit to be much more costly than previously reported, totaling between $1.7 billion and $2.1 billion. Caltrans' new cost estimates are based upon engineering analysis of the seismic vulnerability of each bridge and should be more accurate than initial estimates. Caltrans has raised its cost estimate for retrofit of the San Francisco-Oakland Bay Bridge alone from $250 million to over $1 billion, and potentially as high as $1.3 billion. Very significant technical issues remain to be resolved, and Caltrans will not develop its final retrofit strategy until additional tests and research are completed in December 1996. However, due to the high cost and technical difficulty of retrofitting the Bay Bridge, the department reports that it will consider whether it may be more cost-effective to entirely replace the eastern span.
While the Bay Bridge will be the most complex and expensive to retrofit, the department has also raised its cost estimate for the other six toll bridges that require retrofit. These bridges are the Richmond-San Rafael, Benicia-Martinez, Carquinez (east and west spans), San Mateo, Coronado, and the Vincent Thomas. The department has raised its total estimate for these six bridges from $420 million to between $710 million and $780 million. Furthermore, this estimate does not include the cost of retrofitting the westbound span of the Carquinez bridge, because the department has determined that it will be more cost-effective to replace the span.
Peer Review Panel Recommends Slower Schedule. Caltrans has set a target to complete toll bridge retrofit construction by December 1997. Because retrofit designs have yet to be completed for any of the seven bridges, this is a very highly accelerated schedule. An independent peer review panel, created to advise Caltrans and critique the department's retrofit strategy, has indicated that it believes that the department's schedule is too rapid and will not allow time for thorough engineering analysis. The panel has therefore advised Caltrans to extend its design and construction schedule.
Caltrans indicates that it is considering the panel's recommendations and may modify its schedules. We therefore recommend that, prior to budget hearings, the department provide to the Legislature a revised design and construction schedule for each bridge including an estimate of annual expenditures to complete the retrofit of each project.
No Funding Identified for Retrofit. The increase in toll bridge retrofit costs threatens to severely disrupt the already precarious balance of the 1996 STIP. Toll bridge retrofit does not have an identified funding source, but has to date been funded from State Highway Account (SHA) revenues and toll bridge revenues. The Seismic Retrofit Bond Act of 1996 (Proposition 192) on the March ballot would provide $650 million for toll bridge retrofit. However, even if voters approve this bond, up to $1.5 billion in retrofit costs would remain unfunded. Should this amount be funded out of the SHA it would reduce funds available for STIP construction by $1.5 billion, or about 28 percent of the total 1996 STIP. Similarly, should retrofit be funded from toll bridge revenues, other scheduled toll bridge improvements would be greatly delayed.
We find that the department has consistently overestimated capital outlay expenditures. For the current year, Caltrans has reduced its estimated level of highway capital outlay by 23 percent from proposed levels. This reduction in expenditures reflects primarily a lower level of project construction than anticipated. While Caltrans has adjusted its proposed 1996-97 level to partially account for historical overestimation, any project delivery delays are likely to result in a lower level of capital outlay from state and federal funds.
Current Year Capital Outlay Was Overestimated. For 1995-96, Caltrans initially proposed $3.3 billion in highway capital outlay expenditures from all funds. The department reported that, while it lacked funds to construct all scheduled projects, it had developed an expenditure strategy that would support $3.3 billion of project construction in that year. As shown in Figure 14, Caltrans now estimates that it will actually expend only $2.5 billion in the current year, or $741 million (23 percent) less than proposed. (In the Crosscutting Issues section, we discuss the impact of the delay in project delivery on the State Highway Account.)
Caltrans Consistently Overestimates Capital Outlay Expenditures. Actual expenditures for the current year may turn out lower yet, because Caltrans consistently overestimates its current-year capital outlay expenditures. Over the last five years for which actual expenditures are available, Caltrans overestimated total capital outlay expenditures by an average of $753 million per year.
| Figure 14 Department of Transportation Highway Capital Outlay Expenditures 1994-95 Through 1996-97 (Dollars in Millions) |
||||
|---|---|---|---|---|
| Actual 1994-95 | Estimated 1995-96 | Proposed 1996-97 | Percent Change From 1995-96 |
|
| Flexible congestion relief | $873 | $896 | $719 | -19.8% |
| Interregional road system | 132 | 376 | 114 | -69.7 |
| Soundwalls | 21 | 19 | 10 | -47.4 |
| Other highway construction | 37 | 20 | 125 | 525.0 |
| Rehabilitation and safety | 711 | 973 | 935 | -3.9 |
| Seismic retrofit | 406 | 203 | 684 | 236.9 |
| Traffic systems management | 24 | 47 | 110 | 134.0 |
| $2,204 | $2,534 | $2,697 | 6.4% |
| State funds | $274 | $518 | $743 | 43.4% |
| Federal funds | 1,493 | 1,348 | 1,235 | -8.4 |
| Toll bridge revenues | 78 | 102 | 149 | 46.1 |
| Reimbursements | 359 | 566 | 570 | 0.7 |
Much of the overestimation in each year has been due to optimistic projections of reimbursed capital outlay, primarily locally funded projects on the state highway system. Because local transportation agencies often control project development for reimbursed projects, Caltrans has little ability to control project delivery dates and reimbursed capital outlay expenditures.
However, Caltrans also frequently has overestimated capital outlay expenditures for projects that the department controls and delivers. For example, over the last five years for which actual expenditures are available, Caltrans overestimated capital outlay expenditures of state and federal highway funds by an average of $199 million per year. We believe that the consistent overestimation of capital outlay is due to the department's failure to account for recurring factors, such as project delivery delays and delays in obtaining necessary permits and agreements. Thus, the department historically spends less for capital outlay, indicative of delays in project design, contract award, and construction. This delay in projects being awarded for construction in turn results in high unanticipated cash balances in the SHA.
Proposed 1996-97 Capital Outlay. As Figure 14 shows, the department proposes expenditures of $2.7 billion on highway capital outlay in 1996-97. Of this total, $570 million is to be funded by reimbursements, primarily from local transportation agencies. Caltrans indicates that in order to correct for the historical overestimation of reimbursed expenditures, for 1996-97 the department assumed that about 38 percent of scheduled reimbursed projects would not be delivered. This adjustment should reduce future disparity between proposed and actual levels of reimbursed capital outlay. However, the department did not make a similar adjustment in capital outlay for state projects; therefore, any delay in delivering projects according to schedule will likely result in a lower level of state and federal funded capital outlay for 1996-97, and again, a higher than projected SHA cash balance.
The total number and value of highway projects that Caltrans delivered in 1994-95 changed little from 1993-94. However, most of the projects that Caltrans delivered in 1994-95 were seismic retrofit and emergency repair projects. Delivery of projects according to STIP schedules declined in 1994-95.
Because of concern over project delays, the Legislature has enacted various requirements to monitor Caltrans' delivery of state highway projects. Our office is required by law to annually assess the department's progress in delivering projects according to the STIP programs: the STIP, SHOPP and TSM plan. Project delivery is defined in statute as occurring when a project is advertised for construction. However, because the California Transportation Commission (CTC) delayed construction of some projects in 1994-95 due to a shortage of capital outlay funds, we report project delivery based on when Caltrans presented project plans as complete to the CTC.
Total Delivery Stable in 1994-95. In 1994-95, Caltrans delivered 440 highway projects having a total programmed construction value of $1.2 billion. Compared to total project delivery in 1993-94 (449 projects valued at $1.1 billion), this represents a decrease of 2 percent in the number of projects delivered but an increase of 9 percent in their total construction value. Caltrans' total project delivery includes both projects in the STIP programs as well as non-STIP projects.
Seismic Retrofit Is Largest Component. Although total project delivery changed little from the previous year, the majority of 1994-95 delivery consisted of seismic retrofit and emergency repair projects not scheduled in the STIP, rather than projects that were scheduled in the STIP programs. Non-STIP projects delivered in 1994-95 include 116 seismic retrofit projects, having a construction value of $658 million, and 156 emergency repair projects (mostly minor storm-related repairs) worth $68 million. Although these seismic retrofit and emergency repair projects were not scheduled in the STIP programs, we include them as part of total project delivery for 1994-95 in order to provide as complete a picture as possible. In terms of their construction value, seismic retrofit projects accounted for 53 percent of total project delivery in 1994-95.
Delivery Against STIP Schedule and Annual Delivery Plan. Figure 15 illustrates two measures of Caltrans' degree of success in delivering STIP projects in the year scheduled. In 1994-95, Caltrans delivered 57 percent of the projects that were originally scheduled for that year in the STIP, SHOPP and TSM, down from 60 percent delivery in 1993-94. Projects that are not delivered in their originally scheduled year may have been delivered early or may be delayed for late delivery.
Because Caltrans and the CTC make changes to the STIP schedule, to add, reschedule, or delete projects, Figure 15 also shows delivery against Caltrans' annual project delivery plan. The delivery plan includes all projects identified for delivery in a given year, without regard to the date when the projects were originally scheduled in the STIP. Figure 15 reveals that in 1994-95 Caltrans delivered 70 percent of the projects in the 1994-95 delivery plan, down from 89 percent delivery in 1993-94.
The large share of seismic retrofit in total project delivery, as well as the declining rates of STIP delivery, indicate how seismic retrofit projects are displacing STIP projects. In addition, STIP delivery may be further delayed by factors internal to Caltrans, such as the department's recent reorganization and staff reduction.
One-third of all lane-miles on the state highway system are in need of rehabilitation. Caltrans will increase expenditures for pavement rehabilitation, but because of the advanced age of the state highways additional expenditures may be necessary. The department's target for 1996-97 is to deliver $318 million of rehabilitation projects.
Caltrans reports that the accumulated need for pavement rehabilitation on the state highway system has reached 16,000 lane-miles, and is continuing to grow. Currently, about one-third of all lane-miles in the state highway system require rehabilitation. Over the past 20 years, the number of lane miles of deteriorated pavements has increased at an average rate of 325 lane-miles per year.
Drivers perceive the backlog of rehabilitation needs as a decrease in ride quality on state highways, but the backlog also represents a tremendous financial liability and threat to the integrity of state highways. This is because rehabilitation projects cost between $150,000 and $200,000 per lane-mile but, if not addressed, repair costs will multiply as pavement deterioration becomes more serious. Some rehabilitation projects can safely be deferred for several years without substantially increasing the eventual cost of rehabilitation. Ultimately, however, the backlog must be addressed in order to avoid much more costly repairs that would result from serious pavement failure.
State Highway System Has Grown Old. Over 75 percent of the lane-miles in the state highway system were constructed more than 30 years ago. This means that most highways have exceeded their design life, and will begin to deteriorate. In addition, the volume of truck traffic on many state highways has greatly exceeded anticipated levels, leading to more rapid pavement wear. Thus, the aging, heavily used state highway system is likely to begin deteriorating at a more rapid rate, and even those pavements that do not currently show signs of deterioration are likely to require rehabilitation in the coming decade.
Increased Expenditures for Rehabilitation. In order to address the growing accumulation of rehabilitation needs, the CTC has set aside an additional $675 million for rehabilitation projects over the 1996 STIP period (1996-97 through 2002-03). This increase brings total rehabilitation funding over the STIP period to $2.5 billion--over twice as much as in the previous seven-year period. Annual capital outlay targets for rehabilitation start at $318 million in 1996-97, and increase over the STIP period to a peak of $399 million in 2002-03. Caltrans estimates that if this expenditure level is maintained for ten years it will reduce rehabilitation needs to a manageable level of 10,000 lane-miles. The most recent year in which total rehabilitation needs were 10,000 lane-miles was 1980-81; since then, 6,000 lane-miles have been added to the backlog. However, because of the advanced age of most pavements and the heavy use that they sustain, pavement deterioration is likely to accelerate in coming years. In this case, even higher rehabilitation expenditures may ultimately be necessary to restore pavement condition, which will further reduce the level of funds that is available for construction of new projects.
Caltrans proposes to convert $15.5 million from state maintenance staff to private contracts. We recommend that, if Caltrans presents an acceptable evaluation plan, the Legislature authorize a two-year pilot and adopt supplemental report language directing Caltrans to report on the cost-effectiveness of contract maintenance.
For 1996-97, Caltrans proposes to greatly increase its use of private contractors to provide roadside maintenance work. The department intends to convert $15.5 million in state personnel expenses (310 personnel-years) into contract authority. The department will then contract with private firms to provide various roadside maintenance activities, including mowing, tree trimming, guardrail repair, and landscape and irrigation maintenance. Although the department would eliminate 310 PYs from the maintenance program, Caltrans indicates that there are sufficient vacant positions in maintenance so that no layoffs would be required.
Efficiencies Anticipated. Caltrans believes that contracting for these services will increase the efficiency of the maintenance program, because the department will be able to direct contract dollars to peak maintenance needs more easily and flexibly than with state staff. For instance, by making a concentrated effort to mow weeds early in the growing season before they scatter seeds, the department believes that overall mowing costs will be lower and work quality will be improved. The department also believes that infrequent and unpredictable work, such as guardrail repair, could be more efficiently contracted out because it would eliminate the need to maintain work crews during unneeded periods.
Cost of Contract PYEs. Caltrans reports that it has not analyzed the relative cost of state staff and contract staff, nor the potential productivity increase that would result from its proposal. The department indicates that it will be unable to analyze cost-effectiveness of roadside maintenance contracts until it has experience operating the contracting program.
The department has, however, contracted for maintenance work in the past, including some roadside maintenance. Our analysis shows that in 1993-94 Caltrans paid an average of $82,000 per PYE for similar roadside maintenance contracts. (This is equivalent to $90,000 in 1996-97 dollars.) In most cases, this cost includes not only labor but also equipment and materials provided by the contractor, so it is not possible to directly compare this average with state PY costs.
Were an average cost of $90,000 per PYE to apply to new roadside maintenance contracts, the department's proposal would provide 172 PYEs of contract work, along with contractor-provided equipment and materials. At the same time, the department would lose the service of 310 state staff PYs. The department believes that productivity increases will more than offset the higher cost of contract PYEs but has not presented an analytical justification for this position.
Recommend Evaluation Plan. Because the department is unable to quantify cost savings and productivity improvements that would be achieved, we believe that the department's proposal is not justified as a permanent program at this time. However, notwithstanding the department's incomplete analysis, we believe that contract staff may have appropriate and cost-effective uses in the maintenance program. We therefore recommend that Caltrans' proposal be implemented as a two-year pilot, contingent upon the department's development of an evaluation plan.
We recommend that, prior to budget hearings, Caltrans develop and provide to the Legislature an evaluation plan that details how the department will assess the cost-effectiveness of contract maintenance. After evaluating the success of the pilot program, Caltrans and the Legislature will in subsequent years be better able to determine whether the department should continue, expand, or terminate contract maintenance.
Should the Legislature approve the department's evaluation plan, we further recommend that the Legislature adopt the following supplemental report language:
Caltrans is under court order to control pollutants in stormwater runoff from highways and other Caltrans facilities in Los Angeles. Caltrans requests $18.4 million to continue developing and implementing a compliance plan in 1996-97, but has not finalized an expenditure plan. We recommend that, prior to budget hearings, Caltrans provide the Legislature with an updated workplan in order to justify its request for 1996-97.
In late 1994, a federal court ruled that Caltrans had failed to comply with the provisions of the federal Clean Water Act, with respect to pollution levels in stormwater runoff from highways and other Caltrans facilities in the Los Angeles area. Specifically, Caltrans was found to have violated the conditions of, or failed to obtain, wastewater discharge permits required under federal law. The court ordered Caltrans to develop and implement a plan to reduce pollution in stormwater runoff, in order to comply with federal law. The court has accepted certain provisions of Caltrans' stormwater compliance plan, but the department indicates that several issues, with potential costs in the hundreds of millions of dollars, have yet to be resolved. The 1996 Fund Estimate does not reserve funds for this potential increase in stormwater cleanup costs, and any additional expenditures will draw funds away from STIP projects and further increase the STIP fund gap.
Court Orders Retrofit Opportunity Study. Caltrans proposed a three to five year program to monitor runoff pollution, inspect drainage facilities, and analyze the most cost-effective way to comply with federal law. The court, however, rejected this approach and ordered Caltrans to immediately undertake a study to evaluate opportunities to retrofit storm drains and sewers in the Los Angeles basin. Caltrans indicates that this study will be complete in December 1996, and that it will analyze options including retrofitting drain inlets and installing various types of water filtration equipment. The department estimates that the cost of implementing these options in Los Angeles might total from the hundreds of millions to over one billion dollars. However, until this study is complete and the court subsequently issues its final order, the department is not able to project the final cost of constructing and operating stormwater retrofit.
Reduced Costs Likely for Drain Inlet Cleaning. Another element of the court order required that Caltrans annually clean all drain inlets in the Los Angeles basin. As required, Caltrans immediately began cleaning drain inlets, at an estimated annual cost of $11 million. However, the department argued that only a small number of drain inlets account for the majority of pollutant runoff and that it would be more cost-effective to identify and target these problem inlets. Caltrans reports that the court appears willing to accept its argument and modify the order accordingly. This would reduce the ongoing annual cost of cleaning drain inlets, but Caltrans has not yet determined exactly the savings that would result.
Caltrans Seeks Statewide Discharge Permit. Many of the stormwater runoff issues that Caltrans is addressing in Los Angeles have potential statewide consequences. Throughout the state, Caltrans has discharge permits from regional water quality control boards, issued in order to regulate compliance with the federal Clean Water Act. The terms and requirements of these permits vary greatly from region to region. In order to simplify its compliance effort, and reduce the risk and uncertainty of additional lawsuits in different areas of the state, Caltrans intends to apply to the State Water Resources Control Board for a statewide discharge permit. Caltrans intends to make its application in April 1996, but until such time as the state Board issues a statewide permit, the exact terms of the permit remain unknown. However, a statewide permit might require a higher level of stormwater cleanup throughout the state, potentially including some features of the Los Angeles court order, further increasing costs to the department.
Current and Budget-Year Costs. For the current year, Caltrans' budget includes $18.4 million for expenses related to stormwater cleanup. The department initially estimated expenditures of $11.4 million for mandatory maintenance activities, primarily drain inlet cleaning in Los Angeles. Caltrans reports that it will spend most of the remaining $7 million on over 20 consultant contracts to address court-ordered actions, including:
For 1996-97, Caltrans' budget again includes $18.4 million for stormwater cleanup and compliance costs. The department believes that drain inlet cleaning costs may decline in 1996-97; however, costs for environmental consultants may increase as the result of further court actions.
Current and budget-year costs, however, are likely minor precursors of major future expenditures. As details of a statewide permit are developed, Caltrans may be required to increase drain inlet cleaning and other activities statewide. As indicated earlier, pending court actions on drain and sewer retrofit could result in costs exceeding hundreds of millions of dollars in Los Angeles alone.
Recommend Caltrans Provide Update. At the time that this analysis was prepared, Caltrans anticipated several near-term actions that would affect future costs:
We therefore recommend that, prior to budget hearings, Caltrans detail its planned activities and necessary expenditures in 1996-97, in light of progress in these areas.
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