The Mass Transportation Program provides operating and capital support for the implementation of urban, rural, and interregional public transportation services, primarily bus and rail transportation. For 1996-97 the Mass Transportation Program will account for approximately 5 percent of Caltrans' total expenditures. The budget proposes $266.9 million in program expenditures, which is 9.7 percent higher than estimated current-year expenditures. The increase is primarily due to a projected increase in federal funds for local transit operations and capital improvements.
As Figure 16 shows, the Mass Transportation Program includes the State and Federal Mass Transit Program and the Rail Transit Capital Program. For the State and Federal Mass Transit Program, the budget proposes $33.4 million, an increase of 15 percent over the current-year level. This program is funded mainly with federal funds to provide federal transit (bus) operating grants.
| Figure 16 Department of Transportation Mass Transportation Expenditures 1994-95 Through 1996-97 |
||||
|---|---|---|---|---|
| (Dollars in Millions) | ||||
| Actual 1994-95 |
Estimated 1995-96 |
Proposed 1996-97 |
Percent Change From 1995-96 |
|
| State and federal mass transit | $25.7 | $29.1 | $33.4 | 14.8% |
| Rail transit capital | 163.7 | 195.8 | 233.0 | 19.0 |
| Interregional public transportation | 4.9 | -- | -- | -- |
| Legal | -- | 0.1 | 0.1 | -- |
| Transportation Demand Management | 39.0 | 18.3 | 0.4 | -97.8 |
Totals |
$233.3 | $243.3 | $266.9 | 9.7% |
The budget proposes $233 million for the Rail Transit Capital Program, an increase of 19 percent over the current-year level. Under this program, Caltrans administers the intercity rail program, the Proposition 108 bond program for commuter and urban rail, and the transit capital program. The budget-year increase reflects an increase in projected capital outlay expenditures reimbursed by local governments.
The 1996-97 budget proposes a level of mass transportation expenditures that more accurately reflects past actual expenditures. In 1994-95 and 1995-96, program expenditures were overstated by approximately $150 million in each year because projected reimbursements from local governments for capital outlay expenditures were not realized. For 1996-97, the department lowered the projected level of reimbursements to track more closely with actual experience.
The state's costs to provide intercity rail service have been increasing rapidly, mainly because Amtrak has shifted an increasing portion of operating costs back to the state. State costs will increase to about $50 million in 1996-97.
Currently, intercity rail passenger services are provided on three main routes on a contract basis with Amtrak. (Under federal law, the state can only contract with Amtrak for such services.) All train routes are supplemented and integrated by dedicated feeder bus service. The intercity routes in California are the San Diegan in Southern California, the San Joaquin in the Central Valley, and the Capitol in Northern California.
Under federal law, Amtrak determines and allocates operating costs to the various routes. The state and Amtrak each pay for a portion of the operating costs based on a formula, set by Amtrak, which takes into account the amount of fare revenues generated and Amtrak's total operating cost of service. Our review shows that the state's costs to contract with Amtrak since 1991-92 have increased significantly. For instance, costs doubled between 1991-92 ($12 million) and 1994-95 ($25 million). The costs are estimated to double again by 1996-97 ($50 million). These increases are mainly due to Amtrak's redefinition of the state's share of costs, the effect of which is to shift a greater portion of the total operating cost to the state.
The Department Will Have Sufficient Funds to Pay Higher Amtrak Costs. The budget requests $41.7 million for intercity rail operating costs in 1996-97. Our review shows that with this amount of new funds, the department will have sufficient resources to pay the higher costs of $50 million. This is because the department has unexpended funds of about $8.1 million from past appropriations that can be used for these purposes.
We recommend the adoption of supplemental report language requiring Caltrans to include in its annual operating plan for intercity rail service specified cost information for each service route in order to account for the total state costs of providing intercity rail service.
Amtrak Contract Only a Portion of Total Intercity Rail Costs. While the budget identifies the cost of the contract with Amtrak for the intercity rail program, total state costs to support the services are higher. This is because total costs include not only the Amtrak contract amounts, but also the costs of marketing and advertising, departmental administration, and minor capital outlay.
For instance, the total support cost of the program in 1995-96 is $62.2 million, including $40.2 million in Amtrak contract costs and about $22 million in other costs which are accounted for in the department's other programs, but not reflected in one place in the budget document as part of the intercity rail program costs. Because these other costs are an integral part of the cost of implementing the program, to the extent that these costs are not included, intercity rail operating costs, as reflected in the Governor's Budget are understated.
Without a complete picture of total state costs for providing intercity rail service, it is difficult for the Legislature to determine whether proposed expenditures are cost-effective and justified. Accordingly, we recommend that the following supplemental report language be adopted to ensure that all costs related to the services are fully accounted:
The department shall provide annually, in one display as part of its budget request, the state's total costs for each intercity rail route, including: (1) the Amtrak contract amount for existing and expanded train services, (2) the costs to provide connecting bus service, (3) associated capital equipment costs, (4) marketing and advertising costs, and (5) administrative costs. This information shall be included in the department's annual operating plan for intercity rail service.
Farebox return for all intercity rail routes has worsened and will not meet statutory requirements in 1996-97 and future years without significant increases in ridership. Continuation of state support for these services will therefore require waivers from the California Transportation Commission. We recommend that the department report, at budget hearings, on how it plans to increase ridership on intercity rail service to improve the services' farebox return ratios.
Current law requires each intercity rail route to attain a 55 percent farebox ratio--that is, passenger fares must cover at least 55 percent of operating costs--by the third year of service in order to continue to receive state operating funds. If a route does not achieve the 55 percent farebox requirement, a special waiver must be approved by the CTC for the route to continue to receive state funds. Current law allows waivers to be granted for up to three years.
Farebox ratios depend on both fare revenues and operating costs. If revenues--determined by ridership and passenger fares--decrease and operating costs increase, then the farebox ratio will decline. Conversely, if revenues increase and operating costs decrease, then the farebox ratio will improve. As Figure 17 indicates, since 1993-94, farebox ratios on all three state-supported routes have declined significantly. The primary reasons for the decline are lagging ridership and higher state operating costs.
Ridership Levels Not Enough to Achieve Farebox Recovery Requirements at Current Cost Levels. As Figure 17 shows, ridership on the Capitol and San Joaquin routes barely changed from 1993-94 through 1995-96 (estimated), while ridership declined on the San Diegan. The ridership decline on the San Diegan is primarily due to competing services provided by the Southern California Metrolink commuter rail system and the North San Diego County Transit District. In 1996-97, Caltrans projects higher ridership on the Capitol; however, this projection assumes expansion from three to four trains daily. Caltrans further indicates that at the 1995-96 operating cost levels, total ridership on all routes would have to improve by 58 percent in 1996-97 in order to achieve the 55 percent farebox recovery requirements.
| Figure 17 Intercity Rail Service Farebox Ratios and Ridership 1993-94 Through 1996-97 |
||||
|---|---|---|---|---|
| 1993-94 Actual |
1994-95 Actual |
1995-96 Estimated |
1996-97 Projection |
|
| Farebox ratio (percent) | ||||
| San Diegan | 90.8% | 73.5% | 56.4% | 38.9% |
| San Joaquin | 52.1 | 48.8 | 41.6 | 34.6 |
| Capitol | 36.3 | 38.8 | 37.7 | 22.5 |
| Ridership (in thousands) | ||||
| San Diegan | 1,700 | 1,465 | 1,597 | 1,676 |
| San Joaquin | 559 | 525 | 566 | 600 |
| Capitol | 364 | 349 | 366 | 411 a |
Totals |
2,623 | 2,339 | 2,529 | 2,687 |
| a Assumes four round-trip trains daily. | ||||
Farebox Performance Worsens as Operating Costs Increase. Over the past three years, Amtrak has consistently shifted an increasing proportion of service costs to the state. As a result, Caltrans estimates that, at the current ridership level:
--A 46 percent farebox return under the 1995-96 costs.
--A 29 percent farebox return under Amtrak's costing methodology for 1996-97.
Consequently, if ridership does not improve and the 1996-97 Amtrak costs are $10 million higher than in 1995-96, none of the three routes will meet the 55 percent farebox ratio, and none will be eligible for state funding without CTC waivers.
In view of the increasing operating costs, continued state support of intercity rail service must be justified based on ridership improvements. We recommend that the department report at budget hearings on measures it will implement to improve ridership, and the cost implications of these measures.
In addition to the expected increase in operating costs, additional events may occur that could potentially increase intercity rail costs by an unknown amount in the future.
Future Amtrak Costs May Continue to Rise. According to its recent business plan, Amtrak intends to contain future costs for intercity rail service at 1996-97 levels. However, if Amtrak is not successful, the state's operating costs could potentially far exceed $70 million per year. This is because the proposed new formula to calculate the state's share of the operating costs incrementally shifts 100 percent of total operating costs to the state over the next three years.
Expiration of Federal Rail Contracts May Generate Higher Costs. Amtrak's 25-year operating contract with the freight rail companies to use their tracks to operate passenger rail trains expires in April 1996. At the time this analysis was prepared, no new contracts had been negotiated and potential contract price increases are unknown. If the freight rail companies raise their contract prices with Amtrak, then intercity rail operating costs will most likely be higher.
In view of the increasing operating costs, static ridership and falling farebox recovery, the Legislature should consider several issues relating to the state's continued support of intercity rail service. We recommend that the Legislature direct the CTC and Caltrans to evaluate whether services on existing intercity rail routes ought to be provided by Amtrak, and identify alternatives to provide similar services.
The Intercity Rail Program was established in order to provide motorists with a safe, efficient and cost-effective transportation alternative that reduces congestion and improves air quality. The program's effectiveness depends on the degree to which traffic is diverted from the state's highways, and the cost to achieve that diversion. The increasing costs, static ridership, and falling farebox recovery raise the following policy considerations for the Legislature relating to the state's continued support of intercity rail service.
Should the State Continue to Provide Intercity Rail Service Despite Low Farebox Returns? A primary goal of intercity rail service is to divert heavy freeway traffic from specific corridors. Given the current flat ridership and increasing operating costs, it appears that intercity rail service will not meet statutory farebox requirements in the near future, and service continuation will require waivers from the CTC on a recurring basis. In view of this, the Legislature should evaluate the short- and long-term benefits and costs of providing intercity rail to determine whether state support of the service ought to be continued.
Should Intercity Rail Service Be Solely State Operated? Currently, intercity rail service is provided by the state through a contract with Amtrak. However, to the extent that alternative operating arrangements are potentially available at less cost and improved coordination, these alternatives should be explored. For example, it is possible that areas served by intercity rail could be served by commuter rail services, as has occurred along the San Diegan route. We recommend that the Legislature direct the CTC and Caltrans to re-examine whether service on existing routes ought to continue to be provided by Amtrak, and identify alternatives where similar intercity services could be provided that allow the state more control over operations and costs.
What Performance Measures Should Be Used to Evaluate Performance and Cost-Effectiveness of Intercity Rail Service? The state currently has little means to improve farebox return performance without significantly increasing ridership. Because services will likely not achieve the 55 percent farebox ratio in the near future, they cannot be operated with state support without CTC waivers. In the short term, the Legislature could consider suspending the farebox requirement in order to allow intercity rail service to be continued. The Legislature could also decide on a set of additional measures to assess service improvements both in the short and long run. Additional measures may include specified targets of ridership increases over specified time periods.
How Should Capital Improvements Be Funded? Capital improvements are often needed to enable service expansion. The failure of the 1992 and 1994 rail bond measures created a funding gap in the intercity rail program of approximately $300 million. As a result, highway funds are now the main funding source for capital improvements for intercity rail. However, given the funding shortfall, intercity rail capital projects may be delayed or not funded in order to free up funds for other highway projects.
The lack of capital funds hinders service expansion which is needed to increase ridership. To the extent that the state is to continue providing intercity rail service, the Legislature needs to determine how best to fund these improvements.
What Is the Priority of Intercity Rail Relative to Other Transportation Programs? Operations of the intercity rail program are funded primarily from the Transportation Planning and Development (TP&D) Account. The TP&D Account also funds the State Transit Assistance Program which provides state support for local transit (bus and rail) operations and the Transit Capital Improvement Program which provides state funding for rail capital improvements, rollingstock and buses. To the extent that operating costs for intercity rail increase, there will be fewer funds for other transit programs. The Legislature may want to consider the relative value of the intercity rail program as compared to other mass transportation programs in order to provide balanced transportation services in the state that satisfy transportation service demands.
The Rideshare Program has not been proven to be effective and the budget proposes to eliminate state support of the program. Alternative means are available to local governments to ensure compliance with air quality standards.
The department proposes to eliminate state support of the Rideshare Program for a reduction of $14.4 million and 25.3 PYs in 1996-97.
The Rideshare Program provides motorists access to and information about carpools and vanpools as an alternative to commuting alone. Caltrans and local governments work together with transit operators, air pollution control districts and private ridesharing organizations to administer a program that encourages motorists to rideshare in order to reduce the number of single occupancy vehicles on the road and to mitigate congestion and the deterioration of air quality.
ISTEA Provided Funding for Rideshare. The ISTEA authorized the use of federal highway funds to support rideshare programs, without having to provide any state matching funds. If the funds are not used for ridesharing, they become available for other highway purposes.
In 1995-96, the Legislature reduced the rideshare program from a $40.6 million program to a $14.4 million program. This action eliminated state support to provide administrative, marketing, education, and telecommunications services. However, it continued to fully fund local governments' contracts with private vendors to identify and match-up potential ridesharing customers. The budget proposal would terminate funds for these local government contracts.
Caltrans' Reasons for Eliminating Program. Caltrans' decision to no longer participate in the delivery of rideshare services in 1996-97 is predicated upon two factors. First, Ch 607/95 (SB 437, Lewis) no longer requires employers in California to require employee trip reductions unless required by federal law. Second, based on a survey--which found that only 2 percent of rideshare applicants actually changed their transportation choices to utilize rideshare services--Caltrans concluded that rideshare services are not the most cost-effective use of state resources in reducing congestion and improving air quality.
Rideshare Responsibility Passed to Locals. Eliminating state funding of the program will shift the funding burden to local governments, if they choose to continue these services. They will have to use their own funds or free-up other eligible funds such as federal funds available under the Congestion Mitigation and Air Quality (CMAQ) program for the activity for these contracts.
Conformity With Air Quality Standards Will Most Likely Not Be Impacted. The existence of a rideshare program counts toward the determination of whether or not an area meets air quality standards. Local agencies indicated that elimination of the rideshare program may jeopardize conformity with air quality standards and they may need to implement other measures (such as amending their transportation congestion management programs) to achieve conformity. However, it is not definite that, absent a rideshare program, they will be out of conformity with federal law. This is because there are a number of factors that the federal government takes into consideration when determining state conformity with air quality standards.
Because (1) the rideshare program's effectiveness is questionable and (2) it is not clear that elimination of state support would jeopardize local area's conformity with air quality standards, we concur with the department's proposal to eliminate the program.
The department is undergoing another reorganization, with the objective to improve operational efficiency. We recommend that the department report prior to budget hearings on its estimates of savings as a result of the reorganization efforts.
In 1994, the department began to reorganize many of its functions in order to improve its operations and to reduce redundancies. The department's goal is to achieve about $1 billion in total savings in support expenditures over the 1996 STIP period. Specifically, the reorganization:
Reorganization Will Reduce Administration Costs. Figure 18 (see next page) shows the staffing and expenditure levels of the Administration Program from 1994-95. As the figure shows, Caltrans anticipates that through 1996-97 it will have reduced direct headquarters administrative and technical services expenditures by $106.3 million below 1994-95 levels. In addition, the department projects a 26 percent reduction in staffing from 2,032 PYs in 1994-95 to 1,510 PYs in 1996-97, mainly as a result of centralizing administrative functions in service centers. As a result, administration will account for approximately 11 percent of the department's 1996-97 support expenditures, as compared to about 17 percent in 1994-95. In terms of staffing, the proportion of departmentwide personnel that are in administration will be reduced from 11 percent to 9 percent.
Also as part of the reorganization, the department indicates that it has changed various operational procedures to reduce administrative expenses. While these are not fundamental changes in the department's operation, they will contribute to reducing administrative expenses. For instance, the department has introduced a charge card program to simplify the expense claims procedures. Additionally, the department has redefined and broadened the duties of some administrative staff to better utilize staff time and respond to workload fluctuations. The department has also reduced professional and technical services contracts.
| Figure 18 Caltrans Administration Staffing and Expenditure Levels 1994-95 Through 1996-97 |
||||||
|---|---|---|---|---|---|---|
| Dollars in Millions) | ||||||
| 1994-95 | 1995-96 | 1996-97 | ||||
| PYs | $ | PYs | $ | PYs | $ | |
| Administration | 1,355 | $127.6 | 1,159 | $103.8 | 904 | $98.3 |
| Technical services | 677 | 176.8 | 668 | 103.2 | 606 | 99.7 |
Total Administration |
2,032 | $304.4 | 1,827 | $207.0 | 1,510 | $198.0 |
Total State Support |
18,606 | $1,840.2 | 17,746 | $1,837.0 | 16,774 | $1,809.1 |
The department's reorganization and its administrative changes are expected to create operational efficiencies over the long run. However, the direct effect of these changes is not separable and therefore cannot be individually identified. Our review further shows that not all expected savings are real. Specifically, to the extent that changes, such as reduction in management and supervisory personnel, represent elimination of vacant positions, reclassification of position responsibilities, or shifting positions to non-administration programs, the department's savings goal will not be realized. However, to the extent that changes, such as consolidation of responsibilities, result in more efficient utilization of staff resources, the savings are more realistic.
Potential Effects in Other Programs Not Yet Identified. At the time this analysis was prepared, Caltrans had not been able to provide an estimate of the potential effect in other programs (such as highways, and mass transportation) as a result of the reorganization. We recommend that the department provide that information prior to budget hearings in order that the Legislature may be informed of the department's total efforts and expectations.
We recommend that the department provide, prior to budget hearings, workload detail to justify the reduction of 296 PYs.
The 1995 Budget Act scheduled Caltrans' expenditures for individual program elements in the Highway Program. This action effectively limits Caltrans' flexibility to redirect funds among various program elements without notifying the Legislature.
Prior to 1995-96, funding for the support of the Highway Program was provided without limitations by program elements. This allowed Caltrans to redirect funds among elements of the program, for instance from maintenance to operations, in order to cover contingencies and still operate within the total program funding level. However, over the years, Caltrans did not reflect these internal redirections in the Governor's Budget display. As a consequence, the Governor's Budget did not provide a true picture of actual expenditures.
Legislative Action in 1995-96 Necessitates Alignment of 1996-97 Budget Expenditures. In preparing the 1996-97 budget, Caltrans aligned its expenditures as displayed in the Governor's Budget with its internal expenditure allocations. This is expected to enable the department to eliminate discrepancies and report more accurately the expenditure pattern of each program.
Our review indicates that this process is reasonable. For the past several years, Caltrans' support budget had an ongoing shortfall in the funding for personal services. As a result, the department reduced operating and equipment expenses and redirected those funds to personal services.
Reduction in PYs Not Justified. While aligning expenditures in the Governor's Budget display to more accurately reflect the department's true expenditure pattern is reasonable, we question why the department unilaterally reduced staffing by 296 PYs. Specifically, the department did not submit a budget change proposal for the deletion and was not able to provide workload detail to justify the reduction of staff. We believe that this information is essential in order to assess the validity of the alignment of expenditures. Accordingly, we recommend that the department provide workload detail to justify the reduction of 296 PYs prior to budget hearings.
We recommend a reduction of $3,050,000 in order to correct a technical budgeting error. (Reduce Item 2660-001-0890 by $3,050,000)
For 1995-96, the Legislature directed Caltrans to restore the Local Planning program with $3 million in federal funds. For 1996-97, the budget reflects the restoration of $3 million in planning but also inadvertently reflects the same increase under the rail capital transit program. As a result, we recommend that this latter amount be deleted.
The California Highway Patrol (CHP) is responsible for ensuring the safe, lawful, and efficient transportation of persons and goods along the state's highway system and to provide protective services and security for state employees and property. To carry out its responsibilities, the department administers four programs to assist the motoring public and to protect state employees and property: (1) Traffic Management, (2) Regulation and Inspection, (3) Vehicle Ownership Security, and (4) Protective Services.
The budget requests a total of $791 million to support the CHP in 1996-97. This is approximately $25 million or about 3.3 percent above estimated expenditures in the current year. The increase is primarily the result of the following augmentations: (1) $7.3 million for the third and final year of funding for 180 additional traffic officers, (2) $8.3 million for telecommunications equipment and increases in vehicle replacement costs, (3) $1.9 million to comply with overtime provisions of the Fair Labor Standards Act of 1986, and (4) $2.2 million to staff the new Gilroy inspection facility and to relocate two CHP offices to a new facility.
The budget also proposes to eliminate the California Motorcyclist Safety Program (CMSP) administered by the CHP. Currently, the CHP contracts with a private vendor to provide motorcyclist training and public awareness programs. The budget proposes instead that these services be provided by motorcycle driving schools and driving instructors who would be licensed by the Department of Motor Vehicles (DMV). The current program is funded by a $2 surcharge on motorcycle registration, which will expire December 31, 1997.
In addition, the budget proposes to eliminate the Salvage Vehicle Inspection Program. We discuss this proposal in a later section of this write-up.
We recommend a reduction of $1.4 million for increased overtime costs because the administration did not notify the Legislature of these costs when the Legislature approved the recent collective bargaining agreement between the state and the California Highway Patrol officers. (Reduce Item 2740-001-0044 by $1.4 million.)
On September 8, 1995, the Department of Personnel Administration (DPA) changed various state pay rules to comply with overtime provisions in the federal Fair Labor Standards Act (FLSA). Specifically, the DPA determined that compliance with the federal law would require the following changes: (1) overtime payments to sergeants and traffic officers and (2) inclusion of "premium pay" in the base rate for overtime calculations. (Premium pay represents pay increases to provide incentives for officers to acquire certain attributes such as additional education or physical training.) The CHP estimates that these changes will increase its overtime costs by $1.4 million in the current year and $1.9 million in 1996-97. The department is absorbing the current-year increase but is requesting additional funding of $1.9 million in 1996-97
Administration Fails to Inform Legislature. At the same time that the DPA communicated these new rule changes to the CHP and other departments, the DPA and the CHP were seeking legislative approval of the memorandum of understanding (MOU) negotiated with the Unit 5 representatives of CHP traffic officers. The proposed MOU included significant new premium pay provisions, including various educational incentive payments, that would boost the cost of complying with the new FLSA overtime rules. The interaction of the MOU provisions and new overtime rules accounts for $1.4 million of the $1.9 million increase in overtime costs in the budget-year request by the CHP.
The state's collective bargaining law requires legislative ratification of any MOU provision requiring the expenditure of state funds before the provision may take effect. The administration-sponsored legislation to ratify the MOU (SB 544, Dills) was heard in two committees after the DPA had promulgated the new overtime rules. (The legislation was subsequently enacted as Ch 768/95.) During these hearings and other deliberations, the administration did not inform the Legislature of the cost impact of the interaction of the new rules with the MOU's new premium pay provisions.
Failure to Inform Undermines Legislative Review. The administration's failure to inform the Legislature of these costs at the appropriate time--during consideration of the MOU--undermines meaningful legislative review and defeats the purpose of the law requiring legislative approval of MOU provisions that will require future state expenditures. (This is not the first instance we have identified where meaningful legislative review of MOUs has been impaired. See the Analysis of the 1995-96 Budget Bill, page H-30.) In view of this failure, and in order to improve the accountability of the administration in the process of legislative review of MOUs, we recommend that the Legislature reduce the request by the amount attributable to the MOU--$1.4 million. We believe that the department can in part accommodate this reduction by reducing overtime costs through better management of overtime assignments. To the extent that additional overtime costs remain as a result of the MOU and the new rules, these costs should continue to be absorbed as the department has done for 1995-96.
We recommend that the California Highway Patrol explain at budget hearings why costs are projected to be higher than originally anticipated as a result of consolidating the California State Police with the California Highway Patrol.
In 1995-96, the California State Police (CSP) consolidated with the CHP pursuant to the Governor's Reorganization Plan Number 1. The consolidation was anticipated to save $835,000 in 1995-96 due to efficiencies and economies of scale. While most of the savings in facilities and equipment expenses, including the sale of an aircraft, were anticipated to occur immediately upon consolidation, other savings such as savings in personnel costs resulting from better workload coordination and streamlining were anticipated over several years.
However, more recent estimates provided by the CHP indicate that the consolidation may only achieve about $400,000 in savings in 1995-96. This is because the cost of providing protective services (formerly provided by the CSP) in 1995-96 are now estimated to be $300,000 higher than originally anticipated. Figure 19 (see next page) compares the projected costs of providing protective services in 1995-96 with more recent cost estimates. As the figure shows, the CHP now estimates that personnel costs--for salaries and benefits--will be lower than initially projected by $2.1 million in 1995-96. However, operating and equipment expenses will be higher by $2.4 million. The higher costs are primarily due to unplanned purchases of vehicles ($442,000), higher telecommunications costs ($1.2 million), and higher costs of facilities operations ($800,000). In addition to higher costs, the department, thus far, has not proceeded with its plan to sell two airplanes which it estimated would generate $75,000 in revenues.
Short-Term Cost Increases Versus "Tip of the Iceberg". At this time, it is not clear whether the unanticipated cost increases, specifically in telecommunications and operating facilities, are short-term increases due to first-year implementation of the reorganization, or if they represent the "tip of the iceberg" of higher ongoing costs in ensuing years resulting from the consolidation. Protective services are provided through reimbursements by client agencies that receive the services. To the extent that the costs of these services are higher, especially on an ongoing basis, costs paid by client agencies will also be higher.
Because the primary rationale for the consolidation of the CHP with the CSP was to provide better coordinated services at lower costs, we believe that the department should provide an explanation as to why the costs--in particular, telecommunications and facilities operations costs--have increased. The higher telecommunications costs are of particular concern. This is because federal regulation of telecommunications is likely to be changed in the next few years, potentially necessitating modifications in the department's telecommunications systems. Thus, how the department configures its telecommunications systems now, to accommodate departmental workload demands, could have potentially significant cost implications over the long run.
| Figure 19 Protective Services Division Projected Versus Estimated Costs 1995-96 |
||||
|---|---|---|---|---|
| (In Millions) | ||||
| Projected 12/23/94 |
Estimated 11/1/95 |
Change | ||
| Personal services | $24.7 | $22.6 | -$2.1 | |
| Operating expenses | 2.9 | 4.7 | 1.8 | |
| Equipment | 0.2 | 0.8 | 0.6 | |
Totals |
$27.8 | $28.1 | $0.3 | |
Accordingly, we recommend the department explain, at budget hearings, (1) why telecommunications and facilities operations costs for protective services have been significantly higher than anticipated, and whether these costs will be ongoing, (2) why the unplanned vehicle purchase was needed, and (3) why it has not proceeded with its plan to sell two airplanes.
We recommend that the California Highway Patrol report at budget hearings on the estimated workload necessary to conduct inspections of salvage vehicles during the first half of 1996-97, and how it plans to fund that workload.
Chapter 1008, Statutes of 1994 (SB 1833, Torres) established the Salvage Vehicle Inspection Program, and required the CHP, beginning July 1, 1995, to initiate a program to inspect all salvage vehicles. In addition, Chapter 1008 required the CHP to verify the identity of each salvage vehicle and to ensure that the component parts installed in the vehicle were not stolen before the DMV registered the vehicle to a new owner.
Workload Grossly Underestimated. For 1995-96, the CHP underestimated the number of salvage vehicles needing inspection by at least 100 percent. Early on in the implementation of the program, the CHP was overwhelmed with inspection workload and by October could not continue to perform inspections on a timely basis, given the funding and staffing level of the program. In response, Ch 684/95 (SB 549, Alquist) suspended the program as originally designed until January 1, 1997. After January 1, 1997, the program would be reactivated.
Chapter 684 Places Temporary Moratorium on the Program, But Inspections Will Continue. While Chapter 684 suspended the requirement that the CHP inspect all salvage vehicles, it did not eliminate all inspections. Instead, the measure authorizes the DMV to either inspect salvage vehicles applying for registration or request that the CHP inspect such vehicles. In addition, Chapter 684 authorizes the CHP to inspect these vehicles on a random basis.
The CHP is currently developing legislation for a modified program of random inspections. However, until January 1, 1997 or when a modified program is in place, the CHP is likely to incur some workload costs to conduct random inspections and inspections requested by the DMV. Because no funds are included in the CHP's 1996-97 budget request, we recommend that the CHP report at budget hearings on the estimated workload necessary to conduct these inspections and how it plans to fund that workload.
The Department of Motor Vehicles (DMV) is responsible for protecting the public interest in vehicle ownership by registering vehicles and for promoting public safety on California's roads and highways by issuing driver licenses. Additionally, the department licenses and regulates vehicle-related businesses such as automobile dealers and driver training schools, and also provides revenue collection services for state and local agencies.
The budget proposes total expenditures of $531 million for support of the DMV in 1996-97. This is an increase of $11 million, or 2 percent, above estimated current-year expenditures. This proposed increase is primarily due to the costs to implement new legislation and to a proposal to initiate planning and analysis for a reengineering of the department's business practices and information systems. The budget estimates that most of the costs of implementing new legislation will be offset by increased revenue from existing or new fees.
The DMV is preparing to undertake a computer renovation project, following recommendations made by an independent consultant, and requests $1.9 million in 1996-97. The overall effort may take six years or more and is likely to cost well over $100 million. We recommend that the DMV, the Department of Information Technology, and the Technology Investment Review Unit (within the Department of Finance) report to the Legislature on measures to ensure that the project is executed successfully.
Following the costly failure of the DMV's attempted database modernization project, the department hired an independent consultant (the Warner Group) to analyze the need for the department to improve and modernize its information technology systems and to recommend an achievable implementation plan (see our 1994-95 Analysis and Supplemental Analysis and our 1995-96 Analysis, page A-61). The consultant submitted its final report in early 1995, and the DMV is now proposing to implement the report's recommendations and requests $1.9 million in 1996-97.
Report Urges Improvements. The Warner Group found that improvements to the DMV's information technology systems are necessary in order to reduce the risk of system failure and maintenance backlog and to enable the department to redesign outdated business practices. The inflexibility of the DMV's information systems, the report indicates, prevents the department from implementing more efficient business practices and limits its ability to assume new responsibilities. However, the report cautioned that the DMV is not well equipped at present to successfully transition to modern information systems. The report identified a lack of project management skills and modern software development methods as well as insufficient high-level leadership for information technology.
Consultant Recommends Phased Implementation Plan. In its report, the Warner Group recommended a phased implementation plan that would begin immediately and continue for six years. Figure 20 (see next page) summarizes the 14 major components of the recommended implementation plan. To address the shortcomings in the DMV's ability to successfully manage and execute complex information technology projects, the implementation plan begins with five immediate actions to improve project management and technical skills and to strengthen leadership.
In addition, the report identified five activities to begin immediately and continue for up to four years. Central among these is Business Process Reengineering (BPR)--the effort to radically redesign business practices to achieve improvements in performance and efficiency. The Warner Group concluded that redesigning the department's business practices must precede any attempt to design and implement new information systems. In addition to BPR, the report identified four other activities that should begin immediately in order to stabilize the current system and ease the eventual transition to modern systems.
Finally, the Warner Group recommended four implementation steps that could begin in late 1996 and 1997, but only after substantial progress or completion of the activities discussed above. These final stages would entail the technical definition of new information systems, and their development, procurement, and installation.
Total Project Cost and Benefits Unknown. In the phased project approach recommended by the Warner Group, specific improvements to DMV information systems will be developed later, based upon reengineered business practices. The Warner Group suggests that total project costs could range from $180 million to $370 million. This amount would constitute about 6 to 12 percent of the DMV's total budget over the six-year implementation period. However, because specific system improvements will not be determined until after the BPR, the total costs of redesigning the DMV's information system are unknown.
Furthermore, the benefits of the project, in terms of reduced costs and improved customer service, are unknown.
| Figure 20 Department of Motor Vehicles Warner Group Information Technology Study (1995) Recommended Implementation Plan |
|
|---|---|
| Recommendation | DMV Status |
| Immediate actions--improve leadership and skills | |
| Appoint DMV Chief Information Officer |
|
| Appoint manager for Business Process Reengineering |
|
| Develop and acquire skills in project management and software development |
|
| Restructure internal DMV information technology committees |
|
| Develop strategic technology partnerships |
|
| Multiyear tasks to begin immediately--stabilize systems | |
| Initiate Business Process Reengineering |
|
| Document and reengineer mission-critical software applications |
|
| Convert databases to industry standard environment |
|
| Develop contingency plan for field office computer replacement |
|
| Explore data communication opportunities for improvement |
|
| Future years--design and implement new information systems | |
| Install replacement field office computers |
|
| Define target design for DMV databases and applications |
|
| Upgrade DMV databases using target design |
|
| Develop and install new application programs using target design |
|
The DMV Requests $1.9 Million. For 1996-97, the DMV requests $1.9 million, including $1.1 million for the first year of BPR and $0.8 million to improve the department's software development skills and tools. Both BPR and skills development are key components of the recommended implementation plan, and the DMV's first-year BPR request falls within the Warner Group's cost estimate (the report did not provide a cost estimate for improving and acquiring skills). However, neither project will directly produce quantifiable fiscal benefits. Rather, the Warner Group believes that BPR and skills training, along with other preliminary activities, will lay the groundwork for subsequent steps to redesign and implement new information systems. Thus, the cost-effectiveness of the DMV's current request cannot be evaluated outside of the context of the overall project; however, the overall project is not yet fully defined.
The DMV and the Department of Information Technology Should Report to Legislature. The Warner Group's implementation plan is complex and aggressive. Furthermore, the plan is demanding of both managerial and technical skills, because the DMV must make many crucial decisions in subsequent years.
While our review indicates that the DMV is substantially adhering to the Warner Group's recommendations, the DMV has not yet addressed some recommendations. For example, the department lacks a Chief Information Officer and has yet to finalize the recommended strategic partnerships and skills improvement. We believe that the Warner Group's recommendations will assist the DMV; however, we note that the department has no history of successfully executing a project of comparable scope or difficulty.
Given the uncertain costs and benefits, the complexity of the Warner Group plan, and the DMV's unproven record, we believe that it is essential that the DMV and the administration clearly accept the responsibility and demonstrate the ability to ensure, through comprehensive planning, analysis, and oversight, that the project will be successfully executed and yield benefits that justify its cost. We believe that, prior to the Legislature's appropriation of funds for the DMV's project, the DMV and the administration's technology oversight agencies--the Department of Information Technology (DOIT) and the Department of Finance's Technology Investment Review Unit (TIRU)--should certify that the DMV and the administration will ensure that the DMV's project is ultimately successful.
We therefore recommend that, prior to budget hearings, the DOIT and the TIRU provide to the Legislature a report that assesses the DMV plan and clarifies respective planning and oversight responsibilities. We further recommend that the DMV provide a report indicating its response and concurrence. The reports should address, at a minimum, the following issues:
Customer wait times in the DMV field offices are below targets set in statute, but have risen in recent years. We recommend that the DMV report at budget hearings on the target wait times for 1996-97 that the department can achieve with proposed resources.
Current law states the Legislature's intent that customer wait times in DMV field offices not exceed 30 minutes. Our review of DMV data indicates that while the DMV is in compliance with this requirement, customer wait times have increased substantially in recent years.
Figure 21 illustrates the average of the maximum wait times recorded in each DMV field office. The figure reveals that wait times have risen consistently through the first half of 1995, peaking at 26 minutes, and declining slightly in the second half of 1995 to 25 minutes. Because these data are based upon maximum wait times, they reflect worse case wait times, and the DMV serves most customers more quickly than is shown here. However, our analysis indicates that overall average wait times have increased along with maximum wait times. For instance, the average wait time for vehicle registration has risen from 11 minutes in 1993 to 20 minutes in 1995.
DMV Actions to Reduce Wait Times. The DMV indicates that it recently began filling 95 field office positions that it had held vacant, and as a result it expects wait times to continue the decline that began in the second half of 1995. In addition, the DMV notes that for customers that use the appointment service, the department generally provides service within five or six minutes of scheduled appointment times.
Recommend DMV Establish Targets for 1996-97. We recognize that customer wait times are partially determined by approved budget levels and new responsibilities imposed on the department. For example, the DMV reports that its field office workload was increased by recent legislation such as that requiring the verification of legal presence of applicants for driver licenses (Ch 820/93 [SB 976, Alquist]) and the Safe Streets Act (Ch 1133/94 [AB 3148, Katz]) which greatly increased penalties for driving with a suspended or revoked license. These additional workload requirements contributed to higher wait times in 1994 and 1995. However, it is not clear how the department will bring about a continued reduction in wait time in 1996-97, given the increased workload demand. Additionally, the DMV proposes to eliminate 174 personnel-years (PYs) in 1996-97 in order to free up funds for general salary increase costs. The department has not indicated where it will make the staff reductions or the impact on customer service that will result. We therefore recommend that the DMV report, at budget hearings, on customer wait time targets for 1996-97 that the DMV can achieve with the proposed resources. This information will allow the Legislature to better assess the proposed budget and will increase departmental accountability.
We recommend that $305,000 requested for an expansion of a new driver license road test be rejected because the department has not completed an evaluation that will compare the validity of the new road test to that of the current test. (Reduce Item 2740-001-0044 by $305,000 and 7.5 PYs.)
Based upon concerns that driving in California has been made more challenging by higher traffic density and increased driving on freeways, the DMV identified a need to improve its driver licensing road test. With legislative approval, the department initiated a two-year pilot test to develop and evaluate an improved road test, known as the Driver Performance Evaluation (DPE). The DMV has completed the two-year project, and now requests $305,000 and 7.5 PYs in order to expand implementation of the test to 23 new field offices, in addition to the current 33 field offices.
DPE Longer, More Costly. The DPE differs from the current road test primarily in that (1) the test route is designed to have uniform scoring features (number of stops, lane changes, etc.) at every DMV field office and (2) the test includes a brief freeway driving segment. In order to accommodate the freeway driving segment and to ensure uniform scoring features on all test routes, the DMV indicates that the DPE takes an average of 11 minutes longer than the current test. Because of its greater length, the DPE requires additional examiners to administer the test and is therefore more costly than the current road test. We estimate additional annual costs of $2 million to $3 million, including training, to implement the test statewide.
Evaluation Partially Confirms Validity of the DPE. The department's pilot evaluation finds that the DPE has a higher failure rate and also produces more consistent scores than does the current driver test, indicating that exam scores are less likely to be influenced by the particular examiner that administers the test. Additionally, the DMV believes that the DPE is a valid test of driving skill, because inexperienced drivers and drivers that have physical or mental limitations performed worse on the exam.
However, due to the limited sample of drivers, the department was unable to conclusively link actual driving ability (measured by the number of recent accidents) to DPE test scores. Furthermore, beyond attempting to show that the DPE is a valid test of driving skill, the department did not investigate whether it is a more valid test than the current test. Therefore, we do not believe that the department has proven whether, or to what extent, the DPE will improve driver testing compared to the current exam.
The DMV Proposes Expansion, Further Evaluation. The DMV proposes to continue evaluating the DPE by comparing the driving history of drivers that have already been tested under the current test and the DPE. This will allow the DMV to better determine the relative validity of the two tests.
In addition, the department proposes to expand implementation of the DPE to include all field offices in Los Angeles, Orange, San Diego, Riverside, and San Bernardino Counties. The DMV indicates that this expansion, however, is unrelated to its ongoing evaluation, and the department has not provided a justification for partially expanding the program.
Expansion Unjustified at This Time. The DMV has shown that in some respects--higher failure rate, and more consistent scoring--the DPE is superior to the current driver exam. However, we believe that the most important measure should be the exam's ability to accurately measure driving ability and predict a driver's future driving record. Because the DMV has not yet determined whether the DPE is superior to the current exam in this respect, we believe that expansion of the test is not justified at this time. We therefore recommend that the Legislature reject the expansion request and reduce the DMV's budget by $305,000 (7.5 PYs). The DMV indicates that it plans continued evaluation that will compare the validity of the DPE to that of the current drive test. We recommend that, if and when more conclusive results are available, the DMV present to the Legislature a new proposal to expand implementation of the DPE.
We recommend a reduction of $1,034,000 due to lower costs of producing driver licenses and identification cards. (Reduce Item 2740-001-0044 by $1,034,000.)
The DMV estimates that in 1996-97 it will spend $6.3 million to produce 7.9 million driver licenses and identification cards. Our review indicates that the department based its cost estimate upon current-year production costs and did not account for lower per-card costs under a new contract. Because the new contract will be phased in during 1996-97, we estimate half-year savings of $1,034,000 in 1996-97 and full-year savings in subsequent years of $2,071,000.
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