Major Issues

• Transportation Funding "In Balance" Only Because of Delays, Deletions and Denial. In order to balance projected revenues and expenditures for the state's transportation program for the seven-year period from 1996-97 through 2002-03, the state will have to (1) delete projects already scheduled for funding, (2) delay payment of some projects, and (3) use future revenues to pay for existing projects. In addition, the fund estimate does not address how seismic retrofit of state toll bridges will be funded. (See pages A-12 through A-16.)
• State Highway Account (SHA) Has Significant Cash Balance. The SHA will have a large balance in both the current and budget years. The balance, however, does not provide an accurate picture of the state's transportation funding condition in the long run. The balance is due primarily to slow project delivery and construction as a result of various factors including unanticipated complexities in seismic retrofit engineering. (See pages A-18 through A-21.)

• Soaring Costs for Toll Bridge Seismic Retrofit. Toll bridge seismic retrofit costs will be between $1.7 billion and $2.1 billion, rather than $650 million, as previously estimated. Voter approval of the Seismic Retrofit Bond Act of 1996 (Proposition 192) on the March 1996 ballot would provide $650 million; however, no funds have been identified for the remaining costs. Using existing revenues to retrofit toll bridges will result in delays of other transportation projects and/or non-seismic toll bridge improvements. (See pages A-16 through A-18 and pages A-37 through A-39.)

• Pavement Rehabilitation Backlog Poses Significant Financial Liability. Pavement rehabilitation efforts have not kept pace with deteriorating pavement conditions, and currently 16,000 lane-miles of state highways are in need of rehabilitation. From 1996-97 through 2002-03, Caltrans plans to spend $2.5 billion on pavement rehabilitation in order to reduce the level to 10,000 lane-miles. However, most state highway pavements are over 30 years old and will begin to deteriorate at a more rapid rate, so future rehabilitation costs may be even higher. Increased expenditures on pavement rehabilitation will further squeeze available funding for new project construction. (See pages A-43 through A-44.)

• Intercity Rail Operating Costs Increasing; Farebox Return Worsening. State costs to contract with Amtrak to provide intercity rail services will increase significantly in 1996-97 because Amtrak proposes to shift more of the operating costs to the state. However, ridership remains relatively flat. As a result, all three intercity rail routes will likely not meet the statutorily required farebox return ratio of 55 percent. Failure to meet that requirement means that the service cannot continue with state support without obtaining waivers from the California Transportation Commission. (See pages A-49 through A-55.)

• Caltrans Proposes Smaller Capital Outlay Support Staff. Caltrans proposes to reduce staff for project development by 881 personnel-year equivalents. The reduction results from an expected decline in seismic retrofit workload, anticipated efficiencies, transfer of work to construction contractors, and a reduction in reimbursed work for local agencies. However, Caltrans is unable to demonstrate that the proposed staffing level is appropriate because its workload model is unreliable and the department freely modifies the model's results. (See page A-30 through A-34.)

Overview

Total expenditures from state funds for transportation programs are proposed to be slightly higher in 1996-97 than estimated current-year expenditures. The increase is due mainly to increased expenditures for highway capital outlay purposes.

For traffic enforcement, the budget proposes a slight increase in the expenditures of the California Highway Patrol, primarily to support an increase in the number of traffic officers and to cover higher salary and benefit costs resulting from the recent collective bargaining agreement with the state. The expenditure level of the Department of Motor Vehicles is also proposed to increase slightly in order to implement various new legislation.

The budget proposes total state expenditures of about $5 billion for transportation programs in 1996-97. This is an increase of $235.8 million, or 5 percent, over estimated expenditures in the current year.

Figure 1 (see next page) shows that state-funded transportation expenditures increased by $1.9 billion since 1989-90, representing an average annual increase of 7 percent. When adjusted for inflation, these expenditures increased by an average of 4 percent annually. In addition, Figure 1 shows that transportation expenditures have increased as a share of total state expenditures over the period. This change is largely the result of the passage of the Transportation Blueprintlegislation in 1990 which provided additional state funds for highway and mass transportation programs. In 1996-97, proposed transportation expenditures will constitute about 8.5 percent of all state expenditures.

Of the 1996-97 state transportation expenditures, about $3.8 billion is proposed for programs administered by the state, and about $978.3 million is for subventions to local governments for streets and roads. Another $208 million will be for debt-service payments on rail bonds issued under Propositions 108 and 116 of 1990.

Spending by Major Programs

Figure 2 shows spending for the major transportation programs in detail. Specifically, the budget proposes expenditures of $5.5 billion (from all fund sources) for the Department of Transportation in 1996-97--an increase of $183.6 million (3.5 percent) above estimated current-year expenditures. The higher expenditure level reflects an increase of about $206 million in state-funded expenditures and reimbursements, offset by a decrease of $22.1 million in federally funded expenditures.

Spending for the CHP is proposed to increase in 1996-97 by $24.9 million, about 3.3 percent. The increase will be funded from the Motor Vehicle Account, and will cover primarily higher salary and benefit costs as well as fund 180 currently vacant traffic officer positions.

For the DMV, the budget proposes expenditures of $531 million, about 2 percent higher than in the current year. The increase will be funded with a combination of Motor Vehicle Account revenues and revenues from motor vehicle license fees.

Figure 2 Transportation Budget Summary Selected Funding Sources 1994-95 Through 1996-97 (Dollars in Millions)
				Change From 1995-96
	Actual 1994-95	Estimated 1995-96	Proposed 1996-97	Amount	Percent
Department of Transportation
State funds	$2,134.4	$2,508.3	$2,700.3	$192.0	7.7%
Federal funds	2,411.3	2,140.7	2,118.6	-22.1	-1.0
Reimbursements	470.5	642.7	656.4	13.7	2.1
Totals	$5,016.2	$5,291.7	$5,475.3	$183.6	3.5%
California Highway Patrol
Motor Vehicle Account	$632.3	$676.4	$705.5	$29.1	4.3%
Other	51.4	89.6	85.4	-4.2	-4.7
Totals	$683.7	$766.0	$790.9	$24.9	3.3%
Department of Motor Vehicles
Motor Vehicle Account	$316.3	$335.3	$340.5	$5.2	1.6%
Motor Vehicle License Fee Account	163.6	166.2	171.0	4.8	2.9
Other	18.8	19.0	19.5	0.5	2.6
Totals	$498.7	$520.5	$531.0	$10.5	2.0%
State Transportation Assistance
Transportation Planning and Development Account	$61.6	$71.0	$76.1	$5.1	7.2%

Additionally, the budget proposes an increase in the State Transportation Assistance (STA) program in 1996-97 to reflect higher projected revenues into the Transportation Planning and Development (TP&D) Account. The STA program provides funds to local transportation agencies to operate public mass transit systems. Annual funding of the program is determined based on a statutory formula, and the level varies depending on anticipated revenues into the TP&D Account.

Major Budget Changes

Figure 3 presents the major budget changes proposed for 1996-97 in various transportation programs.

As the figure shows, for the Department of Transportation the budget proposes to increase highway capital outlay expenditures by about $163.6 million over the estimated current-year level. Additionally, the budget proposes a $28.9 million increase to pay for merit salary increases and price increases. The budget also includes an increase of $7.4 million to accommodate increased highway maintenance workload and an increase of $3.8 million to pay for tort payments.

The budget proposes a reduction of $17.5 million in highway capital outlay support (design and engineering) as a result of doing less reimbursed work for local governments as well as a reduction in state transportation improvement workload and anticipated future efficiencies which have yet to be implemented. The budget also proposes to eliminate state support of the Rideshare program.

For the CHP, the budget proposes $7.3 million to fund an additional 180 traffic officer positions which are currently vacant. This is the last increment of a three-year effort to increase the number of traffic officers. The budget also proposes to eliminate the Salvage Vehicle Inspection Program. This program required that all "salvage" vehicles, as specified, be inspected by the CHP prior to registration by the DMV. Because of the unanticipated heavy inspection workload, Ch 684/95 (SB 549, Alquist) placed a moratorium on further inspection. Additionally, the budget proposes to eliminate the California Motorcyclist Safety Program. Under this program, the CHP contracts with a private vendor to provide motorcyclist training and public awareness programs. Instead of contracting for the Motorcyclist Safety Program, the budget proposes that motorcycle driving schools and driving instructors be licensed by the DMV.

For the DMV, the budget requests $5 million to implement various new legislation. It also proposes $1.9 million in order to initiate a multiyear project to redesign the department's business practices and information systems.

Figure 3 Transportation Programs Proposed Major Changes for 1996-97 All Fundsa
	Department of Transportation				Requested:	$5.5 billion
					Increase:	$183.6 million	(+3.5%)
		$163.6~million for highway capital improvements
		$28.9 million to pay for higher salaries and operating expenses
		$7.4 million for increased highway maintenance workload
		$3.8 million for increased tort payments
		$17.5 million in highway project design and development
		$14.4 million to eliminate funding for Rideshare program
	California Highway Patrol				Requested:	$790.9 million
					Increase:	$24.9 million	(+3.3%)
		$15.2~million to pay higher salary and benefit costs
		$7.3 million to fund 180 vacant traffic officer positions
		$4.3 million to replace telecommunications equipment
		$4.5 million to eliminate Salvage Vehicle Inspection Program and California Motorcyclist Safety Program
	Department of Motor Vehicles				Requested:	$531.0 million
					Increase:	$10.5 million	(+2.0%)
		$5 million to implement various new statutes
		$1.9~million to redesign business practices
		$1.8 million to pay higher costs of verifying legal presence of driver license applicants
		$1 million to extend driver test pilot program
a Includes expenditures from Propositions 108 and 116 bond funds.

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