The budget proposes expenditures of $5.9 billion by Caltrans in 1997-98. This is about $703 million, or 14 percent, more than estimated current-year expenditures.
Of the total expenditures proposed in the department's budget, $5.4 billion is for the highway transportation program. This is an increase of $557 million, or 12 percent, over estimated current-year expenditures. The major responsibilities of the highway program are to design, construct, maintain, and operate state highways. In addition, the highway program provides local assistance funds and technical support for local roads.
As shown in Figure 5, Caltrans expects that state funds will support $3.2 billion (60 percent) of highway program expenditures. Federal funds make up $1.7 billion (32 percent) of the program budget, and the remaining $420 million (8 percent) is reimbursements, primarily from local governments.
|Department of Transportation
Highway Transportation Budget Summary
1995-96 Through 1997-98
|(Dollars in Millions)|
|Actual 1995-96||Estimated 1996-97||Proposed 1997-98||Percent Change From 1996-97|
|Capital outlay support||$685||$784||$835||7
|Capital outlay projects||1,810||2,222||2,679||21|
| Equipment and
|a The 1997-98 budget shows technical services in the Administration Program.|
|b The 1997-98 budget shows equipment expenses (other than telecommunications) distributed to the affected programs.|
Budget Changes Display of Program Expenditures. The Governor's budget, as summarized in Figure 5, includes two expenditure realignments that complicate year-to-year comparisons in the highway program. First, the proposed budget moves "technical services" expenditures (such as reprographics, facilities management, and procurement) from the highway program to the administration program for 1997-98, but retains these expenditures in the highway program for 1995-96 and 1996-97. Thus, total highway program expenditures for 1997-98 are not directly comparable to previous years.
Second, the budget displays equipment expenditures under equipment and telecommunications for 1995-96 and 1996-97. Starting in 1997-98, however, the budget distributes equipment expenditures to each program according to their equipment use. Thus, 1997-98 expenditures for individual elements of the highway program are not comparable to earlier years, because part of the increase is attributable to redistribution of equipment expenditures.
Increases in Most Highway Programs. Most highway program support costs are in two programs--capital outlay support and highway maintenance. The budget shows a $132 million (25 percent) increase for highway maintenance, but $118 million of this increase is from distributing equipment costs, leaving a $14 million (3 percent) increase in maintenance program activities. The budget also shows a $51 million (7 percent) increase for capital outlay support, but $11 million of this increase is distributed equipment, leaving a $40 million (5 percent) increase in program activities.
Most of the increase in highway program expenditures is proposed for capital outlay projects--$457 million (21 percent) higher than the current-year level. This growth is mostly due to an anticipated increase in seismic retrofit capital outlay. However, Caltrans consistently overestimates its capital outlay expenditures, so expenditures in 1996-97 and 1997-98 are likely to be lower than shown.
The budget proposes 9,099 personnel-year equivalents (PYEs) of work for the highway capital outlay support program--an increase of 539 PYEs (6.3 percent) from the amount estimated in the current year. Capital outlay support staff provide engineering, right-of-way acquisition, environmental clearance and construction oversight on highway capital improvements.
Figure 6 shows both the source of the 9,099 PYEs, as well as Caltrans' proposed uses for the PYEs. In order to increase its staff by 539 PYEs, Caltrans proposes to increase its use of consultant contracts by 374 PYEs and add 15 PYEs of cash overtime and 150 student assistant PYEs. At the same time it proposes to hold the level of state staff constant at 6,956 PYs.
|Department of Transportation
Capital Outlay Support Staffing
1995-96 Through 1997-98
|Actual 1995-96||Estimated 1996-97||Proposed 1997-98||Proposed Change from 1996-97|
|Basic STIP program||5,106||5,631||6,450||819|
|Pre-STIP state projects||298||335||515||180|
|Regional Measure 1||48||410||312||-98|
|Locally funded projects||363||190||219||29|
|Local tax measure projects||559||360||416||56|
Less Staff for Seismic Retrofit. Figure 6 also shows how Caltrans proposes to distribute 9,099 PYEs among the various categories of transportation projects. The largest changes are in seismic retrofit and the basic state program (STIP, State Highways Operation and Protection Plan [SHOPP], and Traffic Systems Management [TSM]). Caltrans proposes to reduce staffing for seismic retrofit by 447 PYEs, because design is complete for most highway bridges in the Phase 2 program and workload will therefore be lower. Accelerated Delivery Proposed. Caltrans proposes to increase staffing for the basic state program by 819 PYEs, for two reasons. First, Caltrans reports that its workload will be higher because of greater numbers of projects scheduled in the STIP and SHOPP. Second, it requests 250 PYEs to accelerate delivery of some STIP and SHOPP projects by 12 to 18 months. The department reports that its proposal will not increase the total number of PYEs required over several years to deliver these projects, but that the PYEs will be needed earlier in order to accelerate delivery. However, we note that Caltrans has not yet identified specific projects that it proposes to accelerate and therefore cannot compare the required PYEs under the as-scheduled and accelerated alternatives. In addition, because Caltrans has not identified projects to accelerate, it cannot be held accountable for its performance in delivering projects early.
Budget Not Developed According to Legislative Intent. Last year the Legislature directed Caltrans to improve its workload estimating and budget development practices for capital outlay support. The Legislature was concerned about Caltrans' inability to demonstrate the connection between its capital outlay support budget and its workload in terms of projects scheduled for delivery in the STIP, SHOPP and TSM. The Legislature directed Caltrans to develop its 1997-98 budget by estimating and totaling PYE needs for each project in the workplan. Additionally, the Legislature directed Caltrans to have its approach validated by a peer review committee and an independent management consultant.
Caltrans submitted a peer review report in 1996, which reported that Caltrans' proposed method for estimating workload was meritorious, but that much work remained to be done. The department has not submitted the independent management consultant report that was due January 1, 1997. Our review indicates that so far Caltrans has only slightly changed its workload budgeting practices. As a result, the Legislature remains unable to evaluate whether Caltrans' proposed budget provides a staffing level that is appropriate to deliver scheduled projects. Caltrans reports that it will provide the management consultant's report and the department's required response by March.
Pending Supreme Court Ruling. As Figure 6 also illustrates, Caltrans proposes to make greater use of consultant engineering contracts in 1997-98 than it has in previous years. The department will use consultant engineers on STIP and SHOPP projects, rather than exclusively in seismic retrofit, as has been the case in recent years. Caltrans' authority to contract for engineering services has been at the center of an ongoing legal challenge, and the case is currently pending before the California Supreme Court. If the Supreme Court rules against Caltrans, the department's contracting out plan for 1997-98 could be disrupted. Withhold Recommendation. We withhold our recommendation on Caltrans' proposed $128 million increase for capital outlay support. Before approving any increase, we believe that Caltrans must address three issues for the Legislature. First, Caltrans should identify specific projects that it proposes to accelerate, and show the cost of accelerating and the effect on workload in subsequent years. Second, Caltrans should demonstrate improvements in its workload estimating and budgeting practices and should show a linkage between its capital outlay support budget and programmed projects. Finally, due to the pending Supreme Court case, the department's ability to increase contracting out is uncertain. If the case is not resolved in Caltrans' favor by the time of budget hearings, the department should provide a contingency plan that considers the possibility that the Supreme Court will restrict Caltrans' ability to contract out. (In the following section, we discuss the contracting out element [374 PYEs] of the proposed increase in capital outlay support.)
As shown in Figure 6, Caltrans staffs its capital outlay support program with a mix of state staff and private sector consultant engineers. Chapter 433, Statutes of 1993 (SB 1209, Bergeson) authorizes Caltrans to contract out for consultant engineers, based on the Legislature's conclusion that the department cannot adequately manage its project delivery without contracting out. Chapter 433 also requires the Legislative Analyst's Office to conduct a study that compares the engineering cost of projects designed by Caltrans to the cost for comparable projects designed by consultant engineers. However, Caltrans has informed us that, due to court-imposed restrictions on the size of its contracting out program in recent years, it could identify only two pairs of comparable projects. Given the lack of comparable projects, we were unable to conduct the analysis required by Chapter 433. Caltrans informs us that it is developing a proposal for consideration by the Legislature that would extend the study for a few more years in order to enlarge the sample of projects and permit a valid comparison.
Contracting Out to Increase. As shown in Figure 6, Caltrans proposes to increase its use of consultant engineers from 596 PYEs in 1995-96 to 1,680 PYEs in 1997-98. Because a recent court ruling upheld the constitutionality of Chapter 433, Caltrans plans to expand its use of consultants, using them not only on seismic retrofit but also on projects in the state's ongoing STIP and SHOPP. In order to assist the Legislature in evaluating Caltrans' proposed contracting out increase, we review the rationale for Caltrans' contracting out program. We have identified five potential justifications for contracting out, which we discuss below.
Direct Cost Savings. The most basic justification for contracting out engineering services is the possibility that consultant engineers will do comparable work at lower cost than state employees. Contracting out for this reason is allowable by state law, but Caltrans does not invoke this justification.
Although Caltrans does not claim direct cost savings from contracting out, it nonetheless commissioned a cost comparison study. The report, completed in 1992, found no significant cost difference between projects designed by Caltrans staff and those designed by consultant engineers. As described above, we were unable to perform a similar study required by Chapter 433, because Caltrans could not provide data on comparable projects.
Savings from Stable Workforce. Caltrans' primary justification for using consultant engineers is to accommodate year-to-year fluctuations in the department's workload. Hiring and training employees is costly and time consuming, and shrinking the state workforce in response to workload reductions can be difficult. Caltrans claims that it reduces its overall program cost by contracting out for workload peaks and retaining a stable level of state staff. In addition, Caltrans believes that this approach enhances its ability to deliver projects as scheduled, because the department can more readily vary its staffing level as required. An independent management evaluation of Caltrans, conducted by SRI International at the request of the Legislature, validated this approach. Their 1994 report recommended that Caltrans use contracting out as a management tool to stabilize the state workforce and respond quickly to workload peaks. However, Caltrans has not analyzed the extent to which it has actually reduced overall costs or enhanced project delivery as a result of contracting out.
Specialty Skills. State law allows contracting out for services of a "highly specialized or technical nature that . . . are not available through the civil service system." Caltrans annually contracts out about 260 PYEs of "specialty work" under this authority, including such services as archaeology and hydrology studies for specific projects.
Emergency Needs. State law also allows contracting out during emergency situations, in order to allow rapid and effective emergency response. Caltrans uses this authority as necessary, primarily in response to natural disasters such as storms and earthquakes.
Foster Competitive Environment. Although not specifically cited in statute, an additional rationale for Caltrans to contract out is to create a competitive environment leading to greater efficiency by both state staff and consultants. By creating either explicit or implicit competition between state staff and consultant engineers, both groups can be motivated to improve their performance.
Although Caltrans describes its contracting out program as making the department more competitive, we find that Caltrans' use of consultants is in fact characterized by a distinct lack of competition. There are several reasons for this lack of competition, some of which are not within the department's control. As required by state and federal law, Caltrans selects consultants based only upon their qualifications and then negotiates a contract price after selecting the best-qualified consultant. While this system protects against inexpensive but unqualified consultants, it also virtually eliminates price competition among consultants.
Even where Caltrans has more direct control, we find that competition is lacking. Specifically, there is a distinct lack of competition between state staff and consultant staff. First, there is no explicit competition between Caltrans staff and consultant staff to determine which can design individual projects at lower cost. Such explicit competition could stimulate efficiency improvements by both Caltrans staff and consultants. In order for state staff to compete with private consultants, however, it is necessary first to identify contractor costs for each project. Because this is a time consuming process, we believe that it would be difficult to employ on more than a small number of projects.
Caltrans could, however, readily create an implicit competition by using detailed measures of past actual cost and schedule performance to compare Caltrans staff and consultants. With performance measures, managers can highlight both exemplary and mediocre performance. For example, performance measures could be the amount of time and support costs expended in order to accomplish a certain amount of design work. Performance measures that cover both consultants and Caltrans staff would expand this comparison, by providing reference to performance outside of the Caltrans organization. However, as SRI International found in their 1994 independent management evaluation, Caltrans lacks performance measures--at the individual, group, and district level--by which to measure actual performance against targets and compare individual and group performance. Furthermore, in a 1996 update, SRI found that Caltrans had made very little progress towards developing useful performance measures.
Analyst's Evaluation. We believe that it is unlikely that any study that compares the direct costs of Caltrans staff and consultants will be definitive enough to form the basis for staffing decisions. Nonetheless, we agree that Caltrans should contract out workload peaks in order to maintain a stable level of state staff. Contracting peak workloads should increase the department's effectiveness and may reduce its costs regardless of the relative costs of state and consultant staff. However, if the department's primary justification is to stabilize its state staff, then it should contract out only its actual workload peaks. Unfortunately, Caltrans would not be able to implement this approach because the department has not identified a stable staffing level against which workload peaks could be measured. Because of ongoing uncertainty about funding levels and future decisions in scheduling projects, Caltrans believes that it is impossible to forecast its future workload and identify a long-term stable staffing level.
Nonetheless, we believe that Caltrans could potentially justify a greater reliance on contracting out in order to increase internal competition and improve efficiency. However, as we describe above, we believe that Caltrans' current use of consultant engineers does not foster competition, either between consultants or between state staff and consultant staff.
Recommend Improvements. We believe that Caltrans should continue to contract out, because of the potential benefits to the department. However, we also believe that Caltrans should make better use of its contract resources, by increasing competition between consultants and state staff. Accordingly, we recommend that Caltrans present a plan, including specific actions and target dates, to use consultant engineers to foster competition by (1) implementing detailed performance measures to spur internal competition between Caltrans staff and consultant staff, (2) increasing competition between consultant staff, and (3) any other proposals to gain greater benefits from use of consultant engineers. In the previous issue, we withhold recommendation on $128 million to increase capital outlay support staff by 539 PYEs, including an increase of 374 consultant PYEs. Should Caltrans fail to submit an acceptable plan prior to budget hearings, we recommend that the Legislature reject the department's proposed increase of 374 consultant PYEs and delete $25 million. This reduction would leave sufficient funds for an equivalent budget-year increase of 374 state staff or cash overtime PYEs.
In addition to its request for 539 additional PYEs for capital outlay support, Caltrans also requests an increase of $23.8 million in operating expenses for the program. This request is not justified, and we recommend that the Legislature delete the funds, for the following reasons:
Accordingly, we recommend that the Legislature reject these requests and reduce Caltrans' proposed budget by $23.8 million.
Following the 1994 Northridge earthquake, Caltrans expanded its seismic 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. The Phase 2 program includes bridges that Caltrans added as a result of an additional screening that followed the Northridge earthquake.
Phase 2 Design Progressing but Expenditures Lag. Caltrans has set targets for all Phase 2 bridges to be under construction by December 1996 and for construction to be complete by December 1997. As Figure 7 illustrates, as of December 31, 1996 construction was complete on 279 Phase 2 bridges, with another 743 under contract for construction. Thus, about 88 percent of the bridges met the December 1996 target.
|Highway Seismic Retrofit Program
Scope and Progress
As of December 31, 1996
|(Dollars in Millions)|
|Number of Bridges|
|Phase 1||Phase 2|
|Retrofit construction complete||1,001||279|
|Under contract for construction||33||743|
|Design engineering complete||0||23|
|Engineering not complete||5||110|
|Estimated construction cost||$786||$1,050|
|Construction complete target||12/95||12/97|
While the department may substantially meet its target dates to award projects for construction, it has been extremely inaccurate in estimating its construction expenditures because construction is not completed as anticipated. Additionally, the department is very inaccurate in estimating its capital outlay support needs to actually deliver projects as scheduled. For example, in late 1994 Caltrans reported that it would construct $50 million of Phase 2 projects in 1994-95, $500 million in 1995-96, and the final $500 million in 1996-97. This prediction created an urgent need for construction funds and, as described in the State Highway Account (SHA) writeup in the Crosscutting Issues section of this chapter, led the California Transportation Commission (CTC) to ration funds and restrict construction of nonseismic projects.
Ultimately, however, Caltrans' expenditures have fallen far behind its predictions. Rather than expending the entire $1.1 billion over the three years from 1994-95 through 1996-97, Caltrans now reports that it will have expended only $182 million over the same period. Caltrans also estimates 1997-98 expenditures of $279 million, and reports that the remaining $589 million will be expended between 1998-99 and 2002-03. According to the department, there are 44 bridges that must be entirely replaced, at a cost around $400 million, that account for most of the late expenditures.
Support Costs Underestimated. While overestimating its capital outlay expenditures, Caltrans has also consistently underestimated its support costs for seismic retrofit. As we reported in last year's Analysis, Caltrans increased its 1995-96 support expenditures for Phase 2 by $37 million, using funds from a one-time appropriation that the state received in settlement of a petroleum anti-trust lawsuit. Although the Legislature appropriated the full $81 million of this settlement for seismic retrofit capital outlay, it allowed Caltrans to transfer funds to support as necessary. Caltrans could not cite any additional workload or schedule changes that necessitated this $37 million increase in 1995-96, claiming only that it had underestimated its support needs. For 1996-97, Caltrans has again increased its expenditures for Phase 2 support, by transferring a further $35 million from the same seismic retrofit capital outlay item, leaving only $9 million for capital outlay. Again, Caltrans cannot identify any schedule or workload changes that account for this increase.
Because of concerns over project delays, the Legislature has enacted various requirements to monitor Caltrans' delivery of state highway projects. Our office is required to annually assess the department's progress in delivering projects as they are scheduled in the three state highway programs, STIP, SHOPP and TSM.
Allocation Plan Limited Delivery. During 1995-96, because of a feared shortage of funds, CTC replaced STIP, SHOPP and TSM schedules with an interim 18-month "allocation plan." The allocation plan, running from January 1995 through June 1996, was constrained by Caltrans' estimate of available funding and excluded many projects that were originally programmed for delivery in the period. In the following discussion, we report on Caltrans' delivery of projects included in the allocation plan, while recognizing that the allocation plan did not include many of the projects that were originally scheduled during the period.
Most Projects in Allocation Plan Delivered. Caltrans reports that over the 18 months of the 1995 allocation plan it delivered 285 projects worth $1.1 billion. This represents 96 percent of the number, and 96 percent of the total value, of projects scheduled in the allocation plan. Compared to previous years, this is an improved delivery record. However, this improvement is expected, because the allocation plan intentionally excluded projects that would be difficult to deliver.
Higher Delivery in 1995-96. During the 1995-96 fiscal year--the last 12 months of the 1995 allocation plan--Caltrans delivered a total of 202 STIP, SHOPP and TSM projects worth $823 million. In addition, the department delivered 123 seismic retrofit projects worth $465 million, and 145 emergency repair projects worth $69 million, for a total delivery valued at $1.4 billion. This level of project delivery is about 9 percent higher than total delivery in 1994-95.
In most years, Caltrans' highway maintenance responsibilities increase through the addition of new highway inventory, such as new miles of highway, landscaped areas, and drainage systems. As a result of new highway inventory added during 1995-96, Caltrans requests an increase of $7.6 million in its highway maintenance budget for 1997-98.
We recommend that the Legislature deny this augmentation. While we believe that highway maintenance--the preservation of the state's multibillion dollar investment in the state highway system--is a high priority and should be adequately funded, we find that the augmentation is unneeded. Our analysis indicates that Caltrans has not spent the funds that the Legislature has previously provided for maintenance, and proposes a budget much higher than it is likely to need.
In 1995-96, the first year that the budget act provided a specific amount that could only be used for maintenance, Caltrans spent $43 million less than the Legislature provided. (As described later in the Legislative Oversight section of this chapter, Caltrans transferred the funds to other programs.) For 1997-98 Caltrans' proposed maintenance budget is over $80 million higher than its actual expenditures in 1994-95 and 1995-96. We believe that Caltrans is unlikely to expend the full amount requested in 1997-98, given the department's historically lower levels of expenditure and its inability in 1995-96 to use its entire appropriation. We therefore believe that no augmentation is needed for 1997-98 and recommend that the Legislature delete the $7.6 million.
Caltrans requests $19 million to cover price inflation for goods and services purchased with its operating expense budget. This amount represents a 2.2 percent increase over the department's estimated current-year operating expense expenditures of $842 million. We recommend that the Legislature reject $12 million of the proposed increase, because two parts of the request are not justified. First, the proposed increase includes $5 million for higher costs for engineering consultant contracts. Costs for engineering contracts are zero-based each year, using an average contract cost--$138,000 per personnel-year equivalent for 1997-98--that reflects Caltrans' estimate of likely costs. Therefore, a price increase for consultant contract costs is not justified. Second, the proposed increase includes $7 million for higher operating costs in the maintenance program. However, as we discuss above, the maintenance program has not expended the amounts already appropriated to it; therefore, an augmentation for price increases is not justified.
As Figure 8 (see next page) 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 $34.7 million, a decrease of approximately 5 percent over the current year.
The budget proposes $233.2 million for the Rail Transit Capital program, an increase of 38 percent over the current-year level. This increase is mainly due to higher expenditures for rail projects programmed in the 1996 STIP. Under this program, Caltrans administers the intercity rail program, the Proposition 108 bond program for commuter and urban rail, and the Transit Capital Improvement (TCI) program. For 1997-98, the budget proposes $58.3 million for intercity rail service and expenditures of $32.5 million in the TCI program. The budget also proposes SHA expenditures of $77.7 million for rail capital projects that have been programmed into the 1996 STIP and for which funds had not been previously available.
The budget also proposes $303,000 for a High Speed Rail Authority that is charged with preparing a plan to finance and build a high speed rail network in California.
|Department of Transportation
Mass Transportation Expenditures
1995-96 Through 1997-98
|(Dollars in Millions)|
|State and federal mass transit||$31.6||$36.4||$34.7||-4.7%|
|Rail transit capital||166.5||169.3||233.2||37.7|
|High Speed Rail Authority||
|a Not a meaningful figure.|
High Speed Rail Authority Established. Chapter 796, Statutes of 1996 (SB 1420, Kopp), established the High Speed Rail Authority, an independent authority consisting of nine members appointed by the Legislature and the Governor. The High Speed Rail Authority is responsible for developing a plan to finance, construct, and operate a statewide intercity high speed rail network. Chapter 769 requires the Authority to submit a financing plan to the Legislature, the Governor, and the voters by December 31, 2000. Chapter 769 also allows the Authority to hire its own staff to carry out its responsibilities. The High Speed Rail Authority continues the work of its predecessor, the High Speed Rail Commission which expired December 31, 1996.
Rail Authority Included in Caltrans' Budget. The budget includes $303,000 for the High Speed Rail Authority (for staff support and operating expenses) within Caltrans' Mass Transportation program. Our review indicates that the funding request is justified. However, instead of appropriating the amount for the Authority as part of Caltrans' budget, we think it is more appropriate to provide the appropriation under a separate item. Doing so would ensure the Authority's ability to carry out its statutory responsibilities as an autonomous entity, independent of Caltrans' budgetary and programmatic decisions, and would be consistent with the provisions of Chapter 796. Funding the Authority under a separate item also facilitates legislative oversight of the Authority's activities and provides greater accountability. Accordingly, we recommend that the Legislature reduce Item 2660-001-0046 by $291,000 and reduce Item 2660-001-0042 by $12,000, and that funds be provided in the same amount under a new budget item for the High Speed Rail Authority.
The intercity rail program was established to provide motorists with a safe, efficient, and cost-effective transportation alternative that reduces congestion and improves air quality. The state currently supports and funds intercity rail passenger services on three corridors--the San Diegan in Southern California, the San Joaquin in the Central Valley, and the Capitol in Northern California. All train routes are supplemented and integrated by a dedicated feeder bus service.
Currently, Caltrans contracts with Amtrak for the operation and maintenance of the intercity rail service. Caltrans staff, along with advisory committees, plan route schedules, and project ridership and revenues.
Problems Lead to the Enactment of Chapter 1263. As we discussed in the 1995-96 and 1996-97 Analyses, the state's intercity rail program faced the following problems:
Enactment of the Intercity Passenger Rail Act. These problems prompted the Legislature to re-assess the state's support and administration of intercity rail service. Chapter 1263, Statutes of 1996 (SB 457, Kelley) was enacted as an urgency statute in September 1996 in order to improve the program. The key provisions of Chapter 1263--the Intercity Passenger Rail Act of 1996--are summarized in Figure 9. Specifically, Chapter 1263 authorizes the transfer of the administration of intercity rail service from Caltrans to regional joint powers boards (comprised of the jurisdictions through which each of the three corridors operates). In order for the transfer to take place, regional boards must submit a business plan to the Secretary for Business, Transportation and Housing (BT&H) that reflects cost reductions in providing the services. The expectation is that with regional boards administering the intercity rail service, administrative costs will decrease, and service improvements will occur through better coordination of local commuter and intercity rail service.
Interagency Agreement Not Signed by the Target Date. Chapter 1263 required that an interagency agreement to transfer the intercity rail service's administration be signed with regional boards by December 31, 1996--an optimistic target date given that the legislation was enacted in September 1996. As of January 1997, no interagency agreement has been signed and each regional board is in different stages of preparation. Only the Capitol Corridor board has been formally established, with the Bay Area Rapid Transit (BART) District as its lead agency. This board is the furthest along in its negotiations with Caltrans, and an interagency agreement may be signed by July 1, 1997 to transfer the administration of the service to BART in fall 1997.
In the San Diegan corridor, members of the Southern California Regional Rail Authority, and other corridor jurisdictions, have established an interim board to examine the feasibility of the transfer. In the San Joaquin corridor, no joint powers board has been established.
Regional Boards Express Concerns. In addition to expressing concern over the target dates set by Chapter 1263 for the transfer of the service,
|The Intercity Passenger Rail Act of 1996
|Interagency Transfer Agreement|
||December 31, 1996, or later date|
|Joint Powers Board|
||December 31, 1996 for Capitol Corridora|
||Annually, April 1|
for each corridor through the annual budget.
for separately from locally sponsored services.
||December 31, 1997|
|a Target dates for other corridors not specified.|
local entities that would be members of the joint powers boards have expressed other concerns. These include:
Resolving these concerns through interagency agreement negotiations between the regional boards and the Secretary for BT&H will take time. Consequently, the Legislature will not know the full impact of Chapter 1263 for another year or two. In addition, it is likely that Caltrans will continue to administer two of the three intercity rail corridors for the budget year.
Business Plan Should be Required. Caltrans will continue to administer at least part of the intercity rail program during the budget year, and we believe that it should be held accountable to the same business plan requirements specified by Chapter 1263 for the regional boards. Currently, Caltrans submits an annual business plan for intercity rail service to CTC. We believe that this business plan should incorporate the same plan components required in Chapter 1263. Accordingly, we recommend the following supplemental report language:
Caltrans shall submit annually on January 10 as part of its budget request to the Legislature and to the Secretary for Business, Transportation and Housing, a business plan for each intercity rail corridor which Caltrans administers. The plan shall contain all of the business plan requirements set forth by Chapter 1263.
Performance Measures Necessary. Since Chapter 1263 repealed the 55 percent farebox recovery ratio, there currently is no indicator to measure the intercity rail service's performance and cost-efficiency. Chapter 1263 requires the Secretary for BT&H to establish performance standards by December 31, 1997, and that regional boards include these in their business plans. Staff of the BT&H Agency indicate that the Secretary intends to establish the performance measures as soon as possible.
Multiple Indicators Should Be Used to Measure Performance. In establishing performance measures, we believe that the Secretary for BT&H should consider multiple performance measures that take into account the economic and operational differences of each intercity rail corridor. Figure 10 provides a potential list of performance indicators to measure the usage, cost-efficiency, and quality of the state's intercity rail service.
|Intercity Rail Service
Performance Measurement Alternatives
(Measured Monthly and Annually)
Performance Measures Should Apply to Caltrans. We believe that these performance measures should not only be required as part of the interagency agreement with regional boards, but that Caltrans also be required to meet these performance standards for the intercity rail services it continues to administer. Furthermore, we believe that the Legislature should be notified of Caltrans' and the regional boards' progress in meeting the performance standards. Accordingly, we recommend the following supplemental report language:
Beginning in 1998-99, the Secretary for BT&H shall submit, as part of its annual budget request for intercity rail services funding, a report which sets forth performance standards to measure the usage, cost-efficiency, and quality of the intercity rail service that is administered by regional boards and Caltrans. The report shall also describe the progress that the regional boards and Caltrans have made in meeting such standards.
The budget proposed $56.1 million to support continuation of the current level of intercity rail service in 1997-98. This amount includes estimated Amtrak costs to provide the service and $2 million for Caltrans' support and marketing of the program. Our review shows that the amount needed will be lower.
Caltrans' Administrative Costs May Be Less. The budget proposal assumes that Caltrans will continue to administer the intercity rail program and requests $2 million for marketing and administration costs. However these costs may be lower if the Capitol corridor service is transferred during the budget year. This is because Caltrans will not need to have the staff it currently devotes to administration of that service, and marketing costs may also be lower.
Amtrak Costs for Current Service Will Be Adjusted. The budget requests $54.1 million for Amtrak contract costs to provide existing intercity rail service. This amount is higher than current-year costs by about $7 million. Caltrans estimated the higher costs based on the assumption that Amtrak would shift more of its operating costs to the state in 1997-98 in order to achieve its goal to operate independently without any federal support by federal fiscal year 2002. However, Caltrans' staff has informed us that Amtrak may revise its cost calculations and contract costs to the state may change by spring 1997. Our discussions with Amtrak officials indicate that, in fact, contract costs will be significantly lower. Withhold Recommendation. Because the amount needed to provide the current level of intercity rail service will be lower, we withhold recommendation on $56.1 million requested by the department. We further recommend that the department report at budget hearings on the status of the transfer of the intercity rail service to the regional boards, and provide an update on Amtrak's contract costs. We recommend that the Legislature adjust the amount for current intercity rail service based on Caltrans' updated information.
The budget also proposes $2.2 million to extend intercity rail service between Sacramento and Stockton on the San Joaquin. Currently, a bus service connects the two cities. This request is not justified for two reasons. First, Caltrans and Amtrak have not yet negotiated an agreement with the private rail road companies to use the rail tracks connecting the two cities. Second, the new service would require several rail and station improvements, which have not yet been funded by CTC. Caltrans estimates that these improvements will take at least two years to complete. Accordingly, we recommend a reduction of $2.2 million for the proposed expansion of the San Joaquin from Stockton to Sacramento because Caltrans' plan to offer this service is premature (Reduce Item 2660-001-0046 by $2.2 million.)
In the 1995-96 Budget Act, the Legislature increased its control over Caltrans' budget, in order to hold the department more accountable for its support expenditures. While previously the act appropriated a lump sum (exceeding $1.5 billion) for support of the department's highway program, the 1995-96 act appropriated specific amounts for each of the elements of the program. For example, it provided $553 million for capital outlay support, and $486 million for highway maintenance. By specifying the amounts for individual program elements, the Legislature sought to exercise greater oversight and control to ensure that Caltrans' actual expenditures would follow the Legislature's intent.
However, our review of actual 1995-96 expenditures reveals that Caltrans disregarded the terms of the 1995-96 Budget Act and, with the approval of the Department of Finance, (1) increased its own appropriation level and (2) shifted funds between program elements. First, Caltrans increased its support appropriation with an additional $50 million of federal funds, without providing for legislative notification and review as required by Section 28 of the act. The department also shifted funds among program elements--increasing funding for individual programs, including capital outlay support and operations, and decreasing funding for highway maintenance (described earlier in this chapter)--again without required legislative notification and review. By doing so, Caltrans has thus violated both the spirit and the terms of the budget act. Below we recommend that the Legislature delete two budget bill provisions in Caltrans' budget and adopt substitute language in each case that increases legislative control.
Recommend Legislature Exercise Greater Budgetary Control. We believe that, in order for the Legislature to exercise its budgetary oversight, Caltrans should submit budgets that accurately reflect its planned expenditures and should notify the Legislature, in accordance with provisions in the budget act, of changed circumstances that require adjustments in the department's expenditure authority. As Caltrans has failed to adhere to these principles in the past, we recommend that the Legislature adopt budget bill language to strengthen its control of the department's expenditures. Specifically, we recommend that the Legislature delete Provision 1 of Item 2660-001-0042, which the department could use to circumvent legislative control, and replace it with the following language:
The department shall comply with the schedule of appropriation shown in this item, which may be revised by the Department of Finance only as authorized by law and subject to required legislative notification. In revising appropriations as authorized by law, Section 8.50 of this Act does not supplant the requirements of Section 28, and Section 1.50 does not supplant the requirements of Section 26. All legislative notification requirements related to any revision to this item or its subsidiary items shall remain in effect without regard to fiscal year. Not later than 14 days after the end of each fiscal quarter, the Department of Finance shall transmit to the chairpersons of the budget committees in each house and the chairperson of the Joint Legislative Budget Committee (a) all budget revisions authorized in the previous quarter that affect this item or its subsidiary items and (b) a display of the appropriation levels provided by this item and its schedule, as revised.
New Budget Provisions Unjustified. Caltrans often receives a supplemental distribution of federal funds near the end of the fiscal year, and in order to expend these funds the budget proposes new language to allow the Department of Finance to increase Caltrans' appropriation from federal funds and reduce its SHA appropriation. The language also permits SHA funds to be transferred from support to capital outlay. While we find merit in this concept, we have two concerns with the proposed language, which we believe Caltrans could use to again subvert the Legislature's budgetary authority. First, the proposed language does not adequately guarantee that an increase in federal funds will be fully offset by an equivalent reduction in SHA funds. Thus, Caltrans could use this language to increase its total support budget, as it did in 1995-96, without legislative approval. Second, the proposed language does not require legislative notification prior to increasing federal funds or reducing SHA funds.
Recommend Substitute Language. We recommend that the Legislature reject the proposed language and adopt substitute language that achieves the same objective while preserving the Legislature's oversight role. Specifically, we recommend that the Legislature (1) delete Provision 3 of Item 2660-001-0890, because Section 28 already provides authority to increase appropriations subject to notification and approval of the Legislature and (2) delete Provision 3 of Item 2660-001-0042 and replace it with the following budget bill language:
Notwithstanding any other provision of law, the Department of Finance may reduce funds appropriated from the State Highway Account in schedule (b) of this item, in conjunction with an equivalent increase in federal funds in Item 2660-001-0890 subject to Section 28 of this Act. The Department of Finance may authorize the transfer of all or a portion of State Highway Account funds reduced pursuant to this provision to Item 2660-325-0042 for capital outlay projects subject to provisions of that item. The Director of Finance shall authorize reduction or transfer pursuant to this provision not sooner than 30 days after notification in writing to the chairpersons in each house that consider budget appropriations and the chairperson of the Joint Legislative Budget Committee.
Insufficient Justification. While we acknowledge the importance of rapid response by Caltrans in emergency situations, we have two concerns with the proposed deficiency appropriation. First, the proposed language does not restrict the appropriation to emergency or contingency situations only, as do other such deficiency appropriations. Rather, the Department of Finance could interpret the language to allow it to increase Caltrans' budget for any purpose. Second, while Caltrans funds emergency response activities from its State Highway Account appropriation, the Federal Highway Administration generally reimburses Caltrans for most of its costs. Thus, a potential deficiency exists only until Caltrans receives reimbursement, after which, if it received an appropriation under the proposed deficiency item, it would be budgeted twice for the same expense. The department could therefore use this appropriation to attempt to evade legislatively imposed limits on its budget as it has done in the past.
Delete Proposed Deficiency Appropriation. Caltrans provided no information to demonstrate the necessity of this appropriation, or to address our concerns. We therefore recommend that the Legislature delete the proposed item. Should Caltrans, prior to budget hearings, provide information that justifies its need for a deficiency appropriation, we recommend that the Legislature adopt the following substitute item, which is restricted to emergency and contingency situations only:
2660-012-0042--For Augmentation for Contingencies or Emergencies, subject to all provisions of Item 9840-001-0001, payable from the State Highway Account (40,000,000)
No deficiencies shall be authorized by the Director of Finance in any appropriation of money from this item under the provisions of Section 11006 of the Government Code. Required notification to the Legislature of deficiency appropriations pursuant to this item shall include, in addition to all other required information, (a) an estimate of federal funds or other funds that the department may receive for the same purposes as the proposed deficiency appropriation, and (b) explanation of the necessity of the proposed deficiency appropriation given anticipated federal funds or other funds. Not more than 14 days after the receipt of federal funds or other funds for the same purposes as the proposed deficiency, the Department of Finance shall notify the chairperson of the Joint Legislative Budget Committee and the chairpersons of the budget committees in both houses of the amount of funds received and the planned use of such funds.
Return to 1997-98 Budget Analysis Table of Contents
Return to LAO Home Page