Legislative Analyst's Office Analysis of the 2001-02 Budget Bill

Department of Transportation (2660)

The Department of Transportation (Caltrans) is responsible for planning, coordinating, and implementing the development and operation of the state's transportation systems. These responsibilities are carried out in five programs. Three programs—Highway Transportation, Mass Transportation, and Aeronautics—concentrate on specific transportation modes. Transportation Planning seeks to improve the planning for all travel modes and Administration encompasses management of the department.

The budget proposes expenditures of $9.5 billion by Caltrans in 2001-02. This is about $1.3 billion, or 15 percent, more than estimated current-year expenditures. This is largely due to a significant projected increase in capital improvements on state highways, as well as major increases in local assistance expenditures for local street and road and mass transportation projects.

Traffic Congestion Relief Program

Implementation of Congestion Relief Program Will Take Many Years

To date, $340 million has been allocated towards 57 projects specified in the Traffic Congestion Relief Program. Given the complexity of some of the high-cost projects, it is likely that much of the project-specific funding will not be expended for many years.

Background. In 2000, the Legislature enacted the Traffic Congestion Relief Program (TCRP) to provide additional funding for transportation over a six-year period. The program includes an estimated $8.2 billion in new funds for transportation, funded from sources that were previously deposited in the General Fund. Of this amount, approximately $4.9 billion is designated for 141 projects that were specified in statute, with the remainder divided among the State Transportation Improvement Program (STIP), local street and road maintenance, and the Public Transportation Account (PTA). (Please see "Condition of Transportation Funds" in the Crosscutting Issues part of this chapter for a discussion of the funding components of the program, including proposed expenditure levels in the budget.)

Of the $4.9 billion project-specific funding, 45 percent goes for highway projects (including 17 percent to carpool lanes and 28 percent for highway interchange and general purpose lane expansion). The remaining 55 percent is divided among rail (41 percent), bus (9 percent), and transit right-of-way (5 percent).

Program's Guidelines Allow Projects to Be Funded in Phases. In order to receive funding for the projects specified in TCRP, project sponsors must submit a project application to the California Transportation Commission (CTC) containing information regarding the cost, scope, and schedule for the project. The application may cover only one phase of the project, such as environmental review, several phases, or the entire project through construction. The application must specify the amount of funds anticipated to complete the work identified. Once a project application has been approved, the project sponsor may then request an allocation for any amount up to the amount approved in the application. Once funds have been allocated, the project sponsor has up to three years to encumber the funds and five years to spend them.

Many Project Applicants Request Only Partial Funding. To date, applications for 57 out of the 141 projects have been approved by CTC. (The TCRP specifies $2.3 billion for these 57 projects.) The applications have requested approval for $626 million, or 27 percent, of total project costs.

Of the $626 million identified in the applications, project applicants have requested and received funding allocations for only $340 million. Project sponsors may submit funding allocation requests for the remainder of the amount approved in the project application at any time.

Project Applications Evenly Divided Between Mass Transportation and Highway Projects. With respect to the type of projects that have been approved, 22 are highway projects, 23 are mass transportation projects, eight are air quality and local road projects, and four are for project studies.

Most of the mass transportation projects are for initial work on light rail or commuter rail extension projects. The total amount of funding allocated to these projects is $167 million out of $224 million approved in the project applications. With respect to highway projects, $112 million was allocated out of $291 million approved in the project applications.

Project Applications Due in 2002, But Funds May Not Be Spent For Many Years. Project applications for the remaining 84 projects must be submitted to CTC by July 6, 2002. However, as described, CTC's guidelines allow project sponsors to submit applications by project phases and to request only partial funding allocation for each project phase. Additionally, a substantial amount of the program's funding is dedicated towards complex projects that will require substantial environmental review and design before moving towards construction, typically the most costly project component. Given these factors, we find it likely that much of the funding will not be expended for many years.

Highway Transportation

Major Increase in Proposed Highway Program Expenditures

The budget proposes expenditures of $8 billion for the highway transportation program, about $1.2 billion, or 17 percent, more than estimated current-year expenditures. This includes a 30 percent increase in proposed capital outlay expenditures, and an 18 percent increase in proposed local assistance 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. For 2001-02, the budget proposes $8 billion for the highway transportation program, approximately 84 percent of the department's proposed budget. This is an increase of $1.2 billion, or 17 percent, over estimated current-year expenditures. This is due to sizable increases in projected expenditures for capital outlay and local assistance, as discussed below.

Of the $8 billion, the budget proposes $3.9 billion in capital outlay expenditures, an increase of 30 percent above estimated 2000-01 levels. This increase is primarily due to estimated expenditures for projects to be delivered in the five-year STIP. Additionally, the budget proposes sizable increases in expenditures for seismic retrofit of the state's toll bridges, as well as increases for local projects which Caltrans performs on a reimbursement basis.

In addition to increased capital outlay expenditures, the budget proposes a substantial increase in local assistance expenditures, expenditures made by local agencies for nonhighway projects. Local assistance includes STIP as well as TCRP projects. The budget proposes $1.8 billion for local assistance, an 18 percent increase above estimated 2000-01 levels. Approximately 68 percent of local assistance expenditures are funded from federal funds.

Although the proposed increases we have described above are large, they may be somewhat misleading. This is because Caltrans has historically over-estimated its expenditures for the budget year when submitting its budget proposals. For example, the 1999-00 budget proposed spending $3.9 billion for highway capital outlay, while actual expenditures were $2.2 billion, or 44 percent lower. Similarly, the 1999-00 budget proposed $1.4 billion in local assistance expenditures, while actual expenditures were only $883 million, or 37 percent lower.

As shown in Figure 1, Caltrans expects that state funds would support about $3.5 billion (44 percent) of highway program expenditures. Federal funds would also fund almost $3.5 billion (43 percent) of the program, while the remaining $1 billion (13 percent) would be paid through reimbursements, primarily from local governments.

Project Delivery

Project delivery is arguably the most critical variable in Caltrans' mission to improve mobility. Because of concerns over project delays, the Legislature requires our office to report on the department's progress in delivering projects as they are scheduled for construction in the STIP and the State Highway Operation and Protection Program (SHOPP). The substantial increase in funding provided by TCRP makes this issue that much more significant.

In the following section, we discuss a number of key issues related to project delivery, including STIP and SHOPP delivery in the 1999-00 year, project delivery for the seismic retrofit program, environmental review of STIP and SHOPP projects, and staffing vacancies. In order to ensure that the Legislature is fully informed of the challenges the department faces with respect to project delivery and its plans for addressing them, we recommend that the department report at hearings on a number of these issues.

Caltrans Should Measure Its Performance Using a Fixed Project Delivery Target

We recommend the adoption of budget bill language to require the department to measure its project delivery performance based on what is programmed for delivery that year.

Background. There are several ways by which the delivery of projects can be measured. Caltrans defines delivery as when a project is "ready to list," that is, when it has completed all of the necessary work (for example, design and environmental review of the project) prior to advertising a project for construction. The CTC, on the other hand, defines delivery as when a project has been allocated funding for construction.

Analyst's Approach. In this analysis, we have adopted CTC's definition, using funding allocation as the indicator of project delivery. Although a project that is ready to list is ready for construction in theory, it is possible for a project to reach this point, but not receive a funding allocation due to litigation or other factors. As a result, we find that funding allocation provides a more reliable indicator of which projects have actually been delivered by Caltrans.

Additionally, whereas CTC measures Caltrans' delivery against a fixed number of projects that were programmed for delivery that year in the STIP or the SHOPP, Caltrans adjusts its delivery targets during the year to incorporate schedule changes. For instance, if the department receives a schedule extension from CTC for a project that was originally programmed for delivery in 1999-00, it deletes this project from its baseline for what was "planned" for that year. Delivery is thus measured against a smaller number of projects planned for delivery. In this way, Caltrans' delivery reports mask the impact that schedule extensions have on its delivery record for the year. For this reason, we have chosen to use "programmed projects" as our baseline.

It is important to note that this is the first year in which we have reported delivery based on "funding allocation" and "programmed projects," as opposed to "ready to list" and "planned projects." Accordingly, it is not possible to compare our delivery findings in 1999-00 with our findings in prior years.

The Legislature Needs Accurate Project Delivery Information. Because of the importance of holding Caltrans accountable for its project delivery, we recommend the adoption of budget bill language that would require that the department track its project delivery for the STIP and the SHOPP in terms of what is programmed to be delivered in any given year. Accordingly, we recommend that the following budget bill language in Item 2660-001-0042 be adopted:

The Department of Transportation shall measure its project delivery relative to the State Transportation Improvement Program and the State Highway Operation and Protection Program. This measurement shall be based on what is programmed for delivery in that fiscal year and shall not be adjusted based on project extensions made during that fiscal year. Additionally, the department shall use "funding allocation" and not "ready to list" as a measure of delivery.

Project Delivery Leaves Room for Improvement

In 1999-00, Caltrans delivered 82 percent of programmed State Transportation Improvement Program (STIP) projects, and 85 percent of programmed STIP expenditures. Additionally, the department delivered 96 percent of programmed State Highway Operation and Protection Program (SHOPP) projects, and 93 percent of programmed SHOPP expenditures. Local agencies delivered 87 percent of programmed STIP projects and 91 percent of programmed STIP expenditures.

Caltrans has established as a goal delivering 90 percent of projects and spending 100 percent of funds planned for delivery in the STIP. We find these to be reasonable goals to use when measuring projects programmed in the STIP.

Caltrans Delivered 82 Percent of Programmed STIP Projects. According to information provided by CTC, in 1999-00 Caltrans delivered 82 percent of STIP projects that were programmed for delivery in that year. These are projects that expand the highway's capacity or provide intercity rail improvements. As shown in Figure 2, the department delivered 101 of 123 projects that were programmed for delivery in 1999-00. Figure 3 indicates delivery in terms of expenditures, and shows that the department delivered $636 million, or 85 percent of the amount programmed for delivery in 1999-00.

The SHOPP Project Delivery Stronger Than STIP. With respect to SHOPP projects, the department delivered 258 projects, or 96 percent of 269 projects that were programmed for delivery. The SHOPP projects provide safety, operation, or rehabilitation improvements to the state highway system. In terms of funding allocations, the department delivered $958 million, or 93 percent of $1 billion in programmed funds. In general, SHOPP projects are far less complicated from a design standpoint and require much less extensive environmental review. This makes them much easier to deliver on schedule than STIP projects.

Department Delivered Some Projects Ahead of Schedule. The calculations of the percent of projects and expenditures delivered in 1999-00 shown in Figures 2 and 3 exclude "advanced" projects. These are projects that were not programmed for delivery in 1999-00, but for a number of reasons were delivered anyway in that year. In 1999-00, the department delivered 11 projects in advance of their STIP schedule, bringing total STIP delivery in terms of funding to $751 million. With respect to SHOPP projects, the department also advanced 37 projects from future years, bringing total SHOPP delivery in terms of funding to $1.1 billion in 1999-00.

We support the department's practice of advancing projects ahead of schedule when possible. However, we do not include these projects in our main calculations because the Legislature's primary concern has been how well Caltrans meets its intended delivery schedule, which reflects in large part its original priority of projects.

Local Agencies Deliver 91 Percent of Programmed Expenditures. Under Chapter 622, Statutes of 1997 (SB 45, Kopp), local agencies are responsible for determining how to spend 75 percent of STIP funds. To the extent that local agencies decide to spend their share of STIP funds on highway capacity improvements, they have traditionally depended on Caltrans to deliver the projects. However, to the extent that they choose to spend their share of funds on transit projects or local road improvements, they are responsible for that delivery.

In 1999-00, local agencies delivered 801, or 87 percent, of 921 local street and road or mass transit STIP projects programmed for delivery during 1999-00. With respect to funding, local agencies committed to delivering $816 million worth of projects. Of this amount, they delivered $742 million, or 91 percent. Like Caltrans, however, local agencies also advanced a significant amount of projects that were scheduled for future years. Specifically, local agencies advanced 75 projects, or $110 million during 1999-00, resulting in a total delivery of $903 million, or 104 percent of programmed funds.

Local Agencies Significantly Increased Expenditure of Federal Funds. In addition to their relatively strong delivery of STIP projects, local agencies were also able to significantly improve their expenditure of certain federal funds which they receive directly. In the first two years of the 1997 federal transportation act, the Transportation Equity Act for the 21^st Century (TEA-21), local agencies underspent their allotment of federal funds by 41 percent in federal fiscal year (FFY) 1998, and 57 percent in FFY 1999. As a result, by October 1999, local agencies had accumulated $1.2 billion in unexpended federal allocations. In FFY 2000, however, local agencies markedly increased their expenditure of federal funds, obligating $1.2 billion or 154 percent of their annual share of federal funds spending authority. This improvement can be attributed to the deadlines on the use of federal funds put in place by Chapter 783, Statutes of 1999 (AB 1012, Torlakson), as well as the additional technical support provided by Caltrans' local assistance program.

Record Number of STIP Projects Extended to Future Years. According to CTC, while 1999-00 was a year of "high output and achievement" for both Caltrans and local agencies, it was also a year of record schedule revisions. Specifically, $788 million worth of projects were rescheduled in the STIP to be delivered in subsequent years. These projects included some originally scheduled to be delivered in 1999-00 as well as projects to be delivered in later years. Most of the delays were from one fiscal year to the next. However, more than one-third of the delays were for two fiscal years or more. Of the total amount rescheduled, $646 million was for projects programmed to be delivered in 2000-01.

According to CTC, this record amount of rescheduling was primarily in response to a new (1999) CTC policy that restricts the rescheduling of STIP projects to certain circumstances. To avoid those restrictions, both Caltrans and local agencies took advantage of an opportunity to modify any overly optimistic delivery schedules before the new policy took effect. Because the majority of these schedule changes were to delay the construction phase of projects, it is likely that these project extensions will contribute to a high cash balance in the SHA.

Summary. Overall, we find that there is room for improvement in Caltrans' delivery of STIP projects. Although the department allocated all of the funds that were programmed for 1999-00, 18 percent of projects that were programmed for delivery in that year were delayed. The department's delivery of SHOPP projects was significantly stronger. With respect to local agencies, we find that they have substantially improved their delivery, but could still improve above current levels. A variety of factors affect the length of time it takes Caltrans to design and construct a transportation project. In subsequent sections we discuss some of these factors, including staff vacancies and environmental review.

Bridge Seismic Retrofit Program Relatively on Schedule; Toll Bridge Repairs Delayed

Phase 1 of the highway bridge seismic retrofit program is complete. Phase 2 is 97 percent complete. Seismic retrofit of the state-owned toll bridges, however, has been delayed. We recommend that the department report at budget hearings regarding the cause of the delay and the projected impact the delay will have on the program's total cost.

Caltrans inspects all state and local bridges at least once every two years. Since 1971, when the Sylmar earthquake struck the Los Angeles area, Caltrans has had an ongoing bridge retrofit program. The retrofit program involves a variety of different improvements, depending on the needs of the particular structure. The improvements include strengthening the columns of existing bridges by encircling certain columns with a steel casing, adding pilings to better anchor the footings to the ground, and enlarging the size of the hinges that connect sections of bridge decks to prevent them from separating during an earthquake.

Following the 1994 Northridge earthquake, Caltrans expanded its seismic retrofit program for state highway bridges, creating a Phase 1 and a Phase 2 program. Phase 1 included 1,039 bridges identified for strengthening after the 1989 Loma Prieta earthquake at a total cost of $800 million, as shown in Figure 4. These projects were completed by May 2000. Phase 2 consists of an additional 1,155 bridges that were identified for strengthening following the Northridge earthquake. To date, Caltrans has completed the work on 1,126 (97 percent) of the Phase 2 bridges and estimates total Phase 2 costs to be $1 billion. Caltrans estimates that with the exception of one or two bridges (with very complex design work), all Phase 2 projects will be completed by the end of 2005.

Schedule Slips for Toll Bridge Retrofit. Caltrans is also retrofitting seven of the state's toll bridges for seismic safety at an estimated cost of $2.6 billion, as shown in Figure 5. Replacement of the east span of the Bay Bridge is the largest cost component, estimated at $1.3 billion. Caltrans currently estimates this to be completed in fall 2005, delayed from an original schedule of winter 2004.

The delay is mainly due to the United States Navy's refusal to grant an encroachment permit to allow Caltrans to drill on Yerba Buena Island. Although Caltrans was ready to begin this work in fall 1998, the Navy did not issue the permit until September 1999, causing work to be delayed by one year.

With respect to the west span of the Bay Bridge, which will be retrofitted rather than replaced, the department estimates that construction will be not be completed until spring 2007, four years later than originally planned. Additionally, Caltrans reports delays in completing the Benicia-Martinez, the Richmond-San Rafael, and the Carquinez Bridges. Despite repeated requests for an explanation for these delays, the department would not provide any response.

Although the department reports no net change above last year's total cost estimate, it reports substantial changes in the cost of specific bridges, including a $48 million increase in the cost of the Richmond-San Rafael Bridge, and a $6 million increase in the combined cost of the Benicia-Martinez, San Mateo-Hayward, and Vincent Thomas Bridges. However, the department reports that these cost increases are exactly offset by a $54 million decrease in the estimated cost of repairing the Bay Bridge. At the time this analysis was prepared, however, the department had not provided any explanation for how these savings will be achieved.

Department Should Report at Hearings on Cost Estimates. Because completion of the seismic retrofit of the state's toll bridges has experienced significant delay, there is a risk that the cost of the work could be significantly higher than originally estimated. In order to ensure that the Legislature is kept informed with regard to the cost and schedule of this program, we recommend that the department report at budget hearings regarding the reasons for the revised schedules and the most recent cost estimates for the seismic retrofit of each toll bridge not yet completed.

Completing Environmental Documents on Schedule Still a Challenge

In 1999-00, Caltrans completed less than half of its scheduled State Transportation Improvement Program environmental documents; however, the department exceeded its goal for completing State Highway Operation and Protection Program environmental documents.

Less Than Half of Scheduled STIP Environmental Documents Completed in 1999-00. Our review of the number of STIP environmental documents completed for STIP projects last year underscores the challenge the department faces with respect to environmental review. Of 90 environmental documents that the department planned to complete during 1999-00 (including some that were originally scheduled for 1997-98 and 1998-99), only 40 were completed. The remaining 50 rolled forward to 2000-01 and beyond.

It is worth noting, however, that in 1998-99 the department completed only 10 of 36 environmental review documents that were scheduled for completion. In this context, the department's performance both in terms of the rate and the number of environmental documents completed is a substantial improvement over the previous year. According to the department, this greater level of output is due largely to increased staffing. The department states that it will continue to improve in this area as it benefits from the additional staff at the state and federal resource agencies dedicated to environmental review of transportation projects as described below.

Department Exceeded Goal for Completing Environmental Documents for SHOPP Projects. The department was much more successful at completing environmental documents in the SHOPP than in the STIP. Specifically, the department surpassed its goal by completing all SHOPP environmental documents that were scheduled for 1999-00 and advancing several from future years. The discrepancy between delivery of STIP and SHOPP environmental documents is largely due to the fact that the type of environmental document required for a typical SHOPP project is much simpler than that required for a typical STIP project. This is because SHOPP projects normally do not require extensive environmental review as they typically have fewer environmental impacts.

What Is Caltrans Doing to Streamline Environmental Review? Beginning in 1999-00, Caltrans received funding for 19 positions at state and federal resource agencies to help expedite environmental review of Caltrans projects. As of January 2001, all but four of these positions were filled. While funding these positions was an important first step towards speeding up the environmental review process, there are additional opportunities for expediting environmental review (and project delivery in general) that the department has not yet pursued, as discussed below.

Department Should Respond to Recommendations on Project Delivery

A number of reports have made recommendations for improving the delivery of transportation projects. We recommend that the department report at budget hearings regarding actions it intends to take in 2001-02 to improve project delivery in general, and expedite environmental review of projects in particular.

Background. In our Analysis of the 2000-01 Budget Bill, we made a number of recommendations to expedite the delivery of transportation projects. Since the issuance of our 2000-01 Analysis, several reports required by AB 1012 have been completed which contain numerous recommendations for expediting project delivery. These include reports from four different Caltrans districts on project delivery in general, as well as a report on how to improve project delivery via better information management systems.

In addition, CTC recently made 29 recommendations for ways to accomplish environmental streamlining in its 2000 Annual Report to the Legislature. The report recommends that the state adopt a more comprehensive approach to transportation project development, in which transportation and environmental agencies define and work towards common objectives, instead of their traditional adversarial approach. Specifically, CTC recommends that this new approach include the following elements:

• Joint planning to define joint transportation and environmental objectives, and projects to meet them.
• Intensified management attention at the senior level towards environmental streamlining.
• Open and clear communication and negotiation to seek common benefit, from the initial planning phase through environmental studies and project construction.
• Environmental agency agreement to cooperate and expedite project reviews and decisions.
• Pursuit of federal streamlining with the eventual goal of achieving an alternative National Environmental Policy Act (NEPA) process for California.

We recommend that the department report at budget hearings regarding actions it has taken to date and those it intends to take in 2001-02 to improve project delivery. The report should address, in particular, which of the recommendations regarding environmental streamlining made by various reports Caltrans intends to implement.

Project Delivery Will Partly Depend on Vacancies and Contracting Out

We recommend that the department report at budget hearings regarding current vacancies and actions it is taking to fill them. Additionally, we recommend the department report on how it intends to implement Proposition 35 which increased the state's flexibility with regard to contracting out design and engineering work.

Department Has Over 1,500 Vacancies. The extent to which Caltrans is able to meet its STIP, SHOPP, and TCRP project schedules partly depends on how fast it fills its vacancies. It also depends on the extent to which the department plans to contract out. Based on the most recent data available, we find that as of December 31, 2000, Caltrans had 1,561 vacancies, out of a total of 24,619 authorized positions. This translates into a 6.3 percent vacancy rate overall, with significant variation among the various programs.

Most Vacancies in Capital Outlay Support. The largest number of vacancies is in the capital outlay support program, which had a total of 862 vacancies, a 7.4 percent vacancy rate. Capital outlay support staff are responsible for design and engineering, as well as overseeing construction of highway projects. Thus, a high level of vacancies in these staff positions will likely delay the delivery of projects on the state highway system. According to Caltrans, the greatest number of vacancies are in the San Francisco Bay Area and the Los Angeles region where competition with the private sector is highest due to the high cost of living relative to other parts of the state.

The second largest number of vacancies is in the planning program, which had a total of 234 vacancies, a 20 percent vacancy rate. The planning program includes staff who work on project initiation documents that are required before a project can be programmed in the STIP or the SHOPP. Accordingly, large vacancies in the planning program will likely slow down the progress of projects from the planning stage to the design and engineering stage.

Finally, the third largest number of vacancies is in the traffic operations program, which had a total of 194 vacancies, or 11 percent. These staff perform work related to congestion relief, such as staffing Transportation Management Centers (TMCs) which respond to traffic congestion in real time. This program also suffers from competition with the private sector as a lot of the positions are for electrical and civil engineers.

Contracting Out Policy Not Yet Determined. In November 2000, the voters approved Proposition 35 which increased the state's ability to contract out for design and engineering work. As of January 2001, the department had not yet determined the amount of work that would be performed in 2001-02 by state staff versus the amount that would be contracted out to the private sector. The department indicated, however, that with the passage of Proposition 35, local project sponsors could choose whether they wanted Caltrans or a private contractor to perform design and engineering work for projects on the state highway system.

Department Should Report at Hearings. In order to hold the department accountable for reducing its vacancies and to ensure that the department has adequate staff resources to deliver projects, the Legislature should require the department to report at budget hearings regarding its most recent vacancies, by program area and district, and actions it is taking to fill them. Additionally, the department should report on how much work it intends to contract out to the private sector versus how much will be performed by state staff for the current year, as well as the budget year. These estimates should identify how state staff and private contractors will be used to meet workload for the STIP, SHOPP, and TCRP.

Capital Outlay Support Request Will Be Amended

We withhold recommendation on $1.2 billion requested for capital outlay support staff because staffing needs will be revised during the May Revision when more accurate information on workload for the 2000 State Transportation Improvement Program and the Traffic Congestion Relief Program will be available.

Withhold Recommendation on Capital Outlay Support. The budget proposes $1.2 billion to fund capital outlay support, a 1.3 percent increase from the current-year's estimated expenditures. This increase is due to increased workload projected for the 2000 STIP and the TCRP. However, the department indicates that it will provide new estimates in the spring, as part of the May Revision, when more accurate estimates are available regarding the amount of project development work that will be performed during 2001-02. Additionally, the department has not yet determined how much work it intends to contract out, as mentioned above. Pending receipt of new workload estimates and information regarding contracting out, we withhold recommendation on the department's capital outlay support request.

Legislative Oversight: Project Delivery Reports Not Submitted

We recommend that the Legislature require the department to report at hearings regarding the status of two project delivery reports that are overdue.

The Supplemental Report of the 2000-01 Budget Act requires that Caltrans report on two issues related to project delivery. The first, due December 1, 2000, requires Caltrans to report on the degree to which it has taken advantage of an agreement with the Federal Highway Administration designed to expedite environmental review. The second, due January 10, 2001, requires Caltrans to report on projects that would be good candidates for beginning right-of-way acquisition prior to final approval of the environmental document. To date, neither report has been submitted to the Legislature.

The department's failure to submit its reports in a timely manner is not a new development. In our 2000-01 Analysis, we identified that four out of five required reports were overdue. These reports were eventually submitted, though many months overdue. Given the Legislature's interest in expediting project delivery, we recommend that the department report at budget hearings on the status of the two project delivery reports.

Legislative Oversight: Report on Training Program Overdue

We withhold recommendation on $11.3 million in ongoing funding for a training program pending the Legislature's receipt and review of a report on the program's progress and results to date.

Background. In May 2000, the department reported that over 50 percent of capital outlay support staff had less than three years of experience. During the May Revision of the 2000-01 Budget Bill, the department requested funding for a training program for Caltrans engineers. Specifically, the program included approximately $11.3 million in ongoing expenditures, and $0.7 million in one-time expenditures. While the training program is designed to focus on new staff, it provides training for more experienced staff as well. The Legislature approved the program, but required in the Supplemental Report of the 2000-01 Budget Act that the department submit a preliminary report on the progress of the program by January 5, 2001, followed by a final report on September 1, 2001.

At the time this analysis was prepared, the department had not submitted the preliminary report on the program. As a result, the Legislature is not able to assess the merits of the program when considering whether or not continued funding is warranted in 2001-02. While we recognize the value and need for training at Caltrans, we believe that funding should not be continued without some type of review of the program's performance to date. Accordingly, we withhold recommendation on $11.3 million in Item 2660-001-0042 pending receipt and review of the required report.

Traffic Operations

Electronic Toll Collection Not Yet Fully Tested

We find that Caltrans has not yet fully tested and validated the accuracy of the computer software system used to electronically collect tolls on the state's toll bridges. In order to ensure the accuracy of the final deployment of this system, we recommend that the Legislature require the department to report at budget hearings regarding the proposed plan to test and implement the system and the risks of the system not functioning as intended.

Background. In 1990, the Legislature enacted Chapter 1080 (SB 53, Kopp) to require that Caltrans develop specifications for an electronic toll collection (ETC) system to be deployed on the state's toll bridges. Caltrans developed these specifications and in 1996 completed a feasibility study report to develop the Automated Toll Collection and Accounting System (ATCAS).

At that time, the department estimated that the system would be fully deployed on all of the San Francisco Bay Area's bridges by 1997. However, the project has been delayed by more than three years for a variety of reasons. Among these are contract disputes between Caltrans and the vendor regarding software requirements sought by the department which the vendor viewed as outside the scope of the original contract. These disputes have since been resolved through a settlement in which Caltrans commits to providing the contractor with an additional $13.6 million above the original $35.9 million contract amount.

Carquinez Bridge Pilot Repeatedly Failed Initial Test. The original ATCAS contract required that the contractor test the full system (including the electronic toll collection, accounting, and customer service center software) on the Carquinez Bridge before statewide deployment on the remaining bridges. Testing of the system, which required the contractor to demonstrate 30 days of error-free operation, was initiated in 1996, but failed. Testing was conducted again in 1997 and twice in 1998, and while progress was made, the system nevertheless failed each time. As a result, Caltrans declined to authorize the contractor to proceed with installation on additional bridges until all deficiencies were corrected.

Caltrans Expedited Deployment Schedule. In July 2000, the Golden Gate Bridge—operated independently from Caltrans—became the first bridge in the state to implement an ETC system. The Golden Gate system was designed and deployed in less than two years. Although the system was created by a different vendor, state law requires that all electronic toll collection systems be interoperable, so that drivers can use the same device regardless of where they are driving.

In view of the Golden Gate Bridge's successful deployment and Caltrans' goal of providing the public with a fully operating system on all bridges, Caltrans accelerated its own project schedule. In July 2000, despite the fact that the Carquinez Bridge had not passed the Phase 1 Acceptance Test, Caltrans amended the contract to allow partial deployment on other bridges. Specifically, the department committed to deploy ETC on at least one lane on each of the San Francisco Bay Area toll bridges by the end of 2000. Caltrans met this ambitious schedule though not without some glitches along the way.

System Not Yet Fully Tested on Remaining Bridges. While the system is now in operation on all Bay Area toll bridges, the contractor has not yet fully certified the accuracy of the ATCAS system. For example, while all of the bridges have the ATCAS hardware and software installed on at least one lane, the accuracy of the accounting portion of the software or the violation detection system has not yet been tested on these bridges. As such, problems may exist at each of the bridges that have not yet been identified or corrected. For instance, the department was forced to temporarily shut down the system on the Bay Bridge in mid-January when it noticed major problems with the violation detection system. Rather than shut the lane down during the commute hour, causing major congestion, the department allowed cars to go through the lane for free.

We are concerned that the department's expedited schedule may cause it to overlook problems that should be identified and corrected on each of the bridges before further installation. Based on our discussions with Caltrans, we understand that instead of first testing for and fixing problems on all bridges before further deployment, the department intends to return to the Carquinez Bridge for final Phase 1 Acceptance Testing some time in February or early March 2001. If this test is successful, Caltrans intends to authorize the contractor to deploy the system onto every lane on every bridge.

We find that it would be more prudent to identify and correct existing problems on all bridges prior to beginning this final test which precedes full installation. Otherwise, there is a risk that although the system may pass the test at Carquinez, it will encounter problems on the other bridges that could be avoided.

The ATCAS system has been plagued with a variety of problems, from inaccuracies in the accounting software to problems with the violation detection system. In order to ensure that the risks of the project are minimized, we recommend that the department report at budget hearings regarding the proposed testing and implementation plan for the completion of the project. In its report, the department should indicate exactly what these risks are and how the department intends to minimize them.

More Oversight Needed for Transportation Management Centers

We find that statewide direction and coordination for Transportation Management Centers (TMCs) are lacking. Accordingly, we recommend budget bill language to require Caltrans to update its TMC Master Plan. We also find that there is a lack of oversight by Caltrans with respect to TMC performance. To address this problem, we recommend the enactment of legislation to require Caltrans to report annually to the California Transportation Commission (CTC) on TMC performance, with the CTC providing a summary of this information in its annual report to the Legislature.

Background. Over the last 30 years, Caltrans has spent at least $488 million in the development of TMCs and their related field infrastructure (see Figure 6). The goal of TMCs is to improve traffic flow by responding to highway traffic conditions on a real-time basis. Located in the most congested areas of the state, there are now TMCs in eight Caltrans districts: Fresno, Los Angeles, Orange County, Sacramento, San Bernardino, San Diego, the San Francisco Bay Area, and Stockton.

Managed in partnership with the California Highway Patrol (CHP) and regional transportation planning agencies (RTPAs), TMCs receive real-time traffic information using loop detectors, video cameras, and the computer aided dispatch system. In addition, TMCs use local equipment, such as changeable message signs and ramp meters to better manage traffic congestion. The TMCs also serve as the communication hub for dispatching CHP traffic officers and coordinating the Freeway Service Patrol (FSP) tow truck service which assists and removes disabled vehicles in order to reduce congestion caused by traffic incidents.

Lack of Statewide Goals and Responsibilities for TMCs. Based on our review, we find that Caltrans has made a substantial investment in TMCs and traffic operations in general. However, the department has not provided adequate guidance and oversight towards achieving the goals of using TMCs to optimize freeway capacity and reduce congestion. The only statewide document to guide TMC operations is the TMC Master Plan, written in 1997. It is highly general in nature and lacks a clear framework to guide the management of TMCs. For instance, instead of providing measurable goals with respect to congestion relief, the Master Plan states that the goal of TMCs is to "see the future potential and provide better service." Another Caltrans document, the Ten-Year State Highway Operation and Protection Program, states that there are no measurable objectives defined for TMC improvements.

Additionally, the TMC Master Plan contains no clear definition of the roles and responsibilities of Caltrans, CHP, or RTPAs. For example, under the definition of roles, the document states that Caltrans is responsible for "system management for incident response" whereas CHP is responsible for "state highway incident management." As a result of the lack of clear guidance with regard to TMC management and operations, TMCs operate independently, each setting up their own business protocols. For example, we found substantial variation across TMCs in the role that CHP and Caltrans play in operating the FSP program, with CHP managing the program almost entirely in some areas, while much less so in others.

The need for better management of TMCs is reflected in a recent action taken by the RTPA in the San Francisco Bay Area—the Metropolitan Transportation Commission (MTC). The commission hired a consultant to work with MTC, Caltrans, and CHP to articulate the goals and objectives for optimal freeway operations and the responsibilities and resources needed to achieve them. According to the request for proposal to hire the consultant, neither CHP nor Caltrans currently has a clear written statement of objectives relative to their responsibilities at TMCs. As a result, MTC has found it necessary for the region to define these responsibilities more clearly. While there may be a need for each region to develop its own set of guidelines for TMC operations and traffic management in general, Caltrans and CHP should develop a set of statewide guidelines to ensure statewide consistency across TMCs and provide clear goals and objectives that can be measured over time.

No Consistent Methodology for Determining Staffing Level at TMCs. Based on our review, we also found a lack of a consistent methodology for determining the necessary staffing level for TMCs. For example, a recent report, commissioned by the San Francisco Bay Area District 4 and MTC, found that staffing levels at the District 4 TMC area are below what is necessary to effectively operate and maintain the current TMC and related traffic management infrastructure. The analysis found that while the traffic management infrastructure has grown significantly with more expansion planned, the number of dedicated personnel has not kept pace. Using a variety of methods by which to assess workload needs, the report concluded that the current staffing level in District 4 is inadequate to deal with existing workload, as well as planned growth.

Recommend TMC Master Plan Be Updated. In order to bring greater coordination, consistency, and oversight to TMC operations, we recommend the Legislature require that Caltrans, in coordination with CHP, update its TMC master plan by adopting the following budget bill language in Item 2660-001-0042:

By July 1, 2002, the Department of Transportation (Caltrans), in coordination with the California Highway Patrol (CHP), shall submit to the Legislature an update of its Transportation Management Center (TMC) Master Plan which shall include, but not be limited to: (1) a specific definition of the roles and responsibilities of Caltrans and CHP in the areas of incident management and recurrent congestion; (2) measurable goals related to incident clearance, ramp meters, and changeable message signs; (3) a management structure that will ensure statewide consistency and coordination of TMC activities; and (4) an estimate of annual funding needs for 2002-03 through 2006-07 for each TMC, including the cost of operation and maintenance, staffing, and new technology. The estimate of these funding needs shall be based on a clearly defined and consistent methodology throughout the state.

The TMC Performance Should Be Measured. Because Caltrans has not specified measurable goals for TMCs, the department does not currently measure their benefits in terms of congestion relief. Instead, Caltrans measures the performance of TMCs based on inputs, such as the "number of centerline miles covered" by the traffic management infrastructure (for example, loop detectors and changeable message signs). Caltrans asserts that this type of infrastructure has a high benefit-cost ratio, but provides no supporting documentation related to specific projects based on actual data. As a result, despite having spent at least $488 million on traffic management infrastructure, with another $368 million programmed for installation over the next four years, the department cannot readily provide concrete evidence of TMCs' benefits. This makes it difficult to justify investment in this area and hampers both Caltrans' and external stakeholders' ability to evaluate and compare the benefits of traffic system management projects with those of other transportation improvements.

Recommend Department Report to Legislature on Performance of TMCs. Caltrans' 2001-02 budget recognizes the need for more accountability in this program by providing a $1.7 million increase to the operations program to develop a methodology for evaluating traffic management benefits. In view of this budget augmentation, we recommend the enactment of legislation that requires Caltrans, in coordination with CHP, report annually to CTC on TMC performance. The report should include, but not be limited to the following: (1) the number of incidents responded to at each TMC; (2) average incident clearance time for each TMC, using a consistent definition of "incident clearance time;" (3) annual estimate of travel time savings due to use of ramp meters by TMC; (4) annual estimate of travel time savings due to the Freeway Service Patrol program for each area where the program operates; (5) discussion of the use and benefits of changeable message signs at each TMC; and (6) an update of the total transportation management inventory by district, including the number of ramp meter locations, CCTVs, changeable message signs, and loop detectors. The legislation should also require that CTC include a summary of this information in its annual report to the Legislature.

Caltrans Needs to Better Maintain Traffic Management Infrastructure

We recommend that the department report at budget hearings on the estimated cost and schedule of repairing the state's traffic management infrastructure.

Based on our review, we found that the traffic management infrastructure, including loop detectors and CCTVs, is in disrepair in certain parts of the state. For example, in the San Francisco Bay Area, an aggressive loop installation schedule combined with inadequate electrical engineering staff caused many loops to be installed incorrectly or damaged during other construction activities. As a result, most of the loop detectors and CCTVs in the district are not currently functioning.

According to preliminary estimates by Caltrans, $7.6 million is needed to repair them. This infrastructure forms the backbone of the district's traffic system management program, without which TMCs and the software they depend upon cannot operate. Despite the importance of repairing this infrastructure, there is currently no funding commitment from Caltrans to do so. Current law, however, requires that Caltrans first maintain its infrastructure prior to expanding it. Accordingly, we recommend that the department report at budget hearings on the estimated cost of repairing this infrastructure statewide and the department's schedule for making such repairs.

Information Technology at Caltrans: An Assessment

The Importance of Information Technology (IT) at Caltrans. Like any modern organization, Caltrans relies upon IT for many of its core business functions. Caltrans' IT systems range from a department-wide electronic mail system to engineering software, such as computer-aided drawing and design. Caltrans currently has over 100 software applications in operation and 18 more under development. Figure 7 provides a summary of the five major applications currently underway.

As can be seen from Figure 7, Caltrans' IT systems include projects designed to improve its internal operations, such as an automated system to calculate payroll and employee leave, as well as projects that provide direct benefits to the public, such as the automated transportation permits project.

Caltrans' ability to successfully initiate, manage, and deploy IT systems is critical to many of the Legislature's and the administration's top transportation priorities, including speeding up project delivery and providing congestion relief. With respect to project delivery, IT systems are an important factor in how long it takes to complete a transportation project. This is because the multiple phases of a project, from planning to construction, each require tracking and timely exchange of information with both internal and external parties.

Assembly Bill 1012 (Torlakson) recognizes the important role of IT in speeding up project delivery and requires the formation of an advisory committee to recommend improvements to the department's management information systems. (The committee issued its draft report, containing ten recommendations, in December 2000.) With respect to congestion relief, the department has developed several IT projects that are intended to provide direct benefits to motorists, such as electronic toll collection and an advanced traffic management system (ATMS).

Analyst's Approach. In the following sections, we highlight the challenges facing Caltrans in the area of IT and recommend steps that should be taken for improvement. In conducting our review, we examined the organizational and fiscal structure of IT at Caltrans. We also reviewed in depth two IT projects, the Wide Area Network (WAN) Infrastructure project and ATMS. These projects were chosen because they provided an opportunity to review a departmentwide IT system, in the case of WAN, and the department's most significant traffic management system, in the case of ATMS.

Based on our review, we find that there are significant problems with the way IT is currently organized and implemented at Caltrans. The first section of this discussion reviews broad organizational problems and recommends options for addressing them. The following sections discuss WAN and ATMS in particular. The review of these projects helps to provide specific examples of the problems that can result from the lack of organization and strategy with respect to IT. The final sections provide recommendations related to the oversight of IT by control agencies and the need for a departmentwide strategy for the development and use of traffic information systems.

Department's IT Strategic Plan Needs Updating

We recommend the adoption of budget bill language requiring the department to conduct an information technology needs assessment of its core programs and update its Agency Information Management Strategy according to the priorities established in the assessment.

Department Should Conduct IT Needs Assessment. Every state department is required to have an IT strategic plan, known as an Agency Information Management Strategy (AIMS) to guide IT in the department. The purpose of the AIMS is to ensure that departments have a clear strategic direction with respect to IT, including the identification of priority projects.

Caltrans' current AIMS is based on a needs assessment conducted in 1995. While that was only six years ago, the current AIMS is outdated because IT needs and goals of the various programs have changed over that time. For example, the current AIMS does not address the subject of traffic operations even though the traffic operations program oversees the development of state-of-the-art software technology related to traffic management. This occurred because traffic operations systems, such as ATMS, were previously exempt from review as IT projects by control agencies. Because this exemption from control agency review was removed in August 1999 (discussed in a later section), it is appropriate for the department to update its AIMS to incorporate software related to traffic operations.

Since the last update of AIMS, the needs and goals of the department's programs have changed. Accordingly, we recommend that the department conduct a substantive update of its AIMS. In preparation for this, the department should first conduct an IT needs assessment (and, where necessary, business process review) of its five core programs: finance, policy and administration, project development, planning, and maintenance and operations. To achieve this, we recommend the adoption of the following budget bill language in Item 2660-001-0042:

By November 1, 2001, the Department of Transportation shall complete a needs assessment of its five core programs (finance, policy and administration, project development, planning, and maintenance and operations) with respect to information technology. The needs assessment shall identify for each program the business problem or goal that the system would address, with an emphasis on measurable objectives. Additionally, by March 1, 2002, the department shall complete an update of its Agency Information Management Strategy.

Caltrans' Information Technology Needs Reorganization

We identify numerous problems with the way information technology (IT) is currently organized at Caltrans. We recommend budget bill language requiring the department to include all its districts in its Information Technology Management Committee. We further recommend the adoption of budget bill language directing Caltrans to submit to the Legislature by March 1, 2002, an IT reorganization plan.

Caltrans IT Environment Lacks Standardization. Caltrans is organized into 12 geographic districts, 6 service centers, and 8 programs with headquarters located in Sacramento. As the importance of IT has grown over the last decade, each Caltrans district and program has devised unique ways to meet its own IT needs. This has resulted in a highly decentralized and fragmented IT environment which lacks standardization. For example, multiple local area networks (LANs) that allow for internal file sharing exist in the same location. Additionally, duplicate or incompatible systems have been developed by different Caltrans districts or different programs to perform the same function. For example, individual Caltrans districts have purchased different types of hand-held computer devices and multiple systems have been proposed for tracking employee time.

This lack of IT standardization makes it difficult to establish and enforce departmentwide standards, which have been developed by the Information Systems and Service Center (ISSC), the department's central IT division. It also reduces the economies of scale that could be realized by deploying departmentwide software because costly modifications may be required to adapt the software to each new environment.

Staff for IT Fragmented Throughout Department. In terms of personnel, the department has approximately 720 IT staff. About 38 percent of these staff work in ISSC located in Sacramento. The ISSC's responsibilities cover a wide spectrum, ranging from support of personal computers to the development and implementation of the department's IT policies and standards. The remaining 62 percent of IT staff are not directly responsible to ISSC. Specifically, about 39 percent of the IT staff work in the 12 district IT offices and report to the district manager for administration. These IT district staff are responsible for LANs, help desk operations, as well assisting program staff with proposed IT applications and implementing statewide standards (functions also performed by ISSC). Another 23 percent of IT staff work in various transportation programs, such as maintenance or planning, and report to the respective program manager. They perform similar work to the district IT staff but work exclusively for individual programs.

In addition to staff with official IT classifications, an unknown number of staff with non-IT classifications perform IT functions within the department. For instance, the new technology and research program has staff working on communication systems engineering and the traffic operations program has staff working on developing standards for the intelligent transportation system. This decentralized IT structure creates a number of problems, including:

• Duplication of staff effort due to the lack of definition of exactly who (IT staff within a program, IT district staff, or ISSC) is responsible for implementing standards and providing service to the programs.
• Lack of standardization of IT software and hardware due to decentralized development of IT projects.
• Duplicate efforts to achieve the same goals (for example, multiple systems to collect data on employee time expenditure).
• Lack of economy of scale due to the development of customized software instead of departmentwide systems.
• Lack of coordination and communication among IT staff.
• Poor customer service to the department's individual programs.

Broader Participation Needed in New IT Review Committee. In January 2000, the department formed the Information Technology Management Committee (ITMC) to bring more cohesion and executive oversight to IT development. The specific goals of ITMC are to: (1) ensure adequate funding for the current functions performed by ISSC, (2) establish a departmentwide baseline of IT products and services, and (3) to review and prioritize proposed IT application development projects. While this effort represents a move in the right direction, we are concerned that it is being developed without adequate participation by the districts. Specifically, ITMC membership includes only three (of 12) district directors, leaving nine districts entirely unrepresented. Given the goal of ITMC to serve as an oversight body for statewide coordination and development of IT, it is important that the membership of ITMC be representative of all of the Caltrans districts. Accordingly, we recommend adoption of the following budget bill language in Item 2660-001-0042:

The Department of Transportation (Caltrans) shall include all district directors or district information technology division representatives in the Information Technology Management Committee to ensure consistency across the department and the representation of all Caltrans districts.

New Project Management and Coordination Efforts Likely Insufficient. Caltrans is also creating a Project Management Office (PMO) in ISSC to help bring better management and consistency to IT development. The PMO includes a Project Initiation Unit (PIU) to provide support to the programs in order to comply with reporting requirements of the Department of Information Technology (DOIT) and the Department of Finance (DOF), the two state agencies which review IT projects. Specifically, PIU will provide instruction on how to prepare project initiation documents, known as feasibility study reports (FSRs), which are required prior to Caltrans' initiating any IT project above $500,000.

While additional assistance in the areas of project management and project initiation may be needed, it is unclear whether ISSC has sufficient expertise or resources to meet the changing and diverse needs of the programs. In our interviews with district staff, they have expressed concern about ISSC's ability to deliver quality customer service, such as assistance with project initiation or problems with departmentwide software. This is partly due to the fact that, historically, ISSC has placed a higher priority on control than on service. For instance, in order to provide information to DOIT, ISSC recently required all districts to use an electronic auditing software which resulted in shutting down one districts's entire computer network for two days. With respect to customer service, ISSC does not always notify the programs or the districts in advance (or at the conclusion) of work on the network that may affect them. Finally, when the programs seek guidance from ISSC, they often receive different responses from different staff within the organization.

Lack of Control Over IT Funds Delays Projects. In addition to these organizational problems, we found that a major barrier to efficient and effective IT implementation is the way in which funding for IT is currently organized. Specifically, Caltrans has no separate IT program or budget. Instead, funds for specific IT projects are provided by the programs that will benefit from the system. As a result, the programs have control over the funds for IT projects and can refuse to release money for a specific project, even after the project has been approved by the control agencies and funds have been appropriated by the Legislature. Since IT may not be the top priority of a program, substantial time can be spent negotiating for funds, resulting in delays to project implementation. For example, the Transportation Operations and Project Support System project, a system to track staff costs and time expenditures, has been delayed for at least a year due to negotiations with the programs on the level of funds they will allocate to the project.

Funding for IT Support Unreliable. In addition to the lack of centralized control over funds for IT projects, there is also no centralized control over IT support funding. This causes problems for both the district IT staff, as well as ISSC. Currently, IT is funded as part of the overall administration budget. District IT offices receive an amount of funds from the district's administration budget, but this amount often falls short of funding the service level they are expected to deliver. This is because the current practices for estimating and budgeting for IT support costs are inadequate. As a result, district IT offices find that they lack adequate resources and have to request funds from the various programs in order to provide support for new hardware and software. Additionally, when the programs are dissatisfied with the level of service they are receiving some choose to fund their own IT staff positions, rather than provide funds to the district IT division. This leads to further fragmentation and inefficient delivery of IT services at the district level.

A similar situation occurs between ISSC and the programs at Caltrans headquarters. In this case, ISSC often finds that the IT expenditures it must fund on behalf of the programs, such as the use of the WAN, exceed its budget. As a result, ISSC also finds itself requesting more funding from the programs. This reliance upon the programs for funding makes it difficult for district IT offices and ISSC to implement departmental and statewide IT standards, provide a consistent level of service, and plan for additional services and projects to facilitate the department's overall program activities.

Recommend Caltrans Develop IT Reorganization Plan. Overall, we find that the current efforts underway to improve IT at Caltrans do not adequately address the underlying organizational and fiscal problems facing the department. In order to ensure quality IT systems and service, adherence to departmental policies and standards, and efficient use of state funds, we recommend that Caltrans, with the assistance of a consultant, design an IT reorganization plan. To ensure that the reorganization plan is focused on providing service to the transportation programs, the department should survey the core programs regarding their needs and expectations related to IT services, systems, and management. To ensure broad participation by all of those currently involved in IT within Caltrans, the department should form a steering committee comprised of ITMC and all district IT managers to help develop and review the plan. To accomplish this goal, we recommend the following budget bill language in Item 2660-001-0042:

The Department of Transportation shall develop a reorganization plan for information technology (IT). Up to $250,000 appropriated in this item shall be available for the department to contract with a consultant in order to develop the plan. The plan shall be completed and submitted to the Chair of the Joint Legislative Budget Committee and the chair of the fiscal committee in each house no later than March 1, 2002. At a minimum, the plan shall accomplish the following goals:

(a) Remove the IT budget from the administration program to create a fully funded and independent IT program.

(b) Merge all IT staff and units into a single IT organization.

(c) Restrict hiring of IT staff to the IT program.

(d) Determine which IT roles and responsibilities should be controlled and performed centrally and which should be delegated to the districts or some type of regional IT branch.

Network Infrastructure Project: Benefits Fall Short

We find that the Wide Area Network (WAN) project is providing far fewer benefits than were originally estimated in the feasibility study report. We also find that there is significant opportunity for greater benefits to be realized to the extent that current manual processes are automated and utilize WAN.

Background. The WAN Infrastructure Project was initiated in 1997 to facilitate electronic data sharing and communication between Caltrans staff statewide as well as external agencies. We selected this project (hereafter referred to as WAN) for review because it represented the department's first major departmentwide system, had a relatively high cost of $85 million, and was initially criticized by the state's IT control agencies, DOIT and DOF. The concerns expressed by these agencies centered around the lack of a clearly defined business justification for the project.

Our review focused on whether the project has succeeded in achieving the original goals set forth in the project's FSR which provided the justification for the project. We found that although the project has achieved some of its original goals, many of the major benefits that were described in the FSR have not been obtained.

Some Benefits Have Been Achieved. Many of the objectives of the project have been realized, according to the Post Implementation Evaluation Report (PIER), which Caltrans submitted to DOIT, DOF, and the Legislature subsequent to this project's implementation. For instance, staff at every Caltrans business location (including 395 remote sites) can communicate with each other through one, compatible E-mail system. Because the network provides a large bandwidth, engineers can now send very large data files electronically, rather than having to actually visit a specific location in order to review plans or designs. Additionally, data can now be backed up centrally, on a regular cycle without disrupting users. All of these benefits can be expected to translate into increased productivity.

Other Proposed Benefits Not Delivered. However, our review shows that the PIER overstates the benefits of the project and ignores many areas in which the project has fallen short of expectations. For instance, the project was originally promoted as a solution to problems identified in a 1994 consulting report. Among the problems identified were the proliferation of databases containing duplicative and often inconsistent information. One of the rationales advanced on behalf of WAN was that it would enable the department to integrate all of these systems into one uniform system. Our review of recent efforts to improve Caltrans' management information systems suggests, however, that the proliferation of multiple databases is still a significant problem. According to the AB 1012 advisory committee, project delivery information is currently contained in four different systems each of which must be modified when changes are made to a project. The WAN may allow for the exchange of information, but, by itself, has done nothing to consolidate multiple, duplicate systems.

The WAN Is Underutilized. As with any type of infrastructure project, the benefits of WAN depend upon how much the system is used. While ISSC reports that the department is currently utilizing almost 100 percent of the leased bandwidth, most of the projects that the FSR stated as benefitting from WAN have not been implemented. Specifically, of 25 automation projects that were referenced in the FSR, including a project to develop a single project identifier for capital projects, only 6 have been completed. Thus, there may be ample opportunity for the automation of business processes that will subsequently utilize the network. To the extent that newly automated business practices depend on WAN, its benefits will increase. Requiring the department to conduct an IT needs assessment of every program, as recommended in an earlier discussion, will help the department identify and prioritize new IT systems that can take advantage of WAN.

Travel Time Savings Exaggerated. The FSR also overstated the benefits that WAN would provide to the public in terms of travel time savings resulting from faster incident clearance. In response to criticism that the original FSR did not demonstrate a strong business case or contain measurable objectives, Caltrans modified the FSR to include an estimate of $779 million (or an average of $129 million annually over six years) in benefits. These savings were based on estimated travel time savings for the public as a result of enhanced traffic management brought about by linking TMCs to WAN. According to the PIER, benefits of this scale were not realized and Caltrans has now reduced its estimate to $57 million annually over six years. Even so, our review found that it is not clear that the methodology used to determine this estimate is based on any reliable data or analysis.

The IT Projects Should Be Approved Based on Measurable Benefits. In summary, we find that WAN is providing far fewer benefits than were originally estimated in the FSR. This is in part because the project was largely justified based on projected travel time savings benefits that were based on unrealistic and undocumented assumptions. While travel time savings may be a key benefit that deserves to be mentioned in future FSRs, the Legislature and control agencies should require the department to provide solid evidence that a specific project is likely to result in such benefits.

Opportunities for More Benefits in the Future. Despite these shortcomings, we also find that there is a significant opportunity for further benefits to be realized. While WAN was begun four years ago, few of the automation projects that were expected to take advantage of it have been implemented. To the extent that the department prioritizes the automation of business processes that are currently being performed manually, WAN will play an essential role in enabling their implementation.

Advanced Traffic Management System: Development Lacked Coordination

Rather than developing a uniform software system for traffic management, individual Caltrans districts developed their own unique systems. This has delayed deployment of a statewide Advanced Traffic Management System and resulted in significant discrepancies between the operational capabilities of the systems in different parts of the state.

Background. The ATMS project is an integral part of the department's effort to reduce traffic congestion through the application of IT. The purpose of the ATMS system is to integrate the functions performed at a TMC so that staff can both access traffic information and control hardware, such as changeable message signs and ramp meters, from the same computer workstation. By integrating these functions, ATMS should reduce the length of time it takes to clear incidents, thereby reducing the congestion they cause. Caltrans estimates that approximately half of all highway congestion is caused by traffic incidents. Unlike recurrent congestion which is caused by too many vehicles crowding freeways, a substantial portion of the delay caused by traffic incidents can be eliminated by clearing accidents faster.

The ATMS First Developed for Los Angeles District. The ATMS project, consisting of multiple contracts and amendments, was initiated in 1991 by Caltrans District 7 in Los Angeles. The original contract for $6.9 million included the development of a report to define the goals and objectives of an upgraded TMC, as well as the development and installation of software that would be necessary to meet those goals. A second contract, awarded in 1993 for $4.5 million, added several new components, including the integration of CCTVs into the software and a long-term maintenance plan for the hardware. The ATMS software was originally scheduled to be completed by 1996, however, due to the relocation of the center and Y2K issues, the project was not installed and operational until late 1998.

Similar Systems Deployed, Then Decommissioned for Y2K Concerns. In 1993, subsequent to the initial development of ATMS at the Los Angeles TMC, another version of the technology was also being designed, tested, and deployed at the Orange County, San Bernardino, and San Diego TMCs. However, the system was less reliable and had fewer capabilities than the system being designed for Los Angeles and was not Y2K compliant. This system was decommissioned in December 1999.

Caltrans Owns Software, But Required to Prepare FSR for Statewide Deployment. Subsequently, Orange County contracted for a limited version of the Los Angeles ATMS. Caltrans also deployed the same limited version in the Sacramento, San Bernardino, and San Diego TMCs. Because ATMS has now been fully installed in Los Angeles, the department now owns the full software. However, DOIT is not allowing Caltrans to proceed with full installation in any other district without an FSR.

The ATMS Not Deployed in San Francisco Bay Area. The TMC in the heavily congested San Francisco Bay Area is not using any version of ATMS. Rather, it is using a scaled down version of its own customized system, known as the Interim Freeway Surveillance System (IFSS). According to staff of both Caltrans and MTC, IFSS is quite limited, with fewer capabilities than the ATMS software.

Migration to ATMS in the Bay Area Will Be Slower Than Elsewhere. In 1998, Caltrans issued a statewide TMC standardization plan. This plan envisions all TMCs eventually utilizing the same ATMS system. However, because the Bay Area TMC has developed its own unique set of hardware and software for traffic operations, its migration to ATMS is much more time-consuming and costly than at other TMCs.

To accomplish this migration, Caltrans has funded the development of another $2.5 million interim software system, to provide basic traffic and incident management functions. Also, Caltrans has funded a $9.3 million project in SHOPP to provide database integration and infrastructure to prepare for ATMS installation. This project is not scheduled for completion until 2004.

Summary. We conclude that there was a lack of an initial statewide strategy to coordinate the development of ATMS software among the various TMCs. This led to the creation of a unique software and hardware system for both Los Angeles and the Bay Area, with very different capabilities. Because of this decentralized development, the department was unable to provide us with an estimate of the total amount invested in ATMS to date. With additional software and installation required for the statewide version of ATMS, a statewide system will likely not be installed until at least 2004.

Clear Definition of IT Needed

We recommend the adoption of budget bill language to require the Department of Information Technology, in conjunction with the Department of Finance, to provide the Department of Transportation with a clear definition of what constitutes an information technology project as it relates to traffic management.

The IT Exemption for Traffic Management Projects Revoked. Under current law, DOIT and DOF are responsible for reviewing and approving all IT projects that meet specific reporting requirements. For example, projects under $500,000 can be approved by the Caltrans director whereas projects over $500,000 must be approved by DOIT and DOF.

In general, projects that are considered to be "single function process control systems" are exempt from review by DOIT and DOF. For example, a system to control traffic signals would typically be exempt. With respect to Caltrans, this classification had been used to exempt projects in the area of traffic management, including ATMS. In August 1999, however, DOIT rescinded all exemptions for automated systems at Caltrans due to Y2K concerns and the discovery of a proliferation of IT systems that had been developed under this category.

Since the revocation of the exemption, the definition of what constitutes an IT project and, thus, requires an FSR, has become unclear. The department has been in extensive discussions with both DOIT and DOF, but the agencies have not issued any guidelines. In order to increase their oversight of traffic management investment, the control agencies are considering classifying much of it as IT, including CCTVs and technology that controls ramp meters.

Too Much Oversight Has Costs for Delivery. Based on our review, we concur that there is a need for greater oversight and coordination in the area of traffic management. However, we caution against requiring that all projects be subject to control agency review and FSR requirements. This is because much of the traffic management technology used by Caltrans, such as loop detectors, changeable message signs, and CCTVs, is proven technology and is part of the foundation upon which ATMS are based. Requiring that additional investment in such infrastructure be subject to FSR requirements will delay implementation of projects in which the state has already made a sizable investment. For example, while $9 million worth of fiber optics has been installed in San Diego County, DOIT is not allowing Caltrans to proceed with the portion of the project that would provide system integration. As a result, the fiber optics that have been installed to date are currently providing no benefit whatsoever.

Instead of subjecting these types of projects to IT requirements on a case-by-case basis, we find that a better approach may be a programmatic FSR which would allow the department to justify its investment in a certain type of technology one time, rather than on a case-by-case basis. Additionally, we find accountability could be achieved by requiring the department to report on the use and impact of traffic management infrastructure on an annual basis, as recommended in our discussion on TMCs. Such a report will enable the administration and the Legislature to review the costs and benefits of such projects and thereby make better decisions about future investments.

Analyst's Recommendation. Most importantly, DOIT and DOF need to issue clear, consistent guidelines and definitions for what constitutes IT and how Caltrans should proceed with its traffic management program to be in compliance. Currently, certain traffic management projects, such as the fiber optics project described above, are subject to FSR requirements, while others are allowed to proceed. As a result, some project managers are taking the approach that they will proceed with a project until told otherwise, while others are devising ways to design projects so that they avoid control agency review. In order to provide the department with certainty so that it can comply with DOIT guidelines and deploy its traffic management system in the most timely and cost-effective manner, we recommend adoption of the following budget bill language in Item 0505-001-0001:

By July 31, 2001, the Department of Information Technology, in coordination with the Technology Investment Review Unit of the Department of Finance, shall provide the Department of Transportation, the Chair of the Joint Legislative Budget Committee, and the chair of the fiscal committee in each house with guidelines for what constitutes information technology in the area of traffic management systems and infrastructure.

Statewide Strategy for Traffic Information Systems Needed

We recommend the adoption of budget bill language to require the Department of Transportation to convene a steering committee to determine how the department should use traffic information available from the Advanced Traffic Management System.

Just as the department needs a coordinated strategy for the development of ATMS software and TMCs, it also needs a coordinated, statewide strategy for how it will use and disseminate traffic information. To date, Caltrans has focused on using the information from ATMS to improve the internal operation of TMCs. While this was the original goal of ATMS, opportunities exist to use the data for many additional uses related to the department's ultimate goal of improving mobility.

Traffic Management Software Provides New Opportunities. The information that ATMS can provide is of tremendous value to transportation planners and engineers, as well as the general public. For example, Caltrans could provide a more accurate and detailed congestion monitoring report than it does at present. Currently, the department provides an annual report on highway congestion in the state's urban areas. The report relies primarily upon vehicles equipped with a device (known as a tachometer) to measure speed. Because this is a costly and labor-intensive method, the department limits its data collection to two days per year.

The ATMS system, however, provides the department with much more detailed highway performance information for every day of the year. For example, data are available on the daily volume of traffic in each lane on every freeway covered by the system. These data could be used not only to better assess the levels of congestion in each region, but also to conduct detailed before and after studies to determine the benefits of specific transportation projects, such as a new high occupancy vehicle lane or a new interchange.

Additionally, the ATMS system could enable the department or the private sector to provide reliable, real-time traffic information to the public. Finally, it could allow the department to incorporate performance measures, such as travel time and reliability, into policy and funding decisions, a goal that the department has been working towards for several years.

Pilot Project Successful. Caltrans has begun exploring the opportunities provided by ATMS, through the development of a pilot project, in coordination with the National Science Foundation and the Partners for Advanced Transit and Highways (PATH) program. The goal of the project was to develop an application that converts raw data from ATMS into user-friendly traffic information. Known as the Performance Measurement System (PeMS), the software, operated by UC Berkeley, can provide real-time freeway information accessible via the web or cell phone including:

• Current speeds and freeway incidents by freeway segment.
• Hours of delay on specific freeway corridors.
• Amount of delay that can be reduced via ramp metering.
• Number of vehicles using carpool lanes.
• Travel time predictions one hour ahead of time.
• Condition of loop detectors.

Currently Los Angeles is the only district that is sending its ATMS data to UC Berkeley's PeMS project, although other districts that have ATMS could do so relatively easily. The PeMS software is operational and has been extensively tested, but is not yet accessible to the public.

Analyst's Recommendation. The department needs a strategy for how to take advantage of the new traffic information data that are being made available through ATMS. The PeMS offers a glimpse into the many benefits that can be gained from the data. In order to ensure that the department uses a statewide approach to reaping the full benefits of this technology, we recommend the following budget bill language in Item 2660-001-0042:

The Department of Transportation shall establish a steering committee to: (1) determine how the department should take advantage of the Advanced Traffic Management System data for congestion monitoring purposes; (2) develop recommendations for how this data could be used to improve the department's various business practices, including but not limited to planning, design and engineering, maintenance, and traffic operations; and (3) develop a departmentwide approach for how the information should be disseminated to the public. The committee shall include, but not be limited to, a representative from each of Caltrans Traffic Operations, Planning, and Highway Program, the Information Systems and Service Center, UC Berkeley's PATH program and the California Chamber of Commerce. The committee shall provide a report to the Chair of the Joint Legislative Budget Committee, the chair of the fiscal committee in each house, and the chair of the transportation policy committee in each house by December 1, 2001.

Intercity Rail Program

The intercity rail program was established to provide motorists traveling long distances with a safe, efficient, and cost-effective transportation alternative to the automobile. Currently, the state supports and funds intercity rail passenger services on three corridors—the Pacific Surfliner (formerly 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.

The Capitol intercity rail service is administered by the Capitol Corridor Joint Powers Authority (CCJPA) which started on July 1, 1998, following the enactment of the Intercity Passenger Rail Act of 1996 (Chapter 263, Statutes of 1996 [SB 457, Kelley]). Caltrans administers service on the remaining two rail corridors. In addition to providing for the operation of service, Caltrans and CCJPA also plan for the capital improvements needed to upgrade the respective corridors to provide expanded service. Both Caltrans and CCJPA contract with Amtrak for the operation and maintenance of the intercity rail service.

Budget Requests Substantial Increase in Operating and Capital Project Funding. For 2001-02, the budget requests $73 million for Amtrak to provide intercity rail service. This is about $9.5 million above the current-year level. The higher funding level includes additional monies to operate new round-trip service on the Capitol and San Joaquin corridors. Furthermore, the budget requests $98 million from the Public Transportation Account (PTA) for intercity rail track and signal improvements on all three passenger rail corridors.

In the following sections, we discuss:

• The ridership and financial performance for intercity rail service in 1999-00.
• The proposed major expansion of service as envisioned under Caltrans' latest ten-year rail plan.
• The cost and ridership performance implications stemming from the ten-year rail plan.
• Recommendations for intercity rail budget requests.

Ridership Increases, As Do State Costs

Overall intercity rail performance, including ridership and farebox (recovery) ratios, has improved. State operating costs have also increased.

In the Analysis of the 2000-01 Budget Bill, we provided an in-depth review of the state's intercity rail program through 1998-99, including an examination of the system's passenger rail service levels, historical performance, and costs to the state. (Please see pages A-62 through A-75 of our 2000-01 Analysis.)

Total Ridership Continues to Increase; But Growth Concentrated on the Capitol Service. In 1999-00, total ridership on the three intercity rail corridors increased by about 6 percent over the previous year, from about 2.8 million to over 2.9 million passengers. However, this growth was not evenly experienced by all three services. In fact, virtually all of the increase occurred on the Capitol corridor, with an increase of about 33 percent (516,000 trips to 684,000 trips between 1998-99 and 1999-00). While the Pacific Surfliner's ridership stayed relatively flat (with only a two-tenths of a percent increase), the San Joaquin suffered a slight loss in total ridership, with a 1.5 percent decline below the 1998-99 level.

As total ridership increased on the aggregate intercity rail system, revenues generated primarily from passenger fares also increased. In 1999-00, fare revenues totaled $44.5 million, about 12 percent higher than the previous-year level.

While State Operating Costs Also Increase, Farebox Return Improves. Overall operating costs for the three intercity rail corridors increased by 8.8 percent to a total of approximately $61 million in 1999-00. The increase was due to a combination of more round-trip service on the Capitol and on the San Joaquin. Intercity rail revenues for all three rail corridors combined increased at a faster rate than operating costs between 1998-99 and 1999-00. As a result, the aggregate farebox (recovery) ratio—an indicator of the rail service's ability to recoup its operating costs—rose from 40 percent to about 43 percent. Thus, in 1999-00, for every dollar spent operating intercity rail service, about 43 cents were recovered through fare revenues. Individually, the farebox ratio increased on both the Pacific Surfliner and Capitol corridors, but dropped from the 1998-99 level on the San Joaquin.

Long-Range Plan Envisions Major Service Expansion at Great Cost

In 2000, Caltrans produced a long-term passenger rail plan that calls for $3.2 billion in capital projects to improve and expand intercity rail service over the next ten years. The plan also estimates annual state operating costs to be $118 million by 2008-09.

Caltrans Updates Its Ten-Year Rail Report. In May 2000, Amtrak published a passenger rail capital investment plan that identifies proposed intercity rail capital improvement projects. The plan also provides ridership and cost projections based on the completion of the projects. In October 2000, Caltrans issued its statutorily required ten-year rail passenger program report. This report incorporates the recommended capital projects and performance data from the Amtrak plan and delineates Caltrans' plans for the state's intercity rail service from 1999-00 through 2008-09. The report envisions a substantial expansion of the state's intercity rail service over ten years in order to improve customer service. This improvement is to be achieved by expanding existing services and adding new routes. Figure 8 summarizes the expansion of service called for in the plan.

Huge Capital Costs to Construct Vision. Caltrans estimates that the rail plan would cost $3.2 billion over ten years to construct. Of this amount, the bulk would be for track and signal improvements, totaling an estimated $2.5 billion. In general, these improvements are expected to improve on-time performance, reduce travel times between stations, and expand track capacity for additional round trips between cities.

Figure 9 summarizes the estimated capital costs for each corridor as well as for the proposed new routes.

Large Operating Costs to Implement Vision. The projected costs contained in Figure 9 are for capital improvements only. They do not include ongoing operations and maintenance costs. According to the report, if all services contained in the plan were implemented, annual state operating costs would amount to approximately $118 million in 2008-09. In addition, there will be significant ongoing costs for heavy maintenance of rolling stock (including rebuilding and replacing various parts of locomotives and train cars). (The 2001-02 budget, for example, includes about $5 million for annual heavy maintenance of the existing state-owned rail fleet. As more equipment is purchased, ongoing heavy maintenance costs will increase.) Finally, there will be annual administrative and marketing costs. In 1999-00, these costs totaled about $7.9 million.

Significant Policy Implications From Long-Range Plan

In evaluating Caltrans' ten-year plan, the Legislature will need to assess what it wants the state's role to be in funding intercity rail vis-a-vis commuter rail.

State and Local Rail Responsibilities. The passenger rail transportation system in California includes two major components—the intercity rail service which is the responsibility of the state and the commuter and urban rail service which is the responsibility of local and regional agencies.

• Intercity Rail. This component primarily serves business and recreational travelers going between cities in California and to other parts of the country. Because it provides services among regions, it is the responsibility of the state.
• Commuter and Urban Rail. These services are provided within urban or metropolitan areas. Commuter rail generally offers frequent service during the commute hours throughout a metropolitan region that may cover a number of cities. Urban rail generally provides regular service throughout the day. Because these two services primarily serve local and regional transportation needs, they are the responsibility of local and regional agencies.

Current State and Local Roles Becoming Blurred. Senate Bill 45 (Kopp) defined the state's role in mass transportation as primarily providing for interregional transportation. As a result, within the rail program Caltrans concentrates primarily on providing intercity rail service, while leaving regional rail systems to local and regional agencies.

This distinction, however, has started to blur. For example, on portions of the Pacific Surfliner corridor, state-supported rail transportation is in direct competition with regional commuter rail systems. Specifically, between Oceanside and San Diego, the Surfliner travels the same corridor with the Coaster, a regional commuter rail system. North from Oceanside to downtown Los Angeles, the Surfliner shares tracks with Metrolink, another commuter rail service.

The blurring of responsibilities is also found in northern California. For example, the San Joaquin service provides daily service between Stockton and Oakland, while the Altamont Commuter Express—another regional commuter rail service—provides daily round trips between Stockton and San Jose.

Implications of the Ten-Year Plan. The increased investments proposed for intercity rail further blur the distinction between the state-supported intercity rail program and regional commuter rail systems. This is because Caltrans' plan to expand the intercity rail service, through adding more round trips particularly at commute hours, moves the state closer to providing regional commuter rail service. Essentially, this moves the state further away from the policy established under SB 45 which envisions the state providing interregional rail service while local agencies provide regional service. If the Legislature determines that the state's responsibility should continue to be interregional transportation, then as intercity rail investment decisions are made, the Legislature should consider whether capital and service enhancements primarily benefit interregional or regional mobility.

Ridership Increase Could Be Substantially Less Than Projected

Caltrans forecasts annual ridership to grow by 84 percent (from 2.9 million to 5.4 million) over the ten years from 1999-00 through 2008-09. This forecast assumes the investment of $2.6 billion for the construction of capital improvement projects and increases in intercity service. Our analysis shows that the projected ridership increase resulting from a $2.6 billion investment could be substantially less.

With the plan's capital improvements of $2.6 billion on the existing three corridors, the department projects total ridership to increase by 84 percent (from 2.9 million to 5.4 million) over ten years.

Justification for Capital Expenditures Depends on Ridership Projections. Expending $2.6 billion for capital improvements on the three rail corridors may be justified if, as a result, more passengers use the service, thereby reducing traffic on state highways. Another benefit of increasing ridership is the reduction in the subsidy the state pays per passenger. For instance, in 1999-00 the state operating cost per passenger was a little over $25 per rider. The department forecasts that, with the projected ridership increase, the state operating cost per passenger would fall to $16 per rider in 2008-09. This estimate, however, relies on both controlling operating costs and attracting additional riders at the rate projected.

Accurate Projections Are Difficult, However. In the past, Caltrans has been too optimistic in its intercity rail ridership projections. As shown in Figure 10, actual ridership has been between 7 percent and 18 percent below the department's ridership projections from 1997-98 through 1999-00. To the extent the projected ridership fails to materialize, the state subsidy would remain high.

Ridership Increase Resulting From Capital Improvements Overstated. Caltrans projects an 84 percent increase in ridership over the ten-year period of planned capital improvements. This is an average annual increase of 7 percent. Our analysis shows that the department's projections for ridership growth may be significantly overstated. For example, Caltrans' projections reflect growth rates which are significantly higher than what was achieved in the previous decade.

Figure 11 compares the department's projected annual ridership under its ten-year plan with two scenarios: (1) no increase in ridership and (2) a 4.9 percent increase (the average annual increase from 1995-96 through 1999-00). Figure 11 shows that the department's projected growth of 7 percent would, at the most, increase ridership by a cumulative total of 12 million over ten years. Using a lower ridership growth rate of 4.9 percent results in a cumulative increase in ridership of about 7 million.

The actual benefit in increased ridership may be even less than 7 million, however. This is because the estimated growth in ridership over the decade is not all attributable to the capital projects identified in the ten-year plan. Ridership would likely increase even in the absence of the capital improvements, as a result of growth in population and traffic congestion. If we were to assume that ridership would grow naturally due to other factors, the direct effect of a $2.6 billion investment on ridership could be significantly lower.

To place this ridership gain in context, in one year (1998-99) Metrolink transported 6.7 million passengers, Caltrain carried 8.6 million passengers, and the Bay Area Rapid Transit (BART) rail system served 81 million passengers. While these are commuter rail systems and not intercity, in several cases the distances and areas they serve are analogous to intercity rail service.

Budget Request Begins to Implement Ten-Year Rail Plan

The 2001-02 budget proposes $98 million for track and signal improvements on all three of the intercity rail corridors, as well as a $9.5 million increase for added round-trip service on the Capitol and San Joaquin corridors.

In the budget year, Caltrans requests substantial funds from PTA for both capital improvement projects and expanded service on two rail corridors to carry out the rail plan. Specifically, the budget requests $98 million for capital improvement projects. The requested funds are designated for track and signal improvements on the three intercity rail corridors, including the following:

• $48 million for track improvements on the Pacific Surfliner in Orange County.
• $29.4 million for double-tracking and signal improvements on the San Joaquin in Contra Costa County.
• $20.6 million for double-tracking on the Capitol in Yolo County.

The budget also requests $9.5 million for additional round-trip services on the San Joaquin and Capitol corridors. Specifically:

• $4.2 million for an additional round trip between Bakersfield and Sacramento, bringing the total number of round trips on the San Joaquin corridor to six.
• $5.3 million for the Capitol corridor to continue operating two new round trips, funded by TCRP and anticipated by CCJPA to begin service in April 2001. Continuing the two additional round trips would provide a total of nine round trips between Oakland and Sacramento, six round trips between San Jose and Oakland, and three round trips between Sacramento and Roseville.

In the following sections, we analyze and provide recommendations first for the budget proposals for capital improvements and then for the expanded intercity rail service.

Based on Ridership Performance, Not All Capital Improvements Justified

We recommend deletion of $77.4 million requested for capital improvements on the Pacific Surfliner and San Joaquin because new capacity improvements in the past have not resulted in commensurate ridership increases. (Reduce Item 2660-301-0046 by $77.4 million.)

Capital Improvements Should Be Justified by Increased Ridership. Aside from improving safety, a key reason to make capital improvements is to increase the number of passengers who ride the system. According to department staff, the proposed track and signal projects would increase track capacity, thereby enabling an increase in round-trip service that would generate additional riders. Therefore, whether to invest in additional capital improvements should be based on evidence that the increased expenditures will increase ridership.

Our review, however, shows that an increase in round-trip service on two of the three corridors has not resulted in a corresponding increase in ridership in recent years. Figure 12 shows the number of round trips on the three corridors from 1990-91 through 1999-00 and how total ridership has changed over the same period. As Figure 12 shows, ridership on the Pacific Surfliner has either fallen or remained relatively flat over the past decade, even as additional round trips were added and other improvements were made to the regional system. This may in part be due to competition from other commuter rail systems (Metrolink and the Coaster) that came on line during the 1990s providing service in the same rail corridor. As for the San Joaquin, the large increase in total ridership occurred in 1996-97 and 1997-98, prior to the addition of new round trips to the corridor. When new round trips were added (1998-99), ridership remained flat. On the Capitol, a rail system that serves two congested travel corridors and has little or no competition from other commuter rail systems, ridership has increased substantially as new passenger trains have been added to service.

Obviously, there are other factors that affect ridership performance on a corridor beyond capital improvements that allow for an increase in the number of round trips. These factors include fare price, availability and reliability of alternatives to passenger rail, train on-time performance, travel times between rail stations, and changing travel patterns among regions. Therefore, due to the number of factors that affect ridership, expanding services may not result in a corresponding increase in riders.

Analyst's Recommendation. Capital improvements to the intercity rail services are warranted to the extent these improvements lead consistently to more use by riders. However, as we discussed above, the additional supply of service for both the Pacific Surfliner and the San Joaquin in recent years, facilitated by various capital improvements, have not generated a commensurate increase in riders. Accordingly, we recommend that the capital projects proposed for the two services in 2001-02 not be funded.

As for the Capitol corridor, our review shows that the requested improvements are warranted. According to CCJPA staff, the tracks between Oakland and Sacramento are currently at capacity. The $20.6 million proposed for double-tracking a portion of this line will allow for more round-trip service to be added. Based on historical growth in ridership and apparent demand for improved service (as evidenced by recent high rates of ridership growth), the requested funding appears justified.

Accordingly, we recommend reducing funding for intercity rail capital projects by $77.4 million.

Expansion of Service on San Joaquin Corridor Not Justified

We recommend deletion of $4.2 million requested for an additional round trip on the San Joaquin corridor. This is because (1) recent increases in round-trip service have not generated new ridership and (2) state operating cost per passenger has increased markedly. (Reduce Item 660-001-0046 by $4.2 million.)

We recommend that $4.2 million requested for the sixth round trip on the San Joaquin be rejected for two reasons. First, as we discussed above, the recent increase in round-trip service on this corridor has not generated an increase in ridership. Instead, as Figure 12 shows, the number of passengers has actually declined slightly—by 4.4 percent between 1997-98 and 1999-00. Second, associated with the ridership decline, state operating cost per passenger has increased markedly. Between 1997-98 and 1999-00, state costs increased from about $24 to over $36 per passenger (a 47 percent increase).

In view of the above, expending additional state resources for new round-trip service does not seem warranted at this time. Therefore, we recommend reducing funding for intercity rail support by $4.2 million.

Expansion of Service on Segments of Capitol Corridor Premature

We recommend deletion of $1.8 million requested to continue operating two new round trips on certain segments of the Capitol corridor. This is because the Capitol Corridor Joint Powers Authority has not secured an agreement with the private owner of the tracks to operate new trains, and is unlikely to do so in the near future. Therefore, funding for these segments is premature. (Reduce Item 2660-001-0046 by $1.8 million.)

New Service on Two Segments of Capitol Corridor Premature. The Capitol provides daily round-trip service between San Jose, Oakland, Sacramento, and Roseville. In 2000-01, TCRP provided $1.9 million to expand service on the entire corridor by two new round trips. Discussions with CCJPA staff indicate that the two new round trips between Oakland and Sacramento will begin in April 2001. Additional round trips, however, between San Jose and Oakland and between Sacramento and Roseville are unlikely to begin in the current year. According to CCJPA, the authority has not completed negotiations with the owner of the rail corridor to provide the expanded service. The negotiations depend largely on a technical (engineering) analysis currently being conducted to determine the capital improvements required to accommodate more passenger trains. Since the capital improvements must be completed before more service can be added on these two segments, it is unlikely that the new round trips will be initiated in the current year or in the budget year.

Accordingly, we recommend deleting funding for additional round-trip services between San Jose and Oakland ($1.2 million) and between Sacramento and Roseville ($0.6 million).

New Service Appears Justified on Third Segment. However, as we discussed previously, the Capitol has experienced substantial ridership growth in recent years. Between 1997-98 and 1999-00, ridership grew by over 41 percent. Therefore, there appears to be demonstrated ridership demand for new service expansions. Furthermore, CCJPA has secured an agreement with the private railroad to operate the new round-trip service on the segment between Oakland and Sacramento beginning in the current year. Therefore, continuing the additional two round trips on the segment between Oakland and Sacramento appears justified.

Operating Costs for Existing Intercity Rail Service

We withhold recommendation on $63.8 million requested to support existing intercity rail service because the amount needed will likely be different from current estimates. Specifically, more current cost estimates will be forthcoming from Amtrak in March 2001. We recommend that the department provide the updated cost estimates at budget hearings. Based on that information, the Legislature should adjust the amount of support for intercity rail services accordingly.

The budget requests $63.8 million to support Amtrak's costs for continuation of intercity rail services in 2001-02.

Updated Amtrak Cost Estimates Will Be Forthcoming. The budget request is based on cost estimates provided by Amtrak in 2000. We understand that Amtrak will provide Caltrans with updated estimates in March 2001. Accordingly, we withhold recommendation on $63.8 million for intercity rail services. We further recommend that Caltrans provide the updated cost estimates at budget hearings and that the Legislature adjust the proposed appropriation based on the updated information.

Rural Transit

Rural Transit System Grant Program

The budget proposes $18 million to provide grants to public agencies in rural areas for transit capital improvements. We recommend deleting funding for the grant program from the budget bill. Instead, if the Legislature determines that such a grant program has merit, we recommend that funding be provided in legislation. (Reduce Item 2660-101-0046 by $18 million.)

Budget Creates New Grant Program. For 2001-02, the budget requests $18 million in one-time funds to implement a new rural transit system grant program. According to Caltrans, the concept of the program is to provide competitive grants to rural public agencies for transit capital improvement projects, such as bus and van procurement, rehabilitation, or facilities improvements.

New Program Should Be Defined in Legislation. The new rural transit grant program should be created through legislation in order for the Legislature to review the proposal in terms of program objectives and funding level and to ensure that the program meets the Legislature's own priorities. With regards to the funding amount, Caltrans has not conducted a needs assessment to determine the amount of funds that would be required to adequately address rural transit capital project needs. Consequently, there is no basis for the requested $18 million. Therefore, to allow for legislative fiscal review, funding for the new program should also be included in the enabling legislation. The administration recognizes that the new program should be authorized in enabling legislation and indicated that it will propose trailer legislation. However, funding for the rural transit grant proposal is included in the budget act.

Analyst's Recommendation. Without prejudice to whether such a grant program is warranted, we recommend deleting funding for the rural transit grant program from the budget bill. If the Legislature determines that a rural transit grant program has merit, we recommend that funding be provided in the legislation that defines the program.

Other Issues

Department Should Report on New Plan to Maintain Historic Properties

We recommend the adoption of supplemental report language requiring the department to submit a revised work plan and cost estimates for maintaining and restoring historic properties located on the proposed State Route 710 corridor.

Background. Since 1964, Caltrans has proposed extending the State Route (SR) 710 to ease traffic flow through Pasadena, South Pasadena, and a portion of Los Angeles. In preparation for this project, Caltrans purchased about 500 properties along a section of the corridor that was envisioned for the project. Of the properties bought, 92 are now designated as historic.

Although the project is contained in the Southern California Association of Government's long-range plan and has strong support among some members of the surrounding community, local opposition and environmental concerns have prevented the project from progressing. However, in 1998, 24 years after the initial environmental impact statement was approved, the Federal Highway Administration approved the environmental impact statement containing the proposed alignment for the project. Nevertheless, litigation regarding the proposed route is ongoing. In addition, full funding of the project (at $823 million) has yet to be identified. Consequently, it is likely that the department will need to maintain the historic properties on the proposed alignment for some time. Assuming that some type of project is built on this right-of-way, the department would then relocate the properties and subsequently sell them.

Department Has Poor Track Record of Managing Historic Property Funds. As the property owner, Caltrans is responsible for maintaining its historic properties at certain standards set by state and federal law. Our review indicates that the department has a poor track record with respect to maintaining the SR 710 properties and managing the funds available for such purposes. According to a recent report by the Bureau of State Audits, Caltrans allowed the historic properties on the SR 710 corridor to deteriorate and did not seek to rehabilitate them until concerns were raised by local communities in the 1990s.

The department secured an initial $3.2 million in 1994-95 for rehabilitation purposes, but later determined that this amount was inadequate. It then obtained an additional $16 million from CTC to complete rehabilitation for 81 properties. However, instead of using these funds to make strategic improvements on all of the properties, the department expended all its resources on 39 (less than half) of the properties, spending an average of almost $500,000 per property. The department subsequently requested $22 million from CTC in March 2000, but CTC rejected the request, directing Caltrans to develop alternatives for minimizing costs.

Budget Requests Authorization to Spend $3.7 Million in 2001-02, $1.5 Million Ongoing. The budget requests authorization to spend $3.7 million in 2001-02 and $1.5 million annually from 2002-03 through 2004-05 to maintain the historic properties on the SR 710 corridor. Funding for this work is available from a special fund, the Historic Property Maintenance Fund, created by Chapter 759, Statutes of 1999 (SB 1221, Schiff). Funds in the account are specifically designated for the maintenance and operation of historic properties owned by the department. The account has sufficient funds to accommodate the amount requested in the budget.

Proposal Is Based on Cost Estimates for "Mothballing" Strategy. The department indicates that the total cost of repairing the remaining 42 properties is $4.9 million. However, this estimate was prepared by the Department of General Services under the assumption that Caltrans was going to repair the properties according to a standard known as mothballing. This approach allows the department to protect the property at a level that maintains the physical structure but does not have to be habitable.

Department Is Revising Strategy and Cost Estimates. Due to concerns raised by the State Historic Preservation Office (SHPO), Caltrans is also considering a more costly alternative which prioritizes the historic features of the properties and ensures the structural integrity of each building. In coordination with SHPO, the department is developing revised cost estimates for each property. The department is conducting these assessments in phases and should complete them by September 2001.

Recommend Report Containing Revised Cost Estimate and Schedule. To ensure that the department adopts a strategic approach to developing its work plan for maintaining the historic properties located on the proposed SR 710 corridor, we recommend adoption of the following supplemental report language in Item 2660-001-0365:

The Department of Transportation shall prepare and submit a revised work plan and revised cost estimates for all historic properties in the State Route 710 corridor to the Chair of the Joint Legislative Budget Committee and the chair of the fiscal committee in each house by November 1, 2001. The revised work plan shall be based on a clearly defined method of prioritization that recognizes that not all features contribute equally to the historic character of each building.