Analysis of the 2007-08 Budget Bill: Transportation

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 system. 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 modes and Administration encompasses management of the department.

The budget proposes total expenditures of $13 billion by Caltrans in 2007-08. This is $1.5 billion, or 14 percent, more than estimated current-year expenditures. This increase is explained in large part by budget-year encumbrance of Proposition 1B bond funds. The proposed staffing level of 21,758 personnel in 2007-08 is similar to the current year. Caltrans’ total support in 2007-08 will be provided by a variety of sources, including $4.1 billion (32 percent) from the State Highway Account (SHA), $4.1 billion (32 percent) from federal funds, $1.6 billion (12 percent) from the Proposition 42 transfer and repayment of prior-year loans, and $1.5 billion (12 percent) from Proposition 1B funds. The remaining support will be funded from reimbursements, as well as from various smaller transportation accounts.

Addressing Issues in the Traffic Congestion Relief Program (TCRP)

In 2000, the Traffic Congestion Relief Act committed $4.9 billion to 141 specified transportation projects intended to provide congestion relief, increased connectivity, and faster goods movement. Originally, TCRP was to be funded by a combination of General Fund (one-time) and gasoline sales tax (ongoing) revenues between 2000-01 and 2005-06. Due to funding delays, the program has been extended through 2007-08. In the following section, we examine issues affecting the TCRP and recommend legislative actions to address them.

State Funding for Projects Has Been Delayed, Repayment Could Span Far Into Future

Due to the state’s fiscal condition in 2001-02 through 2004-05, a significant portion of the funding for the Traffic Congestion Relief Program was delayed or loaned to the General Fund. Current law allows repayment of $1.2 billion in outstanding loans to span over the next ten years.

TCRP Funding Delayed, Loaned to General Fund. Due to the state’s fiscal condition in 2001-02 through 2004-05, a significant portion of the funding for TCRP was delayed or loaned to the General Fund. Current law extends funding for TCRP through 2007-08 and establishes repayment of past loans. Through 2006-07, TCRP will have received about $3.1 billion. The program is scheduled to receive its last annual payment in 2007-08, in the amount of $602 million.

Loan Repayment Will Stretch Far Into Future. Outstanding loans owed to TCRP currently total about $1.2 billion. This amount will be repaid in two ways. First, about $750 million will be repaid from the General Fund under conditions set up in Proposition 1A (passed by the voters in 2006). Proposition 1A requires that this amount be repaid by June 30, 2016, at a minimum annual rate of one-tenth the amount owed. The Governor’s budget proposes to repay $82 million to TCRP in 2007-08, approximately one-ninth the amount owed.

Second, $482 million is to be repaid from bonds backed by tribal compact revenues, pursuant to Chapter 91, Statutes of 2004 (AB 687, Nuñez). However, as we mention in “Funding for Transportation Programs” (in the “Crosscutting Issues” section of this chapter), it is uncertain if or when the state will issue tribal bonds to repay the debt to the TCRP. This is because pending lawsuits make bond issuance unlikely in the near future. As a result, the Governor’s budget assumes that until bonds can be issued it will repay TCRP using $100 million in annual tribal compact revenues, as allowed under Chapter 91. While this makes certain the timing and amount of repayment to be received by TCRP, it stretches repayment until 2016-17, making some projects wait many years to receive funding.

As a result of the repayment timeline reflected in the Governor’s budget, funding for the program could stretch over the next ten years instead of over a six-year period ending in 2005-06, as originally envisioned by the act. Figure 1 shows that funds for TCRP projects could trickle in over many years if repayment from the General Fund is spread over nine years, as permitted under Proposition 1A, and tribal bonds are not issued.

Delayed State Funding and Cost Increases Have Impeded Project Delivery

Seven years into the Traffic Congestion Relief Program (TCRP), only 26 of the 141 projects have been completed. In addition, many project sponsors have yet to identify full funding for their TCRP projects. As a result, $544 million in applications have not been approved. While development work continues on many other projects, cost increases have made total project funding uncertain which in turn threatens project delivery.

Allocation Process. The California Transportation Commission (CTC) allocates funds to TCRP projects by discrete project development phases. These phases include environmental clearance, design and engineering, right-of-way acquisition, and construction. Typically, funding provided through the program only covers a portion of the cost of a project phase. While projects were earmarked with specific funding amounts in the act, project sponsors (typically local agencies) are required to submit applications to CTC prior to being allocated funding for each phase. These applications define the most basic information about a project phase-scope, cost, and schedule. Applications must also identify how a project will be fully funded. Without each of these elements being fully defined, project sponsors cannot proceed for a TCRP funding allocation.

Status of TCRP Fund Allocations. Our review of the status of the TCRP fund allocations shows that there has only been limited progress in the delivery of TCRP projects. Figure 2 summarizes the status of fund allocations for the program. Specifically, slightly more than one-half of the funds ($2.6 billion) had been allocated through December 2006. Of that amount, about $1.7 billion had been expended-$304 million on completed projects and $1.4 billion on projects still under development. Beyond the monies allocated by CTC, regional and local project sponsors have advanced $566 million for projects using “Letters of No Prejudice” (LONPs), as discussed below. Still, seven years into the program, over $1.7 billion in projects have not come in for an allocation, including $544 million in project phases that do not have an approved application.

Most Projects Not Complete. As of December 2006, only 26 of the 141 projects designated in the TCRP had been completed. These projects accounted for $304 million of the program’s total funding. Five of the projects were transportation studies (such as studies of corridor improvements), the other projects included primarily highway interchange improvements, transit fleet acquisitions, and construction of rail tracks. These projects, in general, were fairly simple and thus required shorter lead times for project design and engineering, or were able to move forward faster than other projects.

Expenditures of State Funds. While few projects are complete, $1.4 billion (29 percent of the total program funding) had been spent through December 2006 on TCRP projects that are still under development. For some of these projects, recent cost escalations may hinder completion, requiring project sponsors to identify additional funds for construction.

Locals Expend Their Own Funds to Advance Projects Ahead of State Funds. To minimize project delays resulting from the lack of state funds in past years, a number of local agencies have received LONPs from CTC. Created by Chapter 908, Statutes of 2001 (AB 1335, Cohn), LONPs allow local agencies to use their own funds to continue work on phases of TCRP projects that do not have allocations. These letters indicate that, should TCRP funds become available, the local agencies will be reimbursed for the local funds they have spent. Local agencies have advanced $686 million worth of TCRP projects in this manner. As of December 2006, $120 million in LONPs had been reimbursed, leaving about $566 million outstanding.

Some Project Applications Yet to Be Approved. The CTC’s annual report shows that almost seven years after the program was established, funding applications for $544 million for certain phases of TCRP projects have yet to be approved. Discussions with CTC indicate that in many cases, applications have not been approved because project costs have increased and full funding for these phases has not yet been identified by regional or local project sponsors.

Reasons Why Projects Are Taking So Long. Much of the slowness in TCRP project delivery can be traced to funding delays that occurred in the early 2000s when TCRP funds were loaned to the General Fund. However, it is also true that TCRP funds constitute, on average, less than one-third of total project costs. Thus, project delays may also be tied to other factors. Specifically, projects initially were earmarked funding in statute without assurance of when they could be completed or that local and federal monies were available to provide the balance of the funding required. To the extent uncertainties have persisted, it is unknown when or if some projects will be completed. Below, we discuss actions that can be taken to provide more certainty regarding when projects will be completed using TCRP funds.

Address Issues in the TCRP

Transportation projects must be completed and in use in order to achieve the Traffic Congestion Relief Program’s (TCRP’s) objectives of providing congestion relief, connectivity, or goods movement benefits. Accordingly, we recommend that the Legislature direct the California Transportation Commission (CTC) to (1) establish project completion deadlines and (2) identify projects that are no longer viable so funds may be redirected to other projects. We further recommend the enactment of legislation to provide guidance as to how funds should be redirected.

It is also important that CTC has adequate flexibility in implementing the program, given the potentially long timeline for repayment of past loans. Accordingly, we recommend the enactment of legislation to eliminate the annual cap on reimbursing local agencies who have used their own funds to advance TCRP projects.

Delayed state funds and cost increases still threaten TCRP project delivery. Nevertheless, as we discuss below, there are steps that the Legislature can take to ensure that funds are used to deliver projects which meet the program’s goals and to ensure that CTC has adequate flexibility in implementing this program, given the potentially long funding timeline.

Establish Project Delivery Deadlines. At present, there are no deadlines for delivery or completion of any of the 141 projects in the TCRP. Without project delivery deadlines, funds may remain available indefinitely to projects that show no signs of progressing. While the potentially long timeline for TCRP repayment poses a challenge to project delivery, we believe that without establishing some sort of deadline, funds may linger on stalled projects indefinitely. Accordingly, we recommend that the Legislature direct CTC, by January 2008, to establish final delivery deadlines in order to ensure that funds are used to construct projects in a timely manner.

Identify Projects That Are No Longer Viable. As previously mentioned, projects were earmarked for funding without assurance of when they could be completed or that other funds were available to provide full funding. To the extent uncertainties regarding full project funding and other factors related to project delivery have persisted, some projects may no longer be viable. Accordingly, we recommend that the Legislature direct CTC, by January 2009, to identify projects that are no longer viable so that funds may be put to other projects.

Redirect Funds From Failed Projects. For projects that cannot meet their delivery deadline or which CTC deems as no longer viable, the Legislature should redirect remaining TCRP funds to other transportation projects. While the Legislature has a number of options in how it reallocates the freed-up funds, we recommend that the Legislature redirect these funds to the SHA. By consolidating funds into the state’s major transportation account, this would help simplify total state transportation funding. To the extent the freed-up funds, once in the SHA, are used for projects in the State Transportation Improvement Program (STIP), there would be congestion relief benefits in keeping with the goals of the TCRP.

Provide CTC With Additional Flexibility in Repaying LONPs. Chapter 375, Statutes of 2005 (SB 66, Torlakson), limits to 50 percent the amount of annual TCRP funding that CTC can use to reimburse local transportation agencies that advanced projects ahead of state funds using LONPs. The cap on reimbursement of LONPs was established prior to Proposition 1A, with the idea of encouraging new TCRP allocations. However, with the potential of funds trickling in over many years, we believe it makes sense to provide incentives for locals to advance additional TCRP projects using LONPs so that projects can be completed and open to users sooner. Providing CTC with the flexibility to reimburse LONPs at a higher level may help achieve this. Given the change in the TCRP funding landscape, we recommend the enactment of legislation to eliminate the annual cap on reimbursement of LONPs.

Other Issues

Maintenance Needs Not Fully Funded in Budget

The 2007 Five-Year Maintenance Plan recommends that the state increase its annual investment in preventive maintenance of pavement, structures, and drainage by $147 million in order to address the maintenance backlog. The budget includes $85 million for pavement preservation, but omits $62 million for structures and drainage preservation. Given that preventive maintenance is the most cost-effective means of protecting the state’s infrastructure investment, we recommend that the department report at budget hearings on why it is not augmenting funds for structures and drainage preservation.

In addition to developing and constructing the state highway system, Caltrans is responsible for maintaining the system. This work is carried out by the maintenance division. With a 2006-07 budget of $1 billion and 5,819 personnel years (PYs), the division is responsible for the upkeep of all aspects of the system, including pavement, structures, roadsides, and signage. Maintenance activities range from litter removal, guardrail repair, and filling potholes to preventive maintenance. Preventive maintenance includes activities that seek to prevent deterioration and extend the life of various aspects of the highway system. The division does not, however, perform major rehabilitation and reconstruction projects on the state highway system. Those activities are included in the State Highway Operation and Protection Program (SHOPP) and are performed as part of the capital outlay program.

Maintenance Plan Findings. Chapter 212, Statutes of 2004 (SB 1098, Committee on Budget and Fiscal Review), requires that Caltrans adopt biennially a five-year maintenance plan. This plan is to assess preventive maintenance needs on the highway system and recommend investments that would cost-effectively address these needs. The 2007 Five-Year Maintenance Plan recommends that the state increase its annual investment in preventive maintenance of pavement, structures (such as bridges and overpasses), and drainage (such as culverts) by $147 million in order to address the maintenance backlog.

Of this annual amount, $85 million is for pavement maintenance contracts to eliminate the backlog of 7,784 lane-miles in need of preventive maintenance over ten years. Additionally, $41 million is to reduce by one-half the number of structures in need of major maintenance-the plan estimates that about 20 percent of the state’s 12,500 bridges are in need of major maintenance. Lastly, the plan recommends an additional $21 million to maintain 355 culverts annually, which would reduce, but not eliminate, growth in the drainage maintenance backlog.

Governor’s Proposal. For 2007-08, the Governor proposes to augment funding for highway maintenance by $117 million. This increase is explained in large part by several budget-year requests, including $85 million for pavement preservation contracts, $9.7 million for maintenance of intelligent transportation system elements (like traffic signals and changeable message signs), $12 million for cost increases in materials and contracted services to enhance maintenance worker safety, as well as $7.2 million for new radios. While the budget would significantly increase maintenance spending over the current-year level, it does not fully address the recommendations in the 2007 Five-Year Maintenance Plan. Specifically, the budget ignores the plan’s recommendation to increase the investment in structures and drainage maintenance by $62 million annually.

Preventive Maintenance Is Highly Cost-Effective. Preventive maintenance activities include repairing damaged concrete, sealing bridge decks, and repairing culverts. Because these activities delay the need for major rehabilitation, reconstruction, and replacement investments in the SHOPP, they are highly cost-effective. For example, the department estimates that $1 spent on preventive pavement or drainage maintenance saves $5 to $6 in future SHOPP costs. Moreover, the plan estimates that preventive maintenance on structures is twice as cost-effective, saving $12 in future SHOPP costs. Given that the plan identifies preventive maintenance on structures as the most cost-effective investment, it is unclear why the budget does not fully fund this activity.

Recommend Department Report on Maintenance Funding. We recommend that Caltrans report at budget hearings on the findings of the 2007 Five-Year Maintenance Plan and explain why it is not adopting the plan’s recommendation for additional investment in structure and drainage preventive maintenance. The department should also explain why it chose to fund preventive maintenance on pavement, rather than structures, given its finding that preventive maintenance of structures is twice as cost-effective as preventive pavement or drainage maintenance.

Capital Outlay Support (COS) Request Will Be Amended

We withhold recommendation on the $1.6 billion requested for COS staff because staffing needs will be revised during the May Revision when more accurate information on the workload of various state transportation programs becomes available. The Department of Transportation (Caltrans) will likely require significant COS resources-including both contracting out and state staff-to deliver Proposition 1B funded projects in a timely manner. In its May supplemental report on COS, Caltrans should separately report COS resource needs for each Proposition 1B program. The requested COS resources should tie to the list of bond-funded projects that we have recommended be submitted by May 1.

Capital outlay support is the term used by the department to refer to work required to produce capital outlay projects. Before a capital outlay project can be constructed, Caltrans must assess environmental impacts, acquire rights-of-way, and design and engineer the project. Caltrans is also responsible for overseeing the progress of project construction. The COS budget consists primarily of the salaries, wages, benefits, and operating expenses of the more than 10,000 state staff who perform these functions. It also includes the costs of consultants who perform a portion of this work. The COS budget does not, however, include the salaries and benefits of the contractors who construct the actual projects; these costs are part of the capital outlay projects budget.

No Change in COS Level in Governor’s Budget. The budget proposes $1.6 billion to fund COS activities-this is essentially the same level as estimated current-year expenditures. The department indicates that it will revise these estimates in the spring when it has better workload estimates.

Anticipate Significantly Higher COS Request. In our January report, Implementing the 2006 Bond Package (a portion of which is reprinted in the “Crosscutting Issues” section of this chapter), we note that Caltrans will play a crucial role in delivering $12 billion in projects through several Proposition 1B programs. This represents a 33 percent increase in the total value of projects that the department is currently working on, including STIP, SHOPP, TCRP, and local partnership projects. Absent project workload data, our rough estimate shows that Caltrans could need as many as 4,800 PY equivalents in additional personnel resources to plan and construct projects in 2007-08 and beyond. Ensuring that the department has adequate COS resources-including both state staff and contracted services-will be essential to the timeliness of all projects that Caltrans is responsible to deliver. Currently, Caltrans contracts out about 10 percent of its COS workload. In order to deliver the large number of projects funded by Proposition 1B, the Legislature should consider authorizing Caltrans to use a higher level of contracted resources.

In the “Crosscutting Issues” section of this chapter, we recommended that the administration provide, by May 1, a list of projects to be funded in 2007-08 for each Proposition 1B program. (Please see “Appropriating Proposition 1B Funds.”) As Caltrans prepares its COS request for 2007-08, it should identify separately the COS resources that would be needed to deliver projects in each Proposition 1B program. Furthermore, the department should identify the composition of these COS resources, in terms of state staff and contracted services. This information will enable the Legislature to assess the COS request and monitor how these COS resources are used to deliver projects.

Department Should Report on Virtual Traffic Monitoring Stations Pilot

The budget requests $1.2 million for a two-year pilot project to determine the effectiveness of purchasing real-time traffic data from private vendors. We think this proposal is reasonable, but recommend that the Legislature adopt supplemental report language directing the department to report on its experience.

The Governor’s budget provides $1.2 million in 2007-08 to begin a two-year pilot that will determine the effectiveness of purchasing real-time traffic data from private vendors.

Department Primarily Collects Traffic Data Using Loop Detectors. Caltrans has traditionally collected its own traffic data through loop detectors installed in highway pavements. While loop detectors are a proven technology for collecting traffic data, loops are expensive to install and maintain. This is because loop detectors are installed beneath the roadway and thus in order to repair damaged loops, maintenance workers often have to close part of the road to access loops inside the pavement. The department estimates annualized costs of loops at $12,800 per mile. Because of these high costs, Caltrans has only installed loop detectors on one-half of the urban highway system. Moreover, the department indicates that approximately 30 percent of existing loop detectors and related infrastructure are in disrepair.

Proposes Pilot to Test Drive New Detection Technologies. In the proposed pilot, Caltrans requests funding to contract with a vendor to use new traffic data collection technologies, instead of loop detectors, at a significantly lower cost. An example of the new technologies that may be used by the vendor is Global Positioning Satellite tracking information that is already collected by various entities, but not currently used by Caltrans to monitor traffic conditions. Because these data collection methods do not require equipment installation in the highway rights-of-way, Caltrans estimates that vendors could provide real-time traffic data, which are similar in quality to loop data, for an annualize cost of about $700 per mile. If this pilot is approved, the department indicates that it would implement the pilot both in locations that are not currently covered by loop detectors (to increase total coverage), as well as in locations that are covered by loops (to verify the quality of the data provided by the vendor).

Recommend Supplemental Report on Pilot. Given the high costs of installing and maintaining loop detectors, we think it is reasonable for the department to explore less expensive traffic data collection methods. However, before the state makes a long-term commitment to purchasing traffic data from vendors, we believe that further investigation is warranted to better identify the costs and benefits of these newer traffic-monitoring methods. Accordingly, we recommend that the Legislature adopt the following supplemental report language directing the department to provide specific information that would enable the Legislature to determine whether this program should continue:

By April 1 of 2008 and 2009, respectively, Caltrans shall report on the Virtual Traffic Monitoring Station (VTMS) pilot to the Joint Legislative Budget Committee, fiscal subcommittees, and policy committees on transportation, as follows:

(1) The number of vendors that participate in the pilot. For each contract, provide:

The number of lane-miles included in the pilot, including a break out of those lane-miles that were also covered by functional loop detectors.

A description of the data collection method used by the vendor.

An analysis of whether or not the data collection method used by the vendor was more or less reliable and accurate than existing loop detector data.

An analysis of the annualized per-mile cost of purchasing these data from the vendor versus collecting these data using loop detectors.

An analysis of whether the vendor data were able to accomplish the following purposes:

- Calculate vehicle miles traveled for use by the Federal Highway Administration to determine California’s federal funding allocation.

- Provide data that are useful to the management of traffic flow (such as ramp metering and signal timing).

- Compute and report on congestion measures (such as delay).

- Provide real-time information (such as travel times and roadway speeds) to travelers and other entities (such as the California Highway Patrol).

(2) If multiple contracts are let, an assessment of the data collection methods that were best suited and least well suited for meeting the department’s data collection needs.

(3) An assessment of the net cost and benefit of implementing the pilot.

(4) An assessment of whether VTMS is a viable long-term strategy for collecting traveler data and in what situations VTMS should replace existing loop detectors.

Department and CTC Should Report on Proposition 1B Administrative Costs

Every dollar spent on administrative costs in a bond program is one less dollar for infrastructure projects. Discussions with the administration indicate that 10 percent of Proposition 1B funds are being reserved for administrative costs. In order for the Legislature to monitor bond program administrative costs, we recommend the enactment of legislation requiring administrative expenditures to be reported separately in the California Transportation Commission’s annual report on Proposition 1B bond programs.

Administrative Costs Should Be Minimized. Each dollar spent on administrative costs in the implementation of a bond program is one less dollar that is available for capital projects the bond program is set up to fund. In order to limit the use of bond funds for administrative costs and maximize the amount of funds available for grants and projects, the Legislature should review requests for staff and other administrative costs. For other areas of state government, for example in housing and resources, we have recommended in the past that no more than 5 percent of a bond program’s funding should go towards administrative costs. In the case of competitive grant programs, this level of administrative cost is generally sufficient to provide enough staff to effectively manage the grant program.

Project Development Activities Are Separate From Administrative Costs. It should be noted that the types of administrative costs that we discuss here are different from those costs related to actually designing and constructing projects. At Caltrans, these activities are generally performed through COS and capital outlay programs. Given the nature of these, we do not believe bond funding for these project development activities should be subject to a uniform cap.

Governor’s Proposal. Discussions with the administration indicate that it is reserving 10 percent of Proposition 1B bond proceeds for potential administrative costs. These administrative costs include the costs of bond issuance, as well as oversight activities performed by Caltrans and CTC staff such as developing program guidelines, allocating bond funds, and monitoring projects.

Proposition 1B Administrative Costs Should Be Separately Identified in CTC’s Annual Report. Proposition 1B provides bond funds for many programs. For some new programs, such as the $2 billion Trade Corridors program, administrative costs might be higher because this program will fund goods movement projects that have not traditionally been a focus of state transportation funding and CTC will likely have to spend considerable time establishing guidelines and processes. For existing programs funded by Proposition 1B, such as STIP and SHOPP, Catrans and CTC’s administrative costs should be lower as guidelines and processes are already in place. Overall, we think that an average of 10 percent for administrative costs across all programs may be excessive. Discussions with the administration indicate that it has not done any estimation of the administrative costs that would be necessary to implement Proposition 1B programs.

In our January 2007 report, Implementation of the 2006 Bond Package (a portion of which is reprinted in the “Crosscutting Issues” section of this chapter), we recommended that the Legislature direct CTC to include in its annual report a discussion of expenditures made for all Proposition 1B programs. So that the Legislature can monitor how much bond funds are spent for administrative costs on an ongoing basis, we further recommend that the Legislature require CTC to report administrative expenditures on each bond program separately in its annual report.

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