Analysis of the 2008-09 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 Governor’s budget proposes total expenditures of about $14 billion by Caltrans in 2008–09. This is $262 million, or 1.9 percent, lower than estimated current–year expenditures. The proposed staffing level of 22,430 is slightly higher than the level in the current year. Caltrans’ total support in 2008–09 will be provided by a variety of sources, including $4.1 billion (29 percent) from the State Highway Account, $3.9 billion (28 percent) from federal funds, $1.5 billion (11 percent) from the Proposition 42 transfer, and $3.5 billion (25 percent) from Proposition 1B funds. The remaining support will be funded from reimbursements, as well as from various smaller transportation accounts.

Proposition 1B Appropriations

The 2008–09 Governor’s Budget proposes to appropriate a total of about $3.9 billion in Proposition 1B funds to Caltrans for various transportation programs. (While this amount represents the proposed appropriation for 2008–09, the $3.5 billion amount identified above reflects the estimated level of Proposition 1B funds that will be encumbered.) The $3.9 billion appropriation consists of a variety of proposals, including:

Below we discuss specific budget requests for each of these three proposals. (Please see our “Implementation of Proposition 1B” write–up in the “Crosscutting Issues” section of this chapter for a more detailed discussion of Proposition 1B.)

Appropriation Requested for Trade Corridor Improvement Not Substantiated

We withhold recommendation on the $500 million in Proposition 1B funds proposed for the Trade Corridor Improvement Fund program, pending our receipt and review of a list of projects approved by the California Transportation Commission.

Proposition 1B, approved by the voters in November 2006, authorized $2 billion in general obligation bonds to fund the establishment of the TCIF program. The purpose of this program is to support infrastructure improvements along trade corridors that have a high volume of freight movement. Proposition 1B specifies that the bond funds for TCIF must be appropriated by the Legislature through the annual budget process, before becoming available to a state or local entity for expenditure. In adopting the 2007–08 budget, the Legislature did not appropriate any funds for the TCIF program. For 2008–09, the Governor’s budget proposes to appropriate $500 million in bond funds—$499,999,000 for local assistance in Item 2660–104–6056 and $1,000 for capital outlay in Item 2660–304–6056—to Caltrans for the program.

As we discussed in an earlier write–up on Proposition 1B, the California Transportation Commission (CTC) recently adopted the project eligibility and selection guidelines for the TCIF program. According to the approved program schedule, the commission plans to approve a list of projects for funding this April. Until CTC approves such a list, we do not have sufficient information to advise the Legislature on whether the $500 million proposed by the Governor for TCIF is the level of funding required to support projects in the budget year. For instance, there is no assurance at this time that there will be $500 million worth of TCIF projects ready for funding allocations in 2008–09. Accordingly, we withhold recommendation on the $500 million in Proposition 1B funds requested for the TCIF program, pending our receipt and review of a list of projects approved by CTC.

Make SLP Appropriation Available Subject to Legislation on Program Guidelines

We recommend the Legislature adopt budget bill language specifying that the availability of the proposed $200 million appropriation (Proposition 1B) for the State–Local Partnership program is contingent upon the enactment of legislation regarding the program’s eligibility guidelines.

Proposition 1B explicitly allows the Legislature to provide additional conditions and criteria through statute regarding the SLP grant program. The bond act itself provides no guidance as to the types of projects eligible for funding. In adopting the 2007–08 budget, the Legislature chose to appropriate no funding for the SLP program, mainly because it wanted the opportunity to further define the program in legislation. Similarly, as discussed in an earlier write–up, we propose that the Legislature enact legislation providing eligibility guidelines before appropriating bond funds for SLP grants in 2008–09. Such guidelines would help ensure that the bond funds are used effectively in meeting the state’s priorities. It is possible that legislation specifying eligibility guidelines for SLP may not be enacted prior to enactment of the budget. Accordingly, we recommend the Legislature adopt budget bill language specifying that the $200 million appropriation in Proposition 1B funds for the SLP program, as proposed by the Governor, shall be available to the department contingent upon the enactment of legislation specifying the program’s eligibility guidelines. Specifically, we propose adding the following provision to Items 2660–104–6060 and 2660–304–6060:

The funds appropriated in this item shall be available for the State–Local Partnership program authorized in the Highway Safety, Traffic Reduction, Air Quality, and Port Security Bond Act of 2006, contingent upon the enactment of legislation specifying the eligibility guidelines for the program.

Proposition 1B Administration Needs Are Overstated

The budget requests 23 new positions and about $2.1 million to administer various Proposition 1B programs. Our review finds that the department’s workload estimates are overstated. Accordingly, we recommend rejecting 17 positions and $1.6 million for the divisions of mass transportation and rail. We further withhold recommendation on the remaining six positions and $491,000 for accounting workload. (Reduce Item 2660–004–6059 by $435,000, and Item 2660–004–6063 by $1.2 million.)

The budget requests 23 additional positions for the department to administer various Proposition 1B programs. The positions requested are for administrative purposes such as accounting and project review, and are separate from capital outlay support (COS). The requested positions include:

These positions are in addition to 24 positions authorized in the current year for similar Proposition 1B administrative activities.

Rail Request for Ten Positions Not Justified. Proposition 1B provides $250 million for the HRCSA to fund grade separation and grade crossing projects. The budget requests ten positions for implementation of these programs in 2008–09. This is in addition to three positions authorized in the current year for the same activities.

The $250 million will fund two separate programs. First, $150 million is designated by the bond act to augment the state’s existing grade separation (Section 190) program. The department estimates it will need one–half a position to implement this program based on the assumption that most of the $150 million will be allocated to projects in 2008–09 and 2009–10. Since the department has already received positions for this work in the current year, the need for an additional half–position is not justified.

The remaining $100 million provided for grade crossings will be used for a yet to be defined program of projects that the CTC will develop in consultation with the High–Speed Rail Authority. The budget requests 9.5 positions for the department’s expected role in the implementation of this program. At the time this analysis was prepared, guidelines for this new program had not been adopted, but are required to be adopted by February 15, 2008. Without final guidelines, the department’s role in the program is not yet certain. However, the department’s estimated workload assumes that the guidelines will designate these funds to augment an existing grade crossing (Section 130) program, which is administered by Caltrans. It is unclear why the department makes this assumption since neither the bond act nor current law requires that these funds be used for the existing grade crossing (Section 130) program. Furthermore, a draft version of the guidelines being developed by CTC for this program does not appear to support this assumption. In fact, the guidelines may ultimately require a much smaller role from the department, necessitating only one or two staff positions. Without knowing what role, if any, the department will have in the implementation of this program, the request for positions and $1.2 million is premature.

Mass Transportation Request Overstated; Reject Seven Positions. Proposition 1B provides $3.6 billion for Local Transit capital projects. Statute requires the department to review applications for these funds, determine if projects are appropriate for bond funding, and notify the State Controller’s Office of allocations to be made. The budget requests seven positions, in addition to the four authorized in the current year, for the department to handle this work in 2008–09.

In the current year, the Local Transit funds will be allocated in two separate application cycles. At the time this analysis was prepared, the department is completing the first cycle of application review and approval for projects applying for the $600 million appropriated for this program in the current year. This first cycle reportedly required six staff to review applications totaling about $450 million. Four of the staff were authorized for the program in the current year and two were redirected from other programs. If workload stays at the current–year level, providing two additional positions may be justified, so that these staff do not have to continue to be redirected from another program. However, the level of workload necessary to implement this program will most likely fluctuate from year to year based on the amount of funds appropriated. For instance, the budget proposes a funding level of $350 million for the program in 2008–09, this is significantly less than the $600 million provided in the current year. At the lower level proposed for 2008–09, the current staff (of four) should be sufficient to review and approve project applications, and adding staff is not warranted. Accordingly, we recommend rejecting all seven positions and $435,000.

Accounting Request Does Not Fully Consider Project Time Lines. The department requests six positions and $491,000 for accounting workload expected in 2008–09 related to the use of Proposition 1B funds. These positions would be in addition to 17 accounting positions authorized in the current year. The main function of the requested staff would be to process invoices to pay contactors on bond–funded projects. Our review shows that the department’s accounting workload estimate is too high. Instead, this workload will be substantially lower in 2008–09 than estimated for mainly two reasons: (1) not all bond programs have been defined and projects for some programs have not yet been selected, and (2) some of the bond programs will only fund construction costs, with many of the projects not going to construction until 2012 or 2013.

Department staff acknowledged that the workload estimates for 2008–09 may not have fully considered the impact of project time lines, and, therefore, may have overstated the number of positions that will be needed. Furthermore, the department indicated that it will be updating the accounting workload estimates and submitting a revised request in the spring. Accordingly, we withhold recommendation on the request for $491,000 and six positions.

Other Issues

COS Request Will Be Amended

We withhold recommendation on the $1.9 billion requested for capital outlay support staff because staffing needs will be revised during the May Revision when more accurate information on the workload for various state transportation programs becomes available.

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 budget.

The Governor’s budget proposes $1.9 billion to fund COS activities in 2008–09—this is essentially the same level as estimated current–year expenditures. The department indicates that it will revise these estimates in the spring as part of the May Revision. By that time, the department will have more accurate estimates regarding the amount of project development work that will be performed during 2008–09. Pending our receipt of the new workload estimates, we withhold recommendation on the department’s COS request.

TPMS Contract Terminated

We recommend the Department of Transportation report at budget hearings on (1) why the contract to develop the Transportation Permits Management System (TPMS) project was recently terminated and (2) what steps it plans to take to develop an automated permitting system for oversize vehicles, as initially envisioned by the Legislature. Since there is no contract in effect at this time for TPMS, we further recommend deleting from the budget all funding associated with the project.

(Reduce Item 2660–001–0042, Schedule 10, by $551,000. Delete Item 2660–494.)

Caltrans has the authority to issue special permits to oversize vehicles—those that exceed statutory limits on vehicle size, weight, or loading—to allow them to travel on the state’s highways. These permits specify the routes oversize vehicles are allowed to take in order to ensure the safety of the highway system. Currently, Caltrans issues these permits manually, which makes the process susceptible to human error. In fact, the department had a poor safety record related to its oversize vehicle permits in the late 1990s. From 1996 through early 2000, there were 31 accidents in California involving oversize vehicles that struck and damaged bridges, one of which resulted in a fatality.

Automated Permit System Proposed in 2000. As an interim measure to reduce errors in the permitting process, Caltrans received funding in the 2000–01 budget for personnel to manually double–check each permit before it was issued, which is still the process being used today. As a long–term solution, Caltrans simultaneously initiated efforts in 2000 to replace its manual permit writing process with an automated system as is used in other states. The Bureau of State Audits concluded in May 2000 that the proposed automated system, known as TPMS, should provide a safer, faster, and more efficient system for issuing oversize permits in comparison to the current system, including the manual double–checkers. The plan called for a new system that would (1) verify eligibility of permit applicants, (2) determine safe truck routes, (3) track applications through the permitting process, (4) issue and automatically deliver permits, (5) assess fees, and (6) maintain financial accounting records. (The following text box provides a time line of the key events associated with the development of the TPMS project.)

Chronology of TPMS

The Department of Finance (DOF) and the Department of Information Technology approve the Feasibility Study Report for the Transportation Permits Management System (TPMS) project, with an expected implementation date of October 2002 and a total cost of about $13 million.

The Department of General Services (DGS) approves a contract between the Department of Transportation (Caltrans) and a private contractor for the development of TPMS.

The DOF approves a Special Project Report (SPR) to delay the implementation of TPMS from October 2002 to August 2004.

The DOF approves a second SPR to further delay the project from August 2004 to October 2005, as well as increase the total project cost to about $15 million.

Caltrans hires a consultant to conduct an independent assessment of the project, which concluded that several changes needed to occur in order for the project to be completed in a timely manner.

Caltrans, the private contractor, and DGS made several attempts to reach agreement on amendments to the contract.

The contract for the TPMS project between Caltrans and the private contractor is terminated.

TPMS Contract Approved in 2002. As part of the 2000–01 budget, the Legislature appropriated a total of about $12 million to Caltrans for the development of an automated permitting system. In December 2001, the Department of Finance (DOF) and the Department of Information Technology approved a Feasibility Study Report (FSR) for the TPMS project. This report identified a total project cost of about $13 million and estimated an implementation date of October 2002. Following the approval of the FSR, the Department of General Services (DGS) approved in January 2002 a contract between Caltrans and a private contractor for the development of TPMS.

Project Has Experienced Numerous Delays and Cost Changes. Since the approval of the FSR and contract for the development of TPMS, the project has been delayed on more than one occasion. According to Caltrans, this is largely because the private contractor has essentially been unable to deliver a satisfactory product. In September 2003, DOF approved a Special Project Report (SPR) that delayed the implementation of the project from October 2002—the initial implementation target date—to August 2004. Subsequently, a second SPR was approved by DOF in May 2005 that further delayed the project by more than a year to October 2005. This particular SPR also identified an increase in the total project cost to about $15 million.

Due to concerns that the October 2005 implementation deadline would not be met, Caltrans hired another private consultant to conduct a 30–day independent assessment of the project. This consultant, in fact, concluded that the October 2005 deadline was not attainable and that several changes would need to occur in order to complete the project at a later date. Recommended changes included restructuring the project team and hiring an independent qualified project manager. Despite implementing many of these recommendations, the project schedule was delayed even further than expected. Over the next couple of years since the completion of the independent assessment, Caltrans, DGS, and the private contractor developing TPMS attempted to reach agreement on amendments to the existing contract. However, such efforts proved unsuccessful.

Six Years Later…No Project and Development Has Ceased. On December 31, 2007, Caltrans and the contractor reached a settlement to terminate the existing contract for the TPMS project. As a part of this settlement, Caltrans agreed to pay the contractor about $1.7 million. With this payment, a total of about $2.6 million would have been provided to the contractor since the initial contract was approved in 2002. In terms of total expenditures on TPMS, Caltrans staff reports that a total of about $10.5 million has been spent on the project. In addition to the settlement payments, this amount includes funds spent on state staff, equipment, and the independent project assessments. However, despite these expenditures, the department still does not have an automated permitting system at this time—about six years after the FSR for the project was approved.

Caltrans Needs to Explain What Happened. In view of the above, we recommend the Legislature require Caltrans to report at budget hearings on why the contract for the TPMS project has been terminated and what lessons it has learned from this experience. As part of that report, the department should also specify what steps it now plans to take in terms of developing an automated permitting system for oversize vehicles, as originally envisioned by the Legislature. Moreover, since there currently is no contract for the development of the TPMS project, we further recommend that the Legislature remove from the proposed 2008–09 budget all funding associated with the project. Specifically, we recommend deleting $551,000 in Caltrans’ budget designated for TPMS maintenance and operation expenses. In addition, we propose deleting Item 2660–494, which proposes to extend the liquidation period for funds initially appropriated in the 2000–01 budget for TPMS. Caltrans staff concurs that this item is not needed.  

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