The 2014-15 Budget: Transportation Proposals

The 2014-15 Budget: Transportation Proposals MAC TAYLOR • L E G I S L A T I V E A N A L Y S T • MARCH 6, 2014 2014-15 BUDGET 2 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET EXECUTIVE SUMMARY Overview. The Governor’s budget provides a total of $16.7 billion from various fund sources for all departments under the Transportation Agency in 2014-15. This is a decline of $560 million, or 3.2 percent, below estimated expenditures for the current year. The budget includes $10.9 billion for the California Department of Transportation (Caltrans), $1.4 billion for the California High-Speed Rail Authority (HSRA), $2 billion for the California Highway Patrol (CHP), $1.1 billion for the Department of Motor Vehicles (DMV), and $1.2 billion for transit assistance. Caltrans. The budget proposes $337 million for the early repayment of a General Fund loan from the Highway Users Tax Account (HUTA), with the monies allocated for state highway pavement rehabilitation and maintenance, traffic management systems, and local streets and roads. While the early loan repayment would allow the state to conduct a higher level of highway maintenance and repairs in the next several years than would otherwise be the case, the Governor’s proposed allocation of the repaid funds may not be the most cost-effective approach. For example, we note that Caltrans did not use its recently developed pavement management system to determine which types of projects to support with the repaid funds. HSRA. The Governor’s budget proposes $250 million in cap-and-trade auction revenue (Greenhouse Gas Reduction Fund [GGRF]) to support the development of the high-speed rail system. In addition, the Governor is proposing that, beginning in 2015-16, 33 percent of all GGRF revenues be continuously appropriated for high-speed rail. The Governor is also proposing that when the remaining balance of $400 million from a loan made from the GGRF to the General Fund in 2013-14 is repaid, the funds be directed to HSRA. As we discuss in this report, the Governor’s high-speed rail proposals raise several issues. Specifically, we find (1) using cap-and-trade auction revenues for high-speed rail may not maximize greenhouse gas (GHG) reductions, (2) there currently is not a funding plan to complete the project’s Initial Operating Segment (IOS), (3) it is unclear how much cap-and-trade revenue will actually be available for high-speed rail in the future, and (4) that bond funds approved in Proposition 1A for high-speed rail currently face legal risks. CHP and DMV. The budget proposes a multiyear plan to replace CHP’s aircraft and maintain an air fleet size of 26 aircraft with Motor Vehicle Account (MVA) funds. However, the plan does not provide sufficient information justifying the size of the air fleet proposed. The plan also raises the issue of whether it is appropriate for the MVA to be the sole funding source for this purpose. In addition, the budget proposes additional resources for DMV to implement recently enacted legislation that requires the department to accept driver license applications from persons who are unable to submit satisfactory proof of legal presence in the U.S., provided they meet all other requirements and provide proof of California residency. While the administration’s workload estimates appear reasonable, we recommend the Legislature require DMV to regularly report on its progress to help determine the appropriate level of resources for the department in future years. www.lao.ca.gov Legislative Analyst’s Office 3 2014-15 BUDGET 4 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET BACKGROUND The Transportation Agency has jurisdiction HSRA. The Governor’s budget proposes total over the state’s transportation departments and expenditures of about $1.4 billion in 2014-15 for programs. These departments and programs HSRA. This amount is $770 million, or 124 percent, include Caltrans, HSRA, CHP, DMV, State more than the estimated level of expenditures in Transit Assistance (STA) program, California the current year. The proposed level of expenditures Transportation Commission, and the Board of Pilot would be supported primarily with federal funds Commissioners. ($1.1 billion), as well as cap-and-trade auction The Governor’s budget proposes a total of revenues ($250 million). $16.7 billion in expenditures from various fund CHP and DMV. The budget proposes sources—the General Fund, state special funds, $2 billion for CHP in 2014-15, which is less than bond funds, federal funds, and reimbursements— 1 percent higher than the current-year estimated for all departments and programs under the level. About 91 percent of all CHP expenditures Transportation Agency in 2014-15. This is a decline would come from MVA, which generates its of $560 million, or 3.2 percent, below estimated revenues primarily from driver license and vehicle expenditures for the current year. registration fees. For DMV, the Governor’s budget proposes total expenditures of about $1.1 billion— Spending by Major about $47 million, or 4.6 percent, more than Transportation Programs estimated current-year expenditures. About Figure 1 (see next page) shows spending for 95 percent of all DMV expenditures would come the state’s major transportation programs and from the MVA. departments from selected sources. Transit Assistance. The Governor’s budget Caltrans. The Governor’s budget proposes estimates total expenditures of $1.2 billion total expenditures of $10.9 billion in 2014-15 for in 2014-15 for the STA program, which is Caltrans—$1.9 billion, or 15 percent, less than $508 million, or 74 percent, more than estimated estimated current-year expenditures. As shown current-year expenditures. The proposed in Figure 1, Caltrans expenditures from bond level of expenditures includes $824 million in funds are projected to significantly decline—by Proposition 1B funds. The Governor’s budget would about $1.5 billion (or 65 percent). The lower level fully appropriate Proposition 1B funding for the of bond fund expenditures is primarily due to the STA program. completion of many projects that were funded with Proposition 1B bond funds. CALIFORNIA DEPARTMENT OF TRANSPORTATION Caltrans is responsible for planning, system. These responsibilities are carried out coordinating, and implementing the development in four programs. Three programs—Highway and operation of the state’s transportation Transportation, Mass Transportation, www.lao.ca.gov Legislative Analyst’s Office 5 2014-15 BUDGET and Aeronautics—concentrate on specific includes $4 billion for capital outlay, $2.2 billion for transportation modes. Transportation Planning local assistance, $1.8 billion for highway maintenance seeks to improve the planning of all modes. and operations, and $1.7 billion to provide the The Governor’s budget proposes total support necessary to deliver capital highway projects. expenditures of about $10.9 billion for Caltrans in The total level of spending proposed for Caltrans 2014-15. This is about $1.9 billion, or 15 percent, for 2014-15 supports about 20,000 positions at the less than the estimated current-year expenditures. department and several thousand transportation The lower spending level is primarily due to the improvement projects statewide. completion of many projects that were funded with Proposition 1B Proposition 1B bond funds. As shown in Figure 2, most of the proposed spending supports the Background. In 2006, voters approved department’s highway program, which primarily Proposition 1B (Highway Safety, Traffic Reduction, Figure 1 Transportation Budget Summary—Selected Funding Sources (Dollars in Millions) Change From 2013-14 Actual Estimated Proposed 2012-13 2013-14 2014-15 Amount Percent Department of Transportation General Fund $83.4 $81.4 $83.0 $1.7 2.0% Special funds 3,273.0 3,841.2 3,577.2 -264.0 -6.9 Bond funds 3,281.6 2,333.0 822.8 -1,510.2 -64.7 Federal funds 3,593.0 4,892.8 4,781.2 -111.6 -2.3 Local funds 1,470.9 1,582.2 1,594.2 12.0 0.8 Totals $11,702.0 $12,730.5 $10,858.3 -$1,872.2 -14.7% High-Speed Rail Authority Bond funds $45.0 $48.3 $29.3 -$19.0 -39.3% Federal funds 185.8 571.3 1,110.7 539.4 94.4 Greenhouse Gas Reduction Fund — — 250.0 250.0 — Totals $230.8 $619.7 $1,390.0 $770.4 124.3% California Highway Patrol Motor Vehicle Account $1,703.5 $1,845.0 $1,852.8 $7.8 0.4% Other special funds 157.5 165.8 170.7 4.9 2.9 Federal funds 17.4 18.9 19.0 0.1 0.7 Totals $1,878.4 $2,029.7 $2,042.6 $12.8 0.6% Department of Motor Vehicles Motor Vehicle Account $831.2 $978.4 $1,027.5 $49.1 5.0% Other special funds 83.4 46.4 45.8 -0.6 -1.3 Federal funds 0.7 5.1 4.1 -1.1 -20.8 Totals $915.4 $1,029.9 $1,077.3 $47.4 4.6% State Transit Assistance Public Transportation Account $417.5 $389.8 $373.1 -$16.7 -4.3% Bond funds 752.9 299.0 823.9 525.0 175.6 Totals $1,170.4 $688.7 $1,197.0 $508.3 73.8% 6 Legislative Analyst’s Office www.lao.ca.gov Graphic Sign Off Secretary Analyst MPA Deputy 2014-15 BUDGET Air Quality, and Port Security Bond Act of Figure 2 2006), which authorized the state to sell about Most Proposed $20 billion in general obligation bonds for Expenditures for Highway Program various transportation projects. As specified 2014-15 in the proposition, such projects include those Mass Transportation Planning and Aeronautics intended to improve state highways and local roads, modernize and expand transit systems, improve rail and freight facilities, and mitigate transportation-related air pollution. Caltrans is responsible for delivering a majority of the Proposition 1B projects. As shown in Figure 3, Graphic Sign Off most of the Proposition 1B projects that are Highway administered by Caltrans are either complete or Program Secretary currently under construction. Total: $10.9 Billion Analyst Governor’s Proposal. For 2014-15, MPA Caltrans plans to spend $745 million in for track and facilities improvements) and Deputy Proposition 1B bond funds on various projects, $10 million for local bridge seismic retrofits. The which is 62 percent less that the estimated ARTWORK #140053 Governor’s proposal would essentially appropriate level of expenditures for 2013-14. This decline all of thTee fmunpdlas taeu_tLhAorOizReedp ino rPtr_ospmos.aitiiton 1B for in spending reflects the fact that many of the Proposition 1B projects will be near completion. Figure 3 Much of Caltrans’ planned Most Caltrans Proposition 1B Projects Are Complete or Under Construction Proposition 1B spending in 2014-15 will be funded Percent of Projects Under Construction from appropriations Completed approved by the Legislature 100% in prior budgets. 90 However, the Governor’s 80 budget does propose to 70 appropriate $170 million 60 in Proposition 1B funds 50 to Caltrans in order to 40 complete remaining projects 30 and provide grants to local 20 transportation agencies. 10 Specifically, the budget CMIA STIP TCIF SR99 SLPP SHOPP Intercity Traffic Grade Local requests $160 million for Rail Light Crossing Bridge intercity rail ($108 million CMIA = Corridor Mobility Improvement Account; STIP = State Transportation Improvement Program; TCIF = Trade Corridor Improvement Fund; SR99 = State Route 99; SLPP = State-Local Partnership to procure new rail cars and Program; and SHOPP = State Highway Operations and Protection Program. locomotives and $52 million www.lao.ca.gov Legislative Analyst’s Office 7 ARTWORK #140053 Template_LAOReport_mid.ait 2014-15 BUDGET Caltrans. There would only be about $40 million • $100 million for cities and counties to remaining for future local bridge seismic retrofit maintain local streets and roads. (The projects. Governor’s budget reflects a total of about In addition, Caltrans has identified potential $1.9 billion to support local streets and savings of Proposition 1B funds that were roads.) previously appropriated for the department’s • $27 million for Caltrans’ Highway administrative expenses. The proposed budget Maintenance Program. Under the includes provisional language to redirect these Governor’s proposal, funding would be savings to fund additional highway projects. limited to improving pavement conditions The budget estimates that Caltrans will achieve on rural highways. about $113 million in administrative cost savings. However, the administration indicates that this Early Repayment Is Reasonable, but Proposed amount of savings is only a rough estimate and will Allocation May Not Be Cost-Effective. The state’s be updated with the May Revision. existing highway system is a valuable and necessary LAO Recommendation. The Governor’s asset that should be maintained to ensure that it proposal to appropriate most of the remaining can continue to serve the public into the future. Proposition 1B bond funds is consistent with the Over the years, however, the state has not properly goals of the program. Accordingly, we recommend maintained its highways. This contributes to approving this request. the need to completely rebuild portions of the highways, which is significantly more costly than Use of Loan Repayment Funds performing routine maintenance on a regular basis. Governor’s Proposal. During the past decade, Given the state’s overall fiscal condition, repaying various transportation funds were loaned to the the loan from the HUTA early is a reasonable step General Fund in order to help address budget that would allow the state to conduct a higher level shortfalls. The Governor’s budget for 2014-15 of maintenance and repairs on the state’s highways proposes $337 million for the early repayment of a in the next several years than would otherwise $328 million General Fund loan from HUTA. The be the case. However, as we discuss below, the proposed repayment includes $9 million in interest Governor’s proposed allocation of the repaid funds on the loan. The Governor’s budget proposes to may not be the most cost-effective approach. allocate the repaid funds to three transportation Caltrans recently developed a pavement programs. management system (commonly referred to as “PaveM”) which can identify the specific pavement • $210 million for the State Highway projects that are the most cost-effective, including Operation and Protection Program whether to fund projects in the SHOPP or the (SHOPP) administered by Caltrans. department’s Highway Maintenance Program. Specifically, $110 million would go to The Legislature provided funding in past years repair pavement on the state’s highway for Caltrans to develop the system. Despite the system and $100 million to improve traffic usefulness of the system to determine how to management systems (such as changeable effectively allocate limited funding to maintenance message signs, ramp meters, and and rehabilitation pavement projects, the equipment that count traffic volumes). 8 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET department indicates that PaveM was not used LAO Recommendations. In order to ensure to determine which types of projects to support that the $337 million proposed for repayment with the repaid loan funds. Since SHOPP projects to HUTA is used in the most effective manner generally tend to be less cost-effective than in addressing the state’s highway needs, we maintenance projects, it is unclear whether the recommend the following. Governor’s proposal to provide most of the funding • Require Caltrans to Use PaveM to to SHOPP projects reflects the best mix of projects Identify Projects. We recommend that given the limited funding available to meet the the Legislature require Caltrans to use its state’s highway needs. PaveM system to determine the types of We also note that the $27 million proposed projects that are deemed the most effective to fund maintenance projects would be limited to fund with the $137 million proposed to only rural highways, even though the state’s by the Governor for maintenance and urban highways have the highest traffic volumes SHOPP pavement projects. Specifically, we and would also benefit more from maintenance recommend that the Legislature require work. In addition, spending $100 million for the Caltrans to report at budget subcommittee SHOPP to repair and improve traffic management hearings this spring on the types of systems (such as changeable message signs) may not projects identified by the department’s be an effective use of limited funding for meeting PaveM system as the most cost-effective the state’s highest maintenance and rehabilitation and allocate the proposed $137 million needs. While traffic management systems are an accordingly. important component of the highway system, the administration has not been able to document • Require Caltrans to Report on Relative that the benefits from such projects outweigh the Benefits of Proposed Traffic Management benefits of instead allocating the funds to pavement System Improvements. We also repairs. recommend that the Legislature have As discussed above, the Governor’s budget Caltrans report at budget subcommittee proposes to allocate $100 million of the repaid hearings on the expected benefits that funds to cities and counties to maintain local would be achieved from spending streets and roads. However, when the loan was $100 million on traffic management initially taken from HUTA, cities and counties systems compared to the benefits of were held harmless and received the full share of instead allocating these funds to additional HUTA revenues typically provided by the state for pavement repair projects. Depending on the maintenance of local streets and roads. While the information provided, the Legislature cities and counties have significant maintenance may want to consider allocating some or needs on their roadways, the administration has all of the $100 million proposed for traffic not been able to demonstrate that providing the management system improvements to additional funds to cities and counties would be a support additional highway pavement more effective use of the funds than performing repairs instead. additional repairs on the state’s highway system— • Consider Whether Increased Funding particularly given the state’s responsibility in for Local Streets and Roads Should Be maintaining its highways. Directed to State Highways. In reviewing www.lao.ca.gov Legislative Analyst’s Office 9 2014-15 BUDGET the Governor’s proposal, we recommend (SANDAG), which is responsible for operating that the Legislature consider whether the Interstate 15 express lanes, collects the toll some or all of increased funding proposed revenue from single-occupancy vehicles using for the maintenance of local street and the express lanes. State law requires SANDAG to roads should be directed to performing enter into agreements with the state to reimburse additional repairs on the state’s highway state agencies for costs incurred from the express system. As indicated above, cities and lanes. Under the current agreement, any funds counties were held harmless and received remaining after paying or reimbursing state their full share of HUTA revenues when operating expenses are available for SANDAG funding from the account was loaned to to improve transit service and carpooling in the the General Fund. corridor. In 2013, SANDAG collected $6.1 million in revenue from the Interstate 15 express lanes. Interstate 15 Express Lane Operations The association spent $3.2 million of these funds to operate the express lanes, mainly for toll Background. The four Interstate 15 carpool collection systems. SANDAG also spent $1 million express lanes in San Diego County are 20 miles to improve transit service along the Interstate 15 in length. Single-occupant vehicles are allowed to corridor and counted the remaining $1.9 million use the express lanes by paying a toll. The barrier as surplus revenue. separating the northbound and southbound traffic LAO Recommendation. As indicated above, can be moved allowing for three lanes in the existing state law requires that SANDAG and direction of the commute traffic and one lane in Caltrans develop an agreement for the state to the opposite direction. In order to accommodate be reimbursed for work performed to operate morning commute traffic headed south and the Interstate 15 express lanes. In addition, it evening traffic headed north, the barrier must be appears that SANDAG is collecting a sufficient moved twice each day. Although the express lanes amount of revenue from the express lanes to pay were open a few years ago, the movable barrier has for the operational costs of moving the barrier not been in operation to accommodate traffic flow. twice a day. Accordingly, we recommend that Governor’s Proposal. The Governor’s budget the Legislature approve the Governor’s budget proposes an increase of about $800,000 from the request for additional maintenance positions to State Highway Account to Caltrans for ten full-time operate the movable barrier on Interstate 15, but maintenance workers to operate the moveable provide authority for Caltrans to be reimbursed barrier on the Interstate 15 carpool express lanes. for such costs by the toll revenues collected by Toll Revenues Available for Operational SANDAG. Costs. The San Diego Association of Governments HIGH-SPEED RAIL AUTHORITY The HSRA was established by Chapter 796, HSRA as an independent authority consisting of a Statutes of 1996 (SB 1420, Kopp), to plan and nine-member board appointed by the Legislature construct an intercity high-speed train that would and Governor. The Governor’s budget proposes link the state’s major population centers. The total expenditures of $1.4 billion in 2014-15 10 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET for HSRA. Below, we provide an update on the which HSRA identifies as the Initial Construction high-speed rail project, and then review the Segment (ICS). Chapter 152, Statutes of 2012 Governor’s proposals for HSRA. (SB 1029, Committee on Budget and Fiscal Review), appropriated a total of $5.9 billion ($3.3 billion in Background federal funds and $2.6 billion in Proposition 1A Construction to Start in Central Valley bond funds) to complete the ICS. Currently, no in 2014. In November 2008, voters approved funds have been appropriated to HSRA for the Proposition 1A, which allows the state to sell up capital costs of any portion of the high-speed rail to $9.95 billion in general obligation bonds to project other than the ICS. The HSRA anticipates partially fund the development and construction that construction of the ICS will begin in 2014 of the high-speed rail system. Of that amount, and be completed in 2018, with the IOS being $9 billion is for the high-speed rail system while the completed by 2021. Figure 5 (see next page) shows remaining $950 million is for existing passenger the anticipated route of the IOS through the rail systems to improve their connectivity with the Central Valley, the planned location of stations, and high-speed rail system. The bond funds authorized the ICS portion of the IOS. in Proposition 1A require a match of at least Increased Staffing Provided in 2013-14. The 50 percent from other funding sources such as the 2013-14 budget includes a total of 177 authorized state, federal, and local governments, or the private staff positions for HSRA to oversee contracts for sector. A total of about $5 billion in Proposition 1A environmental review, engineering design, right- funds have been appropriated to date, with a of-way acquisitions tasks, and complete other total of about $705 million of bonds sold to date. workload such as legal counsel, communications, The state has also received about $3.5 billion in and contractor oversight. This reflects an increase federal funds for planning, engineering, and the of 105 positions above the level provided in 2012-13. construction of high-speed rail, which require The HSRA indicates that it has faced delays in matching state funds. All of the federal funds filling the newly authorized positions because received have been appropriated to the HSRA, with of requirements related to developing new staff about $200 million having been spent. classifications, such as creating examinations The first phase of the high-speed rail system is Figure 4 planned to provide service between San Francisco Estimated Annual Capital Costs of and Anaheim by 2028. The second phase of the Initial Operating Segment system would expand service to Sacramento and (In Millions) San Diego. The first operation of high-speed rail Year Amount in the state is planned to begin in 2022 after the construction of the initial segment of the first 2013 $212 2014 751 phase, commonly referred to as the IOS. The IOS 2015 4,003 would extend 300 miles from Merced to the San 2016 4,008 Fernando Valley. According to HSRA’s 2014 draft 2017 4,229 2018 5,481 business plan, the expected total cost to complete 2019 5,049 the IOS is about $31 billion, as shown Figure 4. 2020 4,732 Construction of the IOS will begin on a segment 2021 2,708 Total $31,173 extending 130 miles from Madera to Bakersfield, www.lao.ca.gov Legislative Analyst’s Office 11 2014-15 BUDGET of the usable segment have been Figure 5 completed. On November 25, Construction of Initial Operating Segment 2013, the Sacramento Superior Court found that the funding Initial Construction Segment plan that HSRA submitted to the San Initial Operating Segment Francisco Legislature in November 2011 in Planned Station conjunction with a request for an Merced appropriation of Proposition1A Madera bond funds for the IOS did not Fresno meet the above requirements. Kings/Tulare Specifically, the court found that the funding plan’s description of additional funding beyond Pacific Ocean the funds currently committed Bakersfield to the project was not sufficient. The court found also that all necessary environmental Palmdale clearances had not been San Fernando Valley completed for the IOS at the Los Angeles time that the November 2011 funding plan was submitted to the Legislature. As a result, the court ordered the HSRA to rescind the funding plan, thereby halting any Proposition 1A bond for new applicants. At the time of this analysis, proceeds expenditures to support 60 positions were vacant. the construction of the IOS. Litigation Over Use of Proposition 1A Bond The second legal case involves a request from Funds. The HSRA has been involved in two major the administration that the court validate the legal cases involving the use of Proposition 1A issuance of Proposition 1A bonds, in order to bond funds. The first case is in regards to the prevent future legal challenges to their issuance. requirement in Proposition 1A that, prior to Specifically, on March 19, 2013, the administration submitting a request for an appropriation of filed a validation claim in the Sacramento Superior Proposition 1A bond funds to the Legislature for Court requesting that the court validate the the costs of completing a usable segment of the High-Speed Passenger Train Finance Committee’s high-speed rail system, HSRA must submit to approval of the issuance of more than $8 billion the Legislature a funding plan for that segment. in Proposition 1A bond funds. (Proposition 1A The funding plan must identify all of the funds established the committee to determine “whether that will be invested in the usable segment and or not it is necessary or desirable to issue” the authority must certify that all environmental Proposition 1A bonds.) On November 25, 2013, the clearances necessary to proceed to construction court found that the committee’s proceedings in 12 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET determining the issuance of Proposition 1A bonds of the ICS. In addition, the Governor is contained no evidence explaining the factors the proposing budget trailer legislation that, committee examined in making its determination. beginning in 2015-16, 33 percent of all GGRF Based on this finding, the court denied the revenues be continuously appropriated administration’s validation request and the State to HSRA for the high-speed rail system. Treasurer’s Office currently does not plan to sell According to the administration, HSRA Proposition 1A bonds. The state is currently in the could seek to leverage this continuous process of appealing both of the above rulings. revenue stream to secure a loan from the private sector or the federal government to Governor’s Budget Proposals support the completion of the IOS within The Governor’s budget proposes a total of the 2022 time frame. The Governor is also $1.4 billion to HSRA for the high-speed rail proposing that when the remaining balance project in 2014-15—$250 million in cap-and-trade of $400 million from a loan made from the auction revenue (GGRF) and $1.1 billion in federal GGRF to the General Fund in 2013-14 is funds. As shown in Figure 6, this is an increase of repaid, the funds be directed to HSRA for $770 million from the 2013-14 level. Most of the the IOS. funding proposed for the budget year would be for • $29 million loan from the Public the construction of high-speed rail. Transportation Account (PTA) to fund the The major proposals in the Governor’s budget operation of the HSRA while Proposition 1A for HSRA in 2014-15 include: bond funds are not available because of legal • $250 million from the GGRF to support challenges to their use. the development of the high-speed rail Funding in Other Departments for system. This includes (1) $58.6 million for High-Speed Rail Workload. In addition to the environmental planning for the first phase of above funding requests for HSRA, the Governor’s the project and (2) $191.4 million to purchase budget also proposes increased funding at the land and partially support construction Figure 6 High-Speed Rail Authority Expenditures (Dollar in Millions) Change From 2013-14 Actual Estimated Proposed 2012-13 2013-14 2014-15 Amount Percent State Operations Proposition 1A bond funds $17.7 $26.4 $29.3 $2.9 11.0% Local Assistance Federal funds — — $32.0 $32.0 — Capital Outlay Proposition 1A bond funds $27.3 $22.0 — -$22.0 -100.0% Greenhouse Gas Reduction Fund — — $250.0 250.0 — Federal funds 185.8 571.3 1078.7 507.4 88.8 Subtotals, Capital Outlay ($213.1) ($593.3) ($1,328.7) ($735.4) (124.0%) Totals $230.8 $619.7 $1,390.0 $770.4 124.3% www.lao.ca.gov Legislative Analyst’s Office 13 2014-15 BUDGET California Public Utility Commission (CPUC) and the negative economic impact of cap-and-trade, it the Department of Conservation (DOC) to handle is important that auction revenues be invested in a workload related to high-speed rail. First, the way that maximizes GHG emission reductions for budget proposes $355,000 (PTA) and $1.5 million a given level of spending. It is unclear the extent to (reimbursed by the utilities) for three permanent which using such revenues to support high-speed positions at CPUC to support the administration rail will maximize GHG emission reductions. First, of contracts for technical consultants to perform the high-speed rail project would not contribute environmental analysis and review permit significant GHG reductions before 2020, which is applications from utilities for new electrical the statutory target for reaching 1990 emissions infrastructure. According to the administration, levels as required by Chapter 488, Statutes of CPUC will experience an increase in workload as 2006 (AB 32, Núñez/Pavley). This is because, as the state’s electrical infrastructure is expanded to mentioned above, plans for the high-speed rail accommodate the operation of the high-speed rail system indicate that the first phase of the project system. Second, the budget proposes $5 million will not be operational until 2022. Second, the (reimbursed by HSRA) for DOC to perform construction of the project would actually generate agricultural land conservation for the HSRA, which GHG emissions of 30,000 metric tons over the is required to mitigate the environmental impacts next several years. (The HSRA plans to offset these of land acquisition for the ICS. emissions with an urban forestry program that proposes to plant thousands of trees in the Central Issues for Legislative Consideration Valley.) We also note that HSRA’s GHG emission In reviewing the Governor’s proposals to estimates for construction do not include emissions support the high-speed rail project, we find that the associated with the production of construction proposals raise several issues that merit legislative materials, which suggests that the amount of consideration. Specifically, we find that (1) using emission requiring mitigation could be much cap-and-trade auction revenues for high-speed higher than currently planned. rail may not maximize GHG reductions, (2) there No Complete Funding Plan for IOS. As currently is not a funding plan to complete the IOS, mentioned above, the HSRA indicates that the (3) it is unclear how much cap-and-trade revenue IOS will cost about $31 billion to complete. In will actually be available for high-speed rail in its recent 2014 draft business plan, the authority the future, and (4) HSRA is expending federal identified a total of $10 billion in funding available funds while matching Proposition 1A funds face to support the construction of the IOS. This level legal risks. Addressing these issues will help the of funding consists of (1) $3.3 billion in federal Legislature make informed decisions regarding funds already received and (2) $6.8 billion in the completion of the high-speed rail project as Proposition 1A bond funds. The plan states that planned, while balancing its other priorities (such an additional $21 billion will need to be identified as maximizing GHG reductions). in order to complete the IOS, which is about Using Cap-and-Trade Auction Revenues two-thirds of the total cost. for High-Speed Rail May Not Maximize GHG An infusion of funds from the private sector Reductions. As we discussed in our recent report, to address the current IOS funding shortfall is The 2014-15 Budget: Cap-and-Trade Auction unlikely, given that the HSRA stated in its 2012 Revenue Expenditure Plan, in order to minimize business plan that private sector funds will only 14 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET become available after the IOS is completed and of projected cap-and-trade auction revenues also demonstrated to have a net positive operating cash makes it difficult for the Legislature to weigh the flow. Additionally, given the federal government’s relative trade-offs of dedicating a fixed percentage current financial situation, the current focus in of cap-and-trade auction revenues to high-speed Washington on reducing federal spending, and the rail each year (without further legislative action) lack of a federal budget appropriation to support versus allocating the funds on an annual basis to the state’s high-speed rail system since 2009-10, it other programs intended to reduce GHG emissions, is uncertain at this time that any additional federal including programs that the Legislature deems to funding for the state’s high-speed rail project will be of higher priority and could maximize GHG become available. Thus, the state will likely be the reductions in a more cost-effective manner. This only source of additional funding to address the is because it is uncertain whether there would be $21 billion shortfall identified by HSRA. a sufficient amount of funding available under the Unclear How Much Cap-and-Trade Funding Governor’s proposal to support such programs. Will Support High-Speed Rail in Future. Although HSRA Expending Federal Funds While the administration proposes to use revenue Matching Proposition 1A Bond Funds Face Legal from the state’s cap-and-trade program to help Risks. For the remainder of 2013-14 and 2014-15, address the $21 billion shortfall, it is unclear how the HSRA plans to spend about $1.6 billion in much cap-trade auction revenue will actually be federal funds on the high-speed rail project, which allocated to high-speed rail in 2015-16 and beyond require a match of state funds. Currently, the only to complete the IOS under the Governor’s plan. state funding source available to provide matching As indicated above, the Governor is proposing expenditures are Proposition 1A bond funds. that beginning in 2015-16, 33 percent of all state However, as we mentioned above, the availability auction revenues be continuously appropriated to of Proposition 1A bond funds has been the subject HSRA. At this time, however, the administration of litigation. If the federal funds are expended as has not provided an estimate of projected cap-and- planned, and the state does not provide matching trade auction revenues. Moreover, it is unclear expenditures, the Federal Railways Administration for how long the administration expects there to reserves the right to require that the state repay be cap-and-trade auctions and the availability of the federal government up to the entire amount of revenue resulting from such auctions. federal funds spent on the project. The absence of a detailed plan projecting LAO Recommendations the estimated amount of cap-and-trade auction revenue that would be appropriated to HSRA by In light of the concerns expressed above, year is problematic for two reasons. First, it makes we make several recommendations intended to it difficult for the Legislature to determine if such help the Legislature ensure that the high-speed revenues, along with available federal funds and rail project can be completed as planned, while Proposition 1A bond funds, would be sufficient to balancing other priorities such as maximizing fund the expected costs per year to complete the GHG emission reductions. Specifically, we IOS. To the extent that there would not be sufficient recommend: revenues in a given year, the Legislature would • Requiring Administration to Provide need to identify alternative funding sources, likely Complete Funding Plan. Given the from other state resources. Second, the absence concerns described above, we recommend www.lao.ca.gov Legislative Analyst’s Office 15 2014-15 BUDGET that the Legislature require the withhold action on the Governor’s administration and HSRA to provide a high-speed rail proposals (including those funding plan that identifies all the funding proposed for CPUC and DOC). sources (including cap-and-trade auction • Weighing Options for Use of Cap-And- revenues) by amount and year that would Trade Auction Revenue. As we be used to complete the IOS. As such, the recommended in our recent report on the plan should detail how the administration administration’s cap-and-trade auction intends to address the $21 billion shortfall revenue expenditure plan, we recommend identified by HSRA. The requested funding that the Legislature consider a full array plan would help the Legislature in its of options for the use of cap-and-trade deliberations on the Governor’s funding auction revenue funds to help achieve proposals for high-speed rail. the goals of AB 32 and meet legislative • Withholding Action on Various Proposals. priorities. Pending the receipt of the above funding plan, we recommend that the Legislature CALIFORNIA HIGHWAY PATROL The primary mission of the CHP is to the state for (1) emergency response, (2) homeland ensure safety and enforce traffic laws on state security missions (such as patrolling the state’s highways and county roads in unincorporated electrical and water infrastructure), (3) patrol areas. The department also promotes traffic of rural roadways, (4) speed enforcement, safety by inspecting commercial vehicles, as (5) enforcement other than speed, (6) special events, well as inspecting and certifying school buses, and (7) transportation. Some of the allied agencies ambulances, and other specialized vehicles. The that are provided assistance include local police CHP carries out a variety of other mandated tasks departments, county sheriffs, state departments related to law enforcement, including investigating (such as the Department of Water Resources and vehicular theft and providing backup to local law Department of Fish and Wildlife), and federal enforcement in criminal matters. The operations departments (such as the Department of Homeland of the CHP are divided across eight geographic Security). divisions throughout the state. Most of CHP’s air fleet was purchased several years ago with one-time federal grants that the Air Fleet Replacement state received to promote traffic safety or homeland security. For example, 14 of CHP’s 15 airplanes Background were purchased with federal funds. According to Currently, CHP operates an air fleet of CHP, an aircraft is typically in need of replacement 15 planes and 15 helicopters. According to CHP, after 10,000 flight hours as the cost to maintain the air fleet is used to provide assistance to CHP and repair such an aircraft significantly increases field-related operations and allied agencies across thereafter. This is consistent with the best practices 16 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET used by other law enforcement agencies in regards Proposal Raises Several Issues for to air fleet replacement. The CHP states that 19 of Legislative Consideration its 30 aircraft currently have been flown for more We recognize that most of CHP’s existing air than 10,000 hours. In addition, CHP spends about fleet are reaching the end of their useful life and $2 million annually to operate and maintain each these needs will need to be addressed. However, we aircraft. find that the Governor’s proposed plan to replace In adopting the 2013-14 budget, the Legislature 26 of the 30 aircraft raises three main issues that approved CHP’s request for $17 million from merit legislative consideration. the MVA to replace four of its oldest aircraft. As Unclear What Size of Air Fleet Is Needed. part of its request, the CHP indicated its desire While the report provided by CHP on its air to replace its entire air fleet over the next several fleet includes various information (such as each years. In order to properly assess such future aircraft’s record of maintenance and fuel costs), requests from CHP, the Legislature adopted the report does not provide sufficient information supplemental report language (SRL) as part of justifying the size of the air fleet being proposed. the 2013-14 budget requiring CHP to provide a For example, the report simply states that CHP report by March 1, 2014 that includes (1) an overall needs 26 aircraft to achieve its goal to perform assessment of its air fleet needs and (2) a detailed 26,000 total flight hours per year and provide plan regarding the replacement and maintenance each CHP division with three aircraft. However, of its air fleet, including specific timelines and cost it is unclear from the information provided to the projections associated with aircraft replacement Legislature whether this number of flight hours and and maintenance. aircraft is the right amount to support CHP’s core activities, particularly given limited resources and Governor’s Proposal the high cost to purchase, operate, and maintain The Governor’s budget proposes a multiyear the aircraft. For example, the report did not include plan to replace CHP’s aircraft that have exceeded specific metrics that describe the benefits that the 10,000 flight hours and maintain an air fleet size state would receive from the proposed air fleet of 26 aircraft. Specifically, the Governor proposes size, as compared to a smaller or larger size. It is one-time funds from the MVA of $16 million to possible that a fewer number of flight hours and replace four aircraft in 2014-15, $14 million to aircraft would provide similar benefits to the state replace three aircraft in 2015-16, and $14 million as the level proposed. For example, providing only to replace three aircraft in 2016-17. Additionally, two aircraft for each regional division might be the Governor’s proposal would provide CHP with sufficient. $8 million (MVA) each year on an ongoing basis Future Ongoing Replacement Funding beginning in 2017-18 to replace two aircraft per “Locks in” Air Fleet Size. As indicated above, the year to continuously maintain an air fleet size of Governor’s proposal includes $8 million beginning 26 aircraft. Under the proposal, each of CHP’s eight in 2017-18 on an ongoing basis for CHP to replace geographic divisions would maintain two airplanes future aircraft as needed to maintain 26 aircraft. and one helicopter, with two additional helicopters This assumes that CHP will always need 26 aircraft distributed to divisions at CHP’s discretion. As part in the future and that the aircraft will require of its request for funding, CHP provided a report in replacement on a set schedule. However, it is response to the SRL discussed above. uncertain if that will be the case, as several factors www.lao.ca.gov Legislative Analyst’s Office 17 2014-15 BUDGET could influence the need for a smaller or larger fleet for some or all of the costs it incurs in providing size in the future (such as less assistance requested them with air support. We also note that requiring by allied agencies). In addition, it is possible such reimbursements might encourage allied that the future aircraft could last longer than agencies to be more efficient and selective when planned, due to less hours flown than expected requesting air support assistance from CHP. and improvements in the quality of aircraft being LAO Recommendation purchased. Appropriateness of Using MVA Funds to In view of the above issues, we recommend Support All Replacement Costs. As described the Legislature withhold action on the Governor’s above, CHP’s current air fleet was primarily proposal pending additional information from purchased with one-time federal funds to promote CHP and legislative deliberations regarding (1) the traffic safety and homeland security missions. need for the size of the air fleet proposed and Under the Governor’s proposal, all of the new (2) the appropriateness of using the MVA as the aircraft would be purchased with monies from the sole funding source to purchase aircraft (including MVA, which generates its revenues primarily from whether allied agencies should reimburse CHP for driver license and vehicle registration fees. The some of the costs). Governor’s proposal raises the issue of whether it Area Office Replacement is appropriate for the MVA to be the sole funding source for this purpose. Under Article XIX of Background the State Constitution, any revenues from fees and taxes on vehicles or their use—such as driver The CHP operates 103 area offices across the license and vehicle registration fees—can only be state, which usually include a main office building used for the state administration and enforcement for CHP staff, CHP vehicle parking and service of laws regulating the use, operation, or regulation areas, and a dispatch center. According to the of vehicles used upon the public streets and Department of General Services (DGS), about 80 highways. It is unclear whether all of the activities of CHP’s area offices are seismically deficient and supported by CHP’s air fleet meet this requirement, require replacement. In addition, CHP indicates such as patrolling the state’s electrical and water that many offices are experiencing workspace infrastructure. shortages. For example, many existing facilities Moreover, CHP reports that it frequently uses were not designed to accommodate some of its air fleet to assist various allied agencies (such as the additional program responsibilities that the local law enforcement offices). According to CHP, department has undertaken over the years (such as such assistance increased several years ago as some commercial vehicle inspection). allied agencies (particularly local law enforcement Area office replacements can be procured in agencies) faced fiscal constraints during the one of a few ways. The most common are “build- economic downturn in operating and maintaining to-suit” leases and direct capital outlay. With the their own existing air fleets. Given the high cost to build-to-suit procurement method, CHP contracts the state in maintaining CHP’s air fleet and that with a private developer to construct a facility and the budgets of the allied agencies may have begun agrees to lease the facility from the developer for a to recover, the Legislature may want to consider predetermined number of years. At specified times requiring certain allied agencies to reimburse CHP during the build-to-suit lease, CHP has the option 18 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET to purchase the facility from the developer. With for the next five years. According to CHP, it would the direct capital outlay procurement method, cost a total of $820 million to replace 25 area offices. DGS uses funds from the MVA to both purchase Additional Information Needed the property and contract with a private contractor to build the CHP facility. Under direct capital We recognize that many of CHP’s area offices outlay, the state owns the facility and does not have have deficiencies that will need to be addressed in ongoing lease payments. the coming years. However, given the magnitude In recent years, both build-to-suit leases and of the cost to replace these offices, it is important to direct capital outlay have been used to replace ensure that the most cost-effective delivery method CHP area offices. For example, in September 2012, is used and that the area offices most in need of the Director of DGS notified the Joint Legislative replacement are prioritized. Budget Committee (JLBC) of his intent to execute Pending Report From Administration on three separate build-to-suit lease agreements on Procurement Methods. As indicated above, the behalf of CHP to replace existing area offices. administration is required to provide a report At this time, DGS has executed one of these to the Legislature by April 1, 2014 that includes agreements. In addition, the 2013-14 budget guidelines to determine if a new facility should provided $1.5 million for advanced planning and be procured using capital outlay or a build-to-suit site selection to replace up to five unspecified lease approach. This information will assist the CHP area offices using the direct capital outlay Legislature in determining whether the Governor’s method. Due to concerns regarding the lack of proposal to replace five area offices with the direct an assessment of the relative benefits of financing capital outlay procurement is justified. projects with the build-to-suit process or capital Prioritization of Offices Proposed for outlay, the Legislature adopted SRL requiring that Replacement. As mentioned above, the Governor’s the Department of Finance (DOF), in consultation budget does not identify which five area offices will with DGS, report to the Legislature by April 1, be replaced. While the administration has provided 2014, on the guidelines that help determine a list of about 80 area offices it deems to be in need whether a proposed new state facility should be of replacement, it has not provided the criteria procured using capital outlay or through a build- used to determine the order in which the area to-suit lease. The guidelines shall include, but not offices should be replaced. Thus, the Legislature be limited to, guidelines for new CHP area offices. is currently unable to determine if and when the offices that are in the worst condition and most Governor’s Proposal in need of replacement will be replaced under The Governor’s budget for 2014-15 provides the Governor’s five-year plan. Such prioritization $1.7 million from the MVA to CHP for advanced would help the Legislature weigh the full scope of planning and site selection to replace five the Governor’s five-year replacement plan versus additional area offices that will be financed with other demands that could be placed on the MVA in the direct capital outlay procurement method. the future. The budget does not identify the specific five area LAO Recommendation offices that would be replaced. According to the administration’s 2014 Five-Year Infrastructure Plan, In view of the above, we recommend that the the proposal is to replace five area offices per year Legislature withhold action on the Governor’s www.lao.ca.gov Legislative Analyst’s Office 19 2014-15 BUDGET proposal pending receipt of (1) the administration’s in priority order of the area offices proposed for forthcoming report on direct capital outlay and replacement and the criteria used to determine build-to-suit procurement methods and (2) a list such prioritization. DEPARTMENT OF MOTOR VEHICLES The DMV is responsible for registering vehicles Assembly Bill 60 specifies that the department and for promoting safety on California’s streets must submit a report on January 10 of each year and highways by issuing driver licenses. Currently, to the Governor and Legislature detailing the there are 24 million licensed drivers and 30 million costs of verifying the citizenship or legal residency registered vehicles in the state. Additionally, DMV of applicants for driver’s licenses. In addition, licenses and regulates vehicle-related businesses AB 60 states that DMV could assess an additional such as automobile dealers and driver training application fee on individuals applying for a driver’s schools, and collects certain fees and tax revenues license pursuant to the provisions of the legislation for state and local agencies. The DMV operates that is sufficient to offset the administrative costs 313 facilities, which include customer service field of implementing such provisions. Under the offices, telephone service centers, commercial legislation, such additional fees could only be licensing facilities, headquarters, and driver safety assessed until June 30, 2017. and investigations offices. Over half of DMV Governor’s Proposal. The Governor’s budget facilities are customer service field offices. In 2013, for 2014-15 provides DMV with an additional the department reports that it processed 67 million $67.4 million from the MVA to implement AB 60. transactions, with 25 million transactions Specifically, the proposed funds would support occurring in field offices. 822 new limited-term positions and five temporary facilities to process additional driver’s license Implementation of AB 60 applications. According to DMV, these facilities Background. Chapter 524, Statutes of 2013 would be located in San Jose, Santa Barbara, Los (AB 60, Alejo), commonly referred to as AB 60, Angeles, Orange County and San Diego and will requires that, beginning January 1, 2015, DMV only process applications for driver’s licenses. The accept driver license applications from persons Governor’s budget assumes that DMV will not who are unable to submit satisfactory proof of assess an additional application fee to support these legal presence in the U.S. (such as a social security costs. number), provided they meet all other application Based on recent data from the Department of requirements and provide proof of identity Homeland Security on the number of unauthorized and California residency. As required by the immigrants living in California and the percent legislation, DMV is in the process of developing of unauthorized immigrants in the U.S. who are and adopting regulations to implement certain age 18 and over, the administration estimates that provisions of the measure, such as specifying the 2.5 million California residents would be eligible appropriate documents necessary to prove identity to submit applications under the provisions of and California residency and the procedures for AB 60. (Federal data on unauthorized immigrants verifying the authenticity of the documentation. does not specifically delineate those who are 20 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET age 16 and older.) Of these particular residents, location of the facilities also appear to be aligned the administration assumes that 1.4 million (or with where individuals who will be eligible for 55 percent) will choose to apply for a driver’s driver’s licenses under AB 60 reside. According to license. The Governor’s budget assumes that data from the Public Policy Institute of California, 38 percent of these individuals will apply in the about 70 percent of the population eligible under second half of 2014-15, 50 percent in 2015-16, and AB 60 resides in Southern California. 12 percent in 2016-17. As such, the administration’s Given the difficulty in estimating the exact proposal reflects adjustments to the above proposed number of additional individuals who will apply funding and positions levels for 2015-16 and for a driver’s license, the Governor’s proposed 2016-17. funding and staffing levels for 2014-15, 2015-16, and The Governor’s budget also includes 2016-17 could end up being too high or too low. provisional language to allow DOF to augment Thus, it will be important for DMV to regularly DMV’s budget item if it determines that DMV report on its progress in implementing AB 60. requires additional resources to implement AB 60. Such a report should include data on the (1) total Under the proposed language, DOF would be number of driver’s license applications submitted required to provide notification to the JLBC at least pursuant to AB 60, (2) number of such applications 30 days prior to authorizing the augmentation. by region, (3) average cost and time to process each Administration’s Workload Estimates Appear AB 60 application, and (4) changes in the number Reasonable. In determining how many additional of driver’s license applications received under the individuals will apply for a driver’s license as a current process (meaning not pursuant to AB 60). result of AB 60, the administration assumed an Such information would help the Legislature application rate of 55 percent—meaning the percent determine the appropriate level of resources for of undocumented individuals age 16 and over who DMV to effectively and efficiently implement AB 60 would apply for a license. (In comparison, roughly in future years. 80 percent of California residents age 16 and over Proposed Budget Bill Language Not Necessary. currently submit applications for driver’s licenses.) We find that the proposed budget bill language According to the administration, this assumption authoring DOF to augment DMV’s budget is is based on various sources, including data from unnecessary to account for the event that DMV’s the Congressional Research Service and other actual workload to implement Chapter 524 ends states that have implemented similar programs. up being higher than budgeted in 2014-15. This is While there is some uncertainty in estimating because the proposed budget bill already includes how many additional individuals—and in which funds and a process for departments to seek funds year—will apply for a driver’s license due to the for unanticipated expenses. Specifically, Item implementation of AB 60, the administration’s 9840-001-0494 includes $15 million in unallocated estimates appear reasonable. special funds for unanticipated expenses, as well as Based on the above estimates, our analysis also identifies a process for the administration to seek finds that the administration’s proposed staffing a supplemental appropriation from the Legislature levels appear consistent with DMV’s current for funding higher than the thresholds specified in workload standards. In addition, the proposed the item. use of temporary facilities is consistent with the LAO Recommendations. In view of the above, legislative intent expressed in AB 60. The proposed we recommend that the Legislature approve the www.lao.ca.gov Legislative Analyst’s Office 21 2014-15 BUDGET Governor’s proposal to provide DMV with an data that would help determine the appropriate additional $67.4 million and 822 limited-term level of resources needed to implement AB 60 in positions to implement AB 60 in 2014-15. We also an efficient and cost-effective manner. Finally, we recommend that the Legislature expand the data recommend that the Legislature reject the proposed that DMV must submit every January 10—as budget bill language to provide DOF the authority required under AB 60—to include the number and to augment DMV’s budget, as such language is not location of applications and application workload necessary. 22 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET www.lao.ca.gov Legislative Analyst’s Office 23 2014-15 BUDGET Contact Information Jessica Peters Department of Transportation 319-8363 Jessica.Peters@lao.ca.gov Jeremy Fraysse High-Speed Rail 319-8338 Jeremy.Fraysse@lao.ca.gov California Highway Patrol Department of Motor Vehicles LAO Publications This report was reviewed by Anthony Simbol. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 24 Legislative Analyst’s Office www.lao.ca.gov