The 2014-15 Budget: Capital Outlay Support Program Review

The 2014-15 Budget: Capital Outlay Support Program Review MAC TAYLOR • L E G I S L A T I V E A N A L Y S T • MAY 14, 2014 SUMMARY The capital outlay support (COS) program at the California Department of Transportation (Caltrans) provides the staff support necessary to deliver transportation infrastructure projects (such as project design and management). In response to the Supplemental Report of the 2013-14 Budget Package, this brief presents our assessment of the existing COS program and makes a series of recommendations to improve the efficiency and accountability of the program. While we find that Caltrans has achieved some successes in delivering individual projects and has made minor improvements to the COS program in recent years, the program generally lacks accountability and is not operating efficiently. Specifically, we find that the COS program currently (1) lacks performance data to adequately measure program effectiveness, (2) is experiencing a substantial decline in workload that will result in significant overstaffing starting in 2014-15, and (3) allows for limited legislative and external oversight. While the Governor’s budget makes some proposals that reflect initial steps to address a few of these shortcomings, we find that the proposals do not adequately address the COS program’s limited legislative and external oversight and projected overstaffing. For example, the Governor’s proposals would result in the program being overstaffed by about 3,500 full-time equivalents (FTEs) beginning in 2014-15, at a cost of more than $500 million. In view of the above, we make several recommendations to improve the program. First, we recommend that the Legislature take a multiyear approach to significantly reduce the budget and staffing levels, beginning with the 2014-15 budget. The freed up funds would then be available for the Legislature to meet its transportation needs, such as repaving highways. We also recommend that Caltrans improve its staffing projections and data quality. Lastly, we recommend the Legislature take steps for the California Transportation Commission (CTC) to perform specific oversight and project approval functions for projects that currently have limited external oversight. 2014-15 BUDGET INTRODUCTION In recent years, the largest share of state deliver some transportation projects. During the infrastructure spending has been for transportation summer and fall of 2013, representatives from our improvements and repairs. Caltrans spends much office, DOF, and Caltrans met on a regular basis, of this funding for projects on the state’s highways. visited several Caltrans district offices, and talked to Costs for these projects consist of capital outlay numerous stakeholders (such as local transportation and COS. Capital outlay costs are incurred by agencies, construction contractors, and private construction contractors for materials and labor consultants). Although the review group collected to construct a project, while COS refers to the staff information about the program and reached general support necessary to deliver the project (such as consensus on some initial steps to improve the project design and management). efficiency and accountability of the COS program, As part of the 2013-14 budget package, the the group was unable to reach consensus on all of Legislature adopted supplemental report language the concerns identified in the review and solutions directing our office and the Department of Finance to address them. (DOF) to work with Caltrans to review its COS In this brief, we (1) provide an overview of the program, in order to increase the accountability and COS program, (2) present our assessment of the efficiency of the program. The review was primarily existing COS program, (3) discuss the Governor’s prompted by legislative concerns over the years budget proposals related to the program, and regarding the lack of information to fully support (4) make a series of recommendations to improve the program’s annual staffing level and budget, as the efficiency and accountability of the COS well as the increased cost and lengthy schedule to program. OVERVIEW OF COS PROGRAM COS Staffing and right-of-way agents. The remainder of state staff are in the department’s headquarters and are The 2013-14 budget includes a total of responsible for coordinating and overseeing the $1.8 billion to support 10,149 FTE staff resources COS program, as well as the overall delivery of the for the COS program at Caltrans. As shown in department’s infrastructure projects. Specifically, Figure 1, 90 percent of the program’s staff resources COS headquarters staff provide guidance to consist of state staff (meaning Caltrans employees) Caltrans’ districts on technical issues, allocate who work both regular time and overtime. The resources to districts, and track program outcomes. remainder consists of private consultants. The vast Over the last several years, budgeted staffing majority of the state staff is located in Caltrans’ 12 levels for the COS program have declined. As districts, where they perform technical and project shown in Figure 2, the budgeted staffing levels management work to support transportation declined 23 percent from 2005-06 to 2013-14. projects for that district. Specifically, each district While we would expect COS staffing levels to employs several types of COS staff with specified correlate with the total amount of funding available skills, such as environmental planners, engineers, 2 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET for transportation projects in a given year (meaning proceed as planned, the project manager must work an increase in transportation funding would result with the staff involved to determine what factors Graphic Sign Off in an increase in COS staffing), this has not always changed and how best to get the project back on Secretary been the case. For example, from 2007-08 through track. In some cases, the project manager may have 2013-14, despite significant increases in state bond to request a change to the project’s cost, scope, or Analyst and federal transportation funding, COS budgeted schedule. For STIP projects, project managers are MPA staffing levels actually declined. required to request cost, scope, or schedule changes Deputy by submitting a project change request (PCR) to COS Activities Caltrans headquarters. Staff in headquarters review The COS program staff provide varying the PCR and provide comments to the director degrees of support for all state highway projects, of the Caltrans district managing the project. with most of them in the State Highway Operation and Protection Program (SHOPP) and the State Figure 1 Transportation Improvement Program (STIP). In State Staff Perform Most COS Work addition, the COS program supported many of Consultants the programs funded by the one-time infusion of transportation funds provided by Proposition 1B, Graphic Sign Off which was approved by voters in November 2006. (Please see the box on the next page, for more Secretary detailed information on the state’s major Analyst transportation infrastructure programs.) MPA During each phase of a project— State Staff Deputy environmental, design, right of way, and construction—Caltrans performs COS activities. Total: 10,149 Full-Time Equivalent Staff Figure 3 (see page 5) provides some examples of the COS = capital outlay support. types of COS activities performed in each phase of a project. For example, in the design phase COS staff perform engineering analyses and develop Figure 2 plans and drawings. CTOeSm Bpuladtgee_teLdA SOtRafefp Roersto_usrmce.asi tHaAveR DTeWclOineRdK #140052 Caltrans’ COS program is also responsible Full-Time Equivalents for ensuring that the technical work of a project 14,000 led by the department is completed in a manner 12,000 that delivers the project’s planned cost, scope, 10,000 and schedule. In order to achieve this, the 8,000 program employs project managers in each 6,000 Caltrans district office to manage each phase of a 4,000 project. Specifically, project managers coordinate staff, workload, and funding, and are responsible 2,000 for monitoring and mitigating risks to a project. 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 When a project experiences challenges (such as a COS = capital outlay support. delay in environmental permitting) and cannot www.lao.ca.gov Legislative Analyst’s Office 3 Template_LAOReport_sm.ait ARTWORK #140052 2014-15 BUDGET Major State Transportation Programs Currently, the state has two major ongoing programs to fund transportation projects, with each program having different goals and processes for selecting and delivering projects. These two programs are: • State Highway Operation and Protection Program (SHOPP). The SHOPP is the state’s program for repairing and reconstructing the highway system. Projects generally include pavement and bridge rehabilitation, major reconstruction, and safety improvements. The California Department of Transportation (Caltrans) selects SHOPP projects based on statewide repair and safety needs, and performs project support work through the capital outlay support (COS) program. Currently, Caltrans spends about $2.3 billion annually from state fuel excise taxes and federal funds for the SHOPP, making it the state’s largest transportation program. • State Transportation Improvement Program (STIP). The STIP is the state’s program for enhancing and expanding the capacity of state highways. Local road and transit projects are also eligible for STIP funding. State law allocates 75 percent of STIP funds to counties by formula for projects selected by the counties. Counties can choose to complete support work on STIP projects by using Caltrans COS program staff, their own staff, or private consultants. Caltrans is responsible for selecting projects for the remaining 25 percent of STIP funds, with the COS program performing most of the support work for these projects. Currently, Caltrans spends about $700 million for the STIP each year, primarily from state fuel excise taxes and federal funds. Recent One-Time Funding Sources. In addition to the ongoing programs identified above, the state has also received certain one-time state and federal funding to support transportation projects. For example, Proposition 1B (approved by voters in November 2006) authorized the state to sell about $20 billion in general obligation bonds to fund a variety of transportation projects, including those that improve state highways and modernize and expand transit systems. Proposition 1B created certain new transportation programs, many of which are administered by the California Transportation Commission. Depending on the type of project and the lead agency for the project, support work is performed by Caltrans’ COS program, local agency staff, or private consultants. To date, the majority of Proposition 1B funds have been allocated and most of the projects are either under construction or completed. In addition, Caltrans received about $2.9 billion for transportation projects from the 2009 federal American Recovery and Reinvestment Act. These one-time federal funds generally augmented existing state transportation infrastructure programs, with a majority of them allocated to projects on local roads and the state’s highways. 4 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET The district director then determines whether to includes a placeholder for the COS program based approve or reject the PCR. Project managers are on the current-year budget for the program.) The not required to submit a similar type of PCR for development of this request involves several steps. SHOPP projects. Currently, the department does First, according to staff in Caltrans headquarters, not have a statewide process to control and account each district compiles information on all of their for cost, scope, or schedule changes to SHOPP current and planned projects, including the projects. It is unclear how each district deals with estimated number of hours needed to complete such changes. project tasks (such as conducting environmental Graphic Sign Off In addition to performing the above activities field studies or developing draft design plans) and Secretary directly, the COS program oversees state highway the planned start and end date of each task. This Analyst projects that are led by local agencies rather than information is then entered into the department’s Caltrans. These local agencies use their own staff, project management system—Project Resourcing MPA private consultants, or Caltrans’ staff to perform and Schedule Management (PRSM). Districts Deputy COS activities. generally perform this step during the fall of each year for the development of the COS budget COS Funding Process request for the coming fiscal year. Based on the After a project is adopted into one of the state’s Figure 3 transportation programs Examples of COS Work That Occurs in (such as SHOPP and STIP), Phases of Transportation Infrastructure Projects Caltrans can begin the above COS work. Funding to Environmental support this work involves (cid:127) Obtain environmental permits. the (1) development of the (cid:127) Conduct NEPA and CEQA analysis. annual budget request for the COS program, Design (2) appropriation of funds in (cid:127) Perform engineering analyses. the annual state budget, and (cid:127) Develop plans and drawings. (3) the allocation of funds to Caltrans districts. Right of Way Caltrans Develops (cid:127) Identify right-of-way needs. Budget Request. Each year, (cid:127) Acquire necessary parcels. Caltrans submits a request to DOF for resources to support its COS program, which Construction (cid:127) Inspect construction work. is subsequently reflected (cid:127) Review change orders. (cid:127) Monitor compliance with environmental permits. in the Governor’s May Revision to the Legislature for the upcoming fiscal year. COS = capital outlay support; NEPA = National Environmental Policy Act; and CEQA = California Environmental Quality Act. (The Governor’s January budget proposal essentially www.lao.ca.gov Legislative Analyst’s Office 5 ARTWORK #140052 Template_LAOReport_mid.ait 2014-15 BUDGET information entered in PRSM, headquarters staff specific appropriation for each project, but rather estimate in early January the total level of staff makes a single appropriation to Caltrans to fund resources that Caltrans will need to work on each the COS work for projects in all transportation project in the coming fiscal year. From January infrastructure programs. This is primarily intended to March, headquarters staff review the estimated to provide Caltrans with the flexibility to manage staffing needs and compare these estimates with changes that can occur on individual projects. projected workload trends and the number of Caltrans Allocates COS Funds. After funding positions currently maintained at each district. for the COS program is appropriated by the Based on the resulting estimate of staff resources Legislature, funds are then allocated by Caltrans needed, headquarters staff then calculates the level to districts based on their COS resource needs. We of funding needed to support the program in the note, however, that for many of the transportation coming year. projects funded with Proposition 1B funds, the Legislature Appropriates Funds. The CTC—rather than Caltrans—was delegated the Legislature reviews the annual COS budget responsibility for allocating funding for COS request in order to determine the level of funding costs. Currently, for projects not funded with to appropriate for the program in the annual Proposition 1B funds (such as those in the SHOPP state budget. The Legislature does not provide a and STIP), CTC only allocates project funding for capital costs. LAO ASSESSMENT OF COS PROGRAM As discussed earlier, the Legislature directed Data Challenges Limit Ability to our office and DOF to work with Caltrans to Evaluate Program Effectiveness review the accountability, efficiency, and staffing During our review, we found that workload resources of the COS program. While we find and expenditure data used by the COS program that Caltrans has achieved some successes in and provided to the Legislature—as part of the delivering individual projects and has made program’s annual budget request—contains errors minor improvements to the program in recent and appears largely unreliable. In addition, we years, the COS program continues to experience found that Caltrans does not collect certain basic certain challenges. This is because the program information necessary to review the efficiency and generally lacks accountability and is not operating effectiveness of the COS program (such as detailed efficiently. Specifically, we find that the COS staffing information). As we discuss below, these program currently (1) lacks performance data to data challenges limited our review of the program. adequately measure program effectiveness, (2) is experiencing a substantial decline in workload COS Data Appears Largely Unreliable that will result in significant overstaffing starting Currently, Caltrans maintains a fairly large in 2014-15 absent corrective actions, and (3) allows amount of COS data related to individual projects for limited legislative and external oversight. Our that is available to both district and headquarters specific findings are summarized in Figure 4 and staff. For example, Caltrans tracks the budget, described in detail below. schedule, and past expenditures of each project. 6 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET However, based on our review of the available data, • A small sample of projects was selected by we find that it appears largely unreliable due to the Caltrans and discussed in depth during prevalence of errors and inaccuracies. Examples of our district site visits with DOF. For four poor data quality include: of the sample projects, the department provided specific data from PRSM (such • In the workload information that Caltrans as project cost and level of completion of provided for 2012-13 and 2013-14, several current tasks). However, some of the PRSM projects reported in 2013-14 a lesser data was inconsistent with the information amount of total expenditures than what presented by the project manager for was reported previously as spent in each of the four projects. During the 2012-13. Since total expenditures on a site visits, Caltrans acknowledged that project would either increase or remain PRSM contained inaccurate data for the same for each subsequent year as the these projects. These inaccuracies include project is completed, the data appears to out-of-date information that overstated the contain errors. level of staff needed for the project. • Caltrans reported for 2013-14 that Potential Reasons for Poor Data Quality. 330 projects have exceeded their approved Our review identified a couple of potential reasons COS budget. When we asked Caltrans staff for the poor quality of Caltrans’ COS data. First, about these particular projects, they were the department currently lacks sufficient internal unable to verify why these projects were controls to ensure the accuracy of the data in both overbudget and instead indicated that the its current and previous project management data reported might be incorrect. systems. In other words, Caltrans does not have any Figure 4 Summary of LAO Findings 9 Data Challenges Limit Ability to Evaluate Program Effectiveness. Workload and expenditure data used by the capital outlay support (COS) program and provided to the Legislature contains errors and appears largely unreliable. In addition, the program does not collect certain basic information necessary to review its efficiency and effectiveness. 9 Program Overstaffed Due to Declining Workload. The COS program is experiencing a substantial decline in workload that will result in significant overstaffing absent corrective actions. 9 Legislative Oversight Hampered. The annual COS budget request currently limits the ability of the Legislature to effectively oversee the COS program. This is because the budget request is often based on poor estimates of projected staffing needs and is not provided to the Legislature in a timely period to allow for sufficient review. 9 Limited Project-Level External Oversight of the State Highway Operation and Protection Program (SHOPP). A significant portion of COS staff work on projects in the SHOPP. However, the state lacks external oversight of these projects. This is because the California Transportation Commission lacks the authority to approve individual projects and to allocate COS funds for the SHOPP. www.lao.ca.gov Legislative Analyst’s Office 7 2014-15 BUDGET statewide processes to regularly update and verify environmental studies) and the extent to the accuracy of project-level data, such as periodic which such staff currently is on board. audits of project data. The absence of such internal Caltrans, however, was unable to provide controls increases the likelihood for inaccurate data this type of information during our review. to remain in the system. Second, it appears that As such, we were unable to conduct a project managers at the districts actually have an detailed and conclusive analysis of how the incentive to sometimes report inaccurate data. As program’s staffing aligns with its various we learned, this is because in some cases project types of workload—particularly whether managers intentionally leave incorrect schedules in individual districts currently have too the system in order to demonstrate that a particular much or too little of certain types of staff. project will be completed earlier than planned • Actual Staff Resources Used. Headquarters (rather than enter into the system an updated staff is responsible for allocating resources schedule reflecting an earlier completion date). to districts based on their estimated Similarly, the budgets for certain projects may not staffing needs for each project. However, be updated to reflect more precise and lower costs, headquarters staff does not require districts so that project managers can show that the projects to report on how the staff resources were completed below the approved budget. While provided were actually spent. Without this it is important for project managers to document data, the department lacks the information their project delivery successes, the incentive to necessary to evaluate the accuracy of the keep out-of-date information in the PRSM system staffing requests submitted by districts for is contributing to the department’s poor data each project. quality. • Initial Project Estimates. A key Some Essential Information measurement for evaluating overall Not Collected or Maintained effectiveness of the COS program is In reviewing the data that Caltrans whether it is delivering projects as they headquarters currently collects, we found that were initially approved in terms of cost, there are certain pieces of data necessary to scope, and schedule. Such information evaluate the overall efficiency and effectiveness would in turn help determine the of the COS program that are not currently being reasonableness of the initial estimates collected. We note that such data would also assist provided by Caltrans for each project. Caltrans in managing the program. Specifically, However, Caltrans does not maintain the the department does not collect or maintain the initial project estimates on a long-term following: basis. This is because Caltrans overwrites • Detailed Staffing and Workload Data. the initial project data in its PRSM system In order to ensure that the COS program when updates to a project are approved and is appropriately staffed, detailed data is entered into the system. necessary on the type and number of • Updated Project Estimates. Similarly, staff necessary to complete the program’s updated project estimates that occur workload (such as a certain number at various points during a project are of environmental planners to conduct 8 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET overwritten in PRSM each time the other factors (such as increasing environmental project’s approved cost, scope, and regulations) can impact workload, a reduction schedule are changed. Keeping these in funding generally results in a corresponding estimates would allow for valuable decline in workload. analysis of projects. For example, the COS Program Will Be Substantially estimates updated upon completion of the Overstaffed Absent Corrective Actions. The project’s environmental phase are useful projected 40 percent decline in workload translates for measuring the overall performance into a corresponding decline of roughly 4,000 FTEs of Caltrans at delivering projects. This is to the level of COS staff needed. In recognition because major changes to a project should of a projected workload decline, the Governor not occur after the completion of the and Legislature reduced the COS program as environmental phase. part of the 2013-14 budget by 256 FTEs. Despite this minor reduction in staff, the COS program Program Overstaffed Due will be substantially overstaffed in 2014-15 if no to Declining Workload additional actions are taken (such as staff layoffs or a significant infusion of funding for transportation While Caltrans was unable to provide detailed infrastructure projects). Specifically, we estimate staffing and workload data, some limited data was that the COS program will be overstaffed by provided that allowed us to make observations roughly 3,700 FTEs. about the COS program’s overall staffing levels. To the extent that the COS program has more Specifically, we found that the program is staff than needed to complete available workload, experiencing a substantial decline in workload the program would not be expending limited that will result in significant overstaffing absent transportation funding in the most effective and corrective actions. efficient manner. This is because funding would COS Program Workload Declining support unnecessary staff with no immediate Substantially. Workload for the COS program is workload rather than supporting additional directly related to the level of funding available transportation improvements. For example, in to develop and construct transportation recent years, national surveys have found that infrastructure projects. While ongoing California has some of the worst pavement transportation revenues from state and federal gas conditions in the nation. Such funding could be taxes have been relatively stable in recent years, redirected to repair highways and fill potholes. We the COS program experienced a period of peak estimate that supporting 3,700 unnecessary staff workload from 2007-08 through 2013-14, resulting would cost the state roughly $600 million each from the infusion of one-time transportation funds year. made available from Proposition 1B and the federal American Recovery and Reinvestment Act. During Legislative Oversight Hampered this time period, the level of funding available We also find that the annual COS budget to award new construction projects averaged request currently limits the ability of the $4.4 billion annually. However, Caltrans forecasts Legislature to effectively oversee the COS program. that funding available to award new construction First, the budget request provided is often based on projects will decline by about 40 percent to poor estimates of projected staffing needs. Second, $2.6 billion annually beginning in 2014-15. While www.lao.ca.gov Legislative Analyst’s Office 9 2014-15 BUDGET since the request is not provided to the Legislature expended. Specifically, we looked at how many of until the Governor’s May Revision, it has very the projects in our sample spent within 25 percent limited time to review the request as part its budget above or below their requested resources. While deliberations. We discuss each of these concerns in we recognize that actual expenditures could more detail below. reasonably differ from estimates based on several factors (such as changing conditions on the Annual Budget Request Appears to ground or scope changes to meet environmental Be a Poor Estimate of Staffing Needs requirements), we believe that a 25 percent range As discussed above, Caltrans headquarters does in both directions was a reasonable way to account not evaluate the accuracy of the data provided by for some of these changes. As shown in Figure 5, the districts to develop the COS program’s annual we found that 60 percent of the projects in our budget request. Moreover, the department does not sample overestimated staffing needs by more sufficiently collect the detailed project information than 25 percent, with 23 percent underestimating necessary to perform such an analysis for all staffing needs by more than 25 percent. projects. For example, although Caltrans does We also note that the projects in our sample collect information from districts on the amount that either overestimated or underestimated the of dollars expended on COS work, the department level of staffing resources by more than 25 percent does not collect the amount of FTE resources accounted for the majority of the total requested that districts spent on each project. This makes staff in the sample, as shown in Figure 6. Projects it difficult to compare requested FTEs with what that overestimated staff needs by more than the department actually expended. However, with 25 percent requested funding for a total of 3,168 information the department collects on the dollars FTEs but only expended funding for 1,115 FTEs. expended on each project, we were able to make Similarly, projects that underestimated staff needs some general observations regarding the accuracy by more than 25 percent requested 579 FTEs but of the annual budget request based on the average expended funding for 1,460 FTEs. cost of one FTE in the COS program. For example, In view of the above, it appears that the our analysis of a sample of 1,241 projects from annual COS budget request appears to be a poor the 2,409 projects in the COS program in 2012-13 estimate of actual staffing needs. However, it is finds that the annual budget request appears to be unclear if the poor estimates are due to a flaw in a poor estimate of total COS staffing needs. This is the overall budget development process, or because because Caltrans requested funding for a total of inaccurate data is inputted into Caltrans’ PRSM 4,559 FTEs for the projects in our sample, but only system. Without reasonably accurate estimates, spent funding for 3,337 FTEs (or 73 percent) of the the Legislature lacks the information necessary to requested amount. This suggests that even during budget the program at the appropriate level and the peak workload period the department was hold Caltrans accountable for the funds that are overestimating its total COS staffing needs in the provided to the COS program. annual budget request. Late Submittal of Annual Budget Request In addition to analyzing total COS resources, Limits Legislative Oversight. As discussed above, we also examined the extent to which the level the Legislature currently receives the annual of resources requested for an individual project COS budget request as part of the Governor’s were higher or lower than what was actually May Revision, rather than with the Governor’s 10 Legislative Analyst’s Office www.lao.ca.gov Graphic Sign Off 2014-15 BUDGET Secretary January budget proposal. By submitting the budget the department typically performs both roles, Analyst request for the COS program so late in the budget resulting in a lack of separation and the type of MPA process, the Legislature has limited opportunities contractual arrangement necessary to provide a Deputy to perform oversight of the program as part of its system of checks and balances. Given this lack budget deliberations. Specifically, only a few weeks of built-in accountability, external project-level remain from the May Revision until the Legislature oversight of Caltrans is important. With regard must adopt the annual state budget. Conversely, the to the STIP, a local partner is typically involved Legislature has several months to request more information, hold hearings, evaluate, and modify Figure 5 budget proposals when they are included in the Annual Budget Request Poorly Estimates Staffing Needs for Most Projects Governor’s January budget. Limited Project-Level Estimated within External Oversight of SHOPP 25 percent above or below Graphic Sign Off Caltrans relies primarily on its own Secretary staff to perform much of the COS work on Analyst projects, such as designing and engineering MPA projects. In contrast, other state departments Underestimated by more than Deputy of transportation and other types of 25 percent Overstimated by more than infrastructure projects in California use 25 percent separate entities (such as other public agencies or private consultants) to perform a large portion of this type of work. This approach provides for Figure 6 effective project controls Majority of Staff Requested Were Not Needed Template_LAOReport_sm.ait ARTWORK #140052 through a clear contractual Full-Time Equivalents (FTEs) arrangement between the lead agency for the project 3,500 and the entity performing FTEs Used 3,000 FTEs Requested the work on the project. 2,500 Having a contract and the separation of roles between 2,000 the two entities creates 1,500 checks and balances, with the lead agency holding the 1,000 other entity accountable 500 to deliver the promised project on time, on Overestimated Estimated within Underestimated budget, and within scope. by more than 25 percent above by more than 25 percent or below 25 percent However, under Caltrans’ current delivery model, www.lao.ca.gov Legislative Analyst’s Office 11 ARTWORK #140052 Template_LAOReport_mid.ait 2014-15 BUDGET in the management of the project, thereby delivering the planned scope and quality of a providing greater oversight of Caltrans and SHOPP project on time and on budget. making state provided external accountability Furthermore, as previously indicated, the less of a concern. However, as we discuss below, commission allocates funds for the capital the state currently has limited external oversight costs of individual SHOPP projects and in of projects led by Caltrans in the SHOPP—the the process is able to provide some oversight state’s largest transportation infrastructure regarding capital expenditures on projects program. during construction (such as by controlling Although CTC could potentially provide what are allowable expenditures). However, the external oversight of the department’s SHOPP CTC does not allocate funding to Caltrans for projects, its role as established in current state COS costs on SHOPP projects and is therefore law limits its ability to provide such oversight. unable to monitor and control allowable COS First, under existing state law, the CTC does not spending, which comprises a significant portion have the authority to approve or reject individual of the total cost of projects. In addition, because SHOPP projects when they are initially the allocation of SHOPP funds happens once a proposed for funding by Caltrans. Instead, the project is ready to start construction, this process commission must either approve or reject all does not enable the CTC to conduct oversight of the SHOPP projects proposed by Caltrans as of SHOPP projects prior to construction. This a single package. In addition, the commission results in a significant gap in oversight because usually has very limited information about each many changes can occur prior to the start of project to make informed decisions about the construction, including cost increases and entire package. For example, project descriptions schedule delays. are often vague in scope and location. This As mentioned earlier, the CTC had a greater lack of authority and information limits the role in oversight of projects authorized in CTC’s ability to hold Caltrans accountable for Proposition 1B. (Please see the nearby box for developing reasonable project estimates and detailed information regarding CTC’s oversight of Proposition 1B projects.) GOVERNOR’S PROPOSALS FALL SHORT IN IMPROVING PROGRAM Based on the information collected during adequately address the COS program’s projected the review of the COS program that was recently overstaffing. conducted by our office, DOF, and Caltrans, Governor’s COS Proposals the Governor’s budget makes several proposals regarding the program. While some of the COS Funding and Staffing Request. On proposals appear reasonable and reflect initial May 1, 2014, the Governor submitted a request steps to address a few of the shortcomings we to the Legislature for a total of $1.7 billion and discussed above, we find that the proposals do not 9,894 FTEs for the COS program in 2014-15. This 12 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Increased Oversight Provided for Proposition 1B Projects While the California Transportation Commission (CTC) has a minimal role in oversight of the State Highway Operation and Protection Program (SHOPP), CTC was authorized to perform increased oversight of the Proposition 1B projects (including SHOPP projects specifically supported with Proposition 1B bond funds). Specifically, for several of the largest Proposition 1B programs, CTC had a substantial role in the oversight of individual projects and the allocation of state funds for both capital and capital outlay support costs. Because CTC had the authority to evaluate each Proposition 1B project when it was initially proposed, CTC staff were able to obtain detailed project information from Caltrans to determine if the initial cost, scope, and schedule for projects were reasonable. The CTC then entered into agreements with Caltrans that specified the level of bond funding CTC would commit to each project and the specific scope and schedule of work that Caltrans would complete. Any deviations from the agreed upon cost, scope, and schedule required CTC approval. In addition, having the responsibility for allocating funding for both capital and support costs provided CTC a greater level of control over project spending. As projects progressed, CTC was able to limit project changes and ensure that the full project scope was delivered. May 1 request reflects the Governor’s plan going in 2014. The workload projections would forward to propose an annual COS budget two show the type of work planned for each weeks prior to the May Revision. The revised level district, including environmental, design, for 2014-15 is $27.1 million and 258 FTEs less than construction, right of way, surveys, and the level in 2013-14, which amounts to a roughly engineering services. The department 3 percent decline. Specifically, the May 1 request would also compare this estimated reflects the reduction of 243 state staff through workload to the type and location of the attrition, reduction of overtime by 12 FTEs, and staff currently on board. At the time of this reduction of consultants by 3 FTEs. analysis, Caltrans had not provided the Proposed Improvements to COS Program. In above staffing and workload projections. addition, the Governor’s January budget includes • Conduct Hindsight Review on a Sample of several proposals intended to improve the COS Projects. The Governor also proposes that program, based on the recent review of the COS Caltrans monitor the accuracy of the COS program. These proposals primarily include budget request by annually evaluating a changes that Caltrans has agreed to implement and sample of projects from the prior year. In do not require any specific budgetary changes. The the current year, DOF randomly selected Governor’s major COS proposals are to: 95 projects from the 2013-14 budget request • Require Detailed Staffing and Workload (excluding projects that requested fewer Projections. The Governor proposes that than one FTE). For each project, Caltrans Caltrans annually develop a three-year compared budgeted amounts for COS COS workload projection and provide this to actual COS expenditures. Caltrans to the Legislature each May 1 beginning www.lao.ca.gov Legislative Analyst’s Office 13 2014-15 BUDGET submitted this hindsight review to our projections, evaluate the actual use of COS office on May 2, 2014. According to the resources on a sample of projects, and develop department, it expended 68 percent of a plan to improve data quality. While these all the FTEs requested for the 95 sample proposed improvements are a step in the right projects. direction, they are unlikely to result in major improvements to the COS program in the near • Develop Quality Management Plan. In term. For example, while the Governor proposes addition, the Governor proposes that to improve the quality of the COS program’s data, Caltrans develop and implement a quality these improvements could take many years before management plan that would help ensure they result in more accurate workload estimates. the quality of the project data used for the In addition, the Governor proposes to evaluate the COS program. In developing the plan, actual use of COS resources on only a small sample the administration requests that Caltrans of projects, rather than all projects in the program. consider specifying that project managers More importantly, the Governor’s proposals are responsible for updating project data do not address the issue of significant overstaffing in PRSM and requiring them to ensure in the COS program. As described previously, on at least a monthly basis that the data funding data from Caltrans shows that due to a is accurate. The Governor also requests substantial workload decline, the COS program that Caltrans consider requiring district will be overstaffed by roughly 3,700 FTEs managers to establish quality control beginning in 2014-15. However, for 2014-15 the procedures to ensure project data is Governor only proposes a reduction of 258 FTEs. up-to-date in PRSM, as well as requiring Thus, absent a significant, unexpected increase COS headquarters staff to conduct monthly in transportation funding for new projects, the oversight of districts. Governor’s proposal would result in COS program overstaffing of about 3,500 FTEs beginning in Governor’s Proposals Do Not 2014-15, at a cost of more than $500 million. One Address Projected Overstaffing reason that the Governor’s proposal is not aligned The Governor’s proposals would make some with actual staffing needs is that it continues minor improvements to the COS program by to use the same types of data and estimating having Caltrans provide more detailed workload methodology that we found to overstate the level of staff resources needed. RECOMMENDATIONS TO IMPROVE COS PROGRAM ACCOUNTABILITY AND EFFICIENCY In view of our findings that the COS program significant reductions to the size of the program continues to face challenges that limit the and increases in the level of external oversight are program’s efficiency and accountability, we make necessary in order to ensure the state’s limited several recommendations to the Legislature to transportation funds are used wisely. Our specific improve the program. Specifically, we find that recommendations are described below. 14 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Align Staffing Levels With Projected Workload (3) projected imbalances between existing staff and workload, and (4) how Caltrans will use staffing Begin to Reduce Staffing Levels. As indicated strategies and workload management tools to align above, our analysis finds that the COS budget staff resources with workload. request overbudgets the program by roughly 3,500 Take Steps to Improve Data Quality. FTEs and more than $500 million beginning in Improving the quality of Caltrans’ data will help 2014-15. While it would be difficult to completely the department to develop better staffing and address such a substantial problem in one year, workload estimates in the future. The Governor not addressing the issue at all will result in the makes two proposals to improve data quality—the inefficient use of transportation funding. In order development of a data quality management plan to balance the need for a thoughtful approach to and a hindsight review of a sample of projects. reducing the size of the program with the state’s In order to ensure that the Governor’s proposals need to spend transportation funds efficiently, address the problems we identified with the we think that a multiyear approach to reducing department’s workload data, we recommend that the COS budget and staffing levels is appropriate. the Legislature adopt legislation to: Accordingly, we recommend that the Legislature take a first step to address this overstaffing problem • Specify that the proposed quality in the 2014-15 budget by significantly expanding management plan include requirements to the Governor’s proposed reduction of the COS (1) ensure that PRSM data is up to date and program. For example, an additional reduction of accurate, (2) ensure consistent development 1,750 FTEs would address half of the problem. The of project budgets across districts, “freed up” funds (roughly $250 million) would then (3) evaluate project data for accuracy, and be available in future years for the Legislature to (4) evaluate employee time charging for meet its transportation priorities, such as pavement accuracy. Moreover, in order to ensure that maintenance. In order to determine how to best the plan is developed in a timely manner address the remaining overstaffing after 2014-15, and to facilitate oversight, we recommend we recommend below that the Legislature build that the Legislature require Caltrans to upon the Governor’s proposals related to staffing submit a copy of the plan to the appropriate projections, data quality, and the timing of the legislative committees by January 10, 2015. annual COS budget request. In addition, we recommend that the Require Staffing Plan. Better information Legislature require Caltrans to maintain about the COS program’s staffing and workload in PRSM the initial project estimates trends would help the Legislature make the and updated project estimates upon the additional necessary reductions and appropriately completion of the environmental phase. budget the program on an ongoing basis. This will ensure that sufficient data is Accordingly, we recommend that the Legislature collected to assess the effectiveness of the adopt legislation requiring Caltrans to annually COS program. develop a multiyear staffing plan and submit the • Expand the hindsight review of the annual plan annually to the Legislature beginning on COS budget request to include all projects, January 10, 2015. Specifically, such a plan should rather than just a sample of 95 projects. provide for each district: (1) workload projections Caltrans should submit the analysis by type of workload, (2) staff on board by type, www.lao.ca.gov Legislative Analyst’s Office 15 2014-15 BUDGET annually with the budget request. This information about each project. Accordingly, we more robust analysis would provide the recommend that the Legislature require CTC Legislature with the information necessary to approve the proposed cost and schedule of to understand the level of accuracy of each SHOPP project to ensure that the estimates Caltrans’ staffing estimates and associated are reasonable for the identified transportation budget request. need and project scope selected by Caltrans. This change would ensure that proposed SHOPP Require Earlier Submittal of Annual Budget projects are based on reasonable estimates before Request. As indicated above, the Governor’s plan state transportation funds are committed to such going forward is to propose an annual COS budget projects. In addition, we recommend that deviations on May 1 of each year—two weeks earlier than past from the approved cost, scope, and schedule for practices of including it as part of the May Revision. SHOPP projects also be approved by CTC to However, we find that the proposed timeline of facilitate accountability throughout each phase of a two weeks earlier still significantly limits the project. Legislature’s ability to adequately perform oversight Require CTC to Allocate COS Funds for of the COS program and make the changes to the SHOPP. Since CTC currently only has the authority program necessary to bring staffing levels in line to allocate funding for the capital costs of SHOPP with workload. Accordingly, we recommend that, projects, no entity outside of Caltrans monitors or beginning with the 2015-16 budget, the Legislature controls COS costs on SHOPP projects. As such, adopt statute requiring the administration to we recommend that the Legislature enact statute provide the annual COS budget request as part of requiring CTC to allocate funds for each phase of the Governor’s January budget proposal and update a SHOPP project, including funding for COS costs. the request as necessary as part of the Governor’s Such a change would help create a more effective May Revision. and transparent system of checks and balances on Increase CTC Oversight for SHOPP Projects Caltrans COS spending. Require Caltrans to Provide Specific Data to In view of the lack of external oversight for CTC. In order for CTC to perform the oversight SHOPP projects, we recommend that the Legislature and approval functions that we recommend above, take steps to establish an external framework for the CTC will need to rely on data from Caltrans. holding Caltrans accountable for the delivery of Accordingly, we recommend that the Legislature such projects. Specifically, we recommend below require Caltrans to provide the CTC with any that the Legislature take steps for CTC to perform project information that the CTC or its staff thinks specific oversight and project approval functions is necessary for the oversight of Caltrans and the for SHOPP. As we discussed earlier, SHOPP is SHOPP projects. the largest ongoing state transportation program Require CTC to Report on Caltrans’ Project and has the least amount of external and internal Delivery Performance. With the changes we oversight. In contrast, most STIP projects receive recommend, we think CTC would be well-suited additional oversight from a local partner. to monitor and report on Caltrans’ overall Require CTC to Review and Approve performance at delivering projects. As such, we Individual SHOPP Projects. As described above, recommend requiring CTC to include in its annual CTC can only approve or reject the entire program report to the Legislature information on Caltrans’ of SHOPP projects and must do so based on limited 16 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET performance at delivering SHOPP projects, such staff resources to complete such workload. Thus, as whether projects are completed within initial we recommend that the Legislature require CTC estimates and within the estimates updated after to report at budget subcommittee hearings on completion of the environmental phase. (Under the number and classification of staff it would current state law, CTC is required to annually need in order to perform increased oversight for report to the Legislature on the status of the state’s SHOPP projects as we recommend. While our transportation programs.) recommendations might result in minor increased We acknowledge that our recommendations state administrative costs in the short run, we above would result in additional workload for think that this level of oversight would improve the CTC and that CTC would likely need additional overall accuracy of Caltrans’ estimates and limit unjustified cost increases on SHOPP projects. www.lao.ca.gov Legislative Analyst’s Office 17 2014-15 BUDGET 18 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET www.lao.ca.gov Legislative Analyst’s Office 19 2014-15 BUDGET LAO Publications This brief was prepared by Jeremy Fraysse and Jessica Peters, and 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 brief 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. 20 Legislative Analyst’s Office www.lao.ca.gov