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The 2016-17 Budget: Transportation Proposals

Legislative Analyst's Office · lao-3366 · Report · 2016-02-23

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The 2016-17 Budget: Transportation Proposals MAC TAYLOR • L E G I S L A T I V E A N A L Y S T • FEBRUARY 2016 2016-17 BUDGET TABLE OF CONTENTS Executive Summary ��3 Overview of the Governor’s Budget ��5 Highway and Road Maintenance and Repair Needs ��6 Background ��7 LAO Assessment of Highway and Road Repair Needs ��10 LAO Recommended Roadmap for Addressing Repair Needs ��15 Governor’s Proposal Falls Short of Addressing Highway Needs ��17 MVA Fund Condition ��20 Caltrans ��23 Proposition 1B ��23 California Highway Patrol ��26 Area Office Replacement ��26 Department of Motor Vehicles ��27 Self-Service Terminals��28 Field Office Replacement ��33 2 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET EXECUTIVE SUMMARY Overview. The Governor’s budget provides a total of $17 billion from various fund sources for all departments and programs under the California State Transportation Agency in 2016-17. This is an increase of $664 million, or 4 percent, over the estimated current-year expenditures. The budget includes $10.5 billion for the California Department of Transportation, $2.4 billion for the California Highway Patrol (CHP), $1.8 billion for the California High-Speed Rail Authority, $1.1 billion for the Department of Motor Vehicles (DMV), and $459 million for transit assistance. In this report, we assess the Governor’s budget proposals in the transportation area. Below, we summarize our major findings and recommendations. Highway and Road Maintenance and Repair Needs. In order to assist the Legislature in its deliberations regarding increased funding for state highway and road repairs, we assess the costs to maintain and rehabilitate core aspects of the state highway system—pavement, bridges, and culverts—as well as local roads. We find that the state has ongoing highway repair needs of about $3.6 billion annually as well as an existing backlog of needed repairs totaling roughly $12 billion. This need is significantly higher than can be addressed through the existing funding of about $1.6 billion for these purposes. In this report, we recommend a roadmap to assist the Legislature in ensuring that the highest priority needs are addressed first and that any additional funding provided is aligned with those needs. Specifically, we recommend the Legislature (1) make the Highway Maintenance Program the highest priority for additional funding to address the $1.1 billion in ongoing unmet needs as well as a $3 billion existing maintenance backlog, (2) make the State Highway Operation and Protection Program the next priority for additional funds, (3) determine the level of funding for local roads based on legislative priorities weighed against state highway needs, (4) align permanent funding sources with ongoing needs and temporary funding sources with one-time needs (such as addressing backlogs), and (5) adopt accountability measures to ensure that any additional funds are spent effectively. Motor Vehicle Account (MVA) Fund Condition. The MVA, which receives most of its revenues from vehicle registration and driver license fees, primarily supports CHP and DMV. Due to expenditures outpacing revenues, the MVA has faced an operational shortfall in recent years and will continue to experience a shortfall in 2016-17, absent corrective actions. In order to address this shortfall and to support proposed new expenditures, the Governor proposes to raise the vehicle registration fee by $10 and index the fee to inflation. Under the Governor’s plan, we find that the MVA will be barely balanced over the next few years and likely face an operational shortfall in the tens of millions by 2019-20. The Legislature will need to take steps to address the ongoing shortfall in the MVA and prevent insolvency. While the Governor’s approach is one way of addressing the problems in the near term, there are alternatives to the Governor’s approach. The Legislature could adopt a mix of strategies that involve limiting spending from the MVA, increasing MVA revenues, or eliminating an existing transfer from the MVA to the General Fund. The Legislature will also www.lao.ca.gov Legislative Analyst’s Office 3 2016-17 BUDGET want to consider the Governor’s proposals to increase MVA expenditures in the context of a larger strategy for resolving the operational shortfall in the MVA. DMV Self-Service Terminals. The Governor’s budget proposes $8 million from the MVA on an ongoing basis to fund existing and increased costs related to expanding the use of self-service terminals—kiosks that allow DMV customers to process their vehicle registration renewal without the assistance of DMV staff and immediately receive a registration card and sticker. While the expansion of self-service terminals has merit, the Governor’s specific proposal raises concerns. We find that the administration’s plan to expand the use of self-service terminals lacks sufficient detail and that providing additional funding as proposed by the Governor is not justified. Accordingly, we recommend that the Legislature reject the Governor’s proposal and require DMV to develop a comprehensive plan for the use of self-service terminals. 4 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET OVERVIEW OF THE GOVERNOR’S BUDGET The California State Transportation Agency by $975 million and $170 million, respectively. (CalSTA) has jurisdiction over the state’s This reflects an assumption that a greater amount transportation departments and programs. These of federal funds will be spent in the current year departments and programs include California (rather than in the prior year as was previously Department of Transportation (Caltrans), assumed). The reduction also reflects the High-Speed Rail Authority (HSRA), California completion of certain Proposition 1B (2006) bond Highway Patrol (CHP), Department of Motor projects in the current year. Vehicles (DMV), State Transit Assistance (STA), HSRA. The Governor’s budget proposes total California Transportation Commission (CTC), and expenditures of about $1.8 billion in 2016-17 for the Board of Pilot Commissioners. HSRA. This amount is $888 million (or two times) The Governor’s budget proposes a total of more than the estimated level of expenditures in $17 billion in expenditures from various fund the current year. The increase in expenditures sources—the General Fund, state special funds, assumes that Proposition 1A (2008) bonds are bond funds, federal funds, and reimbursements— sold to support local projects known as “blended for all departments and programs under CalSTA system projects” that upgrade infrastructure so that in 2016-17. This is an increase of $664 million, high-speed trains could share the tracks of certain or 4 percent, over estimated expenditures for the local systems. current year. The increase primarily reflects the CHP and DMV. The budget proposes shifting of some HSRA workload and expenditures $2.4 billion for CHP in 2016-17, which is about initially assumed to occur in 2015-16 to 2016-17. the same as the current-year estimated level. Over In addition, the budget reflects increased 90 percent of all CHP expenditures are supported spending for highway and road projects in 2016-17 from the Motor Vehicle Account (MVA), which resulting from the first-year implementation of generates its revenues primarily from vehicle a transportation infrastructure funding package registration and driver license fees. For DMV, the proposed by the Governor. Governor’s budget proposes total expenditures of about $1.1 billion—$29 million, or about 3 percent, Spending by Major Transportation Programs less than estimated current-year expenditures. Figure 1 (see next page) shows spending for About 95 percent of all DMV expenditures would the state’s major transportation programs and come from the MVA. departments from selected sources. Transit Assistance. The Governor’s budget Caltrans. The Governor’s budget proposes estimates total expenditures of $459 million in total expenditures of $10.5 billion in 2016-17 for 2016-17 for the STA program, which is $114 million, Caltrans—$422 million, or 4 percent, less than or 20 percent, less that estimated current-year estimated current-year expenditures. As shown expenditures. This reduced spending reflects the in Figure 1, Caltrans expenditures from federal completion in the current year of transit capital funds and bond funds are assumed to decrease projects supported with Proposition 1B bond funds. www.lao.ca.gov Legislative Analyst’s Office 5 2016-17 BUDGET Figure 1 Transportation Budget Summary—Selected Funding Sources (Dollars in Millions) Change From 2015-16 Actual Estimated Proposed 2014-15 2015-16 2016-17 Amount Percent Department of Transportation General Fund $83.4 $84.0 — -$84.0 100.0% Special funds 3,189.5 3,564.8 $4,255.5 690.6 19.4 Bond funds 531.1 430.2 259.9 -170.4 -39.6 Federal funds 4,226.3 5,712.7 4,737.5 -975.3 -17.1 Local funds 1,014.9 1,121.1 1,238.1 117.0 10.4 Totals $9,045.2 $10,913.0 $10,490.9 -$422.1 -3.9% California Highway Patrol Motor Vehicle Account $2,009.3 $2,198.4 $2,241.2 $42.8 1.9% Other special funds 177.2 185.1 136.7 -48.3 -26.1 Federal funds 17.0 20.2 20.2 — — Totals $2,203.5 $2,403.7 $2,398.2 -$5.5 -0.2% High-Speed Rail Authority Bond funds $1,115.3 $269.3 $1,153.6 $884.2 328.3% Federal funds 840.5 28.0 32.0 4.0 14.3 Greenhouse Gas Reduction Fund 250.0 600.0 600.0 — — Reimbursements 0.9 — — — — Totals $2,206.7 $897.3 $1,785.6 $888.2 99.0% Department of Motor Vehicles General Fund — — $3.9 $3.9 — Motor Vehicle Account $1,044.2 $1,090.9 1,060.1 -30.9 -2.8% Other special funds 43.6 47.3 45.4 -1.9 -4.0 Federal funds 1.4 2.9 2.9 — — Totals $1,089.2 $1,141.1 $1,112.2 -$28.9 -2.5% State Transit Assistance Public Transportaiton Account $383.9 $299.4 $315.2 $15.8 5.3% Bond funds 668.9 154.0 44.1 -109.9 -71.3 Greenhouse Gas Reduction Fund 24.2 119.8 99.8 -20.0 -16.7 Totals $1,077.0 $573.2 $459.1 -$114.1 -19.9% HIGHWAY AND ROAD MAINTENANCE AND REPAIR NEEDS On the day the Governor signed the 2015-16 and (2) complement local efforts to repair and Budget Act, he called a special legislative session improve transportation infrastructure. As part of on transportation. Specifically, he called on this special session, the Governor proposed last fall the Legislature to adopt legislation to provide a a transportation funding package to provide an permanent and sustainable increase in funding estimated $3.6 billion annual increase in funding for transportation in part to (1) maintain and for transportation programs. Of this amount, repair the state’s transportation infrastructure $2.4 billion is for state highway repairs and local 6 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET road improvements. These proposals are generally State Highway System Maintenance and Repair reflected in the Governor’s proposed budget for Caltrans Responsible for Maintaining and 2016-17. Rehabilitating Highway System. The state’s As part of its deliberations regarding increased highway system includes about 50,000 lane-miles funding for state highway and road repairs, the of pavement, 13,100 bridges, and 205,000 culverts. Legislature will want to first understand the (Culverts are pipes or other openings that allow magnitude of the repair work that is needed and naturally occurring water to flow beneath the then determine the most appropriate way to fund roadway, such as when a highway crosses a small these costs. Below, we (1) provide background stream.) The highway system also includes other information on the current condition of the state’s facilities, such as roadside rest areas, landscaped highways and roads and the programs available to and non-landscaped roadside, and maintenance repair them, (2) assess the costs to maintain and buildings. rehabilitate the core aspects of the state’s highway Highway infrastructure is designed and built system—pavement, bridges, and culverts—as to have certain lifespans and requires maintenance Graphic Sign Off well as local roads, (3) recommend a roadmap for and rehabilitation work at regular intervals over addressing the needs we identify, and (4) compare the course of a lifespan. Caltrans is responsible for Secretary the Governor’s proposal to our recommended maintaining and rehabilitating the state’s highway Analyst approach. system and does so through two programs—the MPA Background Highway Maintenance Program and the State Deputy Highway Operation and Protection Program (SHOPP). Together, these two programs perform Highway and Road Funding the spectrum of necessary repair work on the core Funding for highway and road infrastructure aspects of the highway system—pavement, bridges, in California comes from numerous state, local, and federal sources. Most state funding for transportation Figure 2 comes from excise taxes on gasoline and diesel fuel Estimated State Revenues for Highways and Roads that are dedicated to funding highways and roads. In 2015-16, the state’s gasoline excise tax rate is 30 2015-16 Total: $6 Billion cents per gallon and the diesel excise tax rate is 13 cents per gallon. In addition, the state also charges Weight Fees weight fees for vehicles that carry heavy loads on the state’s roadways, such as commercial trucks. As Diesel Excise Taxes shown in Figure 2, state revenues from the above sources are estimated to be $6 billion for 2015-16, with about three-fourths coming from state excise taxes on gasoline. These revenues support various Gasoline state highway programs (including maintenance and Excise Taxes repair programs), as well as cities and counties for their local street and road systems. ARTWORK #160033 Template_LAOReport_sm.ait www.lao.ca.gov Legislative Analyst’s Office 7 2016-17 BUDGET and culverts. Figure 3 summarizes this spectrum performed by construction contractors and of maintenance and rehabilitation work. As shown overseen by Caltrans staff. A typical project in the figure and discussed below, the Highway would be the application of a thin overlay Maintenance Program focuses on highway to a stretch of a state highway. components that are in good or fair condition, In 2015-16, Caltrans plans to spend a total while SHOPP focuses on highway components that of $1.4 billion in state funds for the Highway are in distressed condition. Maintenance Program—$1 billion for minor Highway Maintenance Program. The Highway routine maintenance and $434 million for major Maintenance Program is responsible for: maintenance projects. The $434 million for major • Minor Routine Maintenance. Most minor maintenance projects includes $234 million for routine maintenance activities consist pavement, $177 million for bridges, and $23 million of operational activities such as roadside for culverts. landscaping, graffiti removal, and trash SHOPP. The SHOPP is a program of capital pick-up. A small portion of this routine projects to rehabilitate or reconstruct highways maintenance include minor repairs to when they reach the end of their useful life. Unlike Graphic Sign Off pavement, bridges, and culverts. Such the Highway Maintenance Program, SHOPP repairs include filling potholes and bridge projects can involve tearing up and replacing Secretary painting. Minor routine maintenance work an entire roadway or building a new bridge to Analyst is performed directly by Caltrans staff. replace an old one. SHOPP projects often require MPA significant work by Caltrans staff to design and • Major Maintenance Projects. Major Deputy manage each project. The construction of SHOPP maintenance projects are more significant projects is done by a construction contractor. repairs to help preserve highway pavement, In 2015-16, Caltrans estimates that it will spend bridges, and culverts. These projects are $2.3 billion on SHOPP projects, including about Figure 3 State Highway Repair Programs Perform Various Types of Work Highway Maintenance Program SHOPP Minor Maintenance Major Maintenance Minor Rehabilitation Major Rehabilitation (cid:127) Performed on highway (cid:127) Performed on highway (cid:127) Performed on highway (cid:127) Performed on highway components in good components in good or components in distressed components in distressed condition. fair condition. condition. condition. (cid:127) Examples include filling (cid:127) Examples include thin (cid:127) Examples include thick (cid:127) Examples include potholes, damage pavement overlays, bridge pavement overlays and complete removal assessment, and bridge joint seals, and culvert concrete panel and replacement, painting. debris removal. replacement. reconstructing road base, and mitigating erosion (cid:127) Work performed by (cid:127) Work performed by (cid:127) Work designed by around bridge foundations. Caltrans staff. contractors. Caltrans staff and performed by contractors. (cid:127) Work designed by Caltrans staff and performed by contractors. SHOPP = State Highway Operation and Protection Program. 8 Legislative Analyst’s Office www.lao.ca.gov ARTWORK #160034 O:\Workload\2016\160034\Figure @ - Most Caltrans Proposition 1B Projects Are Complete or Under Construction.ai 2016-17 BUDGET $1.5 billion in federal funds and about $800 million good condition. However, Caltrans reports in state funds. Of the total amount, Caltrans that about 500 highway bridges statewide plans to spend about $1.2 billion: on pavement are distressed, which is about 4 percent ($800 million), bridges ($350 million), and culverts of total bridges. According to Caltrans, ($50 million). The remainder of SHOPP funding is these bridges require major rehabilitation available for other purposes such as responding to or replacement, but are not an immediate emergencies and safety improvements. safety issue. Current Condition of the State Highway • Majority of Culverts in Good Condition. System. Caltrans periodically assesses the highway Caltrans staff conduct ongoing assessments system to determine the condition of pavement, of highway culverts. The most recent data bridges, and culverts. While the highway system from these assessments indicates that is aging and is experiencing a lack of proper 60 percent of culverts (about 123,000) maintenance, the majority of the system is in good are in good condition, 26 percent (about condition. Specifically, Caltrans finds: 53,000) are in fair condition, and 14 percent • Majority of Pavement in Good Condition. (about 29,000) are distressed. The Caltrans 2015 State of the Pavement Report indicates that 53 percent of Local Road Maintenance and Repair pavement (about 25,500 lane-miles) is More Than Half of Local Road Funding Comes in good condition, 31 percent (about From Local Sources. The 58 counties and 482 cities 15,500 lane-miles) is in fair condition, in California own and maintain over 300,000 paved and 16 percent (about 8,000 lane-miles) lane-miles of local streets and roads. They also own is distressed. Caltrans determined these nearly 12,000 bridges and numerous other aspects conditions using a sophisticated and robust of their local road systems, such as storm drains pavement management system that was and traffic signals. Funding for local streets and developed and completed during the last roads comes from federal, local, and state sources. several years. As shown in Figure 4 (see next page), a total of • Bridges in Very Good Condition on $6 billion was available in 2012-13 to cities and Average, but Small Percent in Distressed counties for local roads (based on the most recent Condition. Caltrans reports the overall data reported to the State Controller’s Office). condition of state highway bridges using This amount includes $3.5 billion in local sources, a measure of the average condition of $1.9 billion in state funds, and $600 million in highway bridges—known as the “Bridge federal funds. Health Index.” To develop the index, Local agencies spent a majority of the above Caltrans ranks the condition of each bridge $6 billion on road repairs. Specifically, $2.1 billion from 0 (poor condition) to 100 (excellent was expended on road maintenance and $1.9 billion condition), weights the scores to reflect the for road reconstruction, with the remainder of size of each bridge, and then calculates an funds for other purposes such as engineering work, average statewide index score. In 2015, the new road construction, and administrative costs. statewide index score was 97.1—meaning Current Condition of Local Roads. Unlike on average the state’s bridges are in very for the state highway system, the state does not www.lao.ca.gov Legislative Analyst’s Office 9 Graphic Sign Off Secretary Analyst MPA Deputy 2016-17 BUDGET periodically assess and measure the condition Figure 4 of local streets and roads. Understanding More Than Half of Local Road Funding the condition of local streets and roads is Comes From Local Sources challenging due to the large number of local 2012-13 agencies involved in road maintenance and Highway Maintenance Program Federal repair, the large size of local systems, and variations in local practices for assessing road conditions and data collection. In order to provide some information regarding the condition of local roads, the California State Association of Counties and the League of State California Cities sponsored an effort that surveyed cities and counties and compiled Local the information provided in a report called The California Statewide Local Streets and Roads Needs Assessment. The report was first Total: $6 Billion published in 2008 and subsequently updated in 2010, 2012, and 2014. the level of funding needed to meet maintenance As part of the report, each city and and repair needs for the core aspects of the highway county self-reports certain information on the system—pavement, bridges, and culverts—as well condition of their local road systems. For example, as for local roads. each jurisdiction reports the average pavement condition ranging from failed to excellent. Based Highway Maintenance Program Needs ARTWORK #160034 on the information collected, it was reported in Significant Ongoing Maintenance Needs. As 2014 that more than half of local pavement was in discussed above, the Highway Maintenance Program good condition, with almost one-fourth in at-risk O:\Workload\2016\160034\Figure @ - Most Caltrans Proposition performs both minor routine maintenance and major condition, and the remaining one-fourth in poor or 1B Projects Are Complete or Under Construction.ai maintenance projects. We focused our analysis on the failed condition. The 2014 report also noted 2,800 needs related to major maintenance projects, because local bridges require rehabilitation or replacement. these projects are a primary way Caltrans preserves LAO Assessment of and maintains pavement, bridges, and culverts. In Highway and Road Repair Needs May 2015, Caltrans provided the Legislature with its 2015 Five-Year Maintenance Plan, which includes A key consideration in determining an information on the maintenance needs for pavement, appropriate level of funding for transportation is bridges, and culverts. (State law requires Caltrans the cost and type of maintenance and rehabilitation to provide a maintenance plan every other year.) work that is needed on the state’s highways and Based on the information in this plan, we estimated local roads. In order to assist the Legislature, we the ongoing level of funding for major maintenance analyzed the data available on highway and road projects on pavement, bridges, and culverts that conditions, the frequency with which certain would be needed to meet certain maintenance types of repairs are needed, and the average cost of schedules provided to us by Caltrans. For example, repairs. Based on this information, we estimated 10 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Caltrans estimates that pavement requires on average shown in the figure, the total annual amount of a maintenance treatment every seven years and funding needed to meet ongoing needs is about culverts require on average major maintenance every $1.6 billion, or about $1.1 billion more than the 15 years, in order to maintain a state of good repair current funding level. Most of the annual shortfall and defer more costly rehabilitation. Although we in funding relates to the maintenance of pavement relied largely on data from Caltrans, our estimates and culverts. are generally higher than those reported by the In addition, because the current level of department. A primary reason for this difference is Highway Maintenance Program funding is that we took into account the maintenance costs to insufficient to meet ongoing needs, the $3 billion address all highway culverts while Caltrans’ estimates backlog of deferred maintenance would remain only accounted for half of the state’s highway culverts. unaddressed and likely grow in the future. Due Figure 5 summarizes our estimates of the to the magnitude of deferred maintenance, the ongoing needs for major maintenance projects. As shown in the figure, the Highway Maintenance Figure 5 Program would require about $1.6 billion annually Ongoing Program Needs for in order to fully fund ongoing major maintenance Major Maintenance Projects on pavement, bridges, and culverts. (In Millions) Maintenance Backlog of $3 Billion. In Pavement $750 addition to the ongoing needs, there is a backlog Bridges 200 of deferred major maintenance projects that needs Culverts 600 Total $1,550 to be addressed. Based on data from Caltrans, we estimate that about 6,000 lane-miles of pavement, 900 bridges, and 41,000 culverts currently require a Figure 6 major maintenance project. As shown in Figure 6, Backlog of Major we estimate that it would cost about $3 billion on Maintenance Projects a one-time basis to eliminate this backlog, with (In Millions) the majority of the costs associated with culvert Pavement $700 maintenance. Bridges 250 Current Funding Level Falls Short of Meeting Culverts 2,000 Needs. The level of funding needed for major Total $2,950 maintenance projects in the Highway Maintenance Figure 7 Program is significantly Current Funding Level Falls Short of greater than the current Meeting Ongoing Major Maintenance Needs annual funding level (In Millions) for this program of Current Ongoing Annual $434 million. Figure 7 Funding Level Annual Need Shortfall compares current funding Pavement $234 $750 -$516 levels for major highway Bridges 177 200 -23 maintenance projects to Culverts 23 600 -577 Totals $434 $1,550 -$1,116 the ongoing needs. As www.lao.ca.gov Legislative Analyst’s Office 11 2016-17 BUDGET entire backlog of work could not be addressed in $2 billion annually in order to fully fund ongoing a single year. While the actual amount of time rehabilitation for pavement, bridges, and culverts. necessary to address this backlog would depend We note that the SHOPP data Caltrans on the availability of funds, as well as how quickly provided to us does not reflect the use of Caltrans is able to award contracts, we think that maintenance best practices, and therefore does not addressing the backlog over a three-year period is account for savings likely to be achieved through one reasonable approach. Such an approach would a fully funded Highway Maintenance Program. spread the cost of the backlog over time, while Accordingly, if the state were to fully fund addressing much of the backlog of needs before maintenance projects, the ongoing SHOPP needs pavement, bridges, and culverts deteriorate to the in the long run would be lower than we estimate at point of requiring more costly rehabilitation work this time. through additional SHOPP projects. Addressing the SHOPP Backlog of Roughly $9 Billion. In backlog over a three-year period would temporarily addition to the ongoing needs, there is a backlog increase the above annual level of funding needed of deferred SHOPP projects that has accumulated to meet total maintenance needs by $1 billion in the over the years. This is partly due to insufficient short run. Specifically, total annual funding needed funding levels in prior years, as well as highways would be about $2.6 billion for three years (about needing rehabilitation sooner due to a lack of $2 billion more than the current funding level) and proper maintenance. As shown in Figure 9, roughly then decline to an annual level of about $1.6 billion $9 billion is needed on a one-time basis to eliminate thereafter. a SHOPP backlog of about 3,000 lane-miles of pavement, 500 bridges, and 8,000 culverts. SHOPP Needs Current Funding Level Falls Short of Meeting Due to uncertainties around future highway Needs. The level of funding we identify as being repair needs, complexities with understanding the type of repairs actually used for given highway Figure 8 conditions, as well as inconsistencies in some of Ongoing Program Needs for SHOPP the data provided to us by Caltrans, the needs (In Millions) for SHOPP are less clear than for the Highway Pavement $900 Maintenance Program. Although we were able to Bridges 350 develop an estimate for the SHOPP by using the Culverts 750 best data available, we note that these estimates are Totals $2,000 subject to some uncertainty. SHOPP = State Highway Operation and Protection Program. Significant Ongoing SHOPP Needs. Eventually, all highways will deteriorate to the point where Figure 9 rehabilitation is needed through a SHOPP project. Backlog of SHOPP Projects Based on recent data and reports provided to us by (In Millions) Caltrans, we estimated the ongoing level of funding Pavement $1,700 needed for SHOPP projects on pavement, bridges, Bridges 5,800 and culverts. Figure 8 shows our estimates of these Culverts 1,500 ongoing SHOPP needs. As shown in the figure, we Total $9,000 SHOPP = State Highway Operation and Protection Program. estimate that the SHOPP would require roughly 12 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET needed for rehabilitation Figure 10 projects in the SHOPP Current Funding Level Falls Short of is significantly greater Meeting Ongoing SHOPP Needs than the current annual (In Millions) funding level for this Current Ongoing Annual program of $1.2 billion. Funding Level Annual Need Shortfall Figure 10 compares the Pavement $800 $900 -$100 current funding levels for Bridges 350 350 — SHOPP to our estimate Culverts 50 750 -700 Totals $1,200 $2,000 -$800 of the ongoing needs. As SHOPP = State Highway Operation and Protection Program. shown in the figure, the total annual amount of Summary of Highway Maintenance and funding needed to meet ongoing SHOPP needs is SHOPP Needs roughly $2 billion annually, or about $800 million Based on our above analysis of the needs more than the current funding level. Most of for the Highway Maintenance Program and the the annual shortfall in funding relates to the SHOPP, we estimate that the total ongoing annual rehabilitation of culverts. level of funding needed for highway repairs is about In addition, because the current level of SHOPP $3.6 billion. In addition, we find there is a one-time funding is insufficient to meet ongoing needs, the cost to address an existing backlog of needed $9 billion backlog would remain unaddressed and highway repairs totaling roughly $12 billion. As likely grow in the future. Due to the magnitude discussed previously, addressing the maintenance of the SHOPP backlog, the entire backlog of work backlog over a three-year period and the SHOPP could not be addressed in a single year or even in backlog over a ten-year period is one reasonable a couple of years. While the actual amount of time approach. Figure 11 (see next page) summarizes the necessary to address this backlog would depend annual funding required to meet ongoing needs on the availability of funds, as well as how quickly and to address the existing backlog of projects Caltrans is able to design projects, we think that during these time periods. As the figure shows, addressing the backlog over a ten-year period is one we estimate that the total amount needed for state reasonable approach. We also note that rehabilitation highway repair programs in 2016-17 is roughly projects take a much longer time to complete than $5.5 billion and would decline to $3.6 billion maintenance work. Addressing the backlog over annually beginning in 2026-27. a ten-year period would temporarily increase the above annual funding needed to meet total SHOPP Local Road Maintenance and Repair Needs needs by $900 million for a decade. Specifically, total As mentioned previously, understanding the annual funding needed would be $2.9 billion for condition of local roads is challenging. Due to the ten years (about $1.7 billion more than the current limitations around the available data, we were not funding level) and then decline to an annual level able to develop a comprehensive analysis of local of roughly $2 billion thereafter when the backlog road maintenance and rehabilitation needs. In the is eliminated. (Please see the box on page 15 for a absence of such data, we evaluated the previously discussion of how our SHOPP estimates compare to described 2014 California Statewide Local Streets those of Caltrans.) www.lao.ca.gov Legislative Analyst’s Office 13 2016-17 BUDGET Figure 11 Summary of LAO Estimate of Major Highway Maintenance and SHOPP Needs (In Billions) Current Funding Level Maintenance Backlog $6 SHOPP Backlog Maintenance Ongoing 5 SHOPP Ongoing 4 3 2 1 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 SHOPP = State Highway Operation and Protection Program. and Roads Needs Assessment to determine if that assumes a goal of bringing all local street and report provides a reasonable assessment of local road pavement into good or excellent condition, needs. While the information in the 2014 report which does not reflect the fact that some portions appears to be the most complete assessment of pavement will always be in fair or distressed available of the condition and needs of local street condition as roads deteriorate and eventually come and road systems in California, the accuracy and to the end of their useful life. As such, the 2014 consistency of the self-reported data is unknown. report does not appear to provide an assessment For example, it is likely that some jurisdictions have of the ongoing needs to repair local roads, but better data on the condition of their roads or had rather the one-time cost of bringing all local road more resources available to complete the survey pavement into good or excellent condition. By than other jurisdictions. In addition, while the reflecting costs that would actually be spread over approach to estimating some of the needs (such as time as a one-time need, the study appears to for bridges) appears reasonable, we find that certain overstate the level of funding that would actually be assumptions in the report appear to overstate the needed on an ongoing basis. level of funding needed, as discussed below. Report Appears to Not Account for All Ongoing Funding Need for Local Roads Existing Funds. Second, the report compares Potentially Overstated. First, the 2014 report the estimated needs with existing funding levels. estimates that, in total, local agencies require However, the amount of existing funding included an additional $73 billion to fund pavement in this calculation appears to be significantly lower maintenance and repairs over the next ten years. than the amount cities and counties reported to However, our review finds that this estimate the State Controller’s Office as being spent on road 14 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET maintenance and repairs. For example, in 2012-13, road repair needs. Based on our assessment of these cities and counties reported that they spent needs, we provide below a roadmap to assist the $4 billion on road repairs, which is significantly Legislature in its deliberations. The overall intent of higher than the $2.5 billion assumed in the 2012 our recommended roadmap is to help ensure that local road assessment report. To the extent that the highest priority needs are addressed first and the 2014 report similarly underestimates the level that any additional funding provided is aligned of funding currently available to meet local road with those needs and is allocated in an efficient and repair needs, it would overstate the estimated effective manner. funding shortfall for local road repairs. Prioritize and Fully Fund Highway LAO Recommended Roadmap Maintenance Program for Addressing Repair Needs To the extent that that Legislature identifies As part of the ongoing special session on additional transportation funding, we recommend transportation, both the Governor and the making the Highway Maintenance Program Legislature have made it a priority to identify the highest priority for such funding. This is increased funding to help address highways and because maintenance projects are significantly Comparison of LAO and Caltrans SHOPP Needs Estimates As part of its 2015 Ten-Year State Highway Operation and Protection Program (SHOPP) plan, the California Department of Transportation (Caltrans) estimates how much funding it thinks is needed for SHOPP. Specifically, Caltrans estimated that it needed a total of $4.4 billion annually for ten years to meet highway rehabilitation needs for pavement, bridges, and culverts. This amount includes funding for ongoing needs as well as additional funding to help address existing backlogs. In comparison, we estimate that the ongoing funding needs for pavement, bridge, and culvert projects in SHOPP is $2 billion. In addition, we identified an existing backlog of about $9 billion of needed SHOPP projects. If the state were to address this backlog over a ten-year period, we estimate total annual funding needed would be $2.9 billion for ten years. The primary reason why our estimate is lower than that of Caltrans is because we found that certain assumptions made by the department appeared to overstate SHOPP needs for pavement and bridges and were not supported by the data provided to us by the department. For example, we based our estimates on the projections of the future level of distressed pavement as identified in the department’s 2015 State of the Pavement Report, which uses data on the actual condition of the pavement and a sophisticated and robust pavement management system. Caltrans’ estimates are much higher than supported by these projections, and it has not been able to substantiate its estimates at this time. We also note that Caltrans assumes a substantial ongoing increase is needed for bridges, but this appears to be inconsistent with the department’s data on actual bridge conditions. Specifically, Caltrans’ Bridge Health Index currently rates bridges statewide as being in very good condition on average. The index level has even shown improvement over the last few years at the current $350 million funding level. www.lao.ca.gov Legislative Analyst’s Office 15 2016-17 BUDGET more cost-effective than allowing highways to Determine Level of Local Road Funding deteriorate such that a SHOPP rehabilitation Based on Legislative Priorities project is needed. For example, Caltrans estimates The Legislature will want to consider the that for every dollar spent on a major maintenance state’s role and responsibility in funding local project for pavement, bridges, and culverts, road needs. As discussed previously, local roads between $4 to $12 of costs can be deferred are funded through various sources with locals by postponing the need for rehabilitation. In providing the majority of total funding. While addition, major maintenance projects can improve the state has historically shared transportation safety and the ride-quality (such as pavement revenues with local agencies, the Legislature will smoothness) of highways. want to weigh the level of funding to give to local As discussed earlier, we estimate that an agencies against the state’s highway needs. Given additional $1.1 billion is needed annually in the current distribution formulas for local road order to fully meet the ongoing needs for major funding allocations, the Legislature will also want maintenance projects. In addition, about $3 billion to consider whether new funding is intended for in one-time costs is also needed to address the any local road need, or if dollars should be directed existing backlog of maintenance projects. This specifically to maintenance and repair needs. For one-time cost could be spread out over multiple example, if the Legislature wants to ensure funding years, such as $1 billion each year over three years. meets the highest priority local road repair needs, Eliminating this backlog would extend the lifespan it will need to determine a process for allocating of the state’s highways and delay the need for more funding that takes these needs into account. costly rehabilitation projects in SHOPP. Align Funding Sources With Funding Priorities Prioritize SHOPP Needs Next After determining which highway and road After meeting the needs of the Highway repair needs it wants to fund and the level of Maintenance Program, we recommend that the funding it wants to provide, the next step would Legislature make additional funding for SHOPP be for the Legislature to ensure that the funding projects its next priority. As indicated above, we sources identified are aligned to the specific needs estimated an annual ongoing shortfall of around being funded. Specifically, permanent ongoing $800 million and a one-time $9 billion need revenues (such as permanent taxes) are best used to to address the current backlog of projects. We meet ongoing needs. On the other hand, backlogs recommend allocating increased SHOPP funds of work do not require ongoing funding and can to the specific needs we identified above. To the instead be addressed with one-time or temporary extent there is not sufficient funding to address funding sources (such as bonds, temporary all SHOPP needs, the Legislature would need to taxes, or redirections from existing revenues). prioritize which needs to address. For example, As discussed previously, both the Highway the Legislature may want to prioritize (1) ongoing Maintenance Program and SHOPP have significant culvert needs, since these have the greatest unmet ongoing and one-time funding needs. need, or (2) addressing the backlog of distressed bridges, which could present a safety issue in the future. 16 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Adopt Accountability Measures to 2014-15 Budget: Capital Outlay Support Program Ensure Effective Use of Funds Review, SHOPP currently has limited project-level external oversight. Specifically, as discussed in that In order to ensure that any additional funds for report, we recommend that the Legislature require transportation are spent effectively and in a way that CTC—an independent commission with a role in meets legislative priorities, we recommend adopting allocating certain state transportation funds—to well-defined and robust accountability measures. perform project-level oversight of SHOPP. Specifically, we recommend that the Legislature adopt performance metrics for both the Highway Governor’s Proposal Falls Short Maintenance Program and SHOPP that provide a of Addressing Highway Needs comprehensive assessment of the condition of the In order to illustrate how our above highway system. For example, the Legislature could recommended roadmap could be utilized, we establish goals that a certain amount of pavement assess below the Governor’s transportation funding be kept in good condition. Regarding highway proposal based on our roadmap’s key principles. bridges, we recommend that the Legislature require Governor’s Proposal. As indicated earlier, Caltrans to provide more detailed information on the Governor’s transportation funding package the number of distressed bridges and the estimated proposes to provide an estimated $3.6 billion cost and timing for returning them to a state of good annual increase for state and local transportation repair. In order to track progress toward meeting infrastructure, primarily from a new $65 vehicle these goals, we recommend the Legislature require registration tax and increases in gasoline and diesel Caltrans to report on the status of these metrics on excise taxes. Revenue from the funding package a regular basis, such as requiring this information would phase in during 2016-17 and 2017-18 and in Caltrans’ biennial SHOPP and Highway provide a permanent ongoing increase thereafter. Maintenance plans. To the extent that funding is Of the total increased revenue, $2.4 billion would made available for local roads, we recommend that be for highway and road repairs—$1.4 billion the Legislature adopt performance and reporting for state highways and $1 billion for local roads. requirements related to the use of these funds As shown in Figure 12, the $1.4 billion proposed as well. For example, the Legislature may want increase for state highways would result in total to establish goals for the condition of local road pavement and bridges and require local agencies Figure 12 to identify the estimated Governor’s Proposal for Increased Funding for Highway Repairs costs associated with road repairs. (In Millions) In addition, the Current Funding Proposed Increase Total Legislature will want to SHOPP consider more robust Pavement $800 $900 $1,700 Bridges 350 300 650 accountability measures Culverts 50 200 250 in the allocation of SHOPP Subtotals ($1,200) ($1,400) ($2,600) funds, in particular for Major Maintenance $434 $20 $454 Totals $1,634 $1,420 $3,054 SHOPP. As we found in SHOPP = State Highway Operation and Protection Program. our May 2014 report The www.lao.ca.gov Legislative Analyst’s Office 17 2016-17 BUDGET funding for pavement, bridge, and culvert repairs effectively. Figure 13 compares our estimated of about $3 billion when combined with the needs for the Highway Maintenance Program and $1.6 billion currently available for these purposes. SHOPP with the level of funding proposed by the As indicated in the figure, nearly all of the Governor. As the figure shows, the total funding $1.4 billion increase for state highways would fund levels provided under the Governor’s plan for rehabilitation projects in SHOPP, with $20 million pavement, bridge, and culvert maintenance and available for major maintenance projects. SHOPP projects do not align well with the needs we Proposed Allocation of Funding Would Not identified. Specifically, we find that the Governor’s Meet Highway Needs Effectively. Although the proposal: Governor’s proposed $3 billion in total funding • Provides Little Funding to Meet Major for highway repairs is in the rough magnitude of Highway Maintenance Needs. The funding needed to address the ongoing $3.6 billion Governor’s proposal provides only a need we identified above related to highway $20 million increase for major maintenance maintenance and rehabilitation, the proposed projects in the Highway Maintenance funding would fall short of addressing the existing Program, for a total of $454 million. Thus, backlog of projects and would not be allocated Figure 13 Governor's Proposed Funding Does Not Align With LAO Estimate of Needs (In Millions) $1,800 1,600 1,400 1,200 1,000 800 600 400 200 Pavement Bridges Culverts Pavement Bridges Culverts Maintenance SHOPP LAO Estimated Ongoing Need LAO Estimated Backlog Needa Governor’s Funding Level a Assumes maintenance backlog is addressed in three years and SHOPP backlog in ten years. SHOPP = State Highway Operation and Protection Program. 18 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET of the $1.6 billion ongoing maintenance each year than needed to meet ongoing need, $1.1 billion would remain unfunded. needs. This is because under the Governor’s Because the proposed level of Highway plan, the new revenues allocated to SHOPP Maintenance Program funding is would come from permanent tax increases insufficient to meet ongoing needs, the that would continue even when the need $3 billion backlog of deferred maintenance for funding is less in the future. would remain unaddressed and likely grow Governor’s Accountability Measures Are in the future. In addition, if maintenance Limited. The Governor’s proposal also includes is deferred for too long, pavement, bridges, various accountability measures related to the and culverts will deteriorate to the point of additional funding provided for highway repairs. requiring more costly rehabilitation work First, the Governor establishes certain performance through additional SHOPP projects. goals for highway pavement, bridges, and culverts and requires Caltrans to report to CTC on its • Generally Funds Short-Term SHOPP Need, progress in meeting these goals. For example, one but Mix of Projects Not Aligned With of the Governor’s goals is to have no more than Needs. Under the Governor’s plan, a total 10 percent of highway pavement in distressed of $2.6 billion would be available annually condition. However, the proposal lacks a specific for pavement, bridge, and culvert SHOPP goal for how much highway pavement would be projects—more than twice the current kept in good condition versus in fair condition. level of $1.2 billion. Unlike the Highway Similarly, for bridges, the Governor proposes a Maintenance Program, the Governor’s performance goal of achieving a Bridge Health proposal would make significant progress Index score of 95. However, as discussed above, toward addressing the $2.9 billion that we this index is currently at a score of 97.1—meaning identified to fully fund SHOPP ongoing Caltrans is already meeting this goal under existing needs and eliminate the existing backlog funding levels. over a ten-year period. However, we find Second, under the Governor’s plan, CTC would that the mix of pavement, bridge, and have the authority to withhold future funding from culvert projects that the Governor proposes Caltrans if it determines that program funds were to fund does not align with the actual not appropriately spent. However, CTC could only needs of SHOPP. For example, as shown in withhold all SHOPP funding from Caltrans rather Figure 13, while the Governor’s proposal than only withholding funding related to specific would allocate much more funding than projects that CTC determines to have problems. needed for pavement projects, it would not Given the extreme nature of withholding all provide sufficient funding for both culvert program funding and the negative consequences on and bridge projects. all SHOPP projects, CTC would likely be hesitant to • Provides More SHOPP Funding Than use this authority, resulting in limited accountability. Needed in Long Run. Under the Governor’s Instead, requiring CTC to perform project-level proposal, once the existing backlog of oversight, as we recommend, would allow CTC to SHOPP projects is eliminated, SHOPP allocate or withhold funding for specific projects and would receive about $600 million more provide a more meaningful level of accountability. www.lao.ca.gov Legislative Analyst’s Office 19 2016-17 BUDGET MVA FUND CONDITION The MVA was created to support the state’s of licenses renewed each year. In recent years, activities to administer and enforce laws regulating such revenue has averaged about $300 million the operation and registration of vehicles used on annually, accounting for roughly 10 percent of public streets and highways, as well as to mitigate total MVA revenues. The current driver license fee the environmental effects of vehicle emissions. is $33 and was last increased by $1 in 2014. The During the last couple of years, concerns about driver license fee is also indexed to the CPI. The the solvency of the MVA have arisen as spending remaining MVA revenues primarily come from from the account has grown faster than revenues. late fees associated with vehicle registration and Below, we (1) provide background information on driver license renewals, identification card fees, MVA revenues and expenditures, (2) describe the and miscellaneous fees for special permits and Governor’s proposals related to the MVA, (3) assess certificates (such as fees related to the regulation of the condition of the MVA, and (4) identify issues automobile dealers and driver training schools). for legislative consideration. The use of most MVA revenues are limited by the California Constitution to the administration and Background enforcement of laws regulating the use of vehicles on Revenues. The MVA receives most of its public highways and roads, as well as certain other revenues from vehicle registration fees. In 2015-16, transportation uses. However, about $80 million $3.2 billion in revenues are estimated to be of the miscellaneous MVA revenue sources are not deposited into the MVA, with vehicle registration limited by constitutional provisions. Because they are fees accounting for about $2.3 billion (72 percent). available for broader purposes, these miscellaneous Vehicle registration fees currently total $70 for each revenues are not retained in the MVA, but are instead registered vehicle, which consists of two components: transferred to the General Fund. Expenditures. The MVA primarily provides • Base Registration Fee ($46). The state funding to three state departments—CHP, charges a base registration fee of $46, with DMV, and the Air Resources Board—to support $43 going to the MVA and $3 going to the activities authorized in the California support certain environmental mitigation Constitution. In recent years, expenditures from programs. The base registration fee was last the MVA have increased. Some of these increases increased in 2011 by $12 (from $34 to $46). affect the MVA only in the short run (such as • CHP Fee ($24). The state also charges an increased limited-term funding to DMV for the additional fee of $24 that directly benefits implementation of Chapter 524 of 2013 [AB 60, CHP. In 2014, this fee was increased by $1 Alejo]). Others create longer-term cost pressures (from $23 to $24) and was indexed to the on the MVA that can extend several years. These Consumer Price Index (CPI), allowing the ongoing cost drivers include: fee to automatically increase with inflation. • CHP Officers’ Salary Increases. The The MVA also receives a significant amount state and the union representing CHP of revenue from driver license fees. Revenue officers negotiated a memorandum of from these fees fluctuates based on the number understanding (MOU) in 2013 that 20 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET provides salary increases for CHP officers field offices. The funding supported annually from 2013-14 through 2018-19. pre-construction activities to replace three The MOU specifies that the increases are DMV field offices. determined by calculating the weighted Operational Shortfalls. Due to expenditures average of the salaries of the state’s five outpacing revenues, the MVA faced an operational largest local police agencies. As a result, shortfall in 2015-16 of about $300 million, which CHP officers received average salary was addressed through the one-time repayment increases of 5 percent a year in both of $480 million in loans that were previously 2013-14 and 2014-15, increasing ongoing made from the MVA to the General Fund. Absent MVA costs by $10 million. corrective actions, the account would again experience an operational shortfall in 2016-17. • CHP Air Fleet Replacement. As part of an ongoing air fleet replacement plan for Governor’s Proposals CHP’s fleet of 26 aircraft, the Legislature The administration estimates an MVA approved $17 million in 2013-14, operational shortfall of about $310 million $16 million in 2014-15, and $14 million in 2016-17 (assuming no new revenue or in 2015-16. Under the approved plan, the expenditures), with this amount increasing in funding level for air fleet replacement future years. If left unaddressed, the ongoing will remain at $14 million in 2016-17, and shortfalls would result in the MVA becoming decline to $8 million in 2017-18 and remain insolvent in 2017-18. In order to help address this at that level on an ongoing basis. ongoing shortfall and maintain the solvency of the • CHP Area Office Replacement. In MVA, the Governor proposes to increase revenues 2013-14, the Legislature approved a total of into the MVA by increasing the base vehicle $6.4 million to initiate the administration’s registration fee. As we discuss below, under the multiyear plan to replace existing CHP Governor’s plan, the proposed fee increase would area offices. The funding supported the also support new MVA expenditure proposals by acquisition of land for one new office the Governor that total $52 million. and the advanced planning to replace $10 Registration Fee Increase. In order to five additional offices. For the five new help address the expected operational shortfall in offices, the Legislature subsequently the MVA, the Governor proposes to increase the approved $32.4 million in 2014-15 to fund base vehicle registration fee by $10 (from $46 to the acquisition of land and $137 million $56) effective January 1, 2017. Additionally, the in 2015-16 to fund the design and Governor proposes to index the base registration construction of these facilities and begin fee to the CPI beginning in 2017-18, similar to the the advanced planning for up to five CHP fee and driver license fee. The Governor’s additional facilities. budget assumes that the increased fee will generate about $80 million in 2016-17, and about • DMV Field Office Replacement. In $360 million upon full implementation in 2017-18. 2015-16, the Legislature approved (As discussed earlier in this report, the budget also $4.7 million to initiate the administration’s includes a $65 vehicle registration tax that would multiyear plan to replace existing DMV fund transportation infrastructure programs.) www.lao.ca.gov Legislative Analyst’s Office 21 2016-17 BUDGET New MVA Expenditures. While the above place between 30 and 50 self-service fee increase would help address the operational terminals in businesses around the state, shortfalls of the MVA with increased revenues, the such as grocery stores. (We discuss this Governor’s budget also includes proposals totaling proposal in more detail later in this report.) $52 million that would further increase MVA expenditures in 2016-17 and beyond. The major MVA Barely Balanced new expenditures include: Under Governor’s Proposal • Additional CHP Area Office Replacement. The Governor has proposed steps to address The budget includes $25 million for site the operational shortfalls in the MVA. However, acquisition and preliminary plans for new our estimates of the Governor’s plan indicate that CHP offices in Hayward, El Centro, and the MVA would be barely balanced over the next Ventura. The administration currently few years and likely face an operational shortfall plans to request an additional $106 million in the tens of millions of dollars by 2019-20. Our as part of the 2017-18 budget to fund the forecast includes revenue estimates based on construction of these three offices. In historical trends and the proposed fee increase, and addition, the budget includes $800,000 expenditure estimates based on proposals already for advanced planning to identify three approved by the Legislature and those proposed in additional area offices that would be the Governor’s budget, as well as reflected in the proposed for replacement in future years as administration’s 2016 Five-Year Infrastructure Plan. part of the administration’s ongoing plan Our forecast also includes out-year expenditures to replace outdated CHP area offices. related to the annual pay increases for CHP officers referenced above. • Additional DMV Field Office We also note that various additional cost Replacement. The Governor’s budget pressures could further impact the solvency of the includes $5.6 million for the design phase MVA the next several years. For example, CHP of the three DMV office replacement and DMV currently operate certain information projects initiated in the current year technology legacy systems that will likely require ($4.3 million), as well as to initiate the replacement in the coming years and are not replacement of another office ($1.3 million). accounted for in our forecast. The administration plans to request an additional $52 million as part of the Issues for Legislative Consideration 2017-18 and 2018-19 budgets to fund the The Legislature will need to take steps to construction of these four offices. address the ongoing shortfall in the MVA and • Additional DMV Self-Service Terminals. prevent insolvency. While the Governor’s approach The budget proposes $8 million on is one way of addressing the shortfalls in the near an ongoing basis to expand the use of term, there are alternatives. The Legislature will self-service terminals that handle common also want to consider taking actions to ensure DMV transactions, such as vehicle that the MVA is sufficiently balanced in both the registration renewal. Under the proposal, near and long term. The Legislature could address DMV would contract with a vendor to such shortfalls by adopting a mix of the following strategies: 22 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET • Reduce or Limit MVA Expenditures. One increase the vehicle registration fee. In approach to addressing the shortfalls in determining an appropriate fee increase, the MVA is to reduce expenditures or it will want to consider the potential slow the pace of spending growth. Even a fiscal impacts on vehicle owners. The modest reduction to the pace of spending Legislature could also choose to increase growth could significantly help the MVA’s non-registration MVA fees, such as driver condition in the future. For example, the license fees. Legislature could defer the start of new • Eliminate General Fund Transfer. As capital projects to replace CHP and DMV mentioned earlier, the MVA receives about facilities, or approve fewer new projects in $80 million in miscellaneous revenues future years than are included in the 2016 that are not limited in their use by the Five-Year Infrastructure Plan. We note that California Constitution. Under existing such actions would leave various safety and law, these revenues are transferred to the operational challenges at certain offices General Fund, making them unavailable unaddressed for an additional time period. to support MVA expenditures. The Furthermore, the Legislature could identify Legislature could change state law in order alternative sources to fund certain existing to keep these revenues in the MVA. or proposed MVA expenditures. • Increase MVA Revenues. As proposed by the Governor, the Legislature could CALTRANS Caltrans is responsible for planning, outlay, $2.2 billion for local assistance, $1.9 billion coordinating, and implementing the development for highway maintenance and operations, and and operation of the state’s transportation $1.7 billion to provide the support necessary to system. These responsibilities are carried out deliver capital highway projects. The total level in four programs. Three programs—Highway of spending proposed for Caltrans in 2016-17 Transportation, Mass Transportation, supports about 19,000 positions at the department and Aeronautics—concentrate on specific and several thousand transportation improvement transportation modes. Transportation Planning projects statewide. seeks to improve the planning of all modes. Proposition 1B The Governor’s budget proposes total expenditures of about $10.5 billion for Caltrans LAO Bottom Line. We recommend that the in 2016-17. This is $422 million, or about Legislature approve the Governor’s proposal 4 percent, lower than the estimated current-year for Proposition 1B administrative staff for only expenditures. Most of the proposed spending two years (2016-17 and 2017-18)—rather than supports the department’s highway program, over a five-year period as proposed—given the which primarily includes $3.6 billion for capital uncertainty regarding future workload. www.lao.ca.gov Legislative Analyst’s Office 23 2016-17 BUDGET Background Administrative Resources to Implement Bond. Since the passage of Proposition 1B, Caltrans has 2006 Transportation Bond. In 2006, voters received staff resources for the increased workload approved Proposition 1B (Highway Safety, Traffic associated with the bond programs, including Reduction, Air Quality, and Port Security Bond administrative staff. These positions perform Act of 2006), which authorized the state to sell administrative work (such as accounting, auditing, about $20 billion in general obligation bonds for and budgeting) that are necessary throughout the various transportation projects. As specified in the various phases of a project—including planning, proposition, such projects include those intended to design, construction, and closeout. For instance, improve state highways and local roads, modernize Caltrans accountants process payments to local and expand transit systems, improve rail and agencies and make final payment adjustments freight facilities, and mitigate transportation- to close out capital projects. The Legislature has related air pollution. Caltrans is responsible for generally approved administrative staff requests administering a majority of the Proposition 1B for only two years at a time because (1) the bond programs with about 2,300 total projects. As shown programs are not permanent and (2) the level of in Figure 14, most of the Proposition 1B projects staff needed has fluctuated over time as workload that are administered by Caltrans are either initially ramped up, then reached a peak, and complete or are currently under construction. is now declining. For example, the 2014-15 Specifically, 1,333 projects have completed budget provided funding over a two-year period construction, 763 are under construction, and for 42 staff positions at Caltrans to administer 230 have not yet started construction. Figure 14 Most Caltrans Proposition 1B Projects Are Complete or Under Construction Under Construction Complete 100% 90 80 70 60 50 40 30 20 10 CMIA STIP TCIF SR 99 SLPP SHOPP Intercity Traffic Grade Local Local Rail Light Crossing Bridge Transit CMIA = Corridor Mobility Improvement Account; STIP = State Transportation Improvement Program; TCIF = Trade Corridor Improvement Fund; SR 99 = State Route 99; SLPP = State-Local Partnership Program; and SHOPP = State Highway Operation and Protection Program. 24 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Proposition 1B. These positions are set to expire at Additionally, workload required to close out the end of 2015-16. a project is not fully known until construction is complete and Caltrans has audited the Governor’s Proposal project. Given that roughly 1,000 of Caltrans’ The Governor’s budget proposes $6 million Proposition 1B projects are not yet complete, the (Proposition 1B funds) and 39 positions in 2016-17 level of actual project closeout work could differ for Caltrans to continue administrative workload significantly from the assumptions made by the associated with Proposition 1B bond programs, a administration. To the extent that the Governor’s reduction of three positions from the current-year request overestimates the level of resources level. Unlike prior years, the Governor’s proposal necessary for the five-year period, Caltrans would would generally authorize the requested positions have more administrative staff than actually over a five-year period. Figure 15 shows the needed. On the other hand, if the Governor’s proposed number of positions and the associated request provides less resources than actually funding requested by year. As shown in the figure, needed, projects could experience delays. under the Governor’s proposal, Proposition 1B LAO Recommendation staffing levels would gradually decline to 26 positions in 2020-21. Approve Positions Over Two-Year Period. In view of the above concerns, we recommend that Proposal Raises Concerns Due to the Legislature approve the Governor’s proposal Uncertain Future Workload for only two years (2016-17 and 2017-18), rather The level of resources included in the than over a five-year period as requested. This Governor’s budget for Proposition 1B approach would better ensure that appropriate administrative staff in 2016-17 and 2017-18 resources are being provided to Caltrans to meet appear reasonable. The proposal also recognizes the needs required under Proposition 1B and that Caltrans’ need for administrative staffing allow the Legislature to revisit the department’s will decline as workload is completed for the Proposition 1B administrative staffing needs in a Proposition 1B programs. However, we find couple of years to ensure that the appropriate level that the Governor’s approach of requesting of resources is provided. Our recommendation administrative staff and funding over a five-year would also be consistent with the Legislature’s past period is subject to considerable uncertainty— practice for funding this workload on a two-year particularly after 2017-18. This is primarily because basis. several factors can change the timing and amount of administrative work that Caltrans must perform in the future. For example, Figure 15 savings on projects that Governor’s Proposed Proposition 1B finish under budget can Administrative Staffing Plan be redirected to fund (Dollars in Millions) additional projects, 2016-17 2017-18 2018-19 2019-20 2020-21 resulting in additional administrative work for Positions 39 36 31 29 26 Expenditures $6.1 $5.8 $5.7 $5.5 $5.2 Caltrans. www.lao.ca.gov Legislative Analyst’s Office 25 2016-17 BUDGET CALIFORNIA HIGHWAY PATROL The primary mission of the CHP is to funding in accordance with this plan each year ensure safety and enforce traffic laws on state since 2013-14. Specifically, the 2013-14 budget highways and county roads in unincorporated included $1.5 million for advanced planning and areas. The department also promotes traffic site selection to replace up to five unspecified safety by inspecting commercial vehicles, as CHP area offices. Based on the results of this well as inspecting and certifying school buses, advanced planning, the 2014-15 budget provided ambulances, and other specialized vehicles. The (1) $32.4 million to fund the acquisition and CHP carries out a variety of other mandated tasks preliminary plans for five new CHP areas offices in related to law enforcement, including investigating Crescent City, Quincy, San Diego, Santa Barbara, vehicular theft and providing backup to local law and Truckee, and (2) $1.7 million for advanced enforcement in criminal matters. The operations planning and site selection to replace up to five of the CHP are divided across eight geographic additional unspecified CHP area offices. The divisions throughout the state. 2015-16 budget provided $136 million to fund The Governor’s budget proposes total the design and construction of the area offices in expenditures of $2.4 billion for CHP in 2016-17, Crescent City, Quincy, San Diego, Santa Barbara, which is about the same level as provided in the and Truckee, as well as $1 million for advanced current year. The level of spending proposed for planning and site selection to replace five additional CHP for 2016-17 supports about 10,700 positions, unspecified area offices. of which about 7,500 are uniformed officers. Governor’s Proposal Area Office Replacement Acquisition and Preliminary Plans for Three LAO Bottom Line. We recommend that the New Facilities. The Governor’s budget provides Legislature consider the Governor’s proposed CHP about $25 million from the MVA to fund site area office replacement projects in the context acquisition and preliminary plans for new CHP of a larger strategy for resolving the operational offices in Hayward, Ventura, and El Centro. These shortfall in the MVA. For example, the Legislature three facilities were identified through the site may want to defer the replacement of some CHP selection process and advanced planning funding field offices in order to reduce expenditures from provided in 2014-15. Specifically the budget the MVA. includes: • $15 million to fund the acquisition and Background preliminary plans for the Hayward area The CHP operates 103 area offices across office replacement project. The proposed the state, which usually include a main office facility would be 43,518 square feet, or building for CHP staff, CHP vehicle parking and roughly four times the size of the existing service areas, and a dispatch center. Beginning 11,033 square foot office that was built in in 2013-14, the administration initiated a plan to 1971. The administration plans to request replace a few CHP field offices each year for the funding to construct the facility as part of next several years. The Legislature has approved the 2017-18 budget at an estimated cost of 26 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET $38.1 million—for a total project cost of Proposal Would Impact MVA Fund Condition $53.1 million. We recognize that many of CHP’s existing area offices have deficiencies that merit their • $5.6 million to fund the acquisition and replacement in the near future. However, as we preliminary plans for the Ventura area discussed earlier in this report, the MVA is facing office replacement project. The proposed an operational shortfall. Although the Governor facility would be 40,534 square feet, or proposes to increase MVA revenues by raising the over three times the size of the existing vehicle registration fee, we estimate that under the 12,469 square foot office that was built in Governor’s proposal (including the costs to replace 1976. The administration plans to request area offices in Hayward, El Centro, and Ventura) funding to construct the facility as part of the MVA would be barely balanced over the next the 2017-18 budget at an estimated cost of few years and likely face an operation shortfall in $37.1 million—for a total project cost of the tens of millions of dollars by 2019-20. $42.7 million. LAO Recommendation • $4.3 million to fund acquisition and preliminary plans for the El Centro area In view of the above, we recommend that the office replacement project. The proposed Legislature consider the proposed CHP area office facility would be 33,550 square feet, or replacement projects in the context of a larger about seven times the size of the existing strategy for resolving the operational shortfall in 4,575 square foot facility that was built in the MVA. As we suggested earlier in this report, the 1966. The administration plans to request Legislature may want to reduce MVA expenditures funding to construct the facility as part of in order to help address shortfalls in the fund. the 2017-18 budget, which is estimated to As such, the Legislature may want to consider cost $30.4 million—for a total project cost deferring one or more of the three proposed of $34.7 million. projects. The Legislature may also want to consider reducing the proposed funding for advanced Advanced Planning and Site Selection. The planning and site selection as a way to limit the budget also includes $800,000 from the MVA for number of additional replacement projects (and the advanced planning and site selection to identify associated costs to complete the projects) that are three additional offices to replace as part of the allowed to proceed. administration’s ongoing office replacement plan. DEPARTMENT OF MOTOR VEHICLES The DMV is responsible for registering vehicles, such as automobile dealers and driver training issuing driver licenses, and for promoting safety on schools, and collects certain fees and tax revenues California’s streets and highways. Currently, there for state and local agencies. are 24 million licensed drivers and about 30 million The Governor’s budget includes $1.1 billion for registered vehicles in the state. Additionally, DMV DMV in 2016-17, which is about 3 percent less than licenses and regulates vehicle-related businesses the estimated level of spending in the current year. www.lao.ca.gov Legislative Analyst’s Office 27 2016-17 BUDGET This is due to certain one-time spending in 2015-16. completed in 2014-15 under each service option. The level of spending proposed for 2016-17 supports As the figure shows, more than three-fourths of all about 8,300 positions at DMV. registration transactions were handled through the internet, mail, and field office visits. Self-service Self-Service Terminals terminals, which we discuss below, made up about LAO Bottom Line. We recommend that the 4 percent of total transactions. Legislature reject the Governor’s proposal to Use of Self-Service Terminals Has provide $8 million from the MVA for self-service Increased Significantly. In October 2010, terminals because we find that the additional DMV administratively redirected resources funding is not justified. We also recommend within its base budget to fund the installation that the Legislature require DMV to develop a of 25 self-service terminals. Subsequently, the comprehensive plan for the use of self-service department redirected additional resources to terminals. double the number of self-service terminals to 50. These terminals allow customers to process their Background vehicle registration renewal transactions at a kiosk. Various Options Available for Renewing The DMV’s 50 existing self-service terminals are Vehicle Registrations. DMV handles about located inside DMV field offices, accept multiple 30 million vehicle registration renewal transactions payment methods including cash, and provide a each year. Customers can renew their registration registration card and sticker to the customer upon through one of the several options currently completion of the renewal. available to them. These include the more Figure 17 shows the number of transactions traditional options (such as mailing in renewals or processed through self-service terminals since coming into field offices or auto clubs), as well as they were first implemented in 2010-11. While more nontraditional options that have increased the total number of transactions processed over the years (such as completing renewals over through self-service terminals is small compared the internet and through self-service terminals and business partners). (Under Figure 16 existing state law, DMV is authorized Customers Use Various Methods to to contract with qualified business Renew Vehicle Registrations partners, such as automobile dealers, 2014-15 for the electronic processing of certain Other Self-Service Terminals vehicle-related transactions.) Regardless of Business Partners which option a customer chooses, the base Internet Auto Club registration renewal fee charged by the DMV is the same under each option. We note, however, that customers who use a business partner are often required to pay a customer service transaction fee directly Field Office to the business partner. Mail Figure 16 shows the proportion of Total: 28 Million registration renewal transactions that were 28 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET to other service options, use of the terminals Figure 17 has increased significantly during the six Self-Service Terminal Transactions years that they have been in operation—from Have Increased Significantly 124,000 transactions in 2010-11 to an estimated Number of Transactions 1.2 million transactions in 2015-16. 1,400,000 Self-Service Terminals Convenient Alternative to Being Serviced by Field Office 1,200,000 Staff. The existing 50 terminals provide a 1,000,000 convenient alternative for customers who go into 800,000 a field office to renew their vehicle’s registration. 600,000 In many instances, customers who visit a field 400,000 office with a self-service terminal are often 200,000 informed of the option of using a terminal rather than waiting to be serviced by DMV staff. 2010-11a 2011-12 2012-13 2013-14 2014-15 2015-16 (Estimated) According to DMV, self-service terminals are a Reflects partial year of operation. Terminals first installed in particularly used by customers who are paying October 2010. with cash or have waited until the deadline to renew their registration. This is because DMV’s costs for self-service terminal customers cannot pay with cash through most other transactions includes a reported $5.62 in options available (such as through the internet or administrative costs for DMV and a $3.75 service by mail), and many customers who wait until the fee that is paid to the vendor that provides and deadline to renew their registration want to receive maintains the terminals. Under DMV’s existing a new registration card and sticker immediately to contract for its 50 self-service terminals, the vendor document that they have a valid registration. provides the self-service terminals at no initial cost Self-Service Terminals Are Cost-Effective. to the state, but charges DMV a $3.75 fee for each As indicated above, the base registration renewal transaction completed at a terminal. (In contrast, fee charged to customers is the same regardless of the average cost for a business partner transaction the method the customer chooses to process the does not include a service fee as this is paid—on renewal. However, DMV’s actual costs to process top of the base registration fee—directly by the vehicle registration transactions differs significantly customer to the business partner.) Based on the by processing method. Figure 18 shows DMV’s expected number of transactions, DMV estimates average reported cost to process vehicle registration transactions through the three major service Figure 18 options and through self-service terminals. As Self-Service Terminals Less Costly indicated in the figure, field office staff transactions Than Field Office Staff Visits are the most costly, with the average field office 2013-14 transaction for a registration renewal costing Renewal Method Cost $23.63. In comparison, transactions processed Field office staff $23.63 at self-service terminals are less costly, with an Self-service terminal 9.37 average cost of about $9.37 per transaction. Internet Internet 4.54 Mail 3.69 and mail transactions are the least costly. www.lao.ca.gov Legislative Analyst’s Office 29 2016-17 BUDGET self-service transactions will cost a total of terminals. This amount includes funding $11 million in the current year—about $6.6 million to pay the $3.75 vendor transaction fee for in administrative costs and $4.4 million in roughly 1 million additional transactions transaction fee payments to the vendor. estimated to occur from the expansion, as well as for the installation and training Governor’s Proposal costs related to the new terminals. The Governor’s budget for 2016-17 proposes Under the Governor’s proposal, DMV’s adminis- an $8 million augmentation from the MVA on trative costs related to self-service terminal trans- an ongoing basis to fund existing and increased actions would continue to be supported within costs related to self-service terminals. The proposal existing resources. is part of an overall plan of the administration to expand the use of self-service terminals as an Expanding Self-Service Terminals alternative for customers who would otherwise Has Merit, but Governor’s Specific handle their transactions in DMV field offices. Proposal Raises Concerns For example, DMV is in the process of evaluating The concept of expanding the use of self-service options to expand the functionality of the terminals terminals, including to locations outside of to handle additional types of transactions, such DMV field offices, has merit. Doing so would as driver license and identification card renewals. provide greater access to DMV’s customers by (DMV handles about 5 million driver license providing additional options to complete DMV renewals and 1 million identification card renewals transactions, particularly given the possibility each year.) DMV also plans to offer services in that some terminals could also be open outside of additional languages beyond English and Spanish. DMV’s regular office hours. In particular, these In addition, DMV plans to increase the number terminals could assist customers who pay with of self-service terminals by 30 to 50—for a total cash, and those who wait until the deadline to of between 80 and 100 total terminals statewide. renew their registration—two of the main reasons These new terminals would be placed in businesses why customers currently renew their registration around the state, such as grocery stores or in a field office. Because transactions processed convenience stores, to provide greater access to through a self-service terminal have lower costs DMV services. than field office transactions, expanding the Specifically, the proposed $8 million includes use of self-service terminals could also result in the following: operational efficiencies and savings. • $4.4 million to support the existing However, we find that the Governor’s specific costs of the $3.75 vendor transaction proposal raises two major concerns. First, the fee at the current level of 1.2 million administration’s plan for the expansion of self-service terminal transactions, which self-service terminals lacks sufficient detail. Second, have historically been paid from existing we find that providing funding to support existing resources within DMV’s base budget. and new self-service terminals is not justified for several reasons. We discuss each of these concerns • $3.6 million to fund increased costs in greater detail below. estimated to occur in 2016-17 from Self-Service Terminal Expansion Plan the proposed expansion of self-service Lacks Detail. At the time of this analysis, the 30 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET administration has provided little information staff workload. However, DMV currently about its plan to expand services provided through does not track the level of workload shifted self-service terminals. Additional information is from field office staff in order to adjust field needed in order for the Legislature to understand office staffing and resources to account the goals, costs, and timing of efforts to expand the for the reduced workload. Information on use of self-service terminals. Specifically, it will be the operational efficiencies and savings important for the Legislature to have the following achieved would allow the Legislature information: to weigh the merits of the proposal, as well as redirect the freed up resources to • Sequencing Plan. DMV does not appear other priorities for MVA expenditure. (As to have a sequencing plan that considers discussed earlier in this report, the MVA is the most efficient order and timing of currently facing an operational shortfall.) the various planned improvements. For example, DMV plans to add 30 to 50 The absence of a complete implementation new self-service terminals in 2016-17, but plan makes it difficult for the Legislature to assess also plans to upgrade its terminals in a the full costs of the proposal, make appropriate couple of years, potentially requiring the adjustments to DMV’s budget to account for modification or replacement of the new workload shifted out of field offices, and ensure terminals after only a couple of years. A that the expansion of self-service terminals meets sequencing plan would provide details on legislative priorities. which improvements will require a new or Requested Funding Not Justified. We also find renegotiated contract with a self-service that the Governor’s proposed $8 million increase terminal vendor, how various planned to DMV’s base budget to pay costs associated with improvements would impact the cost and self-service terminals is not justified for several implementation of other improvements, reasons: and which steps should be taken first to • DMV Not Accounting for Potentially expand the use of self-service terminals in Significant Savings. We find that an efficient and effective manner. self-service terminals can actually generate savings for DMV from having • Location of Terminals. DMV has not less customers visit field offices. To the provided any information on where the extent that customers who use self-service new terminals being proposed would be terminals would have otherwise renewed located, as well as the criteria it will use their registration in a DMV field office, to determine the locations. Such criteria DMV’s costs would actually be lower, could include locations that are nearby because the self-service terminal high-demand field offices, have a high transaction costs about $14 less than a proportion of customers who pay in cash, field office visit. However, the department and are located in businesses or public has not attempted to account for reduced places that are open most hours of the day. field office visits associated with the use of • Level of Estimated Savings. As we self-service terminals. We estimate that if discuss in greater detail below, the use of all transactions from existing terminals self-service terminals reduces field office directly offset the need for field office www.lao.ca.gov Legislative Analyst’s Office 31 2016-17 BUDGET transactions and DMV was able to make effectively be spread across all registered sufficient adjustments to account for the vehicle owners rather than just those who lower field office workload, DMV would actually use the terminals. This is because save up to $17 million annually. At the self-service terminal costs would be funded projected higher level of transactions under by increasing DMV’s budget and essentially the Governor’s proposal, the savings could supporting this increase through vehicle potentially be as much as $29 million. registration fees charged on all registration While it is unlikely that DMV could fully transactions, regardless of where they capture these savings in the short run, occur. As discussed earlier in this report, because some of their field office costs the Governor proposes to increase the are fixed (such as facilities costs), the base vehicle registration fee to support department could achieve a portion of this existing and increased spending (including savings in the short run and potentially $8 million for self-service terminals) from more in the longer run. the MVA. • Existing Transaction Fees Already LAO Recommendations Funded in Base Budget. We also note Reject Governor’s Proposal. In view of the that $4.4 million of the amount requested above, we recommend that the Legislature reject is already funded from DMV’s base the Governor’s proposal for $8 million from the budget as a result of various redirections. MVA to support the costs of existing self-service According to the department, resources terminals, as well as those of additional terminals. were redirected from various maintenance We note that DMV could still continue to fund activities and equipment purchases in the the existing self-service terminals and expand current year to pay the per transaction the number of terminals without this funding fee to the vendor. Under the Governor’s augmentation, pending the development of a proposal, this funding from DMV’s base detailed plan as we recommend below. budget would be “freed up” for DMV to Require Detailed Expansion Plan. In addition, use for other purposes at its discretion. in order for the Legislature to ensure that DMV However, the budget provides no details on expands the use of self-service terminals in an how these funds would be allocated, which efficient and effective manner, we recommend makes it difficult for the Legislature to that the Legislature require DMV to develop determine whether they are needed. a detailed plan on the use and expansion of • Charges All Motorists for Convenience self-service terminals. In order to ensure the Enjoyed by Some. Under the Governor’s Legislature receives the plan in a timely manner, proposal, about 2 million motorists are we recommend adopting budget bill language estimated to use self-service terminals. requiring DMV to submit the plan by January 10, DMV expects customers to choose this 2017. The language should also specify that DMV method for renewing their registration shall not proceed with its expansion plan until it is because it is more convenient than visiting submitted to and reviewed by the Legislature. a field office. However, the costs of the Specifically, the plan should include (1) a self-service terminal transaction fee would sequencing strategy (including the approach 32 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET and timing for increasing functionality of the offices. In addition, DMV reports that certain terminals and how that relates to expanding the customer service field offices are seismically number of terminals), (2) DMV’s assessment of deficient, which creates safety risks. which locations are good candidates for self-service Beginning in 2015-16, the administration terminals and the criteria DMV used to determine initiated a plan to replace a couple of DMV field these locations, and (3) how DMV intends to offices each year for the next several years. As part account for the cost savings generated from the of this plan, the Legislature approved $4.7 million use of self-service terminals and identify the in the current year to initiate the replacement of adjustments necessary to reflect a reduction in DMV field offices in Inglewood, Santa Maria, and field office workload. As the Legislature evaluates Delano. this plan, it will also want to consider the potential Governor’s Proposal benefits and limitations of passing the cost of self-service terminals on to the customers who The Governor’s budget for 2016-17 includes benefit from the convenience of using the kiosks, $5.6 million from the MVA for various phases rather than spreading these costs among all of four DMV field office replacement projects. registered vehicle owners. Of this total, $4.3 million is for the design phase of the three DMV office replacement projects Field Office Replacement (Inglewood, Santa Maria, and Delano) approved by LAO Bottom Line. We recommend that the the Legislature in the current year. The remaining Legislature consider the Governor’s proposed DMV $1.3 million is for preliminary plans to initiate a field office replacement projects in the context fourth DMV field office replacement project in San of a larger strategy for resolving the operational Diego. The proposed facility is 18,540 square feet shortfall in the MVA. For example, the Legislature and will be built on the same site as the existing may want to defer the replacement of some DMV field office. The new facility will replace a 15,467 field offices in order to reduce expenditures from two-story office that was built in 1961. The DMV the MVA. reports that the existing facility has numerous deficiencies and does not meet accessibility Background requirements. The cost of construction for four The DMV operates 313 facilities, which facilities above is estimated at $52 million, which include customer service field offices, telephone the administration plans to request in future service centers, commercial licensing facilities, budgets. headquarters, and driver safety and investigations Proposal Would Impact MVA Fund Condition offices. Over half of DMV facilities are customer service field offices. According to DMV, most of We recognize that some of DMV’s existing its field offices are programmatically deficient. field offices have deficiencies that merit their For example, the department reports that many replacement in the near future. However, as we customer service field offices were built in the discussed earlier in this report, the MVA is facing 1960s and 1970s and are not sufficiently sized an operational shortfall. Although the Governor to accommodate the number of customers who proposes to increase MVA revenues by raising the currently use the offices. This is primarily because vehicle registration fee, we estimate that under the of population increases in the areas served by the Governor’s proposal (including the cost to replace www.lao.ca.gov Legislative Analyst’s Office 33 2016-17 BUDGET the four DMV facilities) the MVA will be barely strategy for resolving the operational shortfall in balanced over the next few years and likely have the MVA. As we suggested earlier in this report, the an operational shortfall in the tens of millions of Legislature may want to reduce MVA expenditures dollars by 2019-20. in order to help address shortfalls in the fund. As such, the Legislature may want to consider LAO Recommendation deferring the replacement of DMV field offices. In view of the above, we recommend that the Another approach for the Legislature to consider is Legislature consider the proposed DMV field office to limit the number of additional DMV field office replacement projects in the context of a larger replacement projects it approves in the future. 34 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET www.lao.ca.gov Legislative Analyst’s Office 35 2016-17 BUDGET Contact Information Jessica Peters Motor Vehicle Account, 319-8363 Jessica.Peters@lao.ca.gov California Highway Patrol, Department of Motor Vehicles Paul Jacobs Highway and Road Repair Needs, 319-8329 Paul.Jacobs@lao.ca.gov Caltrans LAO Publications This report was reviewed by Anthony Simbol. The Legislative Analyst’s Office (LAO) is a nonpartisan office which 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.