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The 2019-20 Budget: Transportation Proposals
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The 2019-20 Budget:
Transportation Proposals
GABRIEL PETEK
LEGISLATIVE ANALYST
FEBRUARY 2019
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LEGISLATIVE ANALYST’S OFFICE
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Executive Summary
Overview of Governor’s Transportation Budget
Total Proposed Spending of $23.5 Billion. The Governor’s budget provides a total of
$23.5 billion from all fund sources for the state’s transportation departments and programs in
2019-20. This is a net increase of $1.4 billion, or 6 percent, over estimated expenditures for
the current year. Specifically, the budget includes $14.6 billion for the California Department of
Transportation, $2.8 billion for local streets and roads, $2.8 billion for the California Highway
Patrol (CHP), $1.2 billion for the Department of Motor Vehicles (DMV), $1 billion for transit
assistance, and $1.1 billion for various other transportation programs.
Motor Vehicle Account (MVA) Fund Condition
MVA Faced Operational Shortfalls in Recent Years. The MVA, which receives most of
its revenues from vehicle registration and driver license fees, mainly supports the activities
of CHP and DMV. Over the last several years, the MVA has periodically faced operational
shortfalls—mainly due to increases in MVA expenditures. In the current year, the MVA faces an
operational shortfall of almost $400 million and will need to draw down its fund balance that
has accumulated in prior years. In recognition of the MVA’s estimated operational shortfalls,
the Governor’s budget includes various proposals that are intended to benefit the MVA, such
as shifting from “pay-as-you-go” to financing for certain previously approved CHP field office
replacement projects and shifting certain MVA expenditures to the General Fund.
Governor’s Proposals Benefit MVA, but Projected Insolvency in 2021-22. The
Governor’s proposals, however, would not fully address the account’s structural imbalance. The
administration’s five-year projection (2019-20 through 2023-24)—which reflects expenditures
already approved by the Legislature and those proposed in the Governor’s budget—estimates
that the MVA’s fund balance will become insolvent in 2021-22 with a shortfall of roughly
$40 million that grows to roughly $150 million in 2022-23. Given the projected insolvency of the
MVA, the Legislature will want to establish its priorities for the MVA and determine how best to
address the projected insolvency based on these priorities.
Implementation of REAL ID
Increased DMV Workload. Beginning October 1, 2020, Californians must possess a REAL ID
that meets minimum identity verification and security standards, in order to access most federal
facilities or board federally regulated commercial aircraft, without having to provide other federally
accepted documentation. The issuance of REAL IDs in California has led to increased workload
and wait times at DMV field offices, as these transactions take longer to process than other
transactions. For the past two years, the DMV has received limited-term state resources to
accommodate the additional workload.
Governor’s Budget Request Will Be Updated in Spring. The Governor’s budget includes
a “placeholder” request of $63.7 million (MVA) annually from 2019-20 through 2022-23 to
support 780 positions to continue addressing increased workload for processing REAL IDs.
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The administration indicates that this request will be updated in the spring after further study of
DMV’s workload and processes. We note that there are currently two pending evaluations of DMV
that were initiated by the administration—one by the Department of Finance and another by a
new DMV Reinvention Strike Team. In order to assist the Legislature in its budget deliberations,
we identify in this report some key issues to help ensure that the appropriate level of resources is
provided and sufficient legislative oversight is retained.
High-Speed Rail Project
Project Faces Significant Funding Gap. Since it was approved for bond funding by voters
in 2008, the high-speed rail project has experienced significant cost increases. The project’s
2018 business plan estimates the cost to complete Phase I of the project—from San Francisco
to Anaheim—at $77.3 billion. Currently, the project faces an estimated funding gap of over
$50 billion to complete Phase I as planned. Recognizing this funding gap, the Governor recently
signaled a shift in approach to the project that focuses on using the currently authorized funding
to complete a segment between Merced and Bakersfield and the environmental reviews for
Phase I. At the time of this analysis, many details of the Governor’s revised approach remain
unclear.
Governor’s Revised Approach to Project Presents Key Opportunity for Legislature. We
find that the Governor’s revised approach to the high-speed rail project provides an important
opportunity for the Legislature to consider how the project aligns with its policy and fiscal
priorities. Given the significant funding gap facing the project, it is a good opportunity for the
Legislature to evaluate if it would like to continue to move forward with Phase I of the project
as planned or undertake an alternative course of action. As it evaluates the various available
options, the Legislature will want to weigh the alternatives’ costs and risks against their
anticipated mobility benefits.
Regardless of the approach the Legislature would like to take on the project, we find that there
are significant benefits to the Legislature providing clear direction soon. This is because, if the
state is going to move forward with the project as currently planned, it would be beneficial to the
High-Speed Rail Authority to have certainty regarding the Legislature’s commitment to completing
the project and ensuring its full funding. Alternatively, if the state is ultimately going to scale down
the project, the longer the state waits to make this decision, the more likely the state will incur
unnecessary costs.
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OVERVIEW OF
GOVERNOR’S TRANSPORTATION BUDGET
The state provides funding for six transportation federal funds, reimbursements, bond funds, and
departments: the California Department of the General Fund. In total, the Governor’s budget
Transportation (Caltrans), the California Highway proposes $23.5 billion in expenditures for 2019-20.
Patrol (CHP), the Department of Motor Vehicles This is a net increase of $1.4 billion, or 6 percent,
(DMV), the High-Speed Rail Authority, the California over estimated expenditures for the current year.
Transportation Commission, and the Board of Pilot The increase mainly reflects an assumption that
Commissioners. The California State Transportation a greater amount of expenditures on highway
Agency has jurisdiction over these six departments projects will occur in the budget year rather than in
and is responsible for coordinating the state’s the current year (as was previously assumed).
transportation policies and programs. In addition, Most Funding From Special and Federal
the state provides funding to local governments for Funds. As shown in the figure, most of the
transportation purposes through “shared revenues” proposed funding for transportation—$21.8 billion
for local streets and roads and the State Transit (93 percent)—is from special funds and federal
Assistance program. funds. Specifically, $15.8 billion in special funds
Total Proposed Spending of $23.5 Billion. (such as revenues from fuel taxes, vehicle
Figure 1 shows the Governor’s proposed spending registration fees, and driver license fees) and
for the state’s transportation departments and $6 billion in federal funds. Only $86 million (less
programs from all fund sources—special funds, than 1 percent) is proposed from the General Fund.
Figure 1
Transportation Budget Summary
(In Millions)
Change From 2018-19
Actual Estimated Proposed
2017-18 2018-19 2019-20 Amount Percent
Department/Program
Department of Transportation $9,576 $12,665 $14,623 $1,958 15%
Local Streets and Roads 1,729 2,419 2,790 371 15
California Highway Patrol 2,406 2,545 2,786 241 9
Department of Motor Vehicles 1,118 1,211 1,213 2 —a
State Transit Assistance 711 950 1,048 98 10
High-Speed Rail Authority 334 1,610 666 -944 -59
California State Transportation Agency 312 729 399 -330 -45
California Transportation Commission 5 7 9 2 —a
Board of Pilot Commissioners 2 3 3 —a —a
Totals $16,194 $22,139 $23,536 $1,397 6%
Fund Source
Special funds $10,256 $13,974 $15,760 $1,787 13%
Federal funds 4,517 6,118 6,032 -86 -1
Reimbursementsb 1,151 980 1,319 339 35
Bond funds 264 1,044 339 -705 -68
General Fund 5 24 86 62 259
Totals $16,194 $22,139 $23,536 $1,397 6%
a
Less than $500,000 or 0.5 percent.
b
Primarily local government payments to Caltrans for roadwork activities.
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Transportation Bond Debt Service. In addition bonds issued primarily to fund expenditures
to the department and program expenditures made in prior years.) Most of the proposed
identified in Figure 1, the state also pays debt spending—$1.1 billion—is to repay Proposition 1B
service costs on transportation bonds. For (2006) bonds that support various highway, local
2019-20, the budget assumes about $1.7 billion in road, and transit projects. Another $445 million
spending on debt service—$167 million (7 percent) is to repay Proposition 1A (2008) bonds for the
higher than the estimated current-year level. high-speed rail project. Funding for debt service
(We note that this spending relates to repaying primarily comes from truck weight fee revenues.
MOTOR VEHICLE ACCOUNT (MVA) FUND CONDITION
The MVA supports the state administration law, the $3 charge included in the base
and enforcement of laws regulating the operation registration fee to support the two other
and registration of vehicles used on public funds is scheduled to sunset on January 1,
roads and highways, as well as the mitigation of 2024.) The state last increased the base
the environmental effects of vehicle emissions. registration fee in 2016, when it increased
During the last several years, concerns about the the fee by $10 (from $46 to $56). At the
condition of the MVA have arisen as spending same time, the state indexed the fee to the
from the account has on occasion grown faster Consumer Price Index (CPI), thereby allowing
than revenues. Below, we (1) provide background it to automatically increase with inflation. The
information on MVA revenues and expenditures, inflation adjustment for 2019 increased the fee
(2) describe the Governor’s proposals related to to the current $60.
the MVA, (3) assess the condition of the MVA, and • CHP Fee ($26). The state also charges an
(4) identify issues for legislative consideration. additional fee of $26 that directly supports
CHP. The state last increased this fee in 2014,
Background
when it increased the fee by $1 (from $23 to
MVA Revenues. The MVA receives most $24) and indexed it to the CPI. The inflation
of its revenues from vehicle registration fees. adjustment for 2019 increased the fee to the
In 2018-19, the MVA is expected to receive a current $26.
total of $3.9 billion in revenues, with vehicle
The MVA also receives revenues from driver
registration fees accounting for $3.3 billion
license fees. These revenues tend to fluctuate
(86 percent). Vehicle registration fees currently
based on the number of licenses renewed each
total $86 for each registered vehicle. (We note
year. For 2018-19, the state is expected to collect
that the DMV also collects various other fees at
$283 million from these fees. The current driver
the time of registration that are not deposited
license fee is $36 and is also indexed to the CPI.
into the MVA, such as vehicle license fees, truck
The remaining MVA revenues primarily come from
weight fees, and an additional registration fee
late fees associated with vehicle registration and
specifically for zero-emission vehicles.) The current
driver license renewals, identification card fees,
$86 registration fee consists of two components:
and miscellaneous fees for special permits and
• Base Registration Fee ($60). The state certificates (such as fees related to the regulation of
charges a base registration fee of $60, automobile dealers and driver training schools).
with $57 going to the MVA and $3 going MVA Transfers. The use of most MVA revenues
to two other special funds—the Alternative are limited by the California Constitution to the
and Renewable Fuel and Technology Fund administration and enforcement of laws regulating
($2), and the Enhanced Fleet Modernization the use of vehicles on public highways and roads,
Subaccount ($1). (Under existing state as well certain transportation uses. However,
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roughly $90 million of the miscellaneous MVA Operational Shortfalls in Recent Years. Over
revenue sources are not limited by constitutional the last several years, the MVA has periodically
provisions and, thus, are available for broader faced operational shortfalls—meaning planned
purposes. In order to help address the state’s expenditures exceeding combined revenues
General Fund condition at the time, the Legislature and transfers. For example, the MVA faced
transferred these miscellaneous revenues from an operational shortfall in 2015-16 of about
the MVA to the General Fund in 2009-10 on a $300 million, which was addressed through the
one-time basis. A similar transfer was also made on one-time repayment of $480 million in loans that
a year-by-year basis in the subsequent couple of were previously made from the MVA to the General
years, until it was approved as an ongoing transfer Fund. In 2016-17, the MVA faced an operational
beginning in 2012-13. shortfall of roughly the same magnitude and
MVA Expenditures. The MVA primarily provides possible insolvency in 2017-18. In order to address
funding for three state departments—CHP, DMV, this shortfall and help maintain the solvency of
and the California Air Resources Board (CARB)—to the MVA, the Legislature increased revenues into
support the activities authorized in the California the account by increasing the base registration
Constitution. Funding supports staff compensation, fee by $10 in 2016 and indexing it to the CPI (as
department operations, and capital expenses. For discussed above).
2018-19, a total of about $4 billion is expected to In the current year, the MVA faces an operational
be spent from the MVA, mostly to support CHP and shortfall of almost $400 million. This is because the
DMV. Unlike for CHP and DMV, a relatively small MVA is expected to have combined revenues and
share of CARB’s total expenditures is supported by transfers of almost $3.8 billion and expenditures of
the MVA. over $4 billion. (This assumes that DMV’s budget
Over the past several years, expenditures is increased this spring by $40.4 million to alleviate
from the MVA have increased. Specifically, from customer wait times in field offices as intended
2013-14 to 2018-19, total MVA expenditures have by the Director of Finance pursuant to provisional
increased by $1 billion. Some of the major cost language in the 2018-19 Budget Act.) In order to
drivers include (1) replacement of CHP area offices address the projected shortfall in 2018-19, the
and DMV field offices, (2) acceptance of driver MVA will need to draw down its fund balance that
license applications from persons who are unable has accumulated in prior years. Absent corrective
to submit satisfactory proof of legal presence in the actions, the account would likely again experience
U.S. (as authorized by Chapter 524 of 2015 [AB 60, an operational shortfall in 2019-20 and potentially
Alejo]), and (3) workload related to the issuance become insolvent in the future.
of new driver licenses and identification cards that
Governor’s Proposals
comply with federal standards—commonly referred
to as “REAL IDs.” In recognition of the estimated operational
In addition, we note that supplemental pension shortfalls facing the MVA—particularly in the current
plan repayments from the MVA began in 2018-19. year—and the likelihood that the account will
This is related to a 2017-18 budget action to become insolvent, the Governor’s budget includes
borrow $6 billion from the state’s cash balances various proposals that are intended to benefit the
to make a one-time supplemental payment to the MVA. Specifically, the budget proposes to:
California Public Employees’ Retirement System
• Shift From “Pay-As-You-Go” to Financing
(CalPERS), which would be repaid from all funds
for CHP Area Office Replacements. The
that make employer contributions to CalPERS—
state has typically funded the replacement
including the MVA. (Over the next 30 years, it is
of CHP area offices from the MVA on a
anticipated that the MVA is likely to receive savings
pay-as-you go basis. The Governor’s budget
that outweigh these near-term loan repayment
proposes to finance the replacement of
expenditures, due to slower growth in employer
three CHP area offices through the Public
pension contributions.)
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Buildings Construction Fund, rather than with MVA Projected to Become
pay-as-you-go as they were initially approved Insolvent in 2021-22
by the Legislature. The financing of the
While the Governor’s budget proposals to shift
projects would be repaid from the MVA over
from pay-as-you-go to financing certain CHP area
many years. Under the Governor’s proposal,
office replacement projects, shift certain MVA
a total of $129 million in previously authorized
expenditures to the General Fund, and suspend
funds would revert to the MVA. (We discuss
certain CHP and DMV capital outlay projects would
the proposal in more detail in the “California
help alleviate the operational shortfalls in the MVA in
Highway Patrol” section of this report.)
the current year and over the next few years, they
• Shift Certain One-Time MVA Expenditures
would not fully address the account’s structural
to the General Fund. The Governor’s budget
imbalance. Specifically, the Department of Finance’s
includes a one-time total General Fund
(DOF’s) five-year projection (2019-20 through
augmentation of $77.1 million—$74.1 million
2023-24) estimates that the MVA’s fund balance will
for CHP and $3 million for DMV—to support
be depleted by 2021-22—resulting in insolvency.
a variety of proposals that would have
These projections reflect expenditures already
otherwise been funded from the MVA. For
approved by the Legislature and those proposed by
example, the budget proposes $44.5 million
the Governor (such as those described above). We
from the General Fund to replace radio
note that the projections reflect estimated increases
communications systems in CHP vehicles,
in various employee-related costs for CHP officers.
as well as $8 million in General Fund support
Figure 2 compares total MVA resources
for deferred maintenance projects at CHP
(revenues, transfers, and fund balances) with
($5 million) and DMV ($3 million).
expenditures from 2018-19 through 2023-24. As
• Suspend Certain CHP and DMV Capital
shown in the figure, absent any corrections, the
Outlay Projects. The Governor’s budget
administration projects that the MVA would become
proposes to suspend two planned area office
insolvent in 2021-22 with a shortfall of roughly
replacement projects in Quincy and Santa
$40 million that grows to roughly $150 million in
Ana, and revert $37 million in previously
2022-23. As previously indicated, existing reserves
authorized funds to the MVA. In addition, the
help prevent the fund from becoming insolvent prior
budget proposes to suspend the planned
to 2021-22.
replacement of the Inglewood DMV field
We also note that various additional cost
office and construction of perimeter fencing
pressures could further impact the solvency of
at 20 existing DMV field offices, and revert
the MVA through the end of the forecast period
$25 million in previously authorized funds for
(2023-24). For example, as indicated above,
these projects to the MVA.
the Governor’s budget essentially includes a
We note that the Governor’s budget also placeholder of $63.7 million annually for four years
includes a few proposals that would increase MVA to accommodate workload related to REAL ID. It
expenditures in 2019-20 and beyond. The largest is possible that the actual workload costs could
of which is $63.7 million annually for four years be much higher. Similarly, the increased employee
to DMV for workload related to REAL ID. (As we costs for CHP officers could be higher than
discuss in the “Department of Motor Vehicles” assumed. In addition, the Governor has expressed
section of this report, the proposed level of an interest in making it possible for individuals
resources is essentially a “placeholder” that the visiting DMV field offices to pay any necessary fees
administration intends to update in the spring after with a credit card, such as vehicle registration fees.
further study of DMV’s workload and processes.) To the extent that the department’s current policy of
not passing on credit card transaction processing
costs to members of the public when they pay
existing DMV fees online was extended to those
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visiting field offices, allowing credit card transaction • Amend Supplemental Pension Plan
in field offices would further increase MVA costs. Repayment Schedule. Working with the
administration, the Legislature could amend
Issues for Legislative Consideration
the MVA’s repayment schedule to focus more
The Legislature will want to establish its priorities repayments in the latter years and reduce the
for the MVA and determine how best to address required repayments over the next few years.
the projected insolvency based on these priorities. The administration’s MVA projections include
While the MVA is not projected to become insolvent its estimates for annual repayments, which are
until 2021-22, we recommend the Legislature estimated to moderately grow from $62 million
begin to take steps now to prevent the insolvency. in 2019-20 to $72 million in 2023-24.
While the Governor’s budget proposals would While amending the schedule of these loan
help improve the condition of the MVA, there repayments would increase costs in the latter
are alternatives, as well as additional steps that years, it would provide immediate relief to
could be taken. We note that to the extent the the MVA in the near term. (Under current law,
Legislature rejects the Governor’s proposed the principal and interest of the loan must
changes regarding planned CHP and DMV capital be repaid by June 30, 2030.) This could be
outlay projects, the MVA would become insolvent particularly beneficial to accommodate some
beginning in 2020-21—a year sooner that under of the increased cost pressures on the MVA
the Governor’s plan—with a shortfall of roughly that are not ongoing, such as the increased
$60 million. In developing its plan for addressing workload associated with the implementation
the projected insolvency of the MVA, the Legislature of REAL ID.
will want to consider the impacts on the MVA • Eliminate General Fund Transfer. As
beyond the administration’s forecast period of mentioned earlier, the MVA receives roughly
the next five years. $90 million in miscellaneous revenues that
For example, several
years ago, the state Figure 2
initiated a long-term
MVA Projected to Be Insolvent Beginning in 2021-22
plan to replace existing
(In Billions)
CHP and DMV offices.
$4.5
Although the Governor’s
Expenditures
budget proposes to
4.4
suspend certain office
replacement projects, 4.3
those projects and the Resources
ones currently planned 4.2
for future years will
4.1
eventually result in
increased MVA costs in
4.0
the long run.
In order to assist the 3.9
Legislature in developing
3.8
its plan and mix of
strategies for addressing
3.7
the MVA’s condition—
both in the near and 3.6
long term, we identify 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
the following options for
MVA = Motor Vehicle Account.
its consideration:
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are not limited in their use by the California owners. We estimate that roughly $30 million
Constitution. Currently, these revenues are in additional revenue could be generated
transferred to the General Fund, making them annually from a $1 increase in the base
unavailable to support MVA expenditures. vehicle registration, and roughly $6 million
The Legislature could eliminate this practice from a $1 increase in the driver license fee.
in order to keep these revenues in the MVA, Accordingly, if the Legislature wanted to
particularly given that these funds were increase the vehicle registration fee to fully
initially transferred by the Legislature on a address the structural imbalance of the MVA
temporary basis to help address the state’s and begin to build a reserve, it would need
General Fund condition at the time. Given to do so by a $5 increase. Alternatively, the
that the Governor’s budget proposes a Legislature could increase existing fees in
total of $77.1 million from the General Fund combination with other actions.
on a one-time basis to support CHP and • Implement DMV Efficiencies. As we
DMV costs that would otherwise have been discuss in more detail later in this report, two
funded from MVA, we note that undoing evaluations of DMV’s operational processes
the $90 million General Fund transfer would are already in process—one by DOF and
effectively only have about a $13 million one lead by the Government Operations
impact on both the MVA and General Fund Agency. The Legislature may want to consider
in 2019-20. After 2019-20, however, such an directing the department and agency to
action would provide $90 million on an annual submit a report at spring budget hearings on
basis to support MVA expenditures. potential efficiencies. This would allow the
• Increase MVA Revenues. The Legislature Legislature to consider all of the potential
could generate additional revenues by efficiencies that have been identified thus far
increasing vehicle registration or driver license and their impact on MVA expenditures, as
fees—either on a limited-term or ongoing well as potential statutory changes that may
basis. In determining whether to increase such need to be enacted to implement certain
fees, the Legislature will want to consider the efficiencies.
potential fiscal impacts on drivers and vehicle
CALTRANS
Caltrans is responsible for planning, from various state special funds (which mainly
coordinating, and implementing the development receive revenues from fuel taxes and vehicle fees)
and operation of the state’s transportation system. as well as federal funds. The total level of spending
The Governor’s budget proposes total expenditures proposed for Caltrans in 2019-20 supports about
of $14.6 billion for Caltrans in 2019-20. This is 20,600 positions. Changes to the funding and
$2 billion, or about 15 percent, higher than the staffing requested for capital outlay support are
estimated current-year expenditures. The higher not included in the January budget proposal and
level is primarily the result of changes in the timing will instead be provided in May consistent with the
of capital outlay expenditures and increases in department’s past practice.
overall transportation revenues available for capital Governor’s Proposals. The Governor’s budget
outlay projects and mass transportation as a result for 2019-20 does not propose any new major
of Chapter 5 of 2017 (SB 1, Beall). initiatives for Caltrans and includes only a few
Figure 3 shows proposed expenditures by budget change proposals for the department.
program and fund source. Most spending supports For example, the budget includes a total of
the department’s highway program and comes about $2 billion in SB 1 funding for highway
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Figure 3
Caltrans Budget Summary
(Dollars in Millions)
Change From 2018-19
Actual 2017-18 Estimated 2018-19 Proposed 2019-20 Amount Percent
Program
Highways
Capital outlay projects $2,901 $3,788 $5,258 $1,470 39%
Local assistance 1,682 2,971 2,802 -169 -6
Maintenance 2,261 2,222 2,074 -148 -7
Capital outlay support 1,679 2,104 2,103 — —
Other 462 510 489 -21 -4
Subtotals ($8,985) ($11,594) ($12,725) ($1,131) (10%)
Mass transportation $323 $757 $1,584 $827 109%
Other 268 314 314 — —
Totals $9,576 $12,665 $14,623 $1,958 15%
Fund Source
Special funds $4,188 $5,709 $7,403 $1,694 30%
Federal funds 4,340 5,974 5,876 -98 -2
Reimbursements 1,001 844 1,183 339 40
Bond funds 47 138 161 23 17
Totals $9,576 $12,665 $14,623 $1,958 15%
maintenance and repair, bridge and culvert repairs, preparation of the initial plan for a highway capital
enhancements to the state’s trade corridors, project and includes the estimated cost and scope
and various other activities. This proposal is of the project, as well as the identification of the
consistent with the continued implementation transportation problem that is to be addressed
of SB 1. The Governor’s budget also proposes and an evaluation of alternatives to address the
a total of $85.7 million (State Highway Account) problem.) The proposed level of PID funding is an
and 407 positions to work on roughly 700 Project increase of $4.9 million from the 2018-19 level and
Initiation Documents (PIDs) in 2019-20, with reflects the department’s changing PID workload
roughly half of them expected to be completed resulting from the continued implementation of
in that year. (A PID is completed during the SB 1.
CALIFORNIA HIGHWAY PATROL
The primary mission of the CHP is to ensure in criminal matters. The operations of the CHP
safety and enforce traffic laws on state highways are divided across eight geographic divisions
and county roads in unincorporated areas. The throughout the state.
CHP also promotes traffic safety by inspecting The Governor’s budget proposes total
commercial vehicles, as well as inspecting and expenditures of $2.8 billion in 2019-20, which is
certifying school buses, ambulances, and other about $241 million, or 9 percent, more than the
specialized vehicles. The CHP carries out a revised current-year estimate. The year-over-year
variety of other mandated tasks related to law increase is mainly the result of the Governor’s
enforcement, including investigating vehicular theft proposals to spend: (1) $133 million (nearly all from
and providing backup to local law enforcement the Public Buildings Construction Fund) for capital
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outlay expenditures to replace area offices, and office replacement. The proposed facility
(2) $87 million (primarily from the General Fund) would be 27,481 square feet, or about
to replace radio communications equipment and five-to-six times the size of the existing 4,575
information technology (IT) infrastructure. square foot facility that was built in 1966.
The total estimated cost to replace this area
Governor’s Proposals
office is estimated at $45.2 million (includes
The Governor’s budget for 2019-20 includes $3.3 million for acquisition and planning
various new spending requests that cite projected provided in the 2016-17 budget).
shortfalls in the MVA as their rationale. For • Hayward. $48.7 million from the Public
example, the Governor’s budget includes five Buildings Construction Fund for the
proposals that would reduce the impact on the design-build phase of the Hayward area
MVA of the CHP’s area office replacement program. office replacement. The proposed facility
The budget plan also proposes to use General would be 48,000 square feet, or about four
Fund to purchase radio communications equipment times the size of the existing 11,033 square
and IT infrastructure that typically are purchased foot facility that was built in 1971. The total
with funds from the MVA. Below, we describe the estimated cost to replace this area office is
Governor’s proposals in more detail. estimated at $50.7 million (includes $2 million
Shift to Public Buildings Construction Fund for acquisition and planning provided for in the
Financing for CHP Area Office Replacements. 2016-17 budget).
The Governor’s budget proposes to shift from a • San Bernardino. $42 million from the
pay-as-you-go approach for the design-build phase Public Buildings Construction Fund for the
of three CHP area office replacement projects design-build phase of the San Bernardino
in El Centro, Hayward, and San Bernardino to area office replacement. The proposed
financing the projects through the Public Buildings facility would be 44,000 square feet, or about
Construction Fund. (The financing costs for these three-to-four times the size of the existing
projects would ultimately be repaid from the MVA.) 12,253 square foot facility that was built in
Under the Governor’s proposal, $129 million in 1973. The total estimated cost to replace
previously authorized funds would revert to the this area office is estimated at $47.6 million
MVA, and new funding of $133 million ($132 million (includes $5.6 million for acquisition and
in Public Buildings Construction Fund authority and planning provided in the 2016-17 budget).
$731,000 from the MVA) would be authorized. (The
Revert MVA Funds for Two CHP Area Office
$4.6 million difference between the total proposed
Replacements and Suspend the Projects. The
funding and previously authorized funds is due
Governor’s budget proposes to suspend area office
to: [1] cost increases for the design-build phase
replacement projects in Quincy and Santa Ana and
for the El Centro Office [$1.6 million], Hayward
revert funding that was provided for various phases
office [$641,000], and San Bernardino office
of these two projects. Specifically, the Governor’s
[$1.6 million], and [2] funding for the performance
budget requests the reversion of $37 million in MVA
criteria phase for the El Centro office [$143,000],
authority as follows:
Hayward office [$143,000], and San Bernardino
office [$445,000] in case certain documents need • Quincy. $36.9 million that was appropriated
to be resubmitted.) Specifically, the Governor’s in the 2018-19 budget for the design-build
budget requests $133 million in Public Buildings phase of an area office replacement project in
Construction Fund authority as follows: Quincy.
• Santa Ana. $350,000 ($250,000 for
• El Centro. $41.9 million from the Public
acquisition, and $100,000 out of a total of
Buildings Construction Fund for the
$250,000 for study) that was appropriated
design-build phase of the El Centro area
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in the 2017-18 budget for an area office $44 million to complete. For example, the project
replacement project in Santa Ana. list includes the repair and replacement of security
camera systems and repairing fencing at various
Replace Radio Equipment and IT
locations.
Infrastructure. The Governor’s budget requests
$87 million ($69 million General Fund) on LAO Comments
a one-time basis to replace outdated radio
In our review of the Governor’s budget
communications equipment and upgrade IT
proposals, we find that the proposals to replace
infrastructure as follows:
radio equipment and IT infrastructure, as well as
• Radios. $62.5 million ($44.5 million General reduce CHP’s deferred maintenance backlog, are
Fund and $18 million from the Special Deposit reasonable given the identified needs. While these
Fund-Asset Forfeiture Accounts) to replace costs have typically been funded from the MVA,
3,600 radio communications systems in CHP given the structural imbalance facing the MVA, the
vehicles. proposal to instead provide one-time General Fund
• Multifunction Tablets. $15 million General support is also reasonable.
Fund to replace laptops and hand-held The Governor’s proposal to shift from a
citation devices with 3,075 multifunction pay-as-you-go approach to Public Buildings
tablets that will allow officers to use a single Construction Fund for the design-build phase of
device for electronic citations, and provide full three previously approved area office replacement
access to departmental software applications projects would reduce MVA expenditures by
for filing reports and other purposes. $129 million (in previously authorized funds that
• IT Infrastructure. $9.5 million General Fund would revert back to the MVA). This would help
to replace aging IT infrastructure and provide improve the condition of the MVA over the next
increased storage capacity, connectivity, and several years. However, last year the Legislature
security. rejected a similar approach and funded these costs
on a pay-as-you-go basis. Similarly, the proposal
Convene Regional Property Crimes Task
to suspend two area office replacement projects
Force. The Governor’s budget proposes one and
would reduce MVA expenditures by $37 million,
one-half year funding of $5.8 million General Fund
thereby helping to improve the condition of the
for 16 positions and $2.1 million in consulting
MVA. However, if the projects are suspended, there
services. (The DOF indicated in discussions
will still be a clear need to replace both of these
that it will propose language to extend the task
area offices.
force’s duration to two years.) The CHP proposes
As we discussed earlier in this report, the
to use these resources to convene a regional
Legislature will want to establish its priorities for
property crimes task force in conjunction with
the MVA and how best to address the projected
the Department of Justice, as required under
insolvency based on these priorities. While the
Chapter 803 of 2018 (AB 1065, Jones-Sawyer).
Governor’s budget proposals would help improve
The task force would support local law enforcement
the condition of the MVA, there are alternatives,
in counties with elevated levels of property crime
as well as additional steps that could be taken—
including organized retail theft and vehicular
including the various options we identified in the
burglary.
“MVA Fund Condition” section of this report, such
Fund Deferred Maintenance. The Governor’s
as eliminating the current transfer from the MVA
budget proposes one-time funding of $5 million
to the General Fund and increasing the vehicle
General Fund to complete high-priority projects
registration or driver license fees.
from the CHP’s list of pending deferred
maintenance projects. This list includes over
450 projects with an estimated cost of more than
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DEPARTMENT OF MOTOR VEHICLES
The DMV is responsible for registering vehicles, • Deferred Maintenance Funding. The budget
issuing driver licenses, and promoting safety on includes a one-time $3 million General Fund
California’s streets and highways. Additionally, DMV augmentation to partially address a deferred
licenses and regulates vehicle-related businesses maintenance backlog in DMV field offices
(such as automobile dealers and driver training and facilities. DMV reports that it plans on
schools), and collects certain fees and taxes for using these funds for roofing and heating,
state and local agencies. As of January 2019, there ventilation, and air conditioning projects.
were 27.1 million licensed drivers and 35.6 million We note that DMV’s deferred maintenance
registered vehicles in the state. projects have typically been funded from the
The Governor’s budget includes $1.2 billion MVA.
for DMV in 2019-20, which is roughly the same • Implementation of REAL ID. The
as the estimated level of spending in the current budget includes a “placeholder” request
year. About 95 percent of all DMV expenditures of $63.7 million (MVA) annually from
are supported from the MVA, which generates its 2019-20 through 2022-23 to support
revenues primarily from vehicle registration and 780 positions to continue addressing
driver license fees. The level of spending proposed increased workload for processing REAL IDs.
for 2019-20 supports about 8,300 positions at (We discuss this proposal, as well as a
DMV. pending request for an additional $40.4 million
in 2018-19, in more detail below.)
GOVERNOR’S PROPOSALS • Continuation of Certain Capital Outlay
Projects. The budget includes $1 million
Overview of Major Proposals. The Governor’s
($694,000 ongoing) from the MVA for a new
budget for 2019-20 includes various proposals
lease for the Walnut Creek Field Office. It also
that are intended to help address the projected
includes a one-time $1.2 million augmentation
shortfalls in the MVA. For example, the budget
from the MVA to support the working
proposes to delay certain DMV capital outlay
drawings phase to continue the replacement
projects and use General Fund to support
of the Reedley Field Office.
deferred maintenance costs that have typically
• High-Occupancy Vehicle (HOV) Lane
been funded from the MVA. At the same time, the
Stickers (SB 957). The budget includes a
budget includes a few proposals to increase MVA
total of about $15 million from the MVA over
expenditures. In addition, the budget includes
five years ($3 million in 2019-20) to implement
increased spending from non-MVA transportation
Chapter 367 of 2018 (SB 957, Lara), which
funds.
allows owners of particular vehicles who meet
The Governor’s major proposals include the
certain requirements to obtain a sticker from
following:
DMV that would allow them to operate the
vehicle in HOV lanes with fewer occupants
• Suspension of Certain Capital Outlay
than required. These costs are expected to
Projects. The budget proposes to suspend
be fully offset by fees paid by individuals who
certain capital outlay projects and revert
apply for an HOV lane sticker.
$25 million to the MVA that was previously
authorized for these projects. This amount • Credit Card Processing Fees for
consists of $15.1 million related to the Transportation Improvement Fee (TIF).
replacement of the Inglewood Field Office Senate Bill 1 imposed an additional fee—
and $9.9 million related to perimeter security the TIF—upon the registration or renewed
fences at about 20 field office locations. registration of most vehicles. More individuals
than expected are choosing to pay this fee
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using credit cards. As such, the budget standards in order for them to be accepted by the
includes an $8.5 million augmentation federal government for official purposes—such
(growing to $8.9 million ongoing) from the as accessing most federal facilities or boarding
Road Maintenance and Rehabilitation Account federally regulated commercial aircraft. Driver
to address increased credit card processing licenses and ID cards issued by noncompliant
fees. states were no longer able to be used to board
domestic airplanes as of January 22, 2018.
LAO Comments. In our review of the Governor’s
Those issued by states that are compliant or have
budget proposals, we find that the proposals for
received an extension from the federal government
additional resources to address increased costs
to comply may continue to be used until October 1,
for processing TIF credit card transactions, to
2020. After this date, only REAL ID compliant driver
support increased workload from implementing new
licenses or ID cards can be used to board domestic
HOV lane sticker legislation, and to reduce DMV’s
airplanes. However, other forms of federally
deferred maintenance backlog are reasonable
acceptable forms of ID (such as a passport) may be
given the identified workload needs and reflect
used instead.
legislative priorities in recent years. We also find
Approximately 38 states have been deemed
the department has justified the need for the
REAL ID complaint, while most of the remaining
continuation of two field office projects. Finally, we
states—such as California—have received an
note that the proposals to suspend certain capital
extension. Federal law authorizes the Secretary of
outlay projects increases the level of resources
Homeland Security to grant extensions of time to
available in the MVA by $25 million and helps
individual states to comply with the REAL ID Act if
address the solvency of the fund in the budget year.
they provide sufficient justification that more time
However, as we discussed previously, the MVA
is needed. California has regularly received such
is still projected to become insolvent in 2020-21
extensions since it began implementation in early
despite the various actions (such as suspending
2018. The most recent extension extends through
certain capital outlay projects) taken to help
April 10, 2019.
address its immediate solvency. As such, the
Impact of REAL ID Implementation on DMV.
Legislature will want to establish its priorities for
California began issuing REAL ID compliant driver
the MVA and how best to address the projected
licenses and ID cards in January 2018 and reports
insolvency based on these priorities. The
having issued nearly 2.5 million through the end of
Legislature can also consider other alternative
2018. (For comparison, 6.5 million noncompliant
actions that can be taken—including the various
driver licenses and ID cards were issued during the
options we identified in the “MVA Fund Condition”
same period.) Individuals seeking compliant driver
section of this report—to help further address the
licenses and ID cards are required to visit a field
MVA insolvency.
office and provide certain specified documents
In the next section, we provide an update
that must be verified and scanned. This has led
on REAL ID implementation, discuss the
to increased workload at DMV field offices, as
administration’s various proposals related to
these transactions take longer to process than
REAL ID implementation and DMV operations, and
noncompliant transactions. Additionally, more
provide comments for legislative consideration.
individuals—such as those who would otherwise
have renewed their licenses by mail or those
REAL ID WORKLOAD
whose licenses expire after the October 2020
federal deadline—are visiting field offices to obtain
Background compliant driver licenses or ID cards.
Despite receiving additional funding to support
REAL ID Act. The federal government enacted
this increased workload (as discussed below), DMV
the REAL ID Act in 2005 that requires state-issued
field offices began reporting a significant increase
driver licenses and identification (ID) cards to
in wait times. At its peak, some individuals visiting
meet minimum identity verification and security
www.lao.ca.gov 13
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certain offices could experience wait times of a Governor’s Proposal
few hours. According to the DMV, wait times in the
Placeholder Budget Request. The Governor’s
month of December 2018 decreased to an average
2019-20 budget includes $63.7 million annually
of 44 minutes for individuals without appointments
through 2022-23 from the MVA to support
and an average of 13 minutes for those with an
780 positions—the same level of resources
appointment. DMV achieved these reduced wait
provided to DMV in the current year. However, the
times through various actions, including hiring
administration clearly indicates that this request
temporary workers, extending field office hours,
will be updated in the spring after further study of
and expanding the number of self-service terminals
DMV’s workload and processes.
available for individuals to conduct transactions
Pending Evaluations. The administration
outside of field offices or without the assistance of
anticipates that its spring request for additional
DMV staff.
DMV resources may be informed by currently
Funding DMV Workload. To support the
pending evaluations of DMV. For example, the
increased workload related to REAL ID, the
request may reflect operational changes identified
state has provided additional resources to DMV.
by these evaluations to help DMV operate more
Specifically, DMV received $23 million from the MVA
efficiently. These pending evaluations include:
to support 218 positions in the 2017-18 budget
and $46.6 million to support 550 positions in the • DOF Performance Audit. In September
2018-19 budget. Given the uncertainty in actual 2018, Governor Brown directed DOF’s Office
workload, funding was provided on a limited-term of Audits and Evaluations to conduct a
basis through the end of the current year. The performance audit of DMV’s IT and customer
2018-19 budget also included provisional language service functions. DOF expects to (1) evaluate
that authorized DOF to provide DMV with additional DMV’s current operations and efforts to
resources as needed no sooner than 30 days address its aging IT infrastructure and
following notification to the Joint Legislative Budget (2) make recommendations to improve DMV’s
Committee (JLBC). An additional $16.6 million operations and enhance its customer service.
and 230 positions were requested and provided A full report is expected to be released in
pursuant to this authorization in August 2018 in March 2019. However, in January 2019,
order to help DMV reduce the significant wait Governor Newsom ordered an accelerated
times in the field offices. This means that funding review of early findings within 30 days.
for REAL ID workload in 2018-19 currently totals
• DMV Reinvention Strike Team. In January
$63.2 million to support 780 positions.
2019, Governor Newsom tasked the
Additionally, DOF has submitted a subsequent Government Operations Agency Secretary
notification to the JLBC that it intends to provide to lead a new DMV Reinvention Strike Team.
DMV with an additional $40.4 million to maintain While specific details are still forthcoming,
existing wait times in the current year no earlier the team is expected to (1) examine DMV
than April 30, 2019. This amount consists of operations with an emphasis on various
(1) $17.5 million for additional expenditures factors such as worker performance
in the first six months of the current year and and customer satisfaction and (2) make
(2) $22.9 million for additional expenditures in the recommendations to modernize and reinvent
remaining portion of the year. DMV reports that the DMV.
this funding will be used to support an additional
Proposed Future Evaluation. The Governor’s
120 positions, as well as to maintain all activities
2019-20 budget proposes to create the Office
enacted to date (such as the extension of field
of Digital Innovation within the Government
office operational hours).
Operations Agency. The purpose of this new
office is to develop and enforce requirements
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for departments to assess their service delivery Real ID required documentation—thereby reducing
models, to reengineer how they deliver customer overall transaction times.
service, and leverage digital innovation where Consider Directing DOF and DMV Reinvention
appropriate. The administration expects that DMV Strike Team to Report at Spring Budget
will be the first state department to work with the Hearings. To help the Legislature with its evaluation
office in 2019-20. of the administration’s proposed level of DMV
resources, the Legislature could consider requiring
Issues for Legislative Consideration
DOF and the DMV Reinvention Strike Team to
As discussed above, the administration plans to submit a report at spring budget hearings on
submit a revised budget proposal to support DMV’s potential operational efficiencies. This would allow
REAL ID workload this spring. In order to assist the the Legislature to examine and evaluate all of the
Legislature in its deliberations, we identify below potential efficiencies that have been identified thus
some key issues to help ensure that the appropriate far—not just those selected by the administration.
level of resources is provided and sufficient The Legislature can then determine which of
legislative oversight is retained. these, or other identified efficiencies or operational
Examine Changes That Can Generate More changes, it would like to implement. Such actions
Immediate Impact. The pending and proposed could help reduce the total amount of additional
evaluations could generate significant long-term funding needed to address REAL ID workload or
benefit to the extent DMV implements changes other DMV workload in the coming years. This is
to operate more efficiently and provide better particularly important given the pending insolvency
customer service. However, some of these of the MVA.
identified changes may take time to fully implement Consider Level of Appropriate Oversight.
and to achieve benefit. Given the October 2020 Regardless of how much funding is ultimately
deadline for REAL ID compliance, DMV field offices included in the budget for DMV REAL ID
are likely to experience similar or increased levels operations, the Legislature will want to consider
of individuals seeking REAL ID compliant driver what level of legislative oversight would be
licenses and ID cards in the budget year. As appropriate. For example, as stated above, DMV
such, identifying changes that can generate more recently reported spending $17.5 million more
immediate impact could help DMV operate more in the first six months of the current year than
cost-effectively at the start of the budget year. For expected and anticipates needing additional
example, it is possible that additional or improved funding before the end of the current year. The
outreach efforts could increase the number of Legislature may want to require DMV to seek
individuals arriving in field offices with completed legislative approval before incurring such spending
electronic driver license and ID applications and all to allow the Legislature to examine the reasons for
the increased expenditures and determine what
action, if any, it would like to take.
HIGH-SPEED RAIL AUTHORITY
Chapter 796 of 1996 (SB 1420, Kopp) appointed by the board, and a staff of about 226.
established the High-Speed Rail Authority (HSRA) Most work is carried out by consultants under
to plan and construct a high-speed rail system contracts with HSRA. In November 2008, voters
that would link the state’s major population approved Proposition 1A, which specified certain
centers. HSRA is governed by a nine-member conditions that the system must ultimately achieve,
board appointed by the Legislature and Governor. as well as authorized the state to sell bonds to
In addition, HSRA has an executive director, partially fund the system.
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The Governor’s budget proposes a total of The IOS is itself divided into multiple segments,
$666 million in 2019-20 for HSRA, a decrease of beginning with the initial construction segment
$944 million (or 59 percent) below the estimated (ICS), which extends for 119 miles through the
level of funding in 2018-19. The reduction primarily Central Valley from Madera (about 25 miles north
reflects $677 million in one-time funding provided in of Fresno) to Shafter (about 20 miles north of
2018-19 for local “bookend” projects. (We describe Bakersfield). HSRA currently estimates the ICS will
these bookend projects below.) We note that the be completed by 2022 and cost $10.6 billion.
Governor’s budget proposes ten positions and Bookend and Connectivity Projects. HSRA
about $4 million from Proposition 1A in 2019-20 has partnered with local authorities to initiate a
and ongoing to support two IT-related proposals. variety of bookend and “connectivity” projects on
commuter rail lines in the Bay Area and Southern
UPDATE ON California that will facilitate high-speed rail, as
HIGH-SPEED RAIL PROJECT well as provide benefits to existing rail and transit
systems. These projects include the planned
In this section, we provide (1) background electrification of the Caltrain corridor to allow for
information on the project, (2) an update on its high-speed rail to share Caltrain’s tracks, a major
status, (3) summarize HSRA’s most recent business grade separation project near Los Angeles, and an
plan, (4) summarize the findings of a recent audit upgrade to Los Angeles’ Union Station.
by the California State Auditor on the project, and Project Funding. The high-speed rail project
(5) identify issues for legislative consideration. has received funding from three main sources:
Background • Proposition 1A Bonds. Proposition 1A
authorized the state to sell about $10 billion
Project Delivery Plan. The high-speed rail
in general obligation bonds to support
project is divided into two phases. Phase I
the development of the high-speed rail
would provide service for about 500 miles from
San Francisco to
Anaheim. Phase II Figure 4
would connect the
High-Speed Rail Project Divided Into Multiple Segments
system to Sacramento
in the north and
San Diego in the
south. As shown in Sacramento
Figure 4, delivery of
Phase I is divided into Stockton
San Francisco
multiple segments
San Jose Merced
with the state’s
Madera
first high-speed rail
Gilroy Fresno
operations beginning on
a segment connecting Kings/Tulare
San Francisco and
Pacific Ocean
Bakersfield. This initial
Bakersfield
operating segment
(IOS)—commonly
referred to as the Palmdale
Phase I
Valley-to-Valley line—
Initial Operating Segment Los Angeles
is expected to be
Riverside
completed in 2029 and Initial Construction Segment Anaheim
cost about $29.5 billion.
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system, including associated bookend notified the state of its intention to terminate
and connectivity projects. This includes the FY10 grant under this provision.
$9 billion for the planning and construction • Cap-and-Trade Auction Revenue. In 2014,
of the high-speed rail system itself, with the the state began providing cap-and-trade
remainder to support the connectivity projects auction proceeds to HSRA for the high-speed
discussed above. (Of this $9 billion, HSRA rail project. (Cap-and-trade auction proceeds
has set aside $1.1 billion as contributions to are revenue generated by the state from the
locally administered bookend projects and sale of emissions allowances as part of the
$450 million for project administration.) At state’s efforts to reduce greenhouse gas
this time, the Legislature has appropriated emissions.) This includes $650 million in
$5.5 billion in Proposition 1A bond funds, one-time cap-and-trade revenues, as well as
with about $2.7 billion having been the continuous appropriation of 25 percent of
spent—$2 billion on the high-speed rail cap-and-trade revenues, beginning in
project and about $700 million on connectivity 2015-16. To date, the project has received
projects. about $2.4 billion in cap-and-trade revenues
• Federal Funds. The federal government and spent about $600 million of these funds.
has awarded HSRA a total of $3.5 billion,
subject to certain matching requirements and Project Status
project deadlines. First, the state received
Environmental Review. In planning and designing
$2.6 billion in American Recovery and
the high-speed rail system, HSRA must comply
Reinvestment Act (ARRA) funds in 2009. The
with both the California Environmental Quality Act
funding agreement for these funds requires
and the National Environmental Policy Act. Both
the state to provide $2.5 billion in matching
laws require environmental reviews to assess
funds, but allows the state to spend down
the extent to which the high-speed rail project
the federal funds in advance of the state
could cause significant environmental impacts.
match. HSRA fully expended the ARRA
For environmental review purposes, HSRA has
funds and expects to complete the state
divided the high-speed rail project into 12 project
match requirement in 2019-20. Second,
sections. The boundaries of these sections do
the state received a $929 million grant from
not necessarily align with the boundaries of the
the federal High-Speed Intercity Passenger
project’s segments. As shown in Figure 5 (see next
Rail program in 2010 (commonly referred to
page), HSRA has completed the environmental
as the FY10 Federal Grant), which expires
reviews for the Merced-to-Fresno and
at the end of 2022 and requires a state
Fresno-to-Bakersfield sections. The environmental
match of $360 million. The state must meet
reviews for the remainder of Phase I are currently
certain conditions under the FY10 Federal
underway, while the environmental reviews for
Grant agreement, including (1) completing
Phase II have not yet started.
its match to the ARRA grant before it can
spend these funds, (2) using the funds to Right-of-Way Acquisition. Once the
support infrastructure that provides intercity alignment of a section is finalized and the relevant
passenger rail service, and (3) completing environmental review of a project section is
all environmental reviews for Phase I of the complete, HSRA can acquire the right-of-way in
high-speed rail project by 2022. The grant that section as needed for construction subject to
agreement also includes a provision that funding availability. Because HSRA has finalized the
allows the federal government to terminate the alignment and completed the environmental reviews
grant under certain conditions, such as failing of the sections between Merced and Bakersfield,
to make reasonable progress on the project. it is able to acquire right-of-way in those sections.
On February 19, 2019, the federal government However, HSRA has yet to finalize the alignments
and designs for potential construction beyond the
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ridership, cost, and schedule
Figure 5
information. Additionally, state
Anticipated Schedule for Completing
law requires HSRA to prepare a
Environmental Reviews of High-Speed Rail Project
project update report every odd
Project Section Date year that provides certain updated
information, such as on costs and
Phase I
schedule. In June 2018, HSRA
San Francisco to San Jose March 2021
adopted its 2018 business plan.
San Jose to Merced November 2020
Merced to Fresno Completed (The 2019 project update report
Portion requiring separate review: Central Valley Wye November 2019 is required to be submitted by
Fresno to Bakersfield Completed March 1, 2019.) As shown in
Portion requiring separate review: locally generated alternative April 2019 Figure 6, the 2018 business plan
Bakersfield to Palmdale June 2020
estimates the cost of completing
Palmdale to Burbank January 2021
construction of Phase I at
Burbank to Los Angeles July 2020
$77.3 billion, which is $13.1 billion
Los Angeles to Anaheim January 2020
higher than the 2016 cost estimate.
Phase II
This estimate includes $29.5 billion
Los Angeles to San Diego To Be Determined
to complete the construction of the
Merced to Sacramento To Be Determined
IOS (Valley-to-Valley line).
Early Interim Services on
ICS, and therefore has not yet begun acquiring
Completed Construction Segments. Among
right-of-way beyond the ICS. As of January
other proposed changes, the 2018 business
2019, HSRA has identified 1,838 parcels of
plan proposes to initiate early interim services on
land necessary for construction of the ICS and
completed segments of the IOS in advance of its
has acquired 1,392 of them. HSRA estimates
full construction. Specifically, the HSRA proposes
completing right-of-way acquisition
for the ICS by 2020.
Figure 6
Project Construction. In 2015,
HSRA’s Estimated Construction Costs for Phase I
HSRA initiated construction on
the ICS. To date, HSRA has spent (In Billions)
about $3.8 billion on construction
Project Component Cost
of the ICS. This includes the
Initial Operating Segment
completion of major structures,
Initial construction segment $10.6
such as the construction of the
San Jose to Gilroy 3.2
Fresno River Bridge and Tuolumne
Gilroy to Carlucci Road 10.2
Street Bridge, and the realignment
Carlucci Road to Madera 2.4
of a portion of State Route 99. As
San Francisco and Bakersfield extensions 1.9
indicated above, HSRA currently Rolling stock 1.1
estimates it will complete the ICS Subtotal ($29.5)
by 2022.
San Francisco to San Jose $2.1
Merced to Wye 2.4
2018 High-Speed Rail
Bakersfield to Palmdale 16.3
Business Plan Palmdale to Burbank 17.5
Burbank to Los Angeles 1.5
State law requires HSRA to
Los Angeles to Anaheim 3.6
prepare a business plan every Heavy maintenance facility 0.2
even year that provides certain Additional rolling stock 4.1
key information about the project Total Phase I Costs $77.3
and planned system, such as HSRA = High-Speed Rail Authority.
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prioritizing completion of the ICS, its extension Phase I of the project. Specifically, as mentioned
into Bakersfield, and certain enhancements along previously, the 2018 business plan estimates
the existing Caltrain corridor from San Francisco the cost of completing construction of Phase I
to Gilroy in order to support interim rail services in at $77.3 billion. However, as shown in Figure 7,
those areas as early as 2027. The plan suggests HSRA also estimates that under current law it
that the completed segments could host enhanced will have access to between $19.1 billion and
Caltrain and Amtrak services or even abbreviated $22.4 billion through 2030, leaving a funding gap
high-speed rail operations while construction of of between $54.9 billion and $58.2 billion. Under
the outstanding segments—the Pacheco Pass HSRA’s assumptions, this funding gap could be
tunnels and Central Valley Wye—continues. In the somewhat smaller—between $49.1 billion and
2018 business plan, HSRA reported that it had $56.8 billion—if HSRA is able to borrow against its
retained an Early Train Operator (ETO) to conduct current allocation of 25 percent of cap-and-trade
an analysis of various potential rail services that revenues through 2050. However, this would
could utilize completed portions of the high-speed require the Legislature to take certain actions,
rail alignment to inform its March 2019 project such as extending the cap-and-trade program
update report. through 2050 and guaranteeing HSRA access to
at least a certain amount of funding annually from
California State Auditor’s Report
cap-and-trade or other sources to repay investors.
In November 2018, the California State Auditor (The cap-and-trade program is currently authorized
released an audit of the high-speed rail project. through 2030.) We also note that the funding gap
Among other findings, the audit found that the would be about $900 million larger if the federal
project experienced significant cost overruns as government ultimately terminates the FY10 grant,
a result of its decision to move forward before it as discussed above. At this time, HSRA has not
completed critical tasks such as purchasing land specifically identified how the above funding
and obtaining agreements with
external stakeholders. The audit Figure 7
also determined that the risk of
HSRA’s Estimated Costs and Funding Sources for
additional cost increases is high,
Construction of Phase I
and that HSRA will have limited
ability to mitigate future cost (In Billions)
increases because it has now Amount
exhausted all feasible options to
Estimated Phase I Costs $77.3
use existing infrastructure as part of
Estimated Available Funding
the system. Additionally, the audit
Federal funds
noted that HSRA could be required
ARRA $2.6
to repay federal grant funds if it
FY10 0.9
fails to speed up construction Subtotal ($3.5 )
sufficiently to complete the ICS
State Funds
by December 2022.
Proposition 1A $7.5
Cap-and-trade received through December 2017 1.7
Issues for Legislative
Future cap-and-trade without financinga 6.5 - 9.8
Consideration Subtotal ($15.6 - $18.9)
Total Funding Available $19.1 - $22.4
Project Faces a Significant
Funding Gap $58.2 - $54.9
Funding Gap. The HSRA
a
estimates that the amount of HSRA’s estimate of its share of cap-and-trade revenues through 2030 without financing. HSRA
estimates borrowing against cap-and-trade revenues through 2050 could provide between
funding available to support the $7.9 billion and $15.6 billion.
project will fall substantially short ARRA = American Recovery and Reinvestment Act; FY10 = 2010 High-Speed Intercity
Passenger Rail grant; and HSRA = High-Speed Rail Authority.
of the level needed to complete
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shortfall would be met. Thus, there is significant plan, the Peer Review Group noted the project’s
risk that the state would have to cover the large continuing and growing funding gap. It urged the
majority of any funding gap—likely from the General Legislature to focus on the question of whether
Fund. As we indicated in our review of the June and how the project should continue. It further
2018 business plan, it is crucial for the high-speed suggested that, if the project is to continue,
rail project to have a complete and viable funding the Legislature should consider how adequate
plan in order for the project to proceed. and reliable funding can be provided. Finally, as
Additionally, as we have also previously noted, described in the nearby box, the Peer Review
given the significant scope of the high-speed Group identified a few possible alternatives for the
rail project, the cost of the project is subject Legislature to consider in regards to the future of
to substantial uncertainty and could increase the high-speed rail project, including continuing
further. This is because several factors that are with the completion of Phase I as planned or
not yet known (such as final design decisions, terminating the project early. The choice of which
procurements, and construction delays) could alternative to pursue could have very significant
potentially affect the actual cost. We note that the fiscal implications for the state.
project has experienced substantial cost increases Governor Has Signaled Shift in Approach to
already, and the risks of cost increases in the Project. In his February 2019 State of the State
future could be greater because the most complex address, the Governor stated that the high-speed
portions have yet to be completed and, as noted by rail project as planned would cost too much and
the State Auditor, HSRA may have limited ability to take too long, and indicated that there is not a path
mitigate any future cost increases. to complete Phase I. Accordingly, he expressed
Peer Review Group Urged Action to Address support for completing the construction of the
Funding Gap and Identified Project Alternatives. link between Merced to Bakersfield, the bookend
The Legislature established a Peer Review Group, projects, and the environmental work for Phase I.
comprised of transportation and rail experts, to Beyond that, at this point, the specifics of the
help oversee the project through independent Governor’s plan are uncertain. For example, it is
assessments of HSRA’s business plans and unclear whether the Governor’s approach would
designs. In its response to the 2018 business result in postponing—or effectively terminating—the
Project Alternatives Identified by the Peer Review Group
The Peer Review Group identified four main alternatives for the high-speed rail project. We
summarize these alternatives below:
1. End the Project as Soon as Possible. End the project as soon as practicable, ceasing
construction and environmental reviews, settling outstanding contracts, and retaining or
selling the acquired right-of-way.
2. Complete ICS as a Useable Segment. Complete the initial construction segment (ICS)
between Madera and Shafter and provide connections to the existing San Joaquins
passenger rail service. Also, complete all outstanding environmental reviews for Phase I to
comply with federal grant agreement requirements.
3. Complete Usable Segment and Certain Other Activities. Complete the ICS as a useable
segment as envisioned in Alternative #2 as well as certain other activities—such as the
upgrade of the Caltrain corridor between San Jose and Gilroy and an extension of the ICS
into Bakersfield—consistent with the implementation of early interim services proposed in
the 2018 business plan.
4. Complete Phase I. Complete Phase I from San Francisco to Anaheim.
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remaining portions of the project. Additionally, the alternatives identified by the Peer Review Group,
details of the Merced to Bakersfield segment are or another available alternative. As it evaluates
also unclear. Most notably, it is not clear whether the various available options, the Legislature will
the segment would carry high-speed trains or want to weigh the alternatives’ costs and risks
whether it would instead host express service against their anticipated mobility benefits. The
for the existing San Joaquin passenger rail line. Legislature’s decisions could be informed, in part,
The administration has indicated that additional by the additional information that is anticipated
information on the Governor’s plan may be to be provided by the administration as part of
available in forthcoming documents, such as the the March 2019 project update report, including
March 2019 project update report. additional details on the Governor’s proposal as
Governor’s Plan Presents Key Opportunity well as information from the ETO on anticipated
to Consider Project in Context of Legislative ridership.
Priorities. The Governor’s revised approach to Regardless of the approach the Legislature
the high-speed rail project provides an important would like to take on the project, there are
opportunity for the Legislature to consider how the significant benefits to the Legislature providing
project aligns with its policy and fiscal priorities. clear direction soon. This is because, if the state is
Given the significant funding gap facing the project, going to move forward with the project as currently
it is a good opportunity for the Legislature to planned, it would be beneficial to HSRA to have
evaluate if it would like to continue to move forward certainty regarding the Legislature’s commitment to
with Phase I of the project. If so, the Legislature completing the project and ensuring its full funding.
will want to consider how to address the current Alternatively, if the state is ultimately going to scale
funding gap. If not, the Legislature will want to down the project, the longer the state waits to
consider its preferred approach to modifying make this decision, the more likely the state will
the project, which could involve adopting the incur unnecessary costs, such as from acquiring
Governor’s proposed course of action, one of the properties that are not needed.
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Contact Information
Helen Kerstein High-Speed Rail 916-319-8364 Helen.Kerstein@lao.ca.gov
Anita Lee Department of Motor Vehicles 916-319-8321 Anita.Lee@lao.ca.gov
Shawn Martin California Highway Patrol 916-319-8362 Shawn.Martin@lao.ca.gov
Jessica Peters Caltrans 916-319-8363 Jessica.Peters@lao.ca.gov
Anthony Simbol Motor Vehicle Account 916-319-8350 Anthony.Simbol@lao.ca.gov
LAO PUBLICATIONS
This report was reviewed by Anthony Simbol. The Legislative Analyst’s Office (LAO) is a nonpartisan office that
provides fiscal and policy information and advice to the Legislature.
To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are
available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento,
CA 95814.
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