The 2020-21 Budget: Transportation

The 2020-21 Budget: Transportation GABRIEL PETEK LEGISLATIVE ANALYST FEBRUARY 10, 2020 analysis full gutter 2020-21 BUDGET LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET Executive Summary Overview of Governor’s Transportation Budget Total Proposed Spending of $26.9 Billion. The Governor’s budget provides a total of $26.9 billion from all fund sources for the state’s transportation departments and programs in 2020-21. This is a net increase of $3.4 billion, or 14 percent, over estimated expenditures for the current year. Specifically, the budget includes $15.5 billion for the California Department of Transportation (Caltrans), $3 billion for local streets and roads, $2.9 billion for the High-Speed Rail Authority (HSRA), $2.7 billion for the California Highway Patrol (CHP), $1.4 billion for the Department of Motor Vehicles (DMV), $1 billion for state transit assistance, and $400 million for various other transportation programs. State Transportation Revenues Doubled Since SB 1. In 2017, the Legislature enacted Chapter 5 (SB 1, Beall), which increased various fuel taxes and vehicle fees that support California’s transportation system, particularly state highways, local streets and roads, and transit. (Senate Bill 1 did not change vehicle registration or driver license fees that primarily support CHP and DMV.) Since the enactment of SB 1, state revenue collected from fuel taxes and vehicle fees has grown from $6.4 billion in 2016-17 to a projected $12.7 billion in 2020-21. This includes an estimated increase of $626 million (5 percent) from 2019-20 to 2020-21. A Few Proposals to Implement New or Recently Enacted Policy Changes CHP—E-Cigarette Tax Enforcement. The Governor’s budget includes $7 million in ongoing funding to form a task force led by CHP to investigate the manufacturing, transportation, distribution, and sales of illicit vaping devices. The Governor proposes to fund the task force with a new tax on vaping products. Given the number of illnesses and deaths attributed to illicit vaping products in recent years, it is reasonable for the Governor and the Legislature to be concerned and want to address this potentially growing public health problem. However, it is unclear whether the Governor’s proposal would be the most effective approach. To the extent the Legislature would like to direct more resources towards combatting illicit vaping products, we recommend that it consider various questions as it develops its preferred policy approach. These questions include: (1) what is the scope of the problem, (2) what are the most effective approaches, (3) what level of resources is appropriate, (4) what is the appropriate fund source, and (5) who should lead the effort? DMV—Motor Voter Workload. The Governor’s budget includes an additional $6.4 million in 2020-21 ($4.1 million ongoing) from the General Fund to support 38 new positions for the Motor Voter program. Although it is clear that the program requires additional ongoing resources, it is unclear whether the proposed positions and funds would fully address the workload because DMV (1) is currently in the process of implementing changes to improve workflow efficiency that would likely impact the level of staffing needed and (2) will be meeting a federal processing requirement in the upcoming primary election for the first time since implementing workflow improvements. Therefore, we recommend the Legislature withhold action on the request until later in the spring when additional information might be available to determine the appropriate staffing level. www.lao.ca.gov 1 analysis full gutter 2020-21 BUDGET HSRA—Administrative Cap. The budget reflects a change in HSRA’s approach to calculating the administrative cap allowed under Proposition 1A (2008). (The measure set the cap at 2.5 percent of bond proceeds, but allows the Legislature to raise it to up to 5 percent by statute.) Under its revised approach, HSRA will have an inconsistent method for how it categorizes state and contract staff who perform similar functions. HSRA estimates its revised approach to calculating the administrative cap will result in HSRA reaching the cap roughly three years later than previously anticipated (2023-24 rather than 2020-21). This is important because it delays a natural opportunity for legislative oversight. We recommend that the Legislature direct HSRA to apply the same approach to calculating the administrative cap for state staff and contractors. Certain Proposals Appear Warranted, but May Benefit From Legislative Oversight Motor Vehicle Account (MVA) Fund Condition. Over the last several years, the MVA has periodically faced operational shortfalls—meaning planned expenditures exceed combined revenues and transfers. The proposed budget includes a few proposals intended to benefit the MVA in recognition of future operational shortfalls, including (1) shifting some costs to other funds and (2) using lease revenue bonds—rather than the typical “pay-as-you-go” approach—to fund the construction phase of CHP and DMV facility projects. While the Governor’s budget proposals would help alleviate the operational shortfalls in the MVA over the next few years, they would not fully address the account’s structural imbalance. Absent any corrections, the administration projects that the MVA would have an operational shortfall of $228 million in 2024-25, resulting in a negative fund balance of roughly $265 million. The Legislature will want to establish its priorities for the MVA and determine how best to address the projected insolvency based on these priorities. Caltrans—Litter Abatement. The Governor proposes an increase of $31.8 million in 2020-21 (growing to $43.4 million in 2024-25 and ongoing) from the State Highway Account (SHA) to augment funding for the Litter Abatement Program. Given the likelihood that worsening litter conditions will continue, we recommend that the Legislature approve the Governor’s proposal to increase funding for the program. We also recommend the Legislature adopt supplemental reporting language requiring Caltrans to provide an assessment of the causes of increasing litter on state highways to inform future litter prevention strategies. Caltrans—Pedestrian and Bicycle Safety. The budget includes $2.2 million on a two-year, limited-term basis from SHA to establish the Pedestrian and Bicyclist Safety Investigation Program. We find that providing additional resources to concentrate efforts on investigating pedestrian and bicycle collisions is reasonable given what appears to be a growing problem and, therefore, recommend approval of the budget request. In addition, we recommend the Legislature adopt supplemental reporting language requiring the department to report on its efforts to investigate and reduce pedestrian and bicycle fatalities. 2 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET Table of Contents Overview of Governor’s Transportation Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Cross Cutting Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Update on SB 1 Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Motor Vehicle Account Fund Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Caltrans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Litter Abatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Pedestrian and Bicyclist Safety Investigations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Wildfire Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Transportation System Network Replacement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Department of Motor Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Motor Voter Workload. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 San Francisco Field Office Replacement Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 California Highway Patrol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 E-Cigarette Tax Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 High-Speed Rail Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Administrative Cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Summary of Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 www.lao.ca.gov 3 analysis full gutter 2020-21 BUDGET 4 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET OVERVIEW OF GOVERNOR’S TRANSPORTATION BUDGET The state provides funding for six transportation the General Fund. In total, the Governor’s budget departments: the California Department of proposes $26.9 billion in expenditures for 2020-21. Transportation (Caltrans), the High-Speed Rail This is a net increase of $3.4 billion (14 percent) Authority (HSRA), the California Highway Patrol over estimated expenditures for the current year. (CHP), the Department of Motor Vehicles (DMV), The increase mainly reflects increased spending the California Transportation Commission, and the on (1) highway projects administered by Caltrans Board of Pilot Commissioners. The California State and (2) the high-speed rail project, as well as a Transportation Agency (CalSTA) has jurisdiction shift in when funding for certain Caltrans mass over these six departments and is responsible for transportaion projects will be allocated. coordinating the state’s transportation policies and Most Funding From Special and Federal programs. In addition, the state provides funding Funds. As shown in the figure, most of the to local governments for transportation purposes proposed funding for transportation—$24.9 billion through “shared revenues” for local streets and (93 percent)—is from special funds and federal roads and the State Transit Assistance program. funds. Specifically, the proposed budget assumes Total Proposed Spending of $26.9 Billion. $19.3 billion in special funds (such as revenues Figure 1 shows the Governor’s proposed spending from fuel taxes, vehicle registration fees, and driver for the state’s transportation departments and license fees) and $5.6 billion in federal funds for programs from all fund sources—special funds, transportation purposes. Only $16 million (less than federal funds, reimbursements, bond funds, and 1 percent) is proposed from the General Fund. Figure 1 Transportation Budget Summary (Dollars in Millions) Change From 2019-20 2018-19 2019-20 2020-21 Actual Estimated Proposed Amount Percent Department/Program Department of Transportation $11,408 $13,502 $15,486 $1,983 15% Local Streets and Roads 2,538 2,881 3,003 122 4 High-Speed Rail Authority 878 1,100 2,911 1,810 165 California Highway Patrol 2,546 2,788 2,712 -76 -3 Department of Motor Vehicles 1,240 1,415 1,387 -28 -2 State Transit Assistance 948 904 976 72 8 California State Transportation Agency 346 904 406 -498 -55 California Transportation Commission 6 9 12 3 29 Board of Pilot Commissioners 3 3 3 — -3 Totals $19,914 $23,508 $26,895 $3,387 14% Fund Source Special funds $13,551 $15,689 $19,333 $3,645 23% Federal funds 4,560 6,401 5,582 -819 -13 Reimbursements 794 936 1,336 400 43 Bond funds 976 375 628 253 67 General Fund 33 107 16 -91 -85 Totals $19,914 $23,508 $26,895 $3,387 14% www.lao.ca.gov 5 analysis full gutter 2020-21 BUDGET Transportation Bond Debt Service. In addition note that this spending relates to repaying bonds to the department and program expenditures issued primarily to fund expenditures made in identified in Figure 1, the state also pays debt prior years.) Most of the proposed spending is service costs on transportation-related general to repay (1) Proposition 1B (2006) bonds that obligation bonds. For 2020-21, the budget support various highway, local road, and transit assumes about $2 billion in spending on debt projects and (2) Proposition 1A (2008) bonds for service for these bonds—$166 million (9 percent) the high-speed rail project. Funding for debt service higher than the estimated current-year level. (We primarily comes from truck weight fee revenues. CROSS CUTTING ISSUES UPDATE ON SB 1 REVENUE transportation system. Among other changes, SB 1 increased the existing excise taxes on In 2017, the Legislature enacted Chapter 5 gasoline, as well as the excise and sales taxes on (SB 1, Beall), to increase funding for California’s diesel. The legislation also created two new annual transportation system. Below we (1) provide vehicle registration fees: (1) the transportation background on SB 1, (2) discuss provisions taking improvement fee, which varies based on the value effect in 2020-21, and (3) present an update on of a vehicle and (2) the road improvement fee for revenue increases since its enactment. zero-emission vehicles (ZEVs) model year 2020 and later. Figure 2 summarizes these taxes and Background fees and indicates their implementation date. Transportation Funding Comes From a Variety Additionally, the legislation requires inflationary of Sources. Funding for California’s transportation adjustments for the new transportation fees and system comes from numerous local, state, and for the fuel excise taxes—both those previously federal sources. State funding mainly comes from existing and those added under SB 1. several fuel taxes and vehicle fees. The revenue from these taxes and Figure 2 fees fund transportation programs SB 1 Increased Several Taxes and Fees that provide for the operation, maintenance, and improvement Old Rates New Ratesa Effective Date of the State Highway System Fuel Taxesb (SHS), inter-city rail services, and Gasoline other state-owned transportation Base excise 18 cents 30 cents November 1, 2017 assets. The state also shares Swap excise taxc 11.7 cents 17.3 cents July 1, 2019 a portion of this revenue with Diesel Excisec 16 cents 36 cents November 1, 2017 local governments to support Sales 1.75 percent 5.75 percent November 1, 2017 maintenance and improvements of streets and roads, as well Vehicle Feesd Transportation improvement fee — $25 to $175 January 1, 2019 as for transit infrastructure and Road improvement (ZEV) fee — $100 July 1, 2020 operations. a Adjusted for inflation starting July 1, 2020 for the gasoline and diesel excise taxes, January 1, 2020 for the SB 1 Increased Fuel Taxes Transportation Improvement Fee, and January 1, 2021 for the ZEV registration fee. The diesel sales taxes are not adjusted for inflation. and Vehicle Fees. The Legislature b Excise taxes are per gallon. passed SB 1 to augment declining c Variable rates were set annually by the Board of Equalization based on estimated gasoline and diesel prices to transportation revenue and to maintain revenue neutrality. SB 1 converted both taxes to a fixed rate (exluding inflation adjustments). d Per vehicle per year. address the backlog of deferred ZEV = zero-emission vehicle. maintenance within the state’s 6 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET New Provisions Go Into Effect in the Transportation Revenue Increases Budget Year From SB 1 The implementation of SB 1was phased in Total Transportation Revenues Doubled Since over multiple years. Revenue estimates for the SB 1. As shown in Figure 3 (see next page), since upcoming fiscal year reflect the implementation of the enactment of SB 1, transportation revenue the road improvement fee and the first inflationary collected by the state has significantly increased, adjustments to the excise taxes on gasoline and growing from $6.4 billion in 2016-17 to a projected diesel. $12.7 billion in 2020-21. This includes an estimated Road Improvement Fee. Starting July 1, 2020, increase of $626 million in 2020-21, a 5 percent ZEVs model year 2020 and later will be charged increase from 2019-20. an annual $100 registration fee. The fee will be SB 1 Revenue Distributed Mostly to Highways placed on battery-electric and hydrogen fuel cell and Streets and Roads. The administration vehicles. The fee is intended to account for the estimates that SB 1 has resulted in $5 billion in fact that ZEV owners benefit from the use of state additional revenue since 2016-17. In most cases, highways and local streets and roads but otherwise this revenue is distributed according to formulas do not contribute to their maintenance through the established in the legislation. Figure 4 (see next gasoline tax. The administration estimates that the page) shows the administration’s SB 1 spending new fee will generate $10.9 million in 2020-21. All estimates for 2020-21 by program area. A majority revenue collected from the road improvement fee of the revenue is dedicated to maintaining and will be deposited into the Road Maintenance and rehabilitating state highways and local streets Rehabilitation Account (RMRA), which primarily and roads, while a smaller portion is directed funds maintenance on state highways and local towards improving the state’s major corridors streets and roads. and supporting transit programs. The remainder Inflationary Adjustments to Fuel Taxes. primarily funds active transportation, local planning The state will begin indexing the excise taxes on grants, and university research on transportation gasoline and diesel for inflation on July 1, 2020. policy. (Inflationary adjustments for the Transportation Improvement Fee began January 1, 2020.) Prior MOTOR VEHICLE ACCOUNT to SB 1, the fuel excise taxes were not subject (MVA) FUND CONDITION to inflationary adjustments, which consequently led to transportation revenue diminishing in value The MVA supports the state administration over time. The gasoline and diesel excise taxes and enforcement of laws regulating the operation will be adjusted each fiscal year to reflect the and registration of vehicles used on public percentage change in the California Consumer roads and highways, as well as the mitigation of Price Index (CPI). However, in accordance with the environmental effects of vehicle emissions. SB 1, the adjustments in 2020-21 will reflect During the last several years, concerns about the the past two years. The administration currently condition of the MVA have arisen as spending estimates that the gasoline and diesel excise taxes from the account has, on occasion, grown faster will increase by 3 cents per gallon and 2.2 cents than revenues. Below, we (1) provide background per gallon, respectively. Our office estimates that information on MVA revenues and expenditures, the inflation adjustments are expected to increase (2) describe the Governor’s proposals related to transportation revenue by roughly $500 million. The the MVA, (3) assess the condition of the MVA, and additional revenue from the inflation rates will be (4) identify issues for legislative consideration. allocated on existing statutory formulas. www.lao.ca.gov 7 analysis full gutter 2020-21 BUDGET Figure 3 State Transportation Revenues Have Increased (In Billions) $14 Road Improvement Fee SB 1 in Effect Transportation Improvement Fee 12 Diesel Sales Tax Diesel Excise Tax 10 Gasoline Excise Tax Weight Fees 8 6 4 2 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 (Estimated) (Proposed) SB = Senate Bill. Background Figure 4 MVA Revenues. The MVA SB 1 Revenues Mostly Support receives most of its revenues from State Highways and Local Streets and Roads vehicle registration fees. As shown 2020-21 in Figure 5, the MVA is expected Other to receive a total of $4.2 billion in Trade and revenues in 2019-20, with vehicle Congested Corridorsa registration fees accounting for $3.5 billion (83 percent). Vehicle State Highways registration fees currently total $86 for each registered vehicle. (We note that the DMV also Transit collects various other fees at the time of registration that are not deposited into the MVA, such as Total = $5 Billion vehicle license fees, truck weight fees and an additional registration fee specifically for ZEVs.) The Local Streets and Roads current $86 registration fee a Programs can involve a combination of state highway, local street and road, and transit programs. consists of two components: SB = Senate Bill. 8 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET • Base Registration Fee ($60). The state MVA Transfers. The use of most MVA revenues charges a base registration fee of $60, are limited by the California Constitution to the with $57 going to the MVA and $3 going administration and enforcement of laws regulating to two other special funds—the Alternative the use of vehicles on public highways and roads, and Renewable Fuel and Technology Fund as well certain transportation uses. However, ($2), and the Enhanced Fleet Modernization roughly $90 million of the miscellaneous MVA Subaccount ($1). (Under existing state revenue sources are not limited by constitutional law, the $3 charge included in the base provisions and, thus, are available for broader registration fee to support the two other funds purposes. In order to help address the state’s is scheduled to sunset on January 1, 2024.) General Fund condition at the time, the Legislature The state last increased the base registration transferred these miscellaneous revenues from fee in 2016 when it increased the fee by $10 the MVA to the General Fund in 2009-10 on a (from $46 to $56). At the same time, the state one-time basis. A similar transfer was also made on indexed the fee to CPI, thereby allowing it a year-by-year basis in the next couple years, until to automatically increase with inflation. The it was approved as ongoing beginning in 2012-13. inflation adjustment for 2019 increased the fee However, due to the condition of the MVA in to the current $60. 2019-20, the Legislature suspended these transfers • CHP Fee ($26). The state also charges an to the General Fund for five years. additional fee of $26 that directly supports CHP. The state last increased this fee in 2014 when it Figure 5 increased the fee by $1 Motor Vehicle Account Fund Condition (from $23 to $24) and (In Millions) indexed it to the CPI. The 2018-19 2019-20 2020-21 inflation adjustment for Actual Estimated Proposed 2019 increased the fee to the current $26. Beginning Reserves $532 $569 $433 Revenues and Transfers The MVA also receives revenues Revenues from driver license fees. These Registration fee $3,415 $3,535 $3,672 revenues tend to fluctuate based Other fees 628 682 695 on the number of licenses renewed Total Fee Revenues $4,043 $4,217 $4,366 each year. For 2019-20, the state Transfers is expected to collect $382 million Transfers to other funds -$93 — — from these fees. The current driver Total Resources $4,482 $4,785 $4,799 license fee is $36 and is also Expenditures indexed to the CPI. The remaining Baseline Support Expenditures MVA revenues primarily come from California Highway Patrol 2,296 2,451 2,449 Department of Motor Vehicles 1,184 1,351 1,318 late fees associated with vehicle California Air Resources Board 148 153 152 registration and driver license Supplemental pension payments — 124 64 renewals, identification card fees, Other costs 278 263 265 and miscellaneous fees for special Subtotals, Support ($3,906) ($4,342) ($4,248) permits and certificates (such as Capital Outlay Expenditures fees related to the regulation of California Highway Patrol $4 $8 $16 automobile dealers and driver Department of Motor Vehicles 3 2 5 training schools). Subtotals, Capital Outlay ($7) ($10) ($21) Expenditure Totals $3,913 $4,352 $4,269 Fund Balance $569 $433 $530 www.lao.ca.gov 9 analysis full gutter 2020-21 BUDGET MVA Expenditures. The MVA primarily provides fee by $10 in 2016 and indexing it to the CPI (as funding for three state departments—CHP, DMV, discussed above). and the Air Resources Board (ARB)—to support the Despite these earlier changes, more recent activities authorized in the California Constitution. projections have the MVA becoming insolvent— Funding supports staff compensation, department meaning the fund would have a negative balance— operations, and capital expenses. For 2019-20, a in 2020-21. In order to address this problem, total of $4.4 billion is expected to be spent from the Legislature made several changes to reduce the MVA, mostly to support CHP and DMV. Unlike expenditures and transfers from the MVA as part for CHP and DMV, a relatively small share of ARB’s of the 2019-20 budget package. These changes total expenditures is supported by the MVA. included funding CHP area office replacements Over the past several years, expenditures with lease revenue bonds, shifting certain one-time from the MVA have increased. Specifically, from MVA expenditures to the General Fund, delaying 2014-15 to 2019-20, total MVA expenditures certain CHP and DMV capital outlay projects, increased by $1 billion. Some of the major cost delaying supplemental pension plan repayments drivers include (1) replacement of CHP area offices to the General Fund, and suspending transfers to and DMV field offices, (2) increased employee the General Fund. Despite these corrective actions, compensation costs, and (3) workload related to the administration projects the account to again the issuance of new driver licenses and ID cards experience an operational shortfall in 2021-22 and that comply with federal standards—commonly become insolvent in 2024-25. referred to as “REAL IDs.” Governor’s Proposals In addition, we note that supplemental pension plan repayments from the MVA began in 2019-20. While the administration projects that MVA This is related to a 2017-18 budget action to revenues will exceed expenditures in the budget borrow $6 billion from the General Fund to make a year, the proposed budget includes a few proposals one-time supplemental payment to the California intended to benefit the MVA in recognition of future Public Employees’ Retirement System (CalPERS), operational shortfalls. (As we discuss below, the which would be repaid from all funds that make Governor’s budget also includes two proposals employer contributions to CalPERS—including the to increase MVA expenditures.) Specifically, the MVA. (Over the next 30 years, it is anticipated that budget proposes to: the MVA is likely to receive savings that outweigh • Shift Administrative Costs for Collecting these near-term loan repayment expenditures, TIF to RMRA. The Transportation due to slower growth in employer pension Improvement Fee (TIF) is collected by the contributions.) DMV during vehicle registrations, transfers, Operational Shortfalls in Recent Years. Over and renewals. TIF revenue is used to repair the last several years, the MVA has periodically infrastructure and provide road maintenance. faced operational shortfalls—meaning planned Currently, the administrative costs for expenditures exceeding combined revenues collecting TIF are funded by the MVA. and transfers. For example, the MVA faced However, the Governor’s budget proposes to an operational shortfall in 2015-16 of about fund these costs from the RMRA. Under the $300 million, which was addressed through the Governor’s proposal, this would reduce MVA one-time repayment of $480 million in loans that costs by $6.6 million annually beginning in were made previously from the MVA to the General 2020-21. Fund. In 2016-17, the MVA faced an operational • Shift CalSTA Funding to the State Highway shortfall of roughly the same magnitude and Account and Public Transportation possible insolvency in 2017-18. In order to address Account. CalSTA develops and coordinates this shortfall and help maintain the solvency of the policies and programs of the state’s the MVA, the Legislature increased revenues into transportation entities. To fund their work, the account by increasing the base registration 10 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET the agency receives their funding from the Finance’s five-year projection (2020-21 through departments and boards they oversee, 2024-25) estimates that the MVA’s fund balance will including DMV and CHP. The Governor’s be depleted by 2024-25—resulting in insolvency. budget proposes to shift $3 million in CalSTA These projections reflect expenditures already funding from the MVA to the State Highway approved by the Legislature and those proposed by Account (SHA) and the Public Transportation the Governor (such as those described above). Account (PTA) annually beginning in 2020-21. Figure 6 compares total MVA resources • Shift From “Pay-As-You-Go” to Financing (revenues and transfers) with expenditures from for CHP and DMV Facilities. The state has 2018-19 through 2024-25. As shown in the figure, typically funded the replacement of CHP area absent any corrections, the administration projects offices and DMV field offices from the MVA on that the MVA would face an operational shortfall of a pay-as-you go basis. However, given the $228 million in 2024-25, resulting in a negative fund condition of the MVA last year, the Legislature balance of roughly $265 million. While expenditures shifted from pay-as-you-go funding to lease are expected to exceed revenues in years prior to revenue bonds to finance the replacement 2024-25, available reserves would help prevent the of CHP area offices. The Governor’s fund from becoming insolvent sooner. budget proposes to continue to finance We note that the Governor’s forecast of the the replacement of three CHP area offices MVA fund condition assumes the future adoption through the Public Buildings Construction of two proposals that would increase MVA Fund, rather than with pay-as-you-go as expenditures in 2021-22 and beyond. Specifically, they were approved by the Legislature in the forecast assumes additional annual costs prior years. In addition, the administration for CHP dash cams ($14 million) and DMV proposes to finance the replacement of three operational improvements for customer service, DMV field offices with lease revenue bonds. communication, training, management, and The financing of the projects would be repaid technology ($86 million, which would decrease to from the MVA over many years. Under the $34 million annually beginning in 2023-24). Governor’s proposal, shifting to lease-revenue bonds is Figure 6 estimated to save the MVA a total of $176 million in the MVA Projected to Be Insolvent Beginning in 2024-25 budget year. (We describe (In Billions) the specific proposals in the $6 “California Highway Patrol” and the “Department of Expenditures 5 Motor Vehicles” sections of Revenues and Transfers this report.) 4 MVA Projected to 3 Become Insolvent in 2024-25 2 While the Governor’s budget 1 Fund Balance proposals would help alleviate the operational shortfalls in the 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 MVA over the next few years, 2024-25 they would not fully address the -1 account’s structural imbalance. MVA = Motor Vehicle Account. Specifically, the Department of www.lao.ca.gov 11 analysis full gutter 2020-21 BUDGET While the administration does not project condition—both in the near and long term, we insolvency until 2024-25, various cost pressures identify the following options for its consideration: could impact the solvency of the MVA, potentially • Delay Supplemental Pension Plan resulting in insolvency occurring sooner. For Repayments. The Legislature could delay example, the actual costs of DMV operational the supplemental pension plan repayments improvements might be higher than currently from the MVA that began in 2019-20. The estimated if workload related processing to REAL administration’s MVA projections account for ID applications is more than expected in future these annual payments, which are estimated years. In addition, the increased employee cost to moderately grow from $64 million in could be higher than assumed. 2020-21 to $75 million in 2024-25. While Issues for Legislative Consideration delaying these loan payments would increase costs when they are eventually made, it would The Legislature will want to establish its priorities provide immediate relief to the MVA until for the MVA and determine how best to address then. (Under current law, the principal and the projected insolvency based on these priorities. interest of the loan must be repaid by June While the MVA is not projected to become insolvent 30, 2030.) This could be particularly beneficial until 2024-25, we recommend the Legislature to accommodate some of the increased cost begin to take steps now to prevent the insolvency. pressures on the MVA that are not ongoing, While the Governor’s budget proposals would such as the increased workload associated help improve the condition of the MVA, there are with the implementation of REAL ID. alternatives, as well as additional steps that could • Eliminate General Fund Transfer. As be taken. We note that to the extent the Legislature mentioned earlier, the MVA receives roughly rejects the Governor’s proposed changes for $90 million of the miscellaneous revenues that 2020-21, the MVA would become insolvent are not limited in their use by the California beginning in 2023-24—a year sooner than under Constitution. In 2019-20, the Legislature the Governor’s plan—with a negative fund balance suspended transfers of these revenues to the of roughly $147 million. General Fund for five years in order to keep In developing its plan for addressing the these revenues in the MVA, particularly given projected insolvency of the MVA, the Legislature will that these funds were initially transferred by want to consider the impacts on the MVA beyond the Legislature on a temporary basis to help the administration’s forecast period of the next address the state’s General Fund condition at five years. For example, the condition of the fund the time. The Legislature could eliminate such has shaped both the DMV’s and CHP’s approach transfers on an ongoing basis to provide an to capital outlay expenditures. Both departments additional $106 million in 2024-25 to support have aging facilities with safety, structural, and MVA expenditures. size deficiencies. However, due to the condition of • Increase MVA Revenues. The Legislature the MVA, the administration is proposing to fund could generate additional revenues by only one new facility replacement or renovation increasing vehicle registration or driver license project per year for each department. CHP has fees—either on a limited-term or ongoing 111 total offices, and DMV has 172 field offices. basis. In determining whether to increase such The current rate of replacing or reconfiguring fees, the Legislature will want to consider the these aging facilities is not likely to be sufficient potential fiscal impacts on drivers and vehicle over the longer term and could affect the ability of owners. We estimate that roughly $35 million these departments to fulfill their responsibilities as in additional revenue could be generated effectively as possible. annually from a $1 increase in the base vehicle In order to assist the Legislature in developing its registration or CHP fee, and roughly $5 million plan and mix of strategies for addressing the MVA’s from a $1 increase in the driver license fee. 12 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET Given the magnitude of the future operation the number of positions at DMV and CHP; shortfalls in the MVA, if the Legislature wanted however, such actions would result in a to increase existing DMV fees, it would decrease in the level of service. Going forward, need to do so by a significant amount or in the Legislature also might want to consider combination with other actions. the impact of employee compensation costs • Reduce Operational Costs. As mentioned on the overall MVA fund condition when it earlier, increasing employee compensation evaluates future memoranda of understanding is one of the key cost pressures to the MVA. negotiated between the administration and the The Legislature could reduce employee employee unions that represent the majority of compensation costs from the MVA by reducing DMV and CHP employees. CALTRANS Caltrans is responsible for planning, experienced a growing litter issue. The amount of coordinating, and implementing the development litter collected by the department has increased by and operation of the state’s transportation system. roughly 77 percent over that past four years. The The department operates and maintains state number of service requests for litter abatement highways, supports three inter-city rail routes, have increased from about 3,800 in 2014-15 to and distributes state and federal funds for local 5,300 in 2018-2019—a 40 percent increase. The transportation projects. department projects that the number of service The Governor’s budget proposes total requests and amount of trash collected will expenditures of $15.5 billion for Caltrans in continue to increase over the next several years. 2020-21. This is $2 billion, or 15 percent, higher Expenditure Increase on Contracted Litter than the estimated current-year expenditures. Abatement. Litter removal is conducted by Figure 7 (see next page) shows proposed Caltrans employees, the Adopt-A-Highway expenditures by program and fund source. Program, and the Litter Abatement Program. Most spending supports the department’s The Litter Abatement Program generally uses highway program and comes from various state cooperative agreements with state agencies— special funds (fuel taxes and vehicle fees) and such as the California Department of Corrections federal funds. The increase mostly reflects and Rehabilitation—and local law enforcement to additional revenue from SB 1 (see our analysis of utilize inmates and probationers for litter abatement SB 1 revenues earlier in this report), as well as from services. As the need for litter abatement has a shift in when Caltrans expects funding for certain increased on the SHS, Caltrans has redirected mass transportation projects to be allocated. The resources from its overall maintenance budget total level of spending proposed for Caltrans in to increase the capacity of the Litter Abatement 2020-21 supports about 20,800 positions. Program. The department’s expenditure levels on the program have increased by $39 million LITTER ABATEMENT (62 percent) from 2014-15 to 2018-2019—from $63 million to $102 million. Background Governor’s Proposal Increase in Highway Litter. Caltrans removes The Governor proposes an increase of litter within the state highway right of way to $31.8 million in 2020-21 (growing to $43.4 million maintain traffic safety, protect water quality, and in 2024-25 and ongoing) from the SHA to augment provide clean facilities for travelers and local funding for the Litter Abatement Program. The communities. In recent years, the department has department states that the proposed increase is to www.lao.ca.gov 13 analysis full gutter 2020-21 BUDGET Figure 7 Caltrans Budget Summary (Dollars in Millions) Change From 2019-20 Actual Estimated Proposed 2018-2019 2019-20 2020-21 Amount Percent Program Highways Capital outlay projects $4,309 $4,934 $5,022 $89 2% Local assistance 1,677 2,716 3,245 529 19 Capital outlay support 1,881 2,194 2,206 12 1 Maintenance 2,218 2,115 2,138 23 1 Other 492 504 509 5 1 Subtotals ($10,578) ($12,463) ($13,121) ($657) (5%) Mass transportation $547 $717 $2,047 $1,330 185% Other 283 322 318 -4 -1 Totals $11,408 $13,502 $15,486 $1,983 15% Fund Source Special funds $6,215 $6,397 $8,714 $2,318 36% Federal funds 4,417 6,218 5,436 -782 -13 Reimbursements 641 799 1,195 396 50 Bond funds 136 77 141 63 81 General Fund — 12 — -12 — Totals $11,408 $13,502 $15,486 $1,983 15% reflect the current level of spending on the program in the long run. While increased funding for litter with some adjustments to meet the anticipated abatement is an interim solution, doing so comes level of litter in future years. with some opportunity cost. Specifically, spending more SHA funds on litter abatement leaves Assessment less funding for other transportation programs. Increasing Litter Abatement Resources Identifying effective strategies to reduce litter in the Is Reasonable. Department data clearly longer run could help ensure that as much funding demonstrates that the volume of trash on the state as possible is preserved for these other programs. highway system has risen significantly over the Recommendation past four years, resulting in significant additional litter abatement workload. In response, the Approve Funding for Litter Abatement department has increased its expenditure on the and Require Assessment. Given the likelihood Litter Abatement Program by roughly $39 million. that current litter conditions will continue, we Given the multiyear trend, it seems likely that recommend that the Legislature approve the these conditions will persist and possibly worsen. Governor’s proposal to increase funding for the Therefore, it is reasonable for the department’s department’s Litter Abatement Program. We also budget to reflect an increased level of spending on recommend the Legislature adopt supplemental the program. reporting language requiring Caltrans to provide Causes of Growing Litter Issue Are Unclear. an assessment to inform future litter prevention Based on our conversations with Caltrans, the strategies. This assessment should identify, to department lacks sufficient information to identify the extent possible, (1) the type of litter being left the causes contributing to increased litter on state on state highways, (2) the source of litter, (3) the highways. Having such information could assist the degree to which increases in litter are concentrated state in finding effective strategies to prevent litter in certain geographical regions, (4) best practices 14 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET to reduce litter from other states, and (5) potential and maintenance projects to improve pedestrian recommendations to prevent litter on the SHS. and bicyclist safety. Governor’s Proposal PEDESTRIAN AND BICYCLIST SAFETY INVESTIGATIONS The budget includes $2.2 million on a two-year, limited-term basis from the SHA to establish the Pedestrian and Bicyclist Safety Background Investigation Program. The proposal would fund Pedestrians and Bicyclists Made Up a Fifth 12 transportation engineers who are expected to of All Highway Fatalities. According to Caltrans, perform a total of 400 investigations of collisions pedestrians and bicyclists made up 21 percent involving pedestrians and bicyclists. Each of all fatalities on the SHS between 2008 and investigation is expected to require 54 hours to 2017. Across all highways and roads in California, complete. In addition, district staff would receive pedestrians and bicyclists made up approximately training on appropriate investigation techniques and 29 percent of the fatalities in 2018. Moreover, the development of countermeasures for pedestrian number of pedestrians and bicyclists fatalities on and bicyclist collisions. highways and roads has grown significantly in Assessment recent years. As show in Figure 8, between 2004 and 2018, pedestrian fatalities grew by 31 percent Proposal to Expand Pedestrian and Bicyclist and bicyclist fatalities grew by 41 percent. (At the Safety Investigations Is Reasonable. In total, the time of this writing, Caltrans had not provided pilots identified almost 400 locations of pedestrian annual historic information regarding the number of or bicyclist collisions on the SHS warranting fatalities specifically on the SHS.) investigation. Given the number of pedestrians and Caltrans’ Traffic Operations Program bicyclists fatalities on the SHS, as well as the trend Addresses Safety Concerns on State Highways. of rising fatalities statewide, it is reasonable to To improve traffic safety on the SHS, Caltrans dedicate additional resources to address pedestrian currently has five traffic safety programs that and bicyclist safety on the SHS. In addition, given investigate high-collision areas, develop safety that this is a new program, we find the request for measures, and implement proposed improvements. limited-term positions to be reasonable. These programs focus on different types of collisions, such Figure 8 as wrong way collisions and Bicyclist and Pedestrian Fatalities in Californiaa collisions where vehicles run onto the shoulder. In recent years, 1,000 Caltrans—in collaboration with 900 UC Berkeley—implemented two 800 pilot programs to improve safety 700 for pedestrians and bicyclists. Pedestrians 600 These pilot programs identified 500 locations on the highway with high 400 concentrations of pedestrian and 300 bicyclist deaths and injuries based 200 on historical data, investigated Bicyclists 100 these locations to determine probable cause of the deaths and 2004 2006 2008 2010 2012 2014 2016 2018 injuries, and recommended capital a Includes fatalities on highways and roads. www.lao.ca.gov 15 analysis full gutter 2020-21 BUDGET Uncertainty About Underlying Trends. as well as other actions the state might take to While the request for expanding pedestrian and reduce the number of collisions and fatalities. bicyclist safety investigations is reasonable, there is uncertainty about the underlying factors WILDFIRE LITIGATION leading to the rising number of pedestrian and bicyclist fatalities. Caltrans reports that the Background department’s increasing use of pedestrian and bicyclist friendly design in their planning and Caltrans Facing Lawsuit for Recent State construction might have led to increased use of Wildfire. Caltrans can be held financially liable for the SHS by pedestrians and bicyclists, resulting personal and property damages that are caused in an accompanying increase of pedestrian and by the condition of the SHS. As part of its larger bicyclist fatalities. However, more pedestrian and maintenance responsibility, Caltrans conducts bicyclists might be involved in fatal collisions for vegetation control to reduce the risk of fire. The many reasons. For example, there may be more department indicates that it currently is facing a pedestrians on the SHS as a result of the growing lawsuit related to a recent wildfire that started along number of homeless camps near highways. a state highway. The lawsuit is expected to have a substantial number of plaintiffs and claims due to Recommendation the large geographic area and number of properties affected by the wildfire. Approve Proposal and Require Report. We recommend that the Legislature approve Governor’s Proposal Caltrans’ request for two-year limited term funding of $2.2 million from SHA. We find that The Governor proposes an increase of providing additional resources to concentrate $1.7 million for four years from the SHA to support efforts on investigating pedestrian and bicycle the department’s legal division for anticipated collisions is reasonable given what appears to be workload increases stemming from the recent a growing problem. In addition, we recommend wildfire lawsuit. The department’s legal division is the Legislature adopt supplemental reporting a full-service litigation and in-house counsel law language requiring the department to provide a office with statewide responsibility for Caltrans. The report by January 10, 2022, related to its efforts augmentation would support 14 new positions. to investigate and reduce pedestrian and bicycle Assessment fatalities. Specifically, the report should include information on (1) the number of pedestrian and Workload Likely to Increase From Wildfire bicyclist traffic safety collisions, fatalities, and Litigation. Given the scale of the suit, it is investigations conducted; (2) key findings or trends reasonable to expect the department’s legal division resulting from these investigations, including to have a significant amount of increased workload insights into the causes of the higher number associated with the wildfire litigation. In our view, of fatalities in recent years; (3) the traffic safety it is in best interest of the state to ensure Caltrans improvements made to the SHS as a result of these has sufficient resources to defend against the investigations; and (4) the implementation of the lawsuits given the large potential financial liability. proposed training for district staff on appropriate Low Service Scores for Tree and Brush pedestrian and bicyclist collision investigation Encroachment in Recent Years. Caltrans annually techniques and development of countermeasures. assesses its ability to service the SHS through This information would better allow the Legislature level of service scores. Level of services scores to review the effectiveness of the Pedestrian and range from 0 to 100, with lower scores indicating Bicyclist Safety Investigation Program, which could a higher maintenance need. Scores are calculated then inform decisions regarding the appropriate at the district level, but are averaged to calculate level of ongoing resources for the safety programs, overall statewide scores for various maintenance activities. The department’s level of services 16 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET scores for tree and brush encroachment have been • Steps to Improve Scores. What steps has about 70 in recent years. In a recent report, the the department taken (or plan to take) to department stated its goal of increasing level of improve level of service scores related to tree service scores for tree and brush encroachment and brush encroachment? to at least 90. We do not have any evidence that improper vegetation management contributed to TRANSPORTATION SYSTEM the wildfire that is the subject of the recent lawsuit. However, Caltrans’ low scores for tree and brush NETWORK REPLACEMENT encroachment are concerning, particularly given severe wildfires that have occurred in recent years, Background as well as projections of increased risks over the Transportation System Network Must Be long term due to climate change. In recent years, Updated. The Transportation System Network the Legislature has taken actions in other policy (TSN) is an existing department database that is areas—such as forest health and utility safety— used to store collision and roadway data for the in order to reduce wildfire risks. Monitoring the SHS. Recent federal laws require states to expand department’s efforts in achieving its level of service their safety data systems to identify fatalities and goal for tree and brush encroachment might be serious injuries on all public roads. Caltrans has another area of wildfire risk worthy of additional indicated that the current TSN does not meet the legislative oversight. new requirements and that the department will have Recommendations to replace the existing system. Information Technology (IT) Project Approval Recommend Approving Funding for Wildfire Process. The TSN replacement project is currently Litigation. It appears likely that Caltrans will face proceeding through the state’s IT project approval increased workload associated with the recent process known as the Project Approval Lifecycle wildfire litigation, and it is in the best interest of (PAL). Departments cannot begin their projects the state for the department to have sufficient without receiving approval from the California resources to engage in the litigation effectively. Department of Technology (CDT) for each of the Accordingly, we recommend the Legislature four PAL stages. The TSN replacement project is approve the proposed $1.7 million to augment the in Stage 3 and is expected to complete Stage 4— department’s legal division. project readiness and approval—in September Report at Budget Hearings on the 2020. Implementation of Vegetation Control. We also recommend that the Legislature use spring budget Governor’s Proposal hearings as an opportunity to exercise additional The Governor requests $5.4 million (one time) oversight of Caltrans’ vegetation management from the SHA for the department to begin the activities by requiring the department to report at implementation of the TSN replacement project— budget hearings on the following topics: following approval of Stage 4 of the PAL process. • Vegetation Management Plan. What are the The project will be completed in multiple phases department’s current vegetation management across several years and will have an estimated policies to reduce wildfire risk? total cost of $21.9 million. The requested funding • Low Level of Service Scores. Why are will be used to support the first year of the TSN level of service scores for tree and brush replacement project and for limited-term staffing. encroachment relatively low? Assessment • Level of Service Score by Location. To what extent do level of service scores vary Funding Being Proposed Prior to Completion geographically, such as based on an area’s of PAL Process. As noted above, CDT is expected risk of wildfire? to approve the proposed TSN replacement project www.lao.ca.gov 17 analysis full gutter 2020-21 BUDGET through Stage 4 of the PAL process later this of the current TSN is necessary for the department fall. Until that approval occurs, the Legislature to comply with federal law and to remain eligible does not have a complete project plan (including for federal highway funding. For these reasons, an approved scope, schedule, and cost for the the Legislature should approve funding for the proposed project) to consider alongside the proposed project. However, since the project has budget request. Therefore, approving funding for not completed the PAL process, we recommend Phase 1 of the proposed TSN replacement project the Legislature adopt provisional budget bill at this point in the process comes with some language to authorize these expenditures only uncertainty for the Legislature. upon CDT’s approval of the proposed project through Stage 4 of the PAL process, and upon Recommendation written notification of the Joint Legislative Budget Approve Funding for TSN Replacement With Committee with the complete project plan including Added Budget Bill Language. The replacement the approved scope, schedule, and cost of the project. DEPARTMENT OF MOTOR VEHICLES The DMV is responsible for registering vehicles, projects, as well as one new replacement project issuing driver licenses, and promoting safety on (San Francisco). While the state has typically California’s streets and highways. Additionally, DMV funded the replacement of DMV facilities from the licenses and regulates vehicle-related businesses MVA on a pay-as-you-go basis, the administration’s (such as automobile dealers and driver training 2020-21 budget proposes that the construction schools), and collects certain fees and taxes for phase of capital projects be financed through the state and local agencies. As of January 2020, there Public Buildings Construction Fund. were 27.3 million licensed drivers and 35.8 million registered vehicles in the state. MOTOR VOTER WORKLOAD The Governor’s budget includes $1.4 billion for DMV in 2020-21, which is $28 million (about Background 2 percent) lower than the estimated level of spending in the current year. About 95 percent of National Voter Registration Act (NVRA). Since all DMV expenditures are supported from the MVA, 1993, the NVRA required states to offer individuals which generates its revenues primarily from vehicle an opportunity to register to vote when they apply registration and driver license fees. The level of for a driver’s license or identification (DL/ID) card. spending proposed for 2020-21 supports about 8,500 positions at Figure 9 DMV. Department of Motor Vehicles Capital Outlay Projects The Governor’s budget also (In Thousands) continues recent efforts to replace DMV field offices that are too small 2020-21 Phase Total Project Cost or have structural problems. As Santa Maria–field office replacement $17,372 C $21,820 shown in Figure 9, the budget Reedley–field office replacement 17,354 C 20,944 includes a total of $54.7 million— Delano–field office replacement 15,291 C 18,003 from the Public Buildings San Francisco–field office replacement 2,905 PC 5,126 Oxnard–field office reconfiguration 1,229 W 13,537 Construction Fund and the MVA— Statewide–planning and site identification 500 A, S 500 for capital outlay projects, including Totals $54,651 $109,930 continuation of four field office C = construction; PC = performance criteria; W = working drawings; A = acquisition; and S = study. replacement and reconfiguration 18 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET Until 2015, the DMV complied with the federal report recommended legal resources be assigned law through a two-step voter registration process. to the program to ensure compliance with federal, Every person who applied for or renewed a DL/ID state, and other requirements. As a result, the card or submitted a change of address (COA) form DMV implemented improved quality assurance received a voter registration card (VRC). To register processes, provided legal and compliance to vote, individuals would have to submit the resources, and established data governance VRC to the DMV, who then forwards them to the policies. Secretary of State (SOS) within ten days. However, Governor’s Proposal if the VRC is submitted within five days of a voter registration deadline for an election, DMV must The Governor’s budget includes an additional transmit the VRC to SOS within five days. $6.4 million in 2020-21 ($4.1 million ongoing) New Motor Voter Program. Chapter 729 of from the General Fund to support NMVP. The 2015 (AB 1461, Gonzalez) established the New administration’s proposal would support 38 new Motor Voter Program (NMVP), which in addition positions, including (1) 20 positions for registration to the federal requirements, required the DMV to operations to address the change of address electronically provide information related to voter and renewal by mail workload; (2) 7 positions for registration for all eligible individuals to the SOS quality assurance review; (3) 9 IT support positions automatically. Under NMVP, all eligible individuals for maintenance, operations, and continuing who apply for an original or renewal DL/ID card or improvement of the NMVP application; and submit a COA form at the DMV are automatically (4) 2 positions for administration and oversight of registered to vote, unless the person affirmatively the NMVP. The proposal also includes two-year declined to be registered to vote during the limited term funding for legal counsel to oversee transaction. compliance of the program, as well as funding for Prior Funding for the New Motor Voter IT consultant services. Program. DMV received one-time and ongoing Assessment augmentations to implement Chapter 729 in 2016-17, 2017-18, and 2018-19. This funding was Fewer Positions Than Currently Used. intended to allow DMV to develop and implement Although the Governor’s budget proposes an electronic DL/ID card application (NMVP additional ongoing positions to implement the application), as well as to process new voter NMVP, the number of requested positions is fewer registration-related workload. Currently, DMV has than the number of positions currently supporting baseline funding of $3.2 million from the General the program. The DMV has been redirecting Fund for 12 positions to implement the NMVP. In 50 positions from other programs to support NMVP addition to the baseline funding, DMV has been workload because the baseline positions have redirecting 50 positions to administer and process been insufficient to address all of the workload. the workload associated with the NMVP. Under the administration’s proposal, those staff Assessments of the New Motor Voter positions would be returned to their usual work. Program. Pursuant to a request by former Based on our conversations with the department, it Governor Brown in September 2018, the is requesting fewer new positions than it has been Department of Finance contracted with redirecting because it assumes it can achieve some Ernest & Young (E&Y) for an independent technical efficiencies in processing time. For example, DMV is assessment of the NMVP application, business currently implementing a more streamlined process processes, system development, risks, quality to manage COA forms and eliminating duplicative assurance, and data integration between SOS and tasks. However, these efficiencies have not been DMV. The E&Y report provided recommendations fully implemented yet, meaning there is potential on business process improvements concerning risk that the number of positions needed for the governance, oversight, accountability, quality NMVP may be more than what is being requested. management, and data validation. For example, the www.lao.ca.gov 19 analysis full gutter 2020-21 BUDGET Federal Requirements Might Create the project is estimated to cost $35.1 million. Additional Workload. In recent months, DMV proposes to design the project to include DMV consistently has met the federal ten-day features—which could include energy efficiency requirement to provide voter information to SOS. and on-site generation capacity—so that the However, it is unclear whether the department will building will meet the Leadership in Energy and consistently be able to meet the shortened time Environmental Design silver rating criteria, as well period required near the voter registration deadline. as zero-net energy (ZNE) requirements. As mentioned earlier, the NVRA requires the DMV Assessment to send voter registration information to SOS in a shorter time period if the information is received Insufficient Evidence That Addition of ZNE within five days of the last day to register to vote Is Cost-Effective for State. A building is ZNE for an election. For example, DMV requested if the total amount of energy used on an annual $2.2 million from the General Fund in the current basis is no more than the amount of renewable year for overtime and temporary help to meet the energy created on the site. According to the shortened time frames for this spring’s primary administration, the state currently has 28 ZNE election. However, DMV’s 2020-21 budget request buildings. The administration proposes to construct does not include similar funds for overtime or the San Francisco field office replacement to be temporary help for processing applications in the ZNE, a decision that is driven by the Governor’s five-day time frame for this fall’s general election. Executive Order B-18-12, which calls for 50 percent of new facilities beginning design after 2020 to be Recommendation ZNE. While we recognize that energy conservation Although it is clear that the NMVP requires can help reduce the state’s environmental impact additional ongoing resources, it is unclear whether and help it achieve its climate change-related goals, the proposed positions and funds would fully DMV has not been able to provide analysis to address the workload. Therefore, we recommend substantiate the cost-effectiveness of constructing the Legislature withhold action on the request until the San Francisco field office projects as ZNE later in the spring when additional information might at this time. For example, it has not provided be available to determine the appropriate staffing an estimate of the energy savings or other cost level. DMV is currently implementing changes in savings that are anticipated to be achieved by the programming to improve system and workflow project. Consequently, it is unclear if adding the efficiency that would likely impact the level of ZNE requirement to this project is a good fiscal staffing needed. In addition, the voter registration investment for the state. If this project were shown deadline for the upcoming election is on February not to be cost-effective, the state could accomplish 18th, 2020. As a result, over the coming months, the more energy savings by investing in other DMV will have more information on the outcomes of projects—such as energy efficiency projects or the process improvements, as well as its success solar photovoltaic projects—with the same funding. rate at meeting the 5-day requirement. This Recommendation information could help the Legislature determine the appropriate staffing levels for the NMVP. Withhold Action Pending Additional Information. In view of the above, we recommend SAN FRANCISCO FIELD OFFICE the Legislature withhold taking action on the REPLACEMENT PROJECT proposed $2.9 million in MVA funds for the San Francisco field office until DMV reports at budget hearings on the cost-effectiveness of Governor’s Proposal constructing the project as ZNE. More specifically, The budget includes $2.9 million from the MVA we recommend the department provide the cost of for the performance criteria phase of the San constructing the project as ZNE, the cost savings Francisco field office replacement project. In total, associated with operating a ZNE building, and 20 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET the estimated payback period. This information direct the department to modify its request to would help ensure that the Legislature has the best exclude any ZNE-related components that are not information available before deciding on the level of cost-effective. Moving forward, we recommend funds to authorize for the project. the department provide cost-effectiveness If the department is unable to provide the assessments for all proposed ZNE projects to additional information or the project is shown not allow the Legislature to make more informed fiscal to be cost-effective, we recommend the Legislature investments in capital projects for the state. CALIFORNIA HIGHWAY PATROL The primary mission of CHP is to ensure safety E-CIGARETTE TAX ENFORCEMENT and enforce traffic laws on state highways and county roads in unincorporated areas. CHP also Background promotes traffic safety by inspecting commercial vehicles, as well as inspecting and certifying Vaping Products Are Associated With Lung school buses, ambulances, and other specialized Injuries. Electronic cigarettes (e-cigarettes) and vehicles. The department carries out a variety of other vaping devices allow users to inhale aerosol other mandated tasks related to law enforcement, from a liquid solution that can contain nicotine, including investigating vehicular theft and providing tetrahydrocannabinol (commonly known as backup to local law enforcement in criminal THC), cannabidiol, or other substances. In 2019, matters. The operations of CHP are divided across vaping devices were associated with numerous eight geographic divisions throughout the state. lung injuries and deaths in the United States. In California, 204 patients have been hospitalized The Governor’s budget proposes total and four have died due to an e-cigarette or vaping expenditures of $2.7 billion in 2020-21, primarily associated lung injury since 2019. Currently, federal from the MVA. The total funding level proposed and state authorities are investigating the cause of is about $76 million, or 3 percent, less than the these illnesses. In particular, the use of illicit vaping revised current-year estimate. The year-over-year devices—unregulated and untested products that net decrease is mainly the result of the expiration are often sold by unlicensed retailers—appears to of one-time funding provided in 2019-20, including $87 million for the replacement of radio equipment and IT Figure 10 infrastructure. California Highway Patrol Capital Outlay Projects The Governor’s budget also (In Thousands) continues recent efforts to replace Total CHP field offices that are too small 2020-21 Phase Project Cost or have structural problems. As shown in Figure 10, the budget Santa Fe Springs–office replacement $44,279 DB $46,226 Baldwin Park–office replacement 43,137 DB 44,869 includes a total of $141.5 million— Quincy–office replacement 38,112 DB 40,252 from the Public Buildings Enhanced radio system–towers and vaults 10,208 C 13,034 Construction Fund and the MVA— replacement for various capital outlay projects. Humboldt–office replacement 2,107 A, PC 44,197 This includes funding to continue Keller Peak–tower replacement (reappropriation) 1,819 C 2,323 four area office replacement Gold Run–office replacement 1,370 A 40,338 projects, as well as initiate one new Statewide planning and site identification 500 A,S 500 area office replacement project Totals $141,532 $231,739 (Gold Run). DB = design-build; C = construction; A = acquisition; PC = performance criteria; and S = study. www.lao.ca.gov 21 analysis full gutter 2020-21 BUDGET be associated with these illnesses. Because illicit task force, which would be made up of eight vaping devices are not tested, these products officers, one in each CHP division office. The can have added chemicals, pesticides, and other budget also includes funding for CHP to reimburse harmful ingredients. DOJ for the use of eight investigators who would State, Local, and Federal Agencies Enforce assist CHP in its investigations. Laws and Regulations of Vaping Products. Funds Task Force With Revenue From Nicotine vaping devices are regulated by the Proposed Tax on E-Cigarettes. The Governor U.S. Food and Drug Administration (FDA). proposes to fund the task force with a new The FDA establishes regulations concerning tax on vaping products. The new tax would the manufacture, import, packaging, labeling, begin on January 1, 2021, and would be $2 advertising, promotion, sale, and distribution of for each 40 milligrams of nicotine in the vaping nicotine vaping devices. In California, the state’s product. The administration estimates the tax Department of Justice (DOJ) has a Tobacco would generate $32 million in 2020-21, which Litigation and Enforcement Section that administers would be deposited into a new fund—the and enforces state and federal tobacco laws, Electronic Cigarette Products Tax Fund. (The including enforcement against the unlawful sale of administration also proposes using the revenue tobacco products. to support the California Department of Tax and For cannabis vaping devices, the California Fee Administration, which would be responsible Department of Public Health (CDPH) regulates for administering the tax.) According to the device manufacturers by setting health and safety administration, it anticipates proposing an ongoing standards. The Bureau of Cannabis Control (BCC) spending plan for the tax revenues next year regulates the sales and distribution of cannabis with additional spending for tax administration, products. In recent months, for example, BCC enforcement, youth prevention, and health care has investigated unlicensed retailers that sell illicit workforce programs. cannabis vaping products. At the federal level, Assessment the FDA along with the Drug Enforcement Agency conduct investigations into the manufacture, sale, Given that illicit vaping products pose a and distribution of cannabis vaping devices across legitimate public health issue, it is appropriate for the country. Local law enforcement agencies the state to be proactive in addressing the issue. also investigate illicit vaping devices, particularly However, we find that the Governor’s proposal for cannabis products. (Under Proposition 64 [2016], a CHP-led task force to investigate illicit vaping which legalized adult use of cannabis in California, devices raises some concerns, which we describe local governments may regulate and tax cannabis below. within their jurisdictions.) It is unclear what level of Scope of the Market for Illicit Vaping Devices resources local law enforcement agencies currently Is Unclear. It is unclear how widespread illicit are dedicating to the investigation and enforcement vaping devices are in California, in both magnitude of illicit vaping products. and geography. There is uncertainty in the number and types of individuals or groups involved in Governor’s Proposal the market for unregulated and untested vaping Creates New CHP-Led Task Force to products, as well as whether such activity is taking Investigate Illicit Vaping Devices. The Governor’s place across the state or concentrated in particular budget includes nine permanent positions and regions. Under the proposal, the officers would $7 million in ongoing funding to form a task force be spread across the state, which may not be led by CHP to investigate the import, export, the most efficient distribution of positions if the manufacturing, transportation, distribution, and problem is more regional than statewide. Moreover, sales of illicit vaping devices. Under the Governor’s the use of vaping devices is still relatively new and proposal, a sergeant would oversee the statewide therefore, may be subject to change. It is possible 22 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET that the outbreak of vaping associated lung injuries Issues for Legislative Consideration might result in a decrease in the demand for illicit For the reasons described above, it is unclear vaping devices, resulting in users of vaping devices whether the Governor’s proposal to create a choosing to buy legal products, or to stop vaping CHP-led investigative task force would be the most altogether, due to health concerns. Therefore, effective approach to addressing the problem of the long-term need for additional investigators is illicit vaping products. However, given the number unclear and could change as consumer behavior of illnesses and deaths attributed to illicit vaping changes in the coming years. products in recent years, it is reasonable for the Enforcement Is One of Several Potential Governor and the Legislature to be concerned Strategies to Combat Illicit Vaping Devices. and want to implement strategies to address Investigations of illicit vaping devices might this potentially growing public health problem. discourage the manufacture, distribution, and To the extent the Legislature would like to direct sales of illegal products, decreasing the supply more resources towards combatting illicit vaping of untested and unregulated vaping devices in products, we recommend that it consider the the state. However, such enforcement activity following questions as it develops its policy is just one approach and does not address the approach: demand for illicit vaping products. It is unclear what the most effective strategy or group of • What Is the Scope of the Problem? strategies is. Enforcement might be more Currently, the problem of illicit vaping devices effective when paired with other approaches to is poorly understood, both in terms of the change the demand for these products, such as size of the market and the extent to which expanded consumer awareness campaigns and the problem is geographically concentrated regulation of legal vaping devices. For example, in some areas within California. To better the Governor signed an executive order in 2019, understand the issue, the Legislature might directing CDPH to allocate at least $20 million want to consider providing resources to study in tobacco and cannabis program funds for an the scope of the problem, which could better anti-vaping awareness campaign and to develop inform how best to target enforcement or recommendations to limit availability of vaping other strategies. products to youths under age 21. • What Are the Most Effective Approaches? Unclear CHP Is the Appropriate Entity to This proposal focuses on enforcement as an Lead Investigations of Illicit Vaping Products. approach to addressing the problem of illicit CHP can investigate crimes related to illicit vaping products. However, the Legislature vaping devices, but it does not currently have might want to consider the degree to which it any specific expertise in this area. Currently, CHP wants to rely on a law enforcement approach does not have a dedicated unit that specializes in as compared to focusing on consumer investigating illicit tobacco or cannabis products. awareness, implementation of regulations, or Furthermore, the department reports they have some combination of approaches. not yet conducted any investigations into illicit • What Level of Resources Is Appropriate? vaping devices. However, other departments, such The Legislature could appropriate more or as CDPH, BCC, and DOJ have prior expertise in less funding than proposed in the Governor’s regulating and enforcing laws concerning tobacco budget depending on how it prioritizes this and cannabis products. In addition, many local issue, as well as what approach it wants to regulatory and law enforcement agencies might take to address the problem. have existing resources dedicated to investigating • What Is the Appropriate Fund Source? The illicit tobacco and cannabis products in their administration proposes to fund the task force communities. with a new tax on vaping products. However, it currently is unclear whether the Legislature www.lao.ca.gov 23 analysis full gutter 2020-21 BUDGET will approve this new tax. In the case that the • Who Should Lead the Effort? It is not clear proposed tax is rejected and addressing the that CHP currently has the most expertise to illicit vaping problem remains a priority, the lead an anti-illicit vaping effort. Other state Legislature could consider using other fund and local entities might be better suited to sources, such as the General Fund or one lead a coordinated effort due to their existing of the various tobacco and cannabis-related roles and responsibilities related to tobacco funds. and cannabis law enforcement, product regulation, public health and education. HIGH-SPEED RAIL AUTHORITY Chapter 796 of 1996 (SB 1420, Kopp) private contractor known as the RDP to perform a established the High-Speed Rail Authority (HSRA) wide range of core functions, including budgeting, to plan and construct a high-speed rail system accounting, IT, and contract management. that would link the state’s major population Currently, the RDP dedicates about 373 staff to the centers. HSRA is governed by a nine-member project (down from 485 in 2018). By comparison, board appointed by the Legislature and Governor. HSRA currently has 274 budgeted positions (up In addition, HSRA is led by an executive director from 198 in 2018). appointed by the board. In November 2008, voters Proposition 1A Caps Administrative Costs, approved Proposition 1A, which specified certain but Authorizes Legislature to Raise Cap. HSRA conditions that the system must ultimately achieve, relies almost exclusively on Proposition 1A to fund as well as authorized the state to sell bonds to its administrative costs due to statutory limitations partially fund the system and various local projects on the uses of its other funding sources, the that will facilitate high-speed rail. GGRF and federal grant funds. Proposition 1A The Governor’s budget proposes a total restricts the amount of bond funding that can be of $2.9 billion in 2020-21 for HSRA, almost used for administrative activities. Specifically, the all from the Greenhouse Gas Reduction Fund measure limits administrative costs to no more (GGRF) and Proposition 1A bond proceeds. This than 2.5 percent of the $9 billion in bond proceeds amount represents an increase of $1.8 billion dedicated to the project—a cap of $225 million. (or 165 percent) compared to the estimated The proposition authorizes the Legislature— expenditure level in 2019-20. The increase through statute—to raise this limit to no more than reflects higher anticipated capital spending on the 5 percent of bond proceeds ($450 million). high-speed rail project, as well as for local bookend Under Existing Budgeting Approach, HSRA projects in 2020-21. In addition, the Governor’s Expected to Hit Cap in 2020-21. In previous budget proposes 15 positions and $2.6 million budgets and the current-year budget, HSRA from Proposition 1A in 2020-21 and ongoing to categorized all state staff as administrative and all transition some IT functions from the rail delivery contract staff as non-administrative, regardless of partner (RDP) contractor to state staff. the nature of the activities they performed. HSRA indicates that under this approach, it would have ADMINISTRATIVE CAP reached Proposition 1A’s 2.5 percent cap on administrative costs in 2020-21. Accordingly, HSRA would have had to seek a statutory change—such Background as raising the administrative cap or expanding HSRA Relies Heavily on Contract Staff, the eligible uses of its GGRF allocation to include Including for Administrative Tasks. Most of administrative activities—from the Legislature by HSRA’s work is carried out by consultants under 2020-21 in order to continue current operations. contracts with HSRA. Notably, HSRA relies on a 24 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET Governor’s Proposal HSRA’s revised approach, many of those positions would be considered administrative if filled by Governor’s Budget Retroactively Changes state staff, but none of them would be considered Approach to Calculating Administrative Cap. administrative if they were filled by contractors. The budget reflects a change in HSRA’s approach We find that there is no clear policy rationale for to calculating the administrative cap under treating state staff and contractors differently in this Proposition 1A. Under this revised approach, way. HSRA continues to categorize state staff that Approach Removes Near-Term Requirement perform functions it deems to be primarily for Legislative Action on HSRA. HSRA administrative—such as accounting, budgeting, estimates its revised approach to calculating the and human resources—as administrative. However, administrative cap will result in HSRA reaching it categorizes state staff who are engaged in the cap roughly three years later than previously functions that are primarily project development anticipated (2023-24 rather than 2020-21). This is or construction management-related—such as important because it delays a natural opportunity environmental review, engineering, and construction for legislative oversight. (No other significant oversight—as nonadministrative. HSRA proposes legislative actions are anticipated to be required in making this change retroactively to 2008. Under 2020-21 for the project to continue.) We find that HSRA’s revised approach, it continues to categorize legislative oversight over this project is particularly all contractors as nonadministrative regardless of important this year since the HSRA anticipates whether the activities they perform are primarily making a number of important decisions this year administrative in nature or not. that could affect the direction of the project—such Assessment as issuing a key contract for track and systems. Reasonable to Reconsider Approach to Recommendation Administrative Cap. We do not raise concerns Require HSRA to Take Consistent Approach with HSRA’s revised approach to categorizing state to Administrative Cap. We recommend that staff. We find that it makes sense to categorize the Legislature direct HSRA to apply the same staff as administrative based on the functions approach to calculating the administrative cap they perform rather than whether they are for state staff and contractors. For example, if employed by the state or contractors. Accordingly, contractors are performing work that is primarily HSRA’s proposed approach of categorizing administrative—such as budgeting, accounting, or state staff performing primarily administrative IT—we recommend that the associated costs be functions—such as accounting, budgeting, categorized as administrative, just as they would and human resources—as administrative, and be if the functions were performed by state staff. If categorizing state staff performing primarily project this consistent approach results in HSRA reaching development or contract management functions as the cap under Proposition 1A in 2020-21, HSRA nonadministrative appears to be reasonable. could seek a statutory change to increase the cap Approach of Treating State Staff and to enable it to continue to fund its administrative Contractors Inconsistently Is Problematic. activities from Proposition 1A. This requirement for While we do not raise concerns with HSRA’s a statutory change would provide the Legislature revised approach to categorizing state staff, it is with a valuable opportunity to weigh in on the problematic that HSRA does not apply the same direction of the project before authorizing the approach to contractors. Notably, some activities requested statutory change. Regardless of whether performed by the RDP are similar—and in some a statutory change is required, however, we cases identical—to those performed by state recommend that the Legislature prioritize oversight staff. For example, in 2019-20, the Legislature over the high-speed rail project in 2020-21 given approved replacing roughly 40 RDP contractors the important decisions the state faces that affect with state staff in the areas such as IT, accounting, the direction of the project. budgeting, and contract management. Under the www.lao.ca.gov 25 analysis full gutter 2020-21 BUDGET 26 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET SUMMARY OF RECOMMENDATIONS Issue Governor’s Proposal LAO Recommendations Cross-Cutting Issues Motor Vehicle Acount Includes several changes to address Establish legislative priorities for the (MVA) fund condition an operational shortfall in the fund in fund and consider various options to 2020-21, including (1) shifting certain address the fund’s projected insolvency, costs to other funds and (2) using lease including delaying supplemental pension revenue bonds to fund the construction repayments, eliminating the General Fund phase of CHP and DMV facilities. transfer from the MVA, increasing MVA revenues, and reducing operational costs. California Department of Transportation (Caltrans) Litter abatement $31.8 million in 2020-21 (growing to Approve the proposal with supplemental $43.4 million in 2024-25 and ongoing) reporting language requiring Caltrans from the State Highway Account to provide an assessment of the causes (SHA) to augment funding for the Litter of increasing litter on state highways to Abatement Program. inform future litter prevention strategies. Pedestrian and bicycle $2.2 million on a two-year, limited- Approve the proposal with supplemental safety investigations term basis from the SHA to establish reporting language requiring the Pedestrian and Bicyclist Safety department to report on the outcomes of Investigation Programs. the programs. Wildfire litigation $1.7 million for four years from the SHA to Approve the proposal and use spring budget support the department’s legal division hearings as an opportunity to exercise for anticipated workload increases additional oversight of Caltrans vegetation stemming from a recent wildfire lawsuit. management activities. Transportation System $5.4 million (one time) from the SHA Approve the proposal with budget bill Network Replacement for Caltrans to begin implementing language to authorize expenditures project the Transportation System Network only upon approval by the Department Replacement project. of Technology of Stage 4 of the Project Approval Lifecycle process and upon written notification to the Joint Legislative Budget Committee. Department of Motor Vehicles (DMV) Motor Voter workload $6.4 million in 2020-21 ($4.1 million Withold action until later this spring when ongoing) from the General Fund to we expect additional information to be support workload related to the Motor available to determine the appropriate Voter program. staffing level for the program. San Francisco field office $2.9 million from the MVA for the Withold action until DMV reports on the replacement performance criteria phase of the San cost-effectiveness of constructing the Francisco field office replacement project as zero-net energy. project. California Highway Patrol (CHP) E-Cigarette Task Force $7 million from a proposed tax on Consider implementing an approach to e-cigarettes to establish a CHP-led task addressing the illicit vaping problem that is force to investigate illicit vaping devices. based on clearer understanding of factors, such as the scope of the problem, the most effective approaches to addressing the problem, and who should lead the effort. High-Speed Rail Authority (HSRA) Administrative cap Reflects a change in HSRA’s approach to Direct HSRA to apply a consistent approach calculating the administrative cap under to calculating the administrative cap for Proposition 1A. state staff and contractors, rather than the inconsistent method proposed. www.lao.ca.gov 27 analysis full gutter 2020-21 BUDGET 28 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET www.lao.ca.gov 29 analysis full gutter 2020-21 BUDGET TRANSPORTATION UNIT Frank Jimenez Caltrans 916-319-8324 Frank.Jimenez@lao.ca.gov SB 1 Revenues Eunice Roh California Highway Patrol 916-319-8327 Eunice.Roh@lao.ca.gov Department of Motor Vehicles MVA Fund Condition Helen Kerstein High-Speed Rail Authority 916-319-8364 Helen.Kerstein@lao.ca.gov LAO PUBLICATIONS This report was reviewed by Brian Brown and 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. 30 LEGISLATIVE ANALYST’S OFFICE