|Budget Issue:||Yermo Border Protection Station Relocation|
|Program:||Department of Food and Agriculture|
|Finding or Recommendation:||Direct DGS to develop a proposal for managing the construction of the Yermo Border Protection Station. Require Caltrans to report at budget hearings on why the Legislature should have confidence that it will meet its current schedule and cost estimate. Require the administration to report at budget hearings on why it is now proposing to fully repay the lease revenue bonds from the General Fund.|
Yermo Border Protection Station (BPS). The California Department of Food and Agriculture (CDFA) operates 16 BPSs on major highways entering California. These stations allow CDFA to inspect incoming vehicles for invasive species that could damage the state’s agricultural industry and environment, as well as for other materials being brought into California illegally. In 2000-01, the Legislature authorized the design and construction of a new facility to replace an existing BPS located along Interstate 15 near Yermo, California. The project was scheduled to be completed in 2004-05 at a cost of $8.5 million from lease revenue bonds.
As originally proposed, the new BPS would be constructed jointly with a new vehicle enforcement facility for the California Highway Patrol (CHP). Facilities used by CHP are funded by state transportation funds. Under the proposal, the facility would be designed and constructed by the California Department of Transportation (Caltrans).
Project Has Experienced Delays and Increased Costs. Since its initial approval in 2000-01, the Yermo BPS project has experienced multiple delays and cost increases, as described below.
Between 2002 and 2008, the project experienced difficulties acquiring property from the federal government, design changes, and environmental issues, such as the discovery of endangered species habitat in the area.
In 2009-10, the Legislature approved a revised proposal for the BPS with a total cost of $47.4 million (lease revenue bonds), including $1.6 million for preconstruction work (such as acquisition, preliminary plans, and working drawings). At the time, the administration estimated that construction would be completed in 2011-12.
Between 2009 and 2013, the project was delayed further because Caltrans incorrectly acquired land on a temporary basis, rather than on a permanent basis, to allow the state to finance the project with lease revenue bonds. In 2012, Caltrans split the CHP and BPS portions of the project into separate projects in order to avoid additional delays to the CHP facility. The land for the BPS was permanently acquired in December 2013. As a result of these delays, the Legislature approved a reappropriation for the project in 2013-14 with a revised completion date of 2015-16.
In 2014-15, the project was delayed further—with a new completion date of 2016-17—because the working drawings for the project needed to be updated to reflect recent changes to building codes. At the time, the total budgeted cost for the project remained unchanged. However, the Legislature approved a reappropriation of only $40.4 million in lease revenue bond authority (mostly from the General Fund, as well as some transportation funds). According to the administration, Caltrans has already spent $7 million in state transportation funds on the remaining project costs for acquisition, preliminary plans, and working drawings.
The Governor’s 2015-16 budget proposes to reappropriate $46.9 million in unspent lease revenue bond authority to complete the necessary updates to the working drawings, as well as to construct the project. (As indicated above, a total of $47.4 million was initially approved by the Legislature in 2009.) These bonds would be fully repaid by the General Fund. The requested $46.9 million reappropriation would be in addition to the $7 million in state transportation funds that Caltrans has already spent on the project. Based on our conversations with the administration, the project has not moved forward because the Department of Finance and Department of General Services (DGS) have been educating Caltrans on the State Public Works Board (SPWB) process, which is used for financing and constructing most state facilities. The administration states that Caltrans will begin updating the working drawings in March 2015, and the remaining design work will take 6 to 12 months before construction can begin. As a result of this delay, the project is now expected to be completed in 2017-18.
Requested Funding Amount Not Tied to Current Cost Estimate. The proposal would authorize the administration to spend a total of about $54 million for the project—the $46.9 million requested reappropriation and the $7 million Caltrans has already spent. However, this amount significantly exceeds Caltrans’ most recent total cost estimate for the project of $46 million. At this time, the department has not provided any justification for the proposed level of increased spending.
General Fund Share of Costs Would Increase. The proposal could increase General Fund costs for the project without justification. As noted above, the most recent reappropriation approved by the Legislature (in the 2014-15 Budget Act) indicated that state transportation funds would support a portion of the project’s costs—specifically 25 percent, or $11.9 million—while the remaining $35.6 million would be supported by the General Fund. The administration’s 2015-16 proposal, however, would increase the amount of lease revenue bond authority supported by the General Fund to $46.9 million. Thus, General Fund supported costs would be $11.3 million higher than what was previously authorized by the Legislature.
Problems With Caltrans Project Management. Caltrans lacks expertise with the processes that the state uses to design and construct state buildings, which has significantly contributed to the project delays and cost increases. For example, Caltrans has moved back the project completion date in three consecutive years. As described above, these delays were the result of Caltrans (1) not knowing basic requirements for lease revenue bond financing, which delayed the project from 2009 to 2013; and (2) requiring additional education on the SPWB process, which delayed the project from 2014 to 2015. In addition, Caltrans’ current proposal assumes that updating the working drawings will require an additional $1.1 million and as much as 12 months to complete. It is unclear why this amount of time and money—which are comparable to the original estimated cost and schedule for the design phase—is necessary to modify drawings that are otherwise largely complete.
Significant Risk for Additional Cost Overruns and Delays. Given its track record on this project, we are concerned that Caltrans’ management of this project poses significant risk for additional cost overruns and delays. We note, for example, that Caltrans has spent $7 million to date on preconstruction activities, which is over four times as much as was previously budgeted, and the working drawings are still incomplete. Moreover, the amount spent to date is nearly as much as the full estimated cost for the entire project when first proposed.
DGS Could Provide Viable Alternative to Caltrans. We note that DGS has designed and completed several other BPSs for CDFA. For example, DGS completed a BPS near Lake Tahoe in 2007 that was roughly similar in size. The DGS was able to complete all preconstruction work related to the Lake Tahoe BPS for $1.8 million. The entire project was completed in eight years and cost a total of $22.9 million.
Given the above concerns with Caltrans’ management of the Yermo BPS project, we believe the Legislature should gather information about its options for managing the project. As noted above, DGS presents one such option. In order to allow the Legislature to evaluate whether such an approach would provide for a more timely or less costly approach, we recommend that the Legislature direct DGS to develop a proposal for managing the construction of the Yermo BPS by the May Revision. The DGS should consider two options: (1) updating the existing working drawings developed by Caltrans, or (2) completing new drawings. We also recommend the Legislature require Caltrans to report at budget hearings on why the Legislature should have confidence that it will meet its current schedule and costs estimates, as well as provide any updates to the cost and schedule for the project. In addition, the administration should report at budget hearings on why it is now proposing to fully repay the lease revenue bonds from the General Fund.
Based on this information, the Legislature would be able to evaluate whether DGS would be likely to complete the project at a lower cost or in a shorter amount of time than Caltrans. In making this determination, the Legislature will want to consider whether Caltrans possesses the necessary expertise to successfully complete the project. Pending the above information, we withhold recommendation on the administration’s proposal for reappropriation of the remaining funds for the Yermo BPS. If the Legislature determines that Caltrans should continue managing the project, we recommend the Legislature reduce the amount of the reappropriation to reflect its most recent project cost estimate.