The budget proposes a modest overall increase for the Highway Transportation program. The increase is the net result of reductions in most support and local assistance activities and a substantial increase in capital outlay expenditures. The department has not provided any details on its $3.3 billion proposed capital outlay expenditure.
Of the total expenditures proposed in the department's budget, $5.8 billion is for the Highway Transportation program. This is an increase of $316 million, or 5.8 percent, over estimated current-year expenditures.
As shown in Figure 4, Caltrans expects that state funds will finance $2.7 billion (46 percent) of highway program expenditures. Federal funds make up $2.1 billion (36 percent) of the program budget, and the remaining $1 billion (18 percent) is reimbursements, primarily from local governments.
Reductions in Most Highway Programs. Although the budget proposes more highway expenditures than in the current year, as Figure 4 illustrates, most individual elements within the highway program will be reduced. For example, the budget proposes that capital outlay support receive $717 million, a reduction of $70 million (9 percent) from estimated current-year expenditures. The only substantial increase is in proposed expenditures for capital outlay (project construction), which would increase by $496 million (18 percent) over estimated current-year expenditures. Caltrans has not provided detail on the types of transportation projects that would be supported by this proposed level of capital outlay; therefore, we are unable to provide the usual display of planned highway capital outlay expenditures.
Unallocated Cut Will Reduce Highway Program. Figure 4 does not show the effect of Caltrans' proposed $76.4 million unallocated cut, because Caltrans has not yet informed the Legislature of how it intends to allocate the reduction. However, because the highway program accounts for over 91 percent of Caltrans' total budget, highway expenditures will almost certainly be reduced as a result of the unallocated cut.
The budget anticipates several actions that increase the level of funds available for capital outlay, including reductions to support and local assistance, borrowing from future funds, and the use of toll bridge funds for toll bridge seismic retrofit. We recommend that Caltrans explain the exclusion of a $79 million anti-trust award from the proposed budget.
Support and Local Assistance Reductions Free Up Funds for Capital Outlay. The budget proposes various reductions to Caltrans' support and local assistance budget for 1995-96. These proposals include a reduction of 1,226 support PYs, compared to the current-year level. Three separate proposals account for the majority of the PY reduction: (1) 252 PYs to be cut in the administration and highway programs in order to accommodate an unallocated reduction imposed by the Legislature in the current year, (2) 220 PYs to be cut in highway capital outlay support due to declining workload, and (3) an unallocated reduction of 716 PYs proposed by the department. The budget uses the savings to increase the level of capital outlay funding. We discuss in greater detail the proposals to reduce support funding later in this Analysis.
In local assistance, the budget reduces the funding in two programs. First, the budget proposes $100 million for the State-Local Transportation Partnership Program, rather than the $200 million intended under the Transportation Blueprint for the Twenty-First Century (Blueprint). Second, the budget provides only $5 million for Environmental Enhancement and Mitigation (EEM) rather than the $10 million intended in the Blueprint. The budget intends that this $5 million be counted as an expenditure for both the EEM program and the Habitat Conservation Fund.
Borrow From Future State Highway Account Revenues. The budget proposes to increase the funds available for capital outlay by borrowing $147 million from future revenues in the State Highway Account (SHA). (Caltrans estimates that it will sell a total of $847 million in SHA bonds from 1995-96 through 1997-98.) Using authority provided by Ch 194/91 (AB 981 Katz) and Ch 195/91 (SB 460, Killea), the department proposes to sell short-term bonds, to be repaid by 2000. This bonding authority is intended to be used to fund capital outlay for seismic projects or other projects that lack funding as a result of seismic retrofit expenditures. While the use of bonding authority will ease the funding shortfall somewhat in 1995-96, bond repayment and interest costs will further exacerbate the shortfall in subsequent years.
Toll Bridge Seismic Retrofit Funded From Toll Bridge Revenues. The budget proposes to fund toll bridge seismic retrofit work from toll bridge revenues. In recent years, the Legislature has budgeted funds from both toll bridge revenues and the SHA for toll bridge seismic retrofit. By relying exclusively on toll bridge revenues, the budget eases pressure on the SHA and leaves more funds available for other state highway and rail projects. However, toll bridge revenues must also support construction of nonseismic toll bridge improvements. Funding seismic retrofit from toll bridge revenues may jeopardize these other projects. Caltrans has not provided detail on the amount of toll bridge funds that are requested for seismic retrofit; therefore, we are unable to comment on the potential impact of this funding decision. Use SHA and Federal Funds for Rail Projects. Because of the failure of two rail bond measures, rail capital outlay projects scheduled in the STIP will be unfunded by $2 billion. The budget proposes to use $118 million in SHA and federal funds to pay for rail capital projects in 1995-96.
Cutback in Reimbursed Work. Caltrans indicates that the proposed budget represents the beginning of a policy decision to reduce reimbursed work for local transportation agencies. Most local transportation agencies have minimal engineering staff, and rely on Caltrans or private sector engineering consultants to perform design and construction oversight services. Because Caltrans is required to bill the full cost for reimbursed work, there should not be any savings to state transportation funds as a result of a cutback in reimbursed work. However, by reducing the level of reimbursed work that Caltrans performs, more local transportation agency work will be available for private sector consultants.
Budget Reserves Funds for Santa Monica Bay Lawsuit. As described in the Crosscutting Issues write-up, a federal court has ruled that Caltrans has failed to prevent toxic substances from highways and equipment yards from washing into storm drains and ultimately into the Santa Monica Bay. The budget reserves $20 million in the SHA for the estimated cleanup costs in 1995-96. Ongoing annual costs of remediation are anticipated to be substantial.
Budget Does Not Include $79 Million Anti-Trust Award. Also as discussed in our Crosscutting Issues write-up, the 1995-96 budget does not reflect a $79 million award which Caltrans received as part of an anti-trust lawsuit against several petroleum producing companies. The court order requires that the award be used for seismic retrofitting of state highway bridges.
Recommend Caltrans Explain Exclusion. There are several advantages to budgeting the anti-trust award in 1995-96. While the budget proposes borrowing $147 million for seismic retrofit needs, by including the anti-trust award the same level of seismic retrofit could be supported while borrowing only $68 million. Alternatively, the overall level of capital outlay could be increased by up to $79 million above the level proposed in the budget, or the proposed unallocated cut to Caltrans' support could be reduced. Given the critical shortfall in transportation funds, we recommend that Caltrans explain the exclusion of these funds and that the Legislature consider its options for including the anti-trust award in the 1995-96 budget.
The key features of the budget present important policy decisions for the Legislature. We believe that the Legislature should consider the budget's assumptions regarding current and future programs levels and funding, in order to determine if the assumptions are consistent with the Legislature's priorities. This budget presents several important policy decisions for the Legislature, some of which will have long-term implications for the size of the transportation capital program and Caltrans' need for capital outlay support staff. We believe that the Legislature should consider the following implications of the budget and evaluate whether the current and long-term effects are consistent with the Legislature's priorities:
Should Caltrans Borrow Construction Funds? This decision allows Caltrans to deliver a larger capital outlay program in 1995-96 and eases the current need to delay STIP projects. However, by borrowing against future SHA funds, this decision will contribute to a much smaller STIP program in the future and a reduced need for Caltrans' capital outlay support staff. The Legislature could reverse this decision in future years only by providing a revenue enhancement package. (We discuss this issue in greater detail below.)
Should Seismic Retrofit Have the Highest Priority for Funds? The budget assumes that Caltrans will deliver $500 million of seismic retrofit projects in 1995-96 and that these projects will have first priority for capital outlay funds. This decision will displace STIP projects with seismic retrofit projects and will extend STIP delivery schedules. Therefore, while the priority given seismic retrofit can be changed in subsequent years, this year's decision will have long-term impacts.
Should Toll Bridge Seismic Retrofit Be Funded with Toll Bridge Revenues, in Lieu of SHA Funds? This decision frees up SHA funds which can be used to ease somewhat the current need to delay STIP projects. If toll bridge retrofit is instead funded from SHA in this or subsequent years, STIP project delays would increase. However, using toll bridge revenues for retrofit could mean that other toll bridge improvements would be delayed.
Should Local Assistance Be Reduced? This decision also eases somewhat the current need to delay STIP projects; however, some local projects would be delayed instead. Reversing this decision in the budget year or in subsequent years would increase STIP project delays.
Should Support for Caltrans Be Reduced? This decision frees up funds for capital outlay and matches the support level with the fundable capital outlay program. However, should the Legislature choose to provide additional transportation funds in the future, it could take several years to reverse a decline in support staffing and to train new employees. Alternatively, the Legislature could accommodate a future program increase by contracting out any additional work (possibly requiring a constitutional amendment) or by giving more project development responsibility and funds to local and regional transportation agencies.
Caltrans will be unable to fund construction of all projects scheduled for 1995-96. The department is developing an allocation plan to determine which projects will receive construction funding. The plan relies upon borrowing against future transportation funds, and raises implications for the future level of transportation construction.
Allocation Plan Will Ration Funds for New Projects. As we discussed in the Crosscutting Issues section of this chapter, there is a significant funding shortfall in the state's transportation program. Due to this shortfall, Caltrans projects that in 1995-96 it will have insufficient capital outlay funds to construct all of the projects, including seismic retrofit, that are scheduled for delivery in that period. As a result, Caltrans is in the process of developing an allocation plan to maximize capital outlay funds and to ration these funds among all of the projects that are scheduled for delivery. The allocation plan will address the 18-month period from January 1995 through June 1996.
The allocation plan presents a different view of Caltrans' capital outlay program from that presented in the Governor's Budget. The budget assumes that in 1995-96 Caltrans will expend $3.3 billion for highway capital outlay. This amount represents payments for project construction that began in previous years, as well as payments that will be required in 1995-96 for new project construction.
In contrast to the budget, the allocation plan addresses a different question--which new projects can Caltrans afford to begin constructing in 1995-96, recognizing that projects begun in 1995-96 will require construction payments in future years as well? Absent a funding shortfall, this question is addressed when projects are programmed into the STIP. However, given the immense gap between projected revenues and programmed projects, the STIP can no longer be used as a schedule for project construction consistent with available capital outlay resources.
Most Allocation Plan Resources Are Borrowed. Figure 5 summarizes Caltrans' allocation plan, which envisions that the California Transportation Commission (CTC) will authorize construction to begin on $2.2 billion in new capital outlay projects over the 18-month period. Caltrans estimates that over that period current state and federal revenues will provide $3.9 billion in resources. However, very little of that amount will be available to begin new project construction. This is because most of the $3.9 billion will be used for departmental support, local assistance, ongoing construction projects, and repayment of federal funds borrowed in previous years.
The allocation plan envisions augmenting available revenues by borrowing against future state and federal transportation funds. Specifically, Caltrans would sell bonds to borrow $147 million, to be repaid by 2000 with SHA revenues. (While current law authorizes Caltrans to issue such bonds, the department has never before used this authority.) The largest source of funds for the allocation plan, however, would be $1.5 billion in advance construction federal funds borrowed from FFY 1996-97. Advance construction has become a routine part of Caltrans' capital outlay program. However, to our knowledge, the department has never before relied so heavily on advance construction to fund its capital outlay program.
Project Rationing. Figure 5 also illustrates how Caltrans proposes to allocate $2.2 billion to broad categories of transportation projects. The department reports that it will fund construction of all highway seismic retrofit projects as soon as engineering is complete, for an estimated cost of $500 million. In addition, the plan allocates $645 million to provide partial funding of the State Highways Operation and Protection Program (SHOPP). The department indicates that it plans to fund SHOPP highway safety and rehabilitation projects as well as minor projects, but will defer landscaping, buildings, and other nonessential SHOPP projects. Purchase of rights-of-way for current and future projects will receive $250 million. Finally, the allocation plan targets the remaining $850 million for STIP projects.
Largest Cutback Is in STIP Projects. Under this plan, STIP projects bear the brunt of the funding shortfall. The department indicates that over the period covered by the allocation plan, scheduled STIP projects total $2.8 billion; however, even with its aggressive use of future revenues, the allocation plan will provide only $850 million for STIP projects. Caltrans reports that many of the STIP projects will likely not be ready for construction when scheduled, so that the number of STIP projects that ultimately go unfunded will be somewhat less. At the time this analysis was prepared, Caltrans was engaged in a discussion with its district offices and local and regional transportation agencies to determine which STIP projects would be ready to construct during the 18 month period and which ones should receive highest priority for available capital outlay allocations.
Implications of the Allocation Plan. The worsening funding shortfall for transportation projects leaves no easy solution, and the 1995-96 allocation plan offers one way to address the problem. However, we believe that the Legislature should consider the following long-term implications of this plan:
Caltrans has provided only cursory information on how it is implementing current-year budget reductions totaling $148 million. The department has provided no evidence that its $56 million management efficiency reduction did not reduce program output, particularly in highway maintenance.
In the current year, Caltrans has to make substantial reductions in some of its programs below their 1993-94 level. This is because the 1994-95 budget includes the following actions:
The Legislature left to Caltrans the discretion to allocate these cuts to specific programs and activities.
Figure 6 shows how Caltrans reports that it will implement the cuts in the current year. As the figure shows, about $43 million in management efficiencies will be realized through cuts to the highways program, including $25 million from highway maintenance. Another $12 million in efficiency reductions will come from departmental administration. In addition, the management efficiencies will result in a 564 PY reduction (of the 584 PY reductions shown in the last column of Figure 6.) Reduction in highway maintenance PYs account for 45 percent of the total management efficiency PY cuts.
No Evidence of Efficiencies. Although Caltrans has characterized the $56 million reduction as an efficiency measure that would not reduce program output, the department has been unable to explain what efficiency measures produced these savings. The department has also failed to explain what activities it has eliminated or modified to achieve the savings. As a result, we can offer no assurances to the Legislature that Caltrans has implemented these cuts through efficiencies rather than by reducing program activities and output and deferring expenditures.
Capital Outlay Support Reductions. Caltrans indicates that, in order to realize $51 million in capital outlay support reductions, it reduced operating expenses by $30 million and engineering contracts by $21 million. These actions did not result in any staff reduction. The department, however, indicated that the reduction in state-funded engineering contracts resulted in a further reduction of $27 million in federally funded contracts. Our review shows that the $27 million in federal funds, although not expended on contracting out, remain available to the department for support expenditures.
Unallocated $41.5 Million Cut. In enacting the 1994-95 budget, the Legislature explicitly directed the department to reduce departmental administration (except for tort payments and central administration pro-rata) by $13.5 million. Caltrans indicated that it implemented the administration cut by eliminating 8 PYs of staff (for savings of about $387,000) and by reducing $13.1 million from operating expenses, including about $2 million in structural material (used for highway maintenance) and an unknown amount in technical services that support highway design and engineering (such as computer services and information systems) and in other administrative services.
As Figure 6 shows, Caltrans chose to take all of the remaining unallocated $28 million cut in highway programs, including $12 million from highway maintenance and $9.8 million from equipment services (including passenger vehicles and maintenance equipment). As with other reductions, the department did not provide detail as to how it will achieve these reductions.
For 1995-96, Caltrans has chosen to reallocate the $41.5 million reduction so that it affects programs differently than in the current year. In addition, the budget proposes three major adjustments that we analyze in the sections that follow.
Budget Reallocates $41.5 Million Reduction. In preparing its 1995-96 budget, Caltrans chose to reallocate the $41.5 million reduction such that the reductions will affect program funding in a different way compared to the current year. Figure 7 illustrates how the reductions were allocated in 1994-95 and how the department reports that it will reallocate the cuts in 1995-96. Specifically, reductions to highway maintenance will continue in 1995-96, at about the same amount as the current year, but administration will bear a greater share of the cut--$20 million in 1995-96, compared to $13.5 million in 1994-95. In total, the entire highway transportation program would bear $21.5 million of the cut, compared to $28 million in the current year.
Reduction in Administration Misleading. Our review shows that for 1995-96, Caltrans plans to reduce administrative services personnel by 200 PYs to achieve about $10.2 million of the $20 million proposed reduction. However, the remaining $9.8 million will be a reduction not in administration per se, but rather in equipment services (which for purposes of the 1994-95 reductions, are not considered as administration).
Additional Major Proposals in 1995-96 Budget. In addition to a reduction of $41.5 million in the department's baseline expenditure level, the proposed budget includes three other major adjustments:
We discuss each of these three proposals in greater detail below.
We recommend a reduction of $28.6 million requested to restore current- year cuts, because the proposal is inconsistent with legislative intent. (Reduce 2660- 001-042 by $28.6 million.)
The budget proposes an increase of $28.6 million in operating expenses and equipment, in order to restore part of the $41.5 million cut imposed by the Legislature. As Figure 7 illustrates, the proposal is concentrated in highway maintenance and equipment services. Caltrans indicates that the restoration of $12 million to highway maintenance would directly reverse the cuts that the department made in implementing the $41.5 million unallocated reduction. Similarly, funding for equipment services will be restored. (Even though Caltrans' data as shown in Figure 7 do not reflect a reduction in equipment services, Caltrans indicated that the reduction was made as part of the $20 million reduction in administration.) While the department itemized the categories of expenditures to be restored and their amounts, it provided little justification for the proposal. Therefore, we are not able to evaluate the merits of the individual proposals that it contains.
Restoration Not Consistent With Legislative Intent and Lacks Justification. While we do not doubt that Caltrans has found recent budget cuts to be difficult to implement, we believe that the Legislature's intent was that the $41.5 million cut be a permanent reduction in expenditures. Caltrans has the discretion to allocate this reduction among various programs and to select the mix of personnel and operating expense reductions based on program priorities. Thus, Caltrans should allocate budget reductions in a manner that is least disruptive to the department in meeting its statutory priorities. We believe that in order to justify that part of the cut be restored, the department ought to demonstrate the need for the funds relative to the department's budget in its entirety, and the adverse impact of the lack of restoration. Lacking such justification, we therefore recommend that the $28.6 million increase be deleted.
Due to decreased workload, the budget proposes 8,955 personnel-year equivalents (PYEs) for highway capital outlay support, a reduction of 647 from the estimated current-year level. However, Caltrans has not provided any detail to allow an evaluation of its staffing level. We recommend that Caltrans provide, prior to budget hearings, a workload calculation to justify its proposed staffing level.
We further recommend that Caltrans justify its proposed level of contracting out (260 PYEs) in terms of continuing and new contracts, and technical specialities, in view of recent court rulings that limit Caltrans' ability to continue to contract out. The budget proposes expenditures of $717 million for highway capital outlay support in 1995-96. This is a reduction of $71.4 million (9 percent) from estimated current-year expenditures. This expenditure level will support a total of 8,955 PYEs of work--a decrease of 647 (6.7 percent) from the amount estimated in the current year. Capital outlay support staff provide engineering, right-of-way acquisition, environmental clearance, technical support, and construction oversight on capital improvements. Figure 8 illustrates both the source of the 8,955 capital outlay support PYEs, as well as Caltrans' proposed use for the PYEs. In order to achieve a reduction totaling 647 PYEs, Caltrans proposes to reduce state staff by 220 PYs, contracting out by 353 PYEs, and student assistants by 74 PYEs.
Fewer PYEs Needed Due to Lower Workload. Because of the shortage of capital outlay funds and the resulting reduction in the number of projects that can be constructed in 1995-96, Caltrans requires fewer PYEs in capital outlay support. Typically the department uses a statistical model to compute its PYE requirement for capital outlay support, based upon the number, size, and complexity of scheduled projects. However, because the 1995 allocation plan is still under development, Caltrans is not certain which projects it will be asked to deliver in 1995-96, and consequently the department was unable to estimate its capital outlay support needs using its statistical workload model. Instead, the department indicates that it approximated its PYE needs-- based upon the aggregate dollar amount of planned capital outlay and the assumption that historical workload averages would apply.
Recommend That Caltrans Justify Staffing Level. Given the uncertainty surrounding the allocation plan, we recognize the need for Caltrans to depart from its usual method of calculating staffing needs. However, Caltrans has not provided details of the workload calculation, and, consequently, we are unable to evaluate the proposed staffing level. As the allocation plan is currently being finalized, we recommend that, prior to budget hearings, Caltrans provide a workload calculation that justifies its proposed staffing level for capital outlay support.
Recommend That Caltrans Provide Contracting-Out Details. The budget proposes that Caltrans utilize 260 consultant services PYEs in order to meet part of its workload. However, several court decisions have held that Caltrans has violated the State Constitution by contracting-out for services that could be provided by state staff, and a recent decision found Caltrans in contempt of court for failing to justify or cancel existing contracts. As a result, Caltrans may be required to further reduce contracting-out. In light of recent rulings, we recommend that Caltrans advise the Legislature, prior to budget hearings, of the level of contracting-out that can be utilized in 1995-96. In addition, we recommend that Caltrans justify its proposed level of 260 consultant PYEs by showing the number that are for continuing contracts and the number intended for new contracts, and also the technical specialities that the consultants will provide.
Reductions by Project Type. Figure 8 also shows how Caltrans proposes to distribute 8,955 capital outlay support PYEs among the various categories of transportation projects. For example, the basic state program (STIP, SHOPP, and TSM) will utilize 442 fewer PYEs than in the current year. Reimbursed work on local tax measure projects will be reduced by 448 PYEs, while seismic retrofit PYEs will remain at about the same level as in the current year.
While the department's proposed reduction does cut 647 PYEs and $71.4 million, only a portion represents actual savings to the state. This is because $23 million of the reduction is from reimbursed work that would have been paid for by local transportation agencies, and $13 million is from toll bridge funds that can only be spent on toll bridge projects. The remaining $36 million, however, is a savings in state and federal funds that can be used for capital outlay or other departmental support needs.
We withhold recommendation on a $76.4 million (716 PY) unallocated cut because Caltrans has provided no explanation of why it proposes this reduction or how it will be implemented. We recommend that Caltrans report to the Legislature, prior to budget hearings, on how it will allocate and implement this reduction and on how the reductions will affect program output and personnel.
The budget includes an unallocated reduction of $76.4 million--$67.4 million and 716 PYs from departmental support and $9 million from local assistance. Caltrans has not explained why it has proposed this reduction or how the proposed reduction will affect different programs or activities. While Caltrans will experience reduced workload as a result of a shortage in transportation funds, the department has separately proposed a $71.4 million reduction (discussed above) intended to match capital outlay support staff to the size of the fundable capital outlay program. This additional unallocated cut would, therefore, appear to reduce departmental support below the level that the department estimates is sufficient to design programmed projects and to adequately maintain and operate the transportation system.
We recommend that, prior to budget hearings, Caltrans report to the Legislature on how it proposes to implement this reduction, including:
Although the department did not meet its latest deadline, delivery of Phase 1 seismic retrofit is almost complete. Phase 2 retrofit is in the early stages of engineering. The department's staffing and delivery schedule for Phase 2 are only preliminary estimates and will likely need to be revised. Caltrans has not provided any information on its progress on toll bridge seismic retrofit or on planned toll bridge retrofit expenditures for 1995-96.
Following the 1994 Northridge earthquake, Caltrans expanded and revised its retrofit program for state highway bridges, creating a Phase 1 program and a Phase 2 program. Phase 1 includes bridges that Caltrans identified in its first screening, following the 1989 Loma Prieta earthquake. Caltrans identified 1,039 bridges for Phase 1 and set targets of December 31, 1994 to have all Phase 1 bridges under construction and December 31, 1995 to have all Phase 1 construction complete.
The Phase 2 program includes bridges that were added as a result of an additional screening process that followed the Northridge earthquake. Phase 2 currently includes 1,331 bridges and Caltrans has set a target of December 31, 1997 to complete all construction on these bridges.
Phase 1 Misses Target. Despite the department's commitment to seismic retrofit, Caltrans did not fully meet its December 31, 1994 target to have all Phase 1 bridges under contract. As Figure 9 illustrates, as of December 15, 1994 the latest complete data that Caltrans provided, a total of 890 Phase 1 bridges (86 percent) were either completed or under contract for construction. Caltrans has completed design plans for an additional 131 Phase 1 bridges and the department can now award construction contracts for these bridges.
Phase 2 Starts Slowly. In June 1994, Caltrans completed a screening process to identify bridges for Phase 2. Due to this late start, most Phase 2 bridges are now at very early stages in the design and construction process. As shown in Figure 9, a total of 18 bridges are either under contract or have construction complete, while engineering design has been completed for an additional 18 bridges.
The majority of Phase 2 bridges (1,295) are in the early engineering and design stages; it will take several more years to complete engineering design and construction. Caltrans has not yet set a design and construction schedule for individual Phase 2 bridges. Instead, the department has set aggregate targets to construct $50 million of Phase 2 projects in 1994-95 and $500 million per year in 1995-96 and 1996-97.
Caltrans Provides No Update on Toll Bridge Retrofit. Caltrans indicates that its target date to complete seismic retrofit construction of seven state toll bridges is also December 31, 1997. However, the department has provided neither information on its project schedule nor its progress in meeting this schedule. We understand that Caltrans' schedule assumes that private consultants will do much of the engineering; however, due to the department's planned reductions in contracting- out and to recent judicial limitations on contracting-out, it is unclear if this schedule can be sustained.
In addition, Caltrans has not provided information on its planned expenditures in 1995-96 for toll bridge retrofit design and construction. The budget provides $125 million in toll bridge revenues for toll bridge projects, including both seismic retrofit and nonseismic improvements. The budget assumes that toll bridge revenues will fund all toll bridge retrofit expenses. However, Caltrans has not indicated what portion of the $125 million in proposed expenditures is for toll bridge seismic retrofit and what portion is for nonseismic projects.
More Capital Outlay Support for Seismic Retrofit. Figure 10 illustrates the level of capital outlay support that Caltrans has allocated for seismic retrofit of highway, toll, and local bridges. For the current year, Caltrans initially proposed to allocate 552 PYEs for seismic retrofit. However, due to the addition of Phase 2 and the department's higher priority for seismic retrofit, Caltrans now estimates that it will use 1,461 PYEs for current-year seismic retrofit. In 1995-96, Caltrans' seismic retrofit work should be shifting from Phase 1 to Phase 2 projects; however, substantial support needs for Phase 2 will continue in 1996-97 and in 1997-98 as well.
As recently as one year ago, Caltrans planned to design and engineer seismic retrofit projects using primarily consultant engineers. However, due to department downsizing and court orders, Caltrans plans to eliminate most contracting-out, and the department now indicates that it will staff nearly all seismic projects with state staff.
Caltrans informs us that seismic retrofit requires special engineering skills and training, but the department was not able to identify the number of department staff that have these qualifications. In order to meet the staffing needs of Phase 2, Caltrans reports that it has developed an intensive training program for its own staff. While this is essential to ensure that all seismic retrofit work is of high quality, utilizing less experienced staff and devoting additional time to training academies is likely to reduce the overall productivity of the seismic retrofit program.
Phase 2 Staffing and Schedule Are Uncertain. We believe that Caltrans' delivery targets and staffing levels for Phase 2 should be considered preliminary estimates, due to staffing and scheduling uncertainties. Because the department lacks a project-specific delivery schedule for Phase 2, it is unable to accurately estimate its staffing requirement and forecast project delivery schedules. In addition, Caltrans staff that are newly trained for seismic design may be less productive than experienced staff, resulting in a higher staffing requirement. Therefore, as Caltrans develops more information about Phase 2 retrofit, we believe that the department will likely need to adjust its staffing level or its delivery targets.
The total number of highway projects that Caltrans delivered in 1993-94 increased slightly from the previous year, but the construction value of the projects declined sharply. Caltrans delivered 60 percent of the projects that were originally scheduled for 1993-94 delivery; however, the department delivered 89 percent of projects that were in its updated annual delivery plan.
Because of concern over project delays, the Legislature has enacted various requirements to monitor Caltrans' delivery of state highway projects. The Legislative Analyst is required to annually assess the department's progress in delivering projects according to the STIP programs: the STIP, the State Highways Operation and Protection Plan (SHOPP), and the Traffic Systems Management (TSM) plan. Project delivery is defined in statute as occurring when a project is advertised for construction.
More Projects Delivered But Much Lower Value. In 1993-94, Caltrans delivered 449 highway projects having a total construction value of $1.1 billion. Compared to total project delivery in 1992-93 (442 projects valued at $2.2 billion), this represents an increase of 1.6 percent in the number of projects delivered but a decrease of 47 percent in the total construction value of projects delivered. The lower value of delivered projects is consistent with the project delivery schedule, which for 1993-94 included fewer and smaller projects. Nonetheless, 1993-94 delivery value represents a considerably lower output than in recent years.
Total 1993-94 delivery includes projects that were planned for delivery in that year, as well as projects that were scheduled in earlier and later years but that were delivered in 1993-94. In addition, 1993-94 delivery includes 137 Northridge earthquake repair projects, having a construction value of $227 million. Although these earthquake repair projects were not scheduled in the STIP programs, they are counted as part of total project delivery for 1993-94.
Delivery Against STIP Schedule. Figure 11 illustrates Caltrans' degree of success in delivering projects in the year in which they were scheduled. As the figure illustrates, in 1993-94 Caltrans delivered 60 percent of projects that had originally been scheduled in the STIP for 1993-94 delivery; this is a slight decline from 65 percent delivery in 1991-92 and 1992-93. Projects that are not delivered in their originally scheduled year may have been delivered early or may be delayed for late delivery.
Delivery Against Project Delivery Plan. Caltrans and the California Transportation Commission make frequent changes to the STIP schedule, to add new projects, reschedule projects, or, less frequently, to delete projects. To reflect these changes, at the beginning of each fiscal year Caltrans prepares an updated project delivery plan that identifies the projects that Caltrans plans to deliver in the coming year. Figure 11 illustrates how successful Caltrans has been in delivering the projects in its annual project delivery plan. As the figure illustrates, in 1993-94 Caltrans delivered 89 percent (268 out of 302) of the projects that were in its 1993-94 delivery plan. This is the same delivery rate as in 1992-93, and an improvement over the 1991-92 delivery rate of 79 percent.
Caltrans has failed to submit reports on its cost of project development as required by statute. Additionally, the reports that Caltrans has produced in previous years to meet the statutory requirement do not provide a useful measure of the efficiency of Caltrans' project development program. We recommend adoption of supplemental report language directing the department to propose more meaningful measures of its efficiency.
For several years the Legislature has expressed an interest in monitoring the productivity and efficiency of Caltrans' project development function (consisting of designing and engineering highway projects). This is mainly because expenditures for design and engineering of transportation projects consume a considerable share of transportation funds, but Caltrans has never adequately demonstrated the efficiency of its design program. Based upon options suggested by Caltrans, the Blueprint required that Caltrans provide an annual report on its cost of project development. This annual report is intended to measure the efficiency of project development by comparing the cost of Caltrans' inputs (project development costs) to the value of its output (the construction cost of the transportation projects that Caltrans designed).
No Report for 1992-93 or 1993-94 Projects. In the Supplemental Report of the 1994 Budget Act, the Legislature restated its interest in Caltrans' project development costs, requesting that Caltrans provide project development cost reports for 1992-93 and 1993-94 by August 1 and December 1, 1994, respectively. Caltrans has failed to submit either report, but the department did provide a draft version of its cost report for 1992-93. As with the report on 1991-92 costs, Caltrans used yet a different methodology than in previous years to assess project costs. Additionally, it did not provide the necessary back-up information needed to permit an evaluation of the draft report's validity.
Report Does Not Provide Meaningful Efficiency Measure. Based on our review of Caltrans' annual project development cost report for several previous years, we find that Caltrans' report does not meet the Legislature's need to be informed of Caltrans' efficiency. The report does not provide a meaningful measure of engineering costs at one point in time, nor is it useful for making year-to- year comparisons of efficiency, for several reasons:
Caltrans attributes many of the shortcomings of its cost report to limitations in the department's financial information systems. For example, Caltrans informs us that its financial systems cannot provide project-specific data for certain types of costs and cannot combine department costs with consultant costs for individual projects.
Inability to Report Echoes SRI Finding. We believe that Caltrans' inability to produce a meaningful measure of its project development efficiency is indicative of the department's overall lack of performance measurement that SRI identified in its 1994 management audit (discussed in more detail in the next issue). In that report, SRI wrote:
The SRI team sought to determine whether Caltrans had become more, or less, efficient over the last ten years. Unfortunately, yet not unusual for government agencies, no consistent measure of output could be identified. Further, no set of overall department measures exist...for regularly tracking achieved performance versus target and for annual performance reviews. Such measures are essential if Caltrans is to improve its efficiency and productivity. (Finding L3, p II-45)
As SRI notes, Caltrans' managers need, but do not have, a comprehensive set of performance measures in order to manage effectively. We believe that the Legislature also needs measures of Caltrans' overall performance, at a lesser level of detail, in order to make budget and policy decisions. The Legislature intended that the report on the cost of project development would fill this role; however, we believe that the report, as produced by Caltrans, fails this purpose and should be replaced.
Recommend Caltrans Propose New Measures. Caltrans has for several years been engaged in a project to revamp its financial information systems. This project should, if properly executed, provide much improved access to financial data and the ability to generate performance measures of the type envisioned by SRI. We therefore recommend that the Legislature adopt the following supplemental report language, directing Caltrans to propose new and meaningful measures of capital outlay support efficiency that can be produced as a result of planned improvements to its financial systems:
Caltrans shall, by December 1, 1995, provide a report to the Legislature that proposes and evaluates performance measures for all major capital outlay support functions, including project studies, project development, right-of-way acquisition, and construction oversight. The department shall propose measures that (1) provide an accurate measure of annual efficiency, as well as (2) provide a consistent basis for year-to-year comparisons, and (3) evaluate both the department's cost and its timeliness in completing work. Furthermore, the department shall demonstrate that each measure that it proposes can be accurately generated from the department's existing or planned information systems.
Caltrans has not provided information regarding its implementation of the SRI report. We recommend adoption of supplemental report language directing Caltrans to provide a comprehensive report to the Legislature by August 1, 1995, including the department's response to each recommendation and the department's plans and progress towards implementation.
Legislature Calls for Management Audit. Motivated by years of concern that project delivery at Caltrans is too slow and too expensive, the Legislature in 1992 passed Senate Concurrent Resolution (SCR) 72 to initiate an independent consultant review of the management of Caltrans. Both the Governor and the Director of Caltrans, as well as the California Transportation Commission, voiced their support for the proposal.
In February 1994, the independent consultant, SRI International, completed its analysis and presented its final report and recommendations. SRI reported that, despite areas of improvement, Caltrans is not focused on results, but on adherence to procedures and rules. In addition, SRI found that Caltrans lacks a strong commitment to time- and cost-efficiency, a problem that is compounded by the absence of meaningful performance measures and a lack of individual and organizational accountability.
SRI Recommends Performance Measurement and Accountability. As a response to the identified shortcomings, SRI produced 72 recommendations to improve the management of Caltrans, which it summarized in 14 high-priority recommendations. The general theme of the recommendations is increasing individual and organizational accountability and providing performance measures and incentives. According to the consultant, these 14 recommendations form a set of consistent, mutually reinforcing actions that are achievable and that would result in substantial improvements in the efficiency of Caltrans.
Implementation Moving Slowly. Figure 12 shows the 14 high- priority recommendations and the progress to date. While the Legislature has not formally ratified the report's recommendations, it has considered legislation to implement some components. At present, however, only one recommendation--include capital outlay support costs in the STIP--has been enacted into law.
Caltrans Implementation Unknown. SRI identified Caltrans as the lead for implementing 9 of the 14 high-priority recommendations, as shown in Figure 12. While Caltrans has voiced general agreement with the report, the department has not provided a detailed evaluation and response to SRI's findings and recommendations. Caltrans also did not respond to our request for information on the department's plans and progress in implementing the recommendations. We are therefore unable to inform the Legislature if and to what extent Caltrans intends to implement the SRI recommendations.
Caltrans Should Respond to SRI Report. Recognizing that the Legislature has not formally endorsed the entire package of SRI recommendations or mandated its implementation, we do not expect the department to have taken action on every recommendation. Nonetheless, we believe that it is necessary that Caltrans evaluate and respond to each of SRI's recommendations, so that the Legislature may better evaluate how and to what extent the report's recommendations should be implemented. Therefore, we recommend that the following supplemental report language be adopted:
In order to assist the Legislature in determining which SRI recommendations on Caltrans management to implement, Caltrans shall provide to the Legislature, by August 1, 1995, a comprehensive evaluation and response to the SRI report. Caltrans shall identify: (1) those recommendations with which it agrees and its plans and progress in implementing them, (2) those recommendations with which it does not agree, and (3) alternate recommendations that the department believes the Legislature should consider.
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