Briefing Report: Why spend $500 million a year to design things we will never build?

What a Brave New World That Has Such Projects In It!
Wednesday, June 11, 2014

The Legislative Analyst’s Office and recent media coverage have uncovered another massive failure attributed to the Department of Transportation (Caltrans) and despite what you may expect, it has nothing to do with the new Bay Bridge.  With funding available for the design and construction of transportation facilities in decline beginning next year as Proposition 1B bond funds are exhausted and as federal ARRA funds expire, it has come to light that Caltrans is carrying 3,500 more staff than it needs to in order to complete its work.  The result is that taxpayers will be spending half a billion dollars a year to support these positions at a time when the state desperately needs every available dollar for road maintenance and a number of other critical priorities.  If Caltrans’ solution to the state’s moribund economy is to pay 3,500 state employees to design projects that will never be built, why not put them in orange jump suits and have them clear trash off the roadways? At least that would have some plausible utility.

Capital Outlay and Support

As complex and inscrutable as transportation finance has become in California, it may be important to define precisely what capital-outlay and support (COS) means.  The COS program provides the planning and design resources necessary to deliver highway projects to construction, and also administers and oversees projects on the state highway system throughout their construction.  Work conducted in the program includes completing environmental reviews, designing and engineering projects, acquiring rights of way, and managing and overseeing construction.  As a result, the program’s budget is contingent upon construction of highway facilities.  So, as funding for these programs becomes available, the COS budget rises and as the financing for road construction dries up, as it has over the past several years, this budget should drop.

What is more, these projects are complex and must be done right because they involve the motoring public and failures can compromise public safety.  As a result, these are highly skilled, technical jobs that come with a significant price tag. 

The recent media exposure comes as a result of an analysis of the COS budget undertaken by the Legislative Analyst’s Office (LAO) at the request of the Legislature last year.  The LAO’s report states, with no equivocation, that there are significant problems with Caltrans’ COS program, most notably, that the department has failed to reduce staff positions to meet its actual work load requirements.  According to the report, the program lacks performance data to assess the effectiveness of the program, the program is experiencing a significant decline in workload that will result in overstaffing beginning in 2014 and lacks any real legislative or outside oversight (The 2014-15 Budget: Capital Outlay Support Program Review, LAO, page 1).

The LAO report goes on to make several recommendations, including a multiyear approach to resolving overstaffing that significantly reduces the budget and staffing levels, improved staffing projections and data quality.  The LAO further recommends turning oversight of the program over to the California Transportation Commission (CTC) to perform specific approval of each project to ensure that the program is actually delivering projects efficiently.

For legislators and the public, however, the most important point of the LAO report is the fact that Caltrans is carrying an additional 3,500 staff at a cost of $500 million per year.  California ranks dead last in road quality in the United States.  According to budget estimates, the state’s SHOPP program, which is tasked with maintaining the state’s transportation network, is underfunded by about $6 billion per year.  So why are the Governor and Legislature standing by while Caltrans wastes $500 million per year that could be invested into a host of high priority programs and projects?

Normalizing Staff for the Vagaries of Transportation Funding

Historically, the arguments in defense of Caltrans lengthy project deliveries was that transportation funding is cyclical and the department would cut staff in lean years and then be caught flat footed when an influx of revenues created demand for project delivery.  The result was several years of ramping up and hiring engineers to do the work.  The solution, at least as proposed by the union leadership at Caltrans, was to keep the staff levels constant.  In contrast, Republicans and private contracting companies, with the support of voters and the courts, demanded that more projects be undertaken by private engineering companies, thus relieving Caltrans of the need to have so many engineers on staff.

With the onset of legislation expanding the use of design-build, the demand for state staffing for engineering makes even less sense.  However, the political leadership in Sacramento, choosing not to pick a political fight with the public employee unions, has stuck to a lopsided ratio of 90% public engineers and only 10% private contractors.  The rigid adherence to this ratio does not serve the public interest and becomes even more costly when transportation funding dries up as it has done recently.

Because private engineering companies are not tied to one employer and can work on contracts wherever the funding becomes available, there is no need to keep employees on the public payroll except when they are working on a project.  If, over the last decade, the state had begun to rely more on private engineers to handle the COS budget, then the state would not be facing $500 million in wasted revenues, and we would be able to invest that money into programs and projects that actually serve the public.  Instead, the ruling party is sitting quietly by and ignoring the needs of the public in favor of special interests in the public employee unions.

Putting Your Money Where Your Mouth Is

It is a truism that individuals, political institutions and governments invest their time and money according to political priorities.  Transportation is no different.  The Governor’s budget proposes a few minor cuts to the Caltrans budget but for the most part represents the status quo, while proposing to take what it estimates will be $5 billion per year that will be generated when gasoline comes under the cap and trade program and investing it into high-speed rail and a host of other smart planning and transit programs.  In essence, the Governor and the Legislature are raising five billion dollars in taxes per year on motorists to fund a number of pet programs that are not a top priority for the voters.  What is worse, these pet projects and programs are part of the ruling party’s agenda of socially engineering the future wherein California stops using the roads and starts developing high-density urban centers with transit and pedestrian options as the norm.

Ironically, if state priorities are really all about reducing vehicle-miles travelled and forcing people to move out of the suburbs and into high-density apartment-style living, it will be a bumpy and expensive transition that will demand significant changes in the way that Californians live and behave-not to mention significant costs and investments that in no way require the existence of a multi-billion dollar road-building agency like Caltrans.

If we are serious about pursuing this smart growth agenda, then the COS budget is just the tip of the iceberg.  If California is really going to build this brave new world into the image of old-world European cities, why are we continuing to spend all our transportation funds propping up Caltrans whose only real mission is building and maintaining the roads?  The first step toward this socially engineered, utopian future is to eliminate these positions and start investing $500 million per year into the programs that will achieve those goals.  Anything less is simply a waste of the taxpayers’ money.

The fact is the leading proponents for reliance of high density urban living and ditching our reliance on cars are also the very politicians that are refusing to eliminate the 3,500 positions at Caltrans! Instead they are suggesting that these people be put to work designing “shelf projects” for when revenues become available to build more road capacity.  Come clean, Governor!  Why do we need to fund speculative highway capacity expansion projects if we are moving away from highways toward high-speed rail and transit-oriented development?  We simply cannot afford for you to have it both ways.

For more information on this report or other Transportation issues, contact Ted Morley, Senate Republican Office of Policy at 916/651-1501.