BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair SB 1225 (Padilla) - Intercity rail agreements. Amended: May 1, 2012 Policy Vote: T&H 9-0 Urgency: No Mandate: No Hearing Date: May 24, 2012 Consultant: Mark McKenzie SUSPENSE FILE. AS PROPOSED TO BE AMENDED. Bill Summary: SB 1225 would authorize the Department of Transportation (Caltrans) to enter into an interagency transfer agreement for the San Diego-Los Angeles-San Luis Obispo intercity rail corridor (LOSSAN corridor). Fiscal Impact: One-time costs to Caltrans of approximately $200,000 (Public Transportation Account) to administer the transition of operations and management to the JPA. Cost pressures related to provisions in the bill that would shift financial risk from the JPA to the state, while also removing operational and management decisions from the state and shifting them to the JPA. (see staff comments) Background: Since 1976, Caltrans has contracted with Amtrak for providing intercity passenger rail service in the LOSSAN corridor. The initial service was between San Diego and Los Angeles and later extended to Santa Barbara and San Luis Obispo. The LOSSAN corridor is the second most heavily patronized Amtrak corridor in the country, after the Northeast Corridor between Washington-New York-Boston. About 6.7 million passengers travel in LOSSAN corridor annually, which includes users of the Metrolink and Coaster commuter lines. The State and Amtrak share responsibilities for operating the Pacific Surfliners trains in this corridor. Amtrak considers 30 percent of the service "basic system" service that is part of the national long-distance service, and operating costs on this portion are currently federally funded. Since 2004, the state has supported 70 percent of the costs of all service in the corridor. Pursuant to Section 209 of the federal Passenger Rail Investment and Improvement Act, however, federal support will SB 1225 (Padilla) Page 1 end on certain corridors that are less than 750 miles, including the LOSSAN corridor. As a result, the state will support 100 percent of the Amtrak operational costs of the corridor beginning in 2013-14, which will require state funding of almost $50 million annually to continue service at current levels. In addition to the LOSSAN Corridor, the state has funded Amtrak service from Bakersfield to Oakland via Stockton and Martinez since 1979, and the state contracted with Amtrak to operate service from Sacramento to Oakland/San Jose in 1991. The management of the latter service was devolved to the Capitol Corridor Joint Powers Agency (CCJPA) in 1998 by an interagency transfer agreement. This bill is intended emulate the institutional relationship between Caltrans and the CCJPA in the LOSSAN Corridor. Proposed Law: SB 1225 would authorize Caltrans to transfer all responsibility for administering state-funded intercity passenger rail service in the LOSSAN corridor through an interagency transfer agreement (ITA) to the LOSSAN Rail Corridor Agency. Specifically, this bill would: Require the BT&H Secretary to submit a report to the Legislature on or before July 31, 2014, if an acceptable transfer agreement has not been executed, that explains the reasons for failure to reach agreement and includes recommendations for developing an acceptable agreement in the future. Specify that the term of the transfer agreement with the LOSSAN Corridor Agency will be for five years, but may be extended by mutual agreement. Require the level of service (number of round trips operated) funded by the state to be no less than the level of service funded as of January 1, 2013. Requires the ITA to identify funds to be transferred to the LOSSAN Agency, including operating subsidies, and funds currently used by the department for administration and marketing of the corridor, adjusted annually for inflation. Prohibit the state from requiring a corridor agency to use local funds to augment service or to fund shortfalls when agreed upon performance standards are not met. Prohibit the use of local funds for expenditure to offset any redirection, elimination, reduction, or reclassification of state resources for operating intercity passenger rail services in the corridor. SB 1225 (Padilla) Page 2 Require that cost for categories of service shall be controlled by the cost allocation procedures established by Amtrak in accordance with the federal Passenger Rail Investment and Improvement Act of 2008. Stipulates that the authority provided in this bill is only operative if all of the members of the LOSSAN Corridor Agency agree to amend their governing joint powers agreement to expand the Agency's authority to allow for the administration of intercity passenger rail service in the corridor. State legislative intent that the intercity passenger rail service in the LOSSAN corridor maintain a ratio of fare revenue to operating cost of at least 58 percent. Staff Comments: Caltrans indicates that this bill would require a temporary increase of 2 PY of staff time for one year at an estimated cost of $200,000 to cover the transition of administration to the JPA, including the formulation of an ITA and agreements regarding state-owned facilities. In addition, three to four PY of staff dedicated to operations and capital projects for the LOSSAN corridor would no longer be necessary at Caltrans, but the equivalent funding level would be provided to the LOSSAN Agency upon execution of the ITA. SB 1225 would require the state to maintain a minimum level of funding while transferring operating and management decision-making authority to the LOSSAN Agency. This would occur at a time when federal funding for the LOSSAN Corridor is being eliminated and state subsidies are scheduled to increase by about $25 million annually in 2013-14, if current levels of service are maintained. Current levels of federal funding are covering $9 million in operational losses and approximately $16 million in capital charges the state pays to Amtrak because they own 85 percent of the fleet in the LOSSAN corridor. By eliminating state authority to reduce operational or administrative costs, this bill would mandate costs of $125 million ($25 annually from 2014-15 to 2019-20) beyond current funding levels. Staff notes that there would be significant pressure to continue the current level of operations in the LOSSAN corridor, but the bill would eliminate the state's discretion to cut back on service or seek other operational agreements in the corridor. It is likely that the mandated funding level in this bill would reduce the ability of Caltrans to fund future capital projects or increased service levels elsewhere in the state rail system, thereby creating a SB 1225 (Padilla) Page 3 significant cost pressure. This bill makes several changes to the statutes used to establish an ITA with the Capitol Corridor JPA that are disadvantageous to the state. For example, existing law authorizes the JPA to augment state funding to address funding shortfalls in achieving agreed-upon performance standards, while this bill explicitly prohibits the state from requiring the use of local funds for that purpose. The bill also adds a provision to the ITA authorizing statute to prohibit the use of local funds for expenditure to offset any redirection, elimination, reduction, or reclassification of state resources for operating intercity passenger rail services in the corridor. Existing law requires that any funds beyond the amount allocated in an annual appropriation that are needed for operation the passenger rail service in a fiscal year would be provided by the JPA, while this bill deletes the requirement and instead provides the authority for the JPA to fill these funding gaps at its discretion. The existing statute required an ITA to be executed within a year of enactment of the statute, but SB 1225 would leave the ITA execution date open, instead requiring the BT&H Secretary to report within 18 months of enactment on the reasons why an agreement has not been reached. A final key difference is that federal funding for the LOSSAN corridor would be ending prior to an ITA, but the bill requires the state to fund the corridor entirely with state funds at a level that is $25 million higher than current annual state expenditures. All of these factors would insulate the JPA from certain financial risks, and shift the burden of those risks to the state while subsequently taking the state out of operational and management decision making in the corridor. All of these provisions would impose additional cost pressures on the state. Recommended Amendments: Staff recommends that the bill be amended to conform more closely to the existing statute that was used to execute the Capitol Corridor JPA to insulate the state from increased risk, and instead leave these matters subject to negotiation, rather than including them in statute. Specifically, the Committee may wish to consider amending the bill to do the following: Authorize the JPA to augment state funding to expand intercity passenger rail services, or to address funding shortfalls in achieving agreed-upon performance standards. (page 4, lines 24-28) SB 1225 (Padilla) Page 4 Delete the mandate that funding be maintained at the current Amtrak cost allocation formula that is subject to Section 209 of the federal Passenger Rail Investment and Improvement Act. (page 4, lines32-35) Delete provisions that prohibit the use of local funds for expenditure to offset any redirection, elimination, reduction, or reclassification of state resources for operating intercity passenger rail services in the corridor. (page 5, lines 5-11) Establish a date certain of June 30, 2014 by which an ITA must be executed and delete the provisions for the Secretary to report to the Legislature. (page 5, lines 27-33) Require (rather than authorize) the JPA to provide any additional funds needed in a fiscal year to operate the passenger rail system beyond the amount allocated by the Secretary. (page 7, line 37) Proposed author amendments would: Establish a date certain of June 30, 2014 by which an ITA must be executed. Delete provisions requiring a report to the Governor and Legislature if an agreement has not been reached by June 30, 2014. Delete language that specifically references federal legislation in the provision that provides for minimum funding for operating costs. Proposed Committee amendments would specify that state funding for the LOSSAN Corridor shall be, at a minimum, the amount provided in 2012-13.