BILL ANALYSIS                                                                                                                                                                                                    

                              Senator Jim Beall, Chair
                          2015 - 2016  First Extraordinary

          Bill No:          SBX1 9            Hearing Date:     8/19/2015
          |Author:   |Moorlach                                              |
          |Version:  |7/16/2015                                             |
          |Urgency:  |No                     |Fiscal:      |Yes             |
          |Consultant|Randy Chinn                                           |
          |:         |                                                      |

          SUBJECT:  Department of Transportation

            DIGEST:  This bill requires the Department of Transportation  
          (Caltrans) to contract with private entities for architectural  
          and engineering services, for a minimum of 15% of the total  
          annual value of these services by July 1, 2016, and increasing  
          each year to a minimum of 50% by July 1, 2023.

          Existing practice, as expressed in the state budget, requires  
          Caltrans to contract out 10% of its Capital Outlay Support (COS)  
          staffing, which is roughly equivalent to architectural and  
          engineering services, while 90% is performed by Caltrans staff.   
          This practice goes back to the 1980s.

          This bill:

          Requires Caltrans to contract out to private entities a minimum  
          of 15% of the total annual value of architectural and  
          engineering services for the 2016-17 fiscal year and to increase  
          that amount by five percentage points annually until a minimum  
          level of 50% is reached for the 2023-24 fiscal year and beyond.

          Prohibits Caltrans from using any nonrecurring funds to pay for  
          permanent civil service positions.



          SBX1 9 (Moorlach)                                     PageB of?

          1)Purpose.  The author notes that funding for large projects is  
            highly variable.  When workload rises, additional permanent  
            state employees are hired in accordance with a 90/10 ratio of  
            permanent state employees/contract employees, an arbitrary  
            ratio established through budget action for many years.  This  
            makes it difficult to reduce engineering and support staff  
            when workload and funding taper off.  If a greater portion of  
            the work were performed by private contractors, staffing could  
            be more easily adjusted to fit workload needs.  Without the  
            ability to adjust the number of staff, the COS program will  
            continue to be overstaffed, consuming funding that could  
            otherwise go to build additional projects.  This bill will  
            gradually increase the percentage of contracted-out work from  
            10% to 50%, providing Caltrans with the flexibility to adjust  
            staffing and freeing up funds to build projects.  The author  
            believes this can be done through attrition and without  

          2)Surplus staff?  Last year the Legislative Analyst's Office  
            (LAO) determined<1> that the COS program was overstaffed by  
            3,500 people, resulting in $500 million in unnecessary annual  
            costs which could otherwise be spent on transportation  
            projects.  That assessment was necessarily made based on a  
            high-level review of Caltrans' operations because certain  
            project-specific data was either unreliable or not collected.   
            The LAO concluded that because funding for new construction  
            projects had declined substantially, a corresponding reduction  
            to COS staffing was warranted.

            Caltrans disagrees.  In a July 20 letter to the committee,  
            Caltrans observes that its COS staffing is at an 18-year low,  
            and that it has reduced 3,422 full-time equivalent positions  
            in their COS program, or 26%, since 2007-08.  They argue that  
            staffing levels should be based on a project-specific analysis  
            of workload, not on funding levels.

            One of the LAO's recommendations is that Caltrans improve its  
            project-specific data quality, and that is apparently  
            occurring.  The COS program has also been subject to  
            zero-based budgeting for several years.  Taken together, along  
            with continuing oversight through the annual budget process,  
            the Legislature will be better positioned to ensure  

          <1> "The 2014-15 Budget:  Capital Outlay Support Program  
          Review". LAO, May 14, 2014.


          SBX1 9 (Moorlach)                                     PageC of?
            appropriate COS staffing.  The trend of decreased staffing may  
            be reversed if substantial new funding becomes available for  
            bridge and highway repair and maintenance.

          3)Contracting out.  For many years, the Legislature has split  
            the COS program work, with 10% of the staffing going to  
            private contractors and 90% going to Caltrans.  This has been  
            a policy of the state that has been carried out in the budget  
            process, apparently with little discussion or debate over the  
            past several years, that reflects a balance of the interests  
            of the public sector unions and the private engineering firms.  

            The principle behind this bill is that contracted workers are  
            more easily let go, allowing for staffing levels to better  
            match the workload when that workload declines.  But Caltrans  
            has been reducing its staff almost every year for the past 10,  
            according to the LAO report, so the 90/10 ratio does not seem  
            to have limited Caltrans' ability to reduce its size.  Neither  
            has Caltrans expressed concerns that the 10% contracting-out  
            ratio has impaired its ability to properly size its workforce.  
             This may be because Caltrans has several mechanisms to size  
            its workforce:  normal workforce attrition, which Caltrans  
            estimates at about 5% annually; the use of limited-term state  
            employees; and the use of overtime.  Those mechanisms,  
            combined with the 10% contract workforce, may provide Caltrans  
            with the flexibility to size its workforce to fit its needs.

            Increased contracting out may be justified based on cost  
            savings, but the cost of contracted-out employees appears  
            higher than the cost of state employees.  In 2011, the Senate  
            Budget Committee estimated that state COS staff cost $158,000  
            per year while contract staff cost $243,000, though this extra  
            cost may be offset by increased productivity and flexibility.   

          4)Caltrans' hiring practices.  The Senate Transportation and  
            Infrastructure Development Committee has not yet been able to  
            determine whether or under what conditions Caltrans currently  
            hires permanent staff with non-recurrent revenue.  

          5)Staffing levels are a budget issue.  The LAO report raises  
            important questions about the necessary level of COS staffing.  
             Every dollar saved in reduced COS expenses can be spent on  
            necessary road maintenance and repair.  But determining the  


          SBX1 9 (Moorlach)                                     PageD of?
            appropriate level of staffing in an organization as large and  
            complex as Caltrans is an intensive, data-driven exercise that  
            depends very much on the specific work being done.  The budget  
            process seems to be the most appropriate way to do this, and  
            as well to consider the appropriate level of contracted-out  
            services.  It may well be appropriate to increase the level of  
            contracted-out work, but that should be based on an analysis  
            of the specific work requirements, costs, and benefits.   
            Moreover, SB X1 1 (Beall) deals with the staffing levels  
            directly by requiring Caltrans to provide the California  
            Transportation Commission with a plan to increase its  
            efficiency by up to 30% over the next three years. 

          Related Legislation:
          SB X1 1 (Beall) - establishes a program to raise permanent  
          funding for transportation maintenance and repair, and requires  
          Caltrans to provide the California Transportation Commission  
          with a plan to increase its efficiency by up to 30% over the  
          next three years.   This bill is being heard in the Senate  
          Transportation and Infrastructure Development Committee today.
          FISCAL EFFECT:  Appropriation:  No    Fiscal Com.:  Yes     
          Local:  No

            POSITIONS:  (Communicated to the committee before noon on  
                          August 13, 2015.)

          California Construction and Industrial Materials Association
          California Taxpayers Association


          Professional Engineers in California Government
          Sierra Club of California



                                      -- END --


          SBX1 9 (Moorlach)                                     PageE of?