BILL ANALYSIS Ó
SENATE COMMITTEE ON TRANSPORTATION AND HOUSING
Senator Jim Beall, Chair
2015 - 2016 Regular
Bill No: SB 508 Hearing Date: 5/5/2015
-----------------------------------------------------------------
|Author: |Beall |
|----------+------------------------------------------------------|
|Version: |4/27/2015 |
-----------------------------------------------------------------
-----------------------------------------------------------------
|Urgency: |No |Fiscal: |No |
-----------------------------------------------------------------
-----------------------------------------------------------------
|Consultant|Eric Thronson |
|: | |
-----------------------------------------------------------------
SUBJECT: Transportation funds: transit operators: pedestrian
safety.
DIGEST: This bill makes changes to performance metrics tied to
state grants for transit operators.
ANALYSIS:
In 1971, the Legislature enacted the Transportation Development
Act (TDA), Senate Bill 325, Chapter 1400, which dedicated a
statewide percent sales tax to local transportation in order
to ensure "the efficient and orderly movement of people and
goods in the urban areas of the state." That percent sales
tax, now known as the Local Transportation Fund (LTF), generates
over $1 billion primarily for public transit. Later, the
Legislature created a second state funding source for public
transit under the TDA called the State Transit Assistance (STA).
The STA, generating more than $400 million annually, is derived
from the sales tax on diesel and is distributed to local
agencies based on population and transit operator revenues.
LTF
To be eligible to receive its full share of LTF, existing law
requires a transit operator to meet a specified ratio of fare
revenues to operating cost, called the farebox recovery ratio.
Generally, existing law defines the minimum ratio necessary to
receive all LTF funding as the higher of either:
SB 508 (Beall) Page 2 of ?
What the ratio was for any given operator in the 1978-79
fiscal year, or
20% for urban operators, or 10% for operators in a
non-urbanized area
In addition, if an operator receives funds from some other local
revenue sources, it may be able to meet its farebox recovery
ratio by combining fare revenues with that local support. If a
transit operator fails to meet its specified farebox recovery
ratio, existing law requires the regional transportation
planning agency to withhold a percentage of the LTF equal to the
percentage by which the operator missed its expected ratio.
STA
Existing law defines a transit operator's total "revenue
vehicle-hours" as the sum of all hours in which all transit
vehicles in the system are making money for transporting
customers. In order to use STA funding for operation of its
system, a transit operator must meet qualifying criteria based
on a calculation dividing total operating cost by total revenue
vehicle-hours in the previous year, taking into consideration
the change in the region's Consumer Price Index (CPI). If an
operator does not meet this qualifying criteria, it still
receives all STA funds it is due, but can only spend the funds
on capital expenditures. SB 565 (DeSaulnier), Chapter 341,
Statutes of 2011, removed the qualifying criteria on STA funds
until June 30, 2015.
Exemptions from the definition of operating costs
A transit operator's total operating costs is a critical
component in the formulas calculating both performance metrics.
The State Controller's Office requires transit operators to
report annually on their revenues and expenditures, and adopts a
uniform system of accounts and records for these reports.
Existing law defines operating cost for calculating a transit
operator's farebox recovery ratio as all costs in the
Controller's uniform system, excluding:
Depreciation and amortization expenses
All subsidies for commuter rail services
All direct costs for providing charter services
All vehicle lease costs
SB 508 (Beall) Page 3 of ?
Separately, existing law excludes from the calculation
determining STA qualifying criteria both the startup costs for
new services and any cost increases beyond the change in CPI
for:
Fuel, alternative fuel programs, and power, including
electricity
Insurance premiums and settlement payments
State and federal mandates
This bill:
1)Excludes from the definition of operating costs when
calculating a transit operator's farebox recovery ratio the
following costs:
Fuel, alternative fuel programs, and power, including
electricity
Insurance premiums and settlement payments
State and federal mandates
1)Allows transit operators to use STA funds for operations even
if they do not meet existing qualifying criteria, but reduces
the amount available for operations proportionally by the% an
operator fails to meet that criteria.
2)Eliminates the requirement for operators to meet the farebox
recovery ratio they maintained during the 1978-79 fiscal year,
leaving only the requirement that operators in urbanized areas
maintain a 20% ratio and operators in nonurbanized areas
maintain a 10% ratio.
3)Excludes the principal and interest payments on all capital
projects funded with certificates of participation (COPs) from
the definition of operating cost used to calculate a transit
operator's farebox recovery ratio.
4)Clarifies that local funds, when used to meet a transit
operator's farebox recovery ratio, includes any nonfederal or
nonstate grants or other revenues generated by an operator.
SB 508 (Beall) Page 4 of ?
5)Clarifies that a portion of LTF funds is available for
education programs related to not only bicycle but also
pedestrian safety.
COMMENTS:
1)Purpose. According to the author, cost increases over the
years - sudden, unplanned and unavoidable - have threatened
the continued receipt of transit operators' TDA and STA
funding. Local economic conditions, operating environments,
the various built landscapes, and even political preferences
with regard to transit affordability: all these factors change
dynamically year to year. A more predictable, flexible system
of accountability is needed with regard to the eligibility
criteria for transit operators to receive funding. This bill
is intended to amend existing accountability measures to
create that more predictable, flexible system for local
transit systems.
2)What is going on here? As described in the existing law
section, the state calculates two relatively ineffective
performance metrics against which transit operators are judged
to determine state funding eligibility. The farebox recovery
ratio is essentially based on the percentage of operating
costs that are borne by the transit riders, while the STA
eligibility criteria is intended to force operators to keep
operating costs from growing more quickly than general
inflation. Over time, these performance metrics have been
diluted due to changes in existing law to allow for exemptions
from what can be included in operating costs. They are,
however, the closest thing the state has to holding transit
operators accountable for effectively spending state dollars.
In many ways, this bill seeks to rationalize these performance
metrics, for example, by attempting to apply the same
operating cost exemptions to both of them. In addition, this
bill clarifies a few terms that should help ensure
expectations are applied uniformly to transit operators across
the state. These seem like relatively responsible changes to
existing law.
Ultimately, however, the committee and the administration need
to reevaluate how the state should hold transit grant
recipients accountable for managing their costs. Some argue
that it may be irresponsible of the state to provide
SB 508 (Beall) Page 5 of ?
ever-increasing subsidies to operators simply to fund higher
pay for transit operators who already earn fair wages.
3)Fixing the STA eligibility criteria. As mentioned earlier,
the STA performance criteria require operators to keep
operating costs from growing more quickly than CPI, a measure
of inflation. Of significance, this bill eliminates the
yes/no test of STA eligibility criteria, allowing transit
operators who miss the criteria by an insignificant margin to
continue to use most of their funds for operations. This
seems like a reasonable aim, as it may be unfair to make all
STA funds unavailable for operations if an operator does a
good job of controlling costs but can't quite keep costs in
line with inflation.
There may be some new challenges created by the way this bill
addresses this issue, however. Currently, this bill reduces
the amount of STA funds available for operation by the
percentage an operator allows costs to grow beyond CPI. For
example, let's assume this year's CPI growth is 2 percent. If
a transit operator's costs grow 3% this year, then 99% of STA
funds would still be available for operations. That might
seem reasonable, as 3% isn't much more than 2% and therefore
the operator has done a relatively good job of controlling
costs. Let's assume, instead, that an operator does a poor
job of controlling costs and its operating budget grows 10% in
one year. That operator would still be able to use 92% of its
STA funds for operations, which doesn't seem like much of a
penalty for not complying with the intent of the law.
Another concern which arises from this bill's current proposal
for changing the STA performance criteria is its potential
long-term ramifications. This metric is based on annual
growth; therefore, if every year an operator is allowing its
operating cost growth to exceed CPI, then over time these
costs compound to potentially become grossly out of line with
what they are today. This could also potentially encourage
behavior that might not hold true to the intent of the metric.
To go back to a previous example, let's say an operator is
having trouble keeping cost growth within CPI growth, so in
one year that operator just allows costs to grow 10%. In this
bill's current scheme, that operator would lose 10% of its STA
funds for operations in one year, but for the next several
years may have no trouble keeping cost growth down because it
inflated growth in one year. It was penalized once, but had
SB 508 (Beall) Page 6 of ?
little incentive over the following years to manage cost
growth because of the "room" it created in the one year it
suffered the penalty.
At some point, the Legislature may need to consider whether
this is the best approach to require transit operators to
control cost growth, and whether there might be unintended
consequences to the changes proposed in this bill.
4)Certificates of participation. COPs are defined as lease
financing agreements in the form of tax-exempt securities,
similar to bonds. In COP financing, title to a leased asset
is assigned by the lessor to a trustee (non-profit
corporation) that holds it for the benefit of the investors,
the certificate holders. This financing technique provides
long-term financing through a lease or lease-purchase
agreement that legally does not constitute indebtedness under
the state constitutional debt limitation. It is not subject to
other statutory requirements applicable to bonds, including
the requirement of a vote of citizens. In many ways, COPs
payments are similar to an individual's mortgage payments:
The debt is securitized against the property, but still
requires payment in order to guarantee use of the property.
A key characteristic of using COPs that distinguishes it from
bond indebtedness is a nonappropriation clause. The
nonappropriation or fiscal funding clause means that payments
of the lease are dependent upon an annual appropriation by the
governing body. This differentiates the lease from
indebtedness such as that created by the sale of bonds
because, with the nonappropriation provision, the present-year
government's action does not bind succeeding ones to pay the
obligation. However, the non-debt classification of
lease-purchase financing does not eliminate the need to fund
lease payment expenditures nor does it eliminate the
responsibility of the government to disclose the obligation in
its financial statements.
This bill excludes principal and interest costs for COPs from
the definition of operating costs when calculating a transit
operator's farebox recovery ratio. In some ways this is
reasonable; if you consider COPs a debt instrument applicable
to financing capital projects, then some accountants wouldn't
consider the debt service as a general operating cost and
instead consider it a capital cost. Some may argue otherwise,
SB 508 (Beall) Page 7 of ?
however. For example, in the case where COPs might have been
used to construct a building, and that building is occupied by
the transit operator's administration, replacing a cost to
rent space an operator might have otherwise incurred, it seems
reasonable to count COP payments as a general operating cost.
Because it is unknown what types of projects transit operators
are using COPs to fund, it is unclear what impact this bill
will have on how the state ultimately holds transit operators
accountable for the expenditure of state funds.
5)Drafting error. This bill attempts to harmonize the various
exclusions from the definition of operating costs.
Unfortunately, it appears that a drafting error
mischaracterizes the harmonization of existing law. The
author has agreed to make the following change to
appropriately apply one set of exclusions to another section
of existing law:
On page 7, strike lines 32 through 40
On page 8, strike lines 1 through 2
Insert the following:
(2) cost increases beyond the change in the Consumer Price
Index for:
(i) Fuel.
(ii) Alternative fuel programs.
(iii) Insurance premiums and payments in settlement
of claims arising out of the operator's liability.
(iv) State and federal mandates.
FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local:
No
POSITIONS: (Communicated to the committee before noon on
Wednesday,
April 29, 2015.)
SUPPORT:
California Transit Association (sponsor)
Monterey-Salinas Transit
United Transportation Union
Ventura County Transportation Commission
OPPOSITION:
SB 508 (Beall) Page 8 of ?
None received
-- END --