BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 508|
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THIRD READING
Bill No: SB 508
Author: Beall (D)
Amended: 5/12/15
Vote: 21
SENATE TRANS. & HOUSING COMMITTEE: 8-0, 5/5/15
AYES: Beall, Allen, Galgiani, Leyva, McGuire, Mendoza, Roth,
Wieckowski
NO VOTE RECORDED: Cannella, Bates, Gaines
SUBJECT: Transportation funds: transit operators:
pedestrian safety
SOURCE: California Transit Association
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), SB 325 (Mills, Chapter 1400), which
dedicated a statewide 0.25% 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 0.25% 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.
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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:
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
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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
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
percentage 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
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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.
5)Clarifies that a portion of LTF funds is available for
education programs related to not only bicycle but also
pedestrian safety.
Comments
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.
What is this bill really about? 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
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seem like relatively responsible changes to existing law.
Ultimately, however, the Legislature 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 ever-increasing subsidies
to operators simply to fund higher pay for transit operators who
already earn fair wages.
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%. 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
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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 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.
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
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the definition of operating costs when calculating a transit
operator's farebox recovery ratio. In some ways this is
reasonable; if one considers 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,
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.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified5/13/15)
California Transit Association (source)
Monterey-Salinas Transit
Santa Clara Valley Transportation Authority
Transportation Agency for Monterey County
United Transportation Union
Ventura County Transportation Commission
OPPOSITION: (Verified5/13/15)
None received
Prepared by:Eric Thronson / T. & H. / (916) 651-4121
5/13/15 17:26:22
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