BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     SB 508


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          SENATE THIRD READING


          SB  
          508 (Beall)


          As Amended  August 20, 2015


          Majority vote


          SENATE VOTE:  28-8


           -------------------------------------------------------------------- 
          |Committee       |Votes|Ayes                   |Noes                 |
          |                |     |                       |                     |
          |                |     |                       |                     |
          |                |     |                       |                     |
          |----------------+-----+-----------------------+---------------------|
          |Transportation  |16-0 |Frazier, Achadjian,    |                     |
          |                |     |Baker, Bloom, Campos,  |                     |
          |                |     |Chu, Daly, Dodd,       |                     |
          |                |     |Eduardo Garcia, Gomez, |                     |
          |                |     |Kim, Linder, Medina,   |                     |
          |                |     |Melendez, Nazarian,    |                     |
          |                |     |O'Donnell              |                     |
          |                |     |                       |                     |
          |                |     |                       |                     |
           -------------------------------------------------------------------- 


          SUMMARY:  Modifies performance metrics related to state funding  
          for public transit and updates related provisions.   
          Specifically, this bill:  










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          1)Adds pedestrian safety education programs to the list of  
            eligible uses of Local Transportation Fund (LTF) moneys.


          2)Excludes the principal and interest payments on all capital  
            projects funded with certificates of participation from the  
            definition of "operating cost" used to calculate a transit  
            operator's fare box recovery ratio.  


          3)Simplifies fare box recovery ratio requirements used to  
            determine a transit operator's eligibility to receive state  
            transit funds.


          4)Excludes from the calculation of fare box recovery ratios  
            increased costs that are beyond the change in the Consumer  
            Price Index (CPI) for all of the following:


             a)   Fuel;


             b)   Alternative fuel programs;


             c)   Power, including electricity;


             d)   Insurance premiums and settlement payments; and


             e)   State and federal mandates.


          5)Further excludes, for two years, from the fare box recovery  
            ratio equation startup costs for new services.










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          6)Provides transit operators greater flexibility in the use of  
            local funds to satisfy fare box recovery ratio requirements.


          7)Authorizes transit operators to use a portion of State Transit  
            Assistance (STA) funds for operations even if they do not meet  
            specified performance standards, beginning July 1, 2016.


          


          EXISTING LAW:  


          1)The Transportation Development Act (TDA) provides two state  
            funding sources for public transit:
             a)   LTF revenue is derived from a one-fourth-cent of the  
               general sales tax collected statewide.  These funds are  
               distributed to each county according to the amount of tax  
               collected in that county.  LTF funds a wide variety of  
               transportation programs, including planning and program  
               activities, pedestrian and bicycle facilities, community  
               transit services, public transportation, and bus and rail  
               projects.  In limited cases, counties may also use LTF  
               moneys for local streets and roads construction and  
               maintenance.
             b)   STA revenue is derived from the statewide sales tax on  
               diesel fuel.  STA funds are appropriated by the Legislature  
               and are allocated by formula to planning agencies and other  
               selected agencies.  Existing law requires that 50% of STA  
               funds be allocated according to population and 50% be  
               allocated according to transit operator revenues from the  
               prior fiscal year.  


          2)Requires transit operators to maintain a specified ratio of  
            fare revenues to operating costs in order to be eligible to  
            receive TDA funds.  The required ratio varies.  For operators  








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            that began providing service after 1979, their ratio is either  
            20% or 10%, depending on whether the service area is urban or  
            non-urban.  For operators that provided service prior to 1979,  
            the required ratio is 20% or 10% (depending on whether the  
            service area is urban or non-urban) or the ratio they attained  
            in fiscal year 1978-79, whichever is greater.
          3)Authorizes a transit operator to meet the fare box recovery  
            ratio by combining fare revenues with certain local funds.


          4)Defines "operating expenses" for purposes of calculating a  
            transit operator's fare box recovery ratio; specifically  
            excludes from the definition costs associated with  
            depreciation and amortization, subsidies for commuter rail  
            services, direct costs for providing charter services, and all  
            vehicle lease costs.   


          5)Authorizes transit operators to use STA funds for operating  
            expenses if their total operating costs per revenue  
            vehicle-hour increases by no more than the changes in the CPI;  
            excludes from this calculation costs beyond the CPI related to  
            fuel, alternative fuel programs, power, insurance premiums and  
            settlement payments, and federal and state mandates.  Startup  
            costs for new services are also excluded for two years.


          6)Provides a one year extension, through the 2015-16 Fiscal  
            Year, of an exemption to allow transit operators whose cost  
            increases have exceeded the CPI to continue using STA funding  
            for both operating and capital expenditures.    


          FISCAL EFFECT:  None


          COMMENTS:  The primary performance measure related to state  
          transit funding is the fare box recovery ratio.  Simply put, the  
          fare box recovery ratio compares revenue from passenger fares to  








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          operating costs, as defined.  Generally, to be eligible for  
          state transit funding, transit operators in urban areas are  
          required to recover at least 20% of their operating costs via  
          fares; for rural transit operators, the required fare box  
          recovery ratio is 10%.  However, different standards apply to  
          older transit operators, some of which are required to use  
          whatever their ratio was in the 1978-79 Fiscal Year.   
          Furthermore, the basis for calculating operating costs has  
          morphed over the years in response to, for instance, insurance  
          premium spikes after 9/11 and gas price spikes last decade. 


          The state uses another performance measure for transit operators  
          that want to use STA funds for operating expenses.  To be  
          eligible for these funds, an operator's total operating costs  
          per revenue vehicle hour must be maintained at or less than the  
          previous year's costs, as adjusted by the CPI.  Any increase in  
          costs beyond the previous year, after adjusting for CPI, can  
          cause an operator to forfeit the use of all STA funds for  
          operating expenses.


          These performance measures served the state well when they were  
          established decades ago by ensuring that the state's then-new  
          investment in public transit was appropriately leveraged with  
          local funds and that state funds went to transit operators that  
          could establish at least minimum levels of efficiency.  


          Now, however, these measures complicate operators' ability to  
          deliver reliable services year to year because, for example:


          1)Sudden, unplanned, and unavoidable cost increases jeopardize  
            transit operators' LTF and STA funding.  


          2)LTF funding eligibility criteria are outdated and no longer  
            reflect or allow for, for example, changing local economic  








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            conditions or political preferences, such as a desire to offer  
            free or reduced transit for students. 


          3)Existing STA funding eligibility criteria impose an  
            unforgiving and unreasonable "pass/fail" standard.  A transit  
            operator that fails to cap operating expenses by even 1% loses  
            100% of STA funds for operating expenses.


          The author has introduced this bill to chip away at these  
          problems that, left unchecked, would continue to threaten  
          transit operators' receipt of LTF and STA funding.   
          Specifically, this bill:


          1)Makes fare box recovery ratios uniform, regardless of when a  
            transit operator began providing service.  Transit operators  
            will be required to meet a fare box recovery ratio of 20% if  
            they serve an urban area and 10% if they serve a non-urban  
            area.


          2)Synchronizes LTF and STA eligibility criteria and operating  
            cost exclusions, thus making it easier to administer both  
            programs and to comply with program requirements.


          3)Minimizes the impact to operators that fail to comply with the  
            all-or-nothing STA performance measure for operating funds.   
            Establishes instead a proportional scale whereby some, but not  
            all, of an operator's STA funds may be withheld for operating  
            purposes if the transit operator fails to restrain operating  
            costs from one year to the next.  For example, an operator  
            that exceeds allowable growth by 5% will lose 5% of its STA  
            funds for operating expenses.


          4)Makes other, non-substantive modifications to update  








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            provisions governing LTF and STA.  


          Given the evolving role of transit in the context of state  
          priorities (e.g., greenhouse gas emission reductions), it may be  
          that even the simplified fare box recovery ratios proposed by  
          this bill are obsolete.  Nonetheless, rather than abandon  
          performance measures all together, the simplified fare box  
          recovery ratio requirements proposed in this bill are an  
          incremental step in the right direction.   


          Furthermore, provisions governing the LTF and STA programs are  
          unnecessarily complicated.  Aligning the eligibility criteria  
          for both programs, including consistent calculations for  
          operating expenses, is reasonable and should make it easier to  
          administer the programs and for transit operators to comply with  
          performance standards.  Moreover, updating other provisions that  
          provide transit operators greater flexibility in the use of  
          state transit dollars, such as broadening the source of  
          supplemental local funds, are similarly reasonable.




          Undoubtedly, there will be a downside to relaxing fare box  
          recovery ratio requirements and to authorizing a proportional  
          use of STA funds for operating expenses in the event a transit  
          operator fails to cap operating expense growth.  The impacts of  
          these changes should be closely monitored.  Relative benefits of  
          greater uniformity and flexibility should be weighed against any  
          unintentional consequences that might arise, such as  
          unreasonable growth in transit operating expenses.  In the  
          meantime, however, the state's transit performance metrics are  
          broken and this bill proposes a reasonable approach to improving  
          them.


          Analysis Prepared by:                                             








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                          Janet Dawson / TRANS. / (916) 319-2093  FN:  
          0001383