BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 508| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- UNFINISHED BUSINESS Bill No: SB 508 Author: Beall (D) Amended: 8/20/15 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 SENATE FLOOR: 28-8, 5/18/15 AYES: Allen, Bates, Beall, Block, Cannella, De León, Galgiani, Hancock, Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson, Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning, Nguyen, Pan, Roth, Vidak, Wieckowski, Wolk NOES: Anderson, Fuller, Gaines, Moorlach, Morrell, Nielsen, Runner, Stone NO VOTE RECORDED: Berryhill, Hall, Pavley ASSEMBLY FLOOR: 66-14, 8/31/15 - See last page for vote 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. Assembly Amendments make technical changes to improve the implementation of the bill. ANALYSIS: SB 508 Page 2 Existing law: 1)Creates the Transportation Development Act (TDA). The TDA provides two state funding sources for public transit: a) Local Transportation Fund (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) State Transit Assistance (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. 1)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 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. 2)Authorizes a transit operator to meet the fare box recovery ratio by combining fare revenues with certain local funds. 3)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 SB 508 Page 3 vehicle lease costs. 4)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 Consumer Price Index (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. 5)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. This bill: 1)Adds pedestrian safety education programs to the list of eligible uses of 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 CPI for all of the following: a) Fuel; b) Alternative fuel programs; c) Power, including electricity; d) Insurance premiums and settlement payments; and SB 508 Page 4 e) State and federal mandates. 5)Excludes, for two years, further from the fare box recovery ratio equation startup costs for new services. 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 STA funds for operations even if they do not meet specified performance standards, beginning July 1, 2016. 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 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 SB 508 Page 5 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 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. 3)Fixing the STA eligibility criteria. 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. 4)Certificates of participation (COPs). 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 SB 508 Page 6 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. FISCAL EFFECT: Appropriation: No Fiscal Com.:NoLocal: No SUPPORT: (Verified8/31/15) California Transit Association (source) Gold Coast Transit District Mendocino Transit Authority Monterey-Salinas Transit Orange County Transportation Authority Planning and Conservation League Sacramento Area Council of Governments San Bernardino Associated Governments San Luis Obispo Council of Governments Santa Clara Valley Transportation Authority Santa Cruz Metropolitan Transit District Solano County Transit Transform Transportation Agency for Monterey County United Transportation Union Ventura County Transportation Commission OPPOSITION: (Verified8/31/15) None received SB 508 Page 7 ASSEMBLY FLOOR: 66-14, 8/31/15 AYES: Achadjian, Alejo, Baker, Bloom, Bonilla, Bonta, Brown, Burke, Calderon, Campos, Chang, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Daly, Dodd, Eggman, Frazier, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Hadley, Roger Hernández, Holden, Irwin, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Waldron, Weber, Williams, Wood, Atkins NOES: Travis Allen, Bigelow, Brough, Chávez, Dahle, Beth Gaines, Gallagher, Grove, Harper, Jones, Mathis, Patterson, Wagner, Wilk Prepared by:Eric Thronson / T. & H. / (916) 651-4121 8/31/15 20:01:10 **** END ****