BILL ANALYSIS
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: AB 2620
SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: Eng
VERSION: 6/22/10
Analysis by: Art Bauer FISCAL: yes
Hearing date: June 29, 2010
SUBJECT:
Department of Transportation: capital outlay support services
DESCRIPTION:
This bill changes the overhead rate that the Department of
Transportation (Caltrans), charges for reimbursed work it
performs for local agencies or private entities.
ANALYSIS:
Existing law authorizes Caltrans to recover its direct and
indirect costs for capital outlay support services it performs
for local agencies or private entities, except when Caltrans
performs work on the State Transportation Improvement Program
(STIP). Existing law exempts STIP projects from being charged
indirect costs.
This bill :
1) Defines "capital outlay support" to mean services
related to project development, including development of
specifications, preliminary engineering, prebid services,
preparation of project reports and the environmental
documents, design service, preparations of plans,
specifications and cost estimates, construction inspection
and management services, surveying and materials testing,
and related functions.
2) Defines "indirect overhead cost" to mean the pro rata
share of existing administrative salaries and benefits,
rent equipment cost, utilities, and materials.
AB 2620 (ENG) Page 2
3) Requires a public agency or a private entity to
reimburse Caltrans for staff salaries and benefits for
staff needed to perform capital outlay support (COS)
services, as well as for the cost of administration
directly related to the function, such as space, equipment,
and required materials.
4) Denies Caltrans reimbursement for indirect overhead
costs unless the cost can be attributed solely to the
capital outlay support functions and would not exist if
Caltrans did not perform that function.
5) Requires an agency or an entity to reimburse Caltrans
when Caltrans uses a contractor to provides capital outlay
support services for the cost of the contractor plus costs
directly associated with the contracted function, including
but not limited to, advertising and awarding the service
contract, inspection, supervision, and monitoring of the
contractor.
COMMENTS:
1) Purpose . According to the sponsors, the Professional
Engineers in California Government (PECG), Caltrans is
unnecessarily charging local and regional agencies overhead
and administrative costs that are not related to the
delivery of COS services associated with designing highway
improvements. PECG argues that for reimbursed work Caltrans
is currently charging local and regional authorities for
all Caltrans' administrative costs, including charges for
building depreciation, bond interest charges, audits, and
multiple other items unrelated to state highway project
delivery.
2) Overhead rates . Federal guidelines require that projects
funded with federal gas tax revenues are charged the
"functional" overhead rate and the rate for indirect costs.
The functional overhead costs are associated with a
specific function, such as COS. Annually, the Department
of Finance and the Federal Highway Administration approve
Caltrans' direct and indirect overhead rates. When
performing COS services on projects funded with local
funds, Caltrans charges local agencies both the functional
rate, as well as for the indirect costs associated with
operating Caltrans. By not charging the indirect cost for
reimbursed work, the state would be subsidizing local
AB 2620 (ENG) Page 3
agencies. Moreover, if Caltrans does not charge the rate
for indirect costs for reimbursed work, the federal
government will not reimburse the state for those costs.
3) Costs are real money . This bill exempts indirect costs
related to the overall management and operation of
Caltrans, including legal, personnel, civil rights, audits,
space charges, and other similar costs, from being charged
to public agencies or private entities if they contract
with Caltrans for COS services. It is a customary
accounting practice in any enterprise, public or private,
to allocate overhead costs across all functions of the
organization. By exempting public agencies or private
entities from paying the indirect costs, the bill offers an
incentive to those entities to retain Caltrans to provide
COS services and not to retain private engineering firms.
The exempted costs, however, do not go away. They are
charged to the other functions of Caltrans.
In end, this exemption reduces the amount of funds in the
State Highway Account that will be available to improve the
state's highway system. According to Caltrans, it received
nearly $66 million in reimbursements for indirect costs
associated with providing COS services in fiscal year
2008-2009. To exempt local agencies and a private entity
from reimbursing Caltrans for this cost means that the
State Highway Account will have to absorb the cost. State
highway funds are already at a premium. Caltrans indicates
that the minimum cost of performing rehabilitation work on
a state highway is approximately $240,000 per lane mile.
Failure to collect indirect overhead costs is equivalent to
approximately 275 line miles of highway not being
rehabilitated.
4) Federal accounting issues . The exemption from being
reimbursed for indirect costs may be contrary to federal
regulations governing cost allocation procedures for
agencies receiving federal highway revenues. If Caltrans is
out of conformity with federal accounting requirements,
remedial actions would have to be taken to bring the
department into conformity or the state not be reimbursed
for the costs.
Assembly Votes are not relevant.
POSITIONS: (Communicated to the Committee before noon on
AB 2620 (ENG) Page 4
Wednesday,
June 23, 2010)
SUPPORT: Professional Engineers in California Government
OPPOSED: None receive.