Nearly every major road, rail and local general aviation transportation project in California, including the new San Francisco-Oakland Bay Bridge, the high-speed rail network and refurbishment of Highway 99 in the Central Valley, has something in common: the California Transportation Commission (CTC) voted to fund it. The 13-member commission, nine of whom are appointed by the governor, is responsible for providing programming and funding of several billion dollars annually for transportation projects in partnership with regional transportation agencies and the California Department of Transportation (Caltrans). The commission also advises the California Secretary of Business, Transportation and Housing Agency and the state Legislature on key transportation policy matters. The CTC  transitioned to the new Transportation Agency by July 1, 2013, as part of an executive branch reorganization proposed by Governor Jerry Brown.

Prior to 1978, four different independent state agencies – the California Highway Commission, the State Transportation Board, the State Aeronautics Board, and the California Toll Bridge Authority–competed to determine the allocation of vital transportation project startup funds, almost always state or municipal bonds. The Legislature consolidated these bodies and their fiscal authority under the Transportation Commission in 1978.

The state’s transportation bureaucracy began simply enough, with the state Highway Commission, established in the late 19th century, responsible for selling municipal bonds to build the state highways. Through the years, as responsibilities increased and bond programs and other funding mechanisms were added, the scope was widened to include oversight over the state’s implementation of climate change bills.

The Transportation Commission recommends policy and funding priorities to the Legislature. It adopts estimates prepared by Caltrans of available transportation funds for capital projects and allocates state and federal funds to projects. It also provides oversight of Caltrans and local projects. 

The commission allocates funding for a veritable alphabet soup of programs. (Fifteen acronyms are referenced in the first three pages of its official transportation overview.) It lists on its website 11 separate programs, including aeronautics, the environment, public-private partnerships, the Clean Air and Transportation Act and high-speed rail. The two most prominent are:

The State Transportation Improvement Program (STIP) has broad reach and includes projects for improving state highways, local roads, public transit, intercity rail, and pedestrian and bike facilities. Nominations for projects come from Caltrans and regional entities. In 2010-2011, the commission allocated $1.16 billion to projects included in the STIP.

The State Highway Operations and Protection Program (SHOPP), prepared by Caltrans, includes projects for the state highway system. Most of the projects are for pavement rehabilitation, bridge rehabilitation and traffic safety improvements. They must be approved by the commission before Caltrans can access the money. In 2009-2010, the commission allocated $1.61 billion to projects included in the SHOPP.

The commission also releases money from 10 more specific funding accounts such as the Transportation Congestion Relief Program, created in 2000 to fund 141 specific projects across the state. The commission is responsible for overseeing a big chunk of several one-time funding sources such as $20 billion in voter-approved bonds sold in 2006 under Proposition 1B and $10 billion in bonds for mostly high-speed rail sold in 2008 under Proposition 1A.

In addition to directing dollars, the commission offers advice in the form of reports or resolutions to the Secretary of the Business, Transportation and Housing Agency and the Legislature on the state’s “comprehensive transportation goals” (building a new Bay Bridge, infrastructure for a high speed rail network, etc.), the transit infrastructure’s long-term needs (identifying outmoded rolling stock or decaying bridges), and how to allocate future, as-yet-unidentified funding sources appropriately.  All of this is included in the commission’s  annual report to the Legislature, delivered every December.

The department oversees billions of dollars for myriad projects, but only directly spends about $25 million a year and that is for one program, Clean Air and Transportation Improvement.  Those funds go for rail infrastructure, paratransit vehicles, bicycle facilities, waterborne ferry vessels and facilities, public transit, and the California State Museum of Railroad Technology. (It also spends $3.9 million a year for administration.)

That makes for a tidy annual budget statement, but doesn’t paint an accurate picture of the river of money coursing through the commission. Many of the actual spending decisions are made elsewhere (the Legislature, Caltrans, federal government), but the commission has strong input through its allocation procedures and consultation role.

According to its 2010 annual report, the commission doled out more than $5 billion for transportation projects – marking the fifth consecutive year it has moved more than $4 billion in funding and enabling the California Department of Transportation to attain a construction activity level in excess of $9 billion.

California is expected to receive $85 billion in federal funds as part of the American Recovery and Reinvestment Act of 2009. The act provides “stimulus” money for the states to spur growth, produce jobs and help recover from the economic downturn of 2008. More than $51.1 billion was awarded by October 2010. $4.5 billion was targeted at state transportation projects and $1.6 billion was in the pipeline by October 1. Much of this money is allocated through the Transportation Commission.

Federal Stimulus Money for California

Overview of State Transportation Programs (pdf)

The Money is Gone

The Transportation Commission was authorized in 2006 to allocate $11.6 billion of money under Proposition 1B for future use, but was not able to sell bonds during the legislature’s extended deliberation over the state budget in 2010. Bond sales also suffered from miserable market conditions and the state’s shaky financial health. This left stalled some $700 million worth of approved projects as of November 2010.

Funding dedicated for transportation projects has been repeatedly shifted to the state’s general fund to cover the state’s ongoing, chronic budget deficit. In recent years, the state has also turned to borrowing against future revenues to cover immediate shortfalls at an increased cost to the taxpayer. The commission recommended in 2010 that the legislature enact a 15% limit on transportation debt service, but no solid plan to enact this yet exists.

Even with the sales of bonds and other debt servicing added to money the commission oversees from the gas tax and tolls, the state’s transportation needs are “chronically under funded,” according to the commission’s 2010 annual report. The state needs $6 billion annually to repair and maintain its transit infrastructure, and has only $2 billion available. There is also an “unfunded backlog of local road maintenance” estimated at $37 billion today that is projected to grow to $79 billion by 2033.

The commission has identified a “lack of a stable and consistent source of public transportation operations funding,” which has led to constant overcrowding and cuts on the state’s public transportation systems. Worse, 70% of the state’s buses and 55% of its trains will need to be replaced in the next six years. Despite billions of dollars the commission allocates every year, there is no identified source of revenue to pay for these replacements.

Just a Rubber Stamp?

A review of commission meeting minutes from 2010 reveals the vast majority of projects approved by a unanimous vote (one exception being the proposed public-private partnership project to rebuild the Doyle Drive connector on Highway 101 at the Golden Gate Bridge in San Francisco).

Not Quite Terminated

In September 2009, Governor Arnold Schwarzenegger tried to yank one of his own appointees off the ostensibly independent Transportation Commission. The appointee, James Ghielmetti, objected to a plan backed by the governor that would increase the participation of private companies in freeway construction projects. Ghielmetti, who owns the Northern California land development and home-building company Signature Properties, agreed with those on the panel who sought more time for regulators to assess the effects of such a move. When Schwarzenegger withdrew his reappointment to the commission, state legislators quickly voted to make him one of their two appointments to the board. A spokesman for the governor said, "The governor is looking for strong advocates for public-private partnerships to get jobs online as quickly as possible." Ghielmetti responded, "I felt we were being told what the guidelines should be. It's inappropriate."

The Legislative Analysts’ Office (LAO) has recommended rejecting the commission’s request for a three-year contract to fund the outside consultant whose job it would be to evaluate public-private partnership projects. There was only one private-public partnership project proposed in 2010, leading the LAO to suggest that the legislature should fund consultants on a case-by-case basis.

Summary of LAO Findings and Recommendations on the 2011-12 Budget (Legislative Analyst’s Office)

Public-Private Partnerships (California Transportation Commission)

Grant Anticipation Bonds

When money is tight, which is most of the time, hundreds of projects around the state go begging for cash. The California Transportatin Commission utilizes several ways of financing beyond usual debt service bonds. One is called the Grant Anticipation Revenue Vehicle (GARVEE) bond, in which the state borrows against future–and in some cases unspecified or not guaranteed–federal grants.

The commission readily allocates this money even while warning that paying off the interest on money borrowed today makes even simple projects more expensive for the taxpayer, and makes it more difficult to find more money in the future.

What is a Grant Anticipation Revenue Vehicle (GARVEE) Bond? (Buy California Bonds)

It’s Creative and It Works

GARVEEs were made possible by the National Highway System Designation Act of 1995 and have experienced a steady rise in their use by states, growing from $170 million in 1998 to $9.28 billion a decade later.

There are strict guidelines for their use. Only certain types of projects qualify and the money can only be used to pay unfront financing and debt service costs. 

The federal government has established statutory limits on GARVEEs, but the states are allowed broad discretion in crafting their own legislation for administering the instruments, resulting in a variety of innovative applications of the Act.

Grant Anticipation Revenue Vehicles (GARVEE) Program Highlights (California Department of Transportation)

Grant Anticipation Revenue Vehicles (GARVEEs) (AASHTO Center for Excellence in Project Finance)

It’s Risky Business

What could go wrong? If the Federal Highway Administration cuts back funding or Congress doesn’t authorize a new transportation bill, highway bonds could pile up.

The near shutdown of the federal government in 2010 during the debt limit debate and subsequent battles of the budget have highlighted this possibility, if not probability.   

In August 2011, Standard & Poor’s addressed fears that a recent downgrade of the federal government’s debt could have a domino effect on GARVEEs. While the ratings agency was optimistic that GARVEEs would remain stable, it warned, “We believe there are several potential risks that if realized alone or in combination, might cause us to reevaluate the ratings on some or all of our Garvee bonds.”

A second risk, noted in an article by the authoritative The Bond Buyer, is any diminishment of the federal Highway Trust Fund, such as through a reduction in the gasoline tax. “Since the HTF is the source of funding for the federal component of Garvee bonds any delay or reduction in this funding source could have credit ramifications,” it quotes Standard & Poor’s.  

D.C. Gridlock Imperils Garvees (by Dennis Moore, Bond Buyer)

Andre Boutros, 2013-2015

Bimla Rhinehart, 2009-2013

John Barna, a career transportation consultant, preceded Rhinehart as executive director of the CTC. Barna formerly sat on the High Speed Rail Authority board and was deputy secretary for transportation at the California Business, Transportation and Housing Agency.