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CPY Document FORM GEN. 160(6-80) CITY OF LOS ANGELES INTERDEPARTMENTAL CORRESPONDENCE Date: January 11, 2008 To: The Honorable City Council c/o City Clerk, Room 395, City Hall Attention: Honorable Wendy Greuel, Transportation Committee ~r.~~ From: ~Rita L. Robinson, General Manager . Department of Transportation Subject: FY 2008-09 PROPOSITION C FORECAST (CF 05-2057) SUMMARY The Department of Transportation (DOT) forecast of Proposition C Local Return funds indicates that there will be a deficit of approximately $34 million in FY 2008-09 (Attachment A). If the City were to maintain its existing programs and continue to set aside match and front funding for future programs such as, the Metro Calls for Projects, federal earmarks, and Safe Routes to Schools, the deficit would grow to over $73 million in FY 2017-18. However, if only committed grant funded projects are considered, there is a near-term deficit in FY 2009-10 through FY 2012-13, but the fund balance grows to $194 million in FY 2017-18 (Attachment B). These near-term deficits are due to a number of factors. The primary reason is the increase in the costs of committed Metro Call projects. Previous reports identified Metro's Supplemental Funding program as a partial solution to projected deficit. These projections include funds secured through that process. However, these projections do not include funding from the State Transportation Infrastructure Bond- Local Streets and Roads Improvement, Congestion Mitigation, and Traffic Safety (Proposition 1 B - Local Streets) fund. The City's share of these bond funds will be approximately $126 million over five years, the first of which will be approximately $64.7 million in early 2008. These funds can help eliminate the projected deficits through FY 2017-18. Four broad alternatives are discussed. RECOMMENDATIONS That City Council, subject to approval by the Mayor, 1. Direct the City Administrative Officer (CAO), Chief Legislative Analyst (CLA), DOT, and the Department of Public Works (DPW) to determine the best allocation of Proposition 1B- Local Streets and Roads, Congestion Mitigation, and Traffic Safety funds to reduce the midterm deficits in the Proposition C 10-Year Forecast. 2. Direct the DOT to work with Metro to allow the City to bill Metro every month rather than every quarter for the construction phase of projects where construction costs exceed $1 million. 3. Direct the CAO, CLA, DOT, and DPW to work with Metro staff to explore a "Spend Ahead" strategy on Surface Transportation Program- Local funds as an alternative to debt-financing to cover short-term cash flow shortfalls or to realize other benefits that the City may realize. .JAN 1 a 2008 TRANSPORTATION Honorable City Council Page 2 January 11, 2008 FY 08-09 Proposition C Forecast (CF 05-2057) DISCUSSION Background In November 1990, voters approved Proposition C, a second countywide% cent sales tax for transit. The proceeds from this % cent sales tax are less restrictive than Proposition A and can be used to improve public transit service and operations, reduce traffic congestion, improve air quality, efficiently operate and improve the condition of the streets and freeways utilized by public transit, and reduce foreign fuel dependence. In addition to the Proposition A eligible services, Proposition C can be used to supplement public paratransit services for senior and disabled persons. At the option of each city and the County, funds can be used, consistent with the County's Congestion Management Program, to increase safety and improve road conditions by repairing and maintaining streets heavily-used by public transit. Twenty percent of the revenue from this countywide sales tax is designated as the Proposition C Local Return program and is distributed to the County of Los Angeles and incorporated cities within Los Angeles county in proportion to their populations. In FY 2006-07, the City received about $55.1 million for the Proposition C Local Return program and $57.1 million is anticipated for FY 2008-09. In addition to the annual revenues, each year reimbursements from the front­ funding for completed projects add to the annual revenues. The Transportation Grant Fund accounts were set up as revolving accounts. Only about half of any project's costs are placed in the project's revolving account: a portion is the required match funding and the rest is front­ funding. This should be enough to pay the project's costs and wait for the grant reimbursements to pay for future project costs. Proposition C Local Return funds are currently used primarily for the following purposes: • Match and front-funding for the Call for Projects, • SAFETEA-LU earmark projects and other grant-funded projects, • Street resurfacing on streets with transit service; and • Staff and support for Proposition C-eligible activities which funds DOT, but also the CAO, City Attorney, Contract Administration, Mayor's Office, and Street Lighting. In FY 07-08, the following programs were allocated funds as follows: Program Amount Match and Front Funding for Grants $ 40.4 million Staff and Support $ 21.0 million Street Resurfacing $ 11.1 million Exposition Light Rail $ 8.0 million Operating Programs $ 2.1 million Unappropriated Balance $ 0.6 million TOTAL $ 83.2 million The Match and Front Funding for Grants has historically included funding for the Call projects, SAFETEA-LU earmark projects, Safe Routes to Schools projects, the Bridge Program, Capital Improvement Expenditure program (CIEP), and other Proposition C-eligible grant programs. Funding for City staff positions that work on grant-funded projects also has been included in this line item. In the Department's New Packages Budget proposal, two of the alternatives are accounting changes to regularize transportation-grant funded and the ATSAC completion program. As a result, about $15.5 million in the Match and Front Funding for Grants is transferred to the New Packages line item in the Proposition C forecast. In future budgets, these funds will be included in Department Appropriations. Honorable City Council Page 3 January 11, 2008 FY 08-09 Proposition C Forecast (CF 05-2057) The Exposition Light Rail line item is the fourth payment of a total of $40 million to be paid to Metro in FY 2010-11. This forecast now shows the agreed upon payment schedule with the final payments in FY 2009-10 and FY 2010-11 being $8 million and $7.8 million respectively. FY 07-08 Allocations Unapp. Balance Street Resurfacing Exposition Light Match and Rail Front-Funding for Grants Operating Programs Proposition C 10-Year Forecasts The Base forecast (Attachment A) includes an extrapolation of all programs currently funded with Proposition C funds. It includes match and front-funding for the projects for the current and future Calls for Projects, transportation earmark projects, and Safe Routes to Schools. The results of Metro's Supplemental Funding are also reflected in this forecast as are the nearly $200 million in shortfalls in the Call projects from 2001 and earlier. These projects were delayed due to the 2001 downturn in the State and national economies. The delays combined with the sudden increase in the cost of construction materials during this time period, resulted in increases in the construction costs of these projects. This Base forecast does not include funding from Proposition 1 B Local Streets and Roads Improvement, Congestion Mitigation, and Traffic Safety (Proposition 1 B - Local Streets) program or Local Seismic Retrofit program. The $150 million in Proposition 1 B Local Signal Synchronization is reflected in this forecast. Proposition C revenues are assumed to increase at 3.8 percent per year. Historically, the Call for Projects grew at the historical rate of increase of the Highway Trust Fund. Since most of the funding in future Calls for Projects will come from State sales taxes rather than federal funds, the future Calls for Projects are assumed to grow at the same rate of increase as the sales taxes. Other line items are assumed to grow at 2.6 percent, which is the latest available cost of living index (August 2006 through August 2007). The grant reimbursements are assumed to occur three years after the last year of programmed funds for the project. This allows time for the work to be completed and for the project to be closed out. Honorable City Council Page 4 January 11 , 2008 FY 08-09 Proposition C Forecast (CF 05-2057) Prop C Forecast 250 200 150 100 50 0 -50 -100 I ~Base -~t-Committed I The graph above shows that the Base forecast Proposition C is about $14 million deficient in FY 2008-09. This deficiency continues over the next ten years, growing to about $73 million in FY 2017-18. Attachment 8 shows the Proposition C forecast of only the committed grant projects. As can be seen, there is no deficit in this case. As both these graphs indicate, there is a temporary near-term deficit problem, not a structural deficit. The City has a number of options to mitigate this deficit. Alternative 1 - Cancellation of Ongoing or New Projects Attachments C, D, and E show the projects programmed for Proposition C funds as match and front-funding over the next few years for Call Projects, SAFETEA-LU, and Safe Routes to Schools, respectively. Since about 80 percent of the funding comes from federal, state, or regional sources, under this scenario the City would have to cancel over $400 million in projects to save $80 million in Proposition C match funds. This would be for projects not yet started. If a project that started and received reimbursement, is subsequently cancelled, Metro will require that the City return the grant funds already received for the project. While the City would save the match funds of any cancelled projects, the City would be required to totally fund any work done on a cancelled project, which would add to the deficit.
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