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TAXPORTATION: Profligate Waste Negates Justification for Transportation Tax Hike

Part One:  California’s Highways – A Legacy of Mismanagement and Over-regulation.

A personal digression: My father was head of the Iowa Department of Transportation (then called the Iowa Highway Commission) in the late ’60s and early ’70s before he was appointed by President Ford to serve as Deputy Federal Highway Administrator. (Of course, he lost that job when Jimmy Carter became president, but he continued to work in the private sector for a transportation think tank). When I was in high school, I remember him coming home from an ASHTO conference. That organization, the Association of State Highway and Transportation Officials, was a pretty well respected group and still is. He was complaining bitterly about what was going on in California. I don’t recall his exact words, but the gist of it was that the new head of California’s transportation agency, called CalTrans, had been taken over by a certifiably crazy person (with no background in transportation policy) by the name of Adriana Gianturco. According to my father, in the 1950s and ’60s, California had the best transportation agency in the entire world. But all that changed with the election of a new, anti-growth, small-is-beautiful governor by the name of Jerry Brown.

Now, fast forward 40 years. Governor Brown, version 2.0, proposes a budget that assumes a big increase in transportation taxes and fees. The California Legislature shouldn’t just say no, it should say hell no.

Where to start? First, let’s take judicial notice of the fact that California is already a high tax state with the highest income tax rate and the highest state sales tax in America. But more relevant for the issue at hand, we also have the highest fuel costs in the nation. This is because of both the 4th highest excise tax on fuel and the fact that refineries are burdened with additional costs to comply with California’s environmental regulations.

The high cost to drive in California might be understandable if we were getting value for our tax dollars. But we aren’t. A big problem is that Caltrans is dysfunctional, plain and simple. It has never fully recovered from the days when the agency was effectively destroyed by Gianturco. A report by the California State Auditor just a couple of months ago concluded that a primary responsibility of Caltrans – maintenance of our highways – is not being executed in a manner that is even close to being efficient or competent. Senator John Moorlach, the only CPA currently serving in the California legislature, reacted saying that “This audit reinforces the fact that our bad roads are not a result of a lack of funding. They’re a result of a lack of competence at Caltrans.” Moreover, a report by the Legislative Analyst concluded that Caltrans is overstaffed by 3,500 employees costing California taxpayers over a half billion dollars a year. All this compels the obvious question: Why, for goodness sake, do we want to give these people even more money?

Another unneeded and costly practice consists of project labor agreements for transportation construction projects. These pro-union policies shut out otherwise competent companies from bidding on projects resulting in California taxpayers shelling out as high as 25% more than they should for building highways and bridges.

Finally, California’s environmental requirements are legendary for their inefficiency while also doing little for the environment. Exhibit A in this foolishness is Governor Brown’s incomprehensible pursuit of the ill-fated high speed rail project. Not only has the project failed to live up to any of the promises made to voters, it is currently being kept alive only by virtue of the state’s diversion of “cap and trade” funds which are supposed to be expended on projects that reduce greenhouse gas emissions. But in the Kafkaesque world of California transportation policies, the LAO has concluded that the construction of the HSR project actually produces a net increase in emissions, at least for the foreseeable future.

No one disputes the dire need for improvements in California’s transportation infrastructure. But imposing draconian taxes and higher registration fees that serve only to punish the middle class while wasting billions on projects that don’t help getting Californians get to work or school cannot and should not be tolerated. Legislators who present themselves to voters as fiscally responsible need to understand that a vote for higher transportation taxes will engender a very angry response from their constituents.

Part Two:  Redirecting Existing Revenue Provides Plenty of Money for Highway Improvements

Last week’s column presented the case for strong opposition to any new transportation taxes in California. But on Thursday, the Executive Director of Transportation California, Will Kempton, published a response in Fox and Hounds, a California political blog run by Joel Fox, which repeated the need for higher taxes.

Will Kempton is a respected transportation expert who agrees with the central premise of my original column. That is, that California’s transportation crisis can no longer be ignored. California has a transportation and road repair maintenance backlog that some estimate will total $58 billion over the next ten years. It is also true that, thanks to alternative vehicles and more fuel efficient cars (and never mind the infamous “gas tax swap”) that fuel tax revenues have become more volatile year-over-year.

So, now that we’ve agreed on the need, how do we deal with it? Mr. Kempton argues that we have no choice but to raise taxes. Not only do we disagree, but it is abundantly clear that practically all of this backlog can be funded using existing General Fund resources. Consider:

  • Nearly $1 billion a year of truck weight fees are being diverted from road repair to paying off transportation bond debt. Total: $10 billion over ten years.
  • Nearly $9 billion in bonds for high speed rail can be diverted for road construction. (And if voter approval is deemed necessary, that measure passes in a heartbeat).
  • Currently, California spends only 20 percent of its $10 billion General Fund transportation budget on road maintenance. Especially with General Fund revenue at record levels, a boost to 50 percent does not seem excessive: Total: $30 billion over ten years.
  • Currently, $500 million in $3 billion worth of cap-and-trade funding goes to road maintenance. Doubling that amount adds $5 billion over ten years.

The grand total of these reforms is $54 billion over ten years. Granted, not all of these things can be done overnight and the first two items will likely require statewide voter approval. But the Legislature still has plenty of time to qualify a constitutional amendment for the November ballot. And obviously, placing a greater General Fund emphasis on transportation projects will require that we figure out how to prioritize our resources better in the face of a record $122 billion budget.

Let’s be honest. It is really the word “prioritize” that is at issue here. Some of these reforms will be easier to implement than others, but unless we engage them head on, which hasn’t happened in the Legislature, how can we ever hope to solve this problem? Taxpayers should refuse to accept the incessant call for higher taxes when relatively simple reforms that could add tens of billions of dollars of funding to our roads, without raising taxes, are ignored. How can we discuss a punitive and regressive gas tax increase when common-sense legislation by State Senator John Moorlach to privatize a small portion of CalTrans projects, or to  establish a pilot project to have county transportation agencies assume projects from CalTrans, are quickly rejected in their first policy committee?

We agree with Kempton that the status quo is no longer acceptable. But there are a myriad of fiscal and policy changes that are viable and should be discussed and implemented. And until legislative Democrats, the transportation community, labor and environmentalists are willing to even come to the table, why should the burden be on California motorists to pay higher taxes?

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

Resist the “Pothole Tax”

Last week, Will Kempton, Executive Director of Transportation California and former Director of Caltrans published a response to Jon Coupal, President of the Howard Jarvis Taxpayers Association, in a Fox & Hounds piece stating that, “…in spite of all the recent audits and criticism, the organization [Caltrans] employs competent people who want to serve the public well.”  In the same piece he highlighted the need to address California’s transportation funding crisis and provided one solution: Raise your taxes even higher.

There is no doubt that there are many fine and capable Caltrans employees who simply want to build and maintain our state’s highway system. What Kempton missed was the incredible dysfunction at Caltrans and tries to deflect any criticism of the department.  He of all people knows how bad it really is at Caltrans, and for those who are unaware of the facts, his echo to raise taxes for transportation spending might seem like the only viable option. However, reports concerning a very dilapidated Caltrans are replete with criticisms of its inability to provide details for budget reviews and audits by either the LAO or the State Auditor.

 

Will Kempton, Former Director of the Department of Transportation (Caltrans)

 

We’re told the Governor and the Secretary of Transportation are serious about fixing California’s roads, but can you mention one initiative to actually fix Caltrans?  All I hear is cries for more tax increases.

Allow me to review a few facts revealing the competency level at Caltrans:

Left up to the Governor and the legislature, it will be YOU, the taxpayer, who will be asked to fund a “pothole” tax. I hate to break it to you, but you’re being taken to the cleaners. You are the victim of intentional infrastructure neglect. This literally is “highway robbery.”  The fix is in.  And the answer is you and your wallet.

California’s leadership should be sincere in its pursuit of better roads.  Fix Caltrans. Taxpayers should expect no less.

I’m ready to #FixCaltrans.

Watch & Share this video: ‪bit.ly/FixCaltransVid 

About the Author: As a Certified Public Accountant and Certified Financial Planner, John Moorlach began his career in public service 20 years ago when he warned that then Orange County Treasurer-Tax Collector Robert Citron’s risky investment strategies would lead to bankruptcy.  Moorlach’s warnings proved true when Orange County filed for bankruptcy protection in December of 1994, becoming the largest municipal bankruptcy in U.S. history. John Moorlach was twice re-elected to County Treasurer-Tax Collector. In 2006, voters elected John to serve in his first of two terms on the Board of Supervisors, where he continued his focus on reforming the county’s budget practices and sounding the alarm on the county’s growing unfunded liabilities. He now currently holds office as the State senator for the 37th senate district.

Caltrans Union Spokesman Understates Engineers' Cost by $71M

In a hearing on Senator Moorlach’s SBX1-9 (Responsible Contacting for Caltrans) bill, Ted Toppin of the Professional Engineers in California Government (PECG) made a series of demonstrably false claims regarding the cost of Caltrans engineers.

Toppin claimed that the cost of a fully-loaded engineer – including all wages, benefits and even the cost of their office and service truck – was $116,000. A review of the department’s 2014 payroll data reveals that the average cost for a “transportation engineer” was $128,638. This is only for regular transportation engineers and excludes any engineer with a preface such as senior, supervising, principal, etc. Additionally, it understates their total cost as it does not include the cost of their trucks and office space.

In 2014, Caltrans had 5646 full-time regular transportation engineers on their payroll. Consequently, Toppin understates the cost of employing engineers by at least $71,000,000 per year for the department.

The highest compensated regular transportation engineer received $213,000, with principal transportation engineer, Kenneth Terpstra, leading all classifications of engineers with $243,000 in total compensation.

Later, Toppin is incredulous at the notion that a state engineer could make $138,000 a year, stating that, “There is no state engineer in this state, making $138,000 a year…I think it probably tops out for top engineers at around $110,000.”

Here it is clear Toppin is speaking about all categories of engineers, not merely the regular transportation engineers analyzed above. It is also likely he is referring to wages only, not total compensation. To be even more charitable, we will also assume he is referring to “regular pay” only, and in addition to excluding benefits, will also exclude any overtime earnings or supplemental wages classified as “other pay.”

Given the above, how does his claim contrast against the 2014 payroll data?

Six engineers received regular pay in excess of $138,000 last year and 1581, or nearly 20% of all engineers, received over $110,000. If we include total wages, those numbers rise to 69 and 2101, respectively.

Finally, Toppin expressed regret that the director of the department makes only $169,000 or so. He might be pleased to know that thanks to the incomparably generous leave policies offered by California’s public sector, the director was able to cash in roughly $80,000 worth of unused leave to boost his 2014 pay to $247,000, for a total compensation package of $302,000.

Mr. Toppin’s inaccurate testimony before the Senate committee fits a pattern best epitomized by the Legislative Analyst’s Office: “the overarching numbers given by Caltrans are not supported by data.”

Given the poor grasp on matters as straightforward as personnel costs, it is little wonder there exists deep skepticism about whether Caltrans is providing taxpayers with the best value possible for their tax dollars.

Robert Fellner is the Director of Transparency Research at the California Policy Center.