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Agenda Item # 26

BOARD MEMORANDUM

The attached document consists of the following three elements:  (a) monthly legislative report;  (b) legislative history for the 2003-2004 session of the California Legislature; and  (c) monthly activities summaries from VTAs federal and state contract lobbyists.

The monthly legislative report summarizes recent developments concerning important transportation and other issues at the federal and state levels.

The legislative history describes some of the key transportation-related bills that are being considered by the state Legislature during the 2003-2004 session.  It indicates the status of these measures and any adopted VTA positions on them.

The monthly activities summaries articulate the work that is being done on behalf of VTA by our advocates in Washington, D.C., and Sacramento.

MONTHLY LEGISLATIVE REPORT
November 2003

TEA-21 Extended Until February 2004

With little time to spare, the House and Senate approved a bill to extend the authorizations for federal surface transportation programs contained in the Transportation Equity Act for the 21^st Century (TEA-21) until February 29, 2004.  The measure, H.R. 3087, was signed into law by President George Bush on September 30, 2003, the same day that TEA-21 was set to expire.

H.R. 3087 provides uninterrupted funding for highways and transit using TEA-21s program structures, and ties the authorized spending levels to the FY 2004 congressional budget resolution according to the pro-rated basis of five out of 12 months, thus 5/12^ths of the total funding.  In other words, the legislation provides approximately $14 billion in federal highway funding obligational authority to the states, 5/12ths of the FY 2004 total of $33.8 billion.  The same is true for transitabout $3 billion, which is 5/12ths of the $7.2 billion total.

Unlike prior instances when a surface transportation authorization lapsed, TEA-21 specifically prohibited the release of dollars from the Highway Trust Fund as of October 1, 2003.  Therefore, the expiration of TEA-21 threatened the shutdown of those federal transportation agencies that are funded out of the Highway Trust Fund, specifically the Federal Highway Administration (FHWA), Federal Transit Administration (FTA), Federal Motor Carrier Safety Administration (FMCSA), and the National Highway Traffic Safety Administration (NHTSA).  H.R. 3087 addressed this problem by allowing funding to continue to flow uninterrupted for the next five months.  However, on February 29, 2004, the same hard deadline will come into play again.  In the absence of another short-term extension or a multi-year TEA-21 reauthorization bill, these agencies will be forced to shut down at that time.

An interesting provision that was included in H.R. 3087 allows the states to transfer obligational authority among various federal surface transportation programs where needed.  Some members of Congress raised concerns about this provision during the debate on the short-term extension bill, fearing that highway safety, transportation enhancement, and congestion mitigation and air quality programs would suffer, so that the states could obligate the majority of their five-month funding on National Highway System or other traditional federal highway projects.  In response, language was included in the final version of H.R. 3087 requiring states that choose to take advantage of this increased flexibility to promptly restore any transferred obligational authority following the enactment of any subsequent law reauthorizing the federal highway program, regardless of whether that subsequent legislation is another short-term extension or a multi-year reauthorization.  In other words, all programs will, in theory, be made whole by the end of FY 2004.  This transfer provision is only applicable until February 29, 2004 and it is doubtful that lawmakers would support continuing it.

Several sticky issues were worked out between congressional leaders prior to consideration of H.R. 3087 by the House and Senate floors in order to avoid a potentially time-consuming conference committee.  These issues were the length of the extension, ethanol taxation and a proposed dimmer switch dealing with obligation of federal highway funds after the February 29^th deadline.

The House Transportation and Infrastructure Committee had proposed a six-month extension, which would have allowed TEA-21 to remain in effect until March 31, 2004.  House Republican leaders, on the other hand, wanted a five-month extension.  The fight over this one-month difference centered on the timing of consideration of the FY 2005 congressional budget resolution, which typically occurs in March.  House Republican leaders believed that if the transportation authorizers were attempting to pass a six-year TEA-21 reauthorization bill next March, they would have a prime opportunity to influence the transportation funding numbers in the congressional budget resolution.  By pushing the deadline up a month to February 29, 2004, the leadership surmised that the transportation authorizers would be forced to figure out their financing based upon FY 2004 budget resolution levels, and would be prevented from creating a big problem for the leadership in the FY 2005 budget resolution.  On the other hand, the key players on the Transportation and Infrastructure Committee wanted the expiration of the extension to occur during the debate on the FY 2005 budget resolution to capitalize on their efforts to increase funding for highways and transit over the long-term.  The House leaderships preference for a five-month extension won out in the end.

Meanwhile, the Senate Finance Committee aggressively pushed for including provisions in H.R. 3087 that would have changed the way taxes on ethanol-blended fuels are calculated and collected.  Currently, ethanol is taxed at 13.2 cents per gallon, which is 5.2 cents less than the 18.4-cent tax on gasoline.  This excise tax break was created 25 years ago to encourage the production of ethanol, particularly in the Midwestern corn-producing states.  However, because a states share of federal highway funding is based upon the amount it pays into the Highway Trust Fund, an increase in ethanol consumption causes a lose of valuable highway dollars in a states rate of return.  Furthermore, of the 13.2 cents collected in taxes on ethanol, 2.5 cents is diverted from the Highway Trust Fund to the General Fund.  It is estimated that this diversion will cost the Highway Trust Fund more than $2 billion per year over the six-year TEA-21 reauthorization period.

Senate Finance Committee Chairman Charles Grassley (R-IA) and Ranking Minority Member Max Baucus (D-MT) want to fix this problem by:  (a) replacing the current 5.2-cent tax break with a General Fund tax credit, thereby allowing ethanol to be taxed at the same rate as gasoline; and  (b) redirecting the 2.5 cents currently being deposited into the General Fund back to the Highway Trust Fund.  They made a play to incorporate these provisions into H.R. 3087 because they knew that the increase in revenues flowing into the Highway Trust Fund during the five-month extension period resulting from an ethanol fix would be included in the calculation of available funds for a six-year TEA-21 reauthorization measure.  Their efforts were not successful because House Ways and Means Committee Chairman Bill Thomas (R-CA) balked at the idea.  However, the ethanol fix still is under consideration as part of the comprehensive energy bill, which currently is in conference committee.

The so-called dimmer switch was proposed by the House Transportation and Infrastructure Committee leadership.  It would have made the February 29, 2004, cut-off of funds less drastic by allowing the states to continue to obligate federal highway dollars until June 1, 2004, using prior-year unobligated balances in the absence of a multi-year TEA-21 reauthorization bill.  The Senate objected, however, on the grounds that such a mechanism would reduce the pressure to enact a multi-year reauthorization bill.

The passage of H.R. 3087 provides Congress with additional time to consider a comprehensive multi-year reauthorization of TEA-21.  So far, Congress and the Administration have not been able to agree on what the authorized spending levels for highways and transit should be over the six-year reauthorization period or on a plan to pay for any increase in investment in surface transportation programs.

Earlier this year, the Administration proposed a six-year, $247 billion bill, but both the House and Senate declared that this level of funding was insufficient to meet the nations transportation needs.  The House Transportation and Infrastructure Committee currently is working on a six-year, $375 billion TEA-21 reauthorization bill, which it hopes to introduce prior to the end of this years congressional session.  The bill, however, will not direct how a federal surface transportation program of that size would be funded.  Although key members of the House Transportation and Infrastructure Committee are calling for a gas tax increase, neither the House leadership nor the White House supports that idea.  In the meantime, Senate authorizers continue to talk about a six-year bill that would follow the Senate-passed FY 2004 budget resolution, which included a total of $311.5 billion for surface transportation.

Absent a breakthrough on the funding question, it is difficult to foresee Congress being able to reach a consensus on a multi-year TEA-21 reauthorization plan, run the appropriate bills through the House and Senate processes, negotiate any differences between the two chambers in conference committee, and pass a final bill by February 29, 2004.  Another short-term extension or a series of several short-term extensions long enough to get past the November 2004 election are more probable outcomes.  With that being the case, a second extension might well include project authorizations for congressional members to help them with their elections.

FY 2004 Transportation Spending Bill In Conference

Although the federal fiscal year began on October 1, 2003, Congress has not yet completed its work on all 13 agency appropriations bills, one of which is transportation.  In the meantime, Congress has adopted a series of continuing resolutions to keep the federal government operating at FY 2003 funding levels in the absence of the enactment of all FY 2004 appropriations measures

The House Appropriations Subcommittee on Transportation, Treasury and Independent Agencies released a somewhat controversial bill on July 11, 2003, that provided a significant increase for highways, but cut transit funding; appropriated only a third of the money needed to keep Amtrak afloat; decreased funding for the New Starts Program; made transportation enhancement activities ineligible for Surface Transportation Program (STP) dollars; and reduced subsidies for rural airports.  Except in the case of Amtrak, these problems were largely fixed when the House Appropriations Committee marked up the subcommittees work on July 24, 2003.  The full committee pared back highway funding to allow for an increase for transit, bumped up the New Starts appropriations level, allow transportation enhancement activities to continue to be eligible for STP dollars at the discretion of the states, and fixed the subsidies for rural airports.  The bill then passed the full House in early September 2003.

Meanwhile, the Senate version of the FY 2004 transportation appropriations bill moved rapidly through the subcommittee and full committee processes in early September 2003, and then was held on the floor for almost a month.  It was finally taken up for a vote on the Senate floor and approved on October 23, 2003.

A conference committee to iron out the differences between the House and Senate versions of the FY 2004 transportation appropriations bill has not yet occurred.  It also remains unclear as to whether transportation will be considered on its own or whether it will be packaged together with the other outstanding appropriations measures in one big omnibus bill.

Both the House and Senate versions of the FY 2004 transportation appropriations bill provide funding for highways, transit, aviation, transportation safety, transportation planning and research, and the administration of the U.S. Department of Transportation.  The House bill increases federal highway spending by almost $2 billion, from a total highway program obligation ceiling of $31.6 billion in FY 2003 to $33.4 billion in FY 2004.  The Senate version is a bit more generous, recommending $33.8 billion.

With regard to transit, the House bill provides $7.23 billion, while the Senate version recommends a slightly higher total of $7.31 billion.  For the most part, this difference is attributed to the Section 5309 New Starts Program, a discretionary grant program for rail expansion projects.  This program receives $1.214 billion in the House bill versus $1.319 billion in the Senate version.

The House measure also contains extensive report language related to the New Starts Program that is not included in the Senate bill.  The House report language articulates the following principles with regard to the program:  (a) each project, in order to qualify for a Full Funding Grant Agreement (FFGA), should be required to show that its locally preferred alternative will attract and move more transit passengers at the lowest cost per rider than other modal options;  (b) local project sponsors should use their Section 5307 urbanized area (UZA) formula dollars for alternatives analysis, preliminary engineering and design activities, rather than seek New Starts set-asides;  (c) more focused attention should be given to criteria such as congestion relief and future operational costs when evaluating projects;  (d) cost-per-new-rider should be reinstated as an evaluation tool for projects;  (e) projects without FFGAs should be subject to a dollar-for-dollar match; and  (f) FTA should not sign any new FFGAs for projects that have a maximum New Starts share of higher than 60 percent.

There is a slight difference between the House and Senate FY 2004 transportation appropriation bills in terms of the Section 5309 Bus/Bus Facilities Discretionary Program, under which funds are earmarked by Congress for bus purchases and improvements to bus facilities.  The House version includes $677.7 million for this program, while the Senate measure provides $607.2 million.

Meanwhile, the recommended spending level for the Section 5309 Fixed Guideway Modernization Program, a formula grant program that funds rehabilitation projects for existing rail systems, is the same in both bills$1.214 billion.  In addition, both the House and Senate measures call for appropriating $3.839 billion in Section 5307 formula grant funds, a portion of which flows to urban public transit operators for such activities as transit planning, bus and rail car procurements, construction and rehabilitation of public transit facilities, and preventive maintenance.  In the case of small urban transit operators, these formula funds also can be used for operations.

The Job Access-Reverse Commute Program would receive a significant cut under the House bill, from almost $150 million in FY 2003 to $85 million in FY 2004.  The Senate number for this program is $125 million.  The Jobs Access-Reverse Commute Program primarily is geared toward providing funds for projects designed to transport welfare recipients and low-income individuals to and from jobs and activities related to employment.

Funding for Amtrak in both the House and Senate versions of the FY 2004 transportation appropriations bill is considered to be insufficient by Amtrak officials.  The House measure provides $900 million, while the Senate bill includes $1.35 billion.  Amtrak officials have stated that $1.8 billion is needed to keep the national passenger railroad system running, to begin to address the backlog of capital needs, and to shore up vital components of Amtraks infrastructure.

Finally, the Senate version of the FY 2004 transportation appropriations bill includes language to exempt the state-owned toll bridges in the San Francisco Bay Area from certain provisions of federal law that prohibit the use of toll revenues for operating purposes if the bridges have received any federal highway funds.  Since $690 million in federal highway bridge funds will be used to upgrade and improve Bay Area bridges, this prohibition applies to the region.  The exemption is necessary to allow a portion of the revenues from a potential $1 Bay Area toll bridge increase to be used for operating more transit service in the bridge corridors, as proposed by SB 916 (Perata).  The House bill does not include comparable language.

Unlike last year, when appropriations issues dragged on until February 2003, the outlook is good that the outstanding appropriations bills will be passed either separately or in an omnibus package sometime before the end of this calendar year.  Right now, the congressional leadership is pushing for an adjournment date before the Thanksgiving holiday.  The House has completed action on all 13 federal agency appropriations bills, and is trying to force the Senate to either quickly move its remaining measures or resolve to craft an omnibus package.  Other factors that are coming into play in terms of the ability of Congress to conclude this legislative session prior to Thanksgiving are continued discussions on a supplemental appropriations bill for Iraq, a comprehensive energy bill and a Medicare prescription drug benefit.

Governor Finishes Work On Pending Bills

Prior to the October 12, 2003, deadline, outgoing Governor Gray Davis finished his work on the numerous bills that were sent to him by the California Legislature before it adjourned for the year.  Perhaps the most significant transportation measure that he signed into law was SB 1055 (Budget Committee), which calls for a 20 percent increase in commercial truck weight fees to partially compensate for revenues that were lost to the State Highway Account when these fees were restructured back in 2000 through the enactment of SB 2084 (Polanco).  Although SB 2084 was supposed to have had no impact on fee revenues, collections have been lower than anticipated, resulting in a loss of about $160 million per year to the State Highway Account, the funding source for the State Transportation Improvement Program (STIP).

The Davis Administration initially sought to adjust commercial truck weight fees to bring the revenues collected from this source into line with the estimates that were made in 2000 when SB 2084 overhauled the fee schedule.  However, because such legislation would have resulted in a 42 percent across-the-board increase in commercial truck weight fees, it was strongly opposed by the California Trucking Association.  As a result, SB 1055 emerged as the compromise.  Although this bill will not make the State Highway Account whole, it does backfill about $100 million of the $160 million annual shortfall.  Moreover, an additional 13 percent increase in commercial truck weight fees would be triggered if fee revenues do not reach a certain target level in FY 2004.  This second increase would add back another $20 million per year to the State Highway Account.

SB 1055 also solved another controversial issuea $100 million shortfall in the budget of the California Highway Patrol (CHP).  During the debate on the FY 2004 state budget package, there was a serious last-minute attempt to fix the CHPs budget deficit by capturing funds from the State Highway Account.  Such a move, however, would have exacerbated the cash balance crisis currently being experienced by the account, and the effort was quashed.  The CHP then set its sights on the Public Transportation Account, but ran into resistance once again.  In the end, SB 1055 was amended to increase several Department of Motor Vehicle fees related to the issuance of drivers licenses and vehicle registrations to offset the $100 million deficit in the CHPs budget.

Other measures of note that were signed by the Governor were:

• AB 227 (Vargas) and SB 228 (Alarcon):  This two-bill package enacts a series of changes to try to address the spiraling costs associated with Californias workers compensation system.

• AB 719 (Negrete McLeod):  This legislation allows employees who are active members in the Public Employees Retirement System (PERS) to elect to make contributions to PERS and receive up to five years of additional retirement service credit.

• AB 839 (Salinas):  This bill addresses the question of how long public transit operators must retain routine videotapes or recordings made by their security camera systems.  In the short term, AB 839 allows public transit operators to retain their routine security recordings in a manner that matches the storage capabilities of their current systems.  In the long term, the legislation is intended to encourage the future development of technology that would have the capacity to retain public transit security recordings for greater periods of time.

• AB 935 (Diaz):  This measure authorizes the VTA Board of Directors to create benefit assessment districts involving property lying within a half mile of any existing or proposed rail transit station.  The proceeds generated would be used to build, maintain, operate, and improve the rail transit station that is located within a particular benefit assessment district.

• AB 1409 (Wolk):  This bill sets up a process for allowing front-mounted, folding bicycle racks to be installed on 45-foot commuter buses.

• SB 2 (Burton):  This measure enacts the Health Insurance Act of 2003 to provide health care coverage to individuals and, in some cases, their dependents, who do not receive job-based coverage and who work for large and medium employers.

• SB 157 (Bowen):  This legislation requires California to join 35 other states and the District of Columbia in developing a multi-state, voluntary, streamlined system for sales tax collection and administration.  The eventual goal of this effort is to ensure that individual state sales taxes can be collected on all Internet, catalog, mail order, and telephone sales.

• SB 158 (Alarcon):  This measure establishes a 10 percent bidding preference for public transit service contractors and subcontractors who, for a period of at least 90 days, agree to retain the employees performing essentially the same services for the previous contractor or subcontractor.

• SB 760 (Scott):  This bill extends the sunset date for a current sales tax exemption for lease/leaseback transactions involving equipment used in the provision of public transportation services.

• SB 916 (Perata):  This legislation authorizes a vote to increase tolls on the state-owned bridges in the Bay Area by $1 to improve transportation along the bridge corridors throughout the region.  The toll increase will be on the ballot in March 2004 in the seven Bay Area counties in which the bridges are located (Napa and Sonoma counties would not vote on the measure).  If approved by a majority of those voting on it, the toll increase would go into effect on July 1, 2004, and fund $1.5 billion in capital projects.  These projects include San Francisco Transbay Terminal improvements, seismic retrofit work related to the BART Transbay Tube, commuter rail service over the Dumbarton Rail Bridge, regional express bus capital improvements, ferry purchases and water transit capital improvements, the BART extension to Warm Springs, a transit connection to the Oakland Airport, and Capitol Corridor Intercity Rail track and station improvements.  In addition, up to 38 percent of total annual revenues would be used for transit operations for commuter rail, express bus, enhanced bus, and ferry service related to the bridge corridors.

The Governor, however, vetoed AB 487 (Frommer), which would have allowed rental car companies to impose fees on their customers for two purposes:  (a) to provide relief to the industry from the potential tripling of the vehicle license fee; and  (b) to generate approximately $60 million annually in revenues for the State Highway Account to partially offset prior-year loans that were made from the account to the General Fund.  AB 487 represented the initial effort on the part of the Legislature to come to grips with the fact that, with the adoption of the FY 2004 budget, the General Fund "owes" transportation programs nearly $2.5 billion because of loans from the various transportation accounts to help address current and prior-year state budget deficits.

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