SANDAG votes to take risk on advancing highway projects

The San Diego Association of Governments (SANDAG) plan approved by the board January 23 is not without risk, but the decision to substitute potentially suspended state highway funding with TransNet sales tax and Federal revenue reduces the risk of delays and additional expenses for highway projects in San Diego County.

SANDAG’s unanimous vote included a stipulation that the plan was contingent upon California Transportation Commission approval, but SANDAG foresees state support for a plan which will prevent delays if state bond funding is cut off.

While numerous state-funded projects are at risk due to the state’s approximate $42 billion deficit, bond-funded projects are at the greatest risk.

“Proposition 1B bonds are backed by the general fund,” said SANDAG senior transportation engineer Jose Nuncio. “The condition of the general fund affects the state’s ability to issue new bonds.”

Proposition 1B was approved by the state’s voters in November 2006 and authorized $2 billion for California roads.

Proceeds from bond sales are deposited into the Pooled Money Investment Account (PMIA), which is used to advance funds for capital projects.

The PMIA is also used for temporary internal borrowing which occurs to keep the state operating when money otherwise is not available.

For the most part that occurs in the early part of the fiscal year, since many expenditures occur relatively early in the fiscal year while most revenues (including income taxes) are collected in the second half of the fiscal year.

The PMIA is normally replenished throughout the year through the issuance of bonds, but current market conditions along with the lack of a balanced state budget have restricted the state’s ability to sell those bonds.

“Currently the PMIA is nearly dry,” Nuncio said.

The state is not currently awarding any bond-funded contracts. That impacts approximately $177 million of Proposition 1B funding for projects in San Diego County which are ready for construction, including $16.2 million for the Santa Margarita River Bridge replacement and a second main railroad track and $30 million for the double-tracking of Amtrak’s Pacific Surfliner line between San Onofre and Pulgas.

The $557 million of now-uncertain Proposition 1B funds for projects in the county already under construction includes $100,000 for South Mission Road.

The impact of the three Greater Fallbrook projects equates to approximately 555 potential jobs lost, while the total of 8,812 jobs at risk include 6,684 for projects under construction and 2,128 for projects ready for construction contract awards.

The State of California has advised local agency project sponsors not to award bond-funded contracts unless the agency can fund the project with its own resources.

“It’s going to eventually constrict the region’s ability to add new projects,” said SANDAG executive director Gary Gallegos.

Additional expenses may also include the need to re-train workers if contractors are unable to sustain the lost income.

“Some contractors have a greater capability to sustain longer periods of time,” Nuncio said.

“What we are proposing is a cash management option where we would be using non-bond funds,” Nuncio said of the use of Federal and TransNet funding. “This would give the state time to resolve its situation.”

SANDAG staff estimates that the transfer of funds would provide five to eight additional months of funding for the projects at risk.

It also creates the possibility that the Federal Economic Stimulus program may provide additional funds for projects which can be used in lieu of Proposition 1B money.

“The only opportunity we see in the short run is maybe some stimulus dollars,” Gallegos said.

If the Proposition 1B money becomes available, that will backfill the Federal and TransNet funding which is currently earmarked for the State Route 76 widening, the Mid-Coast trolley line, and I-5 and I-805 improvements.

The TransNet sales tax measure approved by the county’s voters in November 2004 includes an Independent Taxpayer Oversight Committee, which expressed concern about the use of TransNet revenue to address the state budget crisis but supported the cash management option as the best alternative.

In addition to the California Transportation Commission, approval from the Federal Highway Administration is also needed.

“There will be other challenges in implementing this approach,” Nuncio said.

The use of Federal funds will place the construction projects under the “buy America” provision of Federal contracts.

The most prominent cost increase of the “buy America” requirement will be for steel, but SANDAG believes that the additional cost will not exceed $2 million.

“I think this is about the best we can do under the circumstances,” said Supervisor Pam Slater-Price, one of two county supervisors on the SANDAG board.

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