FINANCE POLITICS--Inadequate roads are leaving Californians stuck in traffic. According to a 2016 study by Inrix, a data company that specializes in traffic-related analytics, Los Angeles, California has the worst traffic in the United States. San Francisco takes the number three spot, and San Diego comes in number 14. In all, 17 California cities rank among the 100 most congested cities in America.
Traffic congestion has many negative effects on cities and people, including reduced economic growth as well as adverse health effects for the people sitting in traffic. So who is responsible for our terrible traffic? A group of little-known public agencies have a federal mandate to plan and implement transportation-related projects – but they aren’t getting the job done for Golden State commuters.
In 1962, the federal government created Metropolitan Planning Organizations, usually called “Associations of Governments”, as part of the Federal-Aid Highway Act of 1962. The purpose of these agencies is to bring together elected officials from various cities and counties within a metropolitan region for the purposes of planning regional transportation efforts. Further, the intention of this Act was to increase collaboration and cooperation among local governments within a region.
The boards of these organizations are not directly elected. Instead, local elected officials from member cities are appointed to serve on their boards. Day to day decisions are made by unelected bureaucrats.
Legally, many of the Associations of Governments in California are enforced by a Joint Powers Agreement. Per Nolo’s plain-english law dictionary, a Joint Powers Agreement is a “contract between a city and a county and a special district in which the city or county agrees to perform services, cooperate with, or lend its powers to, the special district.”
In December 1991, the role of the Associations of Governments was expanded by passage of the Intermodal Surface Transportation Efficiency Act of 1991. This law provided more power over planning to metropolitan areas; thereby, increasing the authority of metropolitan planning organizations over transportation-related activities. In short, every project related to roads, pedestrians, traffic, and all other issues of relevance to transportation must be discussed by, coordinated with, and approved by these agencies.
Specifically, the over-arching responsibility of the agencies is to prepare a long-range transportation plan, often encompassing a 25 year period. The agencies review the plan every 4 years to update it according to progress and new forecasts or needs for the region. In addition to this long-range plan, the agencies have a host of other responsibilities for the region, including: transportation planning; transportation funding; approving distribution of affordable housing; assisting in planning for transit, bicycle networks; clean air projects; airport land use; providing information on a broad range of topics pertinent to the quality of life such as performing studies, preparing research reports, and compiling fact sheets; as well as transportation improvement projects.
Four of the largest Associations of Governments in California are the San Diego Association of Governments (SANDAG), the Southern California Association of Governments (SCAG), the Metropolitan Transportation Commission (MTC), and the Sacramento Area Council of Governments (SACOG). SCAG is the largest Association of Government in the country based on population and geographic territory size. MTC also has shared responsibilities with the Association of Bay Area Governments (ABAG). As of late, MTC and ABAG have been working toward consolidating their staffs for improved efficiencies.
Although these are the largest Associations of Governments in California, they are – by far – not the only agencies of this type. There are 19 Metropolitan Planning Organizations around the state. For a full listing of all 19 agencies, click here and sort by California from the drop down menu. The smallest of these agencies is responsible for a population of 55,000 and the largest is responsible for more than 18 million Californians.
Given their legally mandated responsibilities as regional planning authorities, Associations of Governments are involved in all of the infrastructure projects in California. This should be quite concerning given the major infrastructure issues California exhibits.
One of the major disasters of California’s infrastructure planning is the high-speed rail project. The northern portion of this project is managed by the MTC. The bullet train is intended to connect San Francisco to Los Angeles. Just a few of the issues this project has encountered include: soaring costs that are out of control, lack of transparency, and the fact that the project has become so unsustainable that California legislators are trying to change the law that voters initially approved in 2008. While these agencies support mass transit projects that cost exorbitant amounts of taxpayer dollars, Californians sit in traffic on neglected roadways.
Just as troubling as the transportation disasters that these agencies support, is the unconstitutional Plan Bay Area 2040. MTC and ABAG are the agencies responsible for developing this plan which will violate Bay Area residents’ property rights by restricting residential and commercial development, unfairly prioritizing permits in Priority Development Areas, and removes all development rights from rural areas while restricting these rights to urban areas. This plan not only infringes on Bay Area residents’ constitutional rights, it also drives up housing costs.
In addition to the lack of accountability by these agencies to make meaningful change to the infrastructure issues plaguing Californians, many of these agencies have also engaged in reckless, and sometimes fraudulent, financial behavior.
Let’s start with ABAG, which covers the 7 million people within the counties of Alameda, Marin, Santa Clara, Contra Costa, Napa, San Francisco, Solano, San Mateo, and Sonoma. Just about a year and a half ago, news broke that the financial services director of ABAG had pleaded guilty to stealing close to $3.9 million from the Association, including $1.3 million from a development project in San Francisco and $2.6 million over the course of approximately 6 years from a project in San Ramon.
Although ABAG has indicated that it is in the process of restoring the stolen funds, it is unacceptable that such greed and corruption could go unnoticed for so long. This financial services director should have never been able to request $1.3 million to be sent to a bank account he controlled. ABAG claims that it is taking steps to reduce the risk of future theft, and this should be a major priority.
Just a few years before ABAG’s financial services director engaged in this fraudulent behavior, SANDAG made a huge financial error that is costing taxpayers millions. In 2005, SANDAG made a poorly-timed bet that interest rates would rise. Unfortunately for SANDAG, they did not predict the housing bubble and subsequent Great Recession of 2007-2008 that led to a historically low interest rate environment for years to follow. This bet has manifested itself as a $100 million liability to SANDAG.
On top of this poorly-timed and reckless investment decision, SANDAG deceived voters last year about the effects of a proposed tax. SANDAG misled voters by indicating that a proposed tax, called Measure A, would generate $18 billion in revenue for highway and transit projects over the next 40 years.
Unfortunately that estimate was a large exaggeration, and according to emailsfrom one of SANDAG’s top economists, the agency knew.
Despite these financial issues, the agencies have not failed to pay their executive directors and CEOs incredible salaries. SANDAG’s Executive Director, Gary Gallegos, received $337,596 in 2015. This number reflects total cash compensation and does not include benefits. Meanwhile the Executive Director of SCAG, Hasan Ikhrata, and CEO of SACOG, made $326,818 and $247,789 in 2015, respectively.ABAG’s former Executive Director, who has since resigned, Ezra Rapport, made $205,518 in 2015. Last but certainly not least, Steve Heminger, Executive Director of MTC, received a salary of $318,921 in 2015.
In addition to these exorbitant salaries the Executive Directors and CEOs of these agencies receive, the Associations of Governments are providing pensions to their employees beyond the financial means of the organizations.
A new accounting requirement now requires agencies such as the Associations of Governments to report unfunded pensions as a liability on their balance sheet. In June 2012, the Governmental Accounting Standards Board (GASB) released Statement No. 68 to “improve accounting and financial reporting by state and local governments for pensions.”
GASB 68 also applies to state and local government employers, such as the Associations of Governments. Upon implementation of GASB 68, state and local governments were responsible for including unfunded pensions as a liability on their balance sheet. This caused many organizations to experience major reductions in their net positions, sometimes even negative net positions, on their balance sheets, exposing a major issue of unfunded pension liabilities.
For fiscal year 2016, ABAG’s unfunded pension liability was nearly $13 million. From fiscal year 2015 to fiscal year 2016, SCAG’s net pension liability increased from $23.5 million to $28.2 million. According to analysis of SANDAG’s financial report, once they implemented GASB 68 in fiscal year 2015, their net position severely declined.
These Associations of Governments use the pension benefit plan from CalPERS. Unfortunately for CalPERS, and for the agencies such as these that use their pension benefit plan, its pension fund is far from covering the total amount of its obligation. According to this LA Times article, the obligation CalPERS owes to its pension recipients is close to $437 billion. Therefore, cost-saving measures CalPERS has put in place that save almost $1 billion add up to only a drop in the bucket.
These pensions are unsustainable to CalPERS, to its employees who rely on the retirement funds, and to the Associations of Governments that cannot maintain a positive balance sheet with the unfunded liability hanging over their heads.
Overall these agencies are incredibly large and influential, with responsibilities that affect all Californians.
The lack of transparency and oversight, as well as the careless manner in which these agencies are run, is a major cause for concern. Ultimately it is residents who pay the cost, through the tax dollars these agencies will need to cover their liabilities, issues of fraud, and miscalculated bets. But constituents also pay the cost by these agencies by sitting in unnecessary traffic. Without the money to finance new infrastructure projects, Californians will continue to suffer from the transportation issues these regional planning organizations are legally mandated to correct.
(Jackie Lavalleye has joined the team at California Policy Center this summer as a Financial and Economic Data Research intern. This perspective originated at the California Policy Center.)