|
|
News & Events PECG finally acknowledges subsidies In committee testimony on the recently amended AB 2620 (Eng), the American Council of Engineering Companies of California (ACEC CA) thanked the bill’s sponsor Professional Engineers in California Government (PECG) for finally acknowledging what we have known for many years: that the Legislative Analyst’s Office and the Department of Finance are correct in their assertion that the “loaded” costs of public engineers and private engineers are essentially the same - $224K to $230K.
PECG has finally, after years of assertions to the contrary and countless dollars spent on lobbying and PR, admitted they were wrong. However, AB 2620 (see below for summary analysis and comments) which the Senate Transportation and Housing Committee approved on June 30, 2010, is a blatant attempt by PECG to artificially reduce PECG’s reimbursable rates to local agencies by inappropriately shifting overhead costs associated with state resources and not accounting for them when billing their services to those local agencies. The problem? Those costs don’t go away. As the analysis below points out, the State Highway Account (SHA), which is already underfunded and can’t keep up with state transportation needs, will ultimately bear these costs...to the tune of at least $66 million per year (and potentially higher). Additionally, this is more evidence that PECG is seeking to take over local agency work. Why? PECG knows its members do not have enough work to do to keep busy. Just this spring the state's Legislative Analyst's Office reported that Caltrans is overstaffed by at least 1500 employees. ACEC CA’s understanding is that several local transportation agencies originally were pleased that their costs for reimbursed work would be going down. Who wouldn’t be pleased? However, on closer scrutiny, they realized that the pressures on the SHA from shifting overhead costs are going to result in potentially a half-billion dollar loss over a five year transporation planning cycle and that short term cost gains will be more than offset by a lack of funding in the future. ACEC CA understands that several local agencies are now considering opposing such legislation because of the pressure this puts on the SHA. Here’s just another example of the public sector and its allies in the Capitol adopting flagrantly protectionist legislation designed to protect state employee jobs, health plans and pensions while hurting private jobs, health plans and pensions and placing further burden on California taxpayers. If these actions were being taken by a private company they would almost certainly be viewed as anti-competitive pricing tactics and violations of the Sherman Act (anti-trust). It’s outrageous that some members of the Legislature and California’s public employee unions believe that there should be one law for the rest of us, and none for them. The irony here is that the original bill, while still bad policy in our eyes, recognized a shortfall in SHA dollars and actually sought to increase funding. AB 2620 now creates additional pressure on the SHA by forcing overhead costs for state workers to be paid out of the account. The irony speaks for itself. SUBJECT: AB 2620 (Eng) Department of Transportation: capital outlay support services. DESCRIPTION: This bill changes the overhead rate that the Department of Transportation (Caltrans), charges for reimbursed work it performs for local agencies or private entities. ANALYSIS: Existing law authorizes Caltrans to recover its direct and indirect costs for capital outlay support services it performs for local agencies or private entities, except when Caltrans performs work on the State Transportation Improvement Program (STIP). Existing law exempts STIP projects from being charged indirect costs. This bill: 1) Defines "capital outlay support" to mean services related to project development, including development of specifications, preliminary engineering, prebid services, preparation of project reports and the environmental documents, design service, preparations of plans, specifications and cost estimates, construction inspection and management services, surveying and materials testing, and related functions. 2) Defines "indirect overhead cost" to mean the pro rata share of existing administrative salaries and benefits, rent equipment cost, utilities, and materials 3) Requires a public agency or a private entity to reimburse Caltrans for staff salaries and benefits for staff needed to perform capital outlay support (COS) services, as well as for the cost of administration directly related to the function, such as space, equipment, and required materials. 4) Denies Caltrans reimbursement for indirect overhead costs unless the cost can be attributed solely to the capital outlay support functions and would not exist if Caltrans did not perform that function. 5) Requires an agency or an entity to reimburse Caltrans when Caltrans uses a contractor to provides capital outlay support services for the cost of the contractor plus costs directly associated with the contracted function, including but not limited to, advertising and awarding the service contract, inspection, supervision, and monitoring of the contractor. COMMENTS: 1) Purpose . According to the sponsors, the Professional Engineers in California Government (PECG), Caltrans is unnecessarily charging local and regional agencies overhead and administrative costs that are not related to the delivery of COS services associated with designing highway improvements. PECG argues that for reimbursed work Caltrans is currently charging local and regional authorities for all Caltrans' administrative costs, including charges for building depreciation, bond interest charges, audits, and multiple other items unrelated to state highway project delivery. 2) Overhead rates . Federal guidelines require that projects funded with federal gas tax revenues are charged the "functional" overhead rate and the rate for indirect costs. The functional overhead costs are associated with a specific function, such as COS. Annually, the Department of Finance and the Federal Highway Administration approve Caltrans' direct and indirect overhead rates. When performing COS services on projects funded with local funds, Caltrans charges local agencies both the functional rate, as well as for the indirect costs associated with operating Caltrans. By not charging the indirect cost for reimbursed work, the state would be subsidizing local agencies. Moreover, if Caltrans does not charge the rate for indirect costs for reimbursed work, the federal government will not reimburse the state for those costs. 3) Costs are real money . This bill exempts indirect costs related to the overall management and operation of Caltrans, including legal, personnel, civil rights, audits, space charges, and other similar costs, from being charged to public agencies or private entities if they contract with Caltrans for COS services. It is a customary accounting practice in any enterprise, public or private, to allocate overhead costs across all functions of the organization. By exempting public agencies or private entities from paying the indirect costs, the bill offers an incentive to those entities to retain Caltrans to provide COS services and not to retain private engineering firms. The exempted costs, however, do not go away. They are charged to the other functions of Caltrans. In end, this exemption reduces the amount of funds in the State Highway Account that will be available to improve the state's highway system. According to Caltrans, it received nearly $66 million in reimbursements for indirect costs associated with providing COS services in fiscal year 2008-2009. To exempt local agencies and a private entity from reimbursing Caltrans for this cost means that the State Highway Account will have to absorb the cost. State highway funds are already at a premium. Caltrans indicates that the minimum cost of performing rehabilitation work on a state highway is approximately $240,000 per lane mile. Failure to collect indirect overhead costs is equivalent to approximately 275 line miles of highway not being rehabilitated. 4) Federal accounting issues . The exemption from being reimbursed for indirect costs may be contrary to federal regulations governing cost allocation procedures for agencies receiving federal highway revenues. If Caltrans is out of conformity with federal accounting requirements, remedial actions would have to be taken to bring the department into conformity or the state not be reimbursed for the costs. SUPPORT: Professional Engineers in California Government OPPOSED: None received. |
|
Tel.:
(916) 441-7991 E-mail: staff@acec-ca.org
Address:
1303 J Street, Suite 450 Sacramento, CA 95814 |
|