Report 2007-129 Summary - July 2008

Santa Clara Valley Transportation Authority:

It Has Made Several Improvements in Recent Years, but Changes Are Still Needed

HIGHLIGHTS

Our review of the Santa Clara Valley Transportation Authority (VTA) revealed the following:

  • The average tenure of VTA's board of directors (board) is shorter than that of comparable transit agencies, which is attributable to a shorter statutory term length and a rotation schedule devised to share five of the 12 board seats.
  • Board operations have improved, but VTA could use its advisory committees more effectively in developing policies and building regional consensus.
  • VTA has been operating without a comprehensive strategic plan for the past two years, but the organization had some elements of a strategic plan during that period and is developing a new plan to be published at the end of 2008.
  • Financial reports and plans generally conform to best practices, and recent improvements have made these reports clearer and more useful to decision makers.
  • Capital budgeting could be improved by including clearer information about the timing of expected project costs. Such an understanding could help the organization manage debt, investments, and cash flows more effectively.
  • Although VTA specifies the assumptions behind its operating forecasts in its short-range transit plans, it does not do so for its capital program forecasts.
  • VTA is working to improve its long-term planning by establishing two debt reduction funds and updating its forecasting tools.
  • While VTA meets most best practices for project planning, it has not always identified funding for future operating costs or estimated the potential project revenues for some capital projects.
  • VTA generally has adequate policies in place to monitor projects, but it implements them inconsistently.

RESULTS IN BRIEF

The Santa Clara Valley Transportation Authority (VTA), one of the largest of more than 60 independent transit districts in California, has received criticism in recent years from, among other sources, an organizational and financial assessment published in March 2007 by a consultant VTA hired. Over the past year, VTA has responded to this assessment by making numerous improvements across its organization. Although VTA's practices conform to best practices in many instances, recent improvement efforts and plans have not adequately addressed criticisms that it neglects constituency input in its decision making and that it lacks precision in capital budgeting. Additionally, VTA's project-planning process is missing certain critical components, such as planning for future operating costs, and its project managers do not always comply with project-monitoring mechanisms. Thus, the quality of the information reaching VTA decision makers could be impaired. The collection of VTA accomplishments and remaining deficiencies indicates an organization striving for a high standard but still requiring some changes to reach it.

VTA, which is responsible for both transit services and transportation planning within Santa Clara County (county), is governed by a board of directors (board), which comprises 12 appointed officials who hold other elected offices, and is managed by a general manager who oversees seven divisions comprised of more than 2,000 employees. The board consists of two members from the Santa Clara County Board of Supervisors, five from the San Jose City Council, and five from the city councils of other cities in the county. A series of standing and advisory committees support the work of the board. Most of VTA's revenue comes from state, federal, and local grants and the local sales tax, which it uses to operate and improve a transit system that includes bus, shuttle, and light-rail services, as well as paratransit services for people whose disabilities prevent their accessing the other services.

A May 2004 report from a civil grand jury found the board too large, political, and transient to react to a host of problems, including the stalled implementation of a transit plan that featured an extension of the Bay Area Rapid Transit system into San Jose. About two years later, VTA hired a consultant—the HayGroup—to assess its organizational and financial status. The consultant's March 2007 report proposed a comprehensive overhaul of VTA's organization and practices. For example, while noting that the structure of the board could serve VTA well, the consultant recommended VTA address certain challenges, such as member turnover, to improve the board's effectiveness.

In comparing the structure of the board with those of other California transit agencies of comparable size and scope, we found the agencies' structures similar, but two differences in particular appear to be causing VTA to have the shortest board tenure of the six transit agencies: a shorter statutory term length and a rotation schedule devised to share board seats among the smaller cities in the county. VTA has already begun to fix the rotation schedule problem, and a statutory change to the term length would only strengthen VTA's efforts in that regard. Without further evidence that more significant changes to VTA's governance structure are needed, it appears reasonable for VTA to implement incremental changes to address these problems and evaluate their effect before considering more significant alternatives.

In response to the HayGroup report, VTA has also attempted to improve how participants in its governance structure—the board, board committees, and executive management—interact and deliberate. Specifically, VTA more clearly defined the work plans of the board's four standing committees and tried to reduce duplication in the assignments it gave those committees. VTA has also provided better board orientation and training materials.

In contrast to these improvements, VTA has not enhanced the operation of its five advisory committees, each of which represents a specific constituency, and has not completely changed the way it engages the advisory committees in the deliberative process. For example, rather than involve the pertinent advisory committees in its efforts to reform the board's rotation schedule, VTA presented a finished proposal for them to either accept or reject. Thus, even as VTA attempts to reform its governance structure, it continues to follow the same practice the HayGroup report specifically criticized; namely, advisory committees do not have an opportunity to consider policy and plans in the early stages of development so they can provide meaningful input to VTA staff and the board. Consequently, VTA continues to miss opportunities to gather diverse ideas and build regional consensus for its proposals.

After operating without a comprehensive strategic plan since at least 2006, VTA is preparing to publish a strategic plan at the end of 2008. The transportation plans that VTA officials said represented VTA's strategic planning process in the interim do not contain all the necessary elements and did not demonstrate one cohesive direction. Rather, the disparity in the documents indicates a shift in how VTA views its priorities—specifically, a disconnect between the official vision statement, which emphasized equity and was included in some documents, and a new efficiency-based approach included in others. Consequently, a new strategic plan that presents a unified direction for the organization is warranted.

Our review of VTA's financial reporting and planning revealed that it generally follows best practices in preparing its reports and plans. Additionally, VTA's fiscal staff have recently improved the value of those documents by including more historical and projected figures as well as more detailed and simpler-to-understand information. However, further changes to financial reports would allow VTA to more effectively plan and better evaluate its performance. In particular, revising its capital project budgets so that budgeted amounts represent what VTA actually plans to spend on its projects in a given year, and adding other more precise information, would provide the board with better information and could improve VTA's understanding of its cash needs for projects. In turn, a more accurate understanding of its cash needs could potentially reduce future financing expenses for capital projects.

The project-planning practices of VTA meet best practices in several areas, but opportunities for improvement remain. In particular, we found in our review of 10 selected projects that VTA created detailed plans for the projects but did not always anticipate the potential revenues a project might generate, secure necessary project funding for Measure A Transit Improvement Program projects, and identify the sources of funding for future operating costs. The principal causes of these deficiencies are that VTA has not documented its planning process and has not systematically required these elements of project planning. Consequently, VTA risks pursuing projects that it may not be able to financially support in the future.

VTA has established project-monitoring policies that, if followed for all construction projects, would ensure that it implements projects within a structure of appropriate control. However, VTA implements its project-monitoring policies inconsistently, allowing some project managers to reduce the frequency and level of content in required monitoring reports. As a result, accountability is reduced and critical information may not be reaching decision makers in executive management and on the board.

RECOMMENDATIONS

To promote stability in its leadership and to bring the tenure of VTA board members in line with comparable transit agencies, VTA should request the Legislature to amend its enabling statutes to allow for a four-year board term.

To monitor the effects of changes in its governance structure that the board already approved and to determine whether additional changes are necessary, VTA should add board tenure to the performance measures it develops for its new strategic plan.

To demonstrate that it values the expertise of its advisory committees, VTA and its board should take actions to ensure that advisory committees are involved in the development of policy solutions.

VTA should implement its plan to create a comprehensive strategic plan and ensure that the new plan conforms to best practices.

To better monitor capital spending, VTA should regularly compile and report to management information that tracks all capital projects and compares spending and project progress with original projections.

VTA should update its capital budget to more fully report planned spending by year, capital carryover by source, and expected total project costs.

To ensure adequate control over its project-planning process, VTA should develop written policies and procedures for project planning and evaluation.

To achieve consistency in its project monitoring, VTA should ensure that its project managers follow its construction administration manual or document when management has agreed to an exception.

AGENCY COMMENTS

VTA generally agrees with our findings and recommendations and outlines actions it plans to take in response to the recommendations. Notwithstanding this general concurrence, VTA raised some concerns about our conclusions regarding how it engages its advisory committees and on its project planning and monitoring activities.


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