Metro Stopped Building Roads in the 80's and 90's

INTRODUCTION AND BACKGROUND
3/8/96
The management audit of the County Road Construction Fund and the Capital Improvement Process was initiated at the request of the Metropolitan King County Council and included in the Auditor's Office 1996 work program. The audit was prompted by Council interest in the significant growth in the fund balance of the Road Construction Fund and the inconsistency between annual capital road project revenues and expenditures.

The King County Department of Transportation Road Services Division is responsible for the construction and operation of County roadways, and the development and implementation of the King County Six-Year Roads Capital Improvement Program and Budget. The 1996 Council-adopted operating budget for the Road Services Division was $47,688,088 with 531.8 full-time equivalent positions. The Council-adopted 1996-2001 Roads CIP budget was $321,518,876, with a first-year budget of $130,797,142.

OBJECTIVE AND SCOPE

The primary objective of the management audit of the County Road Construction Fund and the Capital Improvement Process was to review and evaluate the significant growth of the County Road Construction Fund, and determine why annual capital road project expenditures have not maintained pace with revenues.

SUMMARY STATEMENT OF FINDINGS

The general audit conclusion is that the Road Construction Fund balance increased from $31.3 million in 1986 to $79.4 million in 1995 (153.7%) due to substantial new capital appropriations and expenditure rates that were significantly below the Council-adopted Roads CIP budget levels. Factors contributing to the low expenditure rates included: project delays due to increased design requirements, environmental regulations, and community involvement processes, restrictions on project budgets due to recent annexations and pending interlocal agreements, and lack of flexibility in transferring available funds among Council-adopted Roads CIP projects.

MAJOR FINDINGS AND RECOMMENDATIONS

Finding II-1. Substantial new capital appropriations and capital expenditures that were significantly below adopted budget levels resulted in the escalation of the road construction fund.

The Road Construction Fund year-end balance increased from $31.3 million in 1986 to $79.4 million in 1995 which represented a cumulative increase of 154% during the ten-year audit review period. The County Road Construction Fund increased substantially due to both unusually large new capital appropriations and capital expenditures that were significantly below the Council-adopted budgets.

The Roads CIP budget also increased annually from a low of $44.2 million in 1986 to a high of $130.8 million in 1996, and was substantially greater than expenditures throughout the audit review period. Although annual expenditures increased from $12.9 million in 1986 to $36.9 million in 1995 (186%), the increased expenditure rate did not reduce the Road Construction Fund balance because annual expenditures maintained a closer pace with new annual appropriations than annual Roads CIP budgets. In fact, annual expenditures were only one-third of the annual budgets between 1986 and 1995. Consequently, approximately two-thirds of the total budgeted Road CIP funds were unexpended and carried over to the next budget cycle, so the Road Construction Fund balance continued to escalate.

The audit recommended that the King County Roads Division develop strategies to reduce the Roads Construction Fund balance by ensuring that annual expenditures are consistent with the annual Roads CIP budgets. At a minimum, the strategies to reduce the Road Construction Fund should ensure that more capital funds are expended in a given year than the current year's appropriation until the Road Construction Fund is adequately reduced.

Finding II-2. An analysis of design, right-of-way, and construction expenditures indicated project implementation practices could be improved through flexible budgeting, better scheduling, and increased accountability.

In an effort to review the Roads CIP budgets on a more in-depth basis, appropriations, annual budgets, and expenditures for the different option types (i.e., design, right-of-way, and construction) were analyzed between 1990 and 1995.

Design Annual expenditures for design activities closely matched new appropriations levels between 1990 and 1995, and expenditures grew steadily from a low of $4.4 million in 1990 to a high of $13.3 million in 1995. Although the design expenditure rate was accelerated and exceeded new appropriations in three of six years, expenditures were only half of the total design budgets throughout the 1990-1995 audit review period. One factor impacting the design expenditure rate was the length of time required for project design. Based upon an audit sample of 93 Roads CIP projects, the time required for the design of major arterials ranged from four to eight years. In fact, 40% of the 93 sample projects required more than four years to design and many were still in the design process. The result was a backlog of design work. The lengthy time required to design major arterials also impacted construction expenditures because sizable capital expenditures and reductions of the Road Construction Fund balance ultimately depend upon the timely completion of design for the construction of new roadways or expansions of existing roadways.

Right-of-Way Right-of-way (ROW) acquisition activities also increased between 1990 and 1995, and expenditures rose from a low of $1.8 million in 1990 to a high of $4.3 million in 1995. However, ROW expenditure levels were less than new appropriations in four of the six years, and the ROW budgets were three times greater than the ROW expenditure rates throughout the 1990-1995 review period.

Construction Construction appropriations and expenditures did not follow a discernible trend between 1990 and 1995. In 1993, new construction appropriations of $17.8 million were more than double the $7.1 million in expenditures, and in 1995 appropriations of $7.3 million were less than half the $19.2 million in expenditures, the highest point in the six-year period. Construction expenditures fluctuated from a low of 14% to a high of 41% of adopted construction budgets. The fact that appropriation and budget levels for construction activities did not appear to be directly related to expenditure levels during the six-year period was not unusual because construction activities must be fully funded prior to engaging contractors, even though major construction projects may extend into multiple construction seasons (i.e., two or more years). However, the practice of programming construction funds for projects that were still in the early stages of design did contribute to the large carryover and Road Construction Fund balance. The Road Services Division discontinued this practice in 1995, and developed a 1996-2001 Roads CIP budget that programmed construction funds based on planned construction schedules.

Project close-out time following construction was also lengthy and contributed to the growth in the Roads CIP budgets and Road Construction Fund balance because unexpended funds were generally carried forward for inactive projects during the close-out period. In fact, 24 (26%) of the 93 sample projects required more than two years for closure following the completion of major construction activities. Although the close-out time was lengthy for new as well as older capital projects, the Road Services Division began to disappropriate the majority of the unused project funds earlier in the close-out process during the past few years.

The audit recommended that the Road Services Division continue to focus efforts on reducing the time required for capital project design through more efficient design solutions to traffic issues, improved communication and decision-making process, and by retaining more engineering consulting firms to reduce the design backlog, accelerate expenditures, and reduce the Road Construction Fund balance. The audit also recommended that the Road Services Division should review the ROW acquisition and construction budgets to ensure that funds are programmed as activities are planned to occur to ensure that capital funds are not idle.

Finally, the audit recommended that the Road Services Division, in conjunction with the Office of Budget and Strategic Planning, develop flexible budgeting practices for the Roads CIP while maintaining a reasonable level of accountability. For example, the County Road Engineer could be given more authority to move funds between projects within adopted appropriation levels to accelerate expenditures and reduce the Roads Construction Fund balance. These practices should be reviewed and approved by the Council.

Finding II-3. King County's budgeting practices on capacity projects located in potential annexation areas (PAAs) will result in substantial increases in underexpended capital budgets and continued Road Construction Fund balance increases unless practices are modified

Approximately $24.5 million was restricted in 1996 due to Council-adopted budget provisos encouraging cost-sharing by the cities on projects located in the PAAs. Project activities and expenditures were also deferred on an additional group of 21 projects totaling $17.3 million due to pending negotiations of interlocal agreements with affected cities and other reasons (e.g., planned development revisions, etc.) in both 1995 and portions of 1996. Finally, approximately six projects totaling $3 million were dropped from the 1995 and 1996 Roads CIP due to new annexations. Given the fact that annexation trends are expected to continue until 2005, new budgeting strategies need to be developed to ensure that capital funds can be used for unrestricted Roads CIP project activities during the annual budget cycle.

The audit recommended that the Road Services Division, in conjunction with the Office of Budget and Strategic Planning, develop alternative budgeting strategies for funds allocated to projects that are strategically inactive to ensure that capital funds can be used efficiently during the current budget cycle to curtail growth of the Road Construction Fund balance. For example, an amount of funding equivalent to the amount of funding set aside for the capacity projects should be made available for alternate project activities until the negotiations of the interlocal agreements are completed.

Finding III-1. The transportation chapter of the King County Comprehensive Plan could be strengthened through improved analysis of transportation needs and financing given the County's significant revenue shortfall.

The transportation chapter of the King County Comprehensive Plan could be strengthened through improved analysis of transportation needs and financing. In fact, based upon the 1995 Comprehensive Plan update, projected transportation needs in King County exceeded estimated revenues available for capital projects by $337.2 million. Furthermore, despite the discussion of possible alternatives to address the $282.5 million revenue shortfall forecast in the 1994 Comprehensive Plan, the 1995 shortfall of $337.2 million was $54.7 million (19%) higher than the prior year's forecast. Although a projected shortfall may be acceptable from a planning perspective, improved analysis of specific financing strategies and other measures necessary to meet the County's long-term transportation needs would be beneficial, since policy makers will be faced with difficult choices to reduce the shortfall and to maintain a fiscally balanced plan in the future.

Improved analysis of the financing strategies based upon the County's transportation needs was also important due to the potential roads revenue losses projected through the year 2005. The Road Services Division cannot currently depend upon the cities to engage in long-range cost-sharing given the County's limited success in negotiating interlocal agreements with cities as encouraged by the State Growth Management Act and King County Comprehensive Plan. Although efforts were made both directly by County agencies and indirectly through the Puget Sound Regional Council, the majority of cities were unwilling to engage in the development of a coordinated planning process and cost-sharing for Roads CIP projects required to accommodate growth within potential annexation areas.

The audit recommended that the Transportation Planning Division, in conjunction with the Road Services Division and the Office of Budget and Strategic Planning, more clearly identify and fully analyze the financing strategies and planning considerations required to reduce the projected revenue shortfall and to meet the County's long-term transportation needs. The audit also recommended that the Transportation Planning Division and Road Services Division continue efforts to coordinate long-range transportation plans with the cities to ensure that concurrency and consistency requirements will continue to be met in the future.