17 Desk Item - SCC Civil Grand Jury Report
\;j MEETING DATE: 8/16/04 AGENDA ITEM: 17 DESK ITEM COUNCIL AGENDA REPORT DATE: August 16, 2004 TO: FROM: SUBJECT: MAYOR AND TOWN COUNCIL ORRY P. KORB, TOWN ATTORNEYgl0 DETERMINE RESPONSE
TO SANTA CLARA COUNTY CIVIL GRAND JURY REPORT -INQUIRY INTO THE BOARD STRUCTURE AND FINANCIAL MANAGEMENT OF THE VALLEY TRANSPORTATION AUTHORITY On August 12, 2004, the Valley Transportation
Authority ("VTA") responded in detail to the above Grand Jury Report. That response was received today by the Town. A copy is attached. It disagrees with all of the Grand Jury's [mdings
and recommendations which concerned the structure of the VTA Board, the impact of the size of the Board on the financial and operational management of /vtA, and the BART extension.
The response, which addresses in detail the criticisms contained in the report, cannot be easily summarized. However, with regard to Recommendation II, which Council will discuss tonight,
VTA responds that the report offers no supportable basis for the conclusion that the the size of the current Board in any way hinders effective decision-making. For example, with regard
to the Grand Jury's criticism ofthe VTA's responseto the financial downturn, the response states that the Board moved expeditiously but carefully to address the financial situation which
resulted from a combination of the severe decline in sales tax revenues over a 2.5 year period coupled with the desire ofthe Board and VTA staff to maintain as much transportation service
as possible for as long as possible. VTA further asserts that its reserves were properly used to minimize the impact ofthe economic downturn onVTA's customers and that it has implemented
strategies to restore the financial stability ofVTA. Attachment: VTA Response to Grand Jury Report PREPARED BY: ORRY P. KORB, TOWN ATTORNEY OPK:/wp [N:\ATYldeskitem.grandjury.VTA.wpd]
Assistant Town Manager Clerk Community Development Reviewed by: ::A--_Town Manager ----=---=-=_ Finance Rev: 8/16/04 2:35 pm Reformatted: 7/19/99 File# 301-05
. to Grand J4ry Report 2003-2004 Civil Grand Jury Inquiry into the Board Structure and Financial Management of the Valley Transportation AuthoritY /' May27,2004 Report
Title; Report Date: . . . Response by: Honorable Donald F. Gage Title: Chairperson. Santa Clara Valley Transportation Authority Board of Directors, and Members of the Board of Directors
. I...-.- o I (we) agree with the Findings numbered: . .liJ I·(we) disagree wholly or partially with the Findings
numbered: !!'II! III (Attach a statement specifying any portion at the FlfJdings that are disputed; include an .explanatlon ofthe reasons therefor.) ! �
� __ "0 Recommendations numbered .have been implemented. . . (Attach
a summary describing the implemented have not'yet been implemented, o Recommendations numbered but will be Implemented In the future. (Attach a timefTame
for the implementation.) [] Recommendations numbered : require further analysis. (.4.ttach an explanation and the scope and parameters of an analysis or study, and a timetrame for the
matter to be prepared for discussion by the officer or director of the agency or dellartment being investigated or reviewed, including the -governing body of the public agency when appDcabie.
This timeframe shan not exceed six months from the date ofpUblication ofthe grandjury report) Print Name Donald F. Gage Ii] Recommendations numbered II.! III will not be implemented
because they are notwarranted or are not reasonable. (Attach an explanation.) /}. I !j, ./August 12, 2004 Date i '<>'Number of pages attached: 10
SANTA CLARA Valley Transportation Authority August 12, 2004 .The Honorable Thomas P. Hansen Presiding Judge Santa Clara County Superior Court 191 North First Street San Jose, CA 95113
Dear Judge Hansen: The following is provided in response to the findings and recommendations presented in the 2003-04 Civil Grand Jury's Final Report, Inquiry into the Board Structure
and Financial Management of the Valley Transportation Authority, (hereafter referred to as ''the report") as transmitted to me by 2003-04 Grand Jury Foreperson Richard H. Woodward on
June 18,2004. We wish to thank the members ofthe Grand Jury for their time and effort in developing their comments regarding the Santa Clara Valley Transportation Authority. Unfortunately,
we had the opportunity to meet with only five ofthe nineteen Grand Jury members. We wish there had been an opportunity for us todirectly share information with all the Grand Jury members
in analyzing the complexities ofan organization like VTA. As such, members may find themselves quickly immersed in an environment of unique terminology and interrelationships that initially
may appear to reflect a local issue, but ultimately turns out to be much more complicated While we do not concur with three major conclusions contained in the Grand Jury's report, we
wholeheartedly respect the concept and process in which a citizen Grand Jury reviews selected elements of a governmental entity and reports their conclusions to the public. We believe
the Grand Jury plays a valuable role in encouraging public discussion about local government policies and practices. 3331 North First Street· Son Jose, CA 95134-1906 • Administration
• Customer Service 408.321.2300
Our specific responses to the three conclusions and recommendations contained in the Grand Jury's June 18 report are as follows: Grand Jury Finding I. "The VIA Board, as currently constituted
of appointed members from elected bodies in the County, does not provide direct voter representation on transportation issues, makes accountability remote, provides for conflicts in
responsibilities, and overextends Board members performing both their elected and appointed responsibilities." Grand JuryRecommendation I. "The current structure of the VIA Board should
be made more responsive to the needs and financial management ofthe regional transportation system as whole by providing for, via enabling legislation,members dedicated to transportation
that are either directly elected, appofuted as their main. public service responsibility or some combination ofthe two. Theep.abling legislation should be sponsored by one or more ofthe
major constituent agencies in the VTA, 'such as the County Board of Supervisors." VTA RESPONSE TO FINDING I AND RECOMMENDATION I: We disagree with the recommendation for the;reasons
qutlined below: • This finding appears to disregard the factthatthe current organizational structure ofVIA encompasses a critical nexus land use planning authority and.
transportation responsibilities. The current VIA Board structure facilitates this critical interrelationship specifically because, as city council members or county supervisors, each
ofth¢ Board's twelve members.have concurrent 8P,d ongoing land use decision making responsibilities. . . Knowledge oftransit projects and private developmep.ts within a Board member's
,jurisdiction hashelpedforgemuch better land use planning and development that irt the long term will ensure that land use. decisions and public transportation decisions will be compl.emen.tary
and thereforepr.ovide th.emax.imum.behefitt.o the cOlIl111unities it serves. Selected examples include transit rezoping and a variety ofdevelopments in San Jose,
Milpitas, Mountain View, SUImyvale, Campbell and Los Gatos. • ' The report asserts thatVTA is staff-driven, inferring a lack ofBoard understanding,directionor authority. This is factually
inaccurate. VTA follows the time-tested structure and process, whereby the Board ofDirectors establishes policy and the professional staffimplements that policy. Regardless of the size
or composition ofpolicy boards, this is a long-established and proven approach for most public agencies, not just transportation agencies. A very clear example ofthe leadership the Board
ofDirectors regularly exercises was the Board's 2003 decision to pursue a court decision to utilize 2000 Measure A funds, through bonding, to defer a staff-recommended 21 percent service
2
-....... -/reduction. This direction was given by a Board that thoroughly understood the full extent of the financial issues before them, had considered a great deal of public and stakeholder
comments, and exercised their authority to make the policy decision. The Board's decision in this instance to take a different approach from that recommended by staff Staff, based upon
professional experience and expertise, is charged with the responsibility ofanalyzing issues, reviewing options and recommending action for Board consideration. TheVTA Board provides
direction to staff during all phases of staff's technical analysis of an issue. In fact, the Board often drives the development ofpolicy by requesting staff to evaluate additional options
for a specific issue. For example, this was very much the case during the work ofthe Board's Ad Hoc Financial Stability VTA's policy-making processes also contain
a significant number of opportunities for public input. Prior to taking action, the Board has and frank discussions and regularly seeks public input. Examples ofthis approach
include budget decisions, fare policy revisions, service changes, long-range and short-range capital and operating plan adoption, and major corridor project approval. The Board's decision-making
structure and process emphasize input from its advisory committees (most ofwhich are composed entirely ofcitizen volunteers), ad hoc advisory committees, project policy advisory boards,
public hearings, community meetings, and interagency working groups. • We don't believe the Grand Jury's report suggestion that the VTA Board structure'> look to the Santa Barbara and
Stockton transit systems as examples is a valid recommendation. Both ofthese other systems are small bus-only operations in very unique operating environments. Santa Barbara has a fleet
ofonly 98 buses and a staffof 180 employees. Stockton has 180 buses and 340 employees. Neither system has light rail, commuter rail, and major construction or congestion management responsibilities.
Neither is operating in an area as large or an environment as complex as VTA. Neither has major regional transportation . policy and: service,responsibilities or Therefore,
valid comparisons cannot be drawn. • The report also suggests the Santa Clara Valley Water District's structure as a model for the VTA Board composition.· Both missions are important
in their nature. However, the Water District's mission is much more narrow in scope and revenue sources. VTA's complexity, in both its mission and funding, is much greater. Thus, this
comparison does not appear to be an appropriate one. It should be pointed out, however, that the Water District follows the same proven protocol as VTA (and nearly all other public agencies),
in that the staff conducts technical analysis, the Board sets policy and the professional staffimplements that policy. 3
• The report makes two sweeping statements that do not appear to be supportable by the referenced interview list. The first statement is city council members expressed to
the Grand Jury that they have chosen not to be appointed to the VTA Board." Yet onthe GrandJury interview list, they reference interviewing only two San Jose City Council Members and
no others from any other city council. The second statement is that "Past and existing Board members admit freely that VTA isvery much. staff-driven rather than a board managed organization."
Once again we note .that the report with only four members ofthe Board of Supervisors and two. City of San Jose Council Members. In contrast
to the statement contained in the Grand Jury's report, it isnqteworthy that VTA's current Board ofDirectors consists of: .two mayors,two vice-mayors, one mayor pro-tem, the chair ofthe
County Board of Supervisors and both the president and vice president ofthe Santa Clar;i County Cities Association. To date, we' have never received any from anyjurisdiction
that eligible city cotincil members or county supervisors have passed on the opportunityto serve on the VTA Board ofDirectors.. In fact, the sense wehave is quite the contrary. Became
oftransportation's impact on development.ofacommunity, a VTA Boatdappointment is often a much sought after responsibility among local elected officials. • The report suggests that because
VTA's Board ofDirectors rotates.orthat they do not have business or transportation experience, the Board members are not qualified to serve. We would argue thatthe experience ofthe current
Board members points to a different conclusion. There are twelve voting and five alternate members ofthe Board ofDirectors. Each has responsibilities.in transportationpolicy andplaJ:Wing
in their respective jurisdiction. There is also one Ex-Officio non-voting member who represents the County onthe Metropolitan Transportation Commission (MTC). The County's otherMTCCommissioner
currently represents a city group on the VJA Board and serves as Chairman ofthe Joint PeninsulaPowers Board (Caltrain). While we have recently welcomed three new Board appointees this
past year, the current total accumulated transportation policy experience ofthe Board exceeds 99 years. The average. years policy experience ofcurrent
VTA Board members is 5.5 years. Board members also have a substantial amount ofbusiness experience earned in the private sector. VTA's Board boasts a wide range ofprofessional backgrounds
(some retired, some cUrrent), includingJ)usiness, the technology industry, education, legal, finance, and govermnent. It is important to reinforce that the primary
role ofany public sector board is to estabIlsh policy, represent their constituents and work for the community as a whole. We believe that the backgrounds and experiences ofthe members
ofthe current Board help them to fulfill these responsibilities well. 4
• Finally, it is also important to point out that the Board ofDirectors recently appointed a subcommittee ofBoard members to review the current Board structure with the goal ofreviewing
whether the Board's current composition was still inclusive and responsive to transportation and land use related concerns of the cities and the county. The subcommittee's conclusion
was that the current structure did not need to be revised. However, it was recommended that the Policy Advisory Committee (an advisory committee composed ofrepresentatives from the County
and all 15 Santa Clara County cities) needed to take a more proactive approach in reporting out onissues and offering recommendations to the Board. This has been successfully implemented.
The Board will revisit theboard structure issue next year to evaluate the success ofthe Policy Advisory Committee's efforts. Grand Jury Finding ll. "The VTA Board as currently constituted
is too large and its members too transient to efficiently provide management oversight to to VTA. As a result, the VTA Board has not reacted to the present budget problems with diligence,
has depleted the financial reserves in the system, and has borrowed against future tax revenues rather than resolvmg an ongoing operational deficit." Grand Jury Recommendation ll. "The
current size ofthe VTA Board should be reduced, via enabling legislation, to asmaller Board of5 to 7 members that would be more involved in and accountable for the financial and operational
management ofVTA The enabling legislation should be sponsored by one or more ofthe major constituent agencies in the VTA, such as the County Boardof Supervisors." VTA RESPONSE TO FINDING
II AND RECOMMENDATION n: We disagree with the Grand Jury's report recommendation in this area for the following reasons: • The report concludes that the VTA's Board very size precludes
effective oversight ofan·organization this large., Howeyer, the report offers no supportable basis for that conclusion. We do not believe that the size ofthe cUrrent Board in any way
hinders effective decision-making. • The report concludes that the size ofthe Board was a negative factor in how the Board has reacted to the fiscal crisis now being faced VTA The report
states that if the VTA Board were smaller in size, the Board would have: 1) been able to react sooner and better to its fiscal crisis; 2) not utilized reserves; 3) found a way to resolve
the financial situation while continuing to provide needed service; and 4) continued to advance important construction projects. The reality and known facts simply do not support this
conclusion. VTA was the first public sector organization in the greater Bay Area to recognize and publicly share its analysis that this fiscal downturn was going to be longer and cut
deeper 5
than any downturn the Valley had seen in recent history. The downturn would mean a reduction in sales tax revenue, a primary source of funding for VTA operations. The longer the downturn,
the less operating revenue VTA would have for services. As it would tum out, VTA would experience ten straight quarters of sales tax revenue and a30 percent decline in revenues. Given
these circumstances, it was not the size of the Board that made addressing the financial and service proQlems so difficult. Itwas a combination ofthe severe decline in sales tax revenues
over a.2.5-year period coupled with a desire on the part ofthe Board and staff to maintain as much transportation service as possible for as long as possible. This difficult situation
notwithstanding, the Board nevertheless moved expeditiously but carefully to address the financial situation. Under the Board's leadership, VTAstafftook immediate steps to reduce costs,
defer several capital projects and institute efficiency improvements. In early2002, the VTA Board Chair, with the unanimous support and approval of the full Board, requested representatives
ofthe business community to conduct an operational review ofVTA and to recommend potential savings or revenueenhancing measures. Several ofthe review team's recoIIlIll,endations
have been,implemented. By late 2002, the Chair, again with the support and approval ofthe entire Board, also appointed a special Ad Hoc Financial Stability Committee made up not only
ofBoard members, but also keystakehol,ders from the community-at-hirge,the business community and labor to review VTA's ' financial situation in depth and develop viable recommendations
that would lead to financial stability for the organization. • The Grand Jury's report is critical ofVTA's use ofits financial reserves., Yetthe reserves served the purpose for which
they were created. It was under the Board's direction that a 15 percent operating reserve was established and attained. This was a significant change from the VTA's predecessor organization,
the County Transportation Authority. The reserves provided vtAthe "rainy day" financial resources needed, to minimize the impact ofthis unpreC?edented economic downturn on our service
to our customers for more than years. It should be noted that a Grand Jury report a few years ago. was critical ofVTA for having too much in financial reserves and it
would be better spent on more service. However, fortunately, the Board decided to maintain its reserve levels. As a result, over the past two financially difficult years, Santa Clara
County transit riders have benefited from that decision because VTA was able to provide more service than would have been the case ifthe reserves were not there. • As previously noted,
the current Board developed and implemented a strategy to bond against funds that VTA will not begin to receive until April 2006 as a means 6
to defer a 21 percent service reduction. After an extensive community outreach process, the Board's decision to take the bonding approach was the direct result of their responsiveness
to the concerns of a public that relies on VTA service and to whom every VTA Board member is directly accountable. In addition, in 2004 the Board adopted a nineteen-point strategy recommended
by the aforementioned Ad Hoc Financial Stability Committee. The strategy is designed to restore financial stability created by the loss of significant sales tax revenues by reducing
costs and increasing revenues. The development ofthe strategy included a significant amount ofinput from the public and discussion by members ofthe VTA Board. In trying to maintain quality
services in a fiscally-challenging environment, the Board has directed VTA staffto implement several policies and programs that many in our community were not happy about-fare increases,
service modifications, and higher service standards. But in the final analysis, VTA has been able to maintain a very high quality service; our vehicles are safe, clean and are on time.
Service has been reduced to meet the fiscal challenges, but service quality has not diminished. Grand Jury Finding ill. "The VTA Board has proceeded with a transit capital inlprovement
plan that cannot accomplish all that was promised in Measure A." Grand Jury Recommendation ill. "The VTA Board should delay expenditures for BART and provide more complete funding for
other transit options. IfVTA wants authorization ofthis change in plans by the voters, this should be done after a clear. explanation to the public ofthe relative costs ofthe various
transit options, and before a request for an additional cent sales tax increase." VTA RESPONSE TO FINDING III AND RECOMMENDATION III: We differ with the Grand Jury's recommendation
in this area for the following reasons: • Perhaps the strongest reason for making the BART project the top priority is keeping faith with the voters who overwhelmingly supported Measure
A and the BART project in November 2000. VTA remains committed to delivering all ofthe projects over the 30-year life of Measure A From VTA's perspective, it is not a question ofwhich
projects should be completed but rather how can we deliver all the projects approved by the voters plus add cost-effective service in the future. It is important to remember that Measure
A priinarily covers capital costs. Additional operating revenue, beyond that generated from Measure A, will be needed to support current and future VTA services. 7
• The report makes a connection between VTA's fiscal situation and the BART project. This is an understandable but erroneous assUmption. In fact, without the . BARTproject and Measure
A, VTA would be in a much worse fiscal crisis. There should be no doubt that the BART project was the signature project that is responsible for the 71 percent voter support ofMeasure
A. Polling done smce the November 2000 vote confinns that BART remains the region's top transportation priority. Though Measure A was not originally intended to support current services,
It is the future revenue stream from Measure A that provides the basis for VIA to sustain the current level ofservices until an additional" ongoing revenue stream for operating costs
can be identified. Without the public's strong support of the BART project in Measure A, VTAwould have had to implement a 21. percent service!eduction. Thanks to the region's strong
suppoitfor BART, this significant reduction in current service has been, at least temporarily, avoided • The Grand Jury report infers that VTA's former ChiefFinancial Officer was forced
toleave VTA for a lesser position outof state because of a statement he made regarding the deliverability ofthe BART project. Nothing could be further from the truth. The fact is he
and his spouse (also formerly a VTA employee) found a unique opportunity to return to their home state and hometown where both of their fatililies reside. . • The Grand Jury's report
challenges VTA's statements that delaying the BART project will add cost. However, the report did not offer data or information.. . supporting its challenge. We have calculated that
a five-year delay coulq.es'calate the BART project cost bynearly $700 million. We continue to have confidence:: in that calculation. • The report B.$serted that the future fare box recovery
ratio for BART would be in the range of35 percent. Unfortunately, the report provided no explanation or data to support its assertion. All ofthe projected ridership calculati()1),S for;this
project done by experts in ridership modeling have consistently concluded the BART extension would see a fare box recovery rate at or above 70 percent. Giventhe lack of credible information
to the contrary, VIA continues to have confidence in the 70 percent projections. • The report asserts that spending money on the BART project now may make any changes more difficult
and wasteful. VTAhas often publicly noted that: 1) we currently own the majority ofthe right-of-way Jose; 2) this next phase ofwork is limited to preliminary
engineering; 3) preliminary engineering will help refme the projectdesign and ultirilatecost even more accurately; and 4) the preliminary engineering cost of$170 million will be partiallysupported
by State and Federal funds. In addition, we have publicly noted that VTA will be unable to proceed beyond preliminary engineering phase to final design phase . without the approval ofthe
Federal Transit Administration. That will not occur 8
until a fiscally sound long-term financial program is in place to support the entire VTA system. While the BART project is a major expenditure ofpublic funds, we believe the aforementioned
parameters will minimize the need for future changes and wasteful spending. Throughout this period VTA has also continued to manage nearly $2 billion worth of capital projects, all designed
and delivered on time or well ahead of schedule and well-under budget. Despite the unprecedented economic downturn, VTA, working with the County, has been or will be able to successfully
deliver nearly every project in the 1996 Measure AlB Transportation Improvement Plan. Examples include: Highway 101 widening; Interstate 880 Widening; Highway 85/87 Interchange; Route
85/101 North Interchange; Route 237/880 Interchange; . Route 87 HOV lanes; Route 152 improvements; Highway 85 Noise Mitigation; Tasman East Light Rail; Capitol Light Rail; Vasona Light
Rail; and several Caltrain station and track improvement projects in Santa Clara County. In conclusion, we believe the Grand Jury's report fails to recognize the tireless work by the
VTA Board ofDirectors, VTA's stakeholder Advisory Committees, VTA's dedicated workforce and labor leadership to guide this organization through these difficult fiscal "times. We readily
recognize there is always room for improvement and we are always receptive to thoughtful, constructive criticism. It was in that spirit that the Board requested the business community
to review our organization and subsequently established the Ad Hoc Financial Stability Committee. As noted earlier, we have or are implementing many recommendations from both these introspective
reviews. The entire VIA Board is committed to: ,/the provision ofquality transportation services, ,/building the projects supported by the voting public, ,/maintaining a fiscally sound
approach to the provision ofservices and the construction and ,/continuous internal improvement ofthe organization. In carrying out its responsibilities, the VTA
Board routinely listens and acts on the significant amount ofinput from the public. We have managed to maintain quality services in a difficult fiscal environment and keep hundreds ofmillions
ofdollars worth ofcapital projects on or under schedule and on or under budget. Again, while there is always room for improvement in any organization, we believe the key onc1usions reached
in the Grand Jury's report are the result ofincomplete information about the fiscal . environment VTA now faces and the specific actions the Board has taken-and continues to take-to
ensure VTA maintains the maximum quality and quantity oftransportation services in Santa Clara County. In addition, the Grand Jury report does not appear to 9
reflect a clear understanding ofthe relationship between the BART project, the public Sllpport ofthat project and VTA's current operations fiscal crisis. However, we do appreciate the
Grand Jury's efforts to
encouragepublip discussion on VTA's operations and direction. Please know that we remain committed to doing everything we can to provide this community and this region with the highest
quality transportation network we can. Sincerely; Don Gage Chair, VTA Board ofDirectors· cc: Board ofDirectots Peter M. Cipolla, General Manager 10