EXHIBIT A LOCAL COST-EFFECTIVENESS CMAQ POLICY

Summary The Congestion Mitigation and Air Qualit y (CMAQ) program provides funding for transportation projects or programs that will co ntribute to attainment or maintenance of the national ambient air quality standa rds. The CMAQ program supports two important goals of the Department of Transportation: improving air quality and relieving c ongestion. SAFETEA-LU strengthens these goals by establishing prior ity consideration for cost-effective emission reduction and congestion mitigation activities. Exhibit A provides a summary of the policy for distributing at least 20% of the CMAQ funds to projects that m eet a minimum cost-effectiveness threshold for emission reductions beginning in FY 2011. This policy will focus on achieving the most cost-effective emission reductions, while main taining flexibility to meet local needs.

Estimates of Available Funds Caltrans Programming provides apportionment estimates to all regions of the state. The FTIP is currently developed for a four-y ear programming cycle; with each new FTIP document, Merced County Association of Governments (MCAG) w ill use the Caltrans estimate to develop the available CMAQ funds over the four-year period. MCAG commits to dedicate at least 20% of the total funding for the four-year period of each FTIP as part of the local cost-effectiveness CMAQ policy. For example, if an agency is estimated to receive $20 million over a four-year period, it would allocate 20%, or $4 million, of the CMAQ program to projects that meet a

minimum cost-effectiveness.

The CMAQ allocation formula is currently based on population, ozone status, and carbon

monoxide status. Revisions to the formula or updates to estimates may result in changes to available funds for theca CMAQ program; such update s will also affect the funds available for the local cost-effectiveness policy. CMAQ estimates may be revised at any time due to changes from Caltrans, Federal legislation, or classificati on of the air quality stan dards in the San Joaquin Valley.

Timeframe The local cost-effectiveness CMAQ policy is sche duled to be implemente d in FY 2011 because the current federally approved 2007 Federal Tran sportation Improvement Programs (FTIPs) have committed CMAQ funds through FY 2009 and in some cases, regional commitments through FY 2010. In addition, the current CMAQ program ming assists in implementing approved local RACM (Amended 2003 PM-10 Plan) that are committed through 2010.

The San Joaquin Valley Air Basin is currently cl assified as a serious ozone nonattainment area with an attainment deadline of 2013. As part of the 2007 Ozone pla n, the Air District is requesting an “extreme” classification, which woul d delay the attainment deadline until 2023. If approved and assuming no change to the current funding formula, the MP Os may continue to receive CMAQ funding through that time (2023) . The local cost-effectiveness CMAQ policy may remain in effect through 2023; however, con tinuation of the policy will be reviewed on a regular basis per the Policy Review section below.Local Allocation of Funds New CMAQ guidance based on SAFETEA-LU was released by the Federal Highway Administration (FHWA) on October 31, 2006. Th e new legislation and guidance clarifies project eligibility, includ ing advanced truck stop electrific ation systems and the purchase of

diesel retrofits. SAFETEA-LU directs States and MP Os to give priority to diesel retrofits and to cost-effective congestion mitigation activities that provide air quality benefits. Though SAFETEA-LU establishes these investment priori ties, it also retains State and local agencies' authority in project selection, meaning that ch anges to local procedures are not required by SAFETEA-LU. MCAG has previously develope d procedures for allocating CMAQ funds; the local cost-effectiveness CMAQ policy will be incorporated into existing procedures. Prioritization and funding of project s will continue to be based on criteria developed by MCAG.

Cost-Effectiveness Threshold Cost-effectiveness is a key component of providi ng funding to projects that improve air quality and reduce congestion. Th e cost-effectiveness of an air quality project is based on the amount of pollution it eliminates for each dollar spent. Policies that focus on cost-effectiveness will result in the largest emission reductions for the lowest cost. Cost-effectiveness can be based on total project costs, including capital investments and operating costs. However, for the purposes of this policy, cost-effectiveness is based on CMAQ funding dollars only.

In the state of California, the Air Resources Board (ARB) provides funding for air quality improvement projects through the Carl Moyer Pr ogram, which requires that heavy-duty vehicle projects meet a cost-effectiveness threshold. The San Joaquin Valley Air Pollution Control District (SJVAPCD) also uses cost-effectiven ess thresholds for projects funded through the REMOVE II and Heavy-Duty Incentive Programs. However, there is currently no minimum cost-effectiveness established for the CMAQ program, and according to recent studies, the numbers vary widely across the country and by project type.

Prior to allocation of CMAQ funds for the local cost-effectiven ess policy with each FTIP, the SJV MPOs in consultation with the interagency consultation (IAC) partners will develop the

minimum cost-effectiveness threshold. While othe r criteria may be devel oped at the discretion of MCAG, all projects funded by the 20% of CMAQ dollars related to the local costeffectiveness CMAQ policy must m eet that minimum threshold.

Expenditure of Funds under the Local Cost-Effectiveness Policy MCAG will make every effort to expend the minimum 20% funding for the cost-effective projects as soon as possible beginning in FY 2011. However, recognizing that there are additional issues related to project delivery a nd financial constraint, MCAG will be allowed to meet the 20% funding over the course of the FT IP, beginning with the 2008 FTIP and each new FTIP thereafter. For example, if the four-year estimate is $4 million, then the MPO could spend $1 million per year over the four year FTIP cycle, $4 million in one year, or other combination of funding.

Project eligibility will continue to be based on federal CMAQ guidance. MPOs can continue to fund projects within the local ju risdictions, or contri bute funding to the SJVAPCD air quality grant incentive programs to meet their cost -effectiveness threshol d requirements.Emissions Estimates CMAQ projects must demonstrate an air quality be nefit, and the expected emissions reductions

will continue to be estimated with the most recent methodology. As of 2007, the ARB “Methods to Find the Cost-Effectiveness of Funding Air Quality Projects” released in 2005 is the appropriate methodology. If necessary, interagency consultation will be used to reach agreement on the methodology for future estimates. Emission benefits and cost-effectiveness calculations will continue to be based on the applicable po llutants for the region, including nitrogen oxides (NOx), volatile organic compounds ( VOC), and particulate matter (PM).

Reporting Requirements Tracking of the CMAQ policy will be achieved through several methods. MPOs must develop annual reports for Caltrans and FHWA that sp ecify how CMAQ funds have been spent and the expected air quality benefits. This report is due by the first day of February following the end of the previous Federal fiscal year (September 30) and covers all CMAQ obligations for that fiscal year. As has been the practice of several MPOs , a copy of the CMAQ annual report will also be submitted to the Air District for information pur poses. Each MPO will also post information related to the implementation of the local cost-effectiveness CMAQ policy on its website.

Policy Review Due to changes in project costs and technology over time, the MPOs will revisit the minimum cost-effectiveness threshold, as well as policy feas ibility, at least once ever y four years prior to FTIP development. A periodic review of the policy is necessary due to potential changes in federal transportation legislation, apportionments, and project eligibility. This policy will only

affect 20% of the allocated fe deral CMAQ funds, and does not im ply changes to other funding programs. Should future transportation legisl ation not include CMAQ funding, this policy will no longer be in effect.

Example Schedule The following is an example sc hedule of the policy implement ation and updates. This information is only representative of the general approach and specific schedules will be developed in the future (annual reports will cont inue to be prepared and submitted as required).

Summer 2007 Develop cost-effectiveness threshold through interagency consultation Fall 2007 Identify funding available in the 2008 FTIP related to the 20% local costeffectiveness policy Spring 2008 Call for projects – Quan tify, rank, and select CMAQ projects Summer 2008 Approve 2008 FTIP Summer 2011 Review policy feas ibility. If policy is conti nued, proceed with following

steps. Update cost-effectiveness threshold through interagency consultation Fall 2011 Identify funding available in the 2012 FTIP related to the 20% local costeffectiveness policy Spring 2012 Call for projects – Quan tify, rank, and select CMAQ projects Summer 2012 Approve 2012 FTIP