Texas Department of Transportation Commission Meeting
Ric Williamson Hearing Room
Dewitt Greer Building
125 East 11th Street
Austin, Texas 78701-2483
Monday, August 25, 2008
Deirdre Delisi, Chair
Ted Houghton, Jr.
Ted S. Holmes
Fred A. Underwood
Amadeo Saenz., Executive Director
Bob Jackson, General Counsel
Roger Polson, Executive Assistant to the
Deputy Executive Director
MS. DELISI: Good afternoon. We're going to go ahead and start
this special commission meeting. The posting for this meeting was filed with
the Secretary of State's Office on Friday, August 15, 2008 at 11:20
a.m. There is no open comment period at the end, but if you'd like
to comment on any of the agenda items, please make sure you fill out
a form outside.
So with that, let's go ahead and start.
MR. SAENZ: Thank you, Madame Chair. Good afternoon, commissioners.
We have two agenda items to discuss, two discussion items. The first agenda item is to have a discussion on changes to the approach for future discussion items, and I will go ahead and cover that and then ask you for some feedback on a couple of items.
We started doing discussion items when Chairman Williamson became chair of the commission, and they were set up, in essence, to allow staff to bring forward to the commission major policy items or major issues that the department was having to deal with and allow the commission to provide us some feedback and have an open dialogue between commissioners to provide staff feedback so that we can then develop a policy or develop a minute order in the future. We were doing these things, as you recall, as part of our regular commission meetings.
One of our commissioners that has just joined the commission has come up with an idea of continuing these discussion items but have a workshop type of a meeting, very similar to what city councils do where the city councils have workshops where the members of the city council have a chance to openly discuss and provide feedback to city staff on major items that the city is having to deal with, and from that feedback then does the same thing. The staff would then develop either policies that would come back to the commission for future approval at future regular meetings or provide additional direction on how to proceed before we move forward.
As we went out we've discussed this item with several of our commissioners and this thing has kind of taken on a new life and some early feedback that we got is well, why can't we have an item to discuss future agenda items as part of the same workshop or as part of the discussion item, and those can be incorporated.
But a couple of things that we wanted to maybe discuss today is basically look at the format: do we continue to do these as part of the regular meeting or do we move forward and have a separate meeting, and if so, if we want to go to a separate meeting, which would be more amenable or better for the commission.
Staff has reviewed a couple of options: we could have a separate meeting on a separate day, or we could have a separate meeting following our regular commission meeting, or schedule our regular commission meetings in the afternoon and have it before the commission meeting.
So with that, I'll throw that out and maybe get a little bit of feedback on you all on that part with respect to the format of the meeting and when to have these type of workshops if you want to have these workshops. Or I could give you a staff recommendation.
MR. MEADOWS: Madame Chairman, if I could have just a moment. I appreciate your indulgence in this because as we struggle to understand what all the challenges and issues are that lie before us, you begin to think about what the best process is for all of us to work together to address them. And I just know that over the last 20 years I've had the opportunity, like a number of you have, to have been involved in different public policy-making boards and bodies, commissions, city councils, state agencies.
This is the first such body that I've ever been part of that did not have a regularly scheduled opportunity to have discussions of strategic importance to the agency to discuss challenges, and more importantly -- and this is what this is all about -- I was taken aback by the fact that there was not a forum for this agency, for this commission, not a forum in the spirit of the Open Meetings to have a shared understanding of what the challenges and issues are.
You know, we are not going to agree on every single item, but we've got to start with the same understanding what the challenges are, and there is not a forum to do that, and this is what we have to do. What I sense from time to time is that our senior staff does not have a clear understanding and recognition of where it is that we're headed.
I mean, there is not a point of communication, there is not a point in the spirit of the Open Meetings Act, there is not a point in which we can have frank discussions where our staff can come to us and lay out what the challenges are, whatever those challenges are, and they're considerable, they're numerous. We have got to get to a point where we can have a shared understanding of what these issues are before we can move ahead and make good decisions.
It is my hope that by having such a forum -- and I don't care when we do it, it doesn't really matter, it's whatever is convenient for everybody, the real point is that we just have to have the opportunity to be able to communicate, and this would afford us that opportunity.
MR. UNDERWOOD: And I believe that that opportunity needs to be not the day of the meeting, Bill. I think we need to have our discussions prior to that to where we have a chance to digest everything that's going on. I like your idea.
MR. HOLMES: My experience at Parks and Wildlife, the meetings were on Thursday and the day before we had a full session where each item was discussed with staff presentations, and I thought it worked pretty well. Whether just one day before is convenient or allows enough time is certainly a valid question, but it worked well at Parks and Wildlife.
MR. HOUGHTON: I ditto and echo my fellow commissioners. My tenure on other boards has been we've had working meetings where staff could lay out ideas, concepts and we could fully discuss them without voting on those issues.
Commissioner Meadows, we'll never agree on everything but as long as you agree with me, everything will be okay.
MS. DELISI: Everyone just needs to understand that, Ted. Right?
Well, unless we have further discussion, it sounds like there is consensus we want to head down this path. The great issue is the timing at this point. Right?
(Indications of agreement from commission members.)
MS. DELISI: Well, I think it probably makes the most sense -- it's different for me to talk about this because I live here, and so to a great extent, I'm going to ask for you gentlemen to have some significant input because you actually have to travel to Austin. If the day before is convenient for you -- which I would be more convenient than, say, doing it two or three days before -- then we need to proceed down that path with staff to start setting these up. Bill?
MR. MEADOWS: I'd just make the comment, I totally agree. To me these issues are not acute issues -- or maybe they are; I hope they're not -- but these should be strategic issues. So the question about the timing of them, these are not about issues and discussion of issues really that are going to have to be decided the next day, these are really laying the blueprint, if you will, as to how it is that we move forward, whether it's a reorganization or a specific funding issue or an allocation of funding issues or establishing priorities, or whatever those matters are, they should not be immediate issues.
They really should be issues that require that we really do have a serious discussion about where it is that we're going so our staff understands that. So it would seem to me like that the day before would be a matter of convenience from a travel perspective.
I think that then the other question that really needs to be on the table is how do we construct the agenda, and I think that needs to be something that we can discuss -- I'm not sure we need to do that now -- but there needs to be a clearly understood process where if Commissioner Underwood has a real issue that he would like to see discussed, there needs to be a way that that item can appear on the agenda.
MS. DELISI: Ted, did you have something?
MR. HOUGHTON: I think today is going to be a great opportunity for us, Bill, to address a lot of items because everything ties back to our budget, and there's going to be tremendous opportunity here to have those kind of discussions, to begin those strategic discussions and then continue them on. So I hope we all take that opportunity today.
MR. HOLMES: The day before.
MR. HOUGHTON: That's fine with me.
MS. DELISI: He who has to travel farthest gets to decide? That's you.
Just a reminder for people to put their cell phones on mute.
If staff will start working on setting up the workshops for the day before and then we will start communicating about the best way to put together the agenda.
MR. SAENZ: I guess the other thing that I heard was strategic items but also I think I heard something from Commissioner Holmes that talked about maybe discussing some of the items that are part of the next day's agenda.
MR. HOLMES: Yes, that is what I said. I don't want to limit it, I think it would be important to be able to discuss items that are on the agenda for the next day, but I don't want to limit it to that discussion.
MR. SAENZ: Based on that, what we will do is I will contact all the commissioners to put on the next one, we'll try it first and set up a workshop on the day before our September meeting, and I'll develop an agenda and then we'll present that agenda.
MS. DELISI: Okay.
MR. MEADOWS: Amadeo, I'd just like to make sure that you understand that we would look to you to have items that you would want to put on the agenda because your challenge is you're trying to make sure that we do have a shared understanding of what the challenges are from your perspective, and this is a collaborative process here as opposed to us doing everything.
MR. SAENZ: Yes, sir. My plan was to discuss what I would call staff agenda items with you all at the same time.
MR. HOLMES: Just as a comment on logistics, on the out of town meetings, I presume it would be the same?
MR. SAENZ: Yes, sir, it could, or we could, on the out of town meetings -- we go out of town three to four times a year -- we could not have one, depending on what issues are going on. We could restructure so that maybe for the out of town meetings we could, maybe as part of our regular agenda item for the prior month, we could discuss the major items to be discussed at the next meeting and maybe cover them there and save us time.
Because on out of town meetings we have to coordinate the efforts with other functions that are being planned by communities, so what I would probably suggest there is we could cover major agenda items as part of our prior month's meeting and make it as just a report and a discussion item as part of that for times when we travel out of town.
MR. HOLMES: Yes, I think that's probably a good idea, Amadeo. My sense of it is the out of town meetings are an opportunity to meet people in the various regions and give them some elevated access. To take away from that time might not work very well.
MR. SAENZ: I will develop a process for the out of town meetings so that we can cover.
I think this is enough direction to get started. Like I said, I will set up an agenda and work with each of you and we'll set it up for the September meeting.
The next item on the agenda is a discussion of the Legislative Appropriations Request for 2010-2011, and James Bass will be making that presentation, but before James comes up, I'd just add a few observations and a few words.
This year's LAR, basically the process that we're following is probably different than any other process any other time that we've done an LAR. First of all, this is the first time that we've discussed the LAR publicly so it shows that we're trying to improve our transparency and ensure greater public awareness of what we're doing.
We've always done the LAR based on projections of revenue of what comes in the next two years into the Highway Fund and the expected expenditures that tie down to it as well as anticipation of what expenditures or how much money is going to other state agencies. This is the first time that we're going to be doing an LAR that really takes a look on what are the needs, what are the goals of the department, and then we develop an LAR around that.
As you may recall, in November of 2007 we had to reschedule about a billion dollars worth of projects because our cash flow projections reflected that we did not have enough cash to be able to carry those projects to fruition. At that time we heard from many of our state legislators: Why didn't you anticipate that; if you would have anticipated that, we would have appropriated the amount of money. So that showed that we had a disconnect between our planning process and our appropriations process.
So this gives us an opportunity to go in a different direction, and basically our LAR now is more focused on needs-based for the biennium but also taking into account the impacts that the projects that we have under construction now as well as the projects that we'll have under construction, the new projects that come under construction in 2010 and 2011, what impact will that have on future years. So it begins to open a good line of communication between ourselves and the legislature.
Looking at our LAR, as I mentioned, this year we're basing it on what we call capacity-based rather than needs-based, and the reason I say capacity-based is because we are developing and we do have the 2030 Committee that's developing the needs analysis for the department but that number is not there yet, so what we did is we looked at how much capacity, how many projects could we put in place over the next three fiscal years.
Of course, 2009 is part of our current LAR but '10 and '11 are part of the next LAR, so we based it on the capacity we have of projects that could be developed and carried through and then based that on the numbers.
When you look at how much our letting capacity is for 2010, it's about $12.2 billion and in 2011 it's about $13.8 billion. Our goal is to show what impact letting these projects will have on our Legislative Appropriations Request.
And we want to be able to at this time look at all sources available to the department, all of Fund 6, all the different tools that we have, including Prop 14, the constitutional amendment that was passed on Prop 12 for $5 billion, we're taking that into account, as well as how much more general appropriation would we need to be able to address that capacity that we've identified that we can, in essence, provide.
We do not expect that the legislature will appropriate all the money that we ask for but we feel that it's much better that we present to them: This is what we can provide and based on what you all appropriate will have an impact one way or the other.
James will now carry us through our whole LAR and answer all the specific questions, and of course, we've got some more of our staff here that have been working on this thing. So with that, I'll turn it over to James.
MR. BASS: Thank you, Amadeo. For the record, I'm James Bass, chief financial officer at TxDOT. As Amadeo just said, my task today is kind of walk the commission through our draft appropriations request and receive your feedback and comment on it. My approach will be to try and break the large document into hopefully digestible chunks as we go through and receive your feedback as we go along.
I want to define a couple of terms because throughout this discussion I'm probably going to fall into old habits and use these over and over, and they are baseline request and exceptional item request, and those deal with the instructions that all agencies receive from the Legislative Budget Board.
Exceptional items request, the easiest way to explain that is what the Legislative Budget Board does is looks at the amount of General Revenue and General Revenue related funds that each agency has expended or plans to expend in 2008 and 2009 and that creates a level, a baseline. They can request that same amount in '10 and '11 as part of their baseline. If they need additional money for whatever reason from General Revenue or General Revenue related funds, that falls into the exceptional item category.
The way we have the draft LAR presented for today's discussion, the exceptional items that we have included right now are: proceeds from Proposition 12, the related General Revenue funds needed for debt service, and additional General Revenue needed to end some diversions previously. What that means on the other side is as part of the baseline request we have the traditional funding that we receive from the State Highway Fund; we have proceeds of Proposition 14 going in there; we have money received from the payment for 121 in the Dallas District, and we have money from State Highway 130 for San Antonio and Austin Districts as part of our baseline, as well as the amount of Highway Fund dollars that have traditionally been appropriated to other agencies, we have included those funds within TxDOT's baseline appropriation as part of this presentation.
The first digestible chunk that I would point out would be the Administrator's Statement part of the appropriations request, and a lot of it covers the principles that Mr. Saenz just laid out, the key one being for the first time the appropriations request are based upon the capacity of the transportation industry. TxDOT, consultant engineers, environmental, right of way acquisition, and AGC on the construction side, what number of projects are at a reasonable stage that they can move all the way to the point of being awarded in the next three years.
Let's start with that number and then work our way back by trying to identify the different funding levels that can address that.
MR. SAENZ: James?
MR. BASS: Yes.
MR. SAENZ: Did we print copies of the Administrator's Statement for the commissioners?
MR. BASS: I believe they were all e-mailed out on Friday; I don't know if there's hard copies.
MR. SAENZ: We'll get some copies.
MR. BASS: The Administrator's Statement is the commission's and the department's opportunity, as part of the appropriations request, to share our vision, the commission's and the department's vision for this upcoming appropriations cycle, so as Mr. Saenz stated, taking this new approach of capacity-based.
Again, as Mr. Saenz said, it's not needs-based. As we all know, the needs in the state are large and currently are beyond that industry I spoke of, their ability to deliver them in the next two to three year period, so this is what can be delivered and achieved in the next three years.
MR. HOUGHTON: Can I interrupt you, James?
MR. BASS: Yes.
MR. HOUGHTON: When you talk about needs versus capacity, it may be heresy for me to say that I'm really not interested in the capacity of AGC or any other group, but really the list that I have that's been developed by the department that come up with these gross numbers, are those the projects that are ready to go for Fiscal Years '10 and '11 that the MPOs have approved, the department says we can deliver?
MR. BASS: Yes. I would amend that a little bit, for '09, '10 and '11, and so it's looking at where those projects are in the development cycle, which ones have started environmental, which ones have right of way acquisition ongoing, which ones have plans being developed.
MR. BASS: But the MPOs have weighed in this is our need, this is what we want on an unconstrained plan, here it is, and then we say we can deliver these projects within this program that the MPOs have developed.
MR. BASS: I may need to call up Mr. Barton or defer to Mr. Saenz.
MR. HOUGHTON: I'd like to have John come up. You hold off for a minute, Amadeo; I know you want to jump in here.
MR. BASS: I think the districts were asked what projects are at a stage currently that you will be able to have ready through the development cycle and ready for contract award during '09, '10 and '11.
MR. HOUGHTON: I'm really interested in the words "need" and "capacity" because I'm more focused, personally, on a needs-based vote by our MPOs. We've always deflected in this department in recent years to the local leadership to say this is what we want. And where's John?
MR. SAENZ: He's making copies of the Administrator's Statement.
MR. HOUGHTON: So this is the need -- Amadeo, since he's not here, this is the need developed by the MPO to us.
MR. SAENZ: This is the list of projects that we have identified, working with the MPOs and the districts, that we can put together and commit to letting in these three years. The need probably is much bigger.
MR. HOUGHTON: No, I understand that. But this came from the MPOs.
MR. SAENZ: It came from the districts and the MPOs, yes.
MR. HOUGHTON: I want to make that clear that this is not our list, this is the MPOs stating to us this is what we want. Now, this isn't a full list.
MR. SAENZ: No. That's just the mobility projects that are on the list. The amount of letting is the numbers that I mentioned a little while ago. But that is the list of mobility projects that is associated with those categories 2, 3 and 4. It includes the projects that were delayed, that have not already been let, and projects that are ready to go.
The reason that we called it capacity is really this is the capacity of what we can deliver over this time period. The actual need will be determined by the 2030 Committee and that number probably will be bigger than what we need per year, but this is something that was based on what we can commit and are ready to go based on working with the MPOs and the districts. That's correct, John?
MR. UNDERWOOD: Amadeo, now when you say letting, from my understanding of the definition of letting, it also includes maintenance.
MR. SAENZ: Yes, sir.
MR. UNDERWOOD: That's not what Ted is saying. Ted wants to know about new construction. Isn't that correct?
MR. HOUGHTON: This is new construction.
MR. SAENZ: That list of projects that Mr. Houghton is holding is the list of new construction, added capacity projects within the amount that I mentioned of $12.2 billion in 2010 and $13.8 billion in 2011, that includes dollars for maintenance of our highways. I just don't have those projects identified because those projects are seal coats and overlays that are identified by the districts on an ongoing basis.
MR. UNDERWOOD: Now, when you say seal coat and overlay, you're not talking about rehab then?
MR. SAENZ: Seal coat, overlay and rehab. This list here represents projects in categories 2, 3, 4, 12.
MR. BARTON: Twelve, and possibly some in 7 as well.
MR. HOUGHTON: So John, the MPOs have voted on these projects, local MPOs saying this is not our total need but this is what we'd like to have and our TxDOT districts have said we believe we can contract these projects in '09, '10 and '11.
MR. BARTON: Yes, sir. And for the record, my name is John Barton, assistant executive director for Engineering Operations for TxDOT. That list, to be a little more specific, Commissioner Houghton, is the list of projects that the MPOs and the districts said they would be able to have available to move forward to contract within the next three fiscal years if funding was made available to hire consultants to finish up the plans, buy the right of way, move the utilities, and if we had that money we'd be able to move forward to contract with those projects.
They are MPO priorities, or obviously, they wouldn't have moved forward to this point in progression of getting ready. We did ask the MPOs and the districts to review that list and to prioritize them in each fiscal year, the projects that they said they could have available, which one was their highest priority and rank them in priority order.
MR. HOUGHTON: They ranked them?
MR. BARTON: They have been ranked, yes, sir, in priority order by district.
MR. UNDERWOOD: That includes environmental too before the lettings?
MR. BARTON: Yes, sir. Whenever we asked them to do this, we defined what project readiness meant, and this was the definition: in order for a project to be ready to move forward to contract, it had to have all of the environmental clearance requirements met, it had to have all the right of way acquired, it had to have all the utilities adjusted. So it's a little different definition than we've been using in the past.
As you know, we've moved projects forward as soon as we got environmental clearance, perhaps we didn't have all the right of way necessarily in hand, certainly didn't have all the utilities necessarily adjusted, and we said that's a practice that we need to shy away from in the future if at all possible.
So ready to let means all the right of way has been acquired, all the utilities have been adjusted, all the environmental clearances have been received, and all the required environmental permits have been acquired.
MR. UNDERWOOD: And all we do is put it out and say, Okay, give us your best price.
MR. BARTON: That's correct.
MR. HOLMES: John, we also made a judgment that the industry has the capacity to produce this level of work. Is that correct?
MR. BARTON: That's correct, Commissioner Holmes. Mr. Saenz made it clear to us that he didn't want us to put forward something that was not possible to be handled by the industry, whether that be the consultant industry to help us do the additional design work that needs to be done to finish these up, or the construction industry to build the projects.
So we talked with representatives at both the CEC which is the Engineering Council, as well as the AGC which is the Associated General Contractors industry agency, and they've assured us that they can bring forward resources necessary, if funding were made available, to deliver the projects on this list.
MR. HOLMES: I think it's a valid observation and question because this level of letting would be in excess of double any historical level of letting.
MR. BARTON: That's correct, and Tom Johnson from the Associated General Contractors has pointed out to us on numerous occasions that the industry here in Texas has the ability to move forward with the majority of this work, and that if we were able to bring this forward, that he is adequately confident that additional companies, some of the larger companies, Kiewit and some of those other companies, would mobilize into Texas to help us fill whatever void our existing construction capacity can't fill.
MR. HOUGHTON: And a point to delineate the AGC and the capacity issue versus the need issue is we define up front this isn't our list, this is an MPO list that they have come up with, they have voted on, sent it on to us, and our TxDOT district engineers say we believe we can do this based upon all the different criteria.
Now, John, how do you delineate our current program which is an allocated program out of Fund 6 versus an exceptional items. So we've got the allocations under Fund 6, that's a regular program; this is on top of the regular program.
MR. BARTON: Well, it actually includes the regular program as well. In other words, some of the projects on these lists will be the ones that we move forward with that are supported through our current tax revenue system that we have in place. They also are the same projects that we would be moving forward with if we were to have additional revenues through some bonding program, whether it's Proposition 12 or Proposition 14.
Once you've consumed those resources -- which we would, I think, as staff recommend all that would be done through an allocation process where each district and MPO is given their equivalent appropriate amount based on those allocations -- the remainder of that list are just the projects that districts and MPOs have identified as priorities and have been working on.
MR. HOUGHTON: It's a needs-based.
MR. BARTON: And it would not meet an allocation system. In other words, some districts may have several projects available, some MPOs may have several projects identified and have been working on them, others may not have reached out there that far and don't have as many projects on this list.
And so it's not necessarily a need that's been identified, it's just there are more needs identified than our resources would make available to us in the past, and districts and MPOs have been working on those and our capacity to satisfy the need has not been sufficient in the past, and so all these lists of additional projects have been building up over time. And some have done, as I said, a more expeditious job of getting projects a little further down the path than others.
And so I don't want to mislead anyone here, that list is not developed equally across the state in terms of how much of our resources would be going to any particular area if we funded all of it, it's just those projects that we have currently in the pipeline around the state of Texas that would be in a position to move forward in the next three years if funding were made available.
MR. MEADOWS: I'm just trying to understand how all of what you all are describing fits within the LAR because there has to be an exceptional item component.
MR. BARTON: That's correct.
MR. MEADOWS: I'm just trying to understand how you intend to communicate to the legislature this exceptional item. I'm hearing a very specific plan which is awfully encouraging, I must say, but it would seem to me that there has to be a very specific plan lending us credibility that we, in fact, are going to be able to deliver and be accountable for if, in fact, we are to advance the exceptional item as part of the LAR.
MR. BARTON: And that's, I think, a point of discussion that James was wanting to bring forward.
MR. MEADOWS: I know we're probably a little out of order here. I'm not exactly sure what the plan is.
MR. HOUGHTON: This is part of your working group meeting.
MR. MEADOWS: Okay.
MR. SAENZ: I think, Commissioner, James will go through we have a baseline, we have so much money that's in Fund 6, it will cover so many of these projects, then if you add the Prop 14, it will cover so many more of these projects, and then if you go in there and as Prop 12 comes in, it will cover so much of these projects, and then those are all the funding options that we have, the remainder is the additional GR exceptional item. James will cover that.
MR. UNDERWOOD: I think there's a misconception with Prop 14, though. It's just going to basically speed up projects that are out there. Correct?
MR. SAENZ: Prop 14 will speed up projects that are out there. Now, if the legislature goes in there and provides us some of the money that's currently being diverted elsewhere and provides us, then that allows for that to pay debt service which you could bring in new projects.
MR. HOUGHTON: James, if it were left to your devices and you only had Fund 6, in Fiscal Year 2009 how many projects could you let?
MR. BASS: Roughly $2.53 billion.
MR. HOUGHTON: That doesn't tell me how many projects.
MR. BASS: Oh, we won't know that till we get the bids, and with escalating inflation, that would be the plan. That's one of the disconnects: when we forecast and plan, unfortunately we can't truly say it will be so many projects. We know the anticipated amount of funding we'll have available; what we could award would be $2.53 billion.
MR. HOUGHTON: How many projects are we committed to building in Fiscal Year 2009?
MR. BASS: The number of projects, I don't know that. The plan, I believe, is in September at the September commission meeting to bring forward an annual letting schedule by project to the commission.
MR. HOUGHTON: Minus the Prop or including Prop 14?
MR. BASS: That will depend upon some of the direction we receive today and in the coming days. That's a direction that we need from the commission. Bullet number two.
MR. HOUGHTON: I've got five left in the chamber.
MR. BASS: Even with requesting all of Proposition 12, the funds from State Highway 121, all the remaining proceeds from Prop 14, all of the State Highway Fund being available for TxDOT, and the money from State Highway 130, Segments 5 and 6, all of those sources would merely provide about one-half of the letting of what could be achieved with additional revenue sources. So the figure would be around a total of $31 billion and the identified sources I spoke of would address roughly $15.6- over the three-year period.
Those are the two, in my opinion, primary messages that come out of the Administrator's Statement: the department is taking a new approach, not merely looking at a financially constrained plan, what can we deliver with X amount of money, but rather looking at what can we deliver, what identified sources are there out there that can address what can be delivered, and then what is that unidentified gap.
And the Administrator's Statement goes through that process and also highlights, as well, one of the historic disconnects between department operations and appropriations. As we talk here, a lot of our focus every month is on letting and dollar amount of letting, what is the dollar amount of those contract awards, whether it's in the UTP or in the STIP or in the monthly report that you receive from Construction.
What goes into the Appropriations Act is the cash payment on those contract awards, and so a contract awarded in 2009 will have payments in 2009, 2010, 2011 and quite possibly in the 2012 and beyond, and so there is a format of a payment grid to try and help bridge that gap between amounts obligated in a particular year and how they pay out, and that's on page 5 of 10 of the Administrator's Statement. And again, this is primarily just for format; as we get final decisions today, we'll tie all those dollars back together.
MR. HOUGHTON: James, how do we insulate ourselves from cost overruns as well as cost of the commodity? In El Paso let's say there's a billion dollar project, bids come in, it's a billion and a half. Where do we get the extra money? Who is going to take off the bottom of the letting program? Who is going to do that?
MR. BASS: The first part we'd have to look at and see if we believed we received good competitive bids on the $1.5-.
MR. HOUGHTON: I'm saying in a perfect world.
MR. BASS: It would come from the El Paso District's allocation to address that. And so if this $1 billion project which is now $1.5-, if it's of a high enough priority for that region, they would make that decision, and by making that decision of allocating an additional $500 million to that project, some other project or projects equal to $500 million would get pushed back later in the schedule.
MR. HOUGHTON: So in other words, we're in an active procurement right now on several projects and if those projects come in over, so it's the region that bears the financial hit.
MR. BASS: That is one of the changes we are implementing; that has not always been the case. That has been the perceived direction of the commission that when those circumstances occur, rather than the statewide pool making up for that, and somewhat the unassigned statewide pool making up for those higher bid prices for that to be a local decision and if the locals decide, be it the region, district, whoever decide that this project is of a high enough priority and it costs more money, that will come from their allocation, not from the rest of the state.
MR. HOUGHTON: What's the process to ensure that we don't commit those funds from a statewide basis or from a commission basis?
MR. BASS: What we're doing through some of the reorganization under Mr. Saenz is putting the amount that we award in contract every month, before that goes out and is advertised, comes through my office now and is reviewed and compared against what the cash forecast is saying we can afford. A monthly letting amount is then approved and goes forward.
Our plan for 2009, as I mentioned earlier, in September we're going to bring a listing of those projects to you by month, and then each subsequent month we'll be coming back to the commission and giving you a status report on where we're at in not only the allocation for the year but what actual lettings have done so far in the year to date.
MR. HOUGHTON: Who's certifying those numbers to the MPOs and to the districts?
MR. BASS: It will be my office, myself.
MR. HOUGHTON: You certify it?
MR. BASS: Any official numbers would come from me.
MR. HOUGHTON: Is that a new program I haven't heard about?
MR. BASS: Yes, since the reorganization under Mr. Saenz. And so that's why, for example, the target amounts that the commission discussed back in March and April for the UTP, those were developed hand in hand with the cash forecasting group, working side by side, and I was looking at them and saying yes, these are reasonable expectations of what existing revenue sources will allow us to move forward with over the next eleven-year period.
MR. HOUGHTON: So do the MPOs and the district engineers understand that -- John, I don't mean to pick on you -- if John Barton says you've got a billion dollars, El Paso, to work with, it's not worth the paper it's written on unless it's certified by James Bass?
MR. BASS: I'm not sure if there's a full understanding. We continue, I think, to have a misunderstanding of dollar amounts in the UTP because right now the 2009 UTP has not been formally adopted -- we've received the target amounts, we've been working with the districts and MPOs to get projects assigned by year for those allocations -- so districts historically have looked at how much funding is available for a project, they would look to the UTP, Unified Transportation Program.
And as you well know, and hopefully everyone well knows, that document, for valid reasons, was historically over-programmed so there were more projects, more dollars put in a year than what we felt at the time we could financially achieve, and when one moved ahead and was able to accelerate delivery of projects, it wasn't necessarily taken from that same year.
So we do, I believe, still have some in responding they referred to UTP programming dollars that can be, unfortunately, quite different than the cash available for a particular project. With adoption of the 2009 UTP, that will get those much more in sync, and I truly hope we'll avoid that issue.
MR. HOUGHTON: Truly hope?
MR. BASS: And believe.
MR. HOUGHTON: Is there a formal action that needs to be taken by the commission for certification to the commission and certification to the MPOs and district engineers that everyone knows?
MR. BASS: Not that I'm aware of. I think the monthly letting report -- and there are a number of different reports that go out, there is the UTP, the eleven-year planning document, there will be the 2009 letting schedule and updates on that letting schedule, and my understanding is I will be the one bringing that forward to the commission each month and clearly stating this is the dollar level that we can commit to in 2009 and here's where we are year to date.
MR. HOUGHTON: Mr. Jackson, Bob, can I ask you a question? Is there some type of rule that the commission can look at as to certification of these documents -- this is what's gotten us in trouble, I think, in the past with this $1.1 billion double count -- certification to the commission, to the MPOs and to the DEs that we all understand what the number is?
MR. JACKSON: We can do that by rule or we can just do it by policy and routine and have minute orders to that effect.
MR. HOUGHTON: Can we have something, Mr. Saenz, for us in September?
MR. SAENZ: Yes. What we have for you in August is you all will be approving in August the total FY 2009 letting round, total. In September we're going to come back and say by district you'll have a list to approve -- you'll approve the projects but you'll also approve the total amount. So really, you're approving the total amount by district for their letting amount and it's composed of these projects which is the best information we have.
As we go through and those projects go to contract, depending on whether they overrun or underrun, you would be adding or subtracting projects from that list, and we track every district every time. At the same time the districts are supposed to submit change orders that will be subtracted from that total amount per year.
So in essence, you're tracking every district's bank balance so they know how much money they have, they know where it went, and if the projects underran and they don't have change orders, then they could conceivably add another project but it would require action from the commission also.
MR. HOUGHTON: But I look for, Mr. Jackson and Amadeo, somebody that is certifying their name, their stamp that this action is taken at the commission level, MPOs understand it, the DEs understand it, but it's a formal certification. What I heard during Sunset is that everyone is looking for somebody, an axe to grind or lop somebody's head off. I'm not looking for that but what I'm looking for is a certification that my CFO says this is what we have.
Now, circumstances change, Amadeo, as you well know, CPIs, projects come in way over. You have to be the bearer of bad tidings to that district or that MPO: Guess what, you have choice, either you put in your own money if you have CDA money, if you don't have CDA money, then these projects have got to fall off. But you certify that to them and they understand that, there's no misunderstanding, but a formal certification, Mr. Jackson.
MR. JACKSON: We can do that.
MR. SAENZ: We can do a formal certification, but again, it's as good as for that one particular day.
MR. HOUGHTON: I agree.
MR. SAENZ: Because if next month gas goes up to $5 and then we have to come back and say we have to adjust our number and here's the formula for how we're going to adjust everybody's.
MR. HOLMES: One of the difficulties that we had previously was that right of way was not part of that, cost overruns, change orders and right of way. In the estimates and the projects that we're going to be approving, are we including within those the cost of right of way?
MR. SAENZ: Yes, sir. Correct, John?
MR. BARTON: (From audience.) Yes.
MR. HOLMES: Now, clearly, we don't necessarily know that that is going to be the cost of right of way, so that will come back and be readjusted as well.
MR. SAENZ: The cost of the right of way, whether it's up or down from this estimate, will have an impact on how many projects you'll be able to let.
MR. BASS: As an example, for 2009 in the UTP the target amount was $2.53 billion that was based upon assumptions. One of those assumptions was how much were we going to award in 2008, and if we did not award every dollar we assumed we were going to in 2008, that money would be available to get added to the $2.53-.
So what I would do is say we started with the $2.53- and to make up round numbers, that assumed we were going to award $3 billion in 2008. Let's say we only awarded $2.9-, well, that $100 million would still be available to be awarded; for whatever reason it didn't get awarded in 2008, it would be available in 2009, so that would bump it up.
We have other forces that might reduce it: we assumed that existing contracts were equal to X billions of dollars that we're going to make future payments and future revenues we're going to need to go to those. Well, every month as we process change orders, that dollar volume of existing contracts goes up and takes more of our future revenue to pay existing contracts. That has to be accounted for.
My point is we'll begin with a number, the first number that we've brought to you, and if there is a reason for it to change, we will change it and clearly identify the reason for the change and ask that the commission then adopt a new number going forward.
MR. MEADOWS: Just a couple of observations. One, I think we're really talking about, at this point, a management or an admin issue as opposed to the LAR. I mean, I understand they're related and this is critically important, I understand that, and this may be a topic of conversation in the future.
I just want to give you a real life example of the sort of confusion that we do face in this state as regards communication of these numbers. James and I have had an opportunity to talk about this and this is a Metroplex project where I asked about fund availability for a specific project, that's seems to be a fairly straightforward question, I would guess: How much money is available for this project? It's been in process for decades.
I addressed that question to James, to the MPO and to the district engineer, and I got three different answers, and the range variation was almost $300 million -- and this is in the last 30 days.
That illustrates the point that Commissioner Houghton is trying to make, and I certainly don't know the answer but I know it is a management and administrative question. Trying to turn back to the LAR which is sort of future-focused, we probably need to --
MR. BASS: That was the specific example I was thinking of too. To share with the audience, my answer was zero, there is zero cash available.
MR. MEADOWS: I know who I'm believing.
MR. HOUGHTON: Guess who is going to certify.
MR. BASS: Mr. Sunshine.
MR. HOLMES: James, one last question. Coby and I have been working on this T-2 and a number of people from around the country have observed that the take from the gas tax in various parts of the country is declining, and I know I've asked this question before, but I don't know the current numbers. When you developed the availability of that $2.53 billion, it was based on certain assumptions relative to the gas tax. Has that been reviewed to determine whether it's valid?
MR. BASS: Yes, and we review it every month. But as an example -- sorry to get specific with you -- in 2008 our forecast had assumed the State Highway Fund would receive $2.305 billion from the motor fuel tax. We've already received it for the month of August and it came in at $2.275-. It was $30 million less so we missed the forecast by 1 percent, or I would say we were 99 percent accurate.
Well, that $30 million of revenue is no longer available, and so we also need to look at -- and always do -- our forecast for 2009, '10 and '11 and are we still comfortable with the numbers that we have in there, we will need to adjust that.
When we do adjust that, if we've already brought a number to the commission for a particular year and motor fuel tax just really takes a nosedive and we have to respond to it, that would be one of the items we would bring to the commission and say, You've previously adopted this level and because of the following reasons and what we're seeing going on with motor fuel tax, we need you to approve a lower number for this particular year. But that's something that continues on always.
2008 we received roughly -- I think motor fuel tax, both gasoline and diesel together, roughly 1.7 percent more than the prior year. Forecasts going forward as an underlying assumption in the UTP was that that revenue source would increase 1-1/2 percent per year. It's an eleven-year projection, this is one year, we always look at it.
One of the concerning things is comparing July and August of 2008 to July and August of 2007, both of those months came in less than the prior twelve-month period. So one month here and there might be a blip, two months is that the beginning of a trend, three or four months certainly we would say that and then likely need to really look at that forecast going forward to see if we need to adjust it.
MR. UNDERWOOD: James, is that TxDOT's version of a rescission?
MR. BASS: Not necessarily. No one is coming in and saying that we're taking this money back but it would be TxDOT's version of a rescission to the MPOs. So I'm sorry, I may have misunderstood your question. Yes, it would be. We would have to look at our revenue forecasts and if they've declined and we can't support numbers we've earlier done, we would come before the commission and clearly state that -- you may need somebody else to do that other than me -- and then we would relay that back out to the MPOs.
Conversely, if Congress goes through or anyone goes through and makes an action that we receive more revenue than anticipated, than what our forecasts and our assumptions were based upon, we would come back to the commission and say, For the following reasons we believe we can now do more than what we had told you previously. So it could work either way.
MR. MEADOWS: Could I ask you just about forecasts? I'm kind of a top-line focus guy, anyway, and so that's really where I've spent my time here the last few days. I understand that there is greater predictability just because of the history that you have with regard to our Fund 6 revenue, but what I wondered about was the fed fund side of the equation, just because you have so much less control, I assume, and just its predictability from our internal perspective is probably less.
MR. BASS: That's very true. Not only do we not necessarily know how much we will receive from the feds in a particular year, but the timing that we receive it, the timing in which Congress acts to approve a budget is a key to our ultimate cash flow. So it's dollar amount and timing both have an impact to our cash flow.
MR. MEADOWS: And how do we manage that? Recognizing that being the reality, then the question would be how do you manage that.
MR. BASS: Hopefully, and historically it had happened this way, through Congress passing a six-year transportation bill we had relative certainty that throughout the life of that bill we were going to receive a number close to what had been in there. What we've seen during this current bill is that definitely is not true.
What also is looming on the federal side, as we all have heard, the balance of the Federal Highway Trust Fund hitting a zero balance in 2009 and the feds perhaps needing to make a reaction to that by cutting allocations to all of the states. If that happens to the level that other people have quoted, we would have to come to the commission and say, Remember the $2.53 billion, we can't achieve the $2.53 billion because we're not going to have as much in federal funds.
If Congress and the administration agree to move $8 billion from the general fund at the federal level over to the Highway Trust Fund, we very likely would be in a position of coming back to the commission and saying: We can do more than $2.53-, and here are the reasons why. But I guess my point, the level of volatility in the Federal Highways is the greatest it has been in the past 18 years is right now.
MR. MEADOWS: And these projections then, therefore, are based on?
MR. BASS: Right. And what we do, for the first time here just a few months ago, there's different rates of return, there's a two-year delay, there's a number of steps and pull-offs on the top, what we did, since we are already doing a forecast of gasoline tax in Texas, in effect, we're estimating the number of gallons to be sold. So we just take those gallons, apply the federal rates to it, go through all the various steps, and end up with what we get.
MR. MEADOWS: You get a historical percentage.
MR. BASS: Correct. But now that one forecast is tied for both elements, we're using the same assumptions for both elements.
MR. MEADOWS: That's the answer to the question. Thanks.
MR. BASS: If there are no further questions on the Administrator's Statement.
MR. UNDERWOOD: I want to digress one quick question. In dealing with how much money we receive, how much money we feel like the $2.53 billion or whatnot, if we receive Prop 12 money, if we issue the bonds Prop 14, I couldn't tell by looking through these, how did we take care of our maintenance that we diverted? And I say that as a rural commissioner and whatnot, a lot of that money came out of the rural areas to go to capacity, needed capacity in the cities. Did we replace that money?
MR. BASS: I believe we did, and I may have Mr. Barton come back up and confirm that. If we had Prop 14 available to us, where would that be likely distributed, right of way, engineering, and then different categories of funding?
MR. BARTON: Again for the record, my name is John Barton. Commissioner Underwood, to answer the question specifically, in the LAR I was asked by Finance Division to put together a recommended use of the Proposition 14 bond proceeds, and based on the priorities that we've heard from the dais from the commission and the direction of Mr. Saenz, we took some of that money from the $1.5 billion of Prop 14 bond sales that could be done this next year and an additional $1.4 billion to maximize the $2.9 billion remaining available to us, and put a portion of that to our maintenance activities for our roadways and bridges to offset the impacts of what we've deferred through the proposed 2009 UTP for the two fiscal years that it would affect which is 2010 and 2011.
James has already talked a little bit about the Administrator's Statement and there's been discussion about the exceptional items request as well, and those did include additional resources for the construction of additional bridges, replacement of bridges and the maintenance of our roadways.
And if we were able to get those exceptional item requests fulfilled during this next legislative session, it would go a long ways to offsetting the impacts of the deferral of maintenance for Fiscal Years 2008, '09, '10 and '11, but to sustain that impact to that deferred maintenance budget, those things would have to be carried on into the future.
MR. UNDERWOOD: Bottom line is you're saying you budgeted it for the next three years but from then on out they're still going to have to figure out how to come up with the money.
MR. BARTON: That's correct, unless additional revenues are brought forward, we will ultimately have to revert back to that 2009 UTP funding level that we've been talking about which is, as we all know, below the desirable level for maintenance.
MR. UNDERWOOD: Okay, thank you.
MR. HOUGHTON: John, don't leave, and you may want to chime in here in a minute, Mr. Bass. Under the exceptional items when we send this over the way it is and we fully load and we've got $7.2 billion and then $8.2 billion, if I'm a legislator, I'm going to say, Where does it go; what are you going to do?
Some of the discussion we had was by district delineate where that money goes in the LAR, so I know from Amarillo to Yoakum by district the allocation of exceptional item dollars with a backup of projects. Understanding that those projects may go over budget, here's my man to certify, but there is a finite dollar number that those folks can deliver projects in that biennium and our people said they can deliver it and AGC says they can deliver it, why wouldn't we delineate district by district the amounts of dollars under exceptional items?
MR. BARTON: The decision on whether to do that or not certainly lies with the commission, and I think there's a school of thought on if you delineate those by district, you start pitting one area of the state against another, perhaps a concern. If you do delineate it by district, people will know exactly what the exceptional items would offer for them.
MR. HOUGHTON: I don't see a pitting at all. I mean, I've gone through these and our MPO is saying this is a need or a partial need, and our districts have said we can deliver that. So we take a bite out of the need apple, delineate to the leadership and the legislators across the street is we will contract those projects if all things are equal but we're going to spend those kind of dollars in 2010, 2011 in those districts. Now, projects may fall off because the bids come in high but I know those dollars are going to get spent in that district.
Mr. Bass, are you going to jump in?
MR. BASS: Merely to say that was bullet point number 33 on today's agenda, and if I can get past number two. I think as part of the exceptional items, there is currently one very large exceptional item for the unfunded capacity. So the question was going to be to the commission: Did you want to present that as one large item, did you want to break it up by 25 districts, did you want to break it up by so much for maintenance, so much for mobility, so much for bridges, so much for safety kind of programs, so much by program? That was going to be a point further on in our discussion but we're happy to have that now.
MR. HOUGHTON: Well, I mean, if you talk about the pink elephant in the room, and this is the pink elephant in the room is our needs in this state, and we've talked about it long and hard over the years that the old program and the program we currently have does not meet the needs. And we have those blips where you get Texas Mobility Fund and you get Prop 14 and Prop 14 is not new money and we get these cycles, but we truly have a needs base here -- it's not the entire need but it's a piece of the need that you say, the MPOs say and AGC and the CEC says they can deliver.
MR. BASS: And this has not happened previously, but in the vision it should be the dollar amount that we put in the LAR -- again, it's based on payments which in turn is based upon the amount we plan to let -- that amount we plan to let in '09, '10 and '11 should equal the total amount we have in the UTP for '09, '10 and '11.
MR. HOUGHTON: There you go.
MR. BASS: And the UTP provides those allocated funds by district, by project. And so if those are tied together, you may not -- this is obviously, as Mr. Barton said, a decision for the commission -- that listing you may have by project by district would be then the UTP, not formally a part of the appropriations process. That may or may not matter to you, but I think there's a way to have that available either formally as part of the appropriations request or as additional information in the UTP.
MS. DELISI: It seems to me anybody looking -- recognizing that we're fast-forwarding here -- but anyone looking at such a large exceptional item -- because this will be a very large exceptional item should we choose to go forward with it -- is going to ask those two very basic questions: geographically where it's going and purpose, what's it going to.
So my feeling is let's just beat them to the punch, let's give them the information up front. Because the last thing I want to have to do is say we'll go back and refer to our UTP. We're going to get asked for it, we might as well provide it.
MR. HOUGHTON: Madame Chair, we've all been given these projects, here they are.
MS. DELISI: Now, we do have to be very careful, and the Administrator's Statement is a good place to put all the appropriate caveats of projects may fall on and off.
MR. HOUGHTON: Based on CPI, based upon the factors, right of way and revenues.
MS. DELISI: Exactly.
MR. HOUGHTON: But there's a dollar amount for El Paso under the exceptional items, there's a dollar amount for Houston, Fort Worth, Lubbock under exceptional items and your district engineer has said I can deliver those, and the MPO says we want them.
MR. BASS: A technical question -- I apologize -- for actual submission of the LAR. One exceptional item with supplementary information, or literally 25 separate exception item requests district by district?
MR. HOUGHTON: By district.
MS. DELISI: Really? To me, I don't think you do a separate exceptional item district by district, I think you provide the information.
MR. HOUGHTON: Okay. I'm not going to win this one. Go ahead.
MR. HOLMES: I agree with the Chair.
MR. HOUGHTON: I know you do, I could already see it coming.
MR. MEADOWS: I'm sorry, Mr. Houghton.
MR. BASS: So at this point, until we get to bullet 33, one exceptional item with additional information provided along with that to support what those numbers mean.
MR. HOUGHTON: With an asterisk next to that exceptional item saying please refer to.
MR. BASS: If there are no further questions on the Administrator's Statement, the next group that I would suggest to go through would be the riders, and that is a document I believe you all have before you and the first page will look something like this, and there is attached to our appropriations in the Appropriations Act are 50-something riders that provide additional direction to the department. Many of these are ministerial in nature and I'm not going to go through all 50-plus, but there are about a dozen of them that I plan on highlighting for you.
The first one, unless you have any comments on one earlier, is Rider Number 11, the Gross Weight Axle Fees Rider. This, in common terms, is a diversion. There are gross weight and axle fee permits issued by the department, there is money from those permits, some goes to the Highway Fund, a large portion of it goes to General Revenue to be distributed to counties.
Beginning in Fiscal Year 2004, that money continued to be deposited to GR but the distributions to the counties were made out of the Highway Fund. The changes we are recommending to this rider would make the distributions to the counties to be funded by General Revenue and it will also show up when we get to the exceptional item section later on.
The next rider I would point out would be Rider Number 13, Interagency Agreements. Each year the department transfers, through interagency contracts, $670,000 to the Commission on the Arts and $500,000 to the Historic Commission. Again, with the overwhelming needs that we have in the state for infrastructure, we would recommend to the commission that we request this rider to be deleted to free that money up to go for transportation projects.
And stop me at any point in time if you have any questions or comments on either a rider I'm covering or one in between.
Rider 16, I'll highlight right now there is a requirement in the rider that each district receive a minimum of $2.5 million in District Discretionary, or Category 11 in the UTP. So if you'll recall, when we went through the target allocations, every district is getting $2.5 million every year.
This last sentence limits the uses of that $2.5 million, that it currently cannot be used for project cost overruns. By striking this last sentence, it would give more flexibility on how that $2.5 million can be used. So I wanted to highlight that to see if the commission had any concerns with the request going forward as drafted.
Rider 20, Reporting Requirements. I'll point these out, as those of you who were on the commission last session will know, these could be sensitive in requesting a change, but the overall changes we're asking is to either make them technically achievable and/or to provide more timely information. On Rider 20, we have subparagraphs, and you see subparagraph (d) and if you flip to the following page you have then (d)(1), (d)(2), (d)(3), (d)(4).
Some of it is technical cleanup by inserting the word "draft"; they wanted public notice of projects in the UTP prior to public release. The document technically is not the UTP till the commission adopts it in a public meeting, therefore, it was not technically achievable. And so this would just clean that up technically.
Subparagraph (3) on the same page, we have the same issue, inserting the word "draft" and then on subparagraph (4) dealing with the establishment of RMAs.
Again, some of it is technical in that we would release the application within ten days after receipt of the application and ten days prior to commission action, but that subparagraph (4) also refers to "and toll authorities" over which the commission has no oversight. And so rather than setting up expectations that we will not be able to achieve, we would recommend striking "and toll authorities" and also doing the same there on subparagraph (5).
On (e) it's just changing the language to what we've been providing on report for public transportation data, going along with an industry standard, and again, matching with the information we have been providing.
Moving on to Rider 24 on our Bond Programs, we would want to in subparagraph (b) and (c) insert the words "in addition to" and strike "out of". And the example on this is when we borrow money on a short term basis -- which, of course, we don't plan for going forward -- right now say we borrow $300 million on a short term basis, we use those proceeds to make ongoing payments. That's obviously subject to part of our appropriation.
When we pay off the principal of that $300 million, currently it hits our existing appropriation meaning we can do $300 million less. This rider would change that to make the payment off the principal added in addition to the amounts appropriated above.
Rider 32, a couple of pages back, deals with a rider the department has to allow certain positions to be in the B-22 salary classification group. The only change we are suggesting here is on the TxDOT executive director/assistant executive director, the rider currently had two positions, with the reorganization, there are now five such positions, and so we would merely suggest for your consideration striking the number 2 and inserting the number 5 to match the current department structure.
Rider Number 34 is, in some people's minds, examples of additional diversions, requiring the department and the State Highway Fund to be responsible for maintaining paved surfaces on the State Capitol grounds, maintain services for some of the health and human service agencies, to maintain roads in and providing access to Camp Mabry here in Austin, no more than $5 million a year for Parks and Wildlife roads, and $7-1/2 million for UT Permian Basin.
I would point out that (a) through (d) have been ongoing riders, ongoing expenditures of funds; subparagraph (e) was intended as merely a one-time funding source for 2008-09 and that's been confirmed that that was the intent and understanding. So again, as an effort to end or reduce diversions, we would recommend that rider be stricken.
MR. HOUGHTON: Can't add UTEP, University of Texas El Paso?
MR. BASS: If you can receive two other.
MR. HOUGHTON: Commissioners, trade you all.
(General talking and laughter.)
MR. BASS: Rider 37, Federal Funds Reporting Requirement is another one, an attempt to provide earlier notice.
MR. HOLMES: Before you get away from 34, by elimination of that, it means that it becomes department discretion. Is that correct? Or does it mean that no money is expended?
MR. BASS: I may have to turn that over to our general counsel, I think.
MR. JACKSON: Bob Jackson, general counsel. It would mean that no money would be expended.
MR. BASS: That was going to be my answer too.
MR. HOLMES: Why would we do that?
MR. BASS: Because with the overwhelming needs for infrastructure on the highway system, many of these are redirecting those funds that could go to address those needs to other needs within the state, and I think the recommendation here is to address those needs from some other funding mechanism other than the State Highway Fund.
MR. HOLMES: And the presumption is that we don't consider roads on the Capitol grounds, the department of health or parks as part of the state highway system?
MR. BASS: The state highway system.
MR. HOLMES: They would be a part of what system?
MR. BASS: A lot of them would be local roads or the State Preservation Board.
MR. HOLMES: But these are on state property, these are roads on state property.
MR. BASS: Correct.
MR. HOLMES: Why would they not be part of the state system?
MR. BASS: Because it's the state highway system would be one, and if these are on the state highway system, then any and all services on any and all state agency locations would be eligible for State Highway Fund expenditures, and that has not been the case.
Okay, Rider 37, Federal Funds Reporting Requirement is another one we're suggesting changes to in order to provide two rounds of notice rather than one, and also to make it more achievable. This would happen whenever we become aware of a federal rescission, we would now need to report that within two business days and then also report prior to submission of how we're going to address that.
Right now the rider currently reads that we will need to submit how we're going to address it ten days prior to responding to the Federal Highway Administration. Sometimes the deadline we get from the Federal Highway Administration makes that difficult if not impossible to achieve that ten-day requirement.
The next item is Rider 39. It is a Budget Reconciliation Report which, in my opinion, exemplifies the confusion over the UTP and how that ties in with our overall budget. The rider technically directs the department to map all of our expenditures to one of the twelve categories in the UTP. The issue is out of our 23 strategies, only two of them have a portion of their cost that map to the twelve categories of the UTP.
The UTP is not the department's budget, but there was some confusion over that. The only two strategies that map to that that come from the UTP are Transportation Construction and Contracted Maintenance. There is a rider that I'll go over in a couple of minutes that we would suggest be offered in place of Rider 39 that we believe gets closer to the legislative intent of understanding how those two documents interact.
Rider Number 40 on Comprehensive Development Agreements still would require information to be reported to the LBB but through the underline and strike-throughs, it would not require LBB approval.
Rider 41, somewhat technical, but it's dealing with money received from CDAs in the form of an up-front payment. Since in our baseline document we're already including money for the 121 project and for 135 and 6, we just want to add this language and say so if we get any money in addition to the amounts already appropriated above, in order to expend those, we would need to submit a report to the Legislative Budget Board and spend those dollars.
So money we have for 121 is part of the baseline request; baseline request gets approved, there's no second round of approval. If there's a new project that comes in and there's money received up front to go to projects in a particular region, we would then need to report that to the LBB and receive approval to expend those dollars during 2010 and 2011.
MR. MEADOWS: I just need a little clarification. I thought we considered the payments from NTTA to the State not a concession payment. When I saw that, I wondered.
MR. BASS: Right, you're correct. There was a lot of confusion over that when we did receive the payment and there's another rider that we report to them on for the 121 funds. This one in particular deals with the money we received from a private entity for State Highway 130, Segments 5 and 6, and if there were to be any other circumstance such as that over the next biennium, we would still need to go to the LBB and get their approval to spend those dollars if it's not a part of our baseline request.
MR. MEADOWS: Okay. So we're not confusing anybody here by referring to this as a concession payment.
MR. BASS: Thank you.
After Rider 41, I flip all the way near the end. You'll see Rider Number 701 -- unique numbering system because that's through the directions of the LBB -- the Crash Record Information System would be a new rider to TxDOT, but since that program moved over from the Department of Public Safety, we're just asking for that rider to continue, and it's a funding source of $750,000 a year from the Insurance Companies Maintenance Tax and Insurance Department Fees Fund. We're just asking for that to continue since we now have the program.
Rider 702 on the next page is associated with the My Plates contract. The fees from the My Plates contract would be received and deposited to the State Highway Fund and then we would owe them to the vendor, so it's somewhat of a pass-through. In our baseline request for that particular strategy in 2010 we have loaded in $15 million and in 2011 we've loaded in $20 million. And all this rider says is that if the revenue is higher than those amounts, that additional amount will be appropriated so we can make payments to the vendor in accordance with the contract.
703 deals with the Sale of Highway Surplus Property, that's primarily dealing with equipment that's been surplused and we sell it. Currently in our current rider in article (9), if the department sells surplus property originally purchased by the State Highway Fund, we receive 25 percent of the value back as General Revenue appropriation. What this rider says is anything that the department sells of surplus property, after paying any fees for handling the auction, will be returned to the department from the fund of original payment which in most, if not all, cases would be the State Highway Fund.
MR. MEADOWS: James, I have two questions on that. First historically, what sort of money are we talking about?
MR. BASS: If we get 100 percent, $5- to $6 million a year.
MR. MEADOWS: That's not really material -- I don't want to say $5 million is not material. And then how is that reflected on what I would call the income statement, where do I see that?
MR. BASS: It will be on a revenue item and on our cash flow forecast, since it is, as you suggested, only $5 million, we can't fit all of the $5 million items on one, so it's grouped, it's part of another and miscellaneous revenue item.
MR. MEADOWS: So if we happen to end this other diversion here, it's a gross number to us, or actually now net would be $5- to $6 million.
MR. BASS: Right, and it would be 75 percent of that, so it's perhaps $4-1/2 million, because if we sold $6 million today, we would get 25 percent of that as GR appropriation, so we still get 1-1/2 under current law, we're asking for all six, so we would pick up a positive $4-1/2-.
MR. MEADOWS: Okay, thank you.
MR. BASS: The next item, Rider 704, if you remember a couple of minutes ago when we were talking about Rider 39 and trying to tie the UTP to the Appropriations Act, this rider -- and for now, I apologize, the dollar amounts are just in there for format to show a basic idea -- this is an informational rider and it would take the total amount appropriated for transportation construction and break it down into different elements.
One of those elements would be payments for contracts that were awarded in 2009 and earlier, so these are the amount of payments for existing projects. Here's the estimated amount of payment for projects awarded in 2010, estimated amount of payments for projects awarded in 2011, here's the amount of debt service that's in that strategy, here's the amount of pass-through payments, here's the amount of general obligation bonds for Colonia road programs, and here's the total, and going through that same scenario or same blocks, if you will, for the contracted maintenance strategy.
In addition, there's a line there at the bottom that I believe we'd probably want to reword a little bit, but we currently have a performance measure as part of the Appropriations Act that says the dollar volume of construction contracts awarded. One issue is construction contracts includes both construction and maintenance, and so I think what we would want to do is clarify in here and say dollar value of obligations or contractual obligations as listed in the 2009 UTP.
This would be an example where somebody could look at the Appropriations Act and say okay, TxDOT is planning on awarding X billion dollars of contracts, total number, is that the same number that appears in a version of the UTP, and if those two numbers tie, I think that will give people a lot of comfort that they do tie and that one does flow into the other.
That is all of the riders that I would call your attention to. I'd be happy to respond to any questions on those or any other riders that may have grabbed your attention. If not, the next nugget to bring to your attention would be the Capital Budget. There is a schedule, I believe it's the third tab in your book of Capital Budget, looking something like this. Again, I'll highlight a few things.
Category A, acquisition of land and other real property, does not include -- does not include right of way acquisition, it's land acquired for department facilities. Category B is for building and construction of those facilities, be it an area engineer's office, maintenance facility, or something on the district headquarters.
Category C is repair and rehab of buildings and facilities. You'll note on this schedule a jump for Category C in Fiscal Year 2011. That is $12-1/2 million of that includes a project to renovate the building we find ourselves in today to bring it up to safety code, fire code and other elements. I would call your attention to that.
If we jump down to Category D, the automation projects, there are a couple I'll call your attention to. One easiest to find is at the very bottom, item number 15, project 15, management information systems with $26 million in 2010 and another $26 million in 2011. That is often referred to in this room the financial transparency project, and the subcommittee on updating our computer systems. That $26 million right now, to be completely honest, is a placeholder.
We're going through user requirements, we're working with the Comptroller's Office as they work through their ERP project to see how much of our needs may fit within their project and be able to be borne by that statewide project.
I think at least some of our needs are going to fall outside the scope of that Comptroller's statewide project, and so we are putting dollars in here and as we go throughout the legislative process, we would plan on updating this. And I would also highlight that even at $26- and $26 million in '10 and '11, we would believe that there would be expenditures beyond 2011 as part of this project.
MR. HOUGHTON: James, where does the Transtar stuff come in here?
MR. BASS: Transtar is actually, since it's permanently affixed to the highway network, that is part of transportation construction, it is not part of these separate capital budget items. It's a very sophisticated traffic signal, and so red lights and traffic signals don't go in here and the traffic management centers are just an expansion of that concept.
MR. MEADOWS: James, I have a question about just source of revenue to address capital needs. Generally speaking, is that GR, is that appropriated?
MR. BASS: Generally speaking, it's 100 percent State Highway Fund, so it would have no federal funds involved for most cases.
MR. MEADOWS: So there's no exceptional item request for management system of 50 million bucks.
MR. BASS: No. Currently we have this as part of the baseline request.
MR. MEADOWS: Okay. And if there's an exception to your comment, what would it be?
MR. BASS: It might be the Traffic Management Center, but I really don't think there's --
MR. MEADOWS: It's not material.
MR. BASS: It's not material.
MR. MEADOWS: Okay, thanks.
MR. BASS: The other one, if we move a couple of lines up, project number 12 is a Vision 21 Core System. There is a $1 fee on vehicle registrations in counties that have more than 50,000 vehicles registered, and that $1 fee is dedicated for the enhancement of the registration and titling system. That would be the funding source for this project number 12, Vision 21 Core System to update the registration and titling system.
As you can see, it's a significant dollar amount, so I would call your attention to it merely for that reason.
MR. HOLMES: James, there must be another source of funding for that because we don't have 31 million vehicles registered.
MR. BASS: What's happened is this $1 fee has been in place for a number of years and that $1 has not been fully expended every year such that there is a balance of that fee from prior years, and so it's that balance from prior years plus projected incoming revenue would fund the project for these three years.
MR. HOLMES: These look like very precise numbers. What is the basis for these numbers?
MR. BASS: We receive those from both our Vehicle Titles and Registration Division and Technology Services Division. They work together on these automation projects and go through different schedules and estimates of scope of work, and then submit those to Finance as part of the budget process.
MR. HOLMES: Does that presume that the systems have actually been identified and costed, or is it just a consultant's estimate or internal estimate? I see Rebecca back there.
MR. BASS: Yes, Rebecca is back there. I was actually looking for Mr. Serna -- and thunder -- I would defer to one of them to get into specifics of how the estimates were arrived at.
MS. DAVIO: Good afternoon. For the record, my name is Rebecca Davio. I'm the director of the Vehicle Titles and Registration Division.
Commissioner Holmes, your question was about the specificity of these numbers. We can say that these are estimates, they're estimates that we have developed to the best of our abilities, looking, bench marking other states, and having just very, very preliminary conversations with some of the vendors that have solutions that are out there that are provided.
They are estimates, though, and we expect them to be changing as we get more and more information. We're just in the beginning process of developing the required paperwork -- it's referred to as framework documents -- that have to be submitted to DIR and to the LBB and the whole quality assurance team for their blessing on this project. And so the best estimates that we have to date, but they are just estimates.
MR. HOLMES: Thank you.
MR. BASS: The last thing I would point out on this page, you see on Categories E and F, some low expenditures in 2008 and then would appear to be jumps in 2009. I would just point out that 2008, those expenditures are lower than normal because of the cash flow situation, so at the same time construction projects were being delayed, acquisition of equipment as well as vacancies being filled were also delayed, and you can see that reflected there.
The next group of documents after Capital Budget would be the exceptional items, and I believe you'll see that in two places, the next to last tab in your book, and across the top you should see Exceptional Item Request Schedule, and if you have this rough outline as well before you, it has those in addition -- unfortunately, they're in different orders.
The first one in your book is dealing with rail and it is for two purposes: one, the contribution to the operations of the Heartland Flyer, the Amtrak line between Fort Worth and Oklahoma City. That is the $2.035 million you see each year. The other funds that are on there are to upgrade the service level of the South Orient Rail Line that the department owns, and that first one is to upgrade the South Orient Rail Line from Coleman to San Angelo.
The next line there continues in the rail category and it is for upgrades to the South Orient Rail Line from San Angelo to Fort Stockton, and also for the northeast rural rail.
MR. MEADOWS: James, I didn't understand why there were two exceptional item requests, why weren't they a single one?
MR. BASS: I think there are different issues and it's kind of to how big a chunk can you make them. One of them, I think there are logistical issues in moving some of the freight on the line and I'm assuming the issues are bigger on the one and then the southern part could be handled separately.
MR. MEADOWS: I read that. Okay.
MR. HOUGHTON: How many trains -- they don't go across there now because we don't have a bridge. Right? We lost a bridge, it burned down.
MR. BASS: That's what I hear.
MR. HOUGHTON: So if we build a bridge, will they come?
MR. SAENZ: The bridge in this exceptional item is a bridge that is northeast of San Angelo where we have a wind generator outfit that is relocating to San Angelo and they need to have rail service going north, and the bridge is about six inches too narrow.
MR. HOUGHTON: Six inches too narrow.
MR. SAENZ: Not too far but too narrow. What we requested here is that line from San Angelo northeast to tie to the other short line that comes out of Dallas-Fort Worth is a 10-mile-per-hour line, and what we're looking at here, there's a bridge somewhere northeast of San Angelo and we're talking about the cost for the bridge was about $3-1/2- to $5 million, and then the upgrading of that line to a 25-mile-per-hour line.
MR. HOUGHTON: So the cost benefit analysis is?
MR. SAENZ: I don't have it.
MR. BASS: There will be a wind farm in West Texas.
MR. HOUGHTON: There will be a wind farm. Can we put the train line on the Trans-Texas Corridor?
MR. BASS: I'm being told yes.
MR. HOUGHTON: What an opportunity.
MR. BASS: The third one which is roughly $46 million a year -- for us to be on the same page -- is another rail one, but this one is for preliminary engineering on rail projects, and again, it's preliminary engineering for projects in the Houston area and preliminary engineering associated with the relocation of the Austin-San Antonio rail corridor. So there would be no actual construction or movement but these are the development costs associated with future rail relocations.
MR. HOLMES: James, before we leave that, the last line on that page says, "TxDOT is prohibited from spending constitutionally dedicated gas tax revenues on rail projects." Presumably, we don't believe this is a prohibited expenditures.
MR. BASS: No. If you see, there about in the middle of the page, the method of finance, we're requesting General Revenue funds for that purpose.
MR. HOLMES: It seems to me -- and I'm not sure whether this is the forum for discussion, but at some point I'd like for the staff and the commission to work through some of the cost benefit of very significant rail improvement relocation, grade separations, et cetera.
It seems to me that a number of those projects -- Bill, the Tower 55 -- and others hit all five of our standards of congestion, safety, air quality, economic development, improving the value of transportation assets, and my sense is that it would be an endeavor that would be extremely beneficial to the traveling public, to neighborhoods, et cetera, and I'd like to see us put that on the agenda for one of our workshops.
MR. BASS: The next item for Public Transportation, you'll see $9 million in 2010 and $8.665- in 2011. Prior to 2004, so 2003 and earlier, the department historically received $17.66 million of General Revenue funds each biennium to help fund grants for public transportation. In 2004, when General Revenue was having its own financial crisis, that $17.6 million from GR went away and began to be funded out of the State Highway Fund. This request is to return to that historic level of funding from GR.
If you flip to the next page, there's another exceptional item associated with Public Transportation, additional GR, but this, rather than merely being a method of finance swap, this one on this page -- which is roughly $21 million each year -- is for additional grants to be provided to rural and small urban transit providers, and the request is to come from the General Revenue Fund.
Going to the next page, the Automobile Burglary and Theft Prevention Program, again, beginning in 2004 there was a change to how this program operated. There is a $1 fee on auto insurance policies issued in the state of Texas and that $1 fee is deposited to the General Revenue Fund. In 2003 and prior that $1 fee went to fund the activities of the Automobile Burglary and Theft Program. The $1 fee continues to go to GR but since 2004 the State Highway Fund has paid for those activities. This exceptional item requests for that $1 fee to once again pay for the program.
Flipping a couple of pages, we have one for Rail Safety. This is a group that was moved over from the Railroad Commission to TxDOT, and this exceptional item from General Revenue would be for funding for an additional FTE, some automation equipment for the inspectors, and I believe three trucks, passenger trucks for them to park along the rail right of way and do their inspections.
Flipping a few more pages, we get to the one associated with Proposition 12, and we have both the expenditures of the bond proceeds as part of this exceptional item request, and also the General Revenue needed to service the debt during 2010 and 2011. I guess just to get clarification, the one we were talking about earlier was kind of the unfunded portion at the bottom, but as far as delineating this geographically, I'm assuming you'd want this layer of funding handled the same way?
(Indications of agreement from commission members.)
MR. BASS: Okay. If we flip to the next page, you then see the large remaining capacity or unfunded capacity of over $10-1/2 billion for '10 and '11. This is associated with over $15 billion of letting but all of that $15 billion would not pay out in '10 and '11, so again, the disconnect between contract award and then payouts that show up in the budget, so I highlighted it, one, for that reason, and then two, that if we start with $15 billion additional projects in '10 and '11, we will need appropriation in '12 and '13 and '14 to finish out those projects.
So what you see here before you is that the estimated payments associated with that $15 billion of additional projects just during this two-year period.
MR. SAENZ: James, there will be some needed for '12 and '13.
MR. BASS: Correct. Just technically, as part of this LAR, since this is for '10 and '11, it wouldn't be in there. That's another benefit, I think, of the payout grid that was back in our Administrator's Statement. We are continuing that payout grid beyond '10 and '11 to show that when we start projects during that biennium, they're going to have payments beyond '10 and '11 and '12 and '13 and '14, so hopefully, that will better illustrate the way the department's contracts operate.
One of the things we're asked to do as part of the appropriations request is to list these exceptional items in a priority order. On this document, the discussion item, the rough outline provided an attempt at the top of page 2 to put those in an order. The recommendation for your comment and rearrangement was:
Number 1, Proposition 12 proceeds and necessary debt service;
Numbers 2, 3 and 4, in effect, are ending current diversions; 2 is the Automobile Burglary and Theft Program, 3 is Gross Weight Axle Fees, and 4 was the $17.665- of GR;
Keeping the two associated together, led us to put the additional grant funding for Public Transportation as number 5;
Number 6 was for rail safety -- again, that's the program that came over from the Railroad Commission, and so that was looking at an additional FTE and some equipment;
Numbers 7, 8 and 9 were the different layers associated with rail, Heartland Flyer, South Orient Rail, and preliminary engineering on large projects;
Then number 10 in this order was the unfunded capacity, the additional GR.
So these currently are the ten pieces -- and once again, the reason I'm highlighting this because in the appropriations request we are asked whether it will carry any significance once we get to the session, part of the process we're asked to put these in priority order.
MS. DELISI: How can we say that funding the unfunded capacity ranks lower than laptops for inspectors? It seems to me that's the core function of this agency; that needs to be moved up close to the top.
MR. HOUGHTON: Number 1.
MS. DELISI: If not the top.
MR. BASS: Number 1 or Number 2? Number 1 right now is Proposition 12.
MR. HOUGHTON: Number 1, unfunded capacity. Can I ask you a question that dovetails into this, your Administrator's Statement? What is the authority of the SIB, State Infrastructure Bank?
MR. BASS: The State Infrastructure Bank currently loans money to locals to advance transportation projects. The State Infrastructure Bank has the ability to issue revenue bonds backed by future loan repayments of the State Infrastructure Bank. To date, the department, the commission has never issued any such debt backed by the SIB.
MR. HOUGHTON: How much debt could we issue today?
MR. BASS: I'm waiting for that response, I don't have it yet.
MR. HOUGHTON: So it's based on the debt repayment or the capitalized amount in the State Infrastructure Bank, or both?
MR. BASS: I think it would be both: any balances that were in there plus the loan repayments.
MR. HOUGHTON: So there's a leverage effect on the State Infrastructure Bank.
MR. BASS: Right.
MR. HOUGHTON: So if I wanted to lend money to Alamo RMA to build their project, I could do that out of the State Infrastructure Bank, to an amount.
MR. BASS: Yes.
MR. HOUGHTON: But we don't know that amount.
MR. BASS: No. It would be something less than the outstanding loan amounts because, of course, then that would go both for paying off principal and the interest.
MR. HOUGHTON: If I have a stream of income coming in from the Alamo RMA on that debt, and we go very conservative on that debt, that doesn't count as to the amount I can lend.
MR. BASS: Depends on the payment stream you have coming in from Alamo RMA that would be deposited to the State Infrastructure Bank and not the Highway Fund. And I think with some haircut, some conservative amount from that you would be able to leverage.
MR. HOUGHTON: Well, let me ask you another question. What if I use part of Proposition 12 to capitalize the State Infrastructure Bank?
MR. BASS: Proposition 12 is listed for highway improvement projects. I'm not sure if we can fully answer. All we have right now is the constitutional language, there is no statutory language on Proposition 12. I'm looking to Mr. Jackson to see if he thinks there is a constitutional issue on Prop 12 being directed to the State Infrastructure Bank.
MR. MEADOWS: Do we need an answer to that right now? I understand where you're going with this.
MR. HOUGHTON: Well, understand where I'm going, I don't have on my current exceptional items State Infrastructure Bank as to capitalizing, and one of the things that we can do that you're familiar with, Bill, is a revolver as to a GO-back. Does the State Infrastructure Bank give you a GO-back, or what kind of a pledge does it give you?
MR. BASS: No. Right now it would just merely be secured by future loan repayments and any balances in the SIB. It does not have a GO-backstop, and my understanding, in order to apply a GO-backstop, it would need a constitutional amendment to add that to the SIB program.
MR. MEADOWS: This is my point. I absolutely know where you're going with this, and I obviously think that there's a lot of value in pursuing this, and that is some sort of funding for the Infrastructure Bank concept which enables us to leverage that up and deliver a lot more projects over a shorter period of time. It's a pretty lofty goal and a good one. But the fact is that what we're discussing today is the LAR, and so the question then is how specific within this specific item do we have to be as regards what the program would look like.
MR. HOUGHTON: You have language in the LAR that talks about local tolling authorities in the Administrator's Statement.
MR. MEADOWS: I just think you're talking about a pretty complex and innovative approach which I don't think we can sit here today and construct -- that's my only point. I'm all for exploring it, I think we need to pursue it, but I'm just trying to get to a point where can we move on, set that aside and really sit down and discuss that, or do we have to make that decision today.
My real question is how specific do we have to be in the LAR as regards this particular exceptional item.
MR. BASS: I hope this is responsive. Many times during the session items that were never thought of or included in the LAR will move forward statutorily and there would be a contingency rider, a contingency appropriation associated with it that if the statutory language passes, TxDOT, or whatever department, would receive X amount of appropriation to implement the new law. So it would not technically need to be covered in here.
MR. MEADOWS: Because this is due Friday, or when is this due?
MR. BASS: Technically it's due Wednesday.
MR. MEADOWS: I don't think we're going to construct this concept to a point of being able to include it in a comprehensive plan as to the proposed uses by this agency to the legislature of Prop 12 funds, but I do think we make the request for the Prop 12 funds, there's been great discussion today about it, but I do think this is a great opportunity to really try to bring some innovation because I think it's going to be recognized and applauded.
MR. BASS: So right now I have unfunded capacity as number 1, or 1(a) and 1(b)?
MS. DELISI: Not to disagree, I think I might rank it right below the Prop 12.
MR. HOUGHTON: That's fine.
MR. MEADOWS: Yes.
MR. BASS: Any other revisions?
MS. DELISI: No.
MR. BASS: The next sheet I want to call your attention to is at the very front of the book, even before the first tab, and there's two different versions.
MR. MEADOWS: I'm sorry, I have one more question. Where do we communicate -- there's some greater diversion issues, I just didn't know what the appropriate format is. It's not in the LAR, I assume.
MR. BASS: Right. Well, one of the things, and it will somewhat be highlighted here, I believe, on this next sheet I was going to take us to which is the letting analysis. Back at the beginning I talked about baseline and exceptional items.
Included in our baseline request -- our baseline request includes all of the State Highway Fund, so all of the State Highway Fund that currently is going to other agencies, currently in this draft that you have before you, all of those dollars are included as part of our baseline request, not as an exceptional item.
MS. DELISI: I want to be clear. Every last penny, not just the DPS portion, but every last penny?
MR. BASS: Correct. I would think and hope that retirement payments for TxDOT and our health insurance we would still allow to go to ERS and the Comptroller's Office, but other than that, all of the funds would be coming to TxDOT. And that's part of the baseline request.
MR. MEADOWS: Okay.
MR. BASS: You have two versions, and if you'll allow me to just talk off one of them, and it's the page right before the first tab. And if you'll look over to the left, starting at the top, you'll see base letting, diversions, additional Prop 14, Prop 12 exceptional items, and then GR total needs. And so the sheet I'll be talking from is the one that includes that GR total needs exceptional item.
At the top of the page it shows the letting or the contract award amount, and then in the middle section it shows the associated payments for construction projects, and the bottom part shows associated payments for maintenance contracts.
If we look at 2009, this shows $2.78- as the base letting. First question is why is that different than $2.53-. It's different than $2.53- because that base letting includes projects funded by the payment from NTTA and the payment here in Austin-San Antonio area for 130, 5 and 6. Added to that, with the information we've received, is that in 2009 we'd be allowed to do an additional $1.7 billion of letting by Prop 14.
Question number one: I thought you were limited to $1.5 billion of Prop 14. That is on debt issuance, not contract award. So if we award an additional $1.7 billion of contracts, it's not all going to pay out in the first year. So we would be able to issue $1.5 billion, start $1.7 billion of contracts, and fund additional right of way and engineering in support of future projects being delivered.
So the LAR, even though we're only asking for '10 and '11, we're providing an update on what we are planning on doing in 2009, that 2009 number would be in the neighborhood of $4-1/2 billion.
If we move to 2010, again the base letting is good old Fund 6 UTP number plus anything from the 121 payment and if there's anything from the 130, 5 and 6 in there, plus $550 million of additional letting due to the ending of diversions or redirection of diversions. Again, some of that diversion money would be going for right or way and engineering and in subsequent years you'll see it drop off because it will begin to go for debt service.
But in 2010 we now have access to Proposition 12, hopefully, and so this shows $2 billion of additional letting in 2010 from Prop 12 and then that would leave us short $7-1/4 billion of what could be delivered, and that $7-1/4 billion of letting you see under the GR total needs.
We go through the same for a total of $12.6 in 2010; we go through the same steps in 2011. Again, you'll notice that the $550- for diversion starts to drop as you go out. That's because some of the money from diversions is needed to cover the debt service on the additional Prop 14 that's being issued. And we continue down such that 2011 total letting would be about $13.8-, $13.9 billion.
Again, the lower part of the sheet in the middle shows the associated payments that would show up in our request and in the Appropriations Act for those progress payments on those projects, and then the lower portion shows the maintenance payments, the contracted maintenance payments associated with that letting.
That's an attempt to kind of show the additional layers, the different funding layers and what they deliver as additional letting within those years.
If there's no questions on that --
MR. HOUGHTON: James, the highlight that we talked about the beginning of this conversation, the exceptional items from GR, are you going to asterisk them to see the footnote that they're backup information per district, here it is, here's what we can let based upon today's environment?
MR. BASS: Yes. We're restricted in the official submission of the LAR, we have to submit that through the LBB's automated system, and so within that technical official LAR through their system, that will not be a part of it. It will be a part of the printed one that the department does and can hand out to appropriators, and there's been some discussion, because similar to what the commission did with the Strategic Plan and did kind of the formal submission and is working on a public version, that perhaps something along those lines would be done for the appropriations request.
MR. HOUGHTON: And when will that public version be available?
MR. BASS: Soon after the official version.
MR. HOUGHTON: My question to John is you've got basically three levels of opportunity: you've got the current program, you've got the current program with Prop 12, you've got the current program with Prop 12 and 14, you've got the current program with 12, 14 and GR.
MR. BASS: A seven-layer or four-layer.
MR. HOUGHTON: You have different layers, so you have a grand total, and here are the projects in the districts that can be let as a grand total -- I call it contracted. Is that the way we're going to show it to the public?
MR. BARTON: It certainly is the way we can show it and we have that information compiled and ready to go.
MR. HOUGHTON: And to the media to say here, in fact, is what the need is in this state or a partial need in the state.
MR. BARTON: Part of the needs, that's correct.
MR. HOUGHTON: Part of the need based upon our capacity to fulfill that need, here's what we can do.
MR. BARTON: That's correct.
MR. HOUGHTON: And we obligate ourselves to doing that.
MR. BARTON: And that's, I think, a key point to make.
MR. HOUGHTON: We are obligating ourselves.
MR. BARTON: We will be held accountable. We said we can do it, and if they deliver -- they being the public -- legislature gives us the funding, then it's our responsibility to bring it forward.
MR. HOUGHTON: Senator Hegar can come back and say if we don't meet this then we can lop some heads off.
MR. BARTON: Yes, Lonnie Gregorcyk's, I suppose, or maybe whomever else is responsible for that.
MR. HOLMES: Is the reason that we show $4.3 billion out of the $5 billion Prop 12 in letting is because the balance is for right of way, et cetera?
MR. BASS: Yes. I'm sorry, if I may, and similar for the additional $2.9 billion of Prop 14, $1.7- is for letting the remainders for right of way and engineering, and some of that right of way and engineering is for projects that ultimately would be delivered through Prop 12.
MR. HOLMES: And is environmental part of that too? Where is environmental?
MR. BASS: It would be part of the engineering.
The last section I have is the next page right after the first tab. You see Texas Department of Transportation's AY 2010-2011 LAR with a listing of our goals and our strategies underneath that. What I'll do now is just go through those and highlight some of the strategies. Some of the strategies I'll skip over, not because they're any less important than any of the others but simply because it's a pretty straight line, there's nothing of change that I would call your attention to.
On the first line A.1.1 Plan-Design-Manage, you see increases in 2010 and 2011. That's due primarily to bringing up to full staff to address a lot of the increased design and construction activity, and it also includes anticipated additional federal funds for planning for MPOs that flow through our budget. The A.1.1, all of that is Plan-Design-Manage accomplished by TxDOT staff.
Strategy A.1.2 Contracted Planning and Design is our outsourced or contracted engineering. You see a jump in 2009. That jump in 2009 would be funded through proceeds of Proposition 14. If you look at 2010 and 2011, as part of the baseline you would see a drop, but if you look to the far right, the exceptional items, you'll see some significant requests in 2010 and 2011 through the exceptional item process.
You see a similar pattern in A.1.3 Right of Way Acquisition, a jump in 2009, and again primarily funded by Prop 14 proceeds, and then '10 and '11 having the inclusion of exceptional items.
B.1.1. Transportation Construction, again you're going to see increases in '09 through '11 because of the utilization of Proposition 14 and the 121 funds, as well as reduced diversions, and then we have significant exceptional items and also part of the increase in B.1.1 will be for debt service in those years.
Aviation services, I'd merely point out in 2010 you will see what appears to be an apparent jump of $25 million. This is due to the carrying forward of an unexpended balance of appropriation for grants that have already been awarded through the Aviation Program. They just carry that appropriation forward, and so two years from now I would expect to see a $25 million bump in 2012 when we're asking for it. It's just kind of a continuous roll; they fully encumber all of their grants up front.
Strategy C.1.1 Contracted Maintenance, there are significant amounts requested through an exceptional item due to anticipated increased letting and also additional amounts needed for debt service.
MR. HOUGHTON: There are no capital acquisitions in Aviation?
MR. BASS: No.
The strategy C.1.2 Routine Maintenance, this is the maintenance performed by TxDOT forces, and so you see increases in there and the increases are primarily due to the increased cost of roadway materials.
Gulf Waterway, you kind of see money fluctuate year by year. That's associated with capital budget. If you remember on capital budget, the acquisition of land, part of the land that we ask for every biennium is for land to store some of the dredged material associated with our Gulf Waterway activities.
Ferry System, 2007 includes a boat for Galveston and 2009 includes a boat for Port Aransas, and then '10 and '11 includes some additional funding for diesel fuel.
C.1.5, you'll note the zeroes in '10 and '11 because that's the one that we're asking for exceptional items 7-1/2 to end that diversion.
If we move down to D.1.1 -- and this got confused last session -- if you look at 2008 and '09 and '10 and '11, it looks to be roughly a $17 million drop. That is because of the method of finance swap that we're requesting. We're not requesting that any less money go towards public transportation; actually, we're requesting more, we're just asking that some of the money that's currently going be financed differently. And again, we have two exceptional item requests there: $17.6 million for that method of finance swap, and then another roughly $42 million for additional grant funds.
The strategy D.1.3 Registration and Titling, you will see in 2009 an increase and then in '10 and '11. It's associated with two things: one is the My Plates contract, there is $10 million in 2009, $15 million in 2010, and $20 million in 2011 for that My Plates contract, and again, those are just basically pass-through dollars that would come to us to make the payment to the vendor. In addition to that is the dollars associated with the Vision 21 project that we discussed earlier as part of the capital budget, they map to that particular strategy.
MR. HOLMES: That would not be rightfully viewed as covering operating cost, there would be quite a lot of capital cost in that.
MR. BASS: Yes, and in addition, some of the Motor Carrier activities outside of our Vehicle Titles and Registration Division are a part of the Registration and Titling strategy, and so it's more than just operation expenditures.
The strategy D.4.1, Automobile Burglary and Theft Prevention, another end of diversion, we're asking for zero but asking for it as General Revenue.
Strategy D.5.1 is another exceptional item case that we spoke about earlier, additional FTE and equipment for the inspectors.
Strategy E.1.1 which is Central Administration, again I'd point out the apparent jump in 2011. That jump is associated with the capital budget renovation of the Greer Building.
If we look at E.1.2, in both 2010 and 2011 you'll see a significant jump. That's associated with the management information system update or the financial transparency update to our automated systems.
And lastly, strategy E.1.4 Regional Administration, you see fluctuations year to year primarily due, once again, to capital budget projects. As an example, you see a large amount in 2007 and that large amount in 2007 is related to our Houston District headquarter facility and how we paid that off in 2007.
Those are all of my prepared items to highlight or bring to your attention. One other I'll just point out. Through the efforts of the legislature, as you will recall, the $300 million of General Revenue that we received in 2008 and 2009 to go for debt service is included as part of our baseline request in '10 and '11, and it currently in this draft is shown as addressing debt service again in '10 and '11 as much as it possibly could.
MR. HOUGHTON: James, where do we find what it costs us to operate our tolling operations for the State of Texas?
MR. BASS: It is not in here as a separate identifiable chunk, but as you know, the department, the commission has backstopped the operations and maintenance of the Central Texas Turnpike System here in Austin, and so the funds for that are part of our request primarily in Contracted Maintenance.
MR. HOUGHTON: What is that costing us?
MR. BASS: In 2010 and 2011 we have roughly $45 million each year for operations and maintenance of that facility.
MR. HOUGHTON: Can you tell me what it costs per transaction?
MR. BASS: I cannot but someone else in the room may be able to do that.
MR. HOUGHTON: That would be nice.
MR. RUSSELL: For the record, I'm Phillip Russell, assistant executive director.
Commissioner, I think right now we've put together a group of folks trying to get to a number what the transaction cost would be. I really did that for a couple of reasons: number one, I wanted to see what those costs were, but I also wanted to do it so that we could benchmark ourselves against other tolling authorities.
I got a little briefing a couple of weeks ago from those guys, and one of the things that's pretty apparent to me is there is no industry standard, and so when they start looking at what do they throw into their cost, it's all across the board, so the rough numbers I heard a couple of weeks ago, there's a wide disparity of what I'm hearing.
If you throw in all those up-front development costs, what it costs to develop software and all that, I think it started out like 40-something cents a transaction. Of course, as those costs, now as we're getting more transactions, it's down to 30-something cents a transaction.
If you look at just the electronics -- and this is critical because when we get into our interoperability agreements with all the other toll authorities, then the pure cost for us on electronic toll collection transactions is something under a dime, it's about 9.8-9.9 are the rough numbers that I'm hearing now.
So I've asked the guys to do a little more bench marking, let's make sure how the other toll authorities calibrate their operation and maintenance costs. Some of them will throw maintenance costs into their transaction cost, others will show it as a maintenance cost, and so there's a lot of little things like that that are kind of frustrating, but hopefully we're going to get down to a number.
Ultimately it may be two different numbers: one that's just a pure transaction cost and one that may be kind of an all-in loaded cost, and obviously, since we've got a whole bunch of development costs to start with, it will take us a while to feather back down to more of a baseline cost.
MR. HOUGHTON: How many employees do we have?
MR. RUSSELL: In what the toll operations? I don't remember offhand, probably about six or eight.
MR. HOUGHTON: And we have a contract with somebody to operate toll collections?
MR. RUSSELL: Yes, sir. We have a number of contracts, actually. There's two different firms that do the toll integration, those are the guys that put together the hardware. We've got a group that essentially are the people. NTTA and Harris County have those as employees; we made the call early on that we'll just privatize all of that, so our toll attendants and the customer service reps and all those are by consultant. We have another one that develops the software and those sorts of things.
MR. HOUGHTON: And those costs are somewhere?
MR. RUSSELL: Yes, sir.
MR. HOUGHTON: Okay, thank you.
MR. HOLMES: This is not really particularly germane to the LAR discussion, but I understand that in most toll systems there's a fair bit of leakage on the revenue side, maybe as much as 6 or 8 or 10 percent. Do we have some handle on what that might be and how we deal with it?
MR. RUSSELL: I think, first off, it's always hard to ascertain what that leakage is. Obviously, when you start getting into rating agencies and bond indentures, all the toll agencies keep those numbers pretty close to the vest, but there's obviously some leakage.
When you look at the old mature systems, there's not a whole lot of leakage because they're ticket systems, you have to stop to get a ticket, you drive down the road, you stop, there's an affirmative gate in front of you, you put your ticket back in, there's not a whole lot of leakage, but they're not very consumer friendly. And so obviously, as you become more electronic, you're going to have more leakage.
And probably the opposite end from a ticket-based system is our pay by mail. We think that's a pretty good customer service; from a customer service standpoint, that's a pretty good direction we're heading, but you're going to have more leakage. You're taking pictures of license plates from a guy in Oregon versus a guy in Texas, and so you're going to have a little more leakage in that. And that probably, Commissioner, is the range.
When you start talking about our cash collection on the Central Texas Project, then I don't know offhand but it's pretty small leakage, might be 6 or 8 percent, it's pretty small because they're throwing quarters into a bin. As you get into our ETC base, you have a little more leakage but we're at about 76-79 percent tag penetration, so we're in pretty good shape. And then the pay by mail is going to be higher than that, and the pay by mail is about 10 or 12 percent of our customer base right now on the Central Texas Project.
I think as we develop more of a baseline, we'll be able to come back with a little more anecdotal information. We've got about a year, year and a half under our belt and so we're developing that data now.
MR. UNDERWOOD: When you do the pay by mail, Phil, a question for you is they charge a premium for that privilege. Isn't that right?
MR. RUSSELL: Yes, sir.
MR. UNDERWOOD: How much is that?
MR. RUSSELL: It's a dollar for statement fee and then there's about a 33 percent add-on convenience fee.
MR. UNDERWOOD: Convenience for who?
MR. RUSSELL: What's that now?
MR. UNDERWOOD: That was a loaded question. Convenience for who?
MR. RUSSELL: For the traveling public, without a doubt. I think for us the electronic toll collection is probably the most efficient. We can drive down our costs much more efficiently with an electronic toll tag. You know the customers, you've got your tag accounts. If you have the pay by mail, you don't know who that customer base is and so you spend a little more time chasing those folks down and trying to get the bill to them and that sort of thing.
But just as you pointed out, Commissioner, by putting that dollar statement fee and by putting that 33 percent convenience fee, we think it's a zero sum game. Hopefully we're going to balance out at the end of the day.
MR. HOUGHTON: You talked about operation and maintenance, so some of that operation of collecting is in that $42 million.
MR. RUSSELL: Yes, sir, the majority of it is. Depending on the way we budget it, there's probably what, James, $10 million or so is roadway maintenance. But Commissioner, that's probably one of the other issues. For instance, when we talk to other folks, the maintenance around their toll system, their toll plazas, a lot of times they'll charge that to roadway maintenance, we throw it into operations cost. Six of one, half a dozen of the other -- at the end of the day it's the same, but it certainly affects your transaction cost. I think obviously we can make some strides; if we start going to a cash-less system, we'll probably save some more money.
MR. HOUGHTON: Okay.
MR. BASS: So through the discussion, from what we've presented, the one thing or couple of things I've noted: one, we'll change the priority order of the exceptional items; we'll prepare this supplemental information for both Proposition 12 and the unfunded capacity by region. But other than that, I did not capture anything that we would change that was drafted and presented for presentation on Thursday.
MR. MEADOWS: I certainly agree. What it seems to me like, following this conversation today, one of the real focuses is going to be on the construction and formulation of the Prop 12 program. Because I'm not sure, I think there is some opportunity in it, but that really is an item for future discussion, but it needs to happen.
MR. BASS: Right, but we need to ask for the dollars and we'll have a total dollar amount, and then what programs or projects that total dollar amount supports can be, I think, further refined even after the initial submission of the appropriations request.
MR. HOUGHTON: It has to be pretty quick.
MR. BASS: Yes.
MR. HOUGHTON: It has to be pretty quick if we're going to get this out to the public and the media, here's what we can do.
MR. BASS: I mentioned earlier, technically the due date from the Budget Board was August 27, Wednesday. Obviously, we're not going to do that because we will not ask the commission to formally adopt it until Thursday. We've just recently gained access to the Budget Board's system, so we'll incorporate all of this into that system and then take a few days to review it before we hit the official submit button over to the Budget Board, but at the same time, we'll be working on this supplemental information to back up those exceptional items.
MR. MEADOWS: Thank you very much. It was very helpful.
MR. BASS: Thank you.
MR. HOUGHTON: Thank you, James.
MS. DELISI: All right. There being no more business, let's adjourn the meeting.
And it is now 3:59, and we'll see you Thursday.
(Whereupon, at 3:59 p.m., the meeting was concluded.)
C E R T I F I C A T E
MEETING OF: Texas Transportation Commission
LOCATION: Austin, Texas
DATE: August 25, 2008
I do hereby certify that the foregoing pages, numbers 1 through 103, inclusive, are the true, accurate, and complete transcript prepared from the verbal recording made by electronic recording by Nancy King before the Texas Department of Transportation.
On the Record Reporting, Inc.
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Austin, Texas 78731