March 27 Transcript


Texas Department of Transportation Commission Meeting


Ric Williamson Hearing Room
Dewitt Greer Building
125 East 11th Street
Austin, Texas 78701-2483

Thursday, March 27, 2008


COMMISSION MEMBERS:

Hope Andrade, Interim Chair
Ted Houghton, Jr.
Ned S. Holmes
Fred A. Underwood

STAFF:

Amadeo Saenz, Executive Director
Steve Simmons, Deputy Executive Director
Bob Jackson, General Counsel
Roger Polson, Executive Assistant to the
Deputy Executive Director
Dee Hernandez, Chief Minute Clerk

PROCEEDINGS

MS. ANDRADE: Good morning.

AUDIENCE: Good morning.

MS. ANDRADE: It's 9:07 a.m. and I would like to call the March 2008 meeting of the Texas Transportation Commission to order. Note for the record that public notice of this meeting, containing all items on the agenda, was filed with the Office of the Secretary of State at 4:30 p.m. on March 19, 2008.

I'd also like to make an announcement, prior to the beginning of this meeting, that we originally scheduled to meet in Beaumont next month, but we've moved that meeting back to Austin. It will be held here in the Ric Williamson Hearing Room beginning at 9:00 a.m. on April 24. We will schedule a meeting in Beaumont at a later date, most likely in 2009.

Now, as is our custom, we will open with comments from our other commission members, beginning with Commissioner Fred Underwood, followed by Ned Holmes and Ted Houghton. Commissioner Underwood.

MR. UNDERWOOD: Thank you, Madam Chairman.

Good morning, everybody. It looks like we have a full house. There are some empty seats up front for those that are standing in the back, just want to make sure. Also, I want to thank -- people a lot of times don't get to hear this, but I want to thank some of our newer staff members that are here, John Barton and David Casteel, for the hard work that they've been doing over the last weeks. They're here when we leave, they're here when we come in or whatnot. So I really appreciate the hard work these gentlemen have done.

MR. HOLMES: Fred, Ted observed that that was kind of a preacher tactic, trying to get people up on the front row.

(General laughter.)

MR. HOLMES: Welcome, everyone. We appreciate your attendance and interest, and these meetings are always exciting and interesting. Thanks for turning up.

MR. HOUGHTON: Again, it's a great day here in Austin and to be in Texas, and thanks for everyone being here. A lot on the agenda today and see a lot of friends in the audience and look forward to working and discussing things with you. Welcome.

MS. ANDRADE: Well, I echo my fellow commissioners' comments. What worries me is that no one did come up to the front. Second chance, anyone.

(General laughter.)

MS. ANDRADE: Welcome to all, and we do have a busy agenda, so we'll move forward.

Let me remind everyone that if you wish to address the commission during today's meeting, we ask that you complete a speaker's card at the registration table in the lobby. To comment on an agenda item, we ask that you fill out a yellow card and identify the agenda item. If it is not an agenda item, we will take your comments during the open comment period at the end of the meeting, and for those comments we ask that you fill out a blue card. Regardless of the color of card, we request that each speaker, especially with this busy agenda, that you limit your comments to three minutes.

I want to take this opportunity, also, to remind you that the Third Annual Texas Transportation Forum is fast approaching us. The dates for this year's event are April 20 through 22. If you have not registered and want to get more information, there's a card at the registration table out in the lobby that has basic information and the website address where you can find all the details about the program and how you can register to attend.

We certainly hope that you give this some serious consideration to attending our forum and being part of finding solutions to the array of challenges that we face in the transportation industry.

We're going to start off with a very special award this morning. We have a service award to present to our executive director, Amadeo Saenz, who's reached a milestone, passing 30 years of service with our department. Congratulations, Amadeo.

MR. SAENZ: Thank you.

(Applause.)

MS. ANDRADE: Let me read this certificate and then I'll ask our fellow commissioners if they'd like to make some comments, and then we'll ask you to make some comments, and then we'll go down and take some photos.

"In recognition and appreciation of 30 years of meritorious service with the Texas Department of Transportation, the Commission presents this certificate to Amadeo Saenz, Jr., P.E., and extends its congratulations and best wishes for a long and happy continuance of service."

Thank you so much, Amadeo.

MR. SAENZ: Thank you.

MS. ANDRADE: Commissioners, would you like to make some comments?

MR. HOLMES: Amadeo, I just want to tell you I really am impressed by your knowledge and how much you care about TxDOT and how you really watch the taxpayers' dollars, and I appreciate that. Thank you.

MR. HOLMES: Leadership starts at the top, Amadeo, and you exemplify a great leader with hard work, dedication, commitment, integrity. We appreciate it.

MR. HOUGHTON: Well, I've had a lot of fun working with you for the last four-plus years. We've been down in the trenches many, many times, and look forward to more down in the trenches but greener pastures to come. Thanks.

MS. ANDRADE: Amadeo, I also want to thank you and congratulate you. It's been a real honor to work with you. I know that you've done a tremendous job for this department, and I so appreciate how your employees look up to you, you're their great leader. So thank you so much.

MR. SAENZ: Thank you, commissioners. I guess my first 30 years have been quite a ride, I've enjoyed every bit of it, and really, I think I enjoyed it the most because it's the people at TxDOT that really make things happen, and as you move forward and you take additional positions, with a little guidance, they jump on it and they always do their work and they do it good, and with that, they make us look good. So really, the first 30 years was great, and I guess like the song says, we're now going to look forward to the next 30 years.

I thank you all and appreciate the kind words, and I thank the employees for being there for all that I've asked them to do, and we look forward to working with them for another long time. Thank you very much.

MS. ANDRADE: Good. We'll step down and take a photo with you.

(Pause for photographs.)

MS. ANDRADE: All right. The first item of business on today's agenda is the approval of the minutes of the meeting held on February 28. Members, the draft minutes are in your briefing materials. Do we have a motion to approve these minutes?

MR. UNDERWOOD: So moved.

MR. HOLMES: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Motion passes. Thank you so much.

Now, Amadeo, I'm going to turn the meeting over to you to begin working through today's agenda.

MR. SAENZ: Thank you, Madame Chair. I will begin today by calling up James Bass, our department's chief financial officer, and he's going to lead us in a discussion on the process for developing the target funding levels for the 2009 Unified Transportation Program. Probably he'll be assisted by a few other people as we get into the questions and answers but James will lead this.

MS. ANDRADE: Thank you.

MR. BASS: Thank you, Amadeo. Good morning. For the record, I am James Bass, chief financial officer at TxDOT, and here to talk about the target funding levels for the upcoming 2009 Unified Transportation Program, or often referred to as UTP.

Up until now, much of our discussion here and in the news has been about the need to reduce our lettings in 2008 based upon our revised cash forecast. With lower than anticipated revenues from now through the foreseeable future, we must also structure the upcoming 2009 UTP to better reflect the financial reality we face.

The UTP is an eleven-year plan that guides the commission, the department, and the metropolitan planning organizations on the development and construction of transportation projects. It is not our budget; it is not and has never been a guarantee of future funding; it is an eleven-year plan. Throughout this presentation we'll be covering the eleven-year period from 2009 through 2019.

And before I begin, let me point out the significance of this effort. As part of the overall planning process, we need to deliver to the federal government our Statewide Transportation Improvement Program, our STIP, for which a 2009 UTP is critical. The decisions we face will have an impact on the quality of life of our citizens and the economic livelihood of this state, but I want to assure you, as well as the public, the funding levels that are in our forecast and in the scenarios and options that will be presented to you will ensure that our highways and bridges remain safe. This, of course, is the top priority.

If we look at the revenue forecast that drives our discussion for the funding levels from 2009 to '19 and how we can plan projects for this period, we need to keep in mind that the projects will pay out over a period of years and we have to be realistic about how many projects we can award and go to contract in any one particular year in order to ensure that we're going to have the cash available to make those payments as those projects progress throughout their life cycle.

In order to remain as conservative as we can with our cash flow forecast and so that we don't over-extend ourselves, we are including in this presentation only current sources of revenue. And according to the forecast, the revenues and the funding that will be available for letting from 2009 to 2019, that eleven-year period, is $28.2 billion. As you all well know, $28.2 billion does not represent the needs in our growing state. It is the amount of available funding in a financially constrained forecast of what we believe we can afford from those traditional revenue sources.

Before I get into the choices that are before you, I do want to point out and highlight some of the assumptions that are included in the forecast. In our baseline forecast, we certainly recognize there's been discussion about issuing additional debt backed by the State Highway Fund, but that has not been included in this forecast. Similarly, voters have approved the idea of issuing up to $5 billion in state general obligation debt backed by the state's General Revenue Fund, and that revenue is not included either as there is no enabling legislation that determines what categories of funding those dollars would fall into. However, we will continue to work with the governor and legislative leadership on the impacts on our cash flow when these sources of revenue are included. That is a separate but equally important discussion that is taking place.

For the purposes of the UTP and structuring it as we go forward, it is necessary to stick with the reality as we know it today and move forward with that plan. It is important to remember that the STIP, that Statewide Transportation Improvement Program, that is generated from this plan must be financially constrained as required by the Federal Highway Administration. That means we simply cannot exceed these revenue projections we have before us.

I'll come back to this matter toward the end of my presentation so we can see how our funding could change if we issue more debt because I do want to present that because those are certainly options and opportunities out there that are being discussed, so I want to present the baseline as we know it today and then near the end of the presentation I'll show you how that picture may change with the inclusion of some of those bond programs.

The same forces that have acted on our State Highway Fund, increasing costs, greater needs, lower than originally anticipated revenues, and competing priorities, are having a similar impacts at the federal level with the Federal Highway Trust Fund. In addition to those forces acting upon it, in the current transportation bill that was passed five years ago, Congress decided to distribute to the states a $20 billion balance that had accumulated over time within the Federal Highway Trust Fund. Without any action by Congress and the administration, once this balance is gone, it is gone, and the distributions that will continue to go out to the states will decline because the balance will have been spent. To date, we have not seen a consensus among Congress and the president about how to address this shortfall, and so we're assuming declining revenues from Congress for those facts.

Lastly, I should point out that there is more money coming into the State Highway Fund than $28.2 billion over the eleven-year period. What we're focusing on here is the amount that is available for highway construction and maintenance contracts to go forward on letting. The other functions of the department, Vehicle Titles and Registration, Finance Division, Administration, Motor Carrier Operations, all of those are included in our broad forecast, as well as the operations of DPS and others that utilize money out of the Highway Fund, so we're not ignoring those, but today and for the UTP we're focusing on just the amount that's available for contracts.

Once we know this $28.2 billion and the amount that's available by year as we move forward, we then have the task of how do we break out or allocate this $28.2 billion into the twelve funding categories that show up in the UTP. Once the funding for these categories is established, each district and MPO will then get an allocation of program funds and then the MPOs will be able to prioritize their projects within that funding allocation. So now we've really gotten to the heart of the matter: How do we break up the $28.2 billion pie?

If we look at what we've presented, it's a few options along a continuum of hundreds of options of how to break that up, and that's seen on this slide here. One of the things I want to point out is that if you look at that, Categories 5 through 11 are highly structured for us by the federal government and by state law, and the numbers you see on that sheet here are the minimum amounts in Categories 5 through 11. And so we do not believe there is discretion on the part of the commission to lower any of those levels in Categories 5 through 11.

So the real discretion, the real question, the competing needs become Categories 1 through 4 and Category 12. Category 1 is maintenance, the preventive maintenance and major rehabilitation work being done on the state system; Categories 2, 3 and 4 are the mobility categories; and Category 12 is the strategic priority category.

The issue is relatively simple: the more money we put towards maintenance, the less money there is for new mobility projects. And again, this slide presents three amongst a myriad of options of how those funds could be allocated in order to provide a little context to this discussion item and to our discussions today.

If we focus on that first column there, the scenario A, you'll recall that our goal for maintenance is to have 90 percent of our roads in good or better condition. Our calculations indicate attaining this goal would require $23 billion in Category 1 for the period of 2009 through '19. You can see we clearly do not have this level of funding available to fully reach that goal.

So in order to move towards that, what we had planned was to fund Category 1 at $1.325 billion, beginning in 2009, and then grow it each year through 2019 for an assumed inflation rate to try and keep the purchasing power going into maintenance equal throughout that time period. We didn't have enough money to fully get to that level, so we put in as much money as possible, left Categories 5 through 11 at their minimum amounts. And Category 12, that just under $700 million, that represents previous minute orders, previous decisions by the commission to award dollars to projects that have not yet been let, so that's an outstanding commitment that we feel must be met. So we put every other available dollar into Category 1 to get to that $17.3 billion.

If we then look at scenario B, we fund maintenance at an average of $1.325 billion for that eleven year period from '09 through '19. Again, even at that flat level, obviously we're losing purchasing power to inflation over that time period, but at that lower level, that freed up funding to go into some of the other categories. But even at the levels that go into these other mobility categories, they are not at a level that our districts and local partners were expecting, and I'll discuss that further when we get into scenario C.

One of the things we did do in scenario B is there is an additional $400 million that's been added to Category 12 so the commission could best determine its use. Historically, Category 12 has gone for economic development projects: Toyota in San Antonio; there is a cheese factory in the Panhandle, I believe; it's gone for economic development and for infrastructure needed as the Department of Defense was looking at base realignment and closures -- there were opportunities there that came up late.

Again, the $696- in Category 12 is already spoken for, so with that almost $1.1 billion level in Category 12 under scenario B, there would be $400 million of funding available for future decisions.

If we move on to scenario C -- which, at this point in the discussions and deliberations amongst staff, we believe of these three it is the most equitable -- so on scenario C let me outline the priorities that led us to the numbers you see under this third scenario.

First of all, taking into consideration the strong signals we received from the legislature, scenario C would re-prioritize the level for maintenance, as you can clearly see. We've been talking for many months about the need to increase funding for maintenance, but given the circumstances, this likely is not feasible to do so.

As you can see, maintenance is reduced to $12.4 billion and we would focus these funds on the preventive maintenance categories and address only the most pressing rehabilitation needs. And this level here of $12.4- is about $2 billion less than what was programmed back in the 2004 UTP which covered the period from '04 through '14, so this is a decline from what we have been spending in this area.

While we must allocate enough funds to rehab the roads that need it most, we can temporarily shift our priority to preventive maintenance. In other words, we could forestall the more costly rehabilitation work in favor of less costly preventive maintenance. As we all know, focusing our resources on maintenance is the most cost-effective way to preserve our system, and it is substantially more expensive if we allow a road to deteriorate all the way to the point that it needs to be reconstructed.

If we do this, we can only go so long before we can no longer ignore the pressing need to rehabilitate critical highways in the state. The biggest impacts of a deteriorating system would likely be felt in the metropolitan areas of the state where we have the highest volumes of traffic. In the long run, this approach will prove to be more costly, but in the short term, it will allow more mobility projects to move forward.

Our second guiding principle in scenario C was that we meet the expectations with respect to the Texas Mobility Fund. As we have discussed previously, the Mobility Fund has been used to offset increasing costs and the lack of traditional Fund 6 money in order to continue to move along previously let projects. But as you know, each metro area developed project-specific plans for their allocation of the Mobility Fund and scenario C would make good on those commitments.

In addition, we also need to follow through on our commitments, as I spoke earlier, from Category 12, the strategic priority. There are project-funding commitments from previous minute orders adopted by the commission for projects that have not yet been let, and that is the just under $700 million included within the Category 12.

Obviously, it's a major priority that each region of the state be treated equitably. Knowing that our cash flow is lower than what we projected previously, the 2009 UTP will offer less funding than what was anticipated just a few years ago. Using the 2004 UTP as a baseline, we sought to reach 80 percent of that figure from the 2004 UTP in Categories 2 and 3 in developing scenario C. So what the regions thought they were going to get and what was in the 2004 UTP, the scenario C would get all of those regions up to 80 percent of that figure for the time period of 2009 through '19.

Our local partners and metro areas built plans according to that 2004 allocation of $5.8 billion in Category 2. Some districts have been able to advance their projects more quickly than others, and to date, the metro areas have used $2.8 billion of that $5.8 billion Category 2 dollars. That leaves another $3 billion that we would need to make available to make sure that no district is left behind.

For Category 3, the urban mobility, we used the same methodology and that requires $433 million be available for 2009 through 2019. The remaining funding was left for rural statewide connectivity projects, would be in the neighborhood of $800 million over that same 2009 to '19 time period.

At this point, I should point out you need to keep in mind that the districts also have access to some of the other categories of funding as well, and we will have less discretion of what funding amounts to put in the Categories 5 through 11, as I mentioned earlier, as those are structured for us by the federal government and state law.

So that wraps up kind of our baseline funding and has three different possible scenarios for funding that. As I move on from here, I want to discuss some of the impacts of issuing more Prop 14 debt and issuing more Prop 12 debt, and to kind of highlight what those opportunities might be and the impact they would have over this eleven-year period.

As you know, Proposition 14 debt is payable from deposits to the State Highway Fund. By the end of this year, we'll have issued $3.1 billion to advance projects, and to this point we have not considered it wise to borrow above that amount against our future revenues. However, legislative leadership has indicated they will look to free up some Fund 6 money in the next biennium in order that we may issue $1.5 billion in Prop 14 in fiscal year 2009.

The challenge, of course, is that Prop 14 bonds require 20 years of debt service and the legislature can only appropriate for two years. So if we issue that $1.5 billion, we would likely use $250 million of that for engineering and right of way. That's why in the column under Prop 14 you only see $1.25 billion for the net impact here. That is what would happen for letting because another $250- would go for right of way and engineering, and currently in the UTP what's focused on is that contract award amount.

If we look at the first Prop 14 column, under footnote 1, you can see that if the debt service is not offset with new revenue to Fund 6 or reduced transfers -- meaning that our plan revenue that we have in there has to pay that debt service -- the net effect over the eleven-year UTP would be zero dollars of additional letting.

That may not sound reasonable when you first hear it so let's kind of walk through it again a little bit. We get $1.5 billion of bond proceeds, $250 million goes for right of way and engineering, leaving $1.25 billion for contract letting in year one. Debt service on $1.5 billion is roughly $125 million a year. So in years two through eleven, ten years, if I pay $125 million in debt service, that adds up to $1.25 billion, canceling out the $1.25 billion of letting I put in year one. We would be able to advance projects and deliver them sooner which certainly has benefits, but there would be no net increase over the eleven-year period of the UTP, and in addition, for ten years after the UTP we would continue to pay $125 million of debt service out of the existing revenue streams.

MR. UNDERWOOD: Madame Chairman. James, may I ask you a question. I apologize, I know you're on a roll. Why would we want to borrow $1.5- when we don't get any value out of it other than we would get the projects started?

MR. BASS: I believe that your question has been the thinking of the commission to date. If we have to take existing revenue sources to pay off that debt service, we get the benefits of moving the projects forward and that creates great benefits for traffic and the avoidance of inflation, but over the long term, there's no net increase. And depending upon the decision the commission makes on the funding categories, as an example -- and I'm not saying you would do this -- if scenario A were the ultimately decided approach, there's no money for mobility, so in those future years after we've moved $1.25 billion of mobility forward, when we're looking for $125 million of debt service in each of those years, the only place we would be able to take it from would be from maintenance.

And so that, to date, I think has been the discussion and the dilemma that the commission has been debating and to date has not decided to issue additional Prop 14.

MR. UNDERWOOD: But basically all we gain by issuing the $1.5 billion is to move projects forward, that's all we gain.

MR. BASS: Correct.

MR. UNDERWOOD: We don't get any new projects, we don't get to build any new roads.

MR. BASS: Correct.

MR. UNDERWOOD: Okay. Thank you.

MR. BASS: Now, if the legislature does increase Fund 6 to pay for the debt service or reduces transfers out of Fund 6 to free up the money, then the total amount available for contract letting would increase from $28.2- up to $29.45 billion for this eleven-year period. The distribution of that additional $1.25 billion among the twelve categories would be determined by the commission.

We then look at Proposition 12. It is payable from revenue not dedicated by the constitution and would not come from the state gas tax, so our current forecast would not be paying debt service on that, so it would be new money into the transportation program. Similarly, if you're asking the question: Well, why is that only $4 billion up there, it's not $5 billion? If we went forward with a $5 billion program, again, likely roughly $1 billion of that would go towards acquiring right of way and getting the engineering plans in order to develop these projects. So $4 billion would go to contract letting, and again, contract letting is what the UTP is currently focused on.

So if enabling legislation is passed in the next legislative session and we're allowed to move forward on the $5 billion and we can issue up to $5 billion during the eleven-year period, it would add $4 billion of contract letting such that the total would be $32.2 billion. Which categories that funding would go in may be directed and guided by that enabling legislation, may be left up entirely to the commission. At this point, we just don't know.

MR. UNDERWOOD: James, I'm going to interrupt you one more time, sir, and I apologize. When you're making your assumptions and whatnot -- not assumptions, but you're doing your program, you're not allowing in like change orders when you did your budgeting. Is that correct?

MR. BASS: Correct. We're not skimming anything off the top for change orders. So another way to state it is there is $28.2- for contract letting. If we let $100 million project and six months later there's a $5 million change order, some other $5 million project will not be able to move forward. There's only so much money.

MR. UNDERWOOD: Exactly.

MR. BASS: At the end of the day there's only so much money, and if project A costs more than what was originally anticipated, that means project Z may have to fall off or not be quite as large as initially hoped for.

MR. UNDERWOOD: Or to make sure that whenever we bid a project that everybody really does it well, properly, or whatnot, where you don't have to end up with change orders. We all know, though, that at some point in time you will have some change orders because of some either legislation or whatever problem we can't control, but it really puts more pressure on the people in the field. Isn't that correct?

MR. BASS: Well, what it will do, I think, it will tie in and force that prioritization question: Well, if I move forward with this change order and it's needed, it's going to cost money, it's always going to cost money, but now the reality of costing money means some other project in that region is going to be delayed. Then that decision on what is the priority can be made locally.

MR. UNDERWOOD: Right. Thank you, sir.

MR. HOLMES: James, the way the billion, $250 million and the way the $4 billion, you have engineering and right of way deducted from that. Does that mean that engineering and right of way are not included in the $28.2 billion?

MR. BASS: Yes, sir. The $28.2- under the base funding does not include --

MR. HOLMES: Is purely letting.

MR. BASS: Yes, sir. Now, as I hope you know, the department is moving towards a total project cost allocation. We're not there yet, but for similar reasons as Commissioner Underwood stated, well, if I'm moving forward on a right-of-way project and acquiring those parcels ends up costing me $10 million more than originally thought, that $10 million has to come from somewhere, and with the project cost allocation, it will come from that same region that experienced the increased cost in right of way. They'll have to re-balance their priorities in order to account for that additional right-of-way cost.

MR. HOLMES: I think that's a good move. If you hold the same proportions from the $4 billion to $5-, the $28.2 would become $33- or $34- or something such as that.

MR. BASS: Right, there would be another $7 billion or so that would be added to that figure. And in our broader cash flow forecast, those associated expenses are in there such that it says we can afford a certain level of right of way and a certain level of engineering in order to support the $28.2 billion. To date, all of those costs don't show up in the UTP but in the cash model, cash flow forecast that we have supporting that, all of those costs are in there.

The last row of possibilities on here is a possibility of both $1.5 billion of Prop 14 paid for by new revenues to Fund 6 or reduced transfers, and $5 billion of Proposition 12, again with that take off the top for right of way and engineering, and if both of those were to come in, we would go from $28.2- to $33.5- over that eleven-year period.

So those are the possibilities that are out there and ongoing discussions on a lot of those. The current UTP and the scenarios we talked about on the previous slide were based upon that first row of the total of $28.2 billion because that's what we know today as we're having this discussion. So between now and next month's commission meeting, we hope to get feedback from our local partners and members of the legislature about the many options that we have before us. Next month we will ask the commission to approve the target levels so that the districts and MPOs can start programming projects. Once that is complete, the commission, in a few months, would then ultimately approve the 2009 UTP.

That concludes my prepared remarks. I am happy and ready to answer any questions you may have, and I think Mr. Saenz and Mr. Barton are not too far away.

MR. UNDERWOOD: Madame Chairman, I apologize.

MS. ANDRADE: Yes. No, please do. I was going to ask for comments, so please. You just beat me to it.

MR. UNDERWOOD: Didn't want to get in front of the lady. I apologize.

Question for you now. When you're using this debt service, you're talking about $5 billion Proposition 12. We don't know how that will be spent; that will be designated by the legislature. You were talking about on Proposition 14, $1.5 billion. Is that correct?

MR. BASS: Correct.

MR. UNDERWOOD: So if my figures are correct, then we're looking at what that would get you is a little, over $200 million per year for $6.5 billion worth of borrowing, plus debt service on that.

MR. BASS: I'm not sure I followed the math. I apologize.

MR. UNDERWOOD: Okay. I was just subtracting the $28.2- use, the revised, then you get $33-. Is that right?

MR. BASS: Right, so we would get $5.25- from the two for contract letting, as well as another $1.25- for engineering and right of way. So $1.25- engineering and right of way, $5.25 billion for contract letting, for a total of $6.5-. $1.5- Prop 14, $5 billion Prop 12.

MR. UNDERWOOD: Okay. Thank you.

MS. ANDRADE: Ned.

MR. HOLMES: Thank you. In the lowest category you've got an extra $1.25 billion. How do you go from the $32- to the $33-? Is that second issue?

MR. BASS: It's a combination. I'm sorry. The first row that totals $28.2- is if we did $1.5 billion of Prop 14 paid for by Fund 6.

MR. HOLMES: Right.

MR. BASS: One and only. The second row is if we did $1.5 billion of Prop 14 paid by new revenues or reduced transfers. That's an increase. So if we look at them as A, B, C, and D, D is B plus C.

MR. HOLMES: All right, I understand. The total revenues coming into the department are what, roughly double this or maybe a little more?

MR. BASS: Yes. Into the Highway Fund, as an example, in 2010, they're around $7 billion, and then $6.8- thereafter -- there's some fluctuation -- so it's a little bit more than twice that amount. Let's use 2010 as an example. The revenue is $7 billion and the letting is about just over $2.4-, so it's not quite three times but it's more than twice.

MR. HOLMES: So over that eleven-year period, there's $75 billion, or something such as that, that comes into the department, and the assumption that we would make is that you have scrubbed and we have scrubbed the balance of the budget as hard as we can in order to come up with the $28.2-.

MR. BASS: Yes. And one point, if I may, just to clarify, that $75 million [sic] is coming into the State Highway Fund and not all of that comes directly to the department, so we've accounted for other agencies who operate out of there, we've looked at it. But as a point, we went through and from three or four months ago in our forecast, we reduced engineering and right-of-way services because we are reducing letting, and we tried to align those together. We also went through our operating strategies that are funded 100 percent by the State Highway Fund and we made reductions in those categories as well in order to free up, try and make as much money reasonably available for contract letting.

MR. HOLMES: Let's just take the assumption that it's $7 billion a year over the eleven years, $77-, you have $28- for letting. Of that extra, the other $49 billion, how much of that actually comes to the department and how much is diverted to other areas?

MR. BASS: The other agencies over that eleven-year period would be in the neighborhood of $10 billion would go to other agencies, $900 million a year.

MR. HOLMES: So there's about $38- or $39- or so left to cover engineering, right of way, admin, et cetera.

MR. BASS: Right. And then there's roughly another $2.5- to $3 billion that is spent for the benefit of TxDOT but it doesn't show up in our budget, and what I'm talking about there is employee benefits. The monthly insurance premiums for department employees are paid for out of the Highway Fund but they don't show up in TxDOT's budget, they show up in the Employee's Retirement System budget out of the State Highway Fund. So rightly or wrongly, we consider that different than other agencies because yes, obviously it's another agency spending money out of the Highway Fund but it's for the benefit of TxDOT employees, so we separate those two. So the $10 billion for other agencies, we would add another $2.5- to $3 billion for employee benefits paid by other agencies.

MR. HOLMES: Now, we've heard a lot about rescissions over the last year or so. How have you calculated the rescissions into the cash flow and what impact has that had?

MR. BASS: Number one, the federal funding process, in and of itself, is a confusing matter, I think, as I've had the opportunity to confuse almost all of you on that subject. Rescissions is another confusing matter on that and it's been, I think, misinterpreted widely.

We receive apportionment and obligation authority from the federal government and then over time we receive reimbursements, so there's three sets of numbers on that. And if I would give perhaps a very bad analogy of apportionment and obligation authority, is if we told our children well, I'm going to let you spend $5 for lunch today and here's $4 of cash, the $5 would be apportionment and the $4 would be obligation authority. To date, the rescissions have been to apportionment, not to the actual cash or the contract authority. Therefore, those rescissions impacted our planning dollars and what we were expecting to get in the future but they did not impact our current today cash flow. So that's been most of the rescissions to date.

We have a current rescission right now before us that the federal government has sent out and it's slightly different. It was a total of $258 million that needed to be rescinded from the State of Texas and some of that had to come from obligation authority as well. So it was $258 million of planning dollars, but as far as contract authority, we have some flexibility of $35 million or lower, and we were able to structure that to bring the impact to cash flow, the impact to contract authority down from $35 million down to $13 million. So that contract authority of $13 million less would impact our cash flow and we would have it in there.

The main thing in our forecast going forward is trying to assume and forecast what Congress is going to do in the next transportation bill. As we talked about, under the current bill, before Congress adopted that act, there was a balance in the Federal Highway Trust Fund of $20 billion that had accumulated over time for a variety of reasons. Congress said, We're going to distribute that $20 billion plus incoming revenue back to the states. And so over this six-year period the distributions to the states were, I would say, inflated by the distribution of that balance. Well, as we've all heard, not only that balance is going to be gone and the Highway Trust Fund is projected to be at a zero balance or negative in 2009, so if Congress does not increase the federal gas tax, does not move general funds over to transportation, it's only reasonable to assume that the distributions are going to have to go down because the balance is gone and they'll only be able to distribute incoming revenue.

And so in our forecast and in our assumptions going forward to 2019, the assumption is Congress will not increase the federal gas tax, they will not move more money from general funds over to the Highway Trust Fund, such that we, as a state, will see less in contract authority, less in obligation authority as we move forward over this next eleven-year process, definitely in the first few years, and then it will naturally grow over time.

I hope I addressed your question or at least part of it.

MR. HOLMES: Well, let me expand on it just a little bit with another question or two. The rescissions to date have not impacted cash flow, but we would anticipate that they would impact cash flow over this planning period. The total budget surplus going into this six-year period -- was it six years or five years?

MR. BASS: Six years.

MR. HOLMES: Was a total of $20 billion?

MR. BASS: It was in the neighborhood of $20 billion.

MR. HOLMES: Not $20 billion a year but a total of.

MR. BASS: Correct, a grand total of, yes.

MR. HOLMES: Which means it added about $3 billion or so a year if it was pro rata.

MR. BASS: Right.

MR. HOLMES: Texas's share would have been 8 or 9 percent.

MR. BASS: Eight percent, so about $240-, $250- a year.

MR. HOLMES: So it's serious money but it's what, 10 percent of what we get or less out of the Federal Highway Fund.

MR. BASS: Correct.

MR. HOLMES: Now, our total receipts in FY '07 from the Highway Fund were about a billion-one lower than they had been, and the assumption that would easily be made was that it resulted from rescissions, but that really wasn't the case.

MR. BASS: Correct.

MR. HOLMES: It resulted from -- how did that happen?

MR. BASS: Back to the apportionment and obligation authority, allowing your child -- saying, You can spend $5 on lunch, and oh, by the way, here's $4. When the typically six-year transportation bill is passed, the apportionment figures are reported in and announced over that period, but then through the annual budget process of Congress is when they determine the obligation or contract authority.

And if you'll recall, we award a project in year one and we make payments in year one, year two and year three, and it's only when we make payments on that project that we receive federal reimbursement. So my point is when we get to year three, the expenditures and the reimbursements we're receiving in year three are influenced by what we awarded in year one, year two and year three.

If we assume 2007 was year three, what happened is Congress was late in approving the federal budget, such that our obligation authority became available to us later in the year than it normally would. So at the beginning of '07 we didn't have as much obligation authority and contract authority to assign to those projects to eventually generate reimbursements back to the department. Those happened late in the fiscal year and so there was a disruption at the front-end of that pipeline or that flow, we couldn't obligate as much as we normally would have or in the same manner we would have, and so that created a disruption on the reimbursement side on the outflow.

MR. HOLMES: And is that billion-one forever lost, or are we likely to regain that over the next two or three or four years?

MR. BASS: No. It would just be a timing difference. You know, if we draw -- for lack of a better term -- an imaginary line from September 1 to August 31 and then report figures on that time period, that $1.1 billion is not lost to us, we will receive that money, it will just be in future years.

The other thing is in 2006 and 2005, because of some of the federal techniques that the department chose to implement, tapered match and advanced construction, partial conversion -- and if you want me to delve into those, I'll do that -- simply I can say that those are techniques that allowed us to get our federal money faster than we otherwise would have. We didn't get any more federal money over time, but again, in one twelve-month window we got more than we normally would have, and so it would have elevated that number, but we always expected it to come down back to a normal level.

So when you start comparing a twelve-month period to a twelve-month period, there were a number of factors that were influencing all of those and it did result in 2007 reimbursements being about $1 billion, or $1.1- less than the prior year, but we fully expect, and we have built in our forecast, that we'll get those reimbursements in the future.

MR. HOLMES: One last question. We didn't slow down our letting.

MR. BASS: No.

MR. HOLMES: And so how did we pay for that?

MR. BASS: In that interim period, projects that were ready to go and needing funding, at that time point there was still funding and capacity within the Mobility Fund, and so those projects were advanced through the utilization of the Mobility Fund while we waited for the obligation authority to become available from the Federal Highway.

MS. ANDRADE: Commissioner Houghton, any comments?

MR. HOUGHTON: Yes. Let me hit the last on the Mobility Fund. We had a minute order back when just Hope and I were on the commission that addressed the Mobility Fund as it was going to be matched, it was leveraged -- not matched -- leveraged projects. So we violated that minute order, basically.

MR. BASS: I'm not sure that minute order. That approach in the management, I think, was very misunderstood from a number of parties from day one.

MR. HOUGHTON: Well, let me just say, James, I made it very clear to El Paso that you weren't going to use that money unless we leveraged projects, and they're sitting with a big goose egg on their Texas Mobility Fund allocation.

MR. BASS: I understand that.

MR. HOUGHTON: And now we get to go explain to El Paso: Guess what, we spent your Mobility Fund money somewhere else and it's going to take till 2019 to get it back.

MR. BASS: And I agree with you, it was not clear. What many people believe -- and I honestly think, as you just stated, some members of the commission thought in order to use the Mobility Fund, everybody knew you needed to have a leveraged project -- it could be a toll road, could be a public transit project partially funded by fare box revenue, could be local taxes or whatever -- you had to have that project or a project of that type in your plan. Now, what many people took from that is: Well, the Mobility Fund will only be spent on those projects. That was never the way that program was managed. The way it was managed was if you have that program, if you have that project in your plan, that gets you access to the Mobility Fund today.

And that's the way it was managed, that is not the way it was understood, and that's why here we are today and we have a big difference in expectations and what regions think they have used on the Mobility Fund and what has actually been used. And so under the earlier slide of scenario C, over time it would get back to those regions and those areas, that original commitment from the Mobility Fund. But no, there was, has been, and likely still is a great deal of confusion over the Mobility Fund.

MR. HOUGHTON: Unfortunately.

Let me ask you about A, B and C, what's behind door A, B and C. I heard we're going out to the regions, to the MPOs and asking for their input on this? Did you say input?

MR. BASS: Yes. I don't know if that's going to be a formal process. As you know, this is a discussion item today, with the hopes of bringing an action item to the commission next month.

MR. HOUGHTON: What's the difference between now and next month, just to talk about it and then we think about it?

MR. BASS: Yes, talk about it, and I would imagine the local stakeholders and the members of the legislature that are following the conversation, they have an opportunity over the next month to provide comments if they would like to.

MR. HOUGHTON: Well, it's pretty obvious to me which one I think they're going to pick. My question, though -- and with great concern -- is that are we reacting to the legislative process at the expense of maintenance? Are we going down a slippery slope here for the next ten years?

MR. BASS: I'll let others answer that, but what I would say is to date the commission has not reacted because you haven't approved target funding levels. The three options up here are merely three options, three possibilities amongst hundreds or thousands, and so depending upon which scenario up here, or some hybrid of these, the commission ultimately approves, at that time I would gladly let others answer your question.

MS. ANDRADE: Commissioner Houghton, I must add that I think it's our responsibility to explore and study all options, and I think this discussion item is what we're trying to do, and also to let the public know that this is what we're considering.

MR. HOUGHTON: Yes. I'm just trying to get to the pressure points and to have people understand that over the years that I've been on this commission, I have heard not only us beat our chest but we being lauded for our system as being the number one system by TMTA, Texas Motor Transit Association, the truckers, by AAA, all sorts, that this is the greatest system in the country, and they identify roads which are even the better roads, and now we're saying well --

MR. BASS: And I don't want this to sound flippant because I don't mean it that way, but definitely scenario A, maintenance is job one.

MR. HOUGHTON: Maintenance and safety; maintenance is safety.

MR. BASS: And so what the department is saying to address maintenance as much as we can, there's no money for new mobility.

MR. HOUGHTON: Maintenance as much as we can or to what we talked about prior to December.

MR. BASS: Even scenario A, there's not enough cash flow to fully fund the needs and maintenance.

MR. HOUGHTON: That is profound. Say that again.

MR. BASS: Scenario A does not get us to the 90 percent of roads being good or better. The forecast of what's needed to do that would be $23 billion in Category 1, not the $17.3- that we have there now.

MR. HOUGHTON: So we increase the incline of the slope by going to C.

MR. BASS: And this is the part where I'm saying I don't mean it to be flippant, but the choice is if you have very well maintained roads that are heavily congested, how do you find the balance. In my opinion, that's the challenge before the commission. The competing factors are maintaining the system, as you well know, and providing new mobility opportunities.

MR. HOUGHTON: I'm going to quote Lonnie Gregorcyk -- and I hope I get it right -- that we were in Victoria for our January meeting, and he said something to the tune of maintenance is taking loads of money, more than what he had -- and this is paraphrasing -- and he can't keep up, and now we're contemplating something different.

I guess the point I'm trying to make is is this based upon pressure from the legislature to move money out of maintenance, pre-December when we talked about moving money into maintenance because our scores were deteriorating or they were showing deterioration, now we're saying King's X, we were kidding, we're going back.

MR. BASS: I think -- and I would say that we've certainly heard commentary from legislature and others -- but I think it's a reasonable approach for staff to bring to the commission on the UTP funding levels -- a very key important document for the next eleven years -- that there are options, there's not only one option. Now, the different options have different pros and different cons, obviously, and the appropriate balance between those different push-pulls is that a decision to ultimately be made by the commission, and what this discussion item hopes to do is provide some framework or context for that discussion. If we put everything towards maintenance as much as we can, there's no money for mobility; if we try and do a balance over here and get as much money as we can back for what people expected, where on that continuum the department ultimately lands will be a decision.

MR. HOUGHTON: Well, the thing that troubles me, James, about this discussion is, again, the pre-December we talked about in this room, on this dais, our pavement scores were showing trends, we needed to move money to maintenance, and now --

MR. BASS: One of the things in those earlier discussions, moving the money was moving planning money. Well, I'm here to tell you we don't have enough cash for all the planning money we had, and so the discussions November and prior -- and it may have not been clear to everyone -- I think they were focused on programming or planning dollars, and there was a difference between what was being planned and programmed and what we actually thought was going to be available on a cash flow basis. That is not true, those are aligned in the presentation that you've seen today.

MR. HOUGHTON: I would submit, Madame Chair, and to our executive director that we may want to get the MPO directors that are involved and our partners to say: Are you willing in the Dallas Metroplex to forego maintenance for a while and see how folks in Dallas like it? You've got some pretty tough roads up there that need to be maintained. And I want to move on to something else, but I think greater input from our partners.

But another subject, if you fully utilize the bonding of Prop 12 and Prop 14 and over this ten-year period you talked about 80 percent getting people back to where they were, to 80 percent, even though some people have spent more than 100 percent of their monies, we're going to get to 80 percent, what will those bond proceeds do to that 80 percent number? It will obviously increase that 80 percent number. Do you know to what level?

MR. BASS: I'm not sure if they would get it to 100 percent or not -- it would.

MR. HOUGHTON: It would? Okay.

MR. BASS: And allow them to meet that target sooner.

MR. HOUGHTON: And to finish up my comments is that we seem to have gotten, as a commission -- I know we have to work on the cash flow forecast but just a statement, then a question -- can somebody tell me in 2003 what was our letting budget, 2002-2003?

MR. BASS: I can tell you 2004; unfortunately, I don't have 2003 with me.

MR. HOUGHTON: Anybody take a shot at it?

MR. SAENZ: It was somewhere between $2.5- and $3 billion.

MR. HOUGHTON: My point is we're returning to our old program, basically, or going back to the future.

MR. BASS: Correct. And maybe to answer it differently, through the past couple of months we've been going back and looking at prior forecasts and different items. If I go back to October 2004 forecast -- and while the key is there were no bond programs anticipated or plugged in there, whatever, if I look in 2009, there was $2.75-, $2.8 billion of letting planned. Well, guess what? We now have $3 billion of Prop 14 outstanding which takes $250 million a year in debt service. If I take that off, the numbers I had back in October 2004 were pretty much where we're talking today. So we've experienced a bubble, a large bubble by Prop 14 and Mobility Fund and we're coming down off that high.

MR. HOUGHTON: And we didn't manage ourselves well enough to bring us down that slope on a gradual basis instead of the steep slope that we hit. And it's not a criticism, that's just the facts.

MR. BASS: I think if we are fortunate enough to get the enabling legislation and full authority for the $5 billion, the plan is it would be managed very differently than the Mobility Fund was, it would truly be project-specific. And so if somebody says TxDOT, why have you not issued the bonds, we fought and we got this $5 billion in bonds for you, you haven't issued it, the answer may be because the locals have selected projects four years from now, and if in that interim before we get to that project four years from now, the traditional funding will not allow us to advance some other project, at the direction of the locals, we can take money off that project four years from now and move it to the project today if they so choose, but also with the understanding of then there's no guarantee that project four years from now would get funded.

So I think the plan, again, if we're fortunate enough to get the Proposition 12 fully authorized, is to manage that differently because of the experiences that we've gone through with the Mobility Fund.

MR. HOUGHTON: Well, let me finish up and I'll let others. I guess what's getting lost in this whole thing, my friend, Coby, is our needs. We've been focusing on $2.6 billion worth of letting and the needs-based, we've focused on all of this and we've gotten wrapped around the axle, but we talked about on LAR where we have a special item on what our need would be -- Amadeo, you and I have discussed that, along with others -- to let more projects based on the need and stage it in over the next ten years, and what we're looking at is reacting to coming off this steep slope of these bond proceeds and CDAs and those sorts of things, but we're not meeting the needs of the Metroplex area.

MR. BASS: And I think it might be helpful -- I mentioned it briefly at the beginning of the presentation -- to give some more context to even the $28.2 billion. The $28.2 billion is not in any way, shape or form the needs of this state.

MR. HOUGHTON: For ten years? No.

MR. BASS: For eleven years. And so Mr. Barton is more familiar with those numbers and he might be able -- well, I know he can, he can come up and give some more context to that $28.2- compared to the needs over that eleven-year period.

MS. ANDRADE: If it's okay, I think it's a great time for John to come up and tell us how moving this money from maintenance is going to affect our road system.

MR. HOUGHTON: And one last question, both of you -- you can stay there, John, this has to do with you too -- what kind of innovative financing are available to maintenance?

MR. BASS: I'm not sure. Part of it would be what your definition of innovative financing is.

MR. HOUGHTON: You and Bill Clinton, huh?

MR. BASS: What is is, yes.

(General laughter.)

MR. BASS: But even a lot of the bond programs, they're eligible for major rehab projects, reconstruction projects, but typically you don't use bond proceeds for day-to-day maintenance or more the preventive maintenance type, but for capital maintenance you can.

MR. HOUGHTON: Well, we think of maintenance as patching a road, but Amadeo has educated me, along with John and others in this room, that that's not necessarily true.

MR. BASS: Right. So when you do a major rehab, bond programs would be available for that.

MR. HOUGHTON: Yes, when you pull up concrete or asphalt or road base, that's a major rehab.

MR. BASS: But if you consider state GO to be innovative, then some of that state GO would be available for some of the major maintenance projects.

MR. HOUGHTON: Okay.

MS. ANDRADE: Thank you. John.

MR. BARTON: For the record, my name is John Barton. I have the pleasure of working for you here at the Texas Department of Transportation as your assistant executive director for Engineering Operations.

Commissioner Houghton, innovative financing for maintenance projects is probably something that we haven't discussed a lot, but I don't think it would be too dissimilar to some of the things we've talked about in terms of new construction. There are contracting techniques we could look at with the construction industry to get projects done today and paid for over time. Rather than the pay-as-you go, it's kind of like the easy-pay plan -- I think as Mr. Behrens referred to it before -- and perhaps that's not something that is beneficial in all applications but it is something we can explore.

I think we could also look at our local partnerships, and as we've talked about, maintenance is not maintenance necessarily, and when we have systems where we're installing new storm sewers as part of a reconstruction or rehabilitation project or putting in illumination systems and that sort of thing, we could look to our local partners and see what revenues and resources they would have to bring forward to the table. So I think there may be some opportunities out there but it's not something that's been heavily discussed or explored in the past.

Madame Chair, I think you asked about what would the shift that we've been talking about do to the condition of our roadways, and as James pointed out, obviously scenario A was putting as much money as we could into our maintenance program. And back several months ago as we approached the commission -- and James, if you'll help me with this slide, this particular slide that shows the scenarios -- several months ago several members of staff put together an analysis of what it would take to continue to maintain our roads at their current condition, using the types of projects that we currently do, and hopefully progressively improve on those to reach that goal of 90 percent of our roads good or better.

And that calculation was the $23 billion that James mentioned between 2009 and 2019. That's what it would take us to put into our rehabilitation and maintenance program, through our construction contracts, to continue to improve our roads at a very slow pace. Right now we have about 86.76 percent of our roads in good or better condition, the goal is 90, and that would allow us to continue to work at that pace. We don't have that kind of money available to us now, it's just not there. The maximum we can do is the $17.3

So what does that mean? Well, in terms of reality, probably that will allow us to maintain the status quo today at the 86.76 percent of our roads in good or better condition, stay flat line at that, with the assumptions that we continue to do the types of projects that we have been doing. You know, heavy rehabilitation in some areas, strong PM programs in all of our districts allows us to do some of those projects that do have new curb and gutter, new sidewalks, new storm sewers, those sorts of things.

I don't know that we're responding to legislative pressure, but obviously in the Senate hearings that were held on February 5, some concerns were brought up. Several of you have asked us what would it mean if we tried to restore some mobility, how could we get there, and that's how these different scenarios were put together by staff.

The scenario C which I think is probably the focus of a lot of attention today is a concern that Commissioner Houghton has expressed in terms of maintenance. What will that mean if we go to $12.4 billion over the years from 2009 to 2019? And the answers are difficult to give because the tools we have available to us aren't that good and aren't, quite honestly, designed to do that type of analysis. But we've looked at it as best we can and I'll give you the answers that we've come up with.

If we continue to maintain those similar types of projects that we've been doing, the overlays, rehabilitations, the preventive maintenance work that we've all grown accustomed to, but only fund them at the levels that we show at the $12.4 billion, and you did a flat line analysis of the decay in our pavement condition scores, you're looking at probably about 50 percent rather than 86.76 percent of our roadways being in good or better condition. That's a pretty significant drop.

Quite honestly, that's something that we know none of us could accept, Texans wouldn't live with, and as engineers and public employees, we couldn't live with ourselves in doing that as well. So what would happen is we would change the way we do business. We would do more spot repairs rather than full length repairs. So in other words, if a road had spots in it that were bad, we would fix those, maybe put a spot seal over them rather than doing full-length seal coats. We would look at those rehabilitation projects where we were adding new sidewalks and curb and gutters and those sorts of things and trim those back to just focusing solely on the surface of the roadway.

If we do that, at $12.4 billion over the next ten years, then the prediction that we have is that we will see decline. I mean, intuitively you're going to see that, but it won't be as dramatic as I just mentioned, it would be more in the 75 percent of our roads being good or better.

Is that what the nation expects of Texas? I don't know. As you said, Commissioner Houghton, we are the hallmark of the transportation system in this nation, and probably the world, but today we're faced with a balance: mobility versus maintenance. And that's the reality of what we're facing today and that's the decision that is before the commission and the department.

So the levels that we show here, we feel like we will see some decline. It's hard to predict. And we do have, I think, the best engineers in the world working for the Department of Transportation, as well as a construction industry that helps us respond to any situation, so we think we can minimize the decline but there will be a decline in our pavement condition scores.

MS. ANDRADE: So at this time you're saying that we probably would expect 10 percent decline on our roads?

MR. BARTON: Yes, ma'am, and I think we would have to accept certain other realities. Those lower volume roadways that don't carry a great deal of traffic, one of the initiatives we've had over several past years is to improve the ride of our roadways. Those types of roadways probably would receive less attention in terms of ride scores. And we would, we would make our roads safe, we would keep them held together, we would maintain the system. Using an automobile analogy, we would change the oil and rotate the tires, but if you've got a door ding, you may live with a door ding.

We wouldn't allow anything to be unsafe, we wouldn't allow anything to deteriorate to a point that it was something we couldn't live with, but about a 10 percent decline, and knowing that some of our lower volume roadways wouldn't be able to maintain the ride that they currently do because it costs a lot of money to put an overlay on a roadway to get that high quality ride that our citizens expect, but quite frankly, on a road that carries 300 or 400 cars a day, that may be something. Those types of decisions would be the things we'd have to make and learn to live with.

MR. UNDERWOOD: Madame Chairman?

MS. ANDRADE: Commissioner Underwood.

MR. UNDERWOOD: John, once you do this, you go to the $12 billion, whatnot, and your pavement scores start going down or whatnot, at what point all of a sudden are you going to be forced into rehab then? Because to me, I don't know if the audience understands, rehab is not just going out there and putting you in a fat farm for 30 days, rehab is basically redoing the whole road, rebuilding it, you just don't have to do environmental. Isn't that correct?

MR. BARTON: That's correct, and I appreciate that question, Commissioner Underwood. The old saying that we've all heard is pay me now or pay me later, and there is a point where you get beyond something you can maintain and improve and you would have to rehabilitate it. That's that score of 70 or better is the definition of good; we kind of target 75. If we get down to 75, we need to do some heavy preventive maintenance so it doesn't drop so low that it will have to be completely rehabilitated or reconstructed. We're fortunate today that 65 percent of our roads score at a 95 or better condition, so we've got a lot of excellent roads out there that have a little bit of opportunity to just be maintained rather than rehabilitated over the life of this UTP.

But the answer to your question is we've got to make sure that roads don't drop below that 75 condition score and that a large number of them don't because once they start dropping below that, it's no longer a preventive maintenance technique that you're going to have to use, it's going to be a rehabilitation/reconstruction strategy which is very expensive in comparison.

MR. UNDERWOOD: And if I understand correctly, the cost of our products are going up.

MR. BARTON: That's, quite frankly, true. While this year our letting projects have come in a little bit lower than our estimates, people said, well, then inflation is lower. No, it's not. The cost of aggregate, steel, asphalt, fuel, all those things continue to rise.

MR. UNDERWOOD: So then all of a sudden now, instead of if we're patching it or whatnot, at some point in time we do our rehab, if we put up our rehab to the future, it's going to be a lot more expensive.

MR. BARTON: It is, and it's going to be a challenge for us at whatever funding levels we have, short of a miracle, to make some very strong decisions about how we maintain, rehabilitate and provide for mobility in the state.

MR. UNDERWOOD: Thank you, John.

MR. BARTON: Thank you.

MS. ANDRADE: Members, any questions for John?

(No response.)

MS. ANDRADE: James, thank you very much. John, I have a question.

Amadeo, did you want to add something?

MR. SAENZ: I just wanted to add -- and that's why I think, Commissioner Houghton, what you said is very important -- that as we move forward with the legislature to identify those needs and what is it going to take to maintain our highway system at the current levels and to reach our goal, what are those costs, and then what do we need for addressing congestion, so that as we put together the next LARs, we go forward with these are the needs that we need for this time period and to be able to address that, these are the outcomes that will come out of that. We'll be able to meet our pavement scores, number one; we'll be able to reduce congestion by this amount.

Right now there are several initiatives where we are trying to refine our needs number so that we can then be prepared, as we prepare our LAR, to talk to the legislature about their transportation needs and try to address this thing as a whole. Right now what we're trying to do is based on what we forecast the money will be, what's really the first step. This identifies the resources we have over the next ten-year period, our needs will tell us how much we need, we subtract them, and then we can go back and say this is how much we need above and beyond what we can expect to get so that we can prepare for them and give them the opportunity to see how they can help us.

MR. BASS: And to follow on that, even though the number is being currently updated -- I think you're all familiar with a figure from a few years ago of the $86 billion shortfall -- the numbers behind that, there was a $188 billion need which I think was over a 25-year period -- right, Amadeo? So on average, that's $7.5 billion a year. Well, for the eleven-year period we're talking about, if I just do a straight, simple average for the eleven years we're talking about here, the needs would be $82.7 billion, and we're talking about funding levels of $28.2 billion.

So you see the disparity of need versus financial reality. Most of our discussion today is focused on here's the financial reality and how best do we take these limited resources and try and address those needs. And I didn't want to leave anyone with the impression that $28.2- is going to solve the problems, we just need to figure out how to allocate it. The needs, as you are all well aware and probably made well aware of every day, are much greater than the $28.2-, and again, using that simple average from the earlier study, over the eleven-year period, the needs would be closer to $82.5 billion rather than the $28.2-.

MS. ANDRADE: James, anything else?

MR. HOUGHTON: Are you going to wrap up, Madame Chair?

MS. ANDRADE: Yes.

MR. HOUGHTON: Before you do, I believe that the legislature needs to take ownership of the needs-based. I think it's time that we're at this crossroad and the economic realities have now sunk in. There was big hoopla, big bell curve, and now we're back to where we started but we have a growing state. As I've discussed before, in the census of 2010 the preview is there's going to be nine congressional districts, a reshuffle -- we're getting four of nine. That means each congressional district is about 750,000 people, that's about 3 million new Texans here, and they're bringing 3 million cars with them, roughly, and they're going in the triangle between Dallas, San Antonio and Houston and Austin.

I just believe to set us down that slippery slope of taking it away from maintenance, the crown jewel in transportation is putting a band-aid on this big tire, and I think we need to talk about the needs-based and fund transportation, we've got to get to it.

And with that, Madame Chair.

MS. ANDRADE: Thank you, Commissioner Houghton, and thank you, commissioners. This has been a great discussion. I think we've got someone that wants to address us. Michael, do you want to add anything before I make my final comments? It's always a pleasure to have you here with us.

MR. MORRIS: For the record, Michael Morris, director of transportation in the North Central Texas COG. Just a few comments, as we all deliberate this. And Madame Chair, thank you for having us have options to have this discussion because I think that's how change is created.

Just a couple of observations. Later on in the agenda you're going to have an item about maintenance of transit vehicles, and I'm going to use that analogy. You can't maintain something forever, and I think one of the things we've got to be careful about is creating what is that balance between maintenance and eventually replacing it with something else.

One of the things that you don't see on this table is the magnitude of revenue that's coming from local sources, and Commissioner Houghton, when Amadeo originally said this maintenance issue long before the legislature weighed in recently, I made the comment: Are you sure we're correctly inventorying all the local construction that's occurring because we do a good job on our capital asset inventory of rebuilding facilities when they're 50 and 60 years old. And I think we owe you, between now and next month, an inventory of what projects are going to be reconstructed, and obviously when they're reconstructed, like in LBJ or the Funnel or North Tarrant Express, you have brand new pavements. So I think that is important.

Second point, the Texas Mobility funds, in recapturing a commitment to all parties, is critical, and the reason it's critical is the Texas Mobility funds can be flexed on to public transit where your Category 2 gas tax funds can't. Commitments have been made to use portions of those monies for other than roadways and I think when your staff says we've got to instill some commitment to Texas Mobility funds, I really think that's important because not all your funds are equally flexible.

The third point is I think we have to meet previous commitments. I don't mean previous commitments on out-year plans and we may get to your project one day, but if we've told a community we're going to construction on your project two years from now, I think it's critical. I know we have an RTC policy: if we commit it to you, we're going to get it done. And I think you've got to strike that balance with regard to the commitments you've made with regard to existing projects.

I support your staff in looking at the 2004 baseline as this equity test across the whole state. I know when I served on the committee that created this, Representative Pickett was on the committee and the example I gave is, well, El Paso gets X amount a year, Dallas-Fort Worth gets more, but El Paso instead of spending small increments every year, if they want to take their ten-year money and build their project earlier, I think those communities should have the flexibility to do so. But eventually, we had said at the committee level every five years we'll balance it but at least every ten years we'll balance the fairness of those commitments across all the particular regions, and I think your staff is doing that.

Commissioner Underwood, I applaud your points about Proposition 14. We can't fall into the trap of short term -- and I think, Commissioner Houghton, you said this too -- we can't fall into the trap of short term Proposition 14 bonds thinking we're solving the problem. That has nothing to do with building more, that has everything to do with putting a band-aid on trying to build something faster.

You do have another scenario that you don't have here yet. It's possible the legislature will commit to moving Fund 6 amounts out. That would generate more revenue but you wouldn't necessarily have to put it on Proposition 14 bonds, you could just add a scenario of cash flow to help you do that. And of course, James can't do that in now because the legislature hasn't met, but when you discuss this with them -- you know, we've asked them for 20 years now to discipline Fund 6 so they're not spending it on other purposes -- maybe today is the day you can have that conversation. Obviously, advancing Proposition 12 is a good thing because you can do that with revenues out of the general fund.

Amadeo and I are asked to speak around the country with regard to this. The states that borrowed a whole bunch of money are really feeling the pain now. Can you imagine James standing in front of you with a decision ten years ago to borrow a whole bunch of money based on these cash flows and who knows what you'd be doing today. You know, you can't fall into that trap and force later commissions to have to make hard decisions, and I think you do have a balance here.

I'm hoping you don't have a permanent position. I see James saying this is 2009 to 2019. We're hoping, and I agree with him that we need a plan for this reality, but remember, what you're doing is you're disciplining the process, you're creating realism -- which is important; the importance of financial constraint is to bring realism to the process -- and the hope is you'll have a legislature and a Congress maybe two, three, four years from now. I suggest you suggest the staff to bring back to you this picture four years from now to see if this process of discipline actually created the legislative change you needed to get at the needs-based solution.

The whole purpose of doing the needs-based solution is to create realism in the process, and by having your staff bringing us a sour pill today is actually aiding in the true legislative change that we need. And I think it's good to have this particular discipline and it's good to have the heartache. It's always darkest before morning light, I think this is a positive process we're going through, not that we wish to plan for this because we'd better move on to other things in life if this is what the future is, but it's the hope that this creates the change because you now have a nice set of books that your staff has worked hard doing the last four months to create the legislative change we need and the congressional change we need to really solve the transportation problem.

I know we have a lot of items. Madame Chair, thank you for giving me a few minutes.

MS. ANDRADE: Thank you. Any comments?

MR. HOUGHTON: Thanks, Michael.

MR. HOLMES: Thanks, Michael.

MR. UNDERWOOD: I appreciate your snapshot view. Thank you.

MS. ANDRADE: Thank you very much.

James, I just want to make sure, when we discussed moving all the money to maintenance, that was an incredible reaction, and I think that one of the things that we wanted to accomplish this morning was that if we worked within our means with what we have and we move money from maintenance to mobility, look at what it would also do. And so we just wanted to make the public and our legislators aware that it would affect our assets. And like Commissioner Houghton says, our transportation system is the crown jewel and are we willing to sacrifice that to find some short term solutions. So we've got a tremendous responsibility here and we've got to make some good business decisions. Like Michael has said, we certainly don't want to leave our state in debt just to find some short term solutions for today so that we can get away from all that's being said.

Would you go back to the A-B-C-D slide? I want to make sure that we understand that D is the best business decision for this department, is that in order for us to issue more debt, we need to make sure that we know and that we leave this department knowing how it's going to service that debt in the future, and I think all of us will feel more comfortable with that.

Also, when do we add money back to maintenance, at what point?

MR. BASS: One of the options I mentioned, the bond proceeds would be available for some forms of maintenance, the major rehabilitation, major reconstruction, but another option could be to take some of the bond proceeds and put it into the other categories, thereby displacing that money and still allow you to add more money to maintenance. So I think through the bond programs, if not directly, at least indirectly it would allow more money to go back into the maintenance category.

MS. ANDRADE: Amadeo, do you want to add?

MR. SAENZ: No, that's pretty much it.

MS. ANDRADE: We do know that there are ongoing discussions with the governor's staff and key legislators that are trying to find long term solutions, and we certainly hope that those discussions continue and hopefully we can make the right decision for the state and this department. You know, our state system belongs to all of us and so we all have to work on it. Thank you very much.

Amadeo, anything else?

MR. SAENZ: Thank you.

MR. BASS: Thank you.

MR. SAENZ: Commissioners, moving on to the next item, we also have a second discussion item led by John Campbell, director of our Right of Way Division, who is going to discuss with us today some of the potential revisions to the outdoor advertisement rules in the rural areas. This is as a result of some direction that we received last month from the commission. So John, I'll turn it over to you.

MR. CAMPBELL: Good morning. I'm John Campbell, the Right of Way Division director, and it's my distinct pleasure this morning to bring you another exciting chapter in the saga of outdoor advertising control in Texas.

We got a lot of public reaction, a lot of public input associated with our discussion over the last eight months of outdoor advertising control, particularly the notion of adding electronic signs to those that can be properly erected in Texas. Like I said, a lot of reaction, but not a lot of public understanding of exactly what the role is, what the regulatory controls are. And so what I'd like to do today is to take just a few minutes to briefly review the framework of the regulatory network, look specifically at local controls of outdoor advertising, talk about the reforms that we want to put in place in order to effect a greater, more consistent level of control, and then ultimately talk about the revisions to the rules that are going to be necessary to accomplish that.

The first thing that we need to talk about is the application of the various authorities under the Highway Beautification Act, federal state and local, and the scope of those authorities, how they interact with one another.

I've got a very high tech slide here. Lots of information in there, and in the spirit of Easter, we've got the nice pastel colors of the eggs.

My sophisticated graphic is intended to just convey a sense of the interplay among the various authorities that exist and regulate outdoor advertising signs, because our fundamental challenge becomes one of consistency, consistency in statewide interpretation of the various rules that act together, and consistency in the statewide application of our enforcement controls.

We start with the foundation in the Federal Highway Beautification Act. That was the act that was created in 1965, regularly credited to Lady Bird Johnson. The Federal Highway Beautification Act applies to federal aid primary routes and the interstate system as they existed in 1991. It then also adds or amends to those regulated routes, national highway system additions that occurred after 1991. That makes it a little bit complicated in understanding what we're supposed to be regulating under the federal route, but essentially, the type of road that was added by the National Highway System which occurred by re-categorizing the routes in ISTEA in 1991.

The types of routes on the National Highway System that would be additional to the regulated routes would be typically a state highway loop on a new location around a metropolitan area. That previously wouldn't have been considered part of the federal aid primary system, it is a component of the National Highway System. So you'd have just very discreet little additions to the federal aid highway system that's controlled.

Then the Texas Highway Beautification Act comes into play, and it does primarily two things, it serves two purposes: it implements the Texas provisions for enforcement of the federal regulation on federally regulated routes, and then it extends similar regulatory control to the remaining state system routes in Texas.

We then have a federal-state agreement, the agreement between the Department of Transportation in Washington, D.C. and TxDOT, and there are similar agreements with all of the 50 states. The federal-state agreement applies to this federally regulated route, and it imposes the burden upon the states to apply their regulatory controls on the issues of the size, lighting and spacing in accordance with the customary use in the states. So the feds kind of defer the means by which we apply regulatory control through the state-federal agreement.

This is a graphic that just gives us a picture of the density of outdoor advertising signs that are permitted along those various routes in Texas. Each one of those dots represents a permitted outdoor advertising sign, and this does include both the federally regulated routes and the state regulated routes.

And then the final complicating factor is the local authorities and exactly how local ordinances interplay with this control of outdoor advertising. We have two primary functions of local sign authority. First of all, we recognize certified cities in Texas and those are cities that Texas delegates our responsibility for enforcement of the federal act to the city. The certification is actually TxDOT certifying to the federal government that yes, we've determined that this city has enough experience and has controls in place where they can, in effect, enforce the federal act on our behalf.

You then also have a whole series of local ordinances that are unique to each individual municipality and they apply to controls of outdoor advertising along all the routes within their municipal jurisdiction. So we get a pretty convoluted set of authorities that applies and that's what makes it complicated.

Another word on the certified cities in Texas, there are only 61 certified cities in Texas and those are spread over 15 of our districts. This graphic attempts to show the accumulation of those certified cities, and as you'll note, the majority of those 61 are associated with the metropolitan areas. You can see a bunch of them associated with the areas around Houston, the Dallas-Fort Worth area, and then down there in Corpus Christi you can also see more of them. But the certified cities have a relatively limited effect because they are so concentrated and there are relatively few of them.

These slides go through to just give us a listing by TxDOT district of the certified cities. The things that are interesting to note is that in the Austin District, the City of Austin is not a certified city, as well as in the San Antonio District, the City of San Antonio is not a certified city. What that means is that TxDOT continues to carry the responsibility for the regulation of the federal act within the jurisdictional boundaries of those cities.

And this is a depiction of all the cities. There are 1,213 incorporated cities in the state of Texas, so 61 is a relatively small portion of those. Commissioner Houghton, in our last discussion on this, you posed the question to me how many of those cities across the state have ordinances that control outdoor advertising. We have not been able to secure an easy answer to that question, but we've started a dialogue with the Texas Municipal League towards the end of routing a survey through their member cities, and they have about 95 percent of the incorporated cities in Texas are members of the Municipal League. So we're circulating a survey with them to find out some things, primarily associated with: do they have an ordinance that controls outdoor advertising, is it a prohibition, does it provide for LED or electronic signs, those types of things.

So this is my nicely built Easter egg here. I've got my federal rules, and as you can see, the state rules overlap somewhat but they don't completely encompass all of the federal routes. The federal-state agreement binds those two together, the federal and the state regulations, and then finally, the local controls are superimposed on top of those.

Local controls, frequently one of the misunderstood notions was I made comments about a year ago that a local ordinance can be more or less restrictive, and that's the majority of what I said that was heard and understood and repeated back to me. But it can be more or less restrictive so long as it meets the minimum criteria of the federal act, and that's why it's overlaying completely within the federal act.

So our next step is to use all of this new information that we've gathered in our discussions and propose some fundamental program reforms in order to effect that which you expressed to us as your main desire, and that was we need to look at the regulations across the state and we need to strive for some consistency and some enhanced enforcement on our rural roads in Texas.

In order to do that, I think that we've legitimately identified the fundamental problem as being consistency, and the cure to that problem is for us to take what has been a relatively unmanaged regulatory program that's decentralized, centralize the program management, we want to regionalize the operational enforcement of outdoor advertising, and then we want to privatize the annual inventory function. So we're looking at a dramatic departure from the way that we've managed this program in the past in order to effect the kinds of consistency within our existing rules to get a much, much better, more consistent enforcement, particularly along our rural roads.

There are three goals of this rules review and it will be necessary for us to revise the rules in order to implement these program reforms. The first one, as requested, was to enhance the consistency of this process and emphasize particularly enhanced enforcement along rural roads.

Second, we want to enhance the flexibility that will allow the department, the flexibility within the rules to reorganize our management of the program. An example of what I mean there is that right now our rules dictate specifically who must act to take a particular regulatory move. For instance, a district engineer must send a written notice to a violating sign. We'd like to change those kinds of features to make them much more generic and give us more flexibility.

And then finally, we need to fundamentally revise the fee structure and the fee schedule in order to establish a much more effective revenue-neutral regulatory program. Outdoor advertising control is intended to be revenue-neutral, meaning that the fees that we collect for regulation are supposed to equal and balance the cost associated with the program. We'll find ourselves in a much better position to do that after we take a good, close look at what we would have to do to reorganize this, what are the true costs.

One of the features that we're really excited about is that as the result of a research project, we looked into the feasibility of privatizing some of the enforcement function. The results of that research told us that we can legitimately anticipate privatizing the annual inventory but we need to maintain the remainder of the regulatory functions because it is regulatory in nature.

And with that, I'd leave it for your questions. Our intent here was just to continue the dialogue. We want to engage the public informally early in this process because we are going to have to go through a lengthy exercise of revising these rules from front to back, and we wanted to make sure that this time that everybody was aware of where we were going and why. I'd like to get some direction from the commission, if that's appropriate at this time, in terms of if you have any specific notions about how we engage the affected regulated industry, how we engage the interest groups earlier than the rulemaking process so that we can be more confident that we've included in our discussion and in our review of these rules their concerns.

MS. ANDRADE: John, let me ask, commissioners, we have a citizen who has signed up to speak. Would you like first to hear and then we can address?

John, if you'll just let us hear from Carroll Shaddock.

MR. SHADDOCK: Good morning. I'm Carroll Shaddock from Houston, speaking for Scenic Texas and Harlan Crow. My comments are very, very brief.

First, thank you very much to the commission for delaying 90 days the effective time for the LED regulations which I think do give cities and others time to think a little bit about what's going to happen and get ready.

Secondly, thank you, Mr. Campbell. That's an excellent review, and we very much are supportive and appreciative of the idea of bringing consistency and efficiency to the regulatory process.

Thirdly, last month, Commissioner Houghton, you suggested that we take a look at rural roads. I want you to know that we've done that, and that when we look at the law, it becomes apparent that a great deal of the discretion about how rural roads are regulated on federal highways result from actions of this commission, and there is a lot of discretion to do a lot of good. And we're in touch with the staff and others and are very interested in providing thoughts about how we can do this and really to sit down and think about what the purposes of these laws are and how they're best carried out. Thank you.

MS. ANDRADE: Thank you very much. Any comments?

(No response.)

MS. ANDRADE: Thank you. John, members, Mr. Houghton?

MR. HOUGHTON: John, as Carroll talked about our discretion to protect the rural roads, how much discretion do we have?

MR. CAMPBELL: To be as brutally honest as I can, I think that we have a great deal of discretion as compared to what we've exercised in the past. We probably have not exerted as much effort in the rural road enforcement.

MR. HOUGHTON: Okay. And we are going to engage the industry in this process as to how they're going to assist us?

MR. CAMPBELL: Yes.

MR. HOUGHTON: And we're engaging the stakeholders as Scenic Texas and Save Our Planet and Save Our State and all those others?

MR. CAMPBELL: Absolutely. We want to talk with all the people that are as interested in outdoor advertising as we are.

MR. HOUGHTON: Great. I think we're headed down, Madame Chair, the right path.

MS. ANDRADE: I agree, and I certainly encourage you to keep that public input and get everyone to the table that's concerned about this so we make the right decisions.

MR. CAMPBELL: Thank you very much.

MR. HOUGHTON: Carroll, where do you live in Houston?

MR. SHADDOCK: Rice University/Medical Center area.

MR. HOUGHTON: We can't put a big digital up there somewhere?

MR. SHADDOCK: Well, I don't think that's going to happen.

(General laughter.)

MR. HOLMES: Carroll, there's a flip side of discretion to do good.

MR. SHADDOCK: Understood.

MR. HOUGHTON: John, thank you very much.

MR. SAENZ: Okay, commissioners, moving on to item number 3, Eric Gleason, director of our Public Transportation Division, will come up and present four minute orders dealing with our public transportation program.

MR. GLEASON: Good morning. For the record, I'm Eric Gleason, TxDOT director of Public Transportation.

Agenda item 3(a) awards $3,044,118 in federal Section 5316 Job Access/Reverse Commute funds, and $146,000 in transportation development credits for urban and non-urban area employment-related public transportation projects. The selection criteria and the process for awarding Section 5316 funds is established in Title 43, Texas Administrative Code, Section 3117.

On October 4, 2007, the department published a notice of request for proposals for JARC projects in the Texas Register. Proposals were received requesting funding for operating assistance, capital and planning. Many proposals included a request for transportation development credits to match federal funds for capital elements of the proposal.

Title 43, Texas Administrative Code, Section 5.73 establishes the process by which TDCs may be awarded at the discretion of the commission. Furthermore, in December 2006 the commission expressed its intent to award TDCs to support fleet replacement, fleet expansion, maintenance facilities, and projects supporting coordination of services. JARC was envisioned as one of the programs consistent with this intent.

A total of three urban and five non-urban area proposals were received. The proposals were evaluated based on consistency with department goals and criteria, examining project planning and coordination, demonstration of need, anticipated benefits, and service sustainability. A scoring oversight committee consisting of six individuals from outside the department was convened to review and provide guidance for our work.

Based on our review, we are recommending that each of the three urban area proposals and four of the five non-urban area proposals be awarded funding as provided in Exhibit A. The fifth non-urban area proposal requires additional work and may be forwarded to the commission for approval at a later date.

These projects represent an exciting step forward for public transportation in Texas. Justification for all of these projects is found in the recently completed regional service coordination plans. Partnerships with local governments, employers, institutions and local workforce boards bring additional resources to these projects and the promise of continued support on the future once grant funds are exhausted.

We recommend your approval of this minute order.

MS. ANDRADE: Members, you've heard staff's recommendation. Any comments or questions?

(No response.)

MS. ANDRADE: What's your pleasure?

MR. HOLMES: Move it.

MR. UNDERWOOD: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Thank you, Eric.

MR. GLEASON: Thank you.

Agenda item 3(b), this minute order awards $8.6 million in federal funds and $1,447,839 in transportation development credits to rural transit operators to assist these systems with the replacement of vehicles being operated well beyond their useful life, contributing to high maintenance costs, lower air quality and chronic service reliability problems. Vehicle reliability has been identified as a key constraint in coordination of public transportation. Maintenance costs on older vehicles can be twice as much as those associated with a new vehicle.

Federal funds from this minute order come from federal Section 5311 program funds to rural transit systems covering the non-urbanized areas of the state. These 5311 program funds are currently held as commission discretionary funds in accordance with formula provisions of the Texas Administrative Code. The amount is a combination of fiscal year '07 and fiscal year '08 funds.

The award of transportation development credits is consistent with the commission's expressed intent to make available development credits for purposes including fleet replacement. Using TDCs as match to draw down federal funds allows operators to conserve scarce local revenues for service operations.

Funds are distributed to transit operators based on relative needs, taking into consideration fleet depreciation and replacement costs. Following completion of procurement, any unused funds can be used for other fleet-related capital expenses such as preventative maintenance. This is offered as an incentive for operators to take advantage of group procurement opportunities, resulting in better prices, a greater standardization of fleet across the state, and quicker delivery times.

In this vein, two of our larger providers, CARTS here in the Austin area, and Brazos Transit District, have stepped forward and offered to run group procurements for others around the state, and we actually held a video teleconference on Monday of this week and we had about a dozen other rural providers attend the conference and express an interest in joining that procurement.

And I'd actually like to acknowledge the leadership of Dave Marsch from CARTS and John McBeth from Brazos Transit in their stepping forward to do this for the rest of the state. It really does represent a good opportunity.

And I will also say that I have heard from a number of operators, several operators around the state with respect to this minute order that while they know they need to continue to replace their fleet and keep it upgraded, they're also struggling this year a lot with operating expenses. I think we all know that fuel prices have gone I think even higher than we would have anticipated than last year at this time, and so it's a difficult balancing act and some of our providers are really struggling in that regard.

We look at this as a necessary investment to make. We know the needs for fleet replacement are high across the state. The Texas Transit Association just recently completed a survey that identified that over half the fleet across the state in our rural and small urban areas is over 100 percent of its useful life. That's about a $50 million problem. We've asked for some assistance from Congress to address that problem. We think we need to make this investment because newer fleet will, over the long haul, reduce operating needs and improve air quality and improve service reliability. So we think it's a very important investment to make, and we do recommend your approval of this minute order.

MS. ANDRADE: Members, we've heard staff's recommendation. We do have someone that has signed up to speak on that. Would you like to hear them?

Michael Morris.

MR. MORRIS: Michael Morris, I'm from the Council of Governments. I come forward today as the chair of your statewide transit operations group.

I want to compliment Eric on staying firm on the importance of keeping this vehicle procurement placed in front of you. I do think, as we move out from horrible under-funding of this particular function, and the fact for years vehicles were not being replaced because of the alternative fuel requirement that you had, we too are hearing from lots of folks.

I think, Commissioner Andrade, it's nice to see group purchasing and everything start, that's something you spent a lot of time on and you're starting to see that now moving forward. I'm wondering -- and I've talked to Eric in advance and I am coming forward to support his vehicle program -- I'm wondering if there is some flexibility in moving forward, and I bring three ideas.

Eric is bringing forward to you the second part of the 5311 program which is your discretionary program. He has already allocated funds for the formula program. There are some folks in the formula program, not many, but some who are replacing vehicles with their initial program. Would there be some flexibility in the program Eric is bringing out that if they're already purchasing vehicles in the first phase, is there some ability to then use some of that for operations in the second phase?

The second item is Eric has been very forthcoming in providing fuel assistance to the operators the last two years. It's my understanding he can't implement that program this year. Is there some ability to reserve some small percentage of this program to permit areas to assist them with the fuel for the particular vehicles, like he's been able to do nicely in the past? I don't think that has to be a large number but some sensitivity towards that.

And then the third is regions like ours are going to flex Congestion Mitigation/Air Quality and Surface Transportation Program funds to help these regions purchase vehicles. It is very difficult or more difficult for our funds to be used for maintenance and operation. This particular program, it is a very common practice to use for maintenance operation. We know the program is under-funded, so the question is if others come forward to assist this program and we bring monies from other programs to purchase vehicles, is it possible then Eric could have a flexible program -- let's say Dallas-Fort Worth region gets a million dollars, I assume Alan is here, his region gets a similar amount, and let's say, at least in Dallas-Fort Worth, I was able to purchase the vehicles that he's going to purchase with Congestion Mitigation/Air Quality funds, we still get the vehicles that the state desires -- would he be willing to then permit those funds to be used for maintenance and operation?

So I'm here, I guess, with a cake and eat it too. I'm glad we're moving forward with the statewide initiative, I'm glad we're focused on vehicle replacements. We're in a transition area that a lot of the rural providers don't have the money necessarily to purchase the vehicles. Is there a way that others can bring money into the program and he can do some accounting with regard to the flexibility of monies he's already awarded to help with the transition towards his new vehicle initiative?

That's my comments today.

MS. ANDRADE: Thank you, Michael. Any questions for Michael? I'd like for Eric to answer.

Eric, could you answer? I think what Michael is saying is they have so many challenges they face, can we have flexibility in some of these?

MR. GLEASON: I think the formula award that the commission approved earlier this year can be used for operating and capital expenses, and so the extent to which systems may have chosen initially to use some of those formula funds to purchase vehicles, it's my understanding we can reprogram within that formula award those funds to a different purpose and so they could then use these funds which they were not aware that were coming for that purpose.

What I will say is that historically 90 percent of those formula funds are described to us by these rural systems as being used for operating, so I think that the lion's share of the formula funds are continuing to be used for operating, but if someone has gone in and programmed some of them for fleet, I believe we can work with them and adjust their formula program description and allow them to use these funds for those purposes.

I'm absolutely delighted with the notion that Mr. Morris brought up at the end about a region, such as his, looking at the funding streams they have and addressing the need that way and us, with perhaps a more flexible funding stream in the 5311 program, being able to then use those funds differently. We get what we need and we're able to provide some additional assistance to public transportation providers. So I'm absolutely delighted to hear that thought process and would look forward to working with him more closely on that.

The other thing about fuel expenses and things, we have done two previous awards, this commission has, from the discretionary fund, and I have asked my staff at this point in time to explore what opportunities we have. We have the means and the mechanisms in our federal programs to reprogram use of those funds, and so we are exploring what opportunities we would have with other programs to try and bring some funds to bear on the fuel issue this year.

MS. ANDRADE: Yes. I'm concerned about that because as it is, they have a difficult time facing this, and so with fuel prices continuing to increase, I'm glad to hear that you're going to go back and see if there's any means that we can help them.

MR. GLEASON: Yes, we are.

MS. ANDRADE: I'd encourage you to do that.

MR. UNDERWOOD: When you're doing that, are you just allocating so many resources towards the fuel? Is that how you'll do it?

MR. GLEASON: Well, what we would do is look to see what kind of flexibility we might have in either another area of the 5311 program or in a different federal program where we have unspent funds to see what kind of flexibility we could bring to reprogramming those funds. And I think the intent would be to bring them to you for the specific need to address the fuel increase.

MR. UNDERWOOD: But it would actually be a dollar amount, it won't be a gallon amount.

MR. GLEASON: It would be a dollar amount, that's correct.

MS. ANDRADE: I think the message you need to make sure they receive is that we continue to support public transit and we understand what they're facing -- we can feel the pain of the fuel costs.

And Michael, are you comfortable with we are flexible and we will try to work, and I think case by case we need to study that.

MR. GLEASON: We have, for the first time with this award, introduced some flexibility into use of the money itself. Typically in the past it's only been for fleet replacement. In this case we have allowed operators to think about vehicle rehab as a use of the funds, and in fact, we've got one operator who is converting 20 propane vehicles to gasoline and diesel which will help those vehicles. And so we've introduced flexibility there.

And in the past, when funds have been left over, the funds have come back to the department to be reprogrammed, and what we're doing with this is we're allowing them to stay with the provider and they can use them for other fleet-related capital expenses. So we've introduced some flexibility and I think we have some opportunity to do some more.

MS. ANDRADE: So you'll come back to the commission with what we can do to help them with the increasing fuel costs?

MR. GLEASON: Yes, ma'am.

MS. ANDRADE: Okay. Members, you've heard staff's recommendation. Oh, I'm sorry, Ned, please.

MR. HOLMES: Let me just ask one quick question. Eric, presumably when a vehicle that 100 percent of its useful life has been expended is replaced, there are pretty significant improvements in fuel efficiency, emissions, et cetera. Do you have any kind of stats on that?

MR. GLEASON: Well, not for fuel efficiency, Mr. Holmes, but I did ask one of our districts to give me an estimate of just overall expenses, maintenance expenses on vehicles, and they looked at an older vehicle and compared it to a new one and it's roughly double is what the feedback I got was, that on a per-mile basis, you can expect to be spending twice as much on vehicle basis on a per-mile basis with an older vehicle that's exceeded its useful life as you can with a new one.

Now, having said that, we have vehicle maintenance people around the state that are extending the lives of these well beyond what you or I might think possible. The federal standards might say 150,000 is it and I've got fleet out there at 300,000 and 400,000 miles still rolling along. So the industry is doing a lot of work to keep those members of the fleet running, but on the operating side, we're taking a hit because it is so expensive to do that.

MS. ANDRADE: Members, you've heard staff's recommendation. What is your pleasure?

MR. HOLMES: So moved.

MR. HOUGHTON: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Thank you, Eric.

MR. GLEASON: Agenda item 3(c), this minute order awards $7,545,301 of federal funds under the FTA Elderly Individuals and Individuals with Disabilities Program, Section 5310, and $944,601 in transportation development credits for various public transportation capital projects. The formula for allocating Section 5310 funds is established in Title 43 of the Texas Administrative Code, Section 31.31. Following a reduction of state administrative expenses, the remaining balance plus unobligated funds from previous projects is allocated to all 25 TxDOT districts for the selection of projects.

The award of transportation development credits is consistent with the commission's intent to make development credits available to support fleet replacement, fleet expansion, and capital projects supporting the coordination of services. The 5310 program was envisioned as one of the programs consistent with this intent.

The districts are responsible for public involvement and completion of a transit planning process to establish a network of transit services for elderly individuals and individuals with disabilities in their respective areas. Projects are selected based on the need for service, available funding, cooperation and coordination with area stakeholders. Projects that are recommended for funding are listed in Exhibit A.

Over 160 providers operate services for elderly and persons with disabilities in Texas. In 2007, these services carried over 1.4 million riders and traveled over 7.3 million miles. Eighty-nine of these providers are included in this award. These services are an essential element of regional service coordination plans and stakeholders are actively engaged in each of the planning areas across the state.

We recommend your approval of this minute order.

MS. ANDRADE: Members, any questions?

MR. HOUGHTON: So moved.

MR. HOLMES: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Motion carries. Thank you.

MR. GLEASON: Agenda item 3(d) awards $6,476,721 of Federal Transit Administration Metropolitan Planning Program 5303 funds, and $1,295,345 in transportation development credits, as described in Exhibit A, and $1,326,973 of State Planning and Research Program funds, Section 5304 for public transportation

Section 5303 and transportation development credits are allocated using the latest census data so that metropolitan planning organizations receive funds based on the ratio of each MPO's population to the total of all MPOs. They are used to support a variety of activities, including management and economic feasibility studies, evaluations of previously funded projects, development of transportation plans, TIPs and other related activities preliminary to and in preparation for improvements to public transportation systems, facilities and equipment, consistent with the goals of the department.

Section 5304 funds are used to offset eligible department administrative expenses and to provide financial assistance for planning and support in a variety of ways in a variety of different areas throughout the state, either by department direct expenditure or grant award. Should grant awards be needed under this program, those awards will be recommended under a separate minute order.

And I will mention that we did have a question about this minute order prior to the beginning of the meeting, the Houston-Galveston Area Council had a question. That question has been answered to their satisfaction and they are in support of this minute order.

We recommend your approval of this minute order.

MS. ANDRADE: Members, we have two citizens who have signed up to speak. Would you like to hear them first before we ask questions? Eric, let us hear the citizens first.

Alan Clark.

MR. CLARK: Thank you, Madame Chair and commission members. My name is Alan Clark and I'm the director of transportation planning at the Houston-Galveston Area Council. And I do support the proposed minute order before you after we were able to clarify that this affects funding that will be received by metropolitan planning organizations for fiscal year '09. Thank you very much.

MS. ANDRADE: Thank you, and thank you for bringing that to our attention early on.

Next we have Michael Morris.

MR. MORRIS: Madame Chair, commissioners. Mr. Saenz, I apologize for the other items, not recognizing you when I came forward, but I was trying to cut my time down.

Both Alan and I have spent a lot of time on this particular subject, we've gone to our metropolitan planning organization boards. Lots of toll roads are built in our region. We have pledged the ability of our tolls in our portions of the region to take very small amounts of your credits to come forward both in item 3(d) and in 4(a) -- I don't need to come up on 4(a). But basically, it's a commitment from the urban regions to give flexibility to all MPOs in the state to be able to assist the state of Texas, as you move forward and sometimes can't meet the matching needs of our planning funds, to permit a very small portion of our toll credits to permit us to move forward with the planning funds that we get both in transit in this item and on the roadway side in the next item. It's a commitment to the MPOs and the state to work together.

Thank you very much.

MS. ANDRADE: Thank you, Michael.

Members, any questions for Eric or for citizens that have spoken?

(No response.)

MS. ANDRADE: What is your pleasure?

MR. HOLMES: So moved.

MR. HOUGHTON: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Thank you very much.

MR. GLEASON: Thank you.

MR. SAENZ: Commissioners, the next item, item 4 dealing with Transportation Planning, Jim Randall will come up and present three minute orders. The first minute order will deal with transportation development credits, and the second two minute orders will deal with amendments to the 2007 Statewide Preservation Program. Jim.

MR. RANDALL: Thank you, Amadeo. Good morning, commissioners.

Thank you, Michael; I don't know if I have to make this presentation or not.

Item 4(a), this minute order authorizes use of $8 million in transportation development credits in support of the metropolitan planning program. Title 3, USC Section 134 established a metropolitan planning program for each state. The 25 MPOs in Texas receive federal metropolitan planning funds to carry out the provisions of the program. These federal funds must be matched by non-federal share funds.

SAFETEA-LU permits a state to use transportation development credits as a credit toward the 20 percent non-federal share of the metropolitan planning program. In the past, the department has provided the non-federal share for the match for the metropolitan planning program, allowing MPOs to receive federal funds without having to provide a local match. Due to current fiscal constraints, the department wishes to substitute the non-federal match with transportation development credits.

Staff recommends approval to utilize transportation development credits in support of the metropolitan planning program through fiscal year 2008 in an amount not to exceed $8 million.

MS. ANDRADE: Members, we have two citizens that have signed up to speak. Would you like to hear them first?

MR. HOUGHTON: Sure.

MS. ANDRADE: Alan Clark.

MR. CLARK: Madame Chair, I'm Alan Clark from the Houston-Galveston Area Council, and again, we want to express our appreciation for the department's commitment to transportation planning. We're in full support of this action. When we learned that this was a problem late last year, we checked with our counterparts, and I think we kind of suggested the idea to the department, and we're very happy to see and urge your support for this action. Thank you very much.

MR. HOUGHTON: Is this the last time?

MR. CLARK: My last time. I didn't mean to appear earlier.

MR. HOUGHTON: [Inaudible].

MR. CLARK: We're full tilt in the negotiation phase of that, and I guess you could watch it on TV. According to the commission, it's all being filmed.

MR. HOUGHTON: [Inaudible].

MR. CLARK: Yes, but I do notice that he's a relative silent attender at these meetings.

MS. ANDRADE: Alan, let me save you. Thank you very much.

MR. CLARK: Thank you.

MS. ANDRADE: For the record, Michael Morris has also signed up and he's already addressed this. Anything else you'd like to add to item 4(a)?

MR. MORRIS: No, ma'am.

MS. ANDRADE: All right. Thank you.

Members, you've heard staff's recommendation. What is your pleasure?

MR. UNDERWOOD: So moved.

MR. HOUGHTON: Second.

MS. ANDRADE: A motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: That motion carries. Thank you very much.

MR. RANDALL: Yes, ma'am. Item 4(b), this minute order authorizes CONSTRUCT authority for a bridge replacement project in the city of Greenville in Hunt County in Category 6, Structures Replacement and Rehabilitation Program of the 2007 Statewide Preservation Program. The bridge, which is located at State Highway 34 over Interstate 30, has been affected by serious impact damages. It's been struck several times by loads exceeding the vertical clearance. The bridge has been repaired numerous times but now requires replacement as a result of the impacts.

In order to provide Hunt County citizens with a safe and efficient transportation system, it is necessary to advance this bridge replacement project to CONSTRUCT authority in Category 6, Structures Replacement and Rehabilitation of the 2007 Statewide Preservation Program at an estimated cost of $2 million.

We recommend approval of this minute order.

MS. ANDRADE: Members, any comments or questions?

MR. HOUGHTON: So moved.

MR. UNDERWOOD: Second.

MS. ANDRADE: A motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Thank you.

MR. RANDALL: Item 4(c), this minute order authorizes CONSTRUCT authority for two off-system bridge replacement projects in Newton County in Category 6, Structures Replacement and Rehabilitation Program of the 2007 Statewide Preservation Program.

The first bridge, located on County Road 2089 at McGraw Creek, connects FM 1414 and FM 2991. Since this bridge is on both school bus and mail routes, both are now being detoured due to the deficient condition of the bridge. The second bridge, located on County Road 2001 at Caney Creek, connects FM 2626 and US 190. This bridge is also on a school bus route that is currently being detoured around the bridge on a longer alternate route. Both structures are in need of replacement. Extensive travel times resulting from these detours is causing hardship for many county residents. In addition, local emergency medical services have been affected by the closures.

In order to provide Newton County citizens with a safe and efficient transportation system, it is necessary to advance these bridge replacement projects. The bridge on County Road 2089 has an estimated cost of $316,000; the bridge on County Road 2001 at Caney Creek has an estimated cost of $365,000. We recommend approval of this minute order.

MS. ANDRADE: Members, any comments or questions?

MR. HOUGHTON: So moved.

MR. HOLMES: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Thank you.

MR. RANDALL: Thank you.

MR. SAENZ: Thank you, Jim.

Agenda item number 5 deals with the Trans-Texas Corridor and the creation of the TTC-35 and TTC-69 corridor advisory committees, and Ed Pensock, Turnpike Authority Division, will make this presentation.

MR. PENSOCK: Good morning, Chair Andrade and commissioners. My name is Ed Pensock. I'm the director of Corridor Development for the Turnpike Division of TxDOT. It's a pleasure to be here this morning.

Item 5 creates and appoints members of the I-35 and I-69 Corridor Advisory Committees. The commission will create corridor advisory committees to assist the department in the transportation planning process for the I-35 corridor, including TTC-35, and the I-69 corridor, including TTC-69.

A corridor advisory committee may be composed of affected property owners, business owners, technical experts, local government representatives, the general public, economic development officials, chamber of commerce officials, the environmental community, department staff and professional consultants representing the department.

The purpose of a corridor advisory committee is to facilitate and achieve consensus from affected communities, from affected governmental entities and other interested parties in the planning of transportation improvements in the corridor. A corridor advisory committee shall report to the executive director and provide its advice and recommendations on the transportation planning improvements to be made in the corridor which was created.

Chair Andrade and commissioners, we received approximately 250 applicants for these positions. Before you is a minute order with a list of those recommended members, and staff recommends approval of the minute order.

MS. ANDRADE: Members, any comments or questions?

MR. HOUGHTON: [Inaudible comment concerning why there are no members from El Paso on the committees].

MR. PENSOCK: Well, Commissioner Houghton, that's a very good question, and unfortunately, neither I-35 or I-69 proposed route goes through El Paso or Lubbock. When the Ports to Plains corridor comes before you in the future, I'm sure that they'll be adequately represented.

MR. HOLMES: Ed, I commend you on the geographic distribution and the skill set and the distribution of the people. It's a great job.

MR. HOUGHTON: Ed and I have been traveling partners along the 69 corridor several times. We saw some interesting things out there, didn't we?

MR. PENSOCK: Saw some very interesting things out there, and many of the strong participants that submitted applications were folks that we met out there, and Commissioner Holmes, you are exactly right, we got some very strong candidates and it was a very difficult decision, one of the most difficult decisions we've had to make in a long time, narrowing down 250 applicants to the list that you have in front of you.

MR. HOUGHTON: Have you checked the background on these folks, background checks? How deep did you go on some of these folks?

MR. PENSOCK: Spent a lot of time talking about these people, yes, sir.

MR. UNDERWOOD: Ed, one other question. I understand that there is also the ability to add more members if necessary. Is that correct?

MR. PENSOCK: Yes, sir. The list that staff is recommending to you allows for the future possible addition of members, should you choose to. The reason we decided to do that is there are still many questions about how these corridors will act and interact with their communities and with future segment committees, and we wanted to make sure you had some flexibility and Executive Director Saenz had some flexibility to best tailor these committees to meet the needs of the communities.

MR. UNDERWOOD: I want to commend you for that because that's really critical to get this information out and to really be able to do this properly one way or the other. Thank you.

MR. HOUGHTON: Is it my understanding, Ed, that we're going to move soon on the segment committees?

MR. PENSOCK: The minute the gavel falls on this one, sir, we're going to start working on the next one, the segment committees.

MR. HOUGHTON: Great, and a great job.

MS. ANDRADE: Yes. We're very pleased with the response that we received and people interested in serving, and I will tell you that I saw how much work was put into this on the selection, and to all the staff that were involved -- I know Shawna was very involved in this, my assistant -- and so thank you all very much.

MR. PENSOCK: Our pleasure.

MS. ANDRADE: We have someone from the audience. Did you sign up? We'll get you to fill out a card. Go ahead.

MS. LaSUT: Thank you for allowing me to do this. Mayor Mark Conley, our chairman of the policy committee, had asked -- I'm sure he's one of the 250 applications -- and like I said, I've not had an opportunity to see the list.

MS. ANDRADE: The list will be available, and Shawna is walking in and you can discuss it with her.

MR. UNDERWOOD: Who are you, ma'am?

MS. LaSUT: I'm Linda LaSut. I'm the director of the Bryan-College Station Metropolitan Planning Organization.

MR. UNDERWOOD: Thank you very much.

MR. LaSUT: Thank you very much.

MR. HOUGHTON: Let me discuss that with you. The end-to-end corridor committee, not to minimize the importance of these folks, but the Bryan-College Station area and the folks in Victoria -- and I'm just going to pick names -- or Lufkin or Nacogdoches is the corridor planning committees that we're putting to the segment committees is where a lot of the technical work is going to be done as to routes, as to what the communities want. So if that person is not on this list, that doesn't mean anything. The segment committees are a lot of where the technical work is going to be done.

MS. LaSUT: I was surprised to see the committees being formed prior, I guess, to the conclusion of the DEIS. We spoke as a group, the entire policy committee was in favor of moving the study corridor for the I-69 TTC either toward or into Brazos County, and so that's one of the interests.

MR. HOUGHTON: Right, but you can still do that.

MS. ANDRADE: You can still be involved in the process.

MS. LaSUT: Right. Thank you so much and appreciate your time.

MS. ANDRADE: Thank you very much, and my assistant will get together with you.

Members, you've heard staff's recommendation.

MR. HOUGHTON: So moved.

MR. HOLMES: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Thank you.

MR. SAENZ: Thank you, Ed. Don't leave, you'll come up in a little bit.

MS. ANDRADE: Ed, I have one question before you leave. What's the next step? Would you walk us through the next step?

MR. PENSOCK: Yes, Chair Andrade. The next step will be to make sure that the people who are on the list are well aware of all the obligations and requirements which are starting now, and we anticipate holding the first joint meeting, kind of workshop, with both committees in about the third week of April in conjunction with our forum to try to get them up to speed on all the things that will be necessary.

MS. ANDRADE: So their first meeting will be in April?

MR. PENSOCK: That's the plan right now, yes, ma'am.

MS. ANDRADE: All right. Thank you very much.

MR. SAENZ: Thank you, Ed.

Agenda item number 6(a) deals with Dallas, Collin and Denton counties, it deals with giving authority to the executive director to enter into an agreement for toll services with the North Texas Tollway Authority for the first two segments of State Highway 121, and Doug Woodall will make this presentation.

MR. WOODALL: Madame Chair, commissioners. I'm Doug Woodall, director of Turnpike Planning and Development from the Turnpike Division.

Item 6(a) authorizes an agreement with the North Texas Tollway Authority under which NTTA will provide for interim toll collection services, enforcement and interoperability services for a portion of State Highway 121, that portion being Segment 1 of the State Highway 121 project from Business 121 going over to Segment 2, the terminus being to Hillcrest Road. The intent of this is a phase-by-phase turnover of operations and toll collections to NTTA. If Segment 2, for some reason, construction is accelerated, it opens prior to Segment 1, this minute order also allows for turnover of those interim toll collection services to NTTA as well.

The last item, the commission is required to establish toll rates for any toll road on the state highway system. This also approves the toll rates that are in the attachment to the minute order, those toll rates being in compliance with the RTC rates previously approved for the 121 CDA. There are some differences in the enforcement rates and charges associated with that to bring that in compliance with NTTA's practices.

Staff recommends your approval of this minute order.

MS. ANDRADE: Members, any questions or comments for our staff?

MR. HOUGHTON: Question. Before I look through the minute order, what's the toll rate, Michael, on the 121, established by the RTC, as Doug has said?

MR. MORRIS: Michael Morris. It should be somewhere around 14.5 cents in 2010, so these sections opened up earlier, you discount it by 2.75 percent, these are like 13.3.

MR. HOUGHTON: With an escalator?

MR. MORRIS: 2.75 percent per year, adjusted every two years.

MR. HOUGHTON: Okay. So 13 cents, roughly.

MR. MORRIS: Thirteen cents, 14.5 by 2010. All toll roads in the region that are built, new toll roads, will meet those requirements.

MS. ANDRADE: Amadeo, you wanted to add something?

MR. SAENZ: I just wanted to reiterate that, as Michael said, when we were working the CDA for 121, the toll rates were set by the region. We incorporated them into the CDA document, and when NTTA got that, those were then incorporated into the 121 project. One of them is already open, we're transferring the operations over to NTTA, and in essence, duplicating the toll rates.

MS. ANDRADE: Members, you've heard staff's recommendations.

MR. HOUGHTON: So moved.

MR. HOLMES: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Motion carries. Thank you.

MR. SAENZ: Item 6(b) in Dallas County, Ed Pensock will present, deals with asking you for an increase in the stipend for the I-635 managed lanes CDA project. Ed.

MR. PENSOCK: Chair Andrade, commissioners, Ed Pensock with the Turnpike Division of TxDOT again.

Item 6(b), this minute order authorizes the department to pay a maximum of up to $1.5 million for each proposer that submits a responsive but unsuccessful detailed proposal for the I-635 managed lane project.

It has become apparent that the I-635 project encompasses one of the most complicated projects in the department's history with regard to its highway construction, its tunneling, highway reconstruction, ultimate operations, and traffic management. The ideas put forth in the detailed proposals are expected to include innovative approaches to technical and engineering issues, construction methods, materials and financial and project delivery solutions.

It is appropriate, after consideration of the factors listed in Article 27.4 of TxDOT's rules, to allow an increased payment for work product commensurate with the value of the work products that will be delivered by the I-635 project to the department. This payment would allow the department to use the work product for the benefit of the I-635 project and for other department projects without further payment to the proposers for their ideas.

Payment for the work product of proposers will defray a portion of the cost to be incurred by the short-listed proposers in preparing for the proposal, and is thereby anticipated to increase the quality of the detailed proposals and increase the competition between the two remaining proposers.

Staff recommends approval of the minute order at this time.

MS. ANDRADE: Members, any questions or comments?

MR. HOUGHTON: How much does a proposal cost to put together, Ed?

MR. PENSOCK: The cost to prepare a detailed proposal of this nature can range pretty widely, Commissioner. It could run in the $5- to $10 million range to prepare a detailed proposal for this project.

MR. HOUGHTON: And the complexity is because on this project?

MR. PENSOCK: This specific project, the complexity is directly related to part of the solution. It was originally envisioned as about a four- to five-mile long urban tunnel. Tunnels are expensive to build and expensive to operate. We've looked at a couple of different options and looked at trenching and cantilevers. It's just a lot of highway in a small area and a very complex project to implement.

MR. HOUGHTON: Well, Michael has got all the money in the world up there now, anything is possible. Right, Michael?

(General laughter.)

MR. PENSOCK: I don't mean to speak for Mr. Morris, but this will be a big project for them.

MS. ANDRADE: Also, I want to make sure that we understand that when this proposal is submitted, and apparently they would be the ones that did not get it, we would own those ideas.

MR. PENSOCK: Yes, ma'am, Chair Andrade, that's exactly right. Upon receipt of the proposals and upon payment of a stipend or a payment for work product, there's no question that can be raised about our ability to use any of the ideas in those proposals.

MR. HOUGHTON: So moved.

MR. HOLMES: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Thank you.

MR. SAENZ: Thank you, Ed.

Agenda item 6(c) is in Travis and Williamson counties, it's a minute order to authorize the executive director to negotiate and develop an agreement with the Central Texas Regional Mobility Authority for the development of toll projects within the area, and Doug Woodall will present this agenda item.

MR. WOODALL: Again for the record, Doug Woodall with the Turnpike Division.

As Amadeo said, this minute order would authorize the executive director to negotiate an agreement, which would then be brought back before you in the future for your approval, to allow CTRMA, Central Texas Regional Mobility Authority, to commence engineering and other pre-construction work up to but not including final design of the six listed projects in the minute order. Those six projects are all in the CAMPO TIP, the FY '08 through '11 TIP for the Austin area.

If, for any reason, through the market valuation process -- which it would initiate these efforts prior to completion of market valuation -- if these projects are turned over to CTRMA, it would go forward at no cost to the department. If they're not turned over to the RMA through the market valuation process -- which the RMA does have primus in this area according to Senate Bill 792 -- TxDOT would then reimburse their costs and part of this agreement would be for us to monitor and agree to those costs and be able to be a part of that effort to go forward with the preliminary engineering work.

MS. ANDRADE: Members, you've heard staff's recommendation. Are there any comments or questions?

MR. HOUGHTON: Yes. My question is, Michael, have you read the inserted new language in the minute order where you become a division of the Texas Department of Transportation?

MS. ANDRADE: Would you come up and state your name and identify so we can answer Commissioner Houghton's question.

MR. HEILIGENSTEIN: Mike Heiligenstein, director of the RMA. I'm happy to become an employee of Amadeo Saenz.

MR. HOUGHTON: Did you read the language?

MR. HEILIGENSTEIN: I did read it.

MR. HOUGHTON: Okay with it?

MR. HEILIGENSTEIN: Absolutely. It looks good. I look forward to working with you on it.

MR. HOUGHTON: Great.

MS. ANDRADE: Before you leave, can you just kind of brief us on some of what you hope to accomplish with this?

MR. HEILIGENSTEIN: The key factor, I think, is the last paragraph on that first page, Madame Chair, and that is with the rescissions rolling downhill to the local level, the district has had to basically stop the procurement process for engineering services on the TIP projects. Any time lost to inflation or any other factor is a negative as far as we're concerned. What we're doing is actually going out and mortgaging 183A revenue at this point to provide a bucket of money to continue those projects. We're stepping in where our partner in this case had to back out a little bit.

So that's really the purpose of this particular minute order is to help us continue to provide the preliminary development of those projects, and it just gives our proposed lenders -- we've got three lenders that have expressed interest in this, but it gives them a level of comfort that we are moving forward and we have some stake in this.

MS. ANDRADE: Good. We're glad to support our RMAs. Thank you.

MR. HEILIGENSTEIN: Thank you very much. Appreciate your help.

MS. ANDRADE: Thank you very much.

Members, you've heard staff's recommendation.

MR. HOUGHTON: So moved.

MR. HOLMES: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Thank you.

MR. SAENZ: Thank you. Agenda item number 6(d), Doug Woodall will also present, deals with a preliminary approval of a request for financing from the Alamo RMA. Doug.

MR. WOODALL: As Amadeo said, this minute order would grant preliminary approval for financial assistance to the Alamo RMA of $19.8 million to be used to fund costs for right of way, right-of-way acquisition services and preliminary engineering for the 281 North project. Of that $19.8 million, approximately $18- is for the actual purchase of right of way; the remainder would be for the preliminary engineering and right-of-way acquisition services.

This was previously presented to the commission and deferred and broken out into more of a milestone approach for the toll equity. The Alamo RMA and TxDOT staff have done this and your approval is recommended.

MS. ANDRADE: Members, any comments or questions? We do have the Alamo RMA executive director in the audience. Terry.

MS. BRECHTEL: I'm here to answer any questions you have.

MS. ANDRADE: Members, do you any questions, comments?

(No response.)

MS. ANDRADE: Thank you, Terry.

What is your pleasure?

MR. HOLMES: So moved.

MR. UNDERWOOD: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Motion carries. Thank you very much. No, I did not oppose.

(General laughter.)

MR. SAENZ: Agenda item number 7, James Bass will present the quarterly report on actual traffic and revenue for the Central Texas Turnpike System.

MR. BASS: Good morning again. I'm James Bass, chief financial officer at TxDOT.

Item 7 presents the traffic and revenue report for the Central Texas Turnpike System as of February 29 of 2008, in accordance with the indenture of trust associated with the bonds for that project.

The data on revenue continues to be positive as the monthly revenues on the system for fiscal year 2008 have averaged 28 percent more than the original projections back in 2002. Even though revenue on the system as a whole has outpaced those original projections, I would point out that State Highway 130 revenues were below those original projections, however, those original projections for State Highway 130 contemplated that all four segments of the road would be open, and Segment 4 is currently scheduled to be open in April and the trend indicates that once it is open, the revenues for State Highway 130 would then outpace their original projections.

Staff recommends your acceptance of the report so we may disclose it to the market, and I will be happy to answer any questions you might have on the report.

MS. ANDRADE: Members, any comments or questions?

MR. HOUGHTON: What's the toll rate?

MR. BASS: I think it's 14.5 cents on 45 and 12 on 130.

MR. HOUGHTON: From an overall standpoint when you look at revenue and expenses, where are we?

MR. BASS: The expenses for the operations have been -- it's early is the best answer on that, but for the operations and maintenance costs there are two portions of that. There's a variable part that as you have more traffic your costs go up because it costs more to collect the money, so those costs have gone up above original projections because we're having more traffic. The fixed costs I think are higher as well. I don't have, unfortunately, specific numbers that I can give you right now, comparing those two -- we'll work on it -- but I would say yes, traffic has gone up and it is above original projections, but I would tell you I think operations and maintenance expenditures are above original projections as well.

MR. HOUGHTON: So the bottom line is we're not cash flowing this thing.

MR. BASS: No. There is no surplus toll revenue.

MR. HOUGHTON: When do you see a light at the end of the tunnel?

MR. BASS: Well, the current projections from the traffic and revenue and engineers show that for the 40-year term of the debt, the department will, in each of those 40 years, pay a portion of the operations and maintenance. So the reverse of that is there is no surplus revenue generated for that 40-year period, given the current estimates. And as we've talked before --

MR. HOUGHTON: The estimates we've blown away.

MR. BASS: Correct. That's the hope, and we seem to be headed in that direction. As we get more actuals on both traffic and expenditures, your forecast becomes better as you go forward because you actually have a track record to base it upon.

MR. HOUGHTON: So how much are we subsidizing this on an annual basis on your forecast?

MR. BASS: I know over the 40-year period over nominal terms, it's over a billion dollars is what the pro forma shows.

MR. HOUGHTON: And what's it cost to collect a toll?

MR. BASS: There are different elements. Someone from TTA could probably answer that better; I'm pitch-hitting for Mr. Russell today.

MR. HOUGHTON: You're the financial guy.

MR. BASS: But I don't do this part of the financial stuff.

The electronic toll collection carries costs with it. There's the automatic replenishment through the credit card fees, so you have that along with it. I don't know if anyone is here.

MR. HOUGHTON: That's all right. Doug, you know, don't you?

MR. WOODALL: About 8 cents per transaction.

MR. HOUGHTON: And Doug, what's the industry average on a transaction, or is there an industry average?

MR. WOODALL: I'm not sure that we would have that information. We can certainly get it for the commission. We're hearing along the order of 11-12 cents, in that range.

MR. HOUGHTON: Per transaction.

MR. WOODALL: I believe so, but I would have to check into that to verify, though.

MR. HOUGHTON: I think it would be nice to know what we index ourselves to or where we stand on collecting these things, what's it cost to collect per transaction.

MR. WOODALL: And I think a big influence of that is the high percentage of our electronic versus our cash. I think that 11-12 cents is really looking at a big picture of all the toll collection costs for a number of agencies.

MR. HOUGHTON: And that begs the question, Amadeo, our prior chair was very focused on electronic, no toll booths and all that sort of stuff, and our indenture on the CTTS says you will have toll booths and you will do these sort of things. My question is does the electronic get you to where you need to be on a revenue capture. And as we say, everyone is a customer whether they have a tag or not, you're just going to pay more.

MR. BASS: And to add a little more context to it, as you all recall, to build that project initially, the state contributed $700 million towards the construction of it and the local governmental entities another $500 million. If, because of the nature of the market, the industry back in 2002 and the conservative nature of the municipal market, if we had gone all-electronic with that road back in 2002, had no cash lanes whatsoever, those figures would have needed to have been higher. I can't tell you precisely how much higher. They would have needed to have been higher. It's been a few years since we looked at the numbers.

MR. HOUGHTON: That's the old kind of thinking, but have people come forward enough to think now that well, that's not necessarily true?

MR. BASS: I think the experience we've had on the Central Texas Turnpike System is going to start to change that thinking, because I can remember the traffic and revenue engineers looking at it, what percentage of your transactions, what percentage of your traffic is going to be electronic, and their thought, I think, was it's going to take you five-six years to get maybe 75-80 percent. Eighty percent is a theoretical cap because 20 percent of the public don't have bank accounts or credit cards, so that's a theoretical cap, and it's going to take you five-six years to get there. I think after about two months we were at 70 to 75 percent of the transactions were tag-related.

And so by having that option available, I truly think you have more traffic on the road than you would without it and it generates more money. Now, it has costs associated with it, the credit card fees for replenishment, but you're attracting more revenue and that revenue more than covers the cost to collect it, so I think it's a benefit.

And one other thing, just to kind of highlight that, I think it's quite impressive, the number of active TxTag accounts is 450,000. That's included in this report. Total statewide that anybody might have.

MR. HOUGHTON: How many in this region?

MR. BASS: We can get that, I don't have it right now, I don't know if we know that.

MR. HOUGHTON: We're asking you another question, Doug.

MR. BASS: We can get it by zip code or broad area.

MR. HOUGHTON: Is there a away to analyze this information, Amadeo or James or Doug, as to all-electronic versus cash booth, and again, we've talked about the cost to collect per transaction. I mean, there's an industry that has grown now, toll roads have grown all over the country.

MR. BASS: And if I can clarify, I used the wrong terminology. It's active TxTags is 450,000. One account may have two or three vehicles and have multiple tags, so the 450,000 is the number of tags and there's 263,000 accounts. And we have the information by billing address that we can break it down by region. I don't currently know that number.

MR. HOLMES: James, how does that 450,000 tags relate to the number of tags that NTTA has or HCTRA? Do you have any idea?

MR. BASS: I don't know. We can get that. Someone else may know.

MR. HOLMES: Looks like Ed knows.

MS. ANDRADE: Amadeo, did you want to add something?

MR. SAENZ: I think the data that we're collecting now with the Central Texas System and being able to determine how many vehicles are actually using the TxTag but also more importantly, how many vehicles are going through that we're doing the video tolling and the cost associated with that will help us kind of plan. This kind of has become the standard for everywhere else. I think this is the first one that was set up that you don't have to have a toll tag to be able to drive on the system, and we're doing video tolling.

MR. PENSOCK: I was going to say I was hoping Michael or Alan were still here, but the numbers I've heard is about a million tags in the Dallas area and about a million tags in the Houston area. Is that close, Michael?

MR. HOUGHTON: You can answer several questions.

MR. MORRIS: I'm sorry, I didn't hear the question, Commissioner. I apologize.

MR. HOLMES: James or Doug reported that there were 450,000 TxTags issued, and my question was how many tags would NTTA have, how many would HCTRA have. Do you have any notion of that?

MR. MORRIS: They'd have a better guess on that. I mean, I can find out quickly.

MR. HOUGHTON: Michael, you've been involved in negotiations. What's the cost per transaction?

MR. MORRIS: Well, we're in a delicate phase.

MR. HOUGHTON: On the 121, remember when we did the procurement on the 121.

MR. SAENZ: I believe the 121 toll services agreement, Doug, had a transaction fee of 11 cents.

MR. HOUGHTON: The 121?

MR. SAENZ: The 121 that you all approved earlier today had a transaction fee that we will pay NTTA 11 cents per transaction for them to operate that.

MR. HOLMES: And one of you said 11 cents was a number that some system was experiencing. Is that right?

MR. WOODALL: Yes, sir. Like I said, we would have to go out and check, run some survey on that a little bit to get an accurate number, but that's generally what I have heard is on the order of 11-12 cents per transaction.

MR. HOUGHTON: Well, it's a matter of efficiencies, are we being efficient, and how do we index ourselves to someone else.

MR. WOODALL: Well, it's really a difficult question because some people will report their costs including enforcement, not including enforcement, how they account for things. So it's really not always an apples-to-apples comparison, and we have a very high percentage of the open road toll collection as part of the Central Texas Turnpike System where others still have a very high percentage of cash. So it would be difficult to give you an apples-to-apples.

MR. HOUGHTON: They're still throwing quarters. Right?

MR. WOODALL: Correct.

MR. HOLMES: Just as kind of a rough rule of thumb, if it's 450,000 tags issued essentially here -- right? -- versus a million in the Metroplex --

MR. MORRIS: 1.4 million in Dallas-Fort Worth.

MR. HOLMES:  -- 1.4- where it's been going for 25 years, I'm really encouraged, particularly considering, one, it's been going for a year versus 25, and the other one, you've got a million and a half, million-seven population versus 6 million. I think that bodes well for the system.

MS. ANDRADE: If I can add, Amadeo, we may want to arrange a briefing on this. I think there's enough interest on the commission that we want to hear about industry standards and so forth, so we can evaluate that.

MR. HOUGHTON: Well, there's a method, Madame Chair, to this is we have an asset sitting there and it has some value to it. Are we managing the asset and realizing the value of that asset. You know what I'm talking about, James, in this situation.

MR. BASS: And one of the things, as well, one of the large employers near the toll road happens to be Dell Computers, and I think Samsung is in the area, people who are receptive and open, obviously, to technology which were some of the arguments we made to the traffic and revenue engineers back in 2001 and 2002, and we were so convincing they said, Yes, it will take you five or six years to get to 75 percent, and as I mentioned, in just a couple of months the system was operating at that level.

MS. ANDRADE: Members, anything else?

MR. HOUGHTON: It's just a report. No action, is it?

MS. ANDRADE: We have to accept it.

MR. HOLMES: So moved.

MR. HOUGHTON: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Motion carries. Thank you very much.

MR. SAENZ: Agenda item number 8 deals with a State Infrastructure Bank loan for Hunt County. James.

MR. BASS: Item 8 seeks final approval of a loan to the City of Greenville in the amount of $2 million to pay for local match requirements for construction of the Monty Stratton Parkway overpass at Interstate 30. Interest will accrue from the date funds are transferred from the SIB at a rate of 4.15 percent, with payments being made over a period of no more than 20 years.

Staff recommends your approval.

MS. ANDRADE: Members, you've heard staff's recommendation. Any comments or questions?

(No response.)

MS. ANDRADE: What is your pleasure?

MR. UNDERWOOD: So moved.

MR. HOLMES: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Motion carries. Thank you, James, very much.

MR. SAENZ: Thank you, James.

Commissioners, agenda item number 9 deals with the Promulgation of Administrative Rules. 9(a)(1) deals with proposed rules for Motor Vehicle Distribution, and Brett Bray will make our presentation.

MR. BRAY: Madame Chair, members, Mr. Saenz. I'm Brett Bray, director of the Motor Vehicle Division.

This agenda item involves proposed amendments to existing rules and new rules to give effect to House Bill 2651 in the last legislative session. The Motor Vehicle Division licenses issued to dealers, manufacturers, converters and others have, by statute, expired on a one-year term. House Bill 2651 -- which was a legislative agenda item -- removed the annual renewal requirement for these licenses and authorizes the department to prescribe the period for which licenses are valid.

The proposal before you today creates two-year license terms and provides for a transition from one-year to two-year terms. The effect is to cut the license renewal workload and we expect that the reduction in renewal workload will improve the backlog that we have. It will also reduce call volume and allow us to direct resources to processing new applications. The results should be timelier renewal of licenses and better services to the regulated community.

The fiscal impact will be a one-time revenue gain of about $3.3 million to the State Highway Fund. Annual license renewal revenue is approximately $6.6 million and during the first year, half the licensees will renew for one year at the current annual rate and half will renew at a two-year period.

License fees themselves are not being increased. Dealers and others will pay the fee for two years at the time of application or renewal. They will see an increased cost in year one and an equal decrease in the second year of the license term. We do not believe there will be significant economic impact to licensees.

We request approval to post and publish the proposed new rules and amendments, and I'm happy to try and answer your questions.

MS. ANDRADE: Members, any comments or questions?

(No response.)

MS. ANDRADE: What is your pleasure?

MR. HOUGHTON: So moved.

MR. UNDERWOOD: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Motion carries. Thank you, Brett.

MR. SAENZ: Thank you, commissioners. Agenda item number 9(a)(2) deals with Chapter 17, Vehicle Titles and Registration, specialty license plates, and Rebecca Davio will present.

MR. HOUGHTON: Glad to be back, Rebecca?

MS. DAVIO: Yes, sir. My name is Rebecca Davio. I'm the director of the Vehicle Titles and Registration Division.

For your consideration today we have proposed rules affecting specialty license plates. The primary component is the specialty license plate marketing fee schedule.

Just to take you through quickly, the history, in 2005 TxDOT was mandated by the legislature to hire a vendor to design and market specialty license plates. In 2007, November of 2007, to be precise, TxDOT signed a contract with My Plates, Inc. This contract guarantees a minimum of $40 million to General Revenue over the initial five-year term of the contract. This contract also requires that the vendor plates do not directly compete with or cost less than the existing specialty plates.

VTR, when we were working on developing this contract and throughout the award and the negotiations, we had several goals that we held true to. The first was that we wanted to fulfill the state law requiring TxDOT to contract with an SLP marketing vendor. The second is that we wanted to do everything possible to generate revenue for the state. The third is that we wanted to provide great service to our specialty license plate customers. And the fourth is we wanted to protect the interests of the existing specialty plate sponsors. That was a very conscious and consistent effort throughout the process.

Just to let you know some of the things, how we've been communicating with the specialty license plate sponsors. We have significantly stepped up our e-mail communication with them. Just this year alone, we have had four meetings with the specialty license plate sponsors. We had an additional meeting after the last commission meeting. We also have a planned public hearing to provide additional comment period for them, assuming that you would approve these proposed rules today. We are 100 percent committed to ongoing communication with the sponsors and we welcome their input on the process. That's very important to making sure that this is a successful program.

At the most recent meeting with the sponsors that we held after the last commission meeting, we asked the plate sponsors several questions, and one of the questions was: TxDOT is bound to hire -- we have signed a contract with a specialty license plate marketing vendor; what would make you feel more comfortable about that contract? And so we've gotten a number of suggestions from the sponsors. We allowed input from them through e-mail if they weren't able to attend the meeting, and what I have here is just a list of some of those. It's not a comprehensive list but this is a list of items that all of the organizations agreed to, or all the ones that were present said yes, we think those are good things, those are reasonable requests, and My Plates has agreed to them.

One, we will provide a preview of the website, of My Plates' website before launch. All the existing organizations will have an opportunity to preview that. TxDOT will inform the sponsors when the new proposed designs are posted on our website and we will consider all the comment from the sponsors. We will provide advance notice of any changes to the website so that the links from the sponsors won't be broken. We will provide the same visibility on the My Plates website for the existing plates as there is on the current TxDOT website for specialty license plates. And we're very committed to the idea that we will monitor the results and we will make modifications as necessary to make sure that the existing plate sponsors are not harmed by this program.

And we hope to replicate Australia's increased sale for the existing plates. You are probably familiar that Australia is the only place that we are aware of where there has been a vendor that's been hired to market specialty plates, and from that experience, we have seen that the existing plates that were in place when the vendor was hired all experienced an increase in sales, typically of about 10 percent. So before you for your consideration and your adoption is the proposed specialty license plate marketing fee schedule that My Plates has proposed.

As we move forward with the specialty license plate marketing, we will need to be flexible and open to correcting our course should issues arise, we understand that. VTR plans to closely monitor sales of new plates from the vendor and those of the existing specialty plate sponsors, because they both provide very important value to the state. The vendor sales will help the state provide much needed revenue for the General Revenue Fund, and the non-profit specialty plate sales help deserving and worthwhile causes. They are both very important.

MR. HOUGHTON: Is this the auction plate we talked about?

MS. DAVIO: No, sir, this is not the auction plate.

MR. HOUGHTON: You're going to get to that. Right?

MS. DAVIO: Yes, sir, I can address that.

We recommend your approval of the proposed rules. And Commissioner Houghton, to address your question about the auction plate, we have been working with OGC and trying to figure out how to address that. We are planning to bring that for your consideration in the June rules.

MR. HOUGHTON: Commissioner Holmes is just itching to make that contribution to the University of Texas, but he's got to have that plate.

MS. DAVIO: And we want to provide him the legal venue to be able to do that.

(General laughter.)

MS. ANDRADE: Rebecca, we've got a couple of citizens that have signed up. Members, would you like to hear them first? All right.

Justin Keener.

MR. KEENER: Good afternoon. For the record, my name is Justin Keener. I'm with Cassidy & Associates and represent Pinnacle Technical Resources, a company based in Dallas which was one of the three firms that competed for the specialty license plate program.

Chairwoman Andrade, commissioners, Mr. Saenz. I stand before you today at the suggestion yesterday from Commissioner Houghton and want to be clear that Pinnacle appreciates the work that the legislature and TxDOT have done to create a program that will increase consumer choice for specialty license plates, while increasing revenue to the state. However, Pinnacle must respectfully oppose the proposed rules changes for two reasons: because the state would leave money on the table and because these proposed rules contradict language in the RFP, thereby potentially damaging the two firms not selected who submitted bids based on instructions clearly outlined in the RFP.

Specifically, Pinnacle opposes adding language in Exhibit B, page 30, starting at line 6, which permits the issuance of multi-year plates. The RFP specifically stated, and I quote, "SLP fees shall be for 12-month periods and must be renewed each 12-month period." Therefore, had competing firms been permitted to base their proposals on multi-year rather than annually renewed 12-month plates, they could have increased their projections of revenue to the state.

Secondly, Pinnacle opposes adding language in Exhibit B, page 30, starting at line 1 that changes the handling of funds whereby SLP revenue would flow from the citizen to the private vendor and then from the vendor to the state. The RFP stated, quote, "The vendor shall submit 100 percent of funds collected to the Texas Comptroller of Public Accounts, whereby specialty plate revenue would flow directly from the consumer to the state which in turn pays the vendor."

The proposed change before you today turns that on its head. Under the proposed turnaround, Texas consumers will send their money directly to a private vendor, and under this scenario, the vendor gains possession and use of funds dedicated to the state rather than the state having that cash flow. The RFP did not contemplate this risk to the state when it required only a $100,000 bond from the vendor. The RFP stated the following: "TxDOT will entertain alternative solutions for handling funds as long as it doesn't increase the state's cost."

If you remove this specific section from your proposed rules, the state would clearly be in a better financial position, and therefore, this proposed rule increases the state's costs. Furthermore, had competing teams been allowed to disregard this requirement and propose managing cash themselves, their bids could have been much higher.

Pinnacle believes that should these rules be enacted that the state will leave money on the table and it will have lost the opportunity for a competitive bidding process that could have resulted in higher commitments of revenue.

Thank you again for the opportunity to share Pinnacle's concerns.

MS. ANDRADE: Thank you. Members, any comments or questions?

(No response.)

MS. ANDRADE: Thank you very much.

Robin Stallings.

MR. STALLINGS: Madame Chairman and commissioners, thank you so much for giving me a chance to speak. My name is Robin Stallings. I'm the executive director of the Texas Bicycle Coalition Education Fund, and we are the sponsor group for the Share the Road license plate which we use for the largest bicycle safety education program in the country for children.

I wanted to thank you all for giving another month to have some time. There were many responses from many groups, many great suggestions, including we had a little bit more time, and while none of those have been put into the contract -- which we would have preferred -- we feel like we were able to at least get them out so we're better off than we were.

Right now it seems we're having to rely on the good will of the people that are in the positions at division, the division director -- who we have great confidence in -- and the folks that are currently managing My Plates, really nice folks, but there's not much protection in the contract, and so it's really going to depend on people of good will doing good things -- which isn't the way my daddy taught me to do business. You know, he said, Get it in the contract, protect yourself. We don't feel like we are there.

But given what we have, there's a few things that could be improved and tweaked, and we've given these to Ms. Davio, like specific suggestions of how the website could be handled if there's only going to be one website. We would hope that TxDOT would keep its website up for a year, kind of a wait and see, does theirs work, is it up and running, so there's an overlap so that just in case the new system doesn't work, there's not a gap. And then that you all would have the division and all of us come back and take a look at this in a year and see how it's working. And as I've told Rebecca Davio, I will be happy to eat crow. If I am wrong and this turns out to be a great thing in a year, you will see me in a sack cloth.

So I'm very nervous about it. We have a lot at stake, our programs have a lot at stake. Unlike most types of programs, we don't just do the traffic safety for bikes and pedestrians, we have to find the money to do the programs for bike and pedestrian safety. We feel a little bit like the victims of DUIs, having to go out there and find money to prevent future victims. So we cyclists have taken it on, we do it, but it's pretty scary because as you all know, 400 pedestrians a year are killed, 50 cyclists a year are killed in Texas, and we have the major program to try to do something about that. So it is life or death for us and that's why we're so passionate about it.

Thank you very much and hopefully we'll be seeing you all next year to see how this turned out.

MS. ANDRADE: Thank you very much.

James Power.

MR. POWER: Madame Chair, commissioners. For the record, my name is James Power, I'm the president of My Plates.

I just want to make some very brief comments. We see this as a very positive program, both for all the existing SLPs and for the State of Texas. Just a note for the record that TxDOT's own figures show that the existing specialty plate category -- and by that I mean the existing sponsored plates -- are actually in decline. Now, that's obviously not something that we welcome, but we genuinely believe that as a result of our professional and integrated marketing campaign that awareness and interest in the specialty plate program for the existing plate sponsors and the new plate designs that we propose for TxDOT and your consideration will increase.

We are committed to working with the existing plate sponsors, we've already met with them twice. I know that Ms. Davio and TxDOT have consulted widely with them. We are concerned to see that this program is successful for everybody, that it's a win-win situation, and that indeed has been our experience in Australia.

So I appreciate the opportunity to speak to you this afternoon. I understand Mr. Stallings' concerns and I sincerely hope, as well, and expect that in 12-month's time we'll be sitting here to discuss the positive impacts of this program upon his and other plate sponsors' plates. Thank you.

MS. ANDRADE: Members?

MR. HOLMES: You said the specialty plates were in decline. Do you have some numbers to support that?

MR. POWER: Commissioner, I don't have them on me presently, but I've seen them, they're TxDOT-supplied figures. Now, I'm not talking about each specific plate is in decline but I'm saying overall the category is in decline.

MR. HOUGHTON: Which one is on the increase?

MS. DAVIO: If I may? My name is Rebecca Davio, director of the Vehicle Titles and Registration Division.

There was a drop in the overall plate sales for the sponsors in 2006. We don't know exactly what that's caused by, but we attribute it to two primary factors. One is the increasing public awareness that the money that was collected, the $22 from the plates that goes to the charitable organization, that that money was not getting to those charitable causes. There was a lot of media attention about that. And if you're buying a plate to support a cause and the money is not getting to that cause, that might make you stop buying the plate. The other factor was in 2006 there was a recommendation from the existing contract to increase the price of all the existing plates from $30 to, I believe, $55.

MR. HOLMES: And it was increased? You say it was a recommendation to increase it.

MS. DAVIO: It was a recommendation, yes, sir.

MR. HOLMES: Does it mean that it was followed through?

MS. DAVIO: The contract was canceled before the price increase took effect.

MR. HOLMES: And so they didn't experience a price increase, they just were kind of threatened with one.

MS. DAVIO: Yes, sir.

MR. HOUGHTON: And that caused the market to react?

MS. DAVIO: We don't know exactly what caused the market to react, and as James pointed out, it wasn't an across-the-board decline, every single plate didn't necessarily see a decline.

MR. HOLMES: Rebecca, did they pick back up in '07?

MS. DAVIO: Yes, sir.

MR. HOLMES: And has it grown basically with the population, the issuance of SLPs? Has it grown in proportion with the population?

MS. DAVIO: I'm sorry, I haven't studied plate sales in relation to the population so I can't really tell you that. There was an increase in '07.

MR. HOLMES: Increase over '06. Did it increase over '05?

MS. DAVIO: I believe so.

MR. HOLMES: So you had a temporary blip but it picked back up on the growth curve?

MS. DAVIO: That's right. I mean, there could have been other factors that also contributed to the decrease such as maybe the organizations didn't do as much marketing or something like that, but those were the two biggest factors that we thought might have.

MR. HOLMES: In the discussions with the SLP issuers, you said that there were a series of things that had been agreed to and that My Plates had agreed to certain changes. What's the evidence of that agreement and how would we know what they agreed to if it wasn't actually committed to writing?

MS. DAVIO: We have been maintaining a running list of all the suggestions from the organizations and working with My Plates on that and saying we are still very much in the development process and we will be documenting that as part of the working group agreements.

MR. HOLMES: Why wouldn't you just amend the contract with the agreed changes?

MS. DAVIO: The contract is a broad document, it provides broad guidelines, and the operating agreement gets more specific and then the individual agreements on day-to-day working issues are recorded in the working group meetings minutes.

MR. HOLMES: Okay. I got a little lost in those three different agreements. That third one is a movable feast, it changes at it goes, or help me understand that better.

MS. DAVIO: It's an official recording. There is a working group meeting made up of representatives from VTR and My Plates and those minutes from those meetings record the actions that are taken and the agreements that are made, and so it becomes an official written document. If you'd like, Janice Mullenix, from the General Services Division, who negotiated the contract, can speak with much more expertise about the workings of the contract and the operating agreement and the working group, is here if you have more specific questions.

MR. HOLMES: Let me go back to a couple of the Pinnacle objections. Do you have any comments about that?

MS. DAVIO: Pinnacle has protested.

MS. ANDRADE: Hold on. We've got our legal counsel coming up.

MR. HOUGHTON: He ran to the podium.

MS. ANDRADE: I knew he would.

MR. JACKSON: Just a suggestion. The comments really weren't on the rules, they were on the procurement process. I fear litigation. I suggest that we avoid responding to those comments. If you want answers, we have staff here that could do that.

MR. HOUGHTON: My question, though, to you is I thought that we were immune.

MR. JACKSON: We think so, they may not. We had a challenge from our logo contract a couple of years ago where appellate court held that we were immune.

MS. ANDRADE: And refresh our memory, this has already been through an appeal process?

MR. JACKSON: Yes.

MS. ANDRADE: And for just a memory refresher, we asked Rebecca at the last month's commission meeting to go back, and I think the question was that had the affected organizations and not-for-profit been contacted, and so I think that's the direction that we gave her last month, and since then she has done so. And so we certainly appreciate, Rebecca, all the effort that you've done, and you're comfortable with it, all the organizations understand what's going on and they're going to be involved in this, and since this is new for the department, that we do have flexibility and that we do have the proper exit clauses and so forth if this is not working out?

MS. DAVIO: Absolutely, and we will be monitoring how it works.

MS. ANDRADE: All right. Members, you've heard staff's recommendation. What is your pleasure?

MR. HOLMES: So moved.

MR. HOUGHTON: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Motion carries. Thank you very much.

MS. DAVIO: Thank you.

MR. SAENZ: Thank you, Rebecca.

Agenda item 9(a)(3) deals with Chapter 18, Motor Carriers. Carol Davis will make the presentation on proposed rules that concern vehicle storage facilities and nonconsent towing fees.

MS. DAVIS: Good morning. For the record, I'm Carol Davis, director of TxDOT's Motor Carrier Division.

The minute order before you proposes the repeal of sections concerning vehicle storage facilities and nonconsent towing fee schedules to implement House Bill 2094. House Bill 2019 transferred all functions relating to tow trucks, towing operations and vehicle storage facilities to the Department of Licensing and Regulation. The transfer of these responsibilities occurred on February 1, 2008, and TxDOT is no longer involved in the regulation of these entities.

As such, we are recommending adoption of the proposed repeal. If you have any questions.

MS. ANDRADE: Members, any comments or questions?

MR. HOLMES: So moved.

MR. HOUGHTON: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Motion carries. Thank you very much.

MS. DAVIS: Thank you.

MR. SAENZ: Thank you, Carol.

Moving on to agenda item 9(b), Final Adoption, Bob Jackson will present final adoption of rules dealing with Chapter 1, Management.

MR. JACKSON: Bob Jackson, general counsel.

The department got its first statutory advisory committees with its '91 Sunset and the commission adopted rules. The Open Meetings Act does not apply to advisory committees but the commission, by rule, felt that it should and applied it, and for many years we've applied the Open Meetings Act to several statutory advisory committees. The point was to have meetings open to the public, public notice, but we get caught up sometimes in technical details that are hard to explain and implement with so many public members. So we proposed rules to take away that requirement but still require meetings of statutory advisory committees to be open to the public, require public notice, and require that the committee follow an agenda.

On final adoption, we also want to make another change in that since the early '90s, committees could only act by majority of its membership, not of those present. We have difficulty enough getting a quorum to try to get a vote sometimes and with a majority of membership can be difficult, so we've taken out that requirement so it's just a majority of those present.

We got no public comments, recommend approval of the minute order.

MS. ANDRADE: Members, you've heard staff's recommendation. Any comments or questions?

MR. HOUGHTON: So moved.

MR. HOLMES: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Thank you very much.

MR. SAENZ: Thank you, Bob.

Agenda item 9(b)(2) deals with Chapter 18, Motor Vehicle Distribution. Brett will come and present the adoption of final rules dealing with temporary tags and other items.

MR. BRAY: Brett Bray, director of Motor Vehicle Division.

This item is a proposed set of rules and amendments concerning two concepts. The first is a series of amendments and modifications to rules regarding dealer premises. They're in rule 8.140. This part of the proposal was prompted by dealer and the industry. They expressed concerns that a small but significant number of dealer applicants are establishing substandard dealerships in inappropriate or unsafe locations.

The proposal drew relatively little comment and the few that there were, we made changes in our recommended response. For example, we recommend that franchise dealers be able to obtain a license with temporary signs or banners since they must often get their regular signs from manufacturers and that's a time-consuming process. We also recommend that dealers who are salvage pool operators be excused from having to mark each salvage vehicle since they only engage in business with members of the pool.

There were some additional comments and they are addressed in the preamble. Other than a comment or two that addressed statutory items that we really cannot address by rule, I believe we were generally able to accommodate all of the dealers' and law enforcement's comments.

The second concept involves what are known as E-tags or temporary tags. We visited about this subject several times and if you adopt these rules today, it will cap a process where many different groups have worked on this long and hard for quite some time. The last rule proposal I just brought you was short and to the point and there was no controversy and it was dispatched quickly. This one requires a few minutes more of your time because of the gravity of what we're talking about. It affects 4 million temporary tags issued each and every year and more than twice that of dealer demonstrator tags.

Prior to enactment of Senate Bill 1786 and Article 8 of Senate Bill 11 in 2007, the department could only prescribe the specifications of a temporary tag and could not issue or contract to issue temporary tags, limiting its ability to effectively counter tag abuse and counterfeit tags used to mask criminal activity.

In 1996, temporary tags displayed the dealer's license number and they look like the image behind you on the screen. That had been the basic design for many, many years. Tag formats were revised in 1997 to require an expiration date and they looked like this. The revisions were disappointing because they were ineffective in combating any type of tag abuse. In 2006, the department again revised the tag -- I believe that was at your Conroe meeting -- to the format by requiring dealers and converters to place a control number on each and every tag and maintain a log of tags issued.

In 2007, the legislature authorized a different way of issuing temporary tags altogether. The department is still prohibited from outright issuing or contracting to issue tags and this proposal does not contemplate that. The legislation does require the department, and specifically our Vehicle Titles and Registration Division, to create and maintain databases that allow for real-time access to owner information on recently sold vehicles and vehicles operated under other temporary tags. Dealers must obtain a vehicle-specific number via the internet from the department database before they can issue a temporary tag.

The department must adopt rules and make the databases available to dealers and converters before implementing the bills. The next set of slides will show you how we contemplate implementing this system. Dealers will input certain information and receive the specific number from the department database. The database has been designed to provide the information in the form of images suitable for printing if a dealer chooses to use them. Here is a quick preview of the different type of tags required under the new law. This is the buyer's tag.

In addition to the tag itself, dealers must provide buyers with a receipt for the tag and notice of the applicable law and keep copies in their sales file. I showed you the receipt in December and didn't include it here today for brevity.

MR. HOUGHTON: Brett, my ability to retain is not all that good, so my point here is that that number is specific to my vehicle that I purchased in my name?

MR. BRAY: That's correct.

MR. HOUGHTON: Okay.

MR. BRAY: The supplemental buyer's tag, same thing. You'll notice the number is still the same, actually, and that would be specific to your vehicle, your name, your address, all of those things.

MR. HOUGHTON: I drive off the lot; that's me.

MR. BRAY: That's right. That's you. The supplemental tag is used for a specific purpose after the expiration of the initial buyer's tag when a dealer is unable to obtain a release of lien. It doesn't really happen in new car transactions; it's usually a used car transaction.

Dealer tags and converter tags -- but I'm only putting dealer tags up here for brevity but it's the same process -- they authorize dealers to demonstrate vehicles and to transport vehicles to and from auctions and repair shops and so on. We developed two different dealer tag formats. One is vehicle-specific, like the one before you. It's a 2004 Kawasaki with that VIN number. The other is an agent tag and is agent-specific.

We received comments asking that the name of the agent be removed from the tag. The concern expressed was privacy, that some sales agents are young ladies that could be stalked or whatever, so it's removed. It is not removed from the database; law enforcement will still know who the tag is assigned to, it will just not be on the back of the vehicle.

MR. HOUGHTON: When you say assigned to a dealer, the car is assigned to that dealer, that's a specific dealer, that number.

MR. BRAY: The previous tag, that number is assigned to a vehicle.

MR. HOUGHTON: Owned by a dealer.

MR. BRAY: Owned by a dealer and used for demonstration or whatever. The next one is assigned to an agent and it's on any vehicle and authorizes her or him to drive any of the dealer's inventory with that tag.

MR. HOUGHTON: And that number is assigned to?

MR. BRAY: Jose Salesperson.

MR. HOUGHTON: Okay. A name.

MR. BRAY: Correct.

Finally, the legislation requires that the department allow dealers to have a supply of tags in the event that the internet connection goes down or there's a natural disaster that prevents access for a significant period of time, and a specified amount of preassigned numbers in each category is required. Internet-down and emergency may be downloaded by the dealer and securely held for such contingencies.

MR. HOUGHTON: What number is that, how many?

MR. BRAY: Well, it depends, it's based on sales. Specifically, it's a day's worth, if it's an internet-down situation. Dealers are expected to upload the information to the system within a day of sales and recording. A week's worth in the event of a natural disaster.

MR. HOUGHTON: Okay.

MR. BRAY: The new law requires that dealers have the one-day supply and the week's supply, and the rule language follows the statute, however, the rule allows dealers to download additional numbers as they use numbers. So if your internet is down today and you only get one for some reason, you're a small, small dealer, and then your internet is down tomorrow but you downloaded an additional tag in between, you can use that tag.

For internet-down tags, electronic registration of the number used must occur within 24 hours, as I said, and this is what the internet-down tag would look like. Dealers would obtain the number, print the tag, and keep the tags secure in their files while waiting for their internet to go down and would not use unless that event occurred. This is the emergency tag, same situation.

In addition to a stakeholders meeting that was held August 31 and the written comments that we received after it, a public hearing was held on January 29 and more written comments were received up to the cutoff date of February 19. Comments were received on a variety of issues but the most notable relate to these five things: placement of dealer tag in the license plate holder; the material of a tag; allowing the database sample image to be used as the tag; ways to protect the lettering on the tag, such as plastic bags; and adding a requirement for holograms.

Placing the dealer tags. The proposed rule requires that all tags, all temporary tags be displayed in the rear license plate area. Individual dealers in both new and used car associations suggested to the department continue to allow the dealer tags to be placed in the rear window of a vehicle. Individual law enforcement officers and law enforcement associations opposed that suggestion. We carefully weighed the comments of both interests and we recommend that you keep the rule as proposed.

The main purpose of the new temporary tags is to allow easier identification by law enforcement of counterfeit or stolen tags and to identify drivers of vehicles. Temporary tags with unique identifying numbers serve no purpose if law enforcement cannot view them.

MR. HOUGHTON: So we sided with law enforcement?

MR. BRAY: We do.

MR. HOUGHTON: Oh, great for us.

MR. BRAY: And common sense, I might add. A temporary tag displayed in a tinted rear window can be difficult or impossible to see because of the tinting and even the angle of the window. There's also a likelihood of confusion at the dealership between buyers and dealers tags, placing a tag on a vehicle if there are multiple choices of where to put one versus the other.

Dealers expressed concern about theft and loss, as well as weathering of dealer tags that are in the plate holder, and dealer tags are intended to have a limited title. I just had that conversation today, that these are supposed to be temporary tags. The ones that are proposed today have a limited life cycle of up to 60 days, so the effects of weather on the tags should be limited. Properly installed tags are no more subject to loss than properly installed metal plates.

And we understand that there is a concern that it might be inconvenient for dealer agents to place these tags on vehicles as they're taking them out on test drives, but there are a variety of methods -- and this was borne out in the rule hearing by dealers -- there are a variety of methods, such as suction cups, magnets, quick fasteners and others that would make it easy to place and remove the tags quickly. We believe the benefits to law enforcement outweigh any perceived inconvenience to dealers.

Tag design. We revised the proposal somewhat from what we showed you in December after considering all the comments. Now there are five options where there were four. Option one would still allow dealers to manually complete information on preprinted cardboard stock, using a black marking pen. This is required by statute; it is our least favorite but it is required by statute. Option one is that top right-hand tag and we actually have it physically displayed here on the board to your right.

Option two -- which is new -- would allow dealers to print the image from the database onto cardboard. The one on the right is a car, the one on the left is a motorcycle. So you would run it directly through your laser or your inkjet printer, the image that you get off the screen, and there's your tag.

MR. HOUGHTON: Could I stop you and ask you about option one? Do you have to go to the internet and register all that in?

MR. BRAY: Yes.

MR. HOUGHTON: So our friends at DPS and law enforcement know that that tag is just registered with Hope Andrade.

MR. BRAY: Yes, you'll have to because 4587650 has to be given to you from the department, from Rebecca's database. So what you'll be filling out on option one is that number and the other two lines, that it expires June 15, 2007.

MR. HOUGHTON: So they can manually do it?

MR. BRAY: Unfortunately, yes. It's not our favorite option.

MR. HOUGHTON: But we have to offer it?

MR. BRAY: Yes, sir. It is protected in the law.

MR. HOUGHTON: But we still have a specific name to that number.

MR. BRAY: Yes. It is still a specific registration for a specific buyer.

Option three is very similar to option two. It looks the same, the difference is it's a piece of cardboard that you place a label on. Our option three is up there on the top right, and the little one is a motorcycle again. Two companies that currently produce what you might call option three, those are today's tags, and all they have is expiration dates, as you can see. But that's a current practice of labeling cardboard.

Option four is printing the tag on just plain old paper and attaching it to cardboard with glue or tape or whatever, and then inserting it in a protective plastic bag or covering it with tape.

Option five is printing the tag on plain old paper, inserting it in a plastic bag and using a cardboard backing behind it to satisfy the statutory requirement for cardboard.

MR. HOUGHTON: We're going to vote on one of these options?

MR. BRAY: I'm glad you asked that; that was brought out yesterday. These are not either/or for you to vote on, this entire package is part of the rule proposal and it gives the regulated community five, and really two subsets, almost nine options of ways they want to produce the tag, as long as it is consistently produced so that it looks the same for law enforcement.

And we conducted a dealer training seminar in Dallas last week and 136 dealers were surveyed, and as you can see, they intend to utilize every option. There are some that want to do each. Also, prior to this, we surveyed dealers when we only had the four options before we went to strictly the cardboard option, and still dealers prefer to do it lots of different ways. So as long as it's a consistent product for law enforcement and it doesn't hurt the industry, then the regulated community can have options. That's the proposal.

There were a number of comments, including one that was within the time period for public comment and two that were not, from legislators, one from Senator Wentworth and two from Representatives Hill and Court, and they assert that the statute specifically calls for cardboard to be in the temporary tag, and for some very practical reasons. They contend that cardboard is legible, durable, rigid and capable of receiving additional counterfeit measures if needed. On the opposite side, we received comments from the dealer community that there is nothing magical about cardboard as a durable product and urging that other products, such as plastic and polyester, be allowed to drive down costs.

As a matter of fact, today that tag on the very bottom of the poster on the right is a vinyl product that is utilized in Florida, and the one on the left is a vinyl product produced by that maker that's a prototype of what he would produce in Texas of a vinyl product, but it's not cardboard.

MR. HOUGHTON: It's an option.

MR. BRAY: Well, actually, it is an option. Alone it is not an option because it's not cardboard. Some day maybe the statute will be modified and the word "cardboard" will come out and it will be a legitimate option all by itself. Today it has to be backed with cardboard, like the label, and then it can be an option.

We researched this thing, cardboard, and we found it's not defined in the law and we learned that cardboard is a generic, non-specific term for a heavy duty, paper-based product. There are many products commonly referred to as cardboard and they include materials used in building construction and shipping and heavy paper stock used in everything you can think of, and it's entirely within your authority to decide what type and weight of product will serve as cardboard today.

The department's rules today -- not the rules proposed but the existing rules today, and for a very long time have prescribed cardboard as a six-ply product, but we ascertained that the paper industry now more commonly describes paper products by weight. We've changed this proposal to reflect industry standards by setting the minimal acceptable weight of the product to be at least 65-pound cover stock and not relate to the number of layers. It's a common term, it's understood by office supply stores and the industry and it's understood by the general public when they go shopping for paper products.

The current rule requires all temporary tags must be printed on cardboard to comply with the statute and has for more than 30 years. Even so, the department does not take enforcement action against dealers who print information on labels and affix them to cardboard, recognizing that materials and technology have evolved since 1975. These advancements provide dealers with solutions that facilitate commerce and enhance efficiency. So I'm really referring to those two labels that vendors now do. Technically, under the rules for the last 30 years those aren't legal, but we have authorized them all this time because we can recognize advances in technology. To require that tags only be cardboard would deprive dealers of alternatives that have been in use for some time, and again, some of the options are those that I suggested to you.

Option five that I pointed out to you allows dealers to use cardboard backing without affixing it to cardboard by placing the backing material and the paper image loosely in a bag. You seal the bag to prevent deterioration of the paper and weathering of the lettering. And a vendor of a system for affixing labels to cardboard and some law enforcement officers objected to using a plastic bag. They cite the possibility of glare from the plastic and they argue that tags will be unreadable.

As I've reported to you before, Arizona and Montana are the two leading cutting-edge states in this area, and they require paper temporary tags with no cardboard involved, that must be placed in plastic sleeves without cardboard backing. They have employed these systems since 2003 in Arizona and 2005 in Montana, respectively, and they have provided letters that are in the rule file from the Arizona Department of Transportation and the Montana Department of Transportation, stating that the plastic sleeves are durable and withstand freezing Montana winters and Arizona's monsoonal rains. I know they only get eight or nine inches a year, but apparently it all comes at once.

They advised that law enforcement approves of the plastic sleeve and that sleeves have been in use without significant problems and objections from law enforcement.

And the two tags that I'm talking about are under the labels Montana and Arizona, and I reckon you're about a car length away or better from those tags, and I'm hoping that you're able to see them okay, and if you were an officer in a marked unit, you could read that number and key it in to find out who the driver of the vehicle was. Interestingly, the Arizona DPS doesn't have a complaint with it, and that's five years of use so far.

We received comments suggesting other options for tag material and design and we do not recommend them to you for one reason or another. One comment was to require color tags using PMS colors. PMS colors are Pantone Matching System of Standardized Colors. There's no reason to preserve the color coding system, in our view. As it's currently in place, color-coding has not proven useful in deterring counterfeiting and it imposes additional costs. Several people commented that counterfeiting will always be a problem and we agree, however, the unique identifying number for each tag that law enforcement can use to identify the vehicle and confirm its owner will better serve to prevent counterfeiting than color-coding tags.

Another set of comments were about requiring the use of holograms to make tags more secure, and some opposed the use of holograms because of costs and even holograms can be counterfeited. We agree. The additional layer of security provided by holograms would make it more difficult to counterfeit tags, combat fraud and help law enforcement easily identify counterfeits, however, the requirement was not in the original proposal and adopting it now would eliminate the opportunity for us to study it, for the industry that's regulated to comment on it, and it would unduly delay this process. And therefore, this proposal does not include a hologram requirements at this time.

The other issue, issuing tags. A vendor of a tag label system commented that the department is issuing temporary tags in violation of the statute by allowing dealers to use the sample image generated by the database, and suggested that the image be stamped with the word "Sample" so dealers can't print the image as a real tag. We disagree. The department is not issuing a temporary tag but merely granting dealers the option to use the tag image when they issue a tag, utilizing the information they input regarding the vehicle and the owner and the specific number they receive from the department. The summary of this information is being displayed in a format so that licensees can easily determine where the information should be placed, regardless of how they generate the tag.

In December you were presented with some tags that kind of looked shabby and were subject to some testing, and at that time Chairman Williamson asked if we had any plans to do our own testing, and that seemed like a pretty good hint and we did do our own testing. We received comments that tags need to be durable enough to last until replaced by a metal plate, and we agree, and the buyer's temporary tag is supposed to only be good for 20 working days and the dealer's tag is currently proposed to be good for 60 calendar days, so there's no reason for a tag really to have a useful life longer than 60 days.

During the comment period, GCS Systems provided a visibility test of temporary tag media options being proposed comment, the two types of tags provided by GCS passed their testing and the two types that they do not supply and oppose failed. We do not agree with their conclusions. The parameters and the test conditions were not fully disclosed and they cannot be duplicated or analyzed.

But after the presentation at the December meeting, we asked Thomas Bohuslav's division, the Materials and Test Section of the Construction Division, to conduct tests and they did. They conducted them on the four proposals that we had at the time which was mostly a paper-based product. They were exposed to 140 hours of accelerated weathering in an Atlas Xenon Weatherometer to measure resistance to sunlight and water exposure. I can't tell you any more about the testing but I have somebody here who supervised that testing; if you want to get into detail and questions about it, he's your man and he's here, Darren Hazlett.

Durability of the proposed tag types as well as inkjet printing versus laser printing were examined, and in addition to all of that MVD personnel also performed real life tests using their own vehicles in December and January to see how these tag options worked. Both tests confirmed that the proposed tag types and printing methods are suitable for the expected period of use.

The Construction Division has now tested, just over this last weekend, the five options that we've revised since the comment period and are suggesting to you, and those test results indicate that all options will serve the purpose for the expected period of use.

I have one more. We did a cost comparison of the options that I've shown you, and this is a difficult comparison because the preprinted tags, I can't tell you that 62 cents is it, you can go out and you can maybe strike a better deal, but in our surveys of dealers, we find that the average price they pay for preprinted tag stock is 62 cents apiece, and then the plastic bags to put over that would make it up to 70 cents. But the other options are very small in cost. This one is one-half of a cent or six-tenths of a cent, actually, option two; option three is 18 cents; option four is about 7-1/2 cents; and option 5 is about 7-1/2 cents apiece.

That's all I have. We recommend approval of the minute order and I'm happy to try and answer any questions you have. There's one more thing. The tests on the tags that we have done most recently, we didn't have time to put on a board for you. Mr. Polson has them available if you care to have a look and feel of the actual tags.

MS. ANDRADE: We've got about ten or eleven citizens that wish to address us, so we're going to listen to them first. Is that okay with you? Okay.

I do ask everyone that's called up to please respect the three-minute rule. We'll start off with Glen Hagood.

MR. HAGOOD: Good afternoon. For the record, I'm Glen Hagood, president of GCS Systems.

Let me give you the evolution of GCS Systems. Back in 2003 I bought my wife a new car and I got a temporary tag that was done by hand on cardboard that the expiration date was wrong. It didn't hold up to the weather so I went out immediately and developed this product right here that would weather the amount of time it needed to. It did have the expiration date calculated correctly. And then like Brett said, in 2006 the design changed, so we modified it to match the current design, and then we had some law enforcement officers comment about the red border we had around it, so we took that off and added some more security features to it. And this would be what our tag would look like if they changed the new design to one that's got the vehicle-specific number assigned to it.

But other than that one there, we can see a temporary tag look just like that that had color which has helped law enforcement to identify it as a temporary tag, it's got Texas Temp on it. We could have a design that looked like that that had the expiration date embedded in those numbers where it can't be tampered with. The bottom one there, the same thing with the expiration date embedded in the font, plus a hologram sitting over there if so wanted. So we're not restricted to any certain simple pattern, we could do any kind of pattern, any kind of security features at no extra cost to the consumer.

Over here on the left is what other states are currently doing. Some of them have security features on them like holograms, some don't, but all these over here have got a cardboard feel and touch to them that they're thick enough, they're sturdy enough, they don't need a plastic bag to protect them from the weather. Our tags here are weatherproof on their own, they don't require any tape over them or plastic bag to protect them against the weather, they'll last the full 21 days, 60 days, 90 days.

You know, we've all seen vehicles on the street out there that's got a temporary tag that's been expired 60 days, 90 days, so my point was the tag has to last until it's replaced by a real license plate and it's got to be legible for law enforcement to be able to use that number to know who's driving that vehicle.

We've come up with several issues but they're so broad and deep that it would take up more than three minutes to describe them all to you.

One thing that I'm really confused about, though, is the price that TxDOT keeps hammering on, trying to keep the cost of the tag at the bare minimum. At the last legislative session, either Senate Bill 11 or 1786 gave the dealer the authority to charge the consumer up to $20 for that temporary tag, so why sell them a cheap product that won't hold up to the weather whenever the consumer is the one paying for it? The consumer should be asked whether they would like a piece of plastic on the back of their $40,000 vehicle or they want something that looks professional, legible on the back of their vehicle.

And there was one thing that I need TxDOT to explain to me is they talk about the tag, if it's securely attached -- what was the wording exactly? -- correctly, but they don't specify in the rules what correctly means. Does that mean one screw holding it on, two screws holding it on, three, four? There's nothing in there that explains that. So if you take a plastic bag with two screws holding it, it's going to fly in the wind as it goes down the road. The difference between this bag here that they're showing you and what Arizona is doing, Arizona has three strips of adhesive on the back of theirs that it sticks to the vehicle so it doesn't fly. These here do not have those adhesive strips. You add those adhesive strips, it's going to up the cost.

MR. HOUGHTON: Can I ask Glen a question, Madame Chair?

MS. ANDRADE: Sure.

MR. HOUGHTON: And Brett, you'd better get up, because we're not dictating to the dealer as to who they have to buy this stock from, are we?

MR. BRAY: We're not dictating to the dealer who they buy the stock from or anything else.

MR. HOUGHTON: That's my point. Glen, we're sitting here, this is really a law enforcement issue, and I remember Hope and I were on the commission, I can remember the meeting was in Brownwood, and we're not dictating. This is the mission of local control by the dealer to either go buy themselves a computer, print it out, go buy a bag, stick it in the bag. We're not telling them how much money they have to spend, I think these are just estimates.

So I'm not sure I understand where you're coming from. I mean, if you want to go to El Paso, Texas and start signing up dealers and selling them cardboard, or if I get in the plastic business and want to go sell them plastic, it's an individual choice and they are your choices, and I love it, I think they'd be great choices. And I'm trying to figure out what your point is.

MR. HAGOOD: Well, my point is TxDOT is going to these dealers telling them they can do paper in a bag and it only costs you 15 cents.

MR. HOUGHTON: I don't think we're telling them that. I think what we're telling them is you have an option. Now, if I price the option at 20 cents, I think it's going to be convenience to the dealer, it may be obviously cost-driven, but it's their choice, and we're not going to tell them what to do. Here are your options. Glen, so I'm at a loss at what your point is.

MR. HAGOOD: Well, just basically that the dealer is not paying for it, TxDOT is not paying for it, it's the consumer that the last legislative session gave the dealer the authority to charge them $20 for this temporary tag.

MR. HOUGHTON: I don't think they're going to charge $20.

MR. HAGOOD: I don't think they are either.

MR. HOUGHTON: I don't believe it. And if they buy a $40,000 car, I don't think they're going to balk at 76 cents, buck, two bucks, or whatever it is. So I guess I'm having trouble understanding the issue. I would hope that entrepreneurs like yourself are going to be out there marketing your stuff to dealers.

MR. HAGOOD: Right, exactly, that's what we're doing.

MR. HOUGHTON: Great, that's tremendous.

MS. ANDRADE: Thank you so much, Mr. Hagood.

MR. HAGOOD: Thank you.

MS. ANDRADE: Steve Holt.

MR. HOLT: Good day, commissioners. I want to perform a very quick dog-and-pony for you. I'm trying to simplify the issue. I'm Steve Holt with GCS Systems, and it will take me just a few seconds to set this up. Would that be okay?

MS. ANDRADE: Okay.

(Pause.)

MR. HOLT: Thank you for your patience.

MS. ANDRADE: Can we start the clock again?

MR. HOLT: Excuse me?

MS. ANDRADE: We're going to start the clock again; otherwise, you would have already taken a minute of your time.

MR. HOLT: Oh, I appreciate that. I'm sorry. I thank you for this opportunity to comment on what we consider a new rule for temporary tags that we just heard about officially on Monday when the MO came out, and that was that they are going to offer, first of all, a fifth option and apparently with no public comment period allowed. In addition to that, there's been a redefinition of cardboard that we just learned about.

And I'd like to quote real quickly a couple of things from the preamble that TxDOT wrote to you. The first one was: "It is vital that law enforcement officers be able to view the tag easily now that they can access the database and obtain identifying information about the owner of a vehicle in real time." The second quote that I would like to pull from their preamble is: "The department believes that the legislative intent of prescribing cardboard tags was to use a product durable enough for the necessary life of the temporary tag." And I think Mr. Bray earlier said that was 21 calendar days, so we concur with both those comments, first of all, and we think this E-tag system is a wonderful thing for law enforcement, toll authorities, everyone involved.

The reason that I'm commenting here is I want to show you what we're talking about here when we're talking about 65- pound cover which is what we learned Monday was what TxDOT wants to define as cardboard. Now, we all know what cardboard is, and you know, I've been in the printing industry for 23 years and I've been in touch with the largest international association of paper and pulp producers and I can talk about cardboard at length, but rather than get into a semantics discussion about your expert versus my expert and paper terminology and all that, I thought I'd just show you what we're talking about.

That's why I brought a baking dish with some water in it and the big prop here is something my wife's laundry is done on, and I probably will need that microphone, actually. What I'm going to do is a little show-and-tell and I'm going to pass some things to you real fast. First of all, if I can approach here, this is a package of 65-pound cover stock that I bought at Office Max last night that TxDOT is suggesting that a dealer could do. And what I want to do is open it, and I'm going to write 65 on here so I'll know what it is when I put it in water. And if you would pass one down, I want you to have a sheet of this 65 in your hands. This is what TxDOT is defining as cardboard. It is commonly known as cardstock at the office supply store.

The next thing I'm going to give you is, I think, something that is undisputably what we might think of as cardboard. That's the traditional tag that we've had in Texas or I heard in the preamble, 1963, something like that. This is a six-ply cardboard, it's formerly defined as. The paper industry calls this a 24.C1S board. It's equivalent to what they used to call a six-ply cardboard, the same thing. So I'm going to write that on there and pass these down, please.

Just for the sake of wanting to cover the bases here, I bought the heaviest cardstock available at Office Depot. I think there are probably some laser printers that would run this stock, although maybe not all, so I picked up what they call 110-pound index, and I'm going to do the same procedure. You might want to keep those separate when you hold the 65 and the 110 because they're really quite close together, one is an index and another one is a cover. They feel a lot alike but the 110 is heavier and thicker.

Now, what I'm going to do is I'm going to drop all three of these in this pan of water and just submerge them as if in a Texas rainstorm. Which, you know, Arizona's monsoons, we all know what weather southeast Texas gets, and for that matter, Brownwood to North Texas there's major storms in the area, and they dump a good 50 to 60 inches of rain in southeast Texas, so you're going to commonly get very wet and that's why I submerged these all the way, this is going to be a common occurrence.

I'll go ahead and what I want to do real quick is offer you a tag printed on 65-pound cover. You can compare that to the sheet that I gave you out of the package, if you want. And this is a 24.C1S board, and they should be labeled. The first stack might have had the 110 in it as well. The important thing is you've got the 65. I'm going to take these wet out of here because I know I'm running out of time with this three minutes.

MS. ANDRADE: You're not running out of time, you're out of time.

MR. HOLT: I'm sorry.

MR. HOUGHTON: Brett, is this your number? Whose number is this?

MR. BRAY: I don't know whose number that is, but that's the style.

MR. HOLT: Before I lose your attention, commissioners, this is your 65-pound cardboard, they call it -- that's what TxDOT called it. It is not cardboard, this is a 65-pound cover weight paper. This paper just got wet, as it would in a rainstorm. They have proposed that this paper would be printed, much like the one you're holding -- and I'd be happy to stick the one you're holding in the water, if you want -- but it is supposed to hang on two bolts, and I want you to look at this. This is not going to make it through a carwash. And I know that TxDOT has invalidated GCS's tests, we tried hard to be even-handed about it, and I guess it was more not in the testing but in the way we presented the results in our public comment probably -- and I apologize for that, could have given your more information about our testing procedures.

But that's why I did this for you because I want you to see the absurdity of a 65-pound cover that is supposed to serve as cardboard. We've made public comment on this previously but we didn't know that they were talking about this. We knew they were talking about paper at one point and then we find out they're still talking about paper. This is a paper tag, not a cardboard tag, and I just want to re-emphasize the important thing is not the legalities or the terminology we're using, the important thing is does it work.

This blew off in a carwash on the first pass when we did this. I put one of those on a car, ran it in a carwash, and it was gone in five seconds. And it's going to happen to 43 percent of 4 million tags. That's what the dealer survey in Dallas showed that I just saw.

You know, I wish I had another three minutes. We do have some comments about the public comment process and we got through Open Records all the public comment and we know that there were seven police officers that were not acknowledged in the preamble of this that to a T were all against a paper tag and they want a cardboard tag, they want cardboard. We all know what cardboard is, and there's no reason why the E-tag program, with $20 per tag that can be charged to a consumer, there's no reason why the state of Texas does not deserve a tag that law enforcement can utilize the most effective way possible.

I want to point out on that 65, just because I forgot, the flying tag issue. In the preamble, TxDOT did invalidate our results of a flying tag and Glen spoke about that a minute ago, but there are only two bolt holes on most cars. You go out in the parking lot right now and you'll find eight out of ten cars have two bolt holes. How can you properly attach a piece of paper and expect it not to fly behind a car that's going 55. I don't understand that.

All law officers, to a T -- I have a survey over here. We scrambled when we found out about this Monday and we went to an APD change of shift last night -- excuse me -- night before last, and 20 officers signed on it just like that, said I can't believe they're doing this. They're passionate about this, and I am too. It's a public safety issue, it's an officer safety issue. We're profiteers, but guess what, our interests are aligned at this point with law enforcement.

MS. ANDRADE: Mr. Holt, we're going to ask the staff to respond to your test but we're going to wait until we hear from the rest of the citizens to be heard. Thank you very much.

MR. HOLT: By the way, this is the six-ply after it's been drenched all this time and it's still maintaining its integrity and its stiffness.

MS. ANDRADE: All right. Let me call Mona Krieg.

MS. KRIEG: Thank you, Madame Chairman, commissioners. My name is Mona Krieg. I'm with the Texas Police Association, and I'm here representing E.C. Sherman, executive director of our association.

We support the requirement for temporary tags to be displayed only in the rear license plate display area of the vehicle. It's easier for an officer to see, it complies with the requirement that the rear license be illuminated at night. It is our opinion that the 65-pound cover stock material, as used in the sample tag, is of sufficient strength and durability for the purpose if properly mounted in the rear license plate display area of the vehicle.

We support the requirement to place the temporary tag in a clear poly bag that covers the entire tag to protect the tag from the elements. Glare or light reflective qualities of the poly bag would not be severe enough to be of concern under general conditions.

Thank you.

MS. ANDRADE: Thank you very much.

Steven Quat.

MR. QUAT: Good afternoon, Madame Chairman and commissioners. My name is Steven Quat, I represent Eric Industries.

The Montana bag you see there is what we manufacture, three strips of tape on the back, regular 20-pound paper inside the envelope, they've been in use for many years. Both Arizona and Montana police associations support the plastic bag. It can be submerged in water without any problem. These will not be submerged in water because they'll be attached to your car, so unless you drive in a five-foot puddle, they'll never be completely submerged.

You can see they have very high clarity, even at bent angles, they're very visible, and we hope that you adopt the plastic bag. Thank you.

MS. ANDRADE: Thank you very much.

Gregory Kinnear.

MR. KINNEAR: Thank you, Madame Chair, commissioners. Gregory Kinnear, vice president of sales for Optical Security Group.

We're coming at this from a security angle, that's what we do for a living. We provide security materials for governments and companies all over the world, things as diverse as Dallas Cowboys jerseys all the way down to revenue tax stamps for various countries, money, passports, drivers licenses, what-have-you.

For the past 15 years, we've been business partners with the American Association of Motor Vehicle Administrators, AAMVA, and in this partnership we've worked with their law enforcement and vehicle reg and title committees on the temporary tag issue. Currently we secure 14 jurisdictions temporary tags through the use of holograms and tamper-evident films. In fact, a couple of them Mr. Hagood had up in his demonstration.

First, we want to say, obviously, we're big believers in visual security for law enforcement. That's what we do so obviously we're big believers in that. But it lends a lot of things in addition to anti-counterfeiting and tamper-proof evidence of the variable information, it gives law enforcement a very quick and easy probable cause for a stop when they see a hologram that's either correct or it's not correct. And I've spent a lot of time in the back of police vehicles going through that and looking at temporary tags.

As E-tags come online and information comes to the cruiser, we clearly understand and acknowledge that that's a tremendous benefit to law enforcement to get an identifier that can pull in the information of who the owner is and the vehicle is, and we're pioneering many of those systems and different ways to track that information for both commercial and governments in many ways as well, and last year tracked well over a billion holograms for some of our lead customers.

So we think it's a great program. Obviously we understand Brett did not bring out the rules in time with it, so to incorporate a hologram into all your tags today may be a delay in the process, and I understand that, however, I do want to emphasize one area that of great concern, I think, should be to you, with as much time and money as you've put into this program, you are leaving a large loophole that I think the criminal element will be able to jump through and will move through pretty quickly.

As we all know, we've heard about it for years now and it is the truth, the temporary tag is a document that is greatly abused for lots of reasons, to avoid fees, to avoid identification. The people who are in the business of providing bogus temporary tags -- and rest assured, it is a business just like providing bogus drivers licenses -- are not going to go out of that business, they're going to just figure out how to go through your loopholes and make things so that their bad people can also commit their crimes.

And I'm getting to your emergency tags and your internet-down tags, so I recommend to the commission two things. Number one, please continue to study this issue for additional anti-counterfeiting measures. As you come out with your system, see how it works, get law enforcement feedback, see if it needs adjustment down the road. However, I would very strongly recommend immediately using a simple holographic application that we've developed for many situations now for your emergency and your internet-down tags and any other tag where law enforcement would not be able to find the information associated to the driver when he's stopping a vehicle in the pouring rain in the middle of the night, he can't get to the dealership, he's got no investigation, and he's told, Yeah, I just bought this yesterday, I don't know why it's not in the system, it's an internet-down tag. Then law enforcement can be trained very clearly to either look through the system and have the information or have a hologram that they can be easily trained and see and have assurances that either one would be correct.

So it's those tags that the information would not be back to the police office right away where I highly encourage you to come out with a hologram on it today.

MS. ANDRADE: Thank you very much.

Brett, keep that in mind because we're going to ask you to address that.

Karen Phillips.

MS. PHILLIPS: Good afternoon, Madame Chairman and members of the commission. My name is Karen Phillips and I'm with the Texas Automobile Dealers Association, and I represent the franchise dealers in the state of Texas, and we sell probably at least half of the new and used automobiles that are sold in this state and that are titled and registered.

I appreciate the work that has been done on this rule and I appreciate working with Brett and Carol. Many of our issues and concerns have been addressed, and once again, I am very grateful of the many options that are going to be available to the industry. I think that that's very important because we have many dealers who have different circumstances. Some dealers don't have as much computer capabilities as others, and so I think it's important that we be able to have these options.

I would like to just very briefly address a couple of the things, some of the requests that we have asked for that haven't shown up in today's rule adoption.

The first is having to do with the issue of where the paper tag can be placed. Currently we can place it in the rear view window or we can place it in the plate holder. I think that as you have seen, because we can have a temporary tag, specifically a tag that's used by our salesmen as well as tags that are used for demonstration purposes, lasting up to 60 days, it's important that that tag be in a secure place, it's important that it be capable of lasting for that 60-day period of time, and it's also important that it be in a secure place.

Putting that tag in the plate holder is not necessarily secure. Putting it in the plate holder when we are going to be subjecting that plate to a lot of elements for a 60-day span of time may not allow for that tag, even if it's cardboard -- if you want to go with the cardboard versus cardstock issue -- for 60 days it may not withstand that period of time.

In addition to that, I think for security reasons, we are also concerned with making certain that that tag isn't stolen easily. Placing it in the rear view window is a much better place for security than in the tag holder. In addition to that, we have salesmen who may be showing automobiles many, many times, maybe upwards to 30 times in a day's period of time, and if we're having to have that salesman take each paper tag out of the card holder and place it on the next vehicle in the plate holder, that's going to use that plate, that paper plate and probably wear it out very quickly, and it's going to be not as secure in that particular plate holder.

If there is an issue for law enforcement -- which we give very much due deference to -- with respect to capability of seeing the number that is going to be assigned to that particular vehicle, then we need to address the luminosity issue as to whether or not the back window is too dark for it being capable of being seen, and I would suggest that we have luminosity requirements already for DPS for front window and side windows, so if we need to have a luminosity issue for the rear window, if we can put a cardboard tag in the back window, let's address it.

But I do believe that placing it in the back window allows for more security, allows for less theft, allows for capability of being seen, and also allows for it to be capable of being used for this 60-day period of time. So I would request and re-urge that that issue be once again looked at.

As to the cardboard language, I really commend the agency on looking at the different ways that the industry can satisfy this issue, and I notice that one of the speakers that came up here said that the important thing is does it work. Well, yes, it is important if does it work, and as has already been stated, cardboard has been in the statute for over three decades. I don't think that the legislature would think that we should be confined to not looking at new products and new materials that are coming out, and I would be more than happy that TADA would work with this agency on expanding the cardboard definition, if necessary, in the next legislative session. Because if the plasticized material is a better material, withstands weather and is more capable of being utilized by both industry as well as law enforcement, we're very much for that, and I would think that we shouldn't just stand still and just look at one particular product. So I would be happy to work with the agency on that particular issue.

And I'm more than happy to answer any questions.

MS. ANDRADE: Thank you so much, Ms. Phillips, and we look forward to working with you also.

MS. PHILLIPS: Thank you.

MS. ANDRADE: Captain William Diggs.

CPT. DIGGS: Good afternoon. I represent the Texas Department of Public Safety. Again, my name is William Diggs.

I just wanted to mention that it is important for law enforcement to see that tag on the rear of the vehicle in the license plate area, and that's not only for daytime issues, but at nighttime, if it's there where it's supposed to be, then the law also requires that it be illuminated at night, so we've got that white license plate light so we're able to see the tag at night also.

When I found out I was going to come down here and visit with you today about this, I called out to Arizona and talked to a counterpart, who I don't know, but I got a sergeant named Bob Corvell on the telephone in Flagstaff. And I asked him, I said, Hey, you've got this temporary license plate in a plastic bag; does that create any issues for you? And his response was: No, it does not. So cardboard, paper, call it what it is, as long as it's affixed to the rear of the vehicle and we can see it out there on the side of the road, then that's what's important to us.

I would say that with this E-tag system that we're going to have in place now, that is absolutely wonderful. For many, many years, 8-1/2 years working the road, there was always a used car dealership up in Collin County that never failed I'd stop these folks and for whatever reason you'd look in the back of the floorboard and there would be four or five of the temporary tags laying back there and there was no way you could ever really check that until now. So it's important; we've kind of got to where we need to be today.

That's really all I have, if you have any questions for me.

MS. ANDRADE: Captain, thank you so much. Do you have time to wait or do want us to ask questions now? Do we have any questions?

CPT. DIGGS: No, ma'am, I can wait.

MS. ANDRADE: Do we have any questions? All right. Thank you very much.

Tom Gaylor. Is Mr. Gaylor still with us?

MR. HOUGHTON: He gave up.

MS. ANDRADE: Okay. Major David Baker.

MAJ. BAKER: Good afternoon, Madame Chairman and members, Director Saenz. My name is David Baker, I'm a major with the Department of Public Safety. I'm here to represent the Highway Patrol Division.

First off, I'd like to say thanks to Brett and his staff for all the hard work that they've put into this project. It's been a monumental task, and it is going to benefit law enforcement.

A couple of things that I would like to address. There's been some conversations on where should that temporary tag be. Your rules state that it needs to be displayed in that license plate holder and that's where we believe it needs to be as well. Ms. Phillips hit on the fact that the rear windows sometimes are dark, and under Texas statute, as long as that vehicle has two outside rearview mirrors, that rear window can be painted black. You put a temporary tag up there, you can't see it at day and you can't see it at night, it's not visible at all. You have to go in and peel it off to look at it. So we agree with your rules that that should be displayed in the rear license plate holder.

Some conversation has been talked about the color scheme. Law enforcement doesn't really care what color you dictate or that you have by rule, we'd just like for it to be uniform and readable. Black and white, you can't go wrong with that color combination.

The real-time database that's going to be established, like Captain Diggs testified to, it's going to be a godsend for us. For years and years we've never been able to put a dealer tag to a person, and when one of our troops stops a vehicle at midnight, there's no way to identify who owns that vehicle. So it's going to allow us to put some criminals in jail that have gotten by over the years.

The talk about the hologram, I'll just hit on that briefly; I submitted written testimony at an earlier meeting. That's an added security feature that we believe would be nice. Do we think that it's absolutely necessary? No, we don't.

I'm about out of time, and I just want to say thank you again, be glad to answer any questions you might have.

MS. ANDRADE: Major, thank you so much for patiently waiting to come testify on this issue that's most important, and thank you for all that you do to protect us.

MAJ. BAKER: Thank you.

MS. ANDRADE: Jeff Martin.

MR. MARTIN: Madame Chair, commissioners, thank you. My name is Jeff Martin. I represent the Texas Independent Automobile Dealers Association, and I've been with the association for just about two years now and I feel like we've been working on this issue almost exclusively for the last two years, so I'm kind of excited to see this come to somewhat of a finale here.

I do want to thank, obviously, the agency for all the work that they've done and also let you all know that as an industry we support the recommendations that they're making. We have been very loud in saying that we wanted our dealers to have choices and I think the agency definitely heard that and worked with us on that, and we definitely appreciate their efforts.

I do want to address the placing the tag in a particular area. I think we probably haven't been very clear in saying exactly what we're talking about when we're saying placing the temporary tag, whether it be on the bumper or in the back window, and I know you guys have already heard this argument more than once, but specifically we're asking for that salesman's tag. And again, I don't think we have a lot of salesmen that are out selling cars in the middle of the night and we're hoping, and I think that even in the rule-writing that we could make it clear to where they would use good judgment in whether they put a temporary tag in that back window. But again, we're talking about a tag that a salesman would be using, probably on more than one vehicle and definitely for up to 60 days.

And I want to thank you guys for your time and I'll be more than happy to answer any questions.

MS. ANDRADE: Thank you very much. Brett.

Members, you've heard the staff's recommendation, you've heard comments from the public, we're ready for questions.

MR. HOLMES: Yes, Brett, on the 65-pound paper stock, did I understand that we were or we're not requiring it to be in a plastic bag?

MR. BRAY: I believe it is not required just when it's by itself just printed. This option here is 65-pound cardstock that has gone through a printer.

MR. HOLMES: So the plastic bag is optional.

MR. BRAY: Yes, it is on that one. It is also an option on this one. These are two examples of the same tag, it's a piece of paper that's been printed and then affixed to cardstock. This one is a plastic bag. What you can't see from there is there is a two-inch piece of tape protecting the registration number on this one. That's really options 4-A and 4-B, if you will. So the bag is not required every time, but it's either got to be the tag or something else to protect the number for law enforcement's view.

MR. HOLMES: I'm still not sure I'm clear. If it's printed on the 65-pound stock, what is the requirement in respect of tape or plastic bag?

MR. BRAY: There is none.

MR. HOLMES: There is none.

MR. BRAY: If it's gone through a laser printer or an inkjet printer and it's printed directly onto cardstock, there is no requirement.

MR. HOLMES: It does seem to me that this is going to have a tough time in a carwash, and I assume that we'll be monitoring this. If, in fact, a carwash or wind or whatever blows it off, the car buyer is going to go back to the dealer and the dealer is going to ultimately adjust what they use. But if I understand it right, 65-pound is the minimum requirement.

MR. BRAY: Absolutely.

MR. HOLMES: They can use whatever higher than that they want. Is that right?

MR. BRAY: That's correct. Also, we have learned just recently that, for example, there's a product called 67-pound something or other, it's slightly thicker, it's one-tenth of the price of 65-pound stock. So if I were a dealer, I might us that little heavier product that's one-tenth the price.

MR. HOLMES: Where did we come up with 65-pound as the cutoff?

MR. BRAY: In the industry, that's about where cardstock starts at 65-pound, and we wanted it to be able to be used in every dealer's printer from one end of the state to the other.

And if I could just speak to your question a little more about the carwash. We have lots of tags here that have gone through the testing. Darren Hazlett is here from the Construction Division, he'd be happy to discuss it with you. It should be monitored and it will be monitored. Obviously, if this doesn't work -- we wouldn't propose it to you if we thought it was going to fail, but if there's a problem with it, we'll address it.

MR. HOLMES: Did he run it through a carwash? Did he bolt it on the back of a car and run it through the carwash?

MR. BRAY: I'm going to let Darren detail it for you, if you don't mind.

MR. HOLMES: Yes. I saw the ones that you had tested in the lab.

MR. HAZLETT: We did two sets. We did some Weatherometer testing with one set, and we took another set, took one of our employees, he took them all to a carwash, he has a pickup truck, he put them all on the back gate of the pickup truck, he wet them down -- he went to one of the do it yourself carwash bays -- wet them down, used the wand with the soap, soaped them all, and then rinsed them all off. So he's not sitting there scrubbing like you would if you've got some bugs on your car or tar on your car, but just to see is it going to hold up, is it legible, and those are the things that we looked for.

MR. HOLMES: I guess there are a lot of different kinds of carwashes, aren't there.

MR. HAZLETT: There are

MR. HOLMES: Those ones with those brushes that are rubbing.

MR. BRAY: And that is Darren Hazlett with the Construction Division.

And one more little twist to this, the system is being built so that if an individual were to go to a severe carwash and it ripped the tag off of their vehicle, under this system the dealer has the option to replace the tag.

MR. UNDERWOOD: What happens to the individual, though, that has the tag off of his car. Now, all of a sudden, he doesn't have a tag, what's his responsibility, what happens to him?

MR. BRAY: Well, you always are responsible to have a tag on your vehicle, so your responsibility would be to go to the dealer and get your tag replaced if somehow it got stolen or injured.

MR. UNDERWOOD: Right. So if you get stopped, what happens to him then?

MR. BRAY: Well, that's the good part about this system -- and I showed in December but I did not bring those slides today -- the good part about this system is there are four things that can print from the department's database: the tag, the notice to buyer of the law, the buyer's receipt, and the dealer's receipt which has all the information about the tag number, the VIN and everything.

MR. UNDERWOOD: So if he has the VIN, he can go back to his database and find out, even though he doesn't have a tag on the back of it, he knows exactly who it is.

MR. BRAY: He'll have the number; he'll have the registration number as well.

MR. UNDERWOOD: He'll know who the owner is.

MR. BRAY: Yes, sir.

MR. UNDERWOOD: Which will really be good for the DPS, no matter what, no matter how a tag gets lost off the vehicle.

MR. BRAY: It's a failsafe that sort of takes the place of that hologram. They've got to have the receipt in the car and it's got to match the tag on the rear.

MR. UNDERWOOD: And the VIN.

MR. BRAY: Yes.

MR. UNDERWOOD: Thank you, sir.

MR. BRAY: As I told you, you can counterfeit anything which is why this system is so wonderful because you're going to have to counterfeit them one at a time. Literally, when we confiscate tags that have been counterfeited, they're usually in batches you sell of 500 to 1,000 you sell to people in flea markets, and in this case you'd have to do it one at a time because you have to match up that it's a 2004 Volkswagen and whatever that VIN number is, and somebody has got to have that vehicle for that tag to work. You can do it but it's going to be a lot slower for a counterfeiter.

MS. ANDRADE: Commissioner Houghton, any comments?

MR. HOUGHTON: Go ahead, Ned.

MS. ANDRADE: Oh, I'm sorry.

MR. HOLMES: Brett, not having felt this weight until today, I'm extremely skeptical as to whether it's going to hold up, and if the reason that we did it was because it's easy to buy and run through a printer, if that's the driving reason, then I'm not sure that that's the rationale I would want to apply.

MR. HOUGHTON: Let me piggyback his question. From the old days two years ago since we've been working on this thing to today, the old days is just cardstock, right, this stuff?

MR. BRAY: Right.

MR. HOUGHTON: It seems like we've gone this way in durability and quality. Accurate? Just unfettered, this piece versus this.

MR. BRAY: I don't want to be argumentative, but if weight equates to durability, then the answer would be yes. I'm not sure that's a true statement.

MR. HOUGHTON: I'm with Commissioner Holmes on I'm not sure this is going to hold up. So I don't want to amend your rules on the fly, but I would require that to be in a plastic bag.

MR. BRAY: Would you like me to try to address that for you?

MS. ANDRADE: Please.

MR. BRAY: The balance that's being struck here is a regulated community -- and I think the leadership of Texas would say that any regulated community, not just car dealers -- that the regulators need to impose the least amount of burden possible that gets the job done, and my task here to get the job done is to make Major Baker and Captain Diggs safe.

MR. HOUGHTON: Come on up, Major Baker and Captain Diggs. Do you want to weigh in on cardstock?

MR. BRAY: And they might, but to finish, I have to balance that against how much imposition do we want to put on the regulated community.

MR. HOUGHTON: You know, let me tell you something, imposition, I really don't see the imposition if you require a minimum cardstock -- which you're requiring of 65 and we may elevate it -- because my opinion, Brett, is that we've gone from this down to this, and if these things rip like that and then it's not on a car and these two officers drive up and there's nothing there -- not that that's going to happen a lot.

MR. BRAY: Let me suggest this to you, but I think this is to your bag issue. That Arizona tag -- they sell about a third as many vehicles in Arizona so you're looking at about 1.3- to 1.4 million -- 1.4 million times a year since 2003, a piece of paper has worked out just fine.

MR. HOUGHTON: In the bag.

MR. BRAY: Yes, sir, in the bag.

MR. HOLMES: Well, then put it in the bag. In the bag, yes, but unfettered, unprotected.

CPT. DIGGS: The comment I would make is when I called out to Arizona last week, I didn't talk about a temporary tag out of a bag, it was the temporary tag in the bag, so we didn't get into durability, so there were never any comments exchanged other than the temporary tag being in the bag.

You know, the main thing is it's got to stay on the vehicle, and I know we've talked about 60 days. Primarily for us, what we're dealing with out there, we're dealing with that 20-21 days vehicle that's been purchased, and then in some situations on a used vehicle they can't secure the title so they have to issue another temporary tag. But it's got to stay on the car for 20 days, 21 days, so that's what's important. So if it's in a plastic bag to make that happen, as long as it's visible and as long as it's in that license plate area, that's what's important to us.

As law enforcement, I don't know that it matters if it's this weight or whatever weight it might be, as long as it's durable, it's got to be affixed to the rear of the vehicle, and it stays there for that 20-day period.

MR. HOUGHTON: I think you just said it: durable.

MS. ANDRADE: Thank you.

Major, would you like to add anything?

MAJ. BAKER: I'd just add a couple of other comments, that if that 65-pound cardstock is put on there and it is washed away or blown away or whatever and that car is driving down the road not displaying any type of registration, that driver is going to be inconvenienced for a period of time to determine that it's legal. So that's a consideration that you might want to think about.

And Mr. Gaylor asked me to let you know that he is here. He is representing TMPA.

MS. ANDRADE: You know, Major, I'm glad you brought that up because I think we certainly are supporting these rules but we also need to ask you to make sure that you help us enforce them.

MAJ. BAKER: Yes, ma'am.

MS. ANDRADE: Thank you very much.

Tom Gaylor.

MR. GAYLOR: Commissioners, my name is Tom Gaylor. I'm representing the Texas Municipal Police Association. I won't take up much of your time. I'm sure you've already heard most of the arguments.

I just want to echo what Major Baker said, that what's most important to us is that we get this plan implemented and on the road. We currently today have officers stopping vehicles with penciled in or bubbled in tags and not really knowing who those vehicles are licensed to or registered to. We want the system to be effective and efficient, but what we really want is it to be done, let's get it out there on the road.

My organization represents 14,000 peace officers from around the state of Texas from every type of law enforcement agency and every size of agency, and this is one of the main things that we hear the most is how are we going to fix these temporary tags.

I'll be more than willing to answer any questions that you may have. I can speak to the durability issue and anything that you may want to know from somebody other than DPS.

MS. ANDRADE: Members, do you have any questions?

MR. HOUGHTON: Thank you for your service.

MR. GAYLOR: Thank you.

MS. ANDRADE: Thank you very much.

MS. ANDRADE: Ned, do you still have questions for Brett?

MR. HOLMES: [Inaudible].

MS. ANDRADE: Fred, any other comments?

MR. UNDERWOOD: [Inaudible].

MS. ANDRADE: So let's talk about that plastic.

MR. BRAY: The funny part of it is I somehow seem to be being argumentative with you, and the truth is the Arizona plastic bags are all I ever wanted -- that's what I wanted.

MR. HOUGHTON: Brett, I know that. You and I have had this discussion a long time. We got beat up pretty badly, and Hope and I are the remnants of that assault in Brownwood, as I remember, but I was all for the plastic too.

Do I need to make, Bob or Madame Chair, a motion to eliminate one option, or require something different?

MR. JACKSON: Bob Jackson, general counsel. I suggest a time out.

(General laughter.)

MR. HOUGHTON: Who goes to time out?

MR. JACKSON: Brett and an attorney in my office. We just need a few minutes. I want to get the language just right and then we'll read it into the record.

MS. ANDRADE: We would just like to make sure that it's placed in a plastic bag.

MR. HOUGHTON: Required.

MS. ANDRADE: Yes, that it's mandatory.

MR. JACKSON: If you can give us a few minutes so we can get the language just right.

MS. ANDRADE: Can we ask the Automobile Dealers Association?

MR. HOUGHTON: And by the way, troopers, since we voted for this, Ned, what highway are you heading home on tonight?

MR. HOLMES: I'll be on 71.

MS. ANDRADE: And I will be on I-35.

(General laughter.)

MS. PHILLIPS: Yes, ma'am, Karen Phillips with TADA.

MS. ANDRADE: Our staff is working on this and I just wanted to hear your comments on this.

MS. PHILLIPS: On the plastic bag issue? I don't think my members are going to have a problem with putting anything in a plastic bag if that's going to assist in durability. Once again, if you put it in the rearview window, we don't have to worry about it.

MR. HOUGHTON: I think that option is out.

MS. PHILLIPS: Well, now, wait a minute. Everything should be on the table because, once again, if we're talking about luminosity and being able to be seen -- that's what I heard the gentleman say with the law enforcement -- that if it's painted black, they can't see it, and I would concur with that 100 percent. My issue is that if it's capable of being seen, i.e., if we need a luminosity requirement -- which is what we have for your front windows -- then we could still put it in the rearview window.

MR. HOUGHTON: Karen, Karen, Karen.

MS. PHILLIPS: It's a wonderful idea. But with respect to your particular issue, we still have the option of the cardboard, we still have the option of being able to complete it by hand without having to put it in a plastic bag, and the other options just allow us the capability of utilizing a type of cardstock that can be printed out, and so if we put it in a plastic bag, I think we're fine here. I just don't want just one particular vendor to be the only vendor capable of selling that plastic bag. That's my only issue.

MR. HOUGHTON: I think that's a free market choice.

MS. PHILLIPS: I agree. I just don't want to be able to be tied down to one bag that is the requirements of that bag are only available from one vendor.

MS. ANDRADE: For those that are listening, there's a new opportunity.

MS. PHILLIPS: There you go. Thank you.

MS. ANDRADE: Thank you very much.

So we're going to delay on moving forward on this until our staff returns. Can we move on to the next agenda item?

MR. SAENZ: Yes, ma'am. Agenda item 9(b)(3) deals with some final rules for Motor Carriers. Carol Davis will present and they are to implement some of the House bills that passed this last legislative session.

MS. DAVIS: Carol Davis, director of TxDOT's Motor Carrier Division.

The adoption of the amendments to Chapter 18 before you concern motor carrier registration. They're necessary to implement the provisions of House Bills 2093 and 2094 and to clarify existing information. These provisions increase the department's authority to investigate, enforce and impose administrative sanctions against motor carriers for violations of statute, rule or order, including oversize and overweight permit violations. They establish and streamline administrative hearing processes, and they authorize TxDOT to enter the Federal Unified Carrier Registration System.

The proposed rules were published in the Texas Register and no public comments were received, and staff is recommending approval at this time.

MS. ANDRADE: Members, any comments or questions?

(No response.)

MS. ANDRADE: What is your pleasure?

MR. HOLMES: So moved.

MR. UNDERWOOD: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Motion carries.

MS. DAVIS: Thank you.

MR. SAENZ: Thank you, Carol.

Agenda item 98 deals with some rule review, and Bob Jackson will present.

MR. JACKSON: Bob Jackson, general counsel.

State law requires the commission to review its rules and re-adopt its rules every four years. The department published a notice on the review of Chapters 15 regarding Transportation Planning and Programming, and Chapter 27 concerning Toll Projects. We received no public comments. This minute order will re-adopt those rules. Recommend adoption of the minute order.

MS. ANDRADE: Members?

MR. HOUGHTON: So moved.

MR. HOLMES: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Motion carries. Thank you very much, Bob.

MR. SAENZ: Agenda item number 10, Steve Simmons, deputy executive director, will present some amendments to our Ethics Policy. Steve.

MR. SIMMONS: Good afternoon, Madame Chairman and commissioners. For the record, my name is Steve Simmons and I'm the deputy executive director of the department. I present this minute order for your consideration in my capacity as the department's internal compliance officer, a duty assigned to me as we developed our internal compliance program per your direction at the November 15 commission meeting.

Agenda item 10 is a minute order that recommends amending our current ethics policy. One of the reasons for these amendments or revisions have been designed to clarify the existing policy and to make it easier for our employees to understand.

Because it has been difficult for employees to interpret the gift policy as it relates to door prizes in our existing ethics policy, we now make it clear that employees are prohibited from accepting a prize in any drawing or contest conducted at an event they attend on TxDOT business.

In addition, the current policy allows an employee to accept an ordinary business lunch from an individual or company that the department currently has a contract with. This section has been revised to include breakfast and dinner, in addition to lunch. The policy now contains definition of what is ordinary and what is a working meal. So employees know that they should only accept non-extravagant meals that are offered while conducting official TxDOT business, not the contractor's business, and that they are expected to reciprocate paying for meals when possible.

Another major change is that regulatory employees and employees involved in active procurement cannot accept anything, regardless of the value, including any meals, from anyone who is regulated by the department, does or may do business with the department, or could influence the way the employee does his or her job.

Regulatory employees include all employees of the Motor Carrier Division, Right of Way Division, Motor Vehicle Division, and Vehicle Titles and Registration, as well as district Right of Way employees how work on the Outdoor Advertising Program. Employees involved in procurement include those who prepare, advise and award a particular contract, beginning with the drafting of the specification or request for proposals and ending with the final award of the contract.

Finally, the difference between a gift and an honorarium is clarified so that employees know what is acceptable when an employee speaks at an event that may involve a meal or an honorarium.

Staff recommends approval and I'd be happy to answer any questions you may have.

MS. ANDRADE: Members, you've heard staff's recommendation. Any comments or questions? What's your pleasure?

MR. UNDERWOOD: So moved.

MR. HOUGHTON: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Thank you very much.

MR. SAENZ: Thank you, Steve.

Agenda item 11 deals with Contracts, Thomas Bohuslav, director of our Construction Division, will present two minute orders for our highway letting for this month, both maintenance and highway construction.

MR. BOHUSLAV: Good afternoon, commissioners. My name is Thomas Bohuslav, I'm director of the Construction Division.

And Chairman, I did offer to wash your car and test those tags this morning, but you failed to take me up on it. If you'll just hand me your keys.

MS. ANDRADE: I'll take you up on that.

(General laughter.)

MR. BOHUSLAV: Item 11(a)(1) authorizes the award or rejection of Highway Maintenance and Department Building Construction contracts let on March 4 and 5. We had twelve projects; average number of bidders were 5.4 bidders per project.

Staff recommends award of all the projects in the exhibit. Any questions?

MS. ANDRADE: Members, any comments or questions? What's your pleasure?

MR. HOUGHTON: So moved.

MR. HOLMES: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Motion carries. Thank you very much.

MR. BOHUSLAV: Item 11(a)(2) authorizes the award or rejection of Highway and Transportation Enhancement Building Construction contracts let on March 4 and 5. We had 59 projects; we had an average of 5.1 bidders per project; overall a significant underrun, probably primarily due to our one project, State Highway 161 in Dallas.

Staff recommends award. Any questions?

MS. ANDRADE: Members, any comments, questions? We do have Michael Morris signed up on this item.

MR. MORRIS: Madame Chair, members of the commission, Michael Morris from Dallas-Fort Worth.

I stand before you asking you to go ahead and support the letting and the construction of State Highway 161. It is a significant amount of work to get it to this particular point. I want to publicly thank Bill Hale and Amadeo Saenz, the Legal, the Finance, the Toll staff, to you, the commissioners who have participated in the conversations to date.

Quickly on background. You originally proposed to build this project several years ago as a gas-tax supported roadway. We went to the cities of Grand Prairie and Irving and asked it to be built as a tolled facility because of our anticipated financial crisis -- which you heard more about earlier today. We were also instrumental in lifting this project from the federal courts when TxDOT had an injunction on this particular project about ten years ago. We think because of the commitment to Grand Prairie and the commitment to the courts, we should move forward with the construction of State Highway 161.

One of the questions you have is with regard to time frame because of your market valuation and other obligations you have in Senate Bill 792. We know we're asking you to move forward without that market valuation being completed. I know when you establish deadlines as part of that process, you often have the other side critical of you when you establish those deadlines because you don't have those protections in 792. One option you have before you is to go ahead and establish the next deadline, if you wish, or ask the Regional Transportation Council to set that deadline.

The Regional Transportation Council is working very intensively -- would be an under-estimation of the amount of work they're putting in -- to get the market valuation complete. They have offered optional proposals to the market valuation process. They're prepared to establish deadlines. They're talking to senators, representatives, elected officials, directors of the Tollway Authority.

I stand before you arguing we should have one partner, one team, NTTA, TxDOT, the RTC, that's what your expectations should be. I stand before you that that's the expectation in the region. We should operate as one integrated staff delivering the people's business. That's what I hope to still bring forward today. The days of fighting and other issues I hope are over. I want very much not to create replications of events of the past related to 121.

By getting 161 Phase 2 and 3 across the goal meets the RTC's commitment to Grand Prairie and to the courts. By standing before you to get the market valuation complete or get the market valuation waived or develop some other innovative way to deliver the projects in Dallas-Fort Worth, the RTC has already begun moving forward on.

We may have another part of this particular project we're going to ask you to build because we need continuous frontage roads on this project as quickly as possible. It's the frontage roads over the Union-Pacific Railroad.

And we just pledge our commitment to you within the region to finish the elements in 792 to meet your obligations as part of that particular process.

So today I'm asking please continue with the award. I think it came 18 percent under. I asked Amadeo to go ahead and let it, he let it, it came under, and now I'm asking for it to proceed to contract, and we will pledge our support to get the remaining portions of the 792 work complete as quickly as possible, maybe before the contractor actually marshals their forces and gets their elements into the corridor, and have that complete before that construction actually begins.

MS. ANDRADE: Thank you.

Members, any questions for Michael?

MR. SAENZ: I think I need to clarify. The minute order, in essence, is conditionally awarding the 161 project for two reasons. And one, as Michael said, the RTC, the region is financing the project through their 121 money. Because this money was not appropriated as part of our -- the 121, we did not have that project completed, we're waiting on approval from LBB for this additional appropriation so that we can use that money that came from the 121 NTTA project.

The second condition is that Senate Bill 792 requires that before we can build any toll project, it has to go through the market valuation process and the market valuation needs to be determined so that the condition on the minute order says that the market valuation will need to be completed by April 16, and if not, then the project would then be built as a non-tolled project.

So there's two conditions: one is we need to get the approval to get the funding source from LBB, and two is that we need to complete the market valuation by the 16th of April.

MR. UNDERWOOD: Amadeo, if it's going to be built as a non-tolled project if they cannot agree to the market valuation, it will then be using some of the money that was out of the 121?

MR. SAENZ: Then it would continue.

MR. UNDERWOOD: It would not be TxDOT paying for this.

MR. SAENZ: Right, it would be the money from the 121 project.

MR. UNDERWOOD: But even to begin with, this has to be blessed by the LBB as to that 121 money being used in the interim.

MR. SAENZ: Yes. We need to get the approval of the LBB to be able to use the additional funds that came in to TxDOT and get the appropriation to use those funds.

MS. ANDRADE: Members, any other questions?

MR. HOLMES: Just the last question, I think, Michael. Assuming that the 161 market valuation is agreed and it moves forward as a toll project, is it correct to assume that this $215 million, plus whatever else would be spent before or after, would be reimbursed back into the 121 pot?

MR. MORRIS: Yes, sir, Mr. Holmes. What we're doing is we call it the emergency fund, the second fund that came from 161. You have the up-front payment and then you have the $833 million pot. What the RTC is doing is going into their emergency fund, their front-loading Phase 2 and 3 for the bid amount, the NTTA or whoever wins the particular project, would reimburse that particular amount plus interest as part of the process.

I think, Mr. Underwood, it's only important to flag I understand the notion that the project would have to be built as free. In the real world, I don't know how that happens. You've heard a report earlier today about your own receipts, you heard me testify earlier today with regard to the needs in the region. I can't stand here and honestly tell you we would go build 161 as a free road because Part 4 is $450 million and we've got a whole bunch of other things to do.

Now, if we're meeting it as a requirement to tell us go back and do your homework to get it done, I can guarantee you the Regional Transportation Council is doing their homework to get this market valuation done as soon as possible -- April 16 sounds like a fair date -- but we will deliver to you a toll road project ASAP because the revenues to build it as a gas-tax supported roadway is really inconsistent with the financial crisis that we're dealing with, both in the state and in the particular region.

So if it permits us to get it to contract, that's okay, but things are going to get worse, frankly, on this between the RTC and NTTA, but I guarantee you there will be everyone smiling by April 16. The RTC very much looks to NTTA as its partner and they're dealing with a whole bunch of other issues, I think, frankly, that have nothing to do with this particular project, and we're going to take this vehicle apart and put it back together and make sure we don't hurt the commission's commitment if you let us go ahead and use our funds to get this project going.

MR. UNDERWOOD: The reason why I made that observation is the fact that that money will be taken away from other projects, as you expressed, in that area or whatnot, because that was the whole point of that $3.2-.

MR. MORRIS: Mr. Underwood, exactly. If we take $250- out, we want to put it back because we want to put it on something else, and we don't want to put $400 million into it as a gas-tax roadway because we need to put it into your managed lanes to go build some of those other particular projects.

So please approve it but hold us accountable to get this across the goal line is what our intention is to do.

MS. ANDRADE: Thank you. And Amadeo needs to add something.

MR. SAENZ: I need to make sure that this project that we're conditionally approving today is only a portion of the total 161 project. The only project that would have to be built as a non-tolled, should we don't meet the requirements, would be just this portion, just the bridge portion that's being constructed at this time, and not the entire project.

MR. UNDERWOOD: What this really does is allow you to get started building. That's the whole crux of this.

MR. MORRIS: If you let us get started, we'll take it on, but we're going to double our efforts -- we've already doubled it -- we're fourfold our efforts to deliver the market valuation to make sure we can proceed and get our money back and so on and so forth.

MR. UNDERWOOD: But this allows you to get started which is very critical at this point.

MR. HOUGHTON: Madame Chair and Michael, I had the opportunity to listen in to the negotiations via telephone, unbeknownst to the negotiators, and I call it a market devaluation negotiation, and it's unfortunate we're back to -- it looked like we were back to the 121 days, and I was just aghast at the comments on how to drive down the costs and keep driving down the value at the expense of the -- and I think the biggest benefactor of a value of this to the community is the citizens of Dallas County. Is that an accurate statement?

MR. MORRIS: Yes.

MR. HOUGHTON: And just where's the leadership here up in the Dallas-Fort Worth Metroplex? In other words, you've got NTTA running amok, just out there doing anything they want to without being held accountable to the citizens of Dallas County in this case.

MR. MORRIS: Well, with all due respect, the market valuation doesn't involve the Regional Transportation Council, and you may want to think about that.

MR. HOUGHTON: And I'm not criticizing you.

MR. MORRIS: We were brought in as a party to help mediate. The two parties are basically at an impasse. We have now engaged the Regional Transportation Council to get it across the goal line. I think, though, as you approach the legislative session -- and we've all talked about the benefits of competition on 121 -- to take what is a normal business practice in this country to have competition and have it work reasonably well, and then restrict competition and force government employees to do the equivalent of competition inside a negotiation process is a very, very unfair thing.

MR. HOUGHTON: Well, it's called a full protection act.

MR. MORRIS: And what you witnessed was government people doing what typically occurs at what I call external competition, people providing bids to participate, and now people within the organization. Like I told each side, 99 percent of the time whenever there was a technical result, it always happened to fall on the same side as the side they were advocating for, and we're up to 60-some-odd meetings on 161. We've got 20 more projects to do.

MR. HOUGHTON: Can you imagine having that kind of process on the others?

MR. MORRIS: Well, I think what's going to happen, Commissioner, is all other projects are going to be put on the table at one time, and I hate to use the word protocol, but you're going to see in Dallas-Fort Worth region us come to terms as partners and say: NTTA, why don't you go build these projects; regional loop as part of the Trans-Texas Corridor, why doesn't it get done in this fashion; managed lanes, TxDOT, that's your expertise. Let's create a partnership. I don't want to see this partnership split apart, let's create a partnership. I've got to get 161 to bed for obvious reasons, but I think to have 60 meetings on 20 projects, it's not fair. I think we're going to put them all on the table together, create a team approach and bring across all the managed lanes and all of them in one big group.

MR. HOUGHTON: The folks in North Texas are suffering, they're the ones that are losing.

MR. MORRIS: That's why I'm here. Despite the interesting presentation I saw on license plates -- I actually feel a lot better about 161 now after witnessing the previous item.

MS. ANDRADE: Michael, thank you so much. Make sure that they understand that we're getting anxious and that we're expecting a decision on April 16.

MR. MORRIS: I understand. Thank you.

MS. ANDRADE: Thank you very much.

MS. ANDRADE: Members, you've heard staff's recommendation and comments. What is your pleasure?

MR. HOUGHTON: So moved.

MR. HOLMES: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Thank you.

Amadeo, are we ready for 9(b)(2)

MR. SAENZ: Not yet. We're going to move on to item 12 which is the Routine Minute Orders that deal with donations to the department, some of the eminent domain proceedings that you are approving, highway designations, right-of-way dispositions and donations of right of way, as well as speed zones.

We've reviewed all the minute orders and we do not see where you all may have any kind of a conflict. We'll be happy to answer any questions on any of them, but staff would recommend that you approve those Routine Minute Orders.

MS. ANDRADE: Members, you've heard our executive director. Any comments, any questions?

MR. HOLMES: So moved.

MR. HOUGHTON: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Motion carries. Thank you.

For the record, Commissioner Holmes is going to have to leave. Commissioner, is it all right for us to move forward on that item?

MR. HOLMES: Yes, ma'am.

MS. ANDRADE: Thank you, be safe, and we're going to take a five-minute break.

(Whereupon, a brief recess was taken.)

MS. ANDRADE: All right, we're back.

MR. SAENZ: Bringing back item 9(b)(2), Brett Bray will make a presentation.

MR. BRAY: Madame Chair, members, thank you for indulging us. This has been wild and woolly, and I just can't help but say Becky Blewett with OGC and Molly Cost with my office have been phenomenal in the last few minutes, so I owe it all to them.

Just to make sure, because this is what has been done, Member Houghton intended plastic-bagging everything, all the options, protecting them from the elements, making them durable. And that's my question.

MR. HOUGHTON: It is now.

MS. ANDRADE: You heard right.

MR. BRAY: Then the rule change that we've now prepared and are proposing is on page 19 of the proposal, starting at line 22 and would now read: "All temporary tags must be sealed in a 6-inch by 12-inch, two-mil clear poly bag that covers the entire tag." End of line.

And the lines that were stricken are on page 20, lines 6 and 7.

MR. HOUGHTON: Don't doubt your counsel.

MR. BRAY: And 7 has been modified to read: "All tags must be sealed in a 6-inch by 12-inch, two-mil clear poly bag that covers the entire tag." That's what we took out. But I'm going to have to have some help.

MS. ANDRADE: We need you to identify yourself.

MS. BLEWETT: Becky Blewett with OGC of the Department of Transportation.

We deleted the language due to the inclusion of it at the beginning of the section, and then we also deleted the language on page 20, line 20 through 23, starting with "..and placing a 2-inch clear piece of tape over the specific number. As an alternative to using the clear tape, the tag may be sealed in a 6-inch by 12-inch, two-mil clear poly bag to protect the tag from the elements."

And those are the changes we made to the rule.

MR. UNDERWOOD: In other words, if you use a piece of paper, if you use the 65-pound, you're going to have to put it in a plastic bag.

MR. BRAY: Yes, sir.

MR. UNDERWOOD: If you use the 65-pound, or you can use Mylar tape on it. Is that correct?

MR. BRAY: No, sir. The way it would now be written, everything has to be bagged, including option one.

MS. ANDRADE: Members, you've heard staff's recommendation. What is your pleasure?

MR. HOUGHTON: So moved.

MR. BRAY: There's one little other piece. We would also ask that you direct us to modify.

MR. HOUGHTON: That's my language, you're taking my part again, Brett.

MR. BRAY: I wouldn't want to do that.

(General laughter.)

MR. HOUGHTON: I so move, and I instruct staff to adjust the preamble accordingly.

MR. UNDERWOOD: Second.

MS. ANDRADE: We have a motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Motion carries.

MR. HOUGHTON: And you got what you wanted, plastic bag two years ago. Remember that?

MR. BRAY: Yes. Sometimes they say careful what you ask for.

MR. HOUGHTON: But you did. Congratulations, and a lot of hard work.

MR. BRAY: Congratulations really to you. This is momentous, you'll see.

MR. HOUGHTON: I think it is, I really do. Law enforcement is critical in this.

MR. BRAY: Thank you.

MR. HOUGHTON: Thanks.

MS. ANDRADE: I believe that concludes the action items on today's agenda. Correct?

MR. SAENZ: Yes, ma'am.

MS. ANDRADE: Mr. Jackson, do we have a need for an executive session?

MR. JACKSON: We don't.

MS. ANDRADE: Then we will now enter into the open comment period of this meeting.

MR. SAENZ: We don't have any.

MS. ANDRADE: I await the most important motion.

MR. HOUGHTON: Move to adjourn.

MR. UNDERWOOD: Second.

MS. ANDRADE: A motion and a second. All in favor, say aye.

(A chorus of ayes.)

MS. ANDRADE: Motion carries. Thank you very much.

(Whereupon, at 2:25 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: March 27, 2008
I do hereby certify that the foregoing pages, numbers 1 through 240 inclusive, are the true, accurate, and complete transcript prepared from the verbal recording made by electronic recording by Stacey Harris before the Texas Department of Transportation.

4/01/2008
(Transcriber) (Date)

On the Record Reporting, Inc.
3307 Northland, Suite 315
Austin, Texas 78731

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