Texas Department of Transportation Special Commission Meeting
Ric Williamson Hearing Room
Dewitt Greer Building
125 East 11th Street
Austin, Texas 78701-2483
Wednesday, November 19, 2008
Deirdre Delisi, Chair
Ted Houghton, Jr.
Ned S. Holmes
Fred A. Underwood
Amadeo Saenz, Executive Director
Steve Simmons, Deputy Executive Director
Bob Jackson, General Counsel
Roger Polson, Executive Assistant to the
Deputy Executive Director
MS. DELISI: Good afternoon. It is 1:35 p.m., and I would like to
call this special meeting of the Texas Transportation Commission to
For the record, the public notice of this meeting, containing all items on the agenda, was filed with the Office of the Secretary of State at 3:24 p.m. on November 10, 2008.
Before we begin today's meeting, let's all take a moment to place our pagers, cell phones and other electronic devices on the silent mode, please.
Today's meeting will involve a series of discussions on various topics before the department and the commission. Meeting in an open forum gives us a chance to deliberate as a commission, gain greater understanding of these weighty subjects, and provide guidance as to the direction the commission would like to see the department take to best deal with these issues.
We will accept public comment that is relevant to any of the posted agenda items but we will not have an open comment period as we do during our regularly scheduled meetings. To comment on an agenda item, we ask that you fill out a yellow speaker's card and identify the agenda item you wish to speak on. You can find these cards at the registration table in the lobby. And we will limit every speaker to three minutes.
So with that, unless any of the commissioners have anything they'd like to say at this point, I'm just going to go ahead and turn the meeting over to Amadeo to get it started.
MR. SAENZ: Thank you, Madame Chair. We'll begin today's meeting with an update on some federal transportation issues. Coby Chase, director of our Government and Public Affairs Division, will lead the discussion item. Coby.
MR. CHASE: Thank you, Mr. Saenz.
MR. HOUGHTON: Hey, Coby, can you turn the air on this place? Are you in charge of the building?
MR. CHASE: The air is thick. The answer is, no, I'm not in charge of that.
For the record, my name is Coby Chase and I am the director of TxDOT's Government and Public Affairs Division. Today I would like to discuss with the commission federal activities occurring in Washington, D.C. that affect transportation in Texas.
I can now safely say that we'll have a new president next January, that I know. In our world there has been much speculation about the effect this will have on transportation. I haven't yet seen it rise to a tier one issue, per se like the war in Iraq or Afghanistan but it will certainly be one of the most significant and probably more so than it was in the preceding two or three administrations. Determining exactly what the Obama administration will want in terms of new transportation policy is an open question at this stage. We have a short term opportunity with economic stimulus legislation to see the contours of what may be proposed long term in successor legislation to SAFETEA-LU where the real action will be.
President-elect Obama's campaign published a white paper on transportation. The Obama-Biden plan is to revitalize transportation infrastructure, improve public transportation and transportation planning and safeguard the nation from terrorism. No bad news there although it is light on how to pay for it.
On the campaign trail, Senator Obama did discuss at times his support of the Dodd-Hagel National Infrastructure Investment Bank. Barring any changes, that would infuse $60 billion of federal money over ten years to infrastructure as it is broadly defined for example, water projects, low income housing, sewage projects, things like that. This initiative would be a catalyst for about $35 billion per year in new economic activity, at least according to information provided by the campaign. The legislation directs the allocation of subsidies, general purpose bonds and project-based bonds which will be tax exempt. The maximum bond obligation listed in these bills is $60 billion.
The good news is that projects must have a public-private partnership element to them; the not so great news for transportation is that it competes with everything else. The entire question about public-private partnerships and innovative finance in general is also an open one, but the Chicago Skyway deal occurred under President-elect Obama's watch, and to the best of our knowledge, he never raised any public objections, at least none that we could find.
As far as the U.S. House and Senate races, Texas had only one change in its federal representation, the loss of Democratic Congressman Nick Lampson who sat on the Transportation and Infrastructure Committee. Although this diminishes our representation on this important committee, we are still in the very capable hands of Congresswoman Eddie Bernice Johnson and Congressman Ted Poe.
During a national election year, candidates can make many promises but only deliver one thing with certainty, and that's a continuing resolution. On October 1, an Omnibus Appropriations Bill for fiscal year 2009 was enacted. It fully funds Defense and Military Construction, Veterans Affairs and Homeland Security for the year, and it also contains Disaster Relief appropriations and a six-month continuing resolution for the remaining programs which carries U.S. Government through March 6, 2009, Transportation being funded for six months. This continuing resolution continues 2008 funding levels for the Department of Transportation with the obligation limits being prorated over the period covered by that continuing resolution which is another way to say that we will be seeing the same thing we saw last year for six more months.
The Disaster Relief portion of HR 2638 provides an additional $850 million for Federal Aid Highways Emergency Relief Programs. The most beneficial portion of this legislation to TxDOT is the lifting of the statutory limit of $100 million per state per year for damage caused by Hurricanes Gustav and Ike. According to the Governor's Office, Texas needs funds totaling $536.5 million for local, county and state transportation repairs and mitigation.
Our part of the bill is somewhere between $65- and $75 million. We've received $2 million in an early release of funds from the Federal Highway Administration for Ike work, and will be submitting reimbursements for more Ike activities as well as other recent disasters.
Even though this CR will fund the government until March, Congress will have to return to Washington in January to deal with the nine appropriations bills covered by it. This includes the Transportation Appropriation Bill and probably additional Disaster Relief funding. We also expect the new president to unveil a 2010 budget by April 2009. One positive with the CR is that there are no additional rescissions which is good news and while we are by no means out of the woods with rescissions, the appetite for them seems a little diminished at this moment in time. However, the last one in SAFETEA-LU is still out there. It will wipe $729 million off the planning books for Texas in addition to the $924 million we've already sent back. With that in mind, let me shift to stimulus legislation.
If President Bush and Congress cannot agree on a stimulus package, President-elect Obama has said he'll make it his first priority after inauguration on January 20. A stimulus package seems inevitable; a stimulus package for transportation infrastructure seems more possible now than it has in the past. As far as the dollar amount is concerned, the amount under consideration in the earlier House version puts transportation that is highways at about $12 billion.
The Senate majority leader introduced a version on Monday that puts the number at $10 billion and requires no state match so it would all be new money that we wouldn't have to put up any money up front to draw down. The bill is not expected to go anywhere this session and is viewed as a starting point when Congress reconvenes.
When infrastructure is mentioned in this context, there are two threads woven into the discussion: the first is readiness or how fast a project can get moving, and the second is to avoid earmarking. Some groups, including the Texas Department of Transportation, would like to see some other issues taken into consideration, and let me walk you through those.
Speaking as a donor state, at a minimum, new funds should be allocated based on the state's contribution to the Highway Trust Fund, not how they currently distribute the money but how much we contribute in which would be plus or minus 10 percent. Congress must eliminate the pending $8.5 billion rescission, the one I mentioned earlier which hits Texas for another $700 million. As stimulus dollars are followed by further reductions, at the very best, it puts us back in the same place. Sending funds uncommitted to specific projects will help us put the money to work in the fastest possible manner. Based on our current estimates, TxDOT could accelerate about $5 billion worth of construction and maintenance projects between January and August 2009.
All stimulus projects should be eligible for 100 percent federal financing that is, not state matching requirements so states are not required to find new money to draw down these funds and funding should come to the states in a category-neutral fashion with no new rules, regulations or procedure that will slow the flow of this money. Projects that utilize this funding should be granted an expedited status that accelerates project development.
Congress can support the construction of large public works projects in many states and strengthen the capital markets by providing for secure, long term investments that strengthen our economy. And what I'm saying here is it doesn't have to just be one shot, project-focused legislation. One way to accomplish this is to make a number of procedural changes and provide additional funds for the Transportation Infrastructure Finance and Innovation Act, the TIFIA Program, basically allowing it to backstop or finance more eligible projects. Right now it's capped.
What's not in my prepared remarks but I think I need to say is we are preparing project lists of things that can be moved within nine months, and that amounts to about $5 billion. So the question becomes how does a Houston project compete with a San Antonio project; how do you pick a project that works? Well, we hope we're not picking projects at the congressional level and that the money comes back by a determined formula in a block grant status because the MPOs have already determined the formulas by which funds like this will be distributed.
And these lists say it's a Harris County list or a Bexar County list or a Tarrant County list is the list of projects that would be eligible and then the local MPO with the TxDOT district would determine which projects to move up and fund with that. So I hope I was clear with that. But the state is already positioned to spend money if it comes in a block grant and it goes directly to the regions without us I mean, we're involved but it's predetermined, so it doesn't have one region fighting against another if that made sense.
Other options have been discussed. For example, in a Ways and Means hearing on October 29, Congressman Sam Johnson stressed the needed increase in funding and supported private activity bonds. All options seem to be on the table for this next stimulus package.
All of us are awaiting the negotiation between the president and the Congress to identify what this bill could contain or even if Congress will attempt anything prior to the new administration. If something breaks loose, it will move quickly. I will have to say that I don't believe that we will see a stimulus package by the end of this Congress, I just don't see it happening, there's nothing that says it will occur. Or to put it another way, I'm not sure we'll be stimulated between now and the end of the year.
Other recent action by Congress includes passage of HR 2095, the Passenger Rail Investment and Improvement Act on October 1. It was signed into law by the president on October 16. And I apologize, this is the Amtrak authorization legislation. The House and Senate came to a compromise by including a direction to US DOT to accept bids from private companies to develop, build and operate high speed rail systems in eleven corridors, including a line through Washington-New York.
It authorizes $13.1 billion for Amtrak from 2009 to 2013, $1.5 billion in grants over the next five years to states and/or Amtrak to finance high speed rail, and $1.9 billion for states to use on intercity passenger rail projects. The grants for intercity rail could be applied for and utilized by Texas, as we best understand it.
The legislation also includes provisions for rail safety, $1.6 billion; $3 million for highway-rail grade crossing safety grants; and $5 million in grants for safety improvements related to railroad infrastructure.
There are some interesting and promising things in here, and we haven't had the opportunity to completely digest them yet, but we're working with it, and we're not used to being able to ever have anything to look at with Amtrak, that's why we're trying our best to figure out everything that's in it. It's usually nothing, and so this is the first opportunity any state has had to get in and pull something apart and put it back together and see what works in Texas.
Mr. Saenz has said that he will also consult with interested groups like the Texas Rail Advocates, who you heard from at the last commission meeting, and the Austin-San Antonio Corridor Council about some paths we could take with this funding and what we should do with it.
MR. HOUGHTON: Coby, you said there's eleven corridors. Is there a corridor in Texas identified?
MR. SAENZ: Central Texas.
MR. CHASE: Yes, I believe that's correct.
MR. HOUGHTON: To build/operate, high speed rail systems in eleven corridors, and Central Texas is identified as one of those corridors?
MR. CHASE: I think so, yes, sir.
MR. HOLMES: And how specific was that corridor identified? Is it up 35 or do we know?
MR. SAENZ: There are corridors already identified nationwide, so those eleven are already the corridors that are identified. The 35 corridor goes, I think, from San Antonio up parallel to 35, kind of what Amtrak uses.
MR. HOUGHTON: How far, all the way to Dallas?
MR. SAENZ: Goes up to Dallas, and then there's a gap and something cut across and went over to Oklahoma City. I'll get that information for you on the high speed corridors. This is the first time that the Amtrak bill went into this specific, so we're trying to figure it out and find out where all the players are to maybe see how we can utilize it as part of our planning.
MR. CHASE: It is interesting, it's the first time we've had any opportunity to possibly
MR. HOUGHTON: It says accept bids from private companies, it doesn't talk about public-private partnerships here.
MR. CHASE: I don't know that the legislation would prohibit it; it couldn't prohibit it, that's the only way to fund something like this, it really would have to be. But like I said, we're pulling it apart and we will let everybody know.
The last thing I'd like to cover with you today is the legislative time line of the successor legislation to SAFETEA-LU. There has been much discussion from states, transportation groups and American business on reauthorization for the past several months. In October, the Association of State Highway and Transportation Officials, or AASHTO, made its recommendation for a six-year, $545 billion transportation reauthorization bill, nearly double the $268 billion provided in the 2005 SAFETEA-LU bill.
To pay for the increase in infrastructure investment, they have suggested a buffet of revenue-raising initiatives such as one cent increases in gas tax, container fees at ports, a national vehicle sales tax, and many others. Honestly, there just isn't much new thinking from AASHTO when it gets right down to it. It raises a question we have to ask ourselves whenever anything is proposed at the federal level: Why would we want to put more money into essentially the same system? And by system, I mean the same system of laws and categories that pushes money back out.
MR. HOUGHTON: Isn't that the definition of insanity: doing the same thing over and over and over again?
MR. CHASE: Yes, it is. Thank you. As best I can tell, yes. Could you say that again? Just joking.
The Transportation Transformation Group, or TT-2, recently compiled a list of 26 groups that are trying to influence the next surface transportation bill. The most common theme among them is that the federal system needs to be performance-based, not just a repetition of processes or insanity. After that, they head in different directions, of course, but it seems that most everyone agrees that we have operated with a lack of a unified federal vision too long, or long enough. To attempt to predict a time line, we might look back to the actions of the 107th Congress. It intersected with a presidential year and no branch of government switched parties but the bill still came out about two years behind schedule.
Two years might be generous this time around. For starters, Congress will have to have a bill introduced by January 2009 to even have a chance at meeting a September 2009 due date. What will make this a difficult challenge are three things: the new administration; members of Congress expanding the scope of the bill; and lastly, but possibly the most contentious, the Highway Trust Fund deficit.
First, Congress will take up this reauthorization during a new presidency. A new administration could be problematic for the timing of this bill passage regardless of who won the White House. Whoever was going to be in the White House will want to have his fingerprints on this legislation. Introducing a bill in January is unlikely since Congress will wait for the administration's input on this bill. That being said, they may not receive much input until spring or summer of 2009.
Second, some have hinted that they would like to expand the scope of this bill. This would only prolong the negotiations between the House and Senate. Proposals related to climate change, café standards for vehicles, and other requirements have been discussed. When this happens, committee negotiations become highly unpredictable at that point.
Lastly, the Highway Trust Fund deficit is going to need a solution. On September 15, President Bush signed HR 6532 which transfers $8 billion to the Highway Trust Fund from the Treasury General Fund. Initially this was not supported by the administration, but Transportation Secretary Peters announced that the Highway Trust Fund would just simply run out of money unless additional funding was provided immediately.
The problems of an over-subscribed SAFETEA-LU were compounded when gasoline prices drove down both fuel consumption and fuel tax receipts. If 6532 had not been passed by Congress and signed by the president, the Highway Trust Fund would have become insolvent and delayed payments to all 50 states. TxDOT projected that would have cost Texas $859 million in 2009. Fortunately, this immediate debacle was averted for the short term, however, it was clearly a one-time infusion and the permanent fix can very easily come in the form of reducing funding levels in future legislation. This also points to a new willingness or at least a resignation to lump the once very stable transportation program into the permanent D.C. crisis.
All of these factors, and some we certainly cannot predict today, will contribute to the delay of a Transportation Reauthorization Bill, therefore, Congress will likely be forced to extend SAFETEA-LU until a bill is passed and signed by the president, probably, optimistically, in 2010.
Going back to the election, we certainly know that it was about change. I don't think there is much debate about that. Transportation isn't immune. Those driving the discussions see a federal funding system that is unreliable, lacks clear purpose and doesn't meet our needs now, much less our transportation needs of the future. Pouring any more money into the same old programs just doesn't make much sense; it is time for a change, most people agree.
The future is a little uncertain but that's what makes it an exciting time. Transportation has been pushed near the front burner by the House, Senate and White House, and I can't help but think something good will come of it. It will neither be quick nor easy but it will certainly be invigorating.
This concludes my remarks. I'll be glad to answer any questions you may have.
MR. HOUGHTON: Thank you, Coby. I have a question on page 6. At the top you talk about $729 million off the planning books in addition to the $924- we've already sent back. Maybe Bass may need to answer this. Is that real dollars we have sent back?
MR. CHASE: Interesting, and if James is in the room, follow what he does with his head.
MR. HOUGHTON: Is that real dollars, James, that we sent back?
MR. CHASE: It depends.
MR. HOUGHTON: He didn't do anything with his head, that's why I asked.
MR. CHASE: We might have woke him up.
MR. CHASE: Rescissions up to this point, pretty much, and when I say pretty much, I'm talking a tiny percentage point I don't have the exact dollar figure have been take plans off the books, take projects off your future plans. So it wasn't real casual, it was just saying we cannot promise you money will show up anytime soon for these. And as you know, setting up long range plans or medium range plans, that's our bread and butter, so we were taking real projects off the books.
This last rescission, actually a percentage of it had a cash hit to it of about $35 million. So it was a blend of the typical rescission and take some real cash off. Now, this next $729 million, the question becomes does it turn into cash or is it going to be a run-of-the-mill rescission where you're taking books off the future years. Don't know that.
MR. HOUGHTON: The follow-up question is there's been a lot of numbers thrown out there, and especially by a certain legislative delegation in Washington, that talk about the percentage we get back. Does this reduce that percentage that we get back?
MR. CHASE: No, because everybody is affected, everyone pays their fair share. At that point we're all treated equally. But yes, everybody is reduced by their same percentages, it doesn't affect it.
MR. MEADOWS: Coby, I've got a couple of questions.
MR. CHASE: Yes, sir.
MR. MEADOWS: Under existing federal rule or statute, would the current funding formula, as stipulated in those, however those are all sorted through and promulgated, are we absolutely certain that any monies that might come or we might be the beneficiaries of that would come through the stimulus package action, are we certain that they would be subject to those same rules for allocation?
MR. CHASE: That's the active discussion we're having in D.C. is we would like to make sure that it is blind as to category. I mean, you can still only spend it on things you can only legally spend it on, but don't predetermine, for instance, put it all into the Congestion Mitigation Air Quality Program, or put it all into Maintenance. It's let each state and region decide how best to move those dollars.
MR. MEADOWS: I know we've determined that with regard to just what I would call the normal funding cycle, that we have determined that that's the appropriate and it's the most advantageous way perhaps the fairest way to distribute funds. In this instance, are we sure that that's the way we want to approach this. I mean, that's a good question that you all need to be asking. I mean, it may be that that's not the best way to distribute the funds. I don't know, it's really more a rhetorical question at this point.
But I would say it ought to be put on the table, we ought to leave all those issues open at this point and not just assume that if we are the fortunate beneficiaries of some heretofore unexpected funds, we might want to figure out how those funds are spent, and it may be that this commission is the best place to make that decision.
MR. CHASE: May I interrupt. Let me make a promise to you. Right now the question, first we want to move away from earmarking as much as possible I think we all agree on that but the only other way they framed it is what can you get moving within eight to nine months that seems to be the only criterion, and so that's what these lists respond to. Now, if they change the rules or there's an opportunity, say the Senate has a block grant we've got like where we can relieve the most congestion, or something that makes a lot more sense, you'd better believe we do not give way to any one good idea, we are all about flexibility, and if there's an opportunity to change that to something else, we will do that.
MR. MEADOWS: And that's okay. Thank you. Here's my point, you would have to put this in the extraordinary category if, in fact, funds do shake out from that, and what I would not want to do is continue to necessarily assume that business as usual is the best way by which we allocate these funds. It may well be that we want to move quickly.
We've got issues we've got plenty of issues; we've got plenty of projects that are ready to go that could be of benefit to the citizens. So the fact is it may be that in terms of expediency, putting the money to work and yielding result, it may be that those dollars are best allocated from right here. And I don't know that, but I mean, I'm just saying we ought to at least put that on the table.
Here's the second point I'd make. Again, this potential is extraordinary, it's a probably once every few decades sort of opportunity, and we hope we don't have the circumstances again that dictate or demand that we do take an action such as this. But let's just assume for a moment that transportation infrastructure is going to be a part of this.
My thought from the outset on this was that there are going to be a lot of people that are in the same place that we are that are going to be scrambling, and if we are going to be successful and we've got some obstacles to overcome, I would suspect I would think that this commission needs to be fully aware of what strategy you and Amadeo wish to employ and utilize to advance this. I think that to not have a comprehensive, thoughtful, honestly political strategy would be a real mistake, and it's just too great of an opportunity for us to let slide.
Now, I understand from what you've said and what Amadeo said to me yesterday, that it appears that the stimulus package discussion is not going to advance until the new Congress, more than likely, but anything could happen. What that really does is it does give us a bit of time to really sit down and think about what that strategy should be: who are the players, who are the people that need to be involved. I can assure you that with the sort of opportunity we have in front of us, potentially, that every member of this commission is willing to do what it is that we can do to help, but it needs to be thoughtful and coordinated, we can't just be independently running around doing what we think is the right thing to do. We need to do something that's really impactful.
MR. CHASE: Oh, absolutely, and the good news, any sort of delay, we don't have to react in an emergency situation, we can figure out where we utilize all of our talents and whom we talk to. I cannot disagree at all with you.
MR. SAENZ: Coby, just want to make sure what you are presenting is that what we want is for Congress, if they do have this stimulus package, to earmark it as a lump sum so that the flexibility to use it is here at the state level, basically the same thing. Not necessarily send it to us and earmark it into a project-specific program or earmark it into a project-type-specific program, saying you've got to spend so much on bridge, you've got to spend so much on air quality, just let us have the total amount and let the states determine where they can best address the use of that money. Because it's intended to be an economic stimulus to get people to work so how fast can we get it so that we're putting, I guess, pavement on the road.
MR. CHASE: Or how fast can we get stimulated, yes.
MS. DELISI: So the transportation transition between administrations, there hasn't been a lot of discussions about it, who's involved?
MR. CHASE: There are two people we know well: Mort Downey and Jane Garvey, who are on the team, and Jane Garvey, Commissioner Holmes and I know her well, she belongs to the same group we do in Washington. The lead candidates right now to be secretary of Transportation are Jane Garvey and a gentleman by the name of Steve Heminger out of California, who will be speaking at the Texas Transportation Forum.
He is, I believe, on your panel, Commissioner Holmes, from the 1909 Commission. He runs the Bay Area Tolling Authority I forget the exact title of it an impressive, impressive guy. Some other names that have been put out there but I just don't see it happening is Congressman Oberstar, I just don't think that would occur. Those are the lead names at the moment, but transportation tends not to be an attorney general, secretary of state type announcement, it will come soon.
But we are definitely working with some people on the transition team. We'd kind of like to know what they feel about some of the things that are important to innovative project delivery and things of that nature, and they're still trying to figure out. The campaign piece was just build more hike and bike trails and more transit and more roads, it didn't say how you pay for it or how you're going to get there. But that's about as much as I know on the transition at the moment. Thank you.
MR. SAENZ: Thank you, Coby.
The next item on the agenda is a discussion on what we're looking at as far as implementing some of the Sarbanes-Oxley Act within the commission and the department. Steve will lead us in this presentation.
MR. SIMMONS: Good afternoon, Madame Chair, commissioners, Mr. Saenz. For the record, my name is Steve Simmons, deputy executive director of TxDOT.
And I'll be talking to you about the Sarbanes-Oxley Act, commonly referred to as SOX. Many of us remember the reasons for its adoption. Enron, in particular, stands out. Certainly there have been complaints about the Sarbanes-Oxley Act, although there have been few doubts about its purpose since the onset of the current financial crisis, particularly as it relates to the lack of transparency and accountability in the sub-prime mortgage market.
The purpose of SOX was to broaden the roles of board members in overseeing financial transactions and auditing procedures and to enhance internal financial controls and professional responsibility, thereby increasing the reliability of financial information used by and provided by the corporate entity.
Now, just to be sure, SOX does not apply to governmental entities, only to publicly traded companies and its provisions cannot be literally applied to a governmental entity even if we wanted to do so. But the spirit and principles of SOX can be implemented by adapting and incorporating some of the provisions into TxDOT policy and procedures, and staff has worked very hard to look into these and I will briefly outline those we think are appropriate for TxDOT.
First is the responsibility for financial reports. SOX requires the chief executive officer and the chief financial officer to personally make a number of certifications regarding annual and quarterly reports submitted to the SEC. In our case, TxDOT executive director and chief financial officer already incorporate most of the SOX requirements in their certifications to the auditors of the department's annual financial statements. However, there are other financial reports, such as the operating budget, investment report, and cash forecast report, for which the executive director and the CFO do not currently provide these certifications and perhaps should. At least, this is an area for additional exploration.
Another area is management assessment of internal controls. SOX requires an internal control report assessing the effectiveness of the entity's internal control structure and procedures for financial reporting. For TxDOT, outside assistance would be required to complete an internal control assessment the first year, but future assessments could be prepared by TxDOT staff as there are some internal controls for financial reporting that have already been established and are currently maintained by TxDOT staff.
The role of the chief financial officer in ensuring the executive director has sufficient, reliable information to appropriate spending level adjustments to the cash operating budget is another part of the internal control structure that should be examined and appropriately documented or implemented.
The audit committee. SOX requires that public companies have an audit committee in order to, among other things, have a procedure for receiving and handling complaints regarding accounting and auditing issues and appoint and have oversight of outside auditors. While TxDOT's use of outside auditors is limited, there are potential benefits to establishing an audit committee consisting of two commissioners.
The audit committee could be the body to which the executive director and chief financial officer initially disclose deficiencies in internal controls and any suspected fraud involving employees involved with financial controls. The audit committee could establish procedures for receiving and acting on complaints relating to accounting, financial controls and auditing matters.
Code of ethics for senior financial officers. SOX requires a code of ethics be adopted for senior financial officers. As adapted to TxDOT, such a code could include: standards to ensure full, fair, accurate, timely and understandable financial reports and documents; avoidance of conflict of interest or the appearance of conflict of interest; requirements of prompt disclosure of significant deficiencies in internal controls and material violations of the legal obligations by TxDOT personnel.
Also, professional responsibility for attorneys. SOX requires minimum standards of professional conduct for attorneys practicing before the SEC. Some of those standards could, by analogy, be applied to the general counsel in relation to his duties to TxDOT. While any standards applicable to the general counsel must also apply with the rules of professional conduct that governs the actions of Texas attorneys, there are procedures that could be implemented to clarify the specific actions that the general counsel should take on becoming aware of breaches of legal obligations or fiduciary duties by employees or agents of the department, and some of these have been set out in the white paper.
Finally, staff will be looking to the December meeting for obtaining commission direction to proceed with the refinement and implementation of the policies outlined here with a target date of March 2009 for putting the policies in place. And I'll be happy to bring up staff to answer any questions on this.
MR. HOLMES: Steve, you talked a little bit about testing of the controls.
MR. SIMMONS: Yes, sir.
MR. HOLMES: I think that was one of the areas that was most problematic in the corporate world of implementation of SOX, so I'd be careful about that one. It's a very difficult process to actually develop and know that the test is effective in producing the results you want, and then it's also cost-effective. There's a real question about the cost-effectiveness of it.
MR. SIMMONS: I understand. I think a lot of that's already done between the state auditor, the federal auditors and then our internal auditors themselves just to make sure the controls are in place when they go out and audit a specific function.
MR. SAENZ: Didn't get any volunteers?
MR. SIMMONS: Haven't got any volunteers yet.
MR. MEADOWS: Well, I think one of the criteria, obviously, as I recall, there was a financial expert component part of the audit committee, and Commissioners, Underwood and Holmes, being the two rich guys by the very nature of that, definition of that, are the financial experts.
MR. HOUGHTON: I do too, I agree.
MR. MEADOWS: And so I think that being done, and the Chair obviously agrees, and if there had been an action item, I think it would have already been decided.
MR. HOLMES: If you'd seen my long portfolio, you would suggest I was not a financial expert.
MR. SIMMONS: Not to diminish my career, but there is a commissioner that has experience dealing on an audit committee, and that's why I paused and looked in that direction.
(General talking and laughter.)
MR. SIMMONS: If you like, I'll go on to my next agenda item.
MR. SAENZ: And I guess just before Steve goes, we will continue to work on trying to put together a plan on how we implement some of these principles and bring them forward to the commission for approval through a minute order probably in December.
Let's go to agenda item number 3. Steve will make a presentation dealing with our Internal Compliance Program and give us a status report on where we're at on our Internal Compliance Program. Steve.
MR. SIMMONS: Thank you, Mr. Saenz. I'm pitch hitting for Richard Monroe, so if there's any tough questions, I'll get staff up here again to answer.
In November 2007, the commission approved a minute order directing the department to create an Internal Compliance Program with the mission to exercise due diligence to prevent and detect criminal conduct and otherwise promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law. The minute order requires semiannual status reports to the commission which this is that report.
The first item was to appoint an internal compliance officer and the creation of a compliance office, and I was appointed as the internal compliance officer for the department. The second item was internal compliance office, and recently the TxDOT administration approved the hiring of an interim director of Internal Compliance Office, and this new office will report to the deputy executive director and will be responsible for the development and implementation of the system-wide compliance program. And I will add that our organizational chart is being modified to show that they will be reporting to you also.
The following committees were created to identify the risk areas within the department. Those were: regulatory; environmental; record retention and open records; ethics and employee conduct; commission activities; contracts and grants management. The working groups developed recommendations to be delivered to the compliance program oversight work group who then proceed with implementation of approved recommendations. The oversight committee makes policy decisions regarding the direction and content of the program.
Effective November 4 of this year, the ICP Contract Committee became a permanent committee of the department and will develop improvements to our contract language and research, develop and implement ways to communicate the importance and expectations that those who contract with the department have an effective compliance program. The ICP Contract Committee will also share best practices to ensure consistency throughout the department. And we felt that was important based on some of the recommendations from the Sunset report.
We also established an Executive Internal Compliance Committee that was also created on November 4, and they will discuss and recommend appropriate courses of actions for internal compliance issues referred to them by the commission, administration or Compliance Office.
One of the things that an Internal Compliance Program must have is an employee code of conduct. An employee code of conduct has been completed and will be placed on the department's intranet site by the end of this month. The code of conduct will include: ethical standards; contacts with others; records and information; workplace conduct; employee time and timekeeping; outside employment and financial interests. And also our ethics policy was adopted by you to comply with amendments made by the legislature to the Government Code section.
Currently, we are conducting a risk assessment by the department's Audit Office, however, the Internal Compliance Office will soon begin the oversight of a department-wide effort utilizing the ICP committees to identify risk in each major core function of the department. Risks are anticipated to be identified and prioritized by June 1 and implementation plans are scheduled to be developed within 12 to 18 months.
Criminal background checks of employee applicants, we have expanded our policy on criminal background checks on applicants to ensure we are complying with U.S. Sentencing Guidelines. The new policy now requires background checks for new division directors, office directors, district engineers, and anything above those positions.
The internal compliance requirements of our partners. At the regular commission meeting tomorrow, staff will recommend the proposed adoption of rules that require transportation corporations and recipients of toll equity to have compliance programs. After the legislative session, staff intends to develop rules requiring other entities that receive funds from TxDOT to have compliance programs. Staff is also developing rules that will authorize TxDOT to sanction grant recipients and various contractors for ethics violations.
Education and training of employees. In May of 2008, the commission ordered the development of training for the commission, commission assistants and the administration on laws, policy and internal compliance. This training was completed yesterday and will occur each year thereafter. TxDOT has contracted with ChemTel, Inc. to provide a toll-free hotline and website for reporting potential fraud and compliance issues. The ethics hotline began receiving calls on October 1, 2008.
The internal compliance website, we are beginning the development of the internet and intranet sites to include a brief discussion of the Internal Compliance Program, the ethics policy, the code of conduct, and links to various TxDOT manuals, training opportunities and the ethics hotline. And finally, the department recently adopted compliance performance measures that will be added to the performance evaluations of all of our employees.
And with that, that's the status of our Internal Compliance Program. I'll be happy to answer any questions.
MR. HOLMES: Steve, in the code of conduct, I guess it's on the bottom of page 2 where you talk about it applying to other entities.
MR. SIMMONS: Yes, sir.
MR. HOLMES: Do we have any known conflicts between our code of conduct, as proposed, and those that this would apply to? I presume that would be MPOs and RMAs.
MR. SIMMONS: RMAs, county toll authorities.
MR. HOLMES: Counties, cities?
MR. SIMMONS: The only thing that you have to do to have an internal compliance program is to have your own ethics policy and your own code of conduct and your own method for accepting complaints. So we're not saying you have to adopt ours, we're just saying that you have to have one within your organization. That is correct; the attorneys are shaking their head yes, so I'm in good shape.
MR. SAENZ: Nodding their heads. He's not falling asleep.
MR. SIMMONS: I believe that was, first off, the folks that are receiving funds from TxDOT was a direction from you that we needed to have them develop some type of internal compliance program. So this is kind of our first step. As I said, we'll be looking at others in the future.
MR. HOLMES: Would that apply to the consultants we do business with as well?
MR. SIMMONS: That's part of the contract working group, the standing committee that we just created, that they're looking into that component of it also. They're nodding their heads yes again.
MR. HOLMES: Does that mean that they have not decided about that?
MR. SIMMONS: We are asking them for direction on how we incorporate that into our contracts that we have in place or will be developing in the future. Right now we have signed contracts so it's tough to implement something after the fact.
MR. SAENZ: We're asking them for a recommendation so that we can see how we can implement it in future contracts. The rules that we're proposing tomorrow are strictly dealing with entities that are requesting money from us to do some work, and I think it's limited to toll equity requests, Bob? Come on up here for a second.
MR. UNDERWOOD: And as you're coming up, Bob, we're requesting that they have a compliance program. Is that correct?
MR. SAENZ: In the rules tomorrow, we are requesting that if you're going to request toll equity from the department or money from the department that you will establish or you will have an internal compliance program.
MR. UNDERWOOD: I understand that, but my real question is do we get to see a copy of that compliance program. Are we asking for that, or are we just saying, Golly, gee whiz, we trust you.
MR. JACKSON: The point was, unless you want us to go a different direction, we were just going to have them check a box and tell us they have a compliance program. The rule that we have drafted for you to look at tomorrow lists several items that they have to have in their compliance program and it gives them about 12 months to develop a compliance program. We did not have plans to have department staff review their program to make sure it was sufficient.
MR. UNDERWOOD: I'm not saying it's sufficient, Bob, I'm just saying the mere fact just that they check it off, would it be to our advantage to go ahead and just have them file a copy with us of a compliance program. We don't have to look at it, just to actually have that physical document if there's ever a question down the line.
MR. JACKSON: We can do that. And when you say a compliance program, a compliance program is a lot of things, it's not just a piece of paper or a document, it's a training program, it's an office or director, but there can be a document that says how we've addressed the different items.
MR. UNDERWOOD: I'm just saying they could just send you one of the booklets they use in their compliance, they could just give us one of their booklets that they use for compliance and we'd just have a file of it. I'm not hiring somebody to do an extra job, I'm just saying we just have a physical document showing what they've done, not a checkmark saying I can't believe she checked that, we really don't have that, sorry.
MR. JACKSON: Yes, sir.
MR. UNDERWOOD: I'm asking now, commissioners.
MR. SIMMONS: Commissioner Underwood, I might add that one of the things we have to do is really help provide a good training program to the folks that are going to be doing business with us because when we say you have to have an internal compliance program, the first thing to come up is books five and six pages thick, and that may be something that an organization our size probably needs because we're in so many different areas, but sometimes it's just very simple as to have the procedures in place and that it's brought to the attention there are certain things are required in an internal compliance program. So we'll work with those individuals.
The first thing, I think, when we put out a questionnaire about we're thinking about doing this, some of the smaller cities really said this is going to add four or five people to my staff, I'm going to have to do this, and that's not really the intent, or it's not really required in all cases. So we've got to do a little training of the folks of what really their organization would need to have an internal compliance program. Am I wrong?
MR. JACKSON: Yes, and this is almost like a pilot project. We've put a notice in the Register saying we're headed in this direction, we were looking at amending several rules requiring a lot of people to have compliance programs, most people we never heard from, we got some complaints. What we decided to do is do this in two steps and just take on toll equity, since they're getting several million dollars and doing work that we want to make sure it's being spent as it should, transportation corporation is an extension of the commission, we thought they were very important, we want to give them a lot of time. And we want to see how this works, does it cost people a lot of money or not, will there be opposition, will there be support, and come back after the legislative session and see how we may want to expand the program.
MR. SAENZ: But going back to Commissioner Underwood's question, is our agreement in itself, in essence, gives us audit authority of being able to go check what they have, and one of the checks could be that we would go see what their compliance program was. And if they've checked that they have one and they don't, then they're in violation of the agreement that they have with us.
MR. UNDERWOOD: But my point is if we already had a piece of paper, we wouldn't be sending somebody out in the field to check on them.
MR. SAENZ: And that certainly can be done.
MR. UNDERWOOD: I don't want to put an FTE doing that when all we need to do is have a file and say, Okay, here's the people we do business with, here's their little compliance programs, whether it be one page or 50 pages or whatever.
MR. SAENZ: Right. We could ask for some kind of documentation to tell us what your internal compliance program consists of or entails and submit it to us for our records.
MR. UNDERWOOD: Because basically we're doing this as kind of protection for us, but basically this will help protect them too as it goes down the road, isn't that correct, on federal issues?
MR. JACKSON: Yes, and the U.S. Sentencing Guidelines set out the minimum requirements for a compliance program and they want us to work with our partners to ensure that our partners have programs.
MR. UNDERWOOD: Which is basically protecting them is what we're asking them to do.
MR. JACKSON: Yes.
MR. HOLMES: If it's restricted on this initial phase to the entities we're granting toll equity to, it's pretty limited. Right? I mean, we're talking about a handful or two.
MR. JACKSON: Yes, sir. We're talking about essentially RMAs.
MR. HOLMES: Which means that as we get some experience with it, we'll expand that program into other entities that we're doing business with.
MR. JACKSON: Yes. We're looking at grantees; RMAs themselves, since we have regulatory power over RMAs, whether they get money from us or not, requiring them to have a program; maybe eventually any city or county that gets money from us through an advance funding agreement. That's a big step, and in our early returns from our Texas Register notice, there were some concerns from the smaller cities which is one reason why we want to take this a step at a time.
MS. DELISI: Can we move on?
MR. SAENZ: Yes.
MS. DELISI: Thank you.
MR. SIMMONS: And you all had asked for this information.
MR. SAENZ: The map we handed out, commissioners, deal with the high speed rail corridors that are nationwide, and that central one starts in San Antonio, goes up to Dallas-Fort Worth, up through Oklahoma City and Tulsa, and then it's got a branch that goes through Texarkana and Little Rock.
MR. HOUGHTON: The obvious to me is what happened between Houston and Dallas?
MR. UNDERWOOD: Or San Antonio, Houston and Dallas.
MR. SAENZ: These are the corridors that are already set at the federal level. There was a group that requested through
MR. HOUGHTON: It wasn't requested by the locals?
MR. SAENZ: It was requested by the locals.
MR. HOUGHTON: I'm talking about Houston-Dallas. Maybe they didn't request it.
MR. SAENZ: These have been in place for a long, long time. There was a group that was looking at trying to make the connection to connect the Gulf Coast Corridor to the South Central Corridor, and they were turned down. In fact, we even provided a letter of support, if I remember correctly, saying that we were all for it because it would allow to make that connection to tie both of them, but they were turned down by was it US DOT, Steve?
MR. SIMMONS: Yes, and this was October 2005.
MR. UNDERWOOD: But my question is who did Houston make mad that they're just going to New Orleans and not tied in for the rest of the state.
MR. HOUGHTON: Southwest Airlines.
MR. SIMMONS: Well, personally, I think that what you see is a lot of this is the Amtrak lines that are already in place today.
MR. SAENZ: Thank you, Steve.
Agenda item number 4, commissioners, is a discussion item on the status of improvements, to a request that we received from one of our commissioners, connecting the Metroplex, down to San Antonio, over to Houston, and back up to the Metroplex, what we call the Golden Triangle. John Barton will take us through this presentation of what we have ongoing along those corridors.
MR. BARTON: Good afternoon, Madame Chairwoman, commissioners. For the record, my name is John Barton and I'm the assistant executive director for Engineering Operations.
Today I will be discussing, as Mr. Saenz said, with you the status of our plans to expand and improve our interstate highway system throughout the state of Texas but primarily connecting the three major metropolitan areas of our state, those being the Dallas-Fort Worth area, San Antonio-Austin area, and the Houston area, often referred to as the Texas Golden Triangle.
As you know, over the course of the last half of the 20th Century, the Texas Department of Transportation, in concert with the State, developed a world class transportation system to meet the demands of our growing population and the flourishing economy that we were blessed with, and of course, the backbone of this system is the interstate system which was strategically planned and built to connect the major cities and centers of commerce across our state, one with another. This system also has served us very well for the past 50 years and has enabled us to continue to grow our economy as our state has flourished.
Over the past 25 years alone, Texas's population has increased, as you know, by 57 percent these are things you already know its road use has increased by 95 percent, while our state's roadway capacity has only increased by 8 percent, and this trend obviously is predicted to grow into the future as a whole, but perhaps most notably on our interstate system it's taken an impact. And I think it's obvious to anyone that may be traveling Interstate 35, for example between the San Antonio-Austin area and the DFW Metroplex, that there are major challenges along Interstate 35 in terms of congestion and safety risks.
All the while, our population continues to grow and drive the demand for transportation, and as new Texans move to our state over the next 25 years, we're projected to grow by another 52 percent, and there is going to be a demand for continued growth in the commerce of energy, food, water, and of course, that takes transportation. I would also like to note that we are at the heart of the international trade routes with our partners and colleagues to the south, and that many of our freight corridors that exchange NAFTA-related traffic between the United States and Mexico travel through Texas. And so the demand for this transportation reaches far beyond the borders of the state of Texas, and much like our traffic growths that are predicted with population increases, the need for freight movement is also increasing as well in fact, it's predicted to double here in the state of Texas between now and the year 2020.
So because of these increasing demands that are on our existing interstate system and especially here in the heart of the state, Mr. Saenz instructed staff to prepare a summary for you today about the current status of our investments in these major interstate links, as well as our plans for upgrading and expanding Interstate 35, Interstate 45 and Interstate 10 around the Golden Triangle region, and so that is what I am here to share with you this afternoon.
Let me start by noting that there's been some previous studies on this particular issue, particularly related to Interstate 35 and how it plays a role not only as a super NAFTA highway but, of course, here in the state of Texas as well. And those studies indicated that in order to efficiently handle traffic demands that currently exist or are expected to exist on I-35, by the year 2025 the existing facility would need to be expanded to a minimum of six lanes in our more rural areas and many more than those in some of our metropolitan regions.
And I'll just give you an example. The latest study that was performed by HNTB indicated that the section of I-35 from the Hillsboro Y or split, that we often refer to, where Interstate 35W and Interstate 35E diverge as they move north into the Metroplex, south of there down to State Highway 6 in Waco, their study revealed that we would need 12 main lanes of traffic to handle the predicted traffic demands by the year 2025. And there are similar traffic demands on the remaining network of interstate in the Golden Triangle, including Interstate 45 and 10.
So expanding these existing interstates to these particular levels may not be reasonable given the existing development that's created around these corridors, but with that in mind, Mr. Saenz asked us to look at where we could possibly expand our existing interstate facilities outside those major metropolitan areas to a minimum of six lanes with the knowledge and understanding that additional required capacity into the future beyond the six-lane system could require us to look at alternatives like: massive expansions of the existing corridor which many people have talked about; new and parallel routes to the existing interstate systems; and perhaps the expansion of other modes of transportation like rail systems.
MR. HOUGHTON: Going too fast, John, hold on. You said 12 main lanes. That means six in each direction?
MR. BARTON: That's correct.
MR. HOUGHTON: How much.
MR. BARTON: How much would that cost? We have the estimates I don't have them with me today but it would be probably in the neighborhood of about $24 million per mile.
MR. HOUGHTON: $24 million a mile.
MR. BARTON: Yes, sir, to expand to that level. And of course, the right of way demands that would go along with that would be tremendous.
MR. HOUGHTON: That doesn't include right of way?
MR. BARTON: That does not include right of way.
MR. HOUGHTON: Amadeo, didn't we do this analysis once? It's sitting on my desk, it's a big book.
MR. SAENZ: Yes.
MR. BARTON: We've got a couple of big three-ring binders.
MR. HOUGHTON: About that high.
MR. BARTON: Yes, sir.
MR. HOUGHTON: And at the time I remember something like the number, Amadeo, was $12 billion or $20 billion?
MR. SAENZ: I think it was $12-, $15-. I don't remember offhand.
MR. HOUGHTON: To do that kind of work with the right of way, that would take out the Baylor University and a couple of churches and Darrell K. Royal Memorial Stadium. Remember that?
MR. BARTON: We all remember those.
MR. SAENZ: And I think what this will show you is that we do have some commitments that were made, say on 35 in the Waco District, that we're still trying to upgrade the existing.
MR. HOUGHTON: We went through that analysis, and I don't mean the humor there, but it did take out part of churches, I think it took out part of Baylor. Baylor was affected, wasn't it?
MR. BARTON: I believe so.
MR. HOUGHTON: I could go to my office and get it but I couldn't carry it down here.
MR. SIMMONS: For the record, Steve Simmons again. Commissioner, I just want to make sure we understand that report was developed during the last legislative session because the question kept getting asked: What do you have planned, what does it take to add one lane, what does it take to add two lanes, and what does it take to do an expansion that was based on a Federal Highway Administration study from 1999 if I'm not mistaken. And even if we take one lane more than what's already planned on the books, that's when we start getting into it, and the more we add, the more we take. So if we do the ultimate configuration which we all know that we're not going to put 20 lanes through Fort Worth on 35, and that's what the report said it was just trying to say that's the capacity you're going to have to have to address the needs on 35.
MR. HOUGHTON: We actually put a dollar number to it from the Y all the way down, and we talked about the rights of way and who would be disenfranchised. I mean, there were rights of way lines.
MR. SIMMONS: That's correct, we did a very extensive study.
MR. HOUGHTON: Who was the gentleman at HNTB?
MR. SIMMONS: John it starts with a B.
MR. HOUGHTON: Bourne?
MR. SIMMONS: Bourne, yes.
MR. HOUGHTON: He did a fabulous job, if you haven't seen that work. I mean, it is unbelievable.
MR. SIMMONS: But it was what the impact would be based on a study for the year 2025.
MR. UNDERWOOD: But Steve, the way I see this, from just the figures that I see here, John, is that when you widen 35, you're buying land by the square foot instead of somewhere else by the acre. I just want to make sure I understand that.
MR. SIMMONS: But you've got to remember, the very first premise of the report that John did for us was still addressing what we had committed to through our 20-year plan, and I think that was about $9 billion.
MR. HOUGHTON: So the basis, what you're saying, it's $24 million a mile.
MR. BARTON: And I would like to be able to look at that number, but it's something like that. It's a larger number than what I'm going to be talking to you about in the plan that I'm laying out for you today.
MR. HOLMES: John, this is the projected need for 2025? Is that what I understood?
MR. BARTON: The numbers that I'm sharing with you today are based on 2027, but yes, sir, they're a 20-year projection, basically.
MR. HOLMES: That's an interesting exercise, but we've got congestion in some markets today.
MR. BARTON: And that's exactly what I'm about to show you. In some of these sections of Interstate 35, 10 and 45, we have congestion above and beyond the capacity we have on the ground today.
So with that, continuing on, if I could turn your attention to the handout materials that I've given you, and just a real quick review of the map of the interstate system that's shown on the first one there, of the Golden Triangle does reveal that a lot of the interstate system we already have in place today has been expanded to that six lanes. So those sections that are shown in green that up there on the screen and in the first page of your handout that are highlighted in green are those sections of Interstate 10, 45 and 35 that are already six or more lanes, three or more in each direction, and for the purposes of this discussion today are beyond what we'll be talking about because they are at or beyond the limits of the expansion considerations that this rudimentary analysis was done on.
The first map in your handout is intended to reflect where our existing system in the Golden Triangle region does not adequately address the traffic demands that are placed on it today, and that's what we were just talking about. This is a quality of flow analysis, and the sections that are shown in red are areas where our existing quality of flow is below a desirable level or is considered unacceptable. And let me just tell you briefly, quality of flow is a grade, if you will, that we give sections of roadway to indicate the level of service that they provide to the motorist.
So for example, a rating of A to B indicates that during normal traffic flows people are able to drive at the near or posted speed limit without much interaction with the other drivers on the roadway. They don't have to slow down to pass them or get caught in congestion type of movements.
On the other end of the grading scale, the quality of flow of E which is shown here in red are where there is a lot of disruptions in traffic patterns: you have to slow down a lot; you may be caught in congestion; you're certainly playing a major role in interacting with other traffic as you move in and around that other traffic. So level of service E is an unacceptable or less than desirable condition.
And as you can see from this cover map: the sections that are in red are where we have that existing today under current lane configurations and current traffic, this quality of flow at a level of service E or below; those sections that are in yellow or orange are where we have that C to D which is kind of a tolerable level but certainly not what you would like; and then the sections that are shown in blue are where it's graded A to B or in those acceptable areas where you would ideally have all your traffic operating.
Building upon this particular information, staff then developed for this discussion kind of a needs assessment along the corridor within the Golden Triangle, and that's what the next maps try to lay out for you. So if you'll turn to the second page, again, this is an overview of the entire network of the Golden Triangle that shows where we've already made improvements to our existing system to get it up to six lanes, a minimum of three in each direction, and then kind of our plan in terms of what we believe are short-term or near-term needs and what are mid-term needs.
And again, the color coding: green is where we already have six or more lanes; those sections that are shown in red are where we believe that we have a near-term need, something that we need to be working on in the very near future; those that are shown in orange in this case are those that are actually under construction, where we already have projects underway to develop that network; and then the blue are what we are calling our mid-term need where we know that in the future we'll need some type of improved capacity but at the current levels of congestion and serviceability, they're not as pressing as those that are shown in red.
So if you' flip to the third page of your handout, we'll get into some of the specifics along the corridors that are there. This general summary, if you'll look at your packet on the right-hand side, is a map of the corridors, on the left-hand side is some project-specific or segment-specific information. And what we've tried to do here is to describe the segments along the route, again color-coded where red is a near-term need, blue is a mid-term need, orange is under construction, and green is where it's already six or more lanes. And then on the left-hand side of the page we've summarized that information in tabular form to show you where the project is, what its estimated cost is, whether it's under construction or a future need, in terms of 2008 dollars I think that's important to keep in mind, where that is specifically, the limits of that segment.
And then on the right-hand side of those tables we've got a quality of flow analysis for four different scenarios: the first one tells you what the quality of flow is today with the existing traffic lanes; the second scenario is what it would be if we were to expand it to six lanes, three in each direction, today with today's traffic; scenario three is what it would be in the future if we left it as it is today without any expansion; and then scenario four is what it would be in 2027 traffic with the added capacity of a minimum of six lanes, three in each direction.
So when you look at that first set of books which are labeled Sheet 1 of 6, I-35 East and West, Expansion to six lanes if you'll focus on Interstate 35E, you can see that we have segment under construction, as it comes south out of the Dallas-Fort Worth area towards Waxahachie. We believe that we need to do a project in the near term to continue that expansion down and around the city of Waxahachie. And then the section down to the Y is one of those mid-term type of projects that currently doesn't have a demand for improvement or the future demands are something that can allow it to wait a little bit longer.
On the Interstate 35W, again if you'll look at that, from the Johnson-Tarrant county line down toward Alvarado, we feel like there's a need to move forward with a project there in the near term, and then from there down to the Y at Hillsboro, a mid-term need. And if you look at the two tables, the total of those unmet needs that are not being addressed by projects that are currently under construction in sum total is just shy of $900 million to add that fifth and sixth lane to the existing interstate system in this particular area.
I won't spend a lot of time going through the rest of those, but if you'll turn to the next page, 2 of 6, this is the first plate of a section of Interstate 35 from the Hillsboro Y as we refer to it where 35 East and West come together and runs south to Austin, and as you can see, either those sections are under construction or we believe of immediate attention or near-term needs. And if you look at this plate with the next one which is 3 of 6 in sum total there is approximately $1.7 billion worth of need to expand this particular facility to a minimum of six lanes, three in each direction, where we don't already have that type of capacity provided.
We've also done an analysis of Interstate 10 between San Antonio and Houston. I think it's interesting to note that while it's a little bit longer, the traffic demand are a little bit less demanding at this particular time, but in order to expand it to what we believe is ultimately needed over time, it's going to be about a $1.9 billion investment. And it should be noted that we do have some pretty significant demands in the immediate San Antonio area, as well as over towards the area around the Brazos River and the Brookshire area that are just west of what was recently completed as the Katy Freeway project there on the west side of Houston.
And then on Interstate 45, we have a couple of projects that are under construction: one at the north end, north of Corsicana; one at the south end in the community of Conroe, and we've seen immediate need to continue some work in the Conroe area with the remainder of the corridor being something that should be addressed in the mid term, and again, about $1.9 billion worth of need for that particular corridor.
And then the last plate that I've included is on for Interstate 10 east of Houston, and although it's outside the Golden Triangle area, when we looked at the traffic flow patterns in that particular section of interstate, we noticed some conditions that are similar to those in the Golden Triangle. And as Commissioner Holmes could certainly attest to for us, there is a lot of traffic coming out of the Port of Houston heading east into other areas of the nation as a particular commerce route, and so we've tried to identify the needs that are there and quantify those as well in terms of near- and mid-term needs. And a lot of this particular facility is already being expanded and upgraded, so the costs for continuing the expansions on it are a little bit lower, about $328 million.
So in sum total, I'd like to just direct your attention back to I-35, if we were to do all the needs that we've identified on I-35 which when you look at the first plate back at the beginning of this set of maps is certainly where our greatest demand is. In sum total, it's about $2.6 billion worth of additional funding that would be needed in terms of 2008 dollars.
MR. HOUGHTON: Additional.
MR. BARTON: Additional, beyond what we currently have under contract. Funding options available to us are certainly limited, as you well know. We have about $300 million for this type of project funding within the next 11-year UTP that's been discussed by the commission over the last several months which is obviously very short of the $2.6 billion that's necessary. The commission obviously could choose to direct funding from other programs which is something that I'm not recommending here today, for the record. There are other funding sources that could be brought into play. Possibly as Proposition 12 is considered by the legislature in the next several months, it could be that they would, along with the commission's agreement and blessing, direct some of that funding towards the expansion of Interstate 35.
And of course, if any new additional revenue is made available to us through whatever mechanisms Congress or the legislature might provide, then it's an opportunity for the commission to consider and direct some of that funding to the expansion of this interstate system. And ultimately, I think it's important for us to continue to encourage the use of all the tools that are available to us in order to provide these types of opportunities to be met.
As Mr. Saenz said, in the modeling for the development of State Highway 130, as well as the planning for the Trans-Texas Corridor 35, the expansion of existing 35 to six lanes, three in each direction, was included in those models and is a commitment that has been discussed at great length, so I'm not going to go into that any further.
But in conclusion, I think it's clear that there is both an existing and future need for additional transportation here in the Golden Triangle, the heart of our state, and that those needs far exceed the capacity that our existing systems can provide for them. We also see that increasing the capacity of these particular facilities is important to provide for the efficient connectivity between these major regions, and while funding to provide them is strained and must be considered in competition with other pressing needs, meeting these challenges is going to require us to be creative, use all the funding options available to us, and to turn towards strong partnerships with our local communities, our state leaders and the transportation providers for the State of Texas.
So I'll conclude my remarks at this point on this and see if you have any questions that I might be able to answer for you.
MR. HOLMES: John, you recently did a congestion study around the state. How did these various segments fall into that, what was it, 37 areas that were congested?
MR. BARTON: That's a great question, Commissioner Holmes, and if you'll turn to the second page which is titled at the top right-hand corner as Index, I'll just briefly show those to you. All of Interstate 35 from San Antonio to the Dallas-Fort Worth area was included in those top congested areas within the state of Texas, even those that are already expanded to the six-lane section. The segments of Interstate 45 that fell within the bounds of what we considered congested analysis are the ones that are actually shown either in orange where we have the construction going on near Corsicana or in the south from Conroe south, and the section in between that's blue did not show up in our congestion analysis as being congested under today's conditions.
And the same thing holds true for the Interstate 10 corridor. Those areas that are shown here in color as either red or orange as being under construction or immediate need were those that were identified as congested under that analysis, and those that are blue with the exception that I pointed out between Brookshire and the Katy Freeway on the west side of Houston it also showed up as a congested area. Those are the areas that showed up congested in that analysis. And then, of course, as you got into the metropolitan areas, most of the network, including these interstates, showed up as congestion.
MR. SAENZ: Commission, I think just looking at this thing here, when you look at the three major statewide corridors, 35, 10 and 45, our biggest problems are along 35 and our biggest, biggest problems are in the area north of Austin and south of the Y, for all practical purposes, which is the Waco District. Those are the ones that have level of service E right now, and those are the ones that probably have our oldest segment of interstate in place.
We have committed, through prior commissions, to go out there and upgrade that interstate to current standards and at the same time we were adding one lane in each direction to kind of comply with how it was being developed. That's been in place for many, many, many years. We don't have enough money to do it all so we're having to do it a bit at a time. But when we started looking at the three corridors, we very quickly identified that we need to concentrate on 35. We've got some hot spots on 10 and we've got some hot spots on 45 that we need to look at in the short term also, but really we need to put our efforts on the 35.
Adding the fifth and sixth lane is a short-term fix and really we need to look at what's next, and I think when you look at what we laid out around Austin and going south to Seguin to 130 as a parallel is probably going to be one of the viable options to do that. But in the short term, we need to see how we can address the short-term needs on 35.
MR. MEADOWS: I've just got to make a couple of comments at this point. The first comment I'd make is just an expression to you, Amadeo, and to John for bringing this back to our attention. I know you all have wrestled with this because this has been a front-burner issue for the last decade, I'm talking about just connecting the urban centers of the state of Texas, and specifically referring to the Interstate 35 corridor. So this is a helpful point from which to begin further discussion.
I know the study that Commissioner Houghton referred to, and what it basically illustrated was that the capital costs associated with really delivering what is going to be needed is far out of our range, and furthermore, the problem is exacerbated by the fact that Baylor University and expansion in those urban areas takes institutions like that or impacts them sufficient such as to make that not even a viable alternative.
So I back up and say in the short time I've been on this commission I cannot tell you how many times particularly where I live in Fort Worth in the Metroplex where there's constant traffic between San Antonio-Austin and the Metroplex I cannot tell you how many times I've been asked by citizens, business leaders, people on the street: What are you going to do about 35? Well, you know the problem that we have that I find is that I cannot clearly and succinctly articulate a plan.
Now, what I see here is the right step which is we all have to have an understanding of what the challenges are, we've got to start there, we've got to all understand and agree that those are the challenges. But there is not, I do not see that we have the ability today to articulate a clear and succinct plan that is going to enable us to accomplish the goal, and that is to move people and goods through these corridors connecting the urban centers of the state of Texas. And that is our failure.
Let me tell you a couple of things that really impacted me, and I don't know if they're true or not, they came from our staff. One is that it was described to me, written in a speech by a staff person that I delivered at some point, so I assume it was true, and that is that the stretch of Interstate 35 from San Antonio, Texas to the Dallas-Fort Worth area is the deadliest stretch of interstate highway in the United States of America. I don't know if that's true or not, but I do know it's very dangerous.
The second thing that I thought was sort of an interesting fact and I believe it is that you put on the table, and that is before the construction of Interstate 35 linking Dallas-Fort Worth and San Antonio, that the average travel time was approximately eight hours. And at the opening or completion of the full Interstate 35 system, it cut the travel time back to about four and a half hours. I don't know if I ever made it in four and a half hours but it definitely was less than five. And the travel time today often is back to eight hours, so we're basically back to the 1950s, if you really think about that. And what I'd have to say is you would conclude and all of us would conclude that we have failed, and that being the case I understand there are a lot of factors there, but that is the fact.
So the point is that to address this in this fashion which is adding the fifth and sixth lanes is a noble goal, a great goal and one we ought to pursue. I understand that it's not $25 billion, it's not $30 billion, it actually becomes almost a doable number despite the fact that we've identified $300 million, not $2.8 billion in 2008 dollars, but the fact is that that is something that we can work toward. But you cannot do this without absolutely concurrently and part of the same plan, we need to thoughtfully be thinking about how we pursue the new parallel routes because that clearly is what is going to be needed. We're going to have to really begin to rethink what the capital structure is going to look like, and Commissioner Houghton and I have talked about this some.
There is no question that there are going to be some alternatives out there, and the Trans-Texas discussion has been very valuable to this agency and to all of us, it's very instructive, and it's a step, we've learned as we've gone, but the fact is that some of the capital sources identified in that proposition definitely are going to have to be brought to bear if we're ever going to be able to actually present the capacity.
So I'm going to stop this long statement just by saying that I think it is important that when we begin to talk about expanding or providing free capacity to the citizens of the state in the 35 expansion, we need to have a clear, easily communicated plan that says concurrent with that, this is happening that is ultimately going to result in us being able to meet the transportation needs. And that's what we're going to have to do, and we need to get about it.
MR. HOUGHTON: Let me address a few things that Commissioner Meadows was referring to. We have segment committees along the 35 corridor and they're active now, Amadeo?
MR. SAENZ: Almost. We're waiting for the cities to submit the names.
MR. HOUGHTON: The overall.
MR. SAENZ: We have 35 and 69.
MR. HOUGHTON: The segment committee, Bill, is something that I got heavily involved with up and down the corridor, and not only 35 but 69, as to the locals would have great input as to what would be eventually built, and we took nothing off the table. In other words, we may have a looping system Phil, if you want to chime in here and get ready because you're running this segment stuff either a looping system around Waco, Temple and some of those communities, or whether we have a parallel, just take SH 130 and keep going north, we've challenged those people to come back to us and give us some ideas on what they'd like to see.
Now, we know that a looping system, and if you come back into I-35 at some point in time, you're going to have to go get more right of way somewhere, and somebody is going to be disenfranchised somewhere along this path we go down, but we're asking those folks to come back to us to give us some recommendations. So we are marching ahead with some ideas. And then you apply the product that they recommend to a cost structure as to what it's going to cost us to come up with that parallel or expansion of 35 or combination of both.
So with that said, the 35 folks have been working, the overall 35, and we're going to empower the segment committees to address how these local areas are going to respond to it.
MR. HOLMES: Didn't we have a relatively detailed study of a parallel for 35 and it was broken down into segments, it had costs and toll values by segment, and didn't we have Cintra-Zachry studying that?
MR. SAENZ: Yes. What we have is part of the 35 development, the CDA in the master development plan for the 35, we have identified or Cintra-Zachry have identified the segments and how they would be developed, how much they would cost, the parallel segments for a parallel expressway, and how much money they thought it could generate in addition to the cost of the project, so we have that. That plan is being updated as we speak, as we move forward.
On the environmental side we're getting close to being able to put out the final EIS on the corridor level study, and that could be a way that you could build because that plan incorporated that you would have six lanes on 35, so you could use the parallel facility and the money that that generates to build the fifth and sixth lanes and bringing them up to standards, as one solution. As well as use some of that money to make those connecting roads between 35 and the parallel corridor, because that's also going to be very important.
And those were some of the things that we heard from the advisory committees dealing with that it's important to connect the communities that are on 35 to this parallel facility and who is going to be responsible for payment. Well, the whole 35 parallel corridor could be the revenue source to do all of that.
MR. HOLMES: There are obviously multiple facets to this type of project, not the least of which is the political element of it. We learned that in the last session with the guitar-playing guys in the Senate Transportation and all that. But it seems to me that putting the three lanes in each direction is a critical part of them getting the parallel actually approved.
MR. BARTON: I think my three minutes is up.
MR. SAENZ: Thank you, John.
Agenda item number 5, Brian Ragland will present an update on the status of our implementation of the recommendations made by the State Auditor on our cash flow forecasting audit. Brian.
MR. RAGLAND: Thank you. For the record, my name is Brian Ragland; I'm the director of the Finance Division.
As part of our response to the State Auditor's report, we talked about having these workshop meetings, and we also talked about, as part of these workshop meetings, briefing the commission on the status of this report. So at the September workshop meeting, James Bass went through the entire report. What my plan is today is just to go over the ones that have changed in status since James presented the entire report in September, and we can certainly address any of the others if you want to, but I think it's in all of our best interests to just go over the ones that have changed. There were 18 recommendations in total and nine of those have been completed.
Recommendation number 2 asked us to post the commission briefing documents on the website at the same time it provides the commissioners with those documents. We realized that that was going to be quite difficult and sort of a moving target, so we agreed to post all of the documents at the same time that we were posting the minute orders which is three days prior to the commission meeting or this workshop. We have completed that, and effective with the October commission meeting, all pertinent documents were posted to the web three days prior.
Recommendation number 3 talks about including a summary of important information in the cash forecasting report. What we suggested we would do was produce an executive summary which would list the assumptions used in that month's report and would highlight any changes in assumptions from prior months' forecasts. It would show the impact on projected cash balance of the recommended letting schedule and a description of any scenarios and the project impact of that scenario to the contract schedule and cash balances. We have completed this item as well. The August 2008 cash forecast included such an executive summary.
Recommendation number 4(a) was related to Rider 20B of the Appropriations Act which says that we shall include the following elements in a report to the LBB: a revenue report, a variance report for State Highway Fund 6 describing reasons for fluctuations, and expenditure information at the same level of appropriations. We found an email from the Legislative Budget Board in April of 2008 which suggested that our cash forecast would address the Rider 20B issues that were brought to our attention.
We're currently in the process of rewriting our cash forecast system and we've had subsequent discussions with LBB and we think that the new system is going to further enhance our compliance with this rider showing the items at the appropriation level. So we're thinking we'll be finished with this in December.
Recommendation number 4(b) related to Rider 39. This rider required us to reconcile the department's expenditures and encumbrances of appropriations made to the department by the Appropriations Act to the 12 categories listed in the UTP. This was a problem in that the UTP only addresses two out of the 23 strategies in the Appropriations Act. So we've been working with LBB, the Finance Division and the Government and Public Affairs Division, have had a couple of meetings with the LBB analysts.
We've provided to them a format of a report that we think comes as close as we can to complying with this rider; they're currently reviewing that. We actually had a meeting with them yesterday and I didn't get that information into this report but we think we're very close. They agree with the format we've presented. We're going to add an executive summary to the front of that, and then we think we'll be done. So probably looking at December in being done with this recommendation.
Recommendation number 5 suggested development, adopting and implementing a formal documented process for reviewing and approving amounts used to develop all contract award schedules. What happens currently is the CFO approves the aggregate monthly contract dollar volume received from the Programming and Letting Branch of the Finance Division, and the associated projects are approved by the assistant executive director for Engineering Operations. So basically what we needed to do was formally document this process and we have done that, we are in the process of reviewing the policy that's been written, and we're going to be putting that into the appropriate manual probably in January of '09.
Recommendation number 7 is to develop and implement a process to review manual entries into the cash forecasting system that have a significant effect on forecast outcomes. Those should include testing inputs for accuracy and reviewing the supporting worksheets to ensure staff followed the department's policies in the preparation process. We've essentially completed this in our current cash forecasting system, we've implemented some controls that effectively reduce the amount of manual entries we need to make. The new system which should be pushed out in the next couple of months has fully automated the process and will be able to detect and eliminate any manual entry errors.
And then finally, number 8, their suggestion was to update and implement the cash forecast approval process and time lines documented in the Texas Transportation Institute's Cash Forecast System Manual. Our response to them that this process would include who is authorized to approve the forecast, a time line for the development and approval of the forecast, the method of documenting the approval, and retaining the approvals in accordance with the department's record retention schedule. The status is that documentation of this approval process has been developed and is currently in review and we're expecting to approve that this month.
So that concludes my remarks and I'm happy to try and answer any questions or find somebody who can. Thank you.
MR. HOUGHTON: Is this your first time to address the commission?
MR. RAGLAND: It is.
MR. HOUGHTON: A rookie.
MR. RAGLAND: I've been here since August 1.
MR. HOUGHTON: How did you draw this short straw.
MR. SAENZ: James is chief financial officer.
MR. RAGLAND: I'm going to have a few tomorrow as well.
MR. HOUGHTON: Bass is back there waving in the back.
MR. SAENZ: We're trying to get James out of the weeds. We're learning.
MR. HOUGHTON: Thank you. It was a good report.
MR. RAGLAND: Thank you.
MR. SAENZ: That's all we have, Madame Chair.
MS. DELISI: Is there any other business to come before the commission? There being none, I will entertain a motion to adjourn.
MR. HOUGHTON: Are you in a hurry to go somewhere?
MS. DELISI: Is that a motion to adjourn?
MR. HOUGHTON: So moved.
MR. HOLMES: Second.
MS. DELISI: All in favor?
(A chorus of ayes.)
MS. DELISI: Please note for the record that it is 3:12 p.m. and this meeting stands adjourned.
(Whereupon, at 3:12 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: November 19, 2008
I do hereby certify that the foregoing pages, numbers 1 through 78, inclusive, are the true, accurate, and complete transcript prepared from the verbal recording made by electronic recording by Nancy King before the Texas Department of Transportation.
On the Record Reporting, Inc.
3307 Northland, Suite 315
Austin, Texas 78731
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