July 26 Transcript

Texas Department of Transportation Commission Meeting

STAFF:

MR. WILLIAMSON: Good morning. We're on the record at 9:21 a.m., and I would like to call the July 26, 2007 meeting of the Texas Transportation Commission to order. It is a great pleasure to be here in Sugar Land, Fort Bend County, Texas.

It is our practice to take the commission meetings on the road three or four times a year. It gives us the opportunity to hear firsthand about the problems facing the communities, particularly the high growth communities of our state. It also gives us an opportunity to review the activity in the area, to understand how our employees and our management of the state's investment in the communities of this state is being handled.

I hope that it also provides you with some insight on how we conduct our business. You'll see this morning a commission meeting conducted here exactly as that meeting would have been conducted in Austin, Texas.

We've been greeted by incredible hospitality during our two-day visit. We are so appreciative to the leadership of Sugar Land and the western part of Houston and Harris County. We're particularly appreciative of the city staff of Sugar Land who have done an outstanding job in making us feel welcome, making sure we knew where everything was, taking care of our introduction to Sugar Land, Texas.

We note for the record that public notice of this meeting, containing all items on our agenda, was filed with the Office of the Secretary of State at 2:16 p.m. on July 18, 2007.

Before we continue with our meeting today, I would take it as a personal favor if you would reach into your pocket or purse and take out your telephone, pager, Dewberry, whatever else you carry, and put it on a silent or vibrate mode so that we might conduct our business in a relative uninterrupted state. I would also tell you that if you do have a Blackberry, it will disrupt the microphone if you're testifying, so I'd really appreciate it if you would leave that in your seat when you come up to testify because it will blow the documentation for our public record and that makes it tough on all of us. Thank you very much.

Before we begin the meeting today, we have as a custom the opportunity to let each commissioner comment as he or she sees fit, and we always start with the commissioner on your far left and work our way to the center, so we'll hear from Mr. Underwood first, then Mr. Holmes, Mr. Houghton, Ms. Andrade, and myself. Members.

MR. UNDERWOOD: Thank you, Chairman. I want to thank again, reiterate what the chairman said, really appreciate the hospitality we've received. Your facilities here, your whole community, your whole town, your whole city, it's amazing what you've done. I can see how progressive and aggressive you are and you've got a great future and whatnot.

I also want to compliment your staff at the Sugar Land Airport. As a private pilot, I've flown from the East Coast to the West Coast and I've been to a lot of FBOs, but you have one of the best in the country and you need to take pride in that. Not only does it look good but it's very functional from a pilot's standpoint, from a corporate viewpoint, as a corporate pilot or corporate people flying in and out. It's first class, please take pride in that. Thank you.

MR. HOLMES: I'd like to add my welcome. Mayor Wallace, you've got a great facility here and I'm really impressed with all the progress that you've made out here in the last few years.

Judge Hebert, we appreciate being in Fort Bend County, and I want to add my thanks to your being here but also thanks to the TxDOT staff that hosted us to dinner last night at the Rosenberg headquarters of TxDOT. We appreciate the Fort Bend staff for taking care of us. Jim, thank you.

MR. HOUGHTON: I echo Commissioner Holmes's remarks. Mayor, this is a fine, fine facility, and a tremendous development plan here in Sugar Land and ought to be proud of it.

And Judge, great to visit with you yesterday. I think we got a lot of things done, and I appreciate you listening and you taking your time.

And to the TxDOT family, Jim and Gary and crew, thank you very, very much, and for the fine hospitality from this part of the great state of Texas. Thank you.

MS. ANDRADE: Good morning. First of all, I want to apologize to our TxDOT for missing the event last night. I know that you put a lot of effort into it and I want you to know I may not have been here physically but I was here in spirit and I'm always very proud of our staff.

Mayor, congratulations. This looks like a very progressive community. I landed at 8:15, my fear was that I was going to be late, but I want to thank HCTRA and Fort Bend Tollway for getting me here on time and safely. I had one of our TxDOT staff members who brought me here and gave me a little bit of history, and I have to tell you that I was very impressed with what I heard, I'm very looking forward to hearing your presentation.

Judge, you've got a great region out here, and I love the aesthetic treatment and the landscape. It just makes it beautiful. So looking forward to hearing your presentation, and it's great to be here this morning with you all.

MR. WILLIAMSON: Thank you, members. And I associate myself with the remarks of the members completely. I also, again, personally appreciate the hospitality you've shown to us.

There are plenty of important people in this room, but there's no one more important than a former chairman of this commission, Bob Lanier, who has taken the time to be with us this morning as part of Harris County. Chair, we appreciate you taking the time to be with us.

Many of you are young　-- like me　-- and would not know that there was a time in the state's history, and in particular in the state's transportation world, when there was even less being done to prepare for the future of the state than perhaps has been done in the last ten years, and a governor had the good common sense to hand the keys over to Mr. Lanier, and I think, if memory serves me correctly, it was the last time this state has received a revenue injection into the state's transportation system that wasn't associated with debt or wasn't associated with a concession, and the state should be forever grateful for the hard work you brought to the commission at that time, Chairman.

We have certain legalities we have to follow, and one of the legalities is if you wish to address the commission on the record, we need for you to fill out a witness card. If you're going to be addressing the commission on a matter that's on the posted agenda, I need for you to complete the yellow card, similar to the one in my left hand, that you can find out in the lobby of the building.

If you want to wait until the end of the meeting and just comment generally or on something that doesn't appear on our agenda, I need for you to fill out a blue card, like the one in my left hand. Again, you can find one out in the lobby to fill out.

Having said that, because we almost always have a long meeting it seems, we ask everyone, other than sitting members of the legislature, to limit their remarks to three minutes, make their point and move on. We're good listeners, we tape and we take notes, everything you say will be considered, and reviewed at a later date, but if you could keep it kind of short and to the point, we would appreciate it.

In a few minutes, we're going to be hearing from our partners and the leadership in transportation in Fort Bend County, Sugar Land, and in our Houston District office, but we have a bit of a deviation from our norm this morning because we want to recognize one of the many people who volunteer their time to creating a better transportation system in our great state. And for this recognition, Michael, I would ask that you take over and lead the way.

MR. BEHRENS: Thank you, Chairman.

We would like to recognize someone that has played a big role in the transportation arena in our state, and to begin with, I'd like to call Dave Fulton up, who is the division director of our Aviation Division, to begin that presentation and introduce others that will take part in that. Dave.

MR. FULTON: Thank you, Mike. Again for the record, my name is Dave Fulton, director of the TxDOT Aviation Division.

I want to thank you, Mike, for giving me the honor to introduce to the commission and the audience an individual that the commission intends to recognize today for his service. Bill Knowles, would you come forward?

Bill is the chairman of the Texas Aviation Advisory Committee. His service to the State of Texas in aviation goes back before TxDOT was formed. He's been an ardent supporter for aviation in this state for many years.

I'd also like to ask some members of our committee, Jim Schwertner and former member, Blair Bisbey to come forward　-- they did fill out a card. And I'd also like to recognize Greg Jones, another member.

At this time I'll turn the podium over to one of these gentlemen.

MR. BISBEY: May it please the commission. I'm Blair Bisbey. I'm a lawyer. I live in Jasper, Texas; I've been a private pilot for 24 years, and it was my privilege to serve three terms on the Texas Aviation Advisory Committee with Bill Knowles.

When I was appointed to the committee by David Bernsen, he told me, in his fiercely parochial style, that he wanted me to get money for East Texas airports. When I joined the committee, I found that David had packed it with people from East Texas, or behind the Pine Curtain, as we're referred to on the committee.

(General laughter.)

MR. BISBEY: Including my good friend, Bill Knowles, George Mitchell from Beaumont, and at that time, Loretta Scott, who was from Tyler. I very quickly learned, however, that Bill and George and Loretta and the rest of the members of the committee had a much broader vision for aviation in the state of Texas. And it was my privilege to serve on this committee under, first, George Mitchell's leadership, and then Bill Knowles' leadership, as we went from a time when there were no funds dedicated to the aviation infrastructure in the state of Texas on the general aviation level, to the point now to where we have over $50 million annually allotted to the improvement and maintenance of the general aviation infrastructure.

It has been a watershed change that pilots have seen in the airports of the state of Texas. Under the leadership of Dave Fulton and his very capable assistants, Bill Fuller, Karen Weideman and Linda Howard, we have seen incredible improvements in not only the facilities but the safety of aviation.

We're poised now at a point where we're seeing a new revolution with the WA System that's being implemented that's going to allow precision instrument approaches into all of the general aviation airports in the state of Texas that have these GPS approaches.

I commend Bill Knowles to this commission's attention for the work that he's done to bring us to the point we are now, and to those who will follow after Bill on the committee, I say here's an example of not just good government but great government as we move into the future.

Bill, it's been an honor and a privilege.

MR. KNOWLES: Thank you very much, Blair.

(Applause.)

MR. SCHWERTNER: Mr. Chairman, members. My name is Jim Schwertner. I'm vice chairman of the Texas Aviation Advisory Board, and I'm also owner of Capitol Land and Livestock. We're a livestock dealer, we fly all over Texas and the United States buying and selling cattle.

I can tell you this guy has been my friend for 40 years, we've been on a lot of trips together, and 30 years ago I'd been to almost every airport in Texas, especially the rural areas and they were in shambles and rundown, and because of the leadership of this guy who understands how important aviation is to Texas, and under the guidance of Dave Fulton and his staff, we now have one of the best aviation systems in the United States of America. And you all should be very proud of that, and it really has helped us in agri-business and in commerce all over Texas, and it's all because this guy right here had a vision.

He's a good friend, and we hate to see you retire.

(Applause.)

MR. KNOWLES: Thank you, Jim.

I'd like to ask the staff of TxDOT Aviation Division to stand up, those who came, please. We appreciate your being here. These are the guys who really do the work with Dave.

Thank you so much for making an opportunity for this today, Ric and commissioners. I much appreciate it.

I was on the old Aviation Commission when we had nothing, and I remember well the days when people said, Oh, we're going to have to go to the Highway Department　-- like we were being sent down to some other area. It's far and away the best thing that ever happened to aviation in Texas. You guys have made money available to us to do the sort of improvements, like the terminal at this fine airport here, and many, many other small airports all over the state of Texas.

I sincerely appreciate what you've done for Texas and the money you've injected in aviation. We're a big state, we must have it, and with staff like Dave and his group, we'll take good care of it.

Thank you very much.

MR. WILLIAMSON: Hang on just a second.

MR. BEHRENS: Don't sit down yet. Bill, it's my honor, on behalf of the commission, to read this resolution in your honor.

A Whereas, upon the establishment of the Texas Department of Transportation in 1991, the Texas Legislature created the Texas Aviation Advisory Committee to ensure continued statewide support for aviation;

A And whereas, the Texas Aviation Advisory Committee is comprised of six members committed to aviation in Texas;

A And whereas, Bill Knowles has faithfully served as a member of the Texas Aviation Advisory Committee for twelve years, as chairman the past seven years, while contributing significantly to the Texas Department of Transportation's aviation programs;

A And whereas, he served as a member of the Texas Department of Aviation Board from 1989 to 1991 and rendered such service in a manner that has contributed greatly to the betterment of aviation in Texas;

A And whereas, he has contributed his time and resources and service solely due to his love for and commitment to aviation;

A And whereas, he has announced his retirement from the Texas Aviation Advisory Committee effective August 31, 2007;

A Now, therefore, be it resolved that the Texas Transportation Commission hereby honors and thanks Bill Knowles for his service to TxDOT and to the people of Texas.

A With gratitude and best wishes, presented by the Texas Transportation Commission this 26th day of July 2007.@

And it's signed by all the members of the commission.

MR. KNOWLES: Thank you.

(Applause.)

MR. WILLIAMSON: We're going to continue on our agenda, but we don't presume everybody has all day to spend with us; we understand life goes on, and what's going to happen is Gary Trietsch, our very capable Houston area engineer, is going to give a presentation about this part of the state, and then we're going to take about a five-minute break to give everybody an opportunity to resettle, and if you need to leave, to leave without disrupting the meeting. So just so you know, we'll take a break in a few minutes.

MR. BEHRENS: At this time, I'd like to call up Gary Trietsch, our district engineer in Houston, and he will give us a report on things going on in the Houston area. We have picked on Gary for the last several years we've been around the Houston area, so this will be his third report, and probably some of your fellow district engineers are either jealous or happy, Gary. The floor is yours.

MR. TRIETSCH: Well, I hope they're jealous. For the record, I'm Gary Trietsch, Houston District engineer for Texas Department of Transportation. And I'm a little worried about touching anything up here, so I'll try to be careful.

(General laughter.)

MR. TRIETSCH: I would first like to officially welcome the commission and Mike Behrens, Executive Director, for coming to Sugar Land, to Fort Bend County, to the Houston District, that it means a lot to us.

It's not too much work for us to be able to show you what's going on around here, talking to several of you, you've driven around the area, looked at the terrain and seen what the country is like around here, and I will tell you it changes vastly in a very short period of time from the metropolitan center of Houston to the suburbs of Sugar Land and Missouri City and Stafford, and you go across the Brazos and you see the farm fields and the farmers. And you know, you think of me as a metropolitan district engineer, but you haven't lived till you met with six farmers about frontage roads on US 59. They get your attention quicker than anybody else.

But I would also like to introduce one of our many, many partners, the Grand Parkway Association, and their board of directors, chaired by Billy Bird, they're here today. Would you all stand up? It looks like the entire board made it.

(Applause.)

MR. TRIETSCH: Grand Parkway started back under Chairman Lanier 20-plus years ago, and it's had its ups and downs, and the only part that's open to traffic right now is predominantly in Fort Bend County. We have a part under construction in Chambers County which is in the Beaumont District. That's how big Grand Parkway is, 170 miles. It's almost like building I-10 from Houston to San Antonio. And we are going to get it done and things are going to start happening pretty rapidly here in the coming months.

I am not much of a speaker　-- actually, I'm a real good speaker but I'm a long-winded speaker, I don't know when to quit, so my folks have prepared a video on Fort Bend County. If we could play that right now.

(Audio problems starting video.)

MR. WILLIAMSON: Mike convinced a few uninformed employees of the department in Austin, Texas that Sugar Land got its name from the sugar that flows through Sugar Creek, and they bought that story.

MR. HOUGHTON: Mayor, how do you keep the people's attention, your council members, with internet access up here and games?

And did you notice, Chairman, there's another gavel up here besides yours?

MR. WILLIAMSON: Listen, I've already decided when we get through, I'm going to have Roger take a picture of this deal and we're going to try to duplicate this in Austin. It's pretty slick.

MR. HOLMES: Well, Fred and I are taking our chairs back.

MR. WILLIAMSON: You've got Bose surround sound, this is great.

(General talking and laughter.)

MR. TRIETSCH: Well, I will fill in while we get this up and ready. It's really a very good video, but it's a whole lot better with sound, I will not try to narrate it. I will tell you that we, as a state agency, could not begin to do the things we do here locally without the cooperation and the support of the cities and counties, the economic development boards, chambers of commerce, the state representatives and state senators and congressmen that all represent this area, and I will tell you that the City of Sugar Land, Fort Bend County have passed bond election after bond election to build the infrastructure that's needed to support this growth that is going on in this area, that as you can tell by driving around and looking.

This is 1989 where you're at now and this is what it was last year. It has changed dramatically, and Chairman, as you often mention about the growth of Texas, this is kind of at the heart of the growth, along with other cities and towns in Texas that's growing. I will say unfortunately I was wanting bad traffic last night, not just quite as bad as it was. I think it took us an hour and 15 minutes to get from here to the area office. I did tell somebody it was their truck was broke down on the Brazos River but I did not see whose it was.

But we have a dedicated area office, area engineer in Jim Hunt and his staff and maintenance folks and construction folks that work hand in hand, day-in and day-out with the folks that live here. Jim is a part of the community, everybody likes Jim because he tells it like it is, but the other part is he tries to find a solution, and as an area engineer, one of the things I like about him is he generally brings a solution in when he brings a problem. Makes my job a whole lot easier because I don't have all the answers.

With that, I'd like to just play emcee, and Mayor Wallace of Sugar Land has a few comments, and then I'll introduce the Judge after that.

MAYOR WALLACE: Good morning, Mr. Chairman and commissioners. I'd like to welcome all of you to the greatest city in the United States of America, the city of Sugar Land, Texas. And many of the folks that I've spoken with this morning, a lot of them said that this was the first time that they've been to Sugar Land, so I'd like to welcome all of them here as well.

But don't just take my word for it. I'm sure all of you know CNN and Money Magazine every year ranks the top 100 best communities in the Unites States. This year they ranked the city of Sugar Land as the third best city in the United States, and most of the time I give pretty good credibility to CNN and Money Magazine, but we know that they're wrong because we actually are number one.

I, too, have a video, I'm not quite sure whether it's going to work. We've got a video that we would like to show. And you were talking about the sugar running through Sugar Creek. Obviously I shared with you last night about our motto, A Sugar Land, where there is no Equal@ 　-- for those of you that didn't get it, the little blue packet and you'll understand.

But if we could show this video and then I'll come back and I'll go through the presentation.

MR. WILLIAMSON: Although, last night at the reception that you had, I don't think it was you but it might have been, somebody made the comment that the desserts were great.

MAYOR WALLACE: That was me, that we have taken all the calories out of anything sweet here in Sugar Land, so as you were eating that dessert, there were no calories in that.

MR. WILLIAMSON: They were great desserts.

MR. HOUGHTON: With all this sophistication, they're still doing hand signals from the back of the room.

(General laughter.)

MAYOR WALLACE: Let's see if this works here. There's no sound. If there's no sound, then let's don't even bother with that.

MR. WILLIAMSON: No, no, it's good.

MAYOR WALLACE: No, you should see it with the music, it's phenomenal, it's not the same.

As I mentioned, we have close to 200 years worth of history here, so let's just kind of move on to the presentation. As I mentioned, Imperial Sugar started here over 160 years ago, before the State of Texas was the State of Texas, obviously, and we have grown from a relatively small company town into a thriving metropolis that we have right now. In fact, when I moved here in '93, the population of our city and our ETJ was around 25,000; today that same geographic footprint is over 125,000.

And Mr. Chairman, as I mentioned this morning, making sure that we stay ahead of that power curve from an infrastructure standpoint is one of the primary goals that we have.

Educational attainment, not just in Sugar Land but in all of Fort Bend County, is something that's extremely important from an economic development standpoint as we go out and recruit businesses to come here. With Wharton County Junior College, University of Houston Sugar Land, the primary, the secondary education is extremely important.

When University of Houston Sugar Land opened its doors about five years ago, its enrollment on day one was about 2,000 students, and that's a large footprint, about 260 acres that we have right here in Sugar Land.

Dave Fulton already commented about the Sugar Land Regional Airport. Obviously, you've flown into this airport　-- which we appreciate. And again, from an economic standpoint, that is a big weapon in our arsenal when we go out and talk to businesses to get them to come here. The economic development program with the City of Sugar Land, the team that we have here, as well as with Fort Bend Economic Development Council, as well.

One of the things that we are very progressive about is we understand public-private partnerships. We reached to the private sector and we have a yellow page theory that if there is a private company that can do the job quicker, faster, cheaper, better than we can as a public organization, we're going to reach out to the private sector. And so we are one of the top 1 or 2 percent in the United States as it relates to reaching out to the private sector. And it stands to reason that when we can do that, we can continue to lower our tax rate and we do have the second lowest tax rate in the state of Texas in our peer group at this point in time, and then as you can see, consistently rank as one of America's best places to live, work, shop and play.

And we can run the video now and it's going to work. We're going to try the video one more time, if you don't mind. While we're trying to do that, then I'm just going to keep talking.

I mentioned the partnerships that we have are tremendous. One of those partners that we have is TxDOT and we're very proud of the relationship. When we come to the table, as we mentioned this morning, it's not just us coming to the table with spirit and a vision, it's us coming to the table with a checkbook, as well, to partner with TxDOT to help accelerate the development of some of the roads that we have here.

You can see whether it's University of Houston, the Greater Houston Partnership, the Fort Bend Economic Development Council, other private developers, there's a number of things that we work very closely with the private sector for us to continue to grow. Economic development, our relationship with the State of Texas and Texas One, Team Texas, Greater Houston Partnership and then the Fort Bend EDC, again these are strong relationships.

The partnership specifically with TxDOT. You commented about the beauty as you drive through the city of Sugar Land. When people drive down 59, we want them to know that they are in the city of Sugar Land. Whether it's the street scape that we have, the landscape on either side, again, we come with a checkbook because we want to make sure that people understand the beautification that we have, and again, working with TxDOT for all of us collectively to win those types of awards.

The access management, the city of Sugar Land has worked very closely with TxDOT for this community basically to be a poster child, as I mentioned yesterday, for all of the state of Texas on access management so that we can replicate what has been done here to improve the access.

And then the airport construction, we would not have been able to be where we are today, we would not have been able to do that type of construction, that type of development if it weren't for TxDOT and TxDOT Aviation. Dave Fulton, each and every one of you have been great partners with the City of Sugar Land, and we are most appreciative of that.

From the legislative perspective, every single year we come up with our legislative agenda. Many times our legislative agenda is basically playing defense so that we don't kind of screw up things that we presently have, but this year we had a couple of offensive programs. One of them resulted in Senate Bill 909 that basically deals with Texas Department of Criminal Justice and the central prison unit that we have right here in the city of Sugar Land, and what that Senate bill provided for was a feasibility study to basically relocate the prison that is presently in the city of Sugar Land.

In a moment I'll show you an aerial and you'll see that there is a great deal of development that has developed around it, not the least of which being our airport, and what we are asking is as a city, we would love to step up and acquire that prison and assist in the funding of its relocation. So the Senate bill basically has provided for this type of feasibility study and will be the first time in over a hundred years that a state prison has been relocated in the state of Texas.

As I mentioned, our goal is to acquire the property. It's adjacent to our airport, it works fantastically from an economic development perspective as we are running out of land in the city of Sugar Land. At the same time, we're working to receive federal funding. We know that there's $1.7 million appropriated, Congressman Lampson called us last week in connection with that, and so again, it's a great partnership with all of us working together.

This is the aerial and you can see where our airport is. Sugar Land Regional Airport as a business unit is profitable. The revenue that we receive from whether it's landing fees, whether it's fuel sales, hangar lease, things of that nature, basically it covers the cost, has a positive cash flow that we can continue to pour back into the growth of the airport. There are no tax dollars from any citizen of the city of Sugar Land that are going into this airport.

However, you can see on the southern portion the central prison unit and then Smithville. Smithville is where the warden and many of the folks that work at the central prison unit actually live. As you can see, it surrounds our airport, and just beneath that you can see some vacant land on the bottom right side. That is a 2,000-acre development that during the very first month when they came in for building permits, there were about 300 building permits that were requested. There will be 4,400 rooftops in that 2,000-acre area. And so what we are looking to do, obviously, is to move the central prison unit.

Tract 2, as part of our land use plan, is basically for a business park. The business park that we have in Sugar Land, the only principal business park, is about out of land, and again, as we are recruiting a number of major corporations to come in here to help grow the economy to enable us to continue to reduce our tax rate year-in and year-out, we would like to move forward. And so all of this, between our airport, the central prison unit and Tract 2, obviously is something that we would like to be owned by the City of Sugar Land for us to come to the table with a check to acquire it to develop that land.

MR. HOUGHTON: Can I ask a question? On that slide, do I recollect that those pieces of land were at one time owned by TxDOT?

MAYOR WALLACE: They were.

MR. HOUGHTON: And purchased then by the General Land Office?

MAYOR WALLACE: That's correct.

MR. HOUGHTON: I remember that transaction.

MAYOR WALLACE: The airport itself, we have 24-hour Customs. We were designated by TxDOT as the number one reliever field this year in the state of Texas. Regularly we serve over 100 Fortune 500 companies that fly in regularly into this area. Many of those are international companies that fly their Gulfstream from here to international destinations and back, and obviously the cost of them going to another airport to go through Customs and then ferry here is pretty cost-prohibitive, so we have Customs now on a 24-hour-a-day basis.

Many of you have seen our new terminal, 20,000 square foot terminal. It's a very efficient operation, it's a beautiful operation. That's the impact we want people to see when they come to the city of Sugar Land. The fourth largest airport in this area. A lot of people don't know that we are the number one reliever field for Intercontinental and Hobby. Our runway length is longer than Houston Hobby　-- a lot of people don't know that　-- and again, it is centrally located in Sugar Land's business district. So we do see this continuing to be a significant asset when we are recruiting businesses to come here.

So we stand before you to talk about the fact that things that we hope you will see in the future coming back to you is in connection with our request to sell the prison unit and for the City of Sugar Land to basically acquire that. One thing they're really not creating anymore is airport property, and so we would like to own that property ourselves so that we can use that to build additional hangars, to build additional infrastructure for us to grow as a local economy and for us to talk about those improvements.

That's basically what we wanted to brief you on. I could go on for hours and hours　-- many of these people have heard me talk before, I could go on for hours and hours. I'm very proud of the city of Sugar Land, everyone here is. Many of you met our council members. I also wanted to acknowledge our city manager, who is here, Allen Beaugard. I say this all the time, I'm involved in investment banking, if you don't have a good CEO, it doesn't matter what your business plan, what your strategy is, it can be flawed, but if you have a good CEO, they can make wonderful things happen, move mountains. And we do have a phenomenal CEO which is our city manager, Allen Beaugard.

With that, I'll be more than happy to answer any questions any of you have.

MR. WILLIAMSON: Mayor, I think that you're a pretty good economic development guy. You've sold me.

MAYOR WALLACE: Well, we've got some homes for sale. What are you doing this afternoon? I'd be happy to show you. And our city manager will actually move you, he will unpack the boxes.

(General laughter.)

MAYOR WALLACE: We're going to try this one time.

(Whereupon, the video was shown.)

MAYOR WALLACE: In any event, as I mentioned, we're very proud of the things that have taken place in Sugar Land. Four or five years ago, this was nothing more than an empty field. And obviously the partnerships we've created with the private sector, as well as the folks at TxDOT, we just would like to thank you. We want to thank you for recognizing the city of Sugar Land and for being here and holding your meeting here today. It is truly an honor.

So on behalf of all the citizens of Sugar Land, I'd like to welcome you to the greatest city of the United States.

MR. WILLIAMSON: Well, we appreciate your hospitality, and I think it would be appropriate　-- I just was looking a while ago and I noticed one of my former colleagues in the Texas Legislature, Dr. Jack Harris, is with us, and he was a lot of what got us interested in coming to this part of the state in our next round of commission meetings in the first place.

Jack, it's good to see you and we're glad you're here. Are you going to be up here or are you just here watching?

DR. HARRIS: I'm just here watching.

MR. WILLIAMSON: Thank you very much. Members, anything for the mayor?

MR. UNDERWOOD: Great job.

MR. HOUGHTON: Outstanding. Speaking of public-private partnerships, what are you doing January 1, or roughly thereabouts, 2009 for the next legislative session?

MAYOR WALLACE: What would you like me to do?

MR. WILLIAMSON: That's a can-do spirit. We need to recruit this guy to come down and help us.

MR. HOUGHTON: Yes, absolutely. Mayor, thank you.

MS. ANDRADE: Great job.

MR. WILLIAMSON: Thank you. Very good job, Mayor.

(Applause.)

MR. TRIETSCH: One of the things we're very proud of in this district is our landscaping and beautification program. I tell everybody I don't plant rose gardens. I found out this morning that yes, we do. The City of Sugar Land plants roses in our medians and they take care of them, and I think this is indicative of this area and what they are trying to accomplish.

Now I'm going to try to follow the mayor and see if I can get my video to play, and we'll see what happens. If not, I'll sing.

(Whereupon, the video was shown.)

MR. TRIETSCH: And that concludes my remarks.

I'd like now to introduce Fort Bend County Judge Hebert, and of all the introductions he's had the past 24 hours, I'm not sure it was mentioned, but he is an engineer.

(Applause.)

JUDGE HEBERT: Mr. Chairman, commissioners, welcome to Fort Bend County. I'm going to try this technology. There is no audio with my presentation, I'm the audio, so we'll see what happens. There it is. Good.

I have to correct Gary. I confuse a lot of people who think I'm an engineer. My degrees are in business and organizational development but I moonlighted as an attorney and an engineer when it was to my benefit over the years.

Fort Bend County is currently home to over 500,000 residents. We're growing at a rate of roughly 30,000 a year and maintaining mobility and improving mobility is a constant challenge. We're fortunate to have an excellent resource in the TxDOT Houston office. I've said this before and I'll say it again, they're great to work for. Wish they'd give us more but we get a lot out of them.

We're also blessed to have broad support from local voters for mobility initiatives, local support. In 2000, voters of Fort Bend County approved $85 million in road bonds and $140 million in toll road bonds. This year, voters again approved $156 million in mobility bonds, and that came with an associated 2-cent property tax increase that passed by a 73 percent vote.

Mobility projects that we do in Fort Bend County are always a combination of county projects and partnerships with our cities and with TxDOT. We try and leverage that money as much as we can to address mobility issues.

The one thing I'm going to highlight in this brief presentation to you is give you a brief overview of the Fort Bend County Toll Road Authority. Why do we have a toll road authority in Fort Bend County? Well, there's a little saga there.

What is currently the Fort Bend Parkway was originally designated by TxDOT as State Highway 122 in 1961. In 1980, as nothing was being done, the county created a road district to acquire right of way and pay for design, but couldn't come up with the funding. We returned to the table in 1996 and created Fort Bend County Toll Road Authority. It's a five-member board appointed by commissioners court. It's tasked with helping the county solve mobility issues and the authority does the heavy lifting, they do all the work and then they make recommendations to the court, but Fort Bend County Commissioners Court makes the final decisions on all projects.

The concept that we employed was to avoid building a new bureaucracy. We use consultants whenever possible, we have an extremely small staff, and we try to minimize administrative and development costs with the goal to get the most road for the dollars we spend.

The toll road bond election which I spoke of that passed in 2000 was $140 million for two projects: Fort Bend Parkway which was the former State Highway 122, and the West Park Toll Road along Farm to Market 1093.

The Fort Bend Parkway Toll Road was a partnership between HCTRA, TxDOT and our toll road authority. We constructed what is a seamless toll road in two counties. You don't know when you leave one county and enter another on the toll road system. TxDOT assisted us on the parkway by doing the interchange at State Highway 6 which was a relatively expensive project that made our numbers work.

This toll road is a combination of unmanned coin operation and EZ Tag lanes; it's approximately six miles long. It has a common EZ Tag system with HCTRA; all operations, billing and collections and incident management are handled by HCTRA, and we pay approximately a 5 percent per transaction fee for their services.

Construction cost of the project was $65 million. You can see it down there in the lower left-hand corner. There's a little white circle that I think everybody can see. It's hard for me to see but it looks like it picks up. That's a photo of it on the opening day which proves that we did pour some concrete. But you'll notice that shows the combination cash machine and there are EZ Tag lanes out to the right of that.

The West Park Tollway extension is a partnership with Harris County Toll Road Authority　-- we tie into their Westpark Toll Road　-- and TxDOT, who worked with us as they improved FM 1093 to four lanes, concrete curb and gutter. We built our toll road in between those four lanes. It worked out very, very well. Again, this runs all the way from the Harris County line to State Highway 99 to Grand Parkway. It is also approximately six miles in length.

We built it with 150 feet of additional right of way acquired by the county, the rest of it was in the 1093 right of way. This toll system is an all-electric collection system, there's no coins, no gates, no toll booths. Total construction cost on the Westpark Toll Road was $100 million. It's complete and running all the way to 99, as we speak. Westpark Toll Road was built 180 days ahead of plan, opened in August of 2005.

You'll notice, as Mike Stone refers to them, the croquet wickets. That's the toll booth for the Westpark Toll Road. It's all electronic, has several advantages. We're not subject to mechanical failure. If we have mechanical failure in that toll booth, traffic doesn't know it, we know it and we react fairly quickly, but there's no stoppage of flow on that toll road.

We find even with the non-personnel operated coin-handling operation on Fort Bend, whenever one of those cash operations fails, we start stacking traffic up on the toll road. So this is constructed to maximize efficiency in moving cars. So we have those little wickets, people don't even know when they go through the toll system unless they read the signage.

Future projects underway in Fort Bend County using our toll authority, one is the Fort Bend Parkway, Project B-1, which runs from Highway 6 where the parkway currently ends down to Sienna Plantation Boulevard. We're in right of way acquisition, as we speak. Eighty-five percent of the right of way has been acquired or we have commitments for donation and we're moving ahead with the environmental work that needs to be completed. We expect to let contract for construction design in September of 2007. The estimated cost of this project is $25 million.

That's a photograph of the Fort Bend Parkway, as you can see, coming down to Highway 6 which runs diagonally across the center of that photograph, then B-1 will take it on down to Sienna Parkway.

The second project that's currently underway is the Westpark Tollway extension from State Highway 99 on out to Farm to Market 1463. Schematic design is complete and we're currently acquiring right of way and we're negotiating with Metro to acquire additional land to accommodate the positioning of the extension in the improved 1093 corridor, as TxDOT completes that work. The estimated construction cost of this project is $50 million.

And here's a photograph that shows the Westpark Toll Road extension, actually runs a little bit west of 1463, almost into the city of Fulshear, to accommodate several thousand homes that are beginning construction in that area just north of 1093.

Future projects. The policy that we follow in defining future projects through the toll road authority, they must be financially feasible to construct, operate and maintain them with toll revenues alone, and they must provide vital transportation infrastructure in the county not attainable by other means. We use our toll road authority just to acquire those mobility improvements we have to have that we can't get by other means, and we'll work in partnership with anybody that will help us accomplish those goals as we move forward.

That's just a brief overview of what we've done in toll roads. I want to thank you for visiting Fort Bend County. I think you will agree that Sugar Land is excellent, it's selling, the City of Sugar Land, they do a great job. I had the privilege of living in Sugar Land for eight years before I moved further out in the county. I would invite you, if you get a chance, to tour the rest of the county. We have a number of fine cities in Fort Bend County.

We have one unusual circumstance in a county of 500,000 residents and that is over half our county lives in the unincorporated area, fewer than 250,000 are in incorporated cities, almost 260,000 live in the unincorporated county. So we deal at the county level with numerous urban problems we find that counties are very poorly constructed to deal with, but it seems to work by seeking cooperation with all the stakeholders involved. And I think you'll find that this dynamic county will continue to grow and grow successfully.

Again, Commissioner Holmes, Commissioner Houghton, thank you for the time you spent with me yesterday and visiting on the issues that are important in Fort Bend County. Chairman Williamson, thank you for the comments you made this morning about me, they may have been misguided about my capabilities, but I do appreciate them. I want you to understand that as the Fort Bend County judge, we will disagree on issues that we think we need to debate, but we have the highest regard for the job that each and every one of you do and the folks in TxDOT do to serve the citizens of all of Texas. We do appreciate that. Thank you very much.

(Applause.)

MR. TRIETSCH: Now I'd like to introduce Fort Bend County Commissioner James Patterson, who I've worked with a number of years and he just recently, three or four months ago, became chair of the Transportation Policy Council, and as a retired principal, he is well equipped to handle the rather unruly crowd that sometimes gathers around the board table there.

MR. PATTERSON: Thank you, Gary. The truth of the matter is when Judge Eckels decided to go make a fabulous living, I couldn't run fast enough not to be nominated and elected as chairman of the Transportation Policy Council.

Again, thank you all for being here, ladies and gentlemen. We appreciate you coming to Fort Bend County. After 45 days, if you could, if you'd make sure that Mr. Behrens knows exactly how to get to his son's house just a few blocks from here, we'd appreciate that. If you didn't know that, I see Commissioner Houghton looking back, maybe he didn't know that he could have gone over to your son's house last night and ate home cooking instead of having to stay in some hotel.

I am here today as chairman of the Transportation Policy Council, not that I'm not proud of being commissioner of Fort Bend County, but as Transportation Policy Council chairman, hopefully we have the reputation of not worrying about our county but being that. And you don't have to worry about any power point and I will read my remarks so they will stay very short.

As chairman of the Transportation Policy Council, I would like to thank you guys for coming today. I want to take a few moments to brag about our TPC and its undertaking for the 2008-2011 TIP. My notes had $10 billion and Alan Clark went and found some more work yesterday afternoon, our 2008-2011 TIP will contain in excess of $13.5 billion as a result of lots of partnerships. This is the largest TIP in terms of projects and dollars that our TPC has ever developed.

Many of the largest mobility projects in the TIP are joint ventures between the counties, TxDOT, Metro, toll road authorities, port authorities, and in some cases, private partners like the railroads. You will see this cooperation in action as we move forward on tolled and managed lanes on I-10, US 290 in Hempstead, 249, Grand Parkway and others.

The TIP also contains a $2.5 billion transit program, an important component of the region's mobility improvement. In addition to expanding light rail, signature bus, fixed route bus service, the TPC is making progress in coordination of transit services.

One of the things that we believe is really missing in most areas is coordination. Everybody is excited about doing their own thing and as an old principal, if I walk into the room and start talking to folks and they're sitting there enjoying my conversation with their arms folded, we're not going to cooperate a whole lot. So the first thing we've worked on is how to get people to unfold their arms so we can all talk about cooperation.

Developing and managing such a large program of projects is only because of a spirit of cooperation. You will see that, in fact, officers of our TPC represent four counties. I happen to be county commissioner of Fort Bend County; our first vice chair is the city council lady from the city of Houston, and I glanced in the audience to see if Pam might be here; our secretary is the mayor of the City of Pearland in Brazoria County; and the second vice chair is the commissioner from Liberty County, Mr. Brown. So we have been very careful in trying to elect board officers for our TPC that will represent the whole region and have done a great job in doing so.

We're also excited about the possibilities that exist as a result of Senate Bill 792. If we can any of us figure out exactly what 792 said, we're going to move forward with great haste. We do appreciate that.

We look forward to working with you folks in lots of ways. We want to thank specifically Commissioner Williamson. The last legislative session removed a 30 percent reduction in the transit formula funding for 5311, and we appreciate the fact that you're working on a process to try to get that put back in.

On a separate note that was not in my notes, Commissioner Houghton, yes, as you made mention to the mayor, that was TxDOT land. When I'm out dealing with homeowners associations, I call all that land Enron property because in 1984 it was prison property and the prison didn't have any money, so the state legislature said, TxDOT, you've got money, guess what, now you've got land. And about five years ago, Gary Trietsch was having to call engineers saying we don't have enough money, stop work. The State Legislature said, Guess what, Permanent School Fund, you've got money, now you've got land. So that all belongs to the Permanent School Fund now, that land does, and it's operated by the General Land Office.

I'll be glad to answer any questions that you might have as far as the Transportation Policy Council is concerned. I cannot imagine having a commissioners court meeting that lasted more than 15 minutes, and you have already been here an hour and a half and haven't even started yet. So be glad to answer any questions in regard to the Transportation Policy Council and the way we operate. I'll probably spin around and let Alan Clark answer them, but that's okay.

MR. WILLIAMSON: Members, do you have questions, any dialogue that needs to be had with this person?

MR. HOLMES: Just one brief comment. James, I want to commend you for the cooperative spirit that your group and the TPC shows. Clearly, everybody is working their way through 792, but we expect great progress on it, and we appreciate the help and leadership that you provide.

MR. PATTERSON: And just as a side note, several months ago the commission received a letter from TPC in regard to what we call the $21 billion plan where it was HCTRA and TxDOT forming a partnership. When we started talking about this, the idea that we could get nine commissioners courts to agree to resolutions, everybody sort of laughed and snickered because in most commissioners courts you can't get three of those guys to vote together, much less having nine diverse commissioners courts supporting a resolution. As you saw, ladies and gentlemen, you got those resolutions. So we're extremely proud of the cooperative spirit from Jack Harris, and I'm looking around and if there's any commissioners court members from other counties, speak up, but it was a good experience.

Thank you all.

MR. WILLIAMSON: Anything else, members?

MS. ANDRADE: Thank you

MR. WILLIAMSON: Thank you very much. Thank you for your service, also.

(Applause.)

MR. TRIETSCH: I will conclude by saying we are truly a multimodal agency. Monday morning we had a meeting in Houston to basically roll out our final Houston Region freight rail study that we've been working on a couple of years. That impacts this county greatly, it impacts the port, the city of Houston, the whole region. And it's about a $5 billion list of projects, it's not a plan yet, but as of Tuesday, Harris County Commissioners Court took action and Harris County and the City of Houston jointly appointed Mark Ellis as chair of the Houston Region Freight Rail District. So I think all of the board members have been named and it will get up and running in the next few weeks and months, and it's my hope they will take this as a resource document to begin their work. It's going to be a long and arduous task to relocate railroads or change operation, but I think the railroads are onboard at least as far as working with us.

With that, I'll conclude, and Chairman, if you have any questions, and other commission members, I'll be happy to answer, or I'll sit down.

MR. WILLIAMSON: Members, questions for Gary?

MR. HOUGHTON: Thank you for your hospitality, Gary.

MR. WILLIAMSON: We appreciate the presentation, we appreciate the hospitality, Gary. Thank you.

MR. TRIETSCH: Thank you.

MR. WILLIAMSON: Mike, let's take a couple of minutes to let people resettle and take a break, and then we'll come back on regular business. We'll be at ease.

(Whereupon, a brief recess was taken.)

MR. WILLIAMSON: Mike, if you'll take over, let's resume.

MR. BEHRENS: I think, Chairman, the first would be agenda item number 1, we need to approve the minutes from last month.

MR. WILLIAMSON: Members, you got a copy in today's agenda of the minutes from the previous meetings. The first item on our agenda is the approval of those minutes from the June 28 meeting and the special called meeting of July 18. Do I have a motion?

MR. HOUGHTON: So moved.

MR. UNDERWOOD: Second.

MR. WILLIAMSON: I have a motion and a second. All those in favor of the motion will signify by saying aye.

(A chorus of ayes.)

MR. WILLIAMSON: All opposed, no.

(No response.)

MR. WILLIAMSON: Motion carries. Thank you.

MR. BEHRENS: We'll move to agenda item number 2, and we're going to have three discussion items. The first one will be led by Coby Chase, and Coby will be talking about some of the financial impacts that we see coming from recent state and federal legislation. Coby.

MR. CHASE: Thank you. For the record, my name is Coby Chase. I'm the director of TxDOT's Government and Public Affairs Division. Today I will discuss the financial effects resulting from recent and expected state and federal action, as part of my continuing series on upbeat news.

(General laughter.)

MR. CHASE: I would like to, if I could, take just one semi-personal privilege, and somebody else in this room is retiring, Janelle Gabor, who is the public information officer at our Houston District, and I've worked with her and for my 13 years she's done everything from handle governor's visits to doing almost anything we asked her to do, to being the face of TxDOT in the Houston area and nationally when hurricanes hit. And she is a spectacular resources agent and irreplaceable. Whoever replaces her is going to have big shoes to fill. But I would like to thank Janelle quite a bit for all of her service to TxDOT, and we'll miss you.

(Applause.)

MR. CHASE: As we discussed last month, and as it's been reported in a few newspapers, our total appropriation for the next biennium in the state legislature increased by 2 percent, as compared with the last biennium. That would be $16.3 billion in '06-07 as compared to $16.6 billion in '08-09. Considering the effects of inflation in the highway construction business　-- which over the last five years averages out to about 6 percent per year　-- this 2 percent increase represents a step backwards.

MR. WILLIAMSON: Hang on a second, Cob.

MR. CHASE: Yes, sir.

MR. WILLIAMSON: I assume you will not object if we interrupt you and ask you to clarify as you go through your remark.

MR. CHASE: Yes, sir, absolutely.

MR. WILLIAMSON: Now, when you say our appropriations increased by 2 percent, is that because the legislature gave us additional general revenue.

MR. CHASE: No, sir. It was an appropriation of state gas tax receipts and what is federal reimbursements.

MR. WILLIAMSON: So in our particular case, when appropriations increase, generally it means that the projected collections from gasoline tax are going to increase over the next two years and the legislature has given us the authority to spend that additional 2 percent.

MR. CHASE: Exactly, yes, sir. That's a very good point. This is not the result of new revenue. Actually, I would argue, and maybe James can clarify　-- and bond proceeds, as well, that had already been anticipated.

MR. HOUGHTON: Well, if you carve all those out, you take all that revenue out, what would the increase from appropriations be?

MR. CHASE: Well, the overall increase is $242 million over the biennium.

MR. HOUGHTON: From what source.

MR. CHASE: I don't have that broken out by source.

MR. HOUGHTON: That's what I'm saying, if you take that out, those sources of revenue.

MR. CHASE: Fund 6 stayed flat, from what I hear.

MR. HOUGHTON: From what you hear.

MR. CHASE: Yes, sir.

MR. WILLIAMSON: So the increase in appropriations is not even related to a projected increase in gas tax receipts, it's related to debt, giving us the authority to spend debt against the system.

MR. CHASE: Yes. That's a very, very good point.

And this is the chart that I have in front of you right now. Additionally, the legislature transferred about $1.5 billion from the State Highway Fund to non-transportation programs. These transfers are up 15 percent from the last biennium which means an additional $242 million was sent to other purposes over the biennium.

MR. WILLIAMSON: Okay, stop.

MR. CHASE: Yes, sir.

MR. WILLIAMSON: So we're looking at a chart that compares the previous biennium transfers to other purposes　-- the biennium that's ending next month with the one that will begin in September.

MR. CHASE: Yes, sir.

MR. WILLIAMSON: So what was it in the biennium we're in now?

MR. CHASE: $1.3 billion.

MR. WILLIAMSON: And it will be?

MR. CHASE: $1.573 billion, so up $242 million.

MR. WILLIAMSON: So the appropriation was increased in order to give us authority to spend indebtedness that will have to be paid back in future years, and the transfers of gas tax revenue actually went up almost $250 million.

MR. CHASE: Yes, sir.

MR. WILLIAMSON: Okay. Thank you.

MR. CHASE: As we also discussed last month, the legislature voted down a measure to index the gas tax and almost approved a summer gas tax holiday. That would have cost the state upwards of $700 million this year. Instead, the legislature approved an additional $3 billion in Proposition 14 bonds that would, in effect, require us to mortgage future gas tax revenues in order to pay for projects now. As we all know, this is not new money for transportation and is essentially a payday loan. Debt is never a substitute for new cash flow. So while there's the ability to go into greater debt with the gas tax, it is not new money, does not advance new projects.

MR. WILLIAMSON: Okay, stop. So the legislature said you can issue an additional $3 billion in debt against the gas tax.

MR. CHASE: Against the gas tax, yes, sir.

MR. WILLIAMSON: And have we appropriated that money, James through Coby, or is there a different law that governs our expenditure of that.

MR. CHASE: It is appropriated to us to spend.

MR. WILLIAMSON: But that's not part of your appropriations report that you made earlier.

MR. CHASE: Correct. They are part of our overall appropriations and are reflected in that overall.

MR. WILLIAMSON: So we must have had debt that we were authorized to spend in the previous biennium, otherwise, our appropriations would be up $3.2 billion.

MR. CHASE: Yes.

MR. WILLIAMSON: So this is actually the second time the legislature has said, Go borrow $3 billion against future gas tax receipts.

MR. CHASE: Right.

MR. WILLIAMSON: You can clarify it if you want to, James.

MR. BASS: James Bass, chief financial officer for TxDOT. The original $3 billion of State Highway Fund bonds that the legislature approved, voters approved, that is taking us a number of years to expend because in addition, the legislature said originally you can issue no more than $1 billion per year, and so some of that expenditure from the original $3 billion will be expended in 2008 and 2009. In addition to that, we have, as you're all familiar with, the influx of the Texas Mobility Fund that occurred in '06 and '07 and will continue through '08 and '09.

And so when we add all those together, along with our gas tax, you get the 2 percent overall increase that Coby talked about. When you delve into the individual pieces, the piece that's supported by the ongoing gas tax revenue for TxDOT remained relatively flat.

MR. WILLIAMSON: Okay.

MR. CHASE: Another direct hit to our bottom line is continued federal rescissions. On May 25, the president signed the U.S. Troop Readiness, Veterans Care, Katrina Recovery and Iraqi Accountability Appropriations Act which includes a rescission of $72 million in Federal Transportation funds slated for Texas. This is in addition to four previous rescissions over the last year and a half, now reaching a total of $666 million.

MR. WILLIAMSON: So to date, the federal government has indicated a withdrawal of $666 million in reimbursement authority for future expenditure.

MR. CHASE: Right. To be clear, this $666 million that TxDOT and local communities will no longer be able to count on in meeting our goals, yes, this is future money that they can't spend, absolutely　-- plus $72 million.

And then I'd like to touch on two other things. A bigger federal hammer falls in 2009. Early last year, the Bush Administration, through Treasury and OMB and the Congressional Budget Office, projected that the Highway Trust Fund will become insolvent by 2009 to the tune of $700 million. Earlier this month, the White House increased their estimate to $4 billion. This shortfall could trigger substantial cuts in the federal aid highway program across the nation.

Since this is somewhat of a moving and debatable amount　-- not by much but different people agree just some fine tuning around the edges　-- I'm relying on some outside organizations to provide some early analysis.

According to AASHTO, if this massive deficit were to be offset by obligation limitation reductions, it would require reducing the distribution of federal funding to states by as much as at least $16-1/2 billion in fiscal year 2009. A rule of thumb is that it takes $4 in obligation reductions to save $1 in spending. What that basically says is don't enter into a $10 million project that spends out over four years and you save that amount spread over four years.

According to the AGC of America, Texas would lose about $1.1 billion in 2009 and increasing each year unless Congress finds new money.

Now, the House Appropriations Committee approved the House Transportation Bill last week. Actually, the U.S. House of Representatives approved the Housing Transportation Bill this week. HR 3074 includes language calling for yet another rescission of highway funds. Adoption of the proposed rescission will result in an additional $259 million reduction in funding for Texas roads and bridges. That's that last line down there.

So there is another rescission on the way.

The U.S. House of Representatives, nationwide cut transportation funding, as it affects state DOTs, $3 billion. And of course, the Senate hasn't taken action yet, but in the Senate version of the bill, they have a very similar amount, it's just slightly less. So in the ballpark of $260 million less that the state and local and regional planners will have to plan against to spend on future funding.

Because of the rather obvious frequency of these rescissions, we are considering establishment of a working group among our MPOs, metropolitan planning organizations, and possible others to solicit input and establish priorities in anticipation of future cuts. However, we hope that Congress doesn't take away our ability to do this by predetermining, 1,434 miles away from Sugar Land, Texas, what will and will not be cut.

In the current version that passed the House this week, there was language in there that predetermined where the cuts would be made, meaning it would be spread across categories, I believe, in a pro rata manner.

MR. WILLIAMSON: As I understand what that means, Coby, the House　-- I would be interested in knowing how the Texas delegation voted on that, by the way　-- the House decided that they would reduce federal apportionments by an additional $258 million, and then presumed that the best place to make those reductions for Texas would be on a pro rata basis, treating roadside parks the same way they treat construction of new highways, and treating preservation of historical museums the same way they would treat safety projects in inner city Houston.

MR. CHASE: Right. And if you've already taken money out of a category　-- name whichever one you like　-- maybe at a healthier clip than maybe other programs, that program will lose money again this time. So at least the House has pre-guaranteed that the pre-selected categories all lose money, even if they've lost more than what some people would argue was their fair share in the past.

Congressman John Mica of Florida, who is the ranking Republican member on the House Transportation Infrastructure Committee, tried to change that around so states and localities could do it, and he came very close on the House floor with his amendment, he picked up a healthy number of Democrats on his side. So there is nothing in the Senate bill that tells states how to make the rescissions, and so we and other like-minded states　-- which I believe is just about all of them　-- are going to talk to their senators about letting states and localities together decide how to cut those funds.

And the department just went through this exercise with the $72 million rescission and received　-- I could be wrong, somebody correct me　-- nine or ten letters from MPOs around the state explaining how it should be done, and the commission authorized the administration to take those and make the best decision, and they honored that request and sent it back to the FHWA on where to make cuts.

MR. WILLIAMSON: Okay. Please continue.

MR. CHASE: In a similar sense to what we saw in the Texas House and Senate, the U.S. House Transportation Infrastructure Committee is trying to figure out its position regarding public-private partnerships. It was widely reported back in May that U.S. House Transportation chairman, James Oberstar, and Highway Subcommittee chairman, Peter DeFazio, sent a letter to all 50 governors discouraging the use of public-private partnerships. As you know, Governor Perry recently sent a response in which he alerted the chairman to the circumstances we face in Texas with respect to our transportation needs, we simply cannot wait for nor can we rely on the U.S. Government to solve our state's transportation problems.

None of this is news to us. We can now expect rescissions rather frequently, predictably now. We know that the state legislature has a tendency to transfer highway dollars to other programs. We know that in some quarters of the United States House there's wariness when it comes to public-private partnerships. We are aware of the precarious state of the Federal Highway Trust Fund. And we know inflation is eating our lunch.

Notwithstanding these challenges, we devised a plan to continue meeting our goals for building infrastructure in this state that included a private equity component, and then came along Senate Bill 792. Before the session, one of our most potent tools available to us to combat congestion was comprehensive development agreements, or CDAs, and concessions. Senate Bill 792 prohibits most concession CDAs except for a few projects that can move forward as planned. The authority to enter into concession CDAs expires in 2009 and the authority to enter into design-build CDAs and CDAs exempted from the two-year moratorium expires in 2011.

For any given toll project, 792 requires that a market valuation be conducted and it entitles local tolling authorities to take the first shot at building a project based on that valuation. If the authority passes on the project, the state can build it but it won't be able to use a CDA. Because we simply do not have enough equity to put into traditional toll projects without diverting resources from other critical non-tolled and rural projects, it is conceivable that fewer projects will be built under 792. We don't know the precise impact of 792 until the market valuations are conducted and tolling authorities decide whether or not they want to build them.

What we can say is that unless the legislature takes a positive action to renew the CDA program in 2009, then the cumulative effects of the changes we've discussed would be quite difficult. It will then be up to the Congress and the Texas Legislature to fill the gap or our state will dull its competitive edge with respect to economic development and our quality of life.

I'm hard pressed to find a silver lining in all this information at this point, but I do welcome your questions in an effort to find one. And with that setup, if there are no further questions for me, I'll turn it over to James Bass　-- who keeps telling me that someone promised him he'd get to meet Goldie Hawn if he came to Sugar Land　-- to go through some of the details in a deeper fashion. And following James, Amadeo Saenz will talk about some specifics.

MR. WILLIAMSON: Any questions of Coby at this point, members?

(No response.)

MR. WILLIAMSON: Okay. Thank you, Coby.

MR. BASS: Thanks, Coby. Again, I'm James Bass, chief financial officer at TxDOT and the second layer of our three-layer dip presentation today.

As you all know, we face transportation challenges in Texas and the commission and the department have a plan for addressing those. Coby talked about some recent actions at both the state and federal level that had an impact. What I'm going to do is take those current decisions and carry those out through 2030 to show what impact those have on the challenges that we face. And then Amadeo will follow behind me and bring in some additional operation challenges that the department faces with our limited resources.

To jump to what Coby was saying a little bit earlier, if you take a step back from just TxDOT and look at the entire State Highway Fund on a statewide basis, gas taxes are forecast by the Comptroller's Office to continue to increase, vehicle registrations are forecast to continue to increase, population is still coming into the state, we have more VMT on our system, it's growing faster than fuel efficiency, so that revenue is forecasted to increase at a statewide level.

What happened during the last legislative session, though, is that that amount of the increase was directed to other agencies who also operate out of the State Highway Fund, and the allocation of those state gas taxes and vehicle registration fees to TxDOT remained relatively flat. So the overall increase that we saw came in from our bonding programs that, as you all know　-- Coby referred to as a payday loan　-- the bonding programs are really interim financing, they're not long term revenue sources or solutions to the problem.

MR. WILLIAMSON: Well, they're not a long term solution unless we took every dollar and put them into a toll road that would immediately begin the cash flow.

MR. BASS: Correct.

MR. WILLIAMSON: And since we don't have any toll roads that will immediately cash flow, that sort of ends that option right there.

MR. BASS: Correct. And so over the early implementation until those revenue-generating projects mature and start to spin off additional revenue, what you see in our budget is an influx of cash coming in not from the traditional sources but from the bonding programs to invest in the assets that will serve us well, we think, in the future.

So gas tax stayed flat, the growth went forward. What we were thinking in our plan is we, as well as the Comptroller, know that yes, gas tax in the near term is increasing, vehicle registrations are increasing, and so when we a few months/years back looked at that problem and came up with the $86 billion　-- others have said it's $80- or $68-　-- it's a huge issue. In our estimate we said any additional revenue coming into the State Highway Fund would be allocated to TxDOT. In other words, the transfers would be at the baseline level.

One of the reasons of taking that conservative approach is that detractors would say, if we showed that increasing, that well, no, you're just playing with that one number showing that transfers are going to increase to try and make the problem look bigger. So we took a very conservative approach and said, No, the baseline figures for transfers are going to continue. But we just saw is the baseline figures in 2008-09 increased by $242 million. So if we carry that out to 2030　-- again, not assuming any increase, just changing the baseline　-- that's now $2.8 billion less than what we planned to come in from those traditional revenue sources to try and address the problem.

MR. WILLIAMSON: In other words, when we were mapping a 25-year plan that would take us to a point where we had an acceptable level of congestion and acceptable air quality, and continued to attract jobs, continued to have safe roads and preserve the value of our system, we're now going to be $2.8 billion short of the revenue necessary to achieve those goals.

MR. BASS: Correct. I think the details behind the $86- gap was $188 billion of needs with $102- of revenue available. You now have less than $100 billion of revenue available to address that $188- of need.

The other main funding source is the federal funds that are coming in that we use for reimbursement, and as Coby said, the rescissions to date we know are $666 million, there's a $261 million being discussed, as we speak, going through the process, and as Coby said, because of the projections of what's going to happen to the balance of the Federal Highway Trust Fund, everyone knows there are going to be additional rescissions before the end of the current transportation bill, SAFETEA-LU.

Different entities have different forecasts. I think Coby mentioned a number somewhere about $1.1 billion, an AASHTO document I was reading in the past couple of weeks suggested the share for Texas would be almost $1.5 billion, so somewhere in that range, but we know additional rescissions are coming.

Last week you heard from one of the independent auditors looking at the operations of TxDOT and they looked at the funding gap and the funding shortfall, and what they looked at and said, well, because of this updated data and because of the recent actions of Congress and the updated projections from the Congressional Budget Office as to what that deficit is going to be in the Federal Highway Trust Fund, this independent auditor told TxDOT: You were planning on and counting on $7 billion more in federal funds than what we think you're going to receive. And so if their estimate turns out to be true, that means after SAFETEA-LU through 2030, we will receive $4-1/2 billion less than what we had planned on.

So again, if you recall, we started at $102 billion of revenue available to meet $188- of need, took away $3 billion for State Highway Fund that is not going to be available to TxDOT, that got us to $99-, let's say we're now at $92 billion because we're going to get less in federal funds than what we had planned a couple of years ago.

Then to fund that gap, to bridge the gap between our needs and revenue, the plan was to look to the private sector and encourage private investment in our transportation projects. Senate Bill 792 came in and places a sunset, an end to that authority of TxDOT and regional mobility authorities to enter into these agreements where the private sector would be financing the project in 2009. Now, there are some exceptions to that: design-build projects that don't involve private financing and other limited projects, managed lanes or projects that have already started the process, have until 2011. But after that, TxDOT and the RMAs will not have the authority to continue down that path.

What this does is limits the opportunity for the state and regions to receive the up-front dollars through a concession payment to then go and build other needed infrastructure today. One way you could step back and say well, if the project proves to be successful over time, there's going to be surplus revenue that comes in and it's going to be used throughout the region to build those projects. Yes, if the estimates are true, though that risk is being shifted back to the public sector that we hope our estimates are accurate and true.

And rather than monetizing that future revenue today to build needed projects that are needed today, if not yesterday, we will wait for that surplus revenue 10, 15, 20 , however many years before it starts spinning off that revenue into the future, all the time congestion, air quality worsening, and potentially economic development opportunities being lost to other areas. So there's an opportunity cost there that's difficult to assign a dollar figure to.

If we look at it through the market valuation in 792, if TxDOT and the local tolling authority agree to a market valuation and we assume it's on a concession basis, a market-based toll, and if the local entity says we agree with the valuation under those rules but we choose not to develop projects under that set of rules, so we're going to pass on this, TxDOT, this project is yours to develop, under 792 we would not have the authority and the ability to deliver it as a concession in order to reach that market value, we would be forgoing any opportunity for that up-front concession.

As you know, you've tasked staff to move forward on 87 toll projects throughout the state and market valuations are going on on all of those projects, however, the ones that are more refined are the projects that are happening now or will soon happen in that wave of 87 projects. And so unfortunately, I can't give you a very precise number of what's that impact on cash flow of receiving up-front payment because all 87 projects have not gone through a thorough review on a valuation process and it's undetermined as to how the various local tolling authorities will act in choosing or not choosing to develop projects.

But looking at just the near-term projects in, I'd say, six, seven, ten years, we would estimate that we would have, at a minimum, about $2-1/2 billion less than what we would have prior to 792, again, limiting our opportunity to address the problem, or conversely, making the problem larger than what it had been prior to 792.

MR. WILLIAMSON: So perhaps a simple way of restating what you said, is it prior to 792 we had a plan in place that we felt like would have bridged the entire gap between $102 billion and $188 billion? The $102 billion revenue is probably now down in the low $90s or high $80s, and the plan has been impacted by the restrictions or limitations of 792, and primarily the drop-dead date of two years from now on all concession CDAs. The short-term impact, as best you can estimate　-- and you're still working on it　-- that is $2.5 billion.

So as an example, when we put to the Harris County Toll Authority which is a regional toll authority in this area, or the Fort Bend County Toll Authority which is a county toll authority in this area, when we put to them Grand Parkway, if they choose to take the Grand Parkway on a market valuation basis, then roughly what we would have projected would have been available to us from a private sector concessionaire, Kiewit is going to be the same thing from HCTRA. What they're, in effect, going to do is borrow the money and build the other projects besides the Grand Parkway that would not have been built otherwise.

But if they don't take the project and if they hand it back to us, we can't turn around　-- well, the Grand Parkway is a bad example because it's going to be our test　but how about Highway 36 in Fort Bend County? When we put Highway 36 to the Fort Bend County Toll Authority on a market valuation basis, they look at it and they say we like it, love it, can't afford it; here, TxDOT, you do it, we can no longer turn to Kiewit and Cintra and Fluor and say who's got the best deal for the state of Texas. The project basically doesn't get built.

MR. BASS: Right. We could still, through 2011, design-build or other work form a partnership with the private sector, it just could not include the financing of that project by the private sector at their risk.

MR. HOUGHTON: Stop there. You said financing at their risk.

MR. BASS: Correct.

MR. HOUGHTON: But they can participate from an equity position.

MR. BASS: So I think the opportunity, in my mind, what's lost is that up-front concession payment, monetizing the future revenues and receiving them today to address additional projects that are needed today.

MR. WILLIAMSON: As an example, if 36 had a market value of　-- let's play with some numbers for a moment　-- well, let's don't play. Dr. Harris, do you happen to remember the cost of 36 as we wish it would be?

DR. HARRIS: [Inaudible from audience.]

MR. WILLIAMSON: Let's say for the moment that it's a $500 million construction project, we go to the market and the market valuation is $800 million, and the county toll authorities, for whatever reason, elect to not come up with that other $300 million and do the project, they hand it back to us. Under the prior law, we would have turned and put it out to the private sector for proposals and let's say the best proposal was $800 million, the road got built, the state was paid $300 million　-- which, by law, would have to have been spent in the area or the region　-- and so any number of other projects in Fort Bend County that needed to be built would be built by the $300 million. That's how that process would have worked.

And your best guess right now is the impacts of 792 will be the elimination of that cash payment to build those roads or railroads or air quality projects that otherwise would have been built by the $300 million.

MR. BASS: Right. On the near-term, and if that market valuation of $800 million comes true over the 40-year life of the debt or 50-year life of a concession, the surplus revenue would equal, on a present value stream, $300 million. And as you've probably heard me say before, present value is great for analytical purposes. The problem is I can't spend present value today. I haven't found a contractor yet who will take a check written in present value dollars, they want real dollars. So even if those estimates come true and it spins off $300 million over the next 50 years, that $300 million of air quality projects or additional mobility projects will not be built until some point in the future, whereas, under the private investment model, we would have received that $300 million up front and been able to deliver those other needed projects today.

MR. WILLIAMSON: Now, what we can do, again, we put the project to the local toll authority, we do a market valuation, they pass, what we can do is turn to　-- let's use Fluor again since they're headquartered here　-- we can turn to Fluor and say, Would you like to design-build-finance this road for us and what rate of return do you require in order to do that? And if their first answer is yes and then their second answer is 11 percent, and if we can't get somebody to give us a competing and better proposal, then we could build a road and guarantee Fluor 11 percent rate of return, they would be bearing none of the risk for the traffic showing up, they would be getting a guaranteed rate of return, and the public would be bearing the risk if the traffic doesn't show up and we have to reach into the gas tax pot to make the payments every year.

Did I analyze that correctly?

MR. BASS: I want to check with Mr. Jackson. That may be true prior to 2011 and then because all CDA authority for TxDOT goes away in 2011, so after 2011, we could not even do as you described.

MR. HOUGHTON: Well, there's two components, James: there's a debt component and an equity component. You're assuming an 11 percent debt component on that asset. We could still do it with Fluor, go out to Fluor, and I guess we're missing a component step in here, the TNR. Whatever that financeable TNR to the marketplace, now Fluor may say we believe the TNR by TxDOT or the Comptroller, the new step we have to take, is low, we think it's here, so we're willing to go here instead of here. So there's still an opportunity for　-- I hate to say the word　-- concession payment up front if they so choose to do that on the equity piece or the debt piece.

MR. WILLIAMSON: But if I understand it, Ted, the state is still going to be on the hook.

MR. HOUGHTON: Yes, we take the traffic risk and that depends on do we, in fact, want to take that risk.

MR. BASS: And if we're holding the risk and in effect borrowing that concession payment from the developer who's financing it yet we have the risk, in paying 11 percent, I will tell you we might be able to get　--

MR. HOUGHTON: Don't get hung up on 11 percent but get hung up on the two components.

MR. BASS: Some other expected equity return.

MR. HOUGHTON: The debt component, the equity component and it's based on their TNR if Fluor decides, and then if Doug Pitcock says I've got a better deal, I'm going to submit this, then we have that competition going again as to who's got the best TNR, who's got the best crystal ball.

MR. BASS: And again, I think, assuming all of that is accurate　-- and I'm going to double check　-- that all has to occur prior to 2011.

MR. WILLIAMSON: And you're right about that and we understand that. Why we're having this discussion is to educate our great local and regional leaders who are sitting out in the audience so that they can be prepared to come help us in January saying to the legislature we need to change this.

MR. BASS: I'm sorry I didn't bring the actual language, prohibited from entering into a project that involves private financing other than the exempted projects that are listed in the law, the moratorium. And so yes, there may be an opportunity for availability payments.

MR. HOUGHTON: That's what I'm talking about.

MR. BASS: I think if you start including in your availability payment stream over time a concession payment up front for which we bear the traffic risk, you've changed the dynamics considerably from the previous model where they had the risk of that coming true or not coming true.

MR. HOUGHTON: Yes, I think we all understand that.

MR. BASS: And so therefore, us borrowing the money at that level may be a different policy question and issue for the commission to wrangle with than it was prior to 792.

MR. HOUGHTON: How much risk does this department want to take? That's risk.

MR. HOLMES: James, why is it a requirement that the department take the traffic risk?

MR. BASS: And that's a question　-- I may have to ask Bob to come up here　-- of interpretation of 792.

MR. HOLMES: We had this discussion two months ago or three months ago, and I thought there was a way that you could craft the financing to pass on the traffic risk. You'd have a portion of the financing on availability of lanes and a portion of the financing on the traffic.

MR. BASS: Right.

MR. HOLMES: And I don't understand why that can't be done.

MR. SAENZ: For the record, Amadeo Saenz.

Yes, sir, Commissioner, we can structure it so that you can include or pass on to the developer a portion of the traffic risk. They're going to price that and it still will become part of the overall payment that they would want say per year, and the overall total payment that they would want in reimbursement. Every project would need to be looked at individually, but we could go in there and price it in a way that they would keep some of that traffic risk so that when they propose, they would not propose on a very high traffic number that we could not attain and then would force us to do that.

The problem with the availability payments, whether we pass on the risk or a portion of the risk of traffic, is that should we not get the traffic in any one year, we're still on the hook to make that payment to that developer.

MR. HOUGHTON: Developer is the right word?

MR. SAENZ: The developer or the contractor, design-build, the group that we have a contract with. So if there's not enough money coming from the tolls, then we would have to go back and dip into Fund 6 and take money from what normally they call the common pool or money from parts of the state, money from within the district that they may have allocated for other projects to be able to address that shortfall. It then becomes a cash flow management scheme that we have to make sure that we have available the dollars to make their payments.

MR. HOUGHTON: So we better make sure the TNRs are pretty good.

MR. SAENZ: Yes, sir, the TNR will be critical so that we can minimize the risk on our part.

MR. HOUGHTON: Which on our part we're going to take less risk.

MR. SAENZ: Yes.

MR. HOLMES: Amadeo, can you separate the amount that is the availability payment from the TNR risk and overlay the TNR risk based on the actual traffic volumes and rate?

MR. SAENZ: Yes, sir, it can be worked out that you would have a minimum payment based on without TNR and then they would have an additional payment above and beyond that would be based on the traffic that used the facility. It could be structured that way, and that would all have to go in through as we develop the request for proposals so that the developers or contractors could price it.

MR. HOUGHTON: So that we have competition.

MR. SAENZ: Yes, sir.

MR. WILLIAMSON: I want to be sure that I understand the question Ned asked and the answer you gave him. We can't avoid the obligation, we might can separate the payments, but if, for example, Kiewit says, going back to Highway 36　-- we're going to get Highway 36 done, Jack, I'm going to find some way to get it done　-- Kiewit says you guys say it's worth $800 million, I agree, I'll build it, finance it, develop it, I need 11 percent rate of return, and I'll split the payments and half of it you can string out over 50 years if necessary. Fluor says 9 percent, Doug Pitcock says 6 percent but I don't think it's worth $800 million, I think it's worth $700 million. We do a financial analysis of all three of them and we conclude that the Pitcock deal is the best deal　-- which it almost always is　-- we still in the end are going to have to pay Mr. Pitcock the entire amount of the deal some way.

And if the tolls collected on 36 don't generate the funds, we'll have to do 36 just like we did State Highway 130 in Austin, we'll have to go to the common pool and take part of Dallas's gas tax to pay for a Houston toll road.

MR. HOLMES: With Mr. Pitcock, that might be the deal. But my sense is that if we can interject some competition that we can do what, in effect, would be a liability loan to Fund 6 for the availability and a cash flow loan that is based on traffic that does not obligate Fund 6. And I would hope that we would be creative and try to develop that kind of a financing structure.

MR. WILLIAMSON: Well, certainly if we can do that, that would be a wonderful thing.

MR. HOLMES: That would be a better thing. I think we can do it technically.

MR. SAENZ: We are working with our financial advisors to look at how we can try to incorporate something like that.

MR. HOUGHTON: So they'd take a piece of the traffic risk under Commissioner Holmes's example.

MR. WILLIAMSON: I just think it's important at every commission meeting we're going to dialogue about the cash flow problem because we obviously failed in our effort to educate the legislature two years ago on our cash flow dilemma, so we're going to have to try it a different way. As we talk about this cash flow problem every month, we have to also talk about the impacts on our ability to have a successful strategic traffic plan. If you continue to reduce the cash and then also continue to reduce the options we have to do something non-tax revenue, it's real important to emphasize that at every turn of the page.

I mean, we're watching this 121 thing in North Texas develop and it's going to be a crystal clear difference between the public assuming all the traffic risk and maybe us having a larger piece of the pie at some point in the future and the private sector assuming all the traffic risk and the public never having to worry about what happens if the traffic risk proves to have been real. The risk component of a public investment is very important, I think, to emphasize to the public. Right now everybody thinks every toll road that will ever be built is going to make somebody rich, and in the real world, that's just not the case, some of these roads never pay for themselves.

MR. HOLMES: Hardy being one of them.

MR. WILLIAMSON: That's a great example, Ned, that's a great example actually.

MR. HOLMES: The traffic projections never proved to be correct.

MR. WILLIAMSON: It's amazing to me.

MR. HOUGHTON: My question, you said that we are, in fact, negotiating on 792, or did I misunderstand? We're valuing the assets, we're in a valuation mode?

MR. BASS: Internally, not necessarily the market valuation in coordination with the other local tolling entity because one of the options when visiting with the local tolling entity is who will perform the market valuation. It could be one of our financial advisors, it may be the other party's financial advisor, it could be yet a third party. Even if it is a third party and they come back with a valuation, there's a period of time that either party can then raise questions. Well, if you yourself don't have an idea of what the value of that project is, then how are you going to have a basis to ask questions if a third party does it. So we're building a base of data.

MR. HOUGHTON: Have we had anybody approach us as to saying let's go under 792 valuation?

MR. SAENZ: 792 had some specific requirements for the 121 project and that's being done, and also for the State Highway 161 project. So those two projects, because they were already under active procurement, we went forward and are moving on those projects. We've got training set up for the people that are going to be working as our negotiators; that's scheduled to be next week on the 6th. And as James says, we have asked our financial advisors to help us, we've identified the projects and to come up with what we think a base value or a range of values as to what the value of that particular project is so that we know up front what we're looking for, we know up front what toll rates, toll escalation rates we would be trying to look at because each individual project will be different.

We're going to look at elasticity analysis to determine should the toll rates start at 10 cents, can it afford a 20-cent or a 30-cent toll rate. So that will use to be able to come up with our own internal valuation and also to settle on some terms that we would like to take and present forward to the tolling entity. So all those will be happening in the next two weeks as we start doing the valuation of projects.

MR. HOLMES: Amadeo, as we go through these training sessions, these are with TxDOT employees or staff?

MR. SAENZ: Yes, sir.

MR. HOLMES: I would encourage you, once you're through that to expand that to some of the MPOs around the state as well that are going to be involved in those type processes.

MR. SAENZ: We will do that.

MR. HOUGHTON: The MPOs will be part of the triad at the table. We determined that we were going to bring the MPOs, as I remember in an earlier discussion, in at the beginning to set the business terms?

MR. SAENZ: The MPOs are included in the process, as part of Senate Bill 792, in an area where an RMA exists. The 792 was silent with respect to having the MPO in the loop or have a say-so with respect to the negotiations. What we have been working with through the MPOs, because they are the planning entity for the region, is identifying what potential business terms that they would like to implement for projects within their region so that we can coordinate their planning efforts because they projected some revenue coming from these projects. So we're trying to get information from them and make that part of the information that we have to come up with valuation.

So the training will be good for them because it's something that's new to them, and we will work with them independently but they will not be part of the official negotiation. And then for MPOs where an RMA exists, they do have to have a vote or pass a resolution that they think that the market valuation is right, too high or too low.

MR. WILLIAMSON: We have Alan Clark, I notice, with us here today and at least one county official and we probably have more. I just think it's real important to take this opportunity to emphasize over and over and over again the market valuation process that's envisioned in 792 and how we all go about figuring out how we're going to build these toll roads implies that someone is going to have to take a risk. Either the Fort Bend County Toll Authority is going to take a risk, Harris County Toll Authority is going to take a risk, Central Texas RMA, or us, or the private sector, but somebody is going to be taking a risk. It's not an at-cost deal as many toll roads in the state were originally developed. The only way we will reduce congestion in this state is to find a way to generate more instant buying power than normal on all these toll roads to address 25 years of consuming of assets and not replacing them.

MR. HOUGHTON: Mr. Chairman, it's not only risk, it's the ability to have equity in the deal based on shortfall because most of these projects don't cash flow, they're not going to be able to fully finance 100 percent of the debt, most of the RMAs are young and fledgling type organizations, so they don't have that kind of revenue, so other than the risk factor, it's the equity to put into these things. I would assume that's a big issue, other than HCTRA and NTTA.

MR. WILLIAMSON: Well, to put it simple, if you're trying to 100 percent finance Highway 36 and at the same time finance the expansion of the 15 farm roads that connect people to 36, somebody is going to be taking a chance. We had a system in place where the private sector would take all that chance, and if they guessed right, they would make money, but the legislature obviously, for the next two years, is uncomfortable with that approach　-- which is fine, that's their decision.

But it's important that we make sure that our county toll authority partners understand the inherent risk of 100 percent financing plus the connectors to make the deal work because we have practical knowledge that not every toll road in the state is going to make money, doesn't matter what you do, it's not going to make money.

MR. HOUGHTON: So you're talking about fully loading a project with the connectors.

MR. WILLIAMSON: Well, that's what the market valuation might imply in some cases. We have reason to believe Highway 36 is a probably higher valued highway than most people think it is.

MR. HOUGHTON: In the past we have subsidized those projects by building the connectors.

MR. WILLIAMSON: Not going to do that anymore. We don't have the money to do that, it's not a matter of not wanting to, we don't have the case.

MR. HOLMES: Well, there are going to be projects that require significant expenditure on the connectors.

MR. WILLIAMSON: Right.

MR. HOLMES: Otherwise, the project doesn't have a chance to work, and so as a necessity, the connectors will need to be built; otherwise, it can't possibly work. Some have connectors that need enhancement but not necessarily new construction.

MR. WILLIAMSON: James, we interrupted you and we apologize. Do you want to finish your presentation?

MR. BASS: I'm actually done, ready to hand it over to Mr. Saenz.

MR. WILLIAMSON: You're going to hand it over to Amadeo?

MR. BASS: Yes, I am.

MR. WILLIAMSON: Questions of Mr. Bass before we release him temporarily?

MR. HOUGHTON: Do you have good news, Amadeo?

MR. SAENZ: I'm sorry?

MR. HOUGHTON: Do you have good news?

MR. SAENZ: No.

(General laughter.)

MR. SAENZ: I think since this is kind of our first discussion item that we're talking about revenue, I kind of wanted to take the opportunity to kind of talk a little bit about our money that we have available to build projects comes from state fees and taxes, from our gasoline and we also get federal reimbursement from a portion of the federal gasoline tax that goes up to Washington, and of course, we have the ability through our　--

MR. WILLIAMSON: Amadeo, what are we looking at?

MR. SAENZ: I'm not, I'm trying to close this thing. I'm going to do a non-slide presentation. I'm going to have to get you all to just visualize it.

And we talked about today that we were losing revenue at the state level, we're losing revenue at the federal level, and those are all intertwined and affect each other. So in other words, if, for example, we had $100 million in state money and we get a reduction of that $100 million, that $100 million that we would have, we would go out there and we would build 100 percent state-funded projects and we could spend $100 million and we would use it and $100 million worth of projects would be built.

If we take that money and we use it to build federally funded projects, we then will get a reimbursement from the Federal Highway Administration of 80 percent. So we invest $100 million, we spent $100 million of state money, but we've asked the federal government and they give us $80 million back.

MR. WILLIAMSON: And it's important to stop and focus on that for a moment. When you say $100 million and you went out in one year and collected from all the citizens of the state $100 million in gasoline taxes and that was your budget for the next year, you could build a state-only project, put the $100 million in it, you wouldn't have the money at the end of the project, and the state would own the $100 million project.

MR. SAENZ: Yes, sir.

MR. WILLIAMSON: Let's play Highway 36 game. Let's assume Highway 36 is a $100 million project so we could collect all the gas taxes for a year, pile them up, go build Highway 36, and it's over, Highway 36 done, citizens of this region enjoy it every day and the citizens of the state enjoy it over the long haul.

MR. SAENZ: Right. And then, of course, we would be maintaining Highway 36 from that point forward.

If we decided to use the federal process and build it following the federal guidelines, then we would build Highway 36, still spend $100 million of state funds, but then we could ask Federal Highway Administration for reimbursement of their federal share which is 80 percent.

MR. WILLIAMSON: So then at the end of the year we'd have the asset paid for and $80 million that the federal government reimbursed us to go spend on the next project.

MR. SAENZ: Yes, sir.

MR. WILLIAMSON: That was, in fact, sort of the whole basis of the federal program, wasn't it?

MR. SAENZ: That is the basis of the federal program. You have to have the state dollars, you spend them, you ask for reimbursement, and they reimburse you.

MR. HOUGHTON: Up to your authorized amount over the life of a bill. Right?

MR. SAENZ: Yes. But the bill continues.

So if we do this as a federal project, at the end of the year the project is built, we have $80 million. And if you just keep on cycling that way, you're able to take that $100 million of state asset or state investment and carry it all the way down till you can't get any more back from the federal government and you probably can get up to about $500 million worth of projects.

MR. WILLIAMSON: Of assets.

MR. SAENZ: Of assets.

MR. WILLIAMSON: And then you're out of money unless you're taxing again, you've got $500 million worth of assets, nobody is paying a toll and nobody is paying any taxes.

MR. SAENZ: Right. So when we go out there and we get a reduction of our state appropriation, of our state gasoline tax money that we don't have for a project, it would impact us in multiples and not just in that amount. So when James mentioned that we lost $242 million over the biennium, it's $242 million that we could have used and we could have leveraged that to billions of dollars　-- I don't have that number. I was working with $100 million because it makes it easy for me.

MR. WILLIAMSON: Well, let's use Highway 36 again. Instead of having $100 million to build it, we only have $75 million. So one of two things would happen: we would either go to the local authorities and get them to put up $25 million, or we wouldn't build the whole project.

MR. SAENZ: Those are our two options, and then, of course, we would build it with federal dollars and then we would get reimbursed based on the $100 million, but if we couldn't and all we could spend was $75 million, then we could only get 80 percent of $75-. So in essence, we would lose the buying power of our state dollars by reduction in the original state dollars.

On the other side, because we are getting the federal rescissions and that will result in less federal money available for us in the future, if we run out of obligation authority in any one year, we can build $100 million but if we've already used it up, we cannot get any more than what the federal government has. So they drop our obligation authority, say if we had $100 million, same $100 million, to only $80- or to $60-, we can build then the $100 million but all they can give us is $60-, so we again lose buying power. We did build the asset up front but we don't have the full 80 percent to build future projects.

MR. WILLIAMSON: Well, you'd be getting 60 percent of $100 million, not 80 percent.

MR. SAENZ: Well, I would be eligible for 80 percent of the $100 million but if it was not enough, then all they could give me was what they had which was $60-.

And of course, the same thing would happen if we were able to use the private sector to help us, then that private sector money is just like if it was 100 percent state money. We can use it to leverage federal dollars, we can use it to build projects, so we can build more projects.

MR. WILLIAMSON: You mean private sector debt.

MR. SAENZ: Private sector debt.

MR. WILLIAMSON: Not private sector equity but private sector debt.

MR. SAENZ: Private sector debt. We can't use private sector equity right now.

Let's look a little bit, we've been talking over the last couple of months about maintenance and expenditures and the cost of maintaining our system, and of course, there's several strategies that we can use to try to leverage our dollars here, and that's kind of what my talk today is, how do we leverage our dollars and the impact of losing money on those leverages. And of course, on the maintenance side, to maintain and rehabilitate our state highway system, we can basically take three strategies.

The first strategy is that we consider that our priority and we put enough resources in the rehabilitation and preventive maintenance strategy to be able to preserve our asset. We have minimal maintenance losses, we have minimal damage and our asset lasts for a long time. Traffic will still continue to build so we'll have to be putting more money in every year to address because the more traffic on a facility, the more damage it causes and the more it will take to preserve it and then eventually we're going to have to rehabilitate it, but we're spending all our money. What that does is it minimizes the amount of money that we would have available to us to do in mobility projects.

The second strategy would be let's just cut down on the amount that we spend for maintenance and rehabilitation, change our level of service, you might say, or our level of acceptance from a high level to a medium level. What that does is our roads will still have traffic, we will not maintain them on a set cycle of seven years for seal coats, ten years for overlays, and every 20 years we'll come back and rehabilitate it, we'll just say we'll not do anything for the first ten years and we will save some money but the road will deteriorate faster and by the time we have money to spend on that road or set aside money to spend on that road, we now have to do a lot more than a preventive maintenance strategy. In essence, instead of a seal coat, we're going to have to put in a complete overlay or a cut-and-restore overlay or we might have to rehabilitate it.

So we've saved some money, we could use that money in the early years to go out there and add some mobility or some capacity, add more lanes to other highways, but in that latter year when you've got it planned, you have to plan for a lot more money to spend on that particular road to bring it up to the standards so they can carry traffic from then forward.

And of course, the third strategy is to take the strategy that we'll go ahead and build it, use minimal dollars to preserve and maintain the facility, and try to maximize the amount of money that I have to build more lanes with the understanding and logic that you're trying to build additional highways, parallel highways, new highways so that the traffic will then disperse and you'll have less traffic on the original facility, thus damage will be at a lesser rate, but you'll still, in the long run, now have to maintain two facilities.

So it's going to be a balance and we're going to have to come up with a strategy to follow. What I have presented to you all last month had to do with that we were looking at to be able to preserve our maintenance to our goal of having 70 percent of our roads at good or better condition, we needed to increase our money expenditures in the maintenance and rehabilitation, and in essence, was going to take all our money that we had in mobility in the years to come. So that's the bad news.

When I take the money from mobility, money can only come from certain categories. It can come from the mobility categories for the corridors, it can come from the district discretionary, it can come from the commission's strategic priority, but based on what we had, to be able to address and take it to the highest level of maintenance　-- which we would still not get there　-- we would, in essence, use up all of our mobility resources to maintain our facilities.

MR. HOUGHTON: Amadeo, you said years to come. What years to come?

MR. SAENZ: What we talked about last month, if you recall, is that for years 2009, '10, '11 and '12, we would then be re-allocating maintenance dollars to address areas of the state that had the worst pavement conditions, and that would result in having less money.

MR. WILLIAMSON: Less money for construction.

MR. SAENZ: Less money for new lanes, for construction.

What we looked at last month was looking at it from the point of what we had programmed and what we projected that we would have available to us over the life of SAFETEA-LU till 2009, and then we knew that SAFETEA-LU was going to deplete the trust fund, so we knew that post 2009 we were going to have less money available to us, we just didn't realize that it was going to be depleted by as much as what they've just announced, almost $4 billion.

That, in essence, paints a much bleaker picture in that we are programming projects or resources, money available to us for both mobility and preservation that we will not be able to have after 2009. So it's going to be very, very important tha