June 28 Transcript

Texas Department of Transportation Commission Meeting

STAFF:

MR. WILLIAMSON: Good morning.

AUDIENCE: Good morning.

MR. WILLIAMSON: It is 9:07 a.m., and I would like to call the June 28, 2007, meeting of the Texas Transportation Commission to order. It's a pleasure to have each and every one of you here with us this morning.

Please note for the record that public notice of this meeting, containing all items on the agenda, was filed with the Office of the Secretary of State at 4:10 p.m. on June 20, 2007.

Before we begin today's meeting, I would appreciate it if you would join with the commission in taking a moment to remove from your pocket or purse your pagers, cell phones, BlackBerrys and other electronic devices, and either turn them off or put them on the silent mode. Those of you that carry BlackBerrys, the signal interferes with our recording system so I really need for you to turn those off before you come to the podium if you're going to speak this morning. And I don't know about the Apple iPod; I haven't had a chance to study up on it yet.

It's our custom to open with comments from each of the commission members, beginning with the commission member last appointed by the governor. In this case that would be Mr. Underwood, and then we'll proceed to Mr. Holmes, Mr. Houghton, and Ms. Andrade, and then we'll start our day. I'll have a couple of announcements at that time. We'll skip Mr. Underwood for the time being and go straight to Mr. Holmes.

MR. HOLMES: [Inaudible].

MR. HOUGHTON: Good morning. Again, I echo Mr. Holmes's remarks. Glad to see all of our friends from the Metroplex area and others from around the state. Welcome.

MS. ANDRADE: Good morning. I'm also happy to see a happy and enthusiastic crowd, and I hope that you leave happy and enthusiastic. But considering the weather that we're facing, please be careful; please do not forget to buckle up, even those of you that drive pickup trucks. And next week we're facing a holiday　-- please, safe travels. Thank you.

MR. WILLIAMSON: Thank you, members. Mr. Underwood will join us directly.

Let me also associate myself with the remarks of my colleagues. We do appreciate you taking time out of your valuable day to be with us.

I need to remind you that if you wish to address the commission during the meeting today, we ask that you complete one of two speaker's cards that are at the registration table to your right in the lobby. If you are going to comment on an agenda item, we ask that you fill out a yellow card, such as the one in my right hand, and please identify the agenda item on the card. If you're commenting on an open matter and a matter not on our agenda, we ask that you fill out the blue card, such as the one in my left hand, and you will be permitted to comment at the end of the meeting.

Regardless of the color of card, we try to limit each speaker politely to three minutes so we have enough time to get through everyone's comments. The restriction obviously does not apply to sitting members of the legislature, and if I have in the audience present House or Senate members, am I aware of that, or do you care to be recognized at this time?

(No response.)

MR. WILLIAMSON: Okay, thank you.

In addition to the cards that I just showed you, in your chair you will find a card, similar to the card in my right hand, which announces our second annual Texas Transportation Forum to be held here in Austin on July 18　-- well, Senator Shapiro, there you are; Ms. Linda Harper-Brown is here. Sorry, I didn't see you at first.

The Texas Transportation Forum is held in Austin on July 18, 19 and 20. There is a website address listed where you can register if you care to, and you can get more information about our speakers and our program. We hope that you will decide to be a part of this interesting event and spend some time with us talking about the new solutions to the challenges that we all face in the transportation industry.

It is the habit of the commission on matters in which legislators are involved or in which large delegations from outside the Austin area are involved to try to move the deliberations as far up into the schedule as possible, and I've been asked to do so by at least one of my colleagues. The problem is there are some who wish to participate in that minute order event who won't be here for a little while.

So what we're going to try to do, with your cooperation, members, is move as fast as we can through the other agenda items such that we can spend the bulk of our time today on the State Highway 121 matter which I presume is the focal point of most of our audience. If I detect that the regular agenda is moving too slowly and when I see the other staff we requested to be here, I'll stop and we'll shift and go to the 121 matter and take that up.

MS. ANDRADE: Thank you.

MR. WILLIAMSON: That being the case, we need to clear the minutes from the last meeting. That's the first item on our agenda and that is the approval of the minutes of the meeting of May 24 and the special called meeting of June 14. The draft minutes are in your briefing materials, members, you've had a chance to look at those materials. Do you have questions, comments, or is there a motion?

MR. UNDERWOOD: So moved.

MR. HOUGHTON: 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, members. Mike, let's proceed.

MR. BEHRENS: We'll go to agenda item number 2 which is under Aviation, and we'll have a recommendation to approve our airport projects for the month of June. Dave.

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

Item 2 is a minute order that contains a request for grant funding approval for six airport improvement projects. The total estimated cost of all requests, as shown in Exhibit A, is approximately $6.2 million, approximately $5.1 million federal, $500,000 state, and approximately $600,000 in local funding. A public hearing was held on May 16 of this year, no comments were received. We would recommend approval of this minute order.

MR. WILLIAMSON: Members, you've heard the staff's explanation and recommendation. Do you have any questions or comments?

MR. HOUGHTON: So moved.

MR. HOLMES: 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, Dave.

MR. BEHRENS: Agenda item number 3 is Public Transportation. 3(a) concerns funding for transportation in Nueces and San Patricio Counties. Eric.

MR. GLEASON: Good morning. For the record, my name is Eric Gleason, director of Public Transportation for TxDOT.

Agenda item 3(a) awards $2,931,599 in transportation development credits to the Corpus Christi Regional Transportation Authority for fleet replacement and maintenance facility equipment. This award will allow the use of approximately $14.3 million of federal funds for these purposes.

Title 43, Section 5.73 of the Texas Administrative Code establishes the process by which transportation development credits may be awarded at the discretion of the commission. Each project is reviewed to ensure eligibility, overall benefit to public transportation initiatives, and to further the five goals of the department: reduce congestion, expand economic opportunity, enhance safety, improve air quality, and increase the value of transportation assets. We find this project consistent with those goals.

Mr. Craig Clark, Corpus Christi district engineer, and Mr. Ricardo Sanchez, general manager of the Corpus Christi RTA, are here today to provide you with more details on the project. We recommend your approval of this minute order.

MR. WILLIAMSON: Members, what's your pleasure: listen to the witnesses first?

MS. ANDRADE: Yes.

MR. WILLIAMSON: Yes, witnesses. Mr. Clark and Mr. Sanchez

MR. SANCHEZ: For the record, I'm Craig Clark, Corpus Christi district engineer. I would like, as the district engineer, to give support from the district and from the Corpus Christi MPO, our support for the transportation development credits for this proposal. We've had great cooperation from the RTA in expanding the scope and reach of public transportation in our region.

We recognize that we need to fully engage all of our tools, this tool and all of our tools, to help us address the mobility challenges that we have in our area. We have to integrate all our modes to meet the transportation goals and keep Texas moving.

So I'd like to have Ricardo give us the details of the proposal.

MR. WILLIAMSON: Welcome, Mr. Sanchez.

MR. SANCHEZ: Yes, sir, thank you so much. Good morning, Mr. Chairman, good morning, commissioners. It's my honor to go ahead and address this body to talk about our particular request for transportation credits for Corpus Christi, Texas, and securing approximately $2.9 million in credits will benefit the citizens of the Corpus Christi region, and it also represents the much needed match that we need for this particular project which includes purchase of buses and maintenance equipment.

But before I get started into my remarks, if you don't mind, Mr. Chairman, I would like to recognize another chairman who has come from Corpus Christi, Mr. Rolando Barrera. Can you please stand? He's been our chair for a number of years now. Unfortunately, he's going to be leaving in about three months and we're going to miss him dearly, but I will say that he has been probably one of our best chairs when it comes to as a strong public transit advocate, and because of his bold leadership, this is why we're here today, and I want to thank him.

I'd like to just limit my remarks to three perspectives. One is that we're a united region serving the transportation needs of 317,000 residents of Nueces County, including the cities of San Patricio and Gregory. Secondly, I can't overemphasize the importance and significance of toll credits to the operation of RTA. And thirdly, the developmental credits is very much in congruence with what the commission is trying to do with their strategic goals.

For the past two years, the RTA's board of directors has embraced what I call a back to the basics approach to transportation, that is, providing safe, reliable and cost-effective transportation, and to this end, the board has adopted as its priority buying buses and buying also the equipment. Also related to that is that we're very much interested in improving the maintenance facility.

I'd like to let the commission members know that we have very broad-based political support, community support for this particular endeavor, from the Mayor of Corpus Christi, Henry Garrett, Nueces County Judge Lloyd Neal, state representatives Herrera, Garcia and Ortiz, Chuy Hinojosa, and including Congressman Solomon Ortiz.

We have a dedicated sales tax of a half cent and we have recognized that those funds are insufficient to meet the current match requirements for a three-year capital program, so we feel that the toll credits will fill that void for us.

In short, I feel that the toll credits will definitely help us reduce our operating expenses related to an aging fleet and improve service reliability through utilizing newer vehicles. And of course, the added benefit of the credits will offset some of the costs related to our plans for a new maintenance facility.

I mentioned your five goals, Mr. Chairman, and I want to go on record that the purchase of the vehicles will in fact help reduce congestion. The American Public Transit Association estimates that one fully loaded bus can reduce as many as 60 cars on the road.

Secondly, that public transportation is much safer than automotive travel. In fact, the National Safety Council has said it's 170 times safer, as a matter of fact.

Thirdly, based on some recent economic research conducted by economics professor Dr. Jim Lee, public transportation in Corpus Christi saves our riders approximately $11.6 million per year and this money is turned around to buy other goods and services unrelated to public transportation. And I may add that 41 percent of our riders are using public transportation to go to work.

Number four, the RTA has purchased propane and low emission vehicles in the past. This year we'll be issuing a request for proposals for vehicle replacement that will examine as options hybrid and CNG technologies.

And finally, the fifth goal is that we help increase the value of public transportation assets by reducing the demands for new road construction and maintenance.

I do want to close my comments by recognizing Craig Clark, who is here, our district engineer, he has done a fantastic job; also Steven Edema, who works very closely with him. And without their guidance and their counsel, we wouldn't be here today, quite frankly, commissioners.

Also, special thanks to Public Transportation Division Director, Mr. Gleason, as well as Cheryl Mazur with the Public Transportation Division Management Section, and it's through their technical assistance that we were able to go through the TDC application process.

Again, Mr. Chairman and commissioners, thank you so much for your support, on behalf of our board, our staff and elected officials, but more importantly, a special thank you from our customers, our riders. Those are the ones that we're all about, and sometimes those kind of get neglected or forgotten in the process, but those are the ones that are going to greatly benefit from your support of the transportation credits. Thank you so much.

MR. WILLIAMSON: Members, do you have questions of this witness? Thank you, sir, we appreciate you coming.

MS. ANDRADE: I have a comment. Mr. Sanchez, thank you so much for working with our staff and being patient, and congratulations on being visionary to build a regional maintenance facility. I was very excited when I heard about this project. And to your board chairman, I want to thank him for everything he's done in the Corpus Christi area, and I think he can walk away and you can be very proud of what you're leaving behind. So thank you very much.

MR. SANCHEZ: Thank you, Commissioner.

MR. WILLIAMSON: Other members?

(No response.)

MR. WILLIAMSON: Thank you, sir.

Craig, anything else? Thank you also for coming up today.

Eric?

MR. GLEASON: Nothing further, sir.

MR. WILLIAMSON: Members, you've heard the staff's explanation, the witnesses' testimony, and staff's recommendation.

MS. ANDRADE: So moved.

MR. HOLMES: 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, Eric.

MR. BEHRENS: Agenda item number 3(b) will concern various counties for transportation funding, and this will be appropriating funds appropriated by the 80th Legislature. Eric.

MR. GLEASON: Agenda item 3(b) awards $19.8 million in state funds to small urban and nonurbanized public transportation systems for fiscal year 2008. These funds are for both operating and capital expenses and are used to leverage federal funding for the same purposes.

There are 30 small urban and 39 nonurbanized or rural public transportation systems eligible for state funding. These systems carry 22 million passengers and travel over 41 million miles of service each year. The allocation among these systems, as shown in Exhibit A, is consistent with the funding allocation formula adopted by the commission in the Texas Administrative Code. We recommend your approval of this minute order.

MR. WILLIAMSON: Members, you've heard the staff's explanation and recommendation. Do you have questions or comments for staff?

(No response.)

MR. WILLIAMSON: We have one witness, but I don't know that he wishes to speak or is available to speak. Ben, what's your pleasure? Ben, if you would come forward.

MR. HERR: Thank you, Mr. Chairman, commissioners. For the record, my name is Ben Herr. I'm the executive director of the Texas Transit Association. The TTA is a non-profit association that represents the transit industry in Texas. Our membership consists of the eight metropolitan transit authorities, the 30 small urban transit districts, and the 39 rural transit districts.

I'd like to testify in favor of this minute order. This $19.7 million of state funds provides the small urban and rural transit agencies the important funds needed to match federal funds for operating expenses and capital expenditures. This $19.7-, however, is a 30 percent reduction in state funds from previous years. The transit industry was extremely disappointed in the actions of the 80th Legislature in reducing state funding for public transportation. As the chart you've been provided shows, this is a giant step backwards of 13 years. The amount of state funds to be provided in 2008 is very close to what was provided back in 1995.

Since 1995 there's been significant changes in the state public transportation industry. We've added new transit agencies in both the small urban and rural areas, providing transit to the public that was not previously available. Most transit providers have been able to expand service in their operating areas providing Texas citizens more access to jobs, education and healthcare, contributing to the economic development of their communities.

What else has happened in 13 years? The transit industry has experienced what most businesses have experienced: the cost of doing business has increased; fuel costs have steadily risen; the cost of maintenance has gone up; the cost of a new bus purchase has increased; employee wages and benefits, such as healthcare insurance, have gotten higher; and the introduction of technology, such as computer software and ITS equipment, has become an expensive but critical component of daily operations.

So how will transit deal with the legislature taking funding back to 1995 levels? It's very simple: transit managers will need to cut costs by cutting service. For example, north of the Dallas-Fort Worth Metroplex, SPAN provides service to the rural areas of Denton County. They're facing a reduction of $105,000. They're planning to place their customers on a waiting list for service based on critical needs. Those customers that need rides for dialysis and other critical medical care will go at the top of the list, but those with basic ADA needs will be placed at the bottom and go without transportation.

Hill Country Transit provides rural service to nine counties as well as service to the cities of Killeen and Temple. They can expect a combined loss of over $428,000. Since they will no longer have the needed state funds to match federal funds for capital purchases, they will postpone critically needed vehicle purchases. After many months of study and discussion under the regional coordination planning initiatives, the planned expanded service will also be shelved.

And in the rural areas west of Corpus Christi, the Rural Economic Assistance League, REAL, will lose $116,000. To cut costs they plan to lay off employees which will also then lead to canceled routes in the three counties that they service.

In my discussions with the department staff, I know that TxDOT and the commissioners are researching options to add additional funds to what was provided in this minute order and bring the level of state funding back up to the previous levels of 2006 and 2007. This is very encouraging and very much appreciated by the transit agencies.

The TTA and its membership would like to thank the commission for its support and commitment to the public transportation industry in Texas. We're optimistic the department will do all it can to reduce this $9 million deficit. Transit is not real sexy, we don't make big splashy headlines, but we do provide a valuable service to the communities in which we operate, and as we've demonstrated in the past, we are committed to contributing to TxDOT's goals of reducing congestion, enhancing safety, expanding economic opportunity, improving air quality, and increasing the value of transportation assets.

Mr. Chairman, commissioners, I thank you for your support of public transportation.

MR. WILLIAMSON: Members, do you have questions or comments?

(No response.)

MR. WILLIAMSON: Hey, Ben, was there any reason why the appropriations bill reduced you? Were you participating?

MR. HERR: The recommendations of the Legislative Budget Board, sir, stated that there was an estimated $19 million increase in federal funding and their recommendation to the legislature was to reduce state funding dollar for dollar, and that's what the legislature approved in Senate Bill 1, the appropriations.

MR. WILLIAMSON: Well, was there an increase in federal funding?

MR. HERR: Yes, sir. There is a project increase in SAFETEA-LU for 2008 and 2009. That is correct.

MR. WILLIAMSON: So will that mitigate against laying off all the people you spoke you're going to have to lay off?

MR. HERR: No, sir. I don't believe so. The problem is, and which some people just don't realize, is that when you increase federal funding you need to somehow increase local and state funding in order to draw down those federal funds. It's a one-to-one match for operating; it's an 80/20 match for capital expenditures. So you can't get to that 19 million in federal funds without spending state or local funds.

MR. HERR: That's correct, sir. So what we have here is a situation we potentially will　-- not only have we already lost state funding, we potentially lose federal funding.

MR. WILLIAMSON: Are you sure the appropriators knew that?

MR. HERR: I don't know, sir.

MR. WILLIAMSON: 　Eric, could we　-- I guess we could ask the legislature to give us some transfer authority from our accounts to at least keep the program going.

MR. HERR: Yes, sir.

MR. WILLIAMSON: Any other questions for Ben?

(No response.)

MR. WILLIAMSON: Thank you, Ben, appreciate it.

MR. GLEASON: I have no further comments, sir.

MS. ANDRADE: I have a question for Eric. My understanding was that we were short $17.4 million?

MR. GLEASON: $17.6-.

MS. ANDRADE: And we certainly tried to explain what was going on, but we didn't get very much response or support. But we're committed to trying to find that money.

MR. GLEASON: Yes, ma'am. That $17.6 million is actually a two-year number, it's a $9 million issue in 2008 and $8.66- in 2009.

MS. ANDRADE: So we're continuing to look into that and try to see if we can make up that money. Is that correct?

MR. GLEASON: Yes, ma'am.

MR. WILLIAMSON: But as I understand it, out of our existing cash flows.

MR. GLEASON: Yes, sir.

MR. WILLIAMSON: So in effect, we're transferring from building a bridge in San Antonio to financing buses.

MS. ANDRADE: Not necessarily San Antonio. I hear El Paso has a little extra money.

(General laughter.)

MS. ANDRADE: But we're committed to it. I just want to know that we're still working on it.

MR. GLEASON: Absolutely. I think you've heard a description of some of the potential impacts of it.

MS. ANDRADE: Because we won't be able to draw down the federal funds so it's not going to do them any good that we got more federal funds if we don't.

MR. GLEASON: The state has a tremendous opportunity with the increase in federal funding to do much more than we've been able to do in the past, but we do need that match.

MS. ANDRADE: I just think, Mr. Chairman, that this is great way to leverage. I mean, $17.4- is quite an investment for us but it's a great way to leverage down the federal funds.

MR. WILLIAMSON: I'm not doubting Ben's word, I just can't imagine that Mr. Chisum and Mr. Ogden completely understood that. Perhaps we can talk with them and see what we can do about it.

MR. GLEASON: Yes, sir.

MS. ANDRADE: Thank you.

MR. WILLIAMSON: Anything else, members?

(No response.)

MR. WILLIAMSON: Do I have a motion?

MR. HOUGHTON: So moved.

MS. ANDRADE: 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.

Mike, I've been told that we're just a few minutes away from having the rest of our staff, so I'd like to stop here and ask Amadeo to lay out the maintenance item, and as soon as I see staff come through the door, we'll stop Amadeo and go straight to the 121 item.

MR. BEHRENS: We'll then go to agenda item number 4 which is a discussion item that will talk about our statewide pavement conditions and how we're planning to re-appropriate funding to take care of some of those needs in maintenance. Amadeo.

MR. SAENZ: Good morning, Mr. Chairman, commissioners, Mr. Behrens, Roger.

This is a continuation of our discussion that we started last month. Today the goal is to discuss with you how we can take steps to address our preservation and maintenance needs to help our Texas highway transportation system.

Last month, just as a refresher, we reviewed the statewide data and trends concerning pavement conditions and spending and concluded that we could not meet our goal to have 90 percent of our roads to be in good or better condition by 2012 based on our current funding levels. Last month we also discussed how inflation has thwarted our best efforts to improve our system. We also discussed that the districts have been working hard to maintain and rehabilitate the roads and have tried to stay close by basically spending money from future allocations to keep up with their pavement conditions. We concluded that there's a need to put more money towards maintenance and rehabilitation and the only money that we have is money that we have from certain funding categories.

This month I would like to discuss with you our statewide analysis from last month and how it translates from a statewide basis down to a district basis. I will discuss some rehabilitations that involve relocating some of our maintenance and rehab money in their early years and then in the future trying to move some mobility money into the maintenance and rehabilitation so that we can target those areas of the state that have the worst problems. I will also discuss a plan of action and the anticipated impact on the overall transportation program.

The recommendation we'll consider today is not the ultimate solution. I want to get some feedback from you all. I'm going to present a recommendation that probably will present and lay out maybe some concerns across the state, and maybe with you, but I want to get some feedback from you, and I will be meeting with you all.

MR. WILLIAMSON: What do you mean lay out some concerns? Are you saying you're going to recommend that we move money from one district to the next?

MR. SAENZ: I'm recommending that in the years from '08 to '10 to take some of the maintenance money that's already been allocated to the districts for rehab and maintenance and bring some in where we can address areas of the state where we need it the most.

MR. WILLIAMSON: So is the answer to my question yes?

MR. SAENZ: Yes, as well as moving mobility money in to address more maintenance and rehab.

MR. UNDERWOOD: But Amadeo, we're already drawing past what we've basically budgeted at $1.1 billion. Isn't that correct? We're already drawing into the future and now you're saying that you're going to draw back from other areas as well as what we're drawing from our future money.

MR. SAENZ: That's correct.

MR. UNDERWOOD: Thank you.

MR. WILLIAMSON: And is that money likely to flow from suburban and rural areas to metro areas, or from metro areas out to urban and suburban areas?

MR. SAENZ: It will flow mostly from the rural areas into the metro areas because, as I'll show in a few minutes, our pavement conditions in our metro areas where we have more traffic is in worse shape, and the pavement conditions in parts of the state that have more stable foundations is in better shape. So we're recommending a movement of monies from the rural areas to address the bad areas that we have in the metro, as well as areas along the coast.

MR. WILLIAMSON: That's going to go over about like the CDA process has gone over. There will be about one champion for that and that will be about it.

(General laughter.)

MR. SAENZ: Kind of looking at this map here　-- and I apologize for the colors, they looked better when I was doing it on the computer　-- if you look at the map and you look at the blues and greens, it's where our pavement scores are above the statewide average. As you recall, last month I told you our statewide average of pavements that were in good or better condition was running about 86 percent. Well, the green and the blue are the areas of the state where we have pavement scores above that.

The areas of yellow and I guess olive are the areas of the state where we have the worst conditions, where the olive is the worst one, and if you look at that area up there around Corpus Christi, along the coast we have some bad areas, the Houston area has some bad areas, the Metroplex has some bad areas, and also the western parts.

Statewide our pavement quality declined overall in 2006. Looking over the last four years, San Angelo District has about 96 percent of its roads in good or better condition, and it's in the best shape of all of the districts across the state. On the other hand, the Dallas District only has 75 percent of their roads in good or better condition, or about a quarter of the roads in Dallas are in less than good condition.

MR. WILLIAMSON: Amadeo, I'm a little bit confused. What I hear you saying is you're preparing us gently for a recommendation to move money from districts to districts and from construction to maintenance.

MR. SAENZ: Yes.

MR. WILLIAMSON: Now, I understand the impacts of inflation but I also know how our cash flows are developed and I know that we write into our cash flows the cost of inflation. I just want to be a little bit clear while I think through this why it's necessary for us to redefine our cash flows. Have we lost some cash flows someplace?

MR. SAENZ: We've lost some cash flows through federal rescissions; we've lost some cash flows through the legislative process where some of the money that we had has been diverted to other areas; we've also lost some of the tools that we anticipated would generate cash flows that would address　-- the moratorium on the CDA program, for example.

MR. WILLIAMSON: How much have we lost to federal rescissions?

MR. SAENZ: Federal rescissions, so far we've lost, Coby, is it about $600 million, and we have requests for another $77 million that we have to respond by the middle of next month.

MR. WILLIAMSON: How much additional did we lose in the appropriations process this cycle?

MR. SAENZ: Mr. Chase?

MR. WILLIAMSON: And when I say lose, I mean or diverted to other areas of the budget.

MR. SAENZ: I believe the number was about　--

MR. UNDERWOOD: Wasn't it about $240 million from Fund 6? Isn't that about right?

MR. SAENZ: $250- to $300-, I think.

MR. CHASE: Coby Chase, director of the Government and Business Enterprises Division. It was $1.5 billion; that's up approximately 15 percent from the previous biennium.

MR. WILLIAMSON: So $1.5 billion total but $1.27- or so of that had already been going on a long time and now it's up to $1.5 billion.

MR. CHASE: Yes, sir.

MR. WILLIAMSON: So about an additional $250 million.

MR. CHASE: Yes, sir, correct.

MR. WILLIAMSON: And you said loss of tools. What tools?

MR. SAENZ: Well, for example, the moratorium on being able to use the private sector to develop and finance and bring equity into our projects where they would take over the construction of the project, would save some construction money, they also would take over the maintenance of the project.

We're going to talk about 121 in a little bit, but projects like 121 that we are currently maintaining those frontage roads, we're going to be building the main lanes that will be tolled, but the maintenance of those frontage roads right now is taxing Fund 6. If we were to move forward through a CDA, the maintenance of those frontage roads, as well as the new construction, was all going to be part of that CDA. That would have freed up some money for the Dallas District in the maintenance side to apply to address pavement conditions.

MR. WILLIAMSON: That's a bad example, Amadeo, because one way or the other, somebody is fixing to build 121, so are there other examples I can put my head on?

MR. SAENZ: 161 is an ongoing CDA project.

MR. WILLIAMSON: Were we counting on positive cash flow from that?

MR. SAENZ: There's no moratorium on 161 so 161 will follow.

MR. WILLIAMSON: What about 288 in Houston?

MR. SAENZ: 288 in Houston is affected by the moratorium but it is a project that will be built by the Harris County Toll Road Authority.

MR. WILLIAMSON: 281 in San Antonio?

MR. SAENZ: 281 in San Antonio, that project is affected by the moratorium.

MR. WILLIAMSON: 290 in Houston?

MR. SAENZ: 290 in Houston is a project to be developed by the Harris County Toll Road Authority.

MR. WILLIAMSON: So a combination of federal rescissions, increase in transfers from Fund 6, and loss of projected cash payments and reduced expenses into Fund 6 is the result of what you're going to be recommending to us?

MR. HOUGHTON: What was our overall increase in our budget this biennium from last biennium?

MR. SAENZ: We increased our budget, I think, we went from about　-- for the biennium we went from about $15 billion to $16 billion.

MR. HOUGHTON: So the increase was 2 percent?

MR. SAENZ: Yes, sir.

MR. HOUGHTON: What's CPI these days, highway construction?

MR. SAENZ: Highway construction index for this year is running somewhere between 8 and 10 percent.

MR. HOUGHTON: So we're in the hole 6.

MR. SAENZ: Yes, sir.

MR. WILLIAMSON: The state is in the hole 6.

MR. SAENZ: The overall average indicates that 13 percent of our roads are below average.

MR. WILLIAMSON: Do our MPO partners know this is coming?

MR. SAENZ: Yes, sir. We have met and discussed with the MPOs about having to address pavements and we had a conference call and we also had the MPOs here when I presented the presentation last month.

MR. WILLIAMSON: Because this is going to upset some people.

MR. SAENZ: Yes.

The three-year average indicates 13 percent of our roads are below average. Since we have almost 80,000 centerline miles, 179,000 lane miles, approximately 10,000 of those centerline miles are not in good condition. In general, there's better pavement scores in West Texas.

MR. WILLIAMSON: Amadeo, we've got the rest of everybody here now. If you don't mind, we're going to stop. I mean you no disrespect but we'd like to try to get 200 people from North Texas back home before the next rainstorm hits.

And Mike, are there going to be public presentations that you're aware of?

MR. BEHRENS: It would just be those people that are signed up to speak on that particular item.

MR. WILLIAMSON: And how do you want to lay this out?

MR. SAENZ: Amadeo will lay it out.

MR. WILLIAMSON: It's going to take a while, I suspect. We can either take a break right now and let the audience reorient themselves, or we can push on and break when we want to. What's your pleasure? Push on. Let's go.

MR. BEHRENS: We'll go to agenda item number 6(a). This is a project concerning State Highway 121 in Collin and Denton Counties, and the commission will consider a recommendation of the Regional Transportation Council concerning the financing, construction and operation of State Highway 121. Amadeo, are you ready?

MR. SAENZ: Yes, sir. Good morning again, commissioners. For the record, Amadeo Saenz, assistant executive director for Engineering Operations. Agenda item 6(a)(1) is a minute order where we are considering the request from the Regional Transportation Council from the North Texas Council of Governments on moving forward with the 121 project where they were recommending that we move forward with the North Texas Tollway Authority.

I'm going to start by presenting to you a little bit of some of the things that have been going on and the process that was followed concerning the 121 project that started as a CDA, and then has gone through some legislative requirements and including submissions of proposals by the North Texas Tollway Authority.

I'll start with the RTC on March 26 sent a letter to the North Texas Tollway Authority where they requested the North Texas Tollway Authority to submit a binding commitment in full compliance with a CDA. Also, they wanted that commitment to clearly state what is guaranteed. They wanted them to specify and communicate the risks that will be borne by the NTTA system due to the change in bond rating, and some possible toll rate increases, delays in development of committed projects, and they also wanted them to communicate any toll projects which could not be built by NTTA in a timely fashion.

In that same letter that was also sent to the Texas Department of Transportation to Chairman Williamson, they also requested TxDOT to see if we could provide some review help to review the NTTA binding commitment with the same staff and using the same methodology that was used for the review of the CDA project that was being developed for 121. They also wanted us to provide potential impacts of the NTTA proposal on private sector bidders.

Just to kind of compare the two proposals, we had that came in on the 18th of May, and we received a copy of it and our staff started reviewing it, and the proposal from NTTA basically called for an up-front concession fee of $2.5 billion, total lease payments for the 49 years in today's dollars of a net present value of $833 million for total payments of $3.333 billion, it had a design and construction cost of $698 million, and it had an operation and maintenance cost for the 50 years of $1.26 billion, for a total value of $5.299- or almost $5.3 billion.

This compared to the proposal that we had received from Cintra-J.P. Morgan which provided an up-front payment of $1.15 billion, a net present value for the 49 guaranteed payments of $717 million, for design and construction costs of $560 million, and operation and maintenance costs of $1.77 billion, for a total of $5.197 billion.

We reviewed the submission by NTTA and compared it to what was in the CDA procurement as requested by the RTC, and there were several things that the proposal did not include. The proposal did not include a proposal security which they said would be provided only after the offer was accepted. Also, the proposal is a proposal that was not based on a binding or a predetermined agreement. Instead, it said that the final proposal would be binding based on an agreement that would be developed that would be an agreement by both parties, the Texas Department of Transportation and the NTTA, and of course, it would also require approval by the lenders that would lend money to NTTA.

The proposal, because it was done in a short time frame, did not include the same level of underpinning and design requirements and technical requirements that were requested in the CDA procurement. It did not identify the key participants, and that's simply because the NTTA will be using a different model than what the CDA people were going to be using. And of course, the detailed cost data, because it was not there, the lenders were not able to do a due diligence on the detailed cost data, and of course, the lending commitments that came in with the proposal had some conditions that had to be addressed before the lenders could really guarantee that they would lend the money to the project.

MR. HOUGHTON: What are those conditions?

MR. SAENZ: Some of the conditions was, of course, they needed to see the agreement and the terms of the agreement. And I may ask Mr. Bass to help me a little bit because he was more involved in the project.

MR. HOUGHTON: A basic question, Amadeo: Did the NTTA proposal meet the criteria set out by the RTC?

MR. SAENZ: Based on the RTC letter, no, they didn't, because they said they wanted the NTTA proposal to meet the requirements of the CDA, so it did not meet the requirements of the CDA as had been requested.

MR. WILLIAMSON: I don't want to waste a lot of people's energy and time focused on things that don't really matter. I don't presume any question a commissioner asks doesn't matter　-- but you're going to get a lot of questions today, Amadeo, this is going to be a pretty stressful day　-- yes and no is probably quick enough because that might sound like a horrible thing but to me it's not central to the decision we have to make and we don't need to make a big deal about it. There may be really good reasons why Mr. Wageman chose to approach his response the way he did, and in the end that's not really going to matter to the business deal, and our focus needs to be the business deal. Do you see what I'm saying?

MR. SAENZ: Yes, sir.

MR. WILLIAMSON: We don't want to give the audience the impression that we think that's a big deal.

MR. SAENZ: Yes, sir. The CDA required a schedule with liquidated damages. The proposal, as we understand it, does not include a preliminary design, so we're not able to tell if the schedule was going to meet those milestones. It also used different standards as far as operation and maintenance and pavement scores so there were different standards, it said it was going to be built to NTTA standards instead of the standards that were in the CDA.

MR. WILLIAMSON: Would that imply that the projects would be taken off the system if NTTA were the concessionaire?

MR. SAENZ: Yes, that NTTA would then take that project off the system and they could develop to their standards.

Their annual lease payment came in the form of a bond with priority payment coming after the operation and maintenance for the entire NTTA system. The CDA required that that annual payment be the first money that is generated out of the project revenue. And of course, I believe the reason for that is since they're going to make this part of the system, they have to comply with bond indentures, and the bond indentures require operation and maintenance on the NTTA side to be first money out.

Some of the costs that were included in the proposal that did not seem to come from the 121 project but really were funded through the system itself, for example, some of the interest that was covered by issuing some of the early debt was going to be covered as a system cost, and that's acceptable because they were using the system as a backstop.

And of course, what we looked at is looking at the level of risk: what would happen to the project should the cost of construction be higher, should the cost of operation and maintenance be higher, should the cost of financing be higher. And when that happens, in essence, the system would be exposed. If it costs more, if less people used it, if the construction was higher, if you delayed service commencement, you have to start paying your debt and if you don't have the revenue to cover it, it has to come from somewhere so it has to be from the system and that would have an impact. That was one of the questions that the RTC had asked is what impact will this project have on the system. So if for some reason those items are more expensive or there is less revenue available, the system would have to cover them.

Conversely, if the project was built on time or was completed ahead of time, if the costs were not higher than what was budgeted or projected, costs were lower, then the system would not have to cover that, there would be enough revenue for the project to cover those costs.

MR. HOUGHTON: Amadeo, let me ask you a question or two and get right down to the brass tacks. What's guaranteed currently?

MR. SAENZ: Right now, as far as guaranteed, because we don't know what the final form of the contract for this project is　--

MR. HOUGHTON: Is the up-front payment guaranteed right now?

MR. SAENZ: The up-front payment they say is guaranteed but we have to agree on a contract.

MR. HOUGHTON: So it's not guaranteed, we don't have a guarantee.

MR. SAENZ: No.

MR. HOUGHTON: Are the annual payments guaranteed?

MR. SAENZ: The annual payments come in in the form of a bond that are paid for after operation and maintenance. We still don't have a contract, that still needs to be spelled out.

MR. HOUGHTON: Are the toll rates guaranteed?

MR. SAENZ: As we understood the proposal, because it is part of the system, they could not comply with the toll rate requirements that RTC had said that we had included in the CDA.

MR. HOUGHTON: Financing guaranteed?

MR. SAENZ: I'm not sure I understand.

MR. HOUGHTON: Well, that's the question I asked earlier. Is the financing guaranteed on the project?

MR. SAENZ: Well, what was submitted in the proposal, the lender commitments had the caveats that said we need to see the form of the contract and we need to agree with the form of the contract.

MR. HOUGHTON: It's a chicken-and-egg kind of theory right now?

MR. SAENZ: The contract needs to be developed and the terms need to be finalized before those commitments can address those items that are covered.

MR. HOUGHTON: So Mr. Chairman, is it our idea that we vote on this today to accept this with no guarantees, or what is your intention?

MR. WILLIAMSON: Well, I understand your concern and I understand the concerns of one or two of the other commission members. Why don't we let Amadeo finish his layout and let's ask a few others questions and maybe we can determine if we need to be even voting at all.

MR. HOUGHTON: Okay.

MR. SAENZ: Moving forward, the RTC asked us to review but they also brought in their own independent financial advisor that reviewed both the Cintra proposal and the NTTA proposal. This was PricewaterhouseCoopers.

MR. WILLIAMSON: I'm sorry, I don't mean to be violating my own order, but I need to ask something about that. You said the RTC. Was this PricewaterhouseCoopers?

MR. SAENZ: Was brought in, was hired by the RTC as their independent review.

MR. WILLIAMSON: I just want to establish for the record did we recommend that?

MR. SAENZ: No, sir.

MR. WILLIAMSON: Did we have anything to do with that decision?

MR. SAENZ: No, sir.

MR. WILLIAMSON: That was the RTC decision to bring that nationally recognized firm in, not our decision.

MR. SAENZ: That's correct.

MR. WILLIAMSON: Okay, thank you.

MR. SAENZ: PricewaterhouseCoopers, in their analysis went through something that they call qualitative risks and returns, and they were very similar to the risks that I talked about. They said, Okay, there's a financial risk, the commitments are not there, the commitments are caveated on those requirements; if there's a change in the interest rates, there's going to be a risk up or down; since we don't have an agreement, there's no way to come up with a financial close; construction costs, operational costs, maintenance costs, rehabilitation costs, depending on whether they're higher or lower, it will have an impact on the project and it will have a risk that's associated to that, and for the NTTA proposal, those risks are borne by what's backing up the project which would be the system.

So the level of financial commitment and the due diligence at the time the bids submitted, as I mentioned, was not there because there is no final agreement in place to be able to make that determination.

They also looked at the way the proposal was going to allocate money or how it was going to make the payments, and by making the payments we talked about there's an up-front payment, there is an annual payment that the CDA said was required, and then there was what was called in the NTTA proposal something they call public benefit which I see that as the money that's available after everything on this project has been done　-- surplus monies, you may call it that　-- they call that a public benefit.

The way the money flowed, of course, the up-front payment was up front, the annual payments were in the form of a bond, but those annual payments called a guaranteed bond were subject to there being enough money after operation and maintenance on the entire system. So that's how that was, and then of course, you had all these other costs.

They looked at applying discount rates because they wanted to bring everything to net present value, and one of the things that we had set up in the CDA for all the proposers so that we could have uniformity and because we also required the up-front payment to be guaranteed up front and the annual payment to be a payment that was first money that went into the project, first money out and also guaranteed, we had assigned a 5 percent discount rate for calculating at present value.

PricewaterhouseCoopers went through some analyses and they said because of where the money was coming on the NTTA proposal, they made some recommendations to using different discount values to the 5 percent. And what they did, they called it a normalized base case. They looked up at the up-front payment that NTTA had proposed which was $2.4 billion. I'm going to put this on here; I think it would be better if you can see these numbers.

(Pause.)

MR. SAENZ: Okay, thank you. As I mentioned, in a normalized base case they set the up-front payment for NTTA and the normalized base case was based on some traffic numbers and normalized base case was $2.4 billion versus $2.1 billion. The annual payment under the Cintra proposal was $700 million net present value, and that used a discount rate at 5 percent. They said that the annual payments, because of the way the cash flow would flow that required operation and maintenance should not be discounted at 5 percent but should be discounted somewhere a little bit higher, and they used　--

MR. WILLIAMSON: Wait. You're confusing me. Right now you say the current value of Cintra's contract payments over time is $.7 billion. Right?

MR. SAENZ: $700 million.

MR. WILLIAMSON: Now, were you just talking about NTTA's proposal?

MR. SAENZ: Under the NTTA proposal, they said for the annual payments, as were submitted in the proposal, because those annual payments come in after operation and maintenance, the discount rate should be higher than 5 percent because there is less of a guarantee that that money is there.

MR. HOUGHTON: That was my next question. Cintra's is guaranteed, NTTA's isn't.

MR. SAENZ: NTTA's is a bond but it come in in a lower level in that waterfall of payments.

MR. HOLMES: Is it correct to say that NTTA's is not guaranteed? I thought the full faith and credit of NTTA to back their deferred payments.

MR. SAENZ: It is but the point here is if you remember they said that it was based on a 5 percent discount rate, it was $833 million. PricewaterhouseCoopers said that because it comes in at a lower level in the waterfall after operation and maintenance, even though it's guaranteed, you have to discount it at a higher percentage.

MR. HOLMES: Which is a subjective analysis.

MR. SAENZ: And I'm presenting basically what the consultant presented to the RTC. I was able to attend both meetings and was able to listen.

MR. WILLIAMSON: Wait. I'm not through. Couldn't you say the same thing about the Cintra payment? Why wouldn't they be discounted at something more than 5 percent?

MR. SAENZ: Well, because it's the level of risk. The Cintra payment comes in as the first money that goes into the project. The $700 million is about $25 million a year that grows at about 2-1/2 to 30 percent.

MR. WILLIAMSON: $25 million a year.

MR. SAENZ: $25 million a year. The first $25 million that is collected on that project is used to pay the annual payments.

MR. WILLIAMSON: To the region.

MR. SAENZ: Well, to the department and then the department applies that money to the region.

MR. WILLIAMSON: Without calculating operating expenses or maintenance.

MR. SAENZ: Operations and maintenance come in afterwards.

MR. WILLIAMSON: So it's a piece of gross revenue.

MR. SAENZ: It's a piece of gross revenue.

MR. WILLIAMSON: So the discount rate on gross revenue is 5 percent.

MR. SAENZ: The discount rate on gross revenue is 5 percent.

MR. WILLIAMSON: Now tell me why the NTTA cash flow should be treated differently.

MR. SAENZ: I'm going to go back and show you.

MR. WILLIAMSON: I'd rather you just tell me.

MR. SAENZ: Well, if you look at, if you look at priority one with the first bucket is where the money from the Cintra proposal comes in. Under the NTTA proposal, the first bucket, first priority is operation and maintenance, so you've got to fill that bucket before it starts to flow to the second bucket. That is why there's a risk and that is why PricewaterhouseCoopers elected to say we're going to discount that money at a higher rate to be able to determine net present value.

MR. WILLIAMSON: Do they deduct operation and maintenance of just the 121 asset?

MR. SAENZ: Since the system is backing it up and it's the same indenture, it's the operation and maintenance of the entire system.

MR. WILLIAMSON: Of course, that could be a good thing because their system, as we understand it, is financially strong.

MR. SAENZ: Yes, sir.

MR. WILLIAMSON: So maybe the discount rate should be 4 percent.

MR. SAENZ: Well, they chose to go 5 percent, between 5.6 and 6.2 or 6.3. That resulted in lowering that $833 million to somewhere between $600 million and $700 million.

With respect to the public benefit, the public benefit, as you recall under the NTTA proposal, that money is what I would call the surplus money or the money after you pay your operation and maintenance, you pay your annual payments, you pay all the other costs, so it is what I would call surplus money. That money, as was presented in the proposal, would be money that would be available to the region to build other projects. They're saying that's coming in at a lot lower level of that waterfall, or they call it maybe a residual, so that money needs to be discounted at a much higher rate, and for that they used somewhere between 10 and 12-1/2 percent. When you do that then the $1.36 billion that the NTTA proposal had submitted that originally was discounted at 5, that dropped to somewhere between $500 million to $700 million.

So the revenue-sharing the CDA required had a banding model that would allow that when traffic reaches so much then revenue bands would kick in and any traffic above that or any revenue above that would require that extra money comes into the region or to TxDOT. Under this normalized base case, Pricewaterhouse showed zero money for the Cintra proposal. They said that it would not reach those levels so they did not give them any credit.

MR. WILLIAMSON: And why was that? Was that based on their perception of transactions, perception of customer base?

MR. SAENZ: I believe, if I remember correctly　-- and James, you can correct me　-- that was based on the projected revenue and the traffic and revenue that they were using on this normalized base case model.

MR. WILLIAMSON: Pricewaterhouse was using it.

MR. SAENZ: Yes.

MR. WILLIAMSON: Were they using NTTA's numbers, Wilbur Smith's numbers, Cintra's numbers, Senator Carona's numbers, Ric Williamson's numbers? I mean, whose numbers were they using?

MR. SAENZ: They were using a number that they looked at based on several scenarios that were in the model, something close to what the NTTA scenario on traffic was.

MR. WILLIAMSON: What I'm trying to get at, Amadeo　-- and again, I apologize, members, if I seem a bit aggressive with Amadeo, but this is an important decision we're going to make today　-- there's no chance that we took Cintra's transaction numbers and applied them to the NTTA model or the NTTA transaction numbers and applied them to the Cintra model in doing this analysis to the detriment of either one of them. And Pricewaterhouse used transactions that were neutral as to the models.

MR. SAENZ: Yes, sir.

MR. WILLIAMSON: Fast Jimmy Bass is excited over here. I must have said something to make him mad.

MR. BASS: Good morning. For the record, I'm James Bass, chief financial officer at TxDOT. Hopefully to add some clarification, in the normalized base case, what Pricewaterhouse did is they picked a set of traffic numbers and they applied them to both the NTTA model and the Cintra model and that produced the numbers that you see up on the screen right now. Earlier you may have seen figures that were NTTA figures based upon their assumptions of traffic and revenue and Cintra's figures based upon their assumption of traffic and revenue. Well, I can make my number be whatever I want it to be by just changing my assumption of traffic and revenue, and so by normalizing, what Pricewaterhouse attempted to do was to level the field　-- and they went through a number of different scenarios that I think Amadeo is going to walk you through　-- to say well, if I assume traffic is at Level A, B and C, what are the results at those three different levels of both of the models.

And that's what they went through and presented to the RTC so in this case the traffic assumptions for both NTTA and Cintra are the same in the numbers you see before you.

MR. WILLIAMSON: Okay.

MR. SAENZ: So with both numbers being the same, then of course, when you look at that subtotal there in the middle, the NTTA proposal was valued at somewhere between $3.2 billion to $3.4 billion, the Cintra proposal was valued at about $2.8 billion.

Then there was a requirement in the CDA that talked about interoperability and there was a lot of discussion on interoperability. We had a requirement that the Cintra proposal had to include a payment of 8 percent for interoperability during the years of the contract. Interoperability, that's when Houston tags travel on their system.

MR. WILLIAMSON: You need to talk normal person talk, Amadeo. I don't think anybody understands what you just said.

MR. SAENZ: Interoperability, we have right now a gentlemen's agreement.

MR. WILLIAMSON: Who's we?

MR. SAENZ: NTTA, HCTRA, TxDOT. We issue toll tags, NTTA issues toll tags, HCTRA issues toll tags. When a customer of TxDOT drives on the NTTA system, we get a bill from NTTA for that transaction. Under the gentlemen's agreement　-- which has not been finalized　-- we were talking about charging 8 percent as a fee for me to process and send the money back to NTTA. So they bill me a dollar, I keep 8 cents and I send them 92 cents.

MR. WILLIAMSON: And does that happen in reverse?

MR. SAENZ: It happens in reverse. So if an NTTA customer drives on one of the TxDOT toll roads, we send the dollar charge, they keep 8 cents, send me 92 cents.

MR. WILLIAMSON: What has that got to do with Cintra?

MR. SAENZ: Cintra, in the CDA, was required to use NTTA for the first five years.

MR. WILLIAMSON: Required to use them for what?

MR. SAENZ: For providing the back office, the toll collection and services. After five years they could change.

MR. WILLIAMSON: That was a requirement of the contract?

MR. SAENZ: That was a requirement in the CDA.

MR. WILLIAMSON: Was that required of the other two private sector people who proposed?

MR. SAENZ: It was a requirement of the CDA of all of them.

MR. WILLIAMSON: So everybody knew that no matter who won the proposal at that time, they had to participate in that gentlemen's agreement that we participate in.

MR. SAENZ: They made a requirement of the CDA so they included the 8 percent interoperability fee for the life of the concession. but really it was more important after the first five years because apparently their intention was after the first five years they were going to take over their own toll collection operations.

MR. WILLIAMSON: Why?

MR. SAENZ: That was their model in their proposal.

MR. WILLIAMSON: Why were they going to take over their own operations?

MR. SAENZ: They thought that they could do it cheaper. Remember that this was a competition, they were competing against two other private firms and based on their model and their costs, their model showed that they were going to switch over to reduce their costs and operations by doing it themselves or contracting it to someone else.

MR. WILLIAMSON: So what does the $500 million have to do with that 8 percent?

MR. SAENZ: Well, in their proposal, because now they've moved away, the toll tags from the NTTA system now fall under the same interoperability requirement. Now, even though the project is in Dallas, if an NTTA customer would drive on the 121 project, send the bill to NTTA, Cintra was doing their own back office, NTTA would keep 8 cents, send 92 back.

What Pricewaterhouse saw in that the NTTA proposal did not show that the 8 percent was the cost that NTTA was using for this interoperability charge and back office charge for this, so they said that the money that Cintra was paying was, in essence, additional money that was available to NTTA that could be used for developing projects in the region and they elected to give Cintra a credit of that $500 million net present value.

MR. WILLIAMSON: Let me think about that for a second.

MR. SAENZ: Let me try to explain it in English.

MR. WILLIAMSON: Just normal person.

MR. SAENZ: Normal person. They estimated that the costs for those transaction fees were maybe not 8 cents but maybe they were 2 cents. That 6 cents is additional money that's available to do other projects that goes into the NTTA fund accounts. So they were saying because that's available, it's really money that's not expenditure, that money is available for NTTA to do more projects in the region so it's a public benefit for the region. So they were giving Cintra credit.

Cintra further clarified at the RTC meeting that they were going to provide that money no matter what and it's built in their proposal whether it costs or not, so that money would be provided and so that further strengthened the Pricewaterhouse assumption of giving them credit for that.

MR. HOLMES: But Amadeo, if NTTA were operating it and their costs were 2 cents, wouldn't they also be keeping the difference, that extra 6 cents?

MR. SAENZ: Well, during the first five years that NTTA was operating, they were not paying interoperability because NTTA was the operator. They had reached an agreement on, I would say, a cold transaction cost for providing those services, so it was included in the contract between Cintra and NTTA.

MR. HOUGHTON: That's from six on out.

MR. SAENZ: The interoperability is from six to 50. The toll service agreement contract was from one to five.

MR. HOLMES: I understand that, but if it costs 2 cents, they still keep the balance of, it if they're the owner-operator, they still keep the notional 6 cents, it just happens to be called something else.

MR. SAENZ: Right, they still keep that. What they're saying, it would show up in the public benefit side of the NTTA proposal because it's additional money available for other projects. It's additional money that's not an expense to the 121 project so it's surplus revenue that's available under the public benefit side.

The other thing that Pricewaterhouse did, they said because Cintra is a private entity, they would have to pay some federal taxes, and they calculated that to be about $100 million net present value. So when you looked at that, then you looked at the final value, the estimated what they call financial value capture of the two proposals, they wind up being pretty close based on this normalized traffic.

They also went up ahead and did the scenario for an upside case and for an upside case where they said traffic would go up by 15 percent of the normal case, and when they did those numbers　-- I won't go through the whole thing　-- the final numbers again showed that both proposals were pretty comparable. So if traffic were to increase above the base case, they still would be pretty comparable.

Now, they also went back and did a scenario of what happens if the opposite happens and that instead of getting more traffic from the base case, you get less traffic, and under the less traffic, because the Cintra proposal has guarantees, they stayed at $3.3-, but the NTTA proposal dropped to $2.8- to $3.0-.

So that was presented to the RTC, and of course, that leads to the conversation of what happens with traffic and what are the right traffic projections. The RTC members asked the RTC staff to look at traffic and they came up　-- because the data is in models and is proprietary by all parties, the Cintra model is in escrow, the NTTA model information was also considered proprietary and we could not share the numbers and use the numbers, they did a comparison just based on　-- they compared one to the other without putting numbers.

And when you looked at the different models, the Cintra traffic was somewhere on the right side, the higher range, the NTTA traffic was lower than the Cintra traffic by a percentage, and then, of course, the RTC staff was asked to run their volume based on their modeling and their demographics. And then what they showed was the non-tolled would be what they projected the traffic to be for a non-tolled facility and what RTC projected the traffic to be for a tolled facility.

So this is presented to you all so you can see there is a range of traffic, and really the final question is which traffic numbers do you believe. If you believe that the traffic volumes are high, then the proposals are about equal; if you believe that the traffic numbers in the normal case they're about equal, but when the traffic drops to below those projected traffic volumes or those normal traffic volumes, then the private sector proposal, because of the guarantees and the traffic risk being kept and borne by the developer on this particular project, that project seems to hold up by itself as a better project than the public project.

MR. UNDERWOOD: Amadeo, let me ask you a question. So you're saying that if they missed the traffic count that the Cintra project looks better, if it's lower. Is that correct?

MR. SAENZ: If the traffic count is lower than the normal case, then the Cintra project would be better.

MR. UNDERWOOD: Because of the fact that it's guaranteed cash.

MR. SAENZ: Because of the fact that it's guaranteed cash.

MR. UNDERWOOD: Now, my next question to that is if NTTA's program doesn't cash flow, what happens to the other projects that are involved in the RTC deal that they're trying to build besides the 121?

MR. SAENZ: If the project does not cash flow or traffic is less in this project, then the system steps in to cover those shortfalls. And of course, depending on how much revenue you have on the system, then you may cover it with your surplus revenue in the system, but if you don't, then you will have to raise your toll rates on the system to cover those shortfalls.

MR. UNDERWOOD: But that's just to make it cash flow, but the whole idea of this is to actually have more money to put back into the area to build other roads, and if you don't have that money, then who's going to have to pay for those other roads?

MR. WILLIAMSON: I think he's speaking of the other projects.

MR. SAENZ: Right. Well, if you were committing your surplus revenue to build other projects and you have to use the surplus revenue to fund the shortfall on this project, then those other projects need to be delayed or you're going to have to find an alternate funding source.

MR. UNDERWOOD: Which means they would come back to TxDOT.

MR. SAENZ: They could come back to RTC or TxDOT to request money for those other projects. That's one option, yes.

MR. HOLMES: Amadeo, in the low traffic scenario that values the Cintra proposal higher than NTTA's, does that make the assumption that the full faith and credit of NTTA, that stream of payments, is discounted, is not given credit for that stream of payments? How else would you get there other than assuming that the full faith and credit of NTTA was inadequate to cover those payments?

MR. SAENZ: I'll let James answer that.

MR. BASS: If you recall back to the NTTA base case and the public benefit of the $1.3 billion when you use the 5 percent discount rate, that's the bottom bucket. And I think what Pricewaterhouse was saying, if they used a lower traffic and revenue number, all of the buckets don't get filled up such that $1.3 billion does not flow through to the bottom bucket anymore, it's a much lesser amount, and because a significant portion of the value of the NTTA proposal is from that public benefit from the bottom bucket, when you adjust traffic and revenues down, the bottom bucket doesn't fill up as much. If you adjust it up, the bottom bucket fills up more and there's more value associated with it.

MR. HOLMES: The bottom bucket wouldn't fill up under low traffic scenario, whether it's Cintra or NTTA.

MR. BASS: But Cintra's proposal does not　-- as big a proportion of Cintra's proposal is not reliant upon that bottom bucket as NTTA's is.

MR. HOUGHTON: It's called traffic risk. Are you not moving the traffic risk? They're assuming Cintra is assuming the traffic risk, low or otherwise.

MR. BASS: Correct. And so if you look at　-- you basically come back to this earlier sheet, the bottom bucket represents the .5 to .7 billion on NTTA's model and on the Cintra you see　--

MR. HOUGHTON: Under public benefit?

MR. BASS: Yes, sir.

MR. HOUGHTON: Okay.

MR. BASS: And that's represented by the bottom bucket, if you will, in the waterfall. Everything's been filled up and it's surplus or excess revenue. On the Cintra side the value of that is zero, and so you lower the traffic projections and it doesn't have as much of an impact as Cintra because they　-- another way to look at it is a larger proportion of Cintra's payment or value is guaranteed than under the NTTA model. The public benefit, the .5 to .7, is subject to those traffic risks and traffic assumptions.

MR. HOUGHTON: This is based on one of the projects we did with Cintra, 5 and 6, where we took off the gross and not the net, net after operations. So they take the traffic risk, we take the revenue.

MR. WILLIAMSON: But correct me if I'm wrong, James　-- I'm just, again, trying to understand this as a normal person and not as a highway person　-- what you're saying, in effect, is at the lower traffic risk there's no excess cash flow from Cintra and there's no excess cash flow from them either, and so if I subtract this, this is still $3 billion compared to $2.8-.

MR. BASS: Right. Under that case there, the numbers change because some of the interoperability payment and different things. The one slide that I had here handy, that's the upside case, and so if we look at　-- I'll borrow Amadeo's notes　-- that's more relevant here and the impact is not as large on the NTTA value but under this downside case where traffic is lower than anticipated, the public benefit under NTTA is somewhere between $100- and $200 million and on the Cintra side it's zero.

And so in this case you would take the $2.8- to $3.0- and adjust it down on the NTTA model but there would be no adjustment on the Cintra column.

MR. HOLMES: Why wouldn't the profit between cost and collection assumption on interoperability be allocated on both sides? If it costs 2 cents and they charge 8, why isn't that a benefit to NTTA either way?

MR. BASS: I think it would be and I think what Pricewaterhouse was saying is on that public benefit, if NTTA is getting 8 cents and it is costing 2, that 6 cents surplus is going to flow through the waterfall and eventually end up in the bottom bucket on the public benefit line. Well, if Cintra is paying 8 cents to cover 2 cents cost, that same 6 cents is going to flow through the waterfall and end up at the same place, but in the initial Cintra model, there was no value being assessed or assigned to that surplus revenue.

MR. HOLMES: Why wouldn't it be added to both sides?

MR. BASS: It's already included in the NTTA column under the public benefit because that money would flow through to the bottom bucket and it's already there.

One other thing, and not to get too technical in interoperability.

MR. WILLIAMSON: Keep it normal.

MR. BASS: NTTA is doing the collections on the NTTA road, an NTTA tag drives down 121, there is no interoperability fee, there is simply the day-to-day, normal toll collection cost. And what PricewaterhouseCoopers did in analyzing NTTA's model, they looked at it and said, What are your toll collection costs on 121? And I believe NTTA said, We look at the incremental costs when a road comes onto the system and we identify the incremental costs, and so that toll collection cost is minimal. I obviously won't say it's zero but I think it was a minimal cost and that's what Pricewaterhouse was able to see in the model.

They then looked at Cintra saying I'm going to pay NTTA to collect these charges for me in year six forward and I'm going to pay them 8 cents on every dollar. Well, if NTTA tells you their cost is 1 or 2 cents to collect that and somebody is paying them 8 cents, then that extra 6 cents is going to flow through the waterfall and end up in that bottom bucket and be a benefit to the NTTA system and therefore to the region.

And so they had a discrepancy in what NTTA was showing as cost of toll collections in their model compared to what Cintra had in their model to pay NTTA for those same services, and it was higher in that case. And the Cintra model was pre 792.

And so NTTA rightly says, well, interoperability now is really a moot point because my understanding　-- and the attorneys may correct me　-- is under 792 NTTA will be the toll collection service provider, if Cintra were chosen, for the full 50-year term. So when an NTTA tag drives down 121, whether it's year three or year 33, it would not be considered an interoperability transaction. It's an NTTA tag, NTTA is collecting it, there's no interoperability fee. And so I think the conclusion there was so you need to ignore the interoperability agreement on the Cintra side.

What Cintra said is well, in our bid we have a cost of 8 percent for these toll collection services and we at Cintra don't care if we're paying the RTC 8 percent or TxDOT 8 percent or NTTA 8 percent, we're going to continue to pay and we're committed to pay that 8 percent regardless of what the cost is as a benefit going back to the region.

MR. WILLIAMSON: Because that was what they agreed to in their contract.

MR. BASS: That was in their model, that was in their bid, and they were committed to stay with that bid and said, Hey, if you don't want the check written out to NTTA, you want it payable to the RTC, we'll continue to write that check because that's what's in our model.

MR. HOUGHTON: James, what is the toll rate increase, the assumption here?

MR. BASS: The assumption on the NTTA model assumes that CPI will be 2.75 percent and in the Cintra model it assumes an inflation of 2-1/2 percent. So the toll rates would escalate faster under the NTTA model than they would under the Cintra model.

MR. HOUGHTON: And this model is the same rate or are we showing the 2.75 to 2.5?

MR. WILLIAMSON: Well, wait a minute, that's not accurate, James. Ted, sorry, but that's not an accurate statement because Amadeo, in his layout, has said the NTTA proposal does not adhere to the RTC toll policy.

MR. HOUGHTON: I know, but for the analysis purpose.

MR. BASS: I think it may be somewhat of a technical issue. The RTC policy says you can adjust your toll rates every two years by whatever consumer price index is, whatever inflation is.

MR. HOUGHTON: The max?

MR. BASS: And if over that two-year period inflation is 6 percent or higher, you then need to bring in another index, an Employment Cost Index, into the equation, and you'll pick the lower of the two. So if inflation is less than 6 percent over a two-year period, that's what you'll use; if it's higher than 6 percent, you'll use the lower of the two.

So as a bidder, as a proposer, one of the key elements to my bid and the value of my bid is what do I think inflation is going to be over the next 50 years. Embedded in the models and the assumptions, NTTA assumed that CPI was going to be 2.75 percent a year, less than the perceived maximum of 3, and Cintra assumed 2-1/2 percent. And I won't surmise a guess as to the likelihood of this happening, but through a series of events, under the NTTA model if the revenue from 121 was not sufficient to cover all the costs associated with it and the annual payments, NTTA would first look to the rest of their system, look at if there's surplus revenue that could subsidize the 121 agreement. If not, they would raise the rates on that and the rates on the rest of the system, of course, are not subject to this toll rate policy.

But at some point you reach a point of elasticity that if you start charging more, you're actually going to lose revenue and it's a losing game. So then they might be forced to look at raising the rates on 121, and they have covenants and agreements with bondholders out there that say you've made agreements to me as the bondholder to do XYZ and maintain certain coverage ratios, and if you don't meet them, as a bondholder I have the right to come in and demand that you raise your toll rates. And the demands of the bondholders on the entire system, I believe, would have precedence over any toll rate agreement with the RTC.

And again, I'm not saying that's a likely scenario but as you go through and what-if over a 50-year period　--

MR. HOUGHTON: There's no cap on the toll rate?

MR. BASS: There could be. And so one of the things that's uncertain and unclear at this point is not only what would NTTA be willing to agree to but what would they be able to agree to under their existing bond indentures and agreements with their bondholders. And that was just something we weren't precisely clear on and something we would recommend would need to be cleared up.

MR. HOUGHTON: Is there a cap under the Cintra proposal?

MR. BASS: Yes.

MR. HOUGHTON: Is there a cap under the NTTA proposal?

MR. BASS: I believe they are committed to staying under that cap, at all times, but I don't think there's a 100 percent guarantee because they also have to protect the rights and interests of their bondholders.

MR. HOUGHTON: The cap under Cintra, what's the max per every other year?

MR. WILLIAMSON: Well, the max is whatever the RTC policy says it is.

MR. BASS: Correct. And if inflation is above 6 percent, the cap would be the lower of the two. So looking out for the next 50 years, I can't tell you with any certainty what it would be.

MR. HOUGHTON: But I'm saying there is a cap.

MR. SAENZ: Yes.

MR. WILLIAMSON: Amadeo, have you finished your initial layout?

MS. ANDRADE: I have a question, and I know we're talking about the downside case, but everything I'm looking at　-- unless there's something that no one has told me　-- is that this region continues to look like it's going to continue growing. Right? That's what we're looking at. Is that correct?

MR. SAENZ: Yes.

MS. ANDRADE: And although it's wonderful that we state that Cintra has guaranteed payments in there, if this should not happen, if the growth should not occur　-- I'm sure then it wouldn't occur throughout the state　-- as a business I'm sure they'll come back in a couple of times of having to put money out of their own pockets to say, Look, we need to renegotiate this, it's not happening as we thought. I mean, they're a business and they're not going to be there losing money every year. So even though it's great that it's a guaranteed payment, I think that's still up for discussion if the growth does not occur.

MR. SAENZ: For the Cintra proposal, under the contract that they prepared their proposal, that risk is borne by them. Not that they couldn't come back and ask, there's no harm in asking, but the contract is binding and they are taking the traffic risk.

MS. ANDRADE: I know they're taking full risk, but I'm saying as a business person I would not go on year after year, if the growth does not occur, making guaranteed payments, so even that is subject for question.

MR. SAENZ: And then we would default them, they would be in default, and the road would come back to the state.

MS. ANDRADE: Or to NTTA.

MR. SAENZ: Under the Cintra proposal, it comes back to the state and then we continue to operate it.

MS. ANDRADE: I guess in my mind I just think then the community would suffer, but these are all professionals and they understand that.

MR. HOLMES: Amadeo, is there another way to look at the minimum/maximum toll rates? Under any type of privatized contract, there virtually has to be a cap on the toll rate increases. Simply from a public standpoint, you would have to cap the ability of the private operator to increase toll rates. It seems to me that when a public entity is the owner-operator　-- assuming NTTA　-- wouldn't it be better to have a minimum toll rate increase? I mean, currently the charges are well below market. Right? Isn't that our assumption, the toll rates are well below market? If I were looking at it from the concern of how the cash flows might work, being the RTC's side, I might be more interested in having a minimum rate of increase if it were NTTA, rather than a cap. That way they're encouraged to keep more current relative to what market rates might be.

MR. SAENZ: Yes, sir. What the RTC did is they looked at the elasticity curve that was run on this project. They looked at the toll rates as were being charged in the region and across the state and they chose their initial toll rate to be 14-1/2 cents versus other toll rates that are being charged in the different systems, some of them run around 10 cents per mile. So they chose that initial toll rate to be at a higher level.

And their position was that they wanted to cap the maximum amount, they were looking at CPI to kind of keep up with inflation, and then they were worried about those years when you could get a real high inflation increase and they said in that case we'll go look at this other indicator to make sure and we'll pick the lower of the two. That was the toll schedule that the RTC gave us to put into the proposal.

MR. HOLMES: But that was based on a private operator.

MR. SAENZ: It was based on a private operator, yes, sir.

MR. HOLMES: Not a public operator.

MR. SAENZ: Right, because the project was being developed through the CDA process.

MR. HOUGHTON: But there are caps on the current RTC, they have a standard, they have put caps in for toll rate increases.

MR. SAENZ: Yes.

MR. HOUGHTON: And that seems to be a real sticking point around the state, and especially in the toll-sensitive areas, that the hysteria has been toll rates are going to go through the roof if the private sector gets it, vis-a-vis, a letter that I got this morning that says: SH 121 has no parallel facilities; it is imperative toll rates remain at reasonable levels for the economic future in our area; placing such a key part of our roadway network in the hands for a profit private corporation will lead to toll rates which will harm our mobility, air quality and financial future for our business and citizens.

Is that an accurate statement under this proposal?

MR. SAENZ: The toll rates were capped. Now, the RTC and Michael Morris is here, but the RTC went through some public involvement and several hearings to come up with this toll rate policy.

MR. HOUGHTON: Most every letter I have gotten from the area has focused in on toll rates, and the hysteria and the misunderstanding or misconception that toll rates are capped, and that was by the RTC, not by us. Right?

MR. SAENZ: We got the toll rates from the RTC.

MR. WILLIAMSON: Are you near the end of your initial layout?

MR. SAENZ: Yes, sir, pretty much. I presented what was presented to the RTC. When you look at what was presented, one of the key variables is traffic, and that traffic will have an impact on the valuation of this facility, and that's going to be really what the determining factor is.

The other things, kind of in summary, because the proposal from NTTA is not following and can be entered into through the CDA that we had for the private sector, there is no agreement, so it's very hard to determine what will be the actual value of that if you don't know what the agreement will require and guarantee. So those things need to be established first so then you can determine what the true value of that proposal is.

MR. HOUGHTON: Another question. What was the recommendation of PricewaterhouseCoopers?

MR. SAENZ: PricewaterhouseCoopers presented all these numbers and, of course, in looking at this thing they presented the numbers and they didn't make a recommendation at either of the meetings I was at. They just presented to the RTC the different scenarios and the methodology that they used. And their statement was pretty much this: What traffic do you believe is the traffic that will occur on this facility?

MR. WILLIAMSON: Well, I think if we're near the end of his initial layout, we've got maybe four main characters in the play: we've got us, we've got the RTC, we've got NTTA, and we've got Cintra.

MR. HOUGHTON: Characters?

MR. WILLIAMSON: It's a word, description. Now, Cintra and NTTA have a proprietary interest in our decision. Right now we're just trying to gather information.

MR. HOUGHTON: Right.

MR. WILLIAMSON: If he's through with his initial layout, what I'd like to do, with your permission, is ask Mr. Morris to come up and answer some of these questions that you're directing to Amadeo, because I think he can speak to the RTC's actions perhaps more to the point than Amadeo can regurgitate them. If you don't mind, Mr. Morris.

MR. MORRIS: No problem. My character is Michael Morris, director of Transportation at the North Central Texas Council of Governments. I have just a few overview remarks and then will take all your questions.

Before I start, Mr. Behrens, this is the first meeting I've been at where you have announced your retirement, and I think we should take a minute and celebrate more than three decades of public service. Congratulations to you. You've worked very hard for this particular state, and for those of us who have worked with you, I wanted to congratulate you on that service.

We have an elected official in Dallas-Fort Worth, former chair of the Regional Transportation Council, Sid Stall [phonetic], and when I was a young person coming up　-- I don't think it was necessarily his phrase but I've heard it a lot: There's two times to plant a tree, 20 years ago and today. And my hope is today we can plant a tree to move us along, heal wounds, get us the transportation funds necessary to jump start what probably is close to $7 billion worth of projects in the next three years.

Most of the heavy lifting has already been done. From the statistics you see, you see two very competing individuals, both wishing to hand $6 billion to the public sector to build projects. We should focus on the positive elements and not necessarily the negative elements with regard to that. We are no longer in a situation where we take 50 percent of our gas tax to put into a transportation project with no return back to the gas tax side of the agenda. We have in front of us billions of dollars to jump start transportation projects as well as build more.

Now let me lay out very quickly four points. These are the four elements, I think, to plant this tree. First, the Regional Transportation Council spent ten hours reviewing the details of these particular proposals. We're more than happy to prepare for you a defense, using state law of equal or better value, on why we should move ahead with the North Texas Tollway Authority proposal. I've got several RTC members here today, they're welcome to add or subtract from what I have to say.

The bottom line to, I think, the Pricewaterhouse report is you're comparing a private sector proposal which is very skilled and very mature with a public sector proposal that had probably somewhere around 60 days to be put together. Some of the risks you're seeing associated with the evaluation is the maturity that still has to occur on the North Texas Tollway Authority proposal. I know of no one that is saying: Well, if NTTA doesn't come up with $2.5 billion or $833 million or other particular requirements, we should still go with NTTA. The assumption on the part of the Regional Transportation Council is that those commitments are actually going to occur and should occur with regard to their particular proposal.

The second point is this particular project is in the fastest growing area of the region, probably the highest income area of the region. The Regional Transportation Council is saying: You know what, this is all about risk; we can either as government become a shell and take the private sector particular position and let them absorb the risk, or we on the government side can bet on ourselves. And what I think the regional Transportation Council has said is: You know what, we're going to bet on ourselves, we think the Dallas-Fort Worth region, fourth largest region in the country, 19th largest economy in the world, we'll bet on ourselves, the upside benefit of that will be more money for transportation to be spent in our particular region.

Number two, we still need some clarity with regard to the federal position on 121. I think it's becoming clearer and clearer every day, letters seem to be coming in. There seems to be some definition of the federal interest to be identified by not what has already been built on 121 but what has yet to be built on 121, and we need some due diligence to make sure the RTC's projects that are still on 121 don't have any federal funds in them, and work out the details with regard to how to move forward without obviously alienating the federal interest in this.

The third element is the private sector and what legal action the private sector may take. You have to be determined, but as I told the Regional Transportation Council, who wanted a briefing on the legal issues, I told Pricewaterhouse to not quantify what the federal positions may be or what the risks to the private sector lawsuit may be, if any, because there's no way you can estimate what the particular value is. So we have put those issues on the side and we are focused on the NTTA proposal.

Number 4 is the NTTA proposal. There are several elements that I think are important that the RTC considered and why they think the NTTA proposal is stronger.

First, $2.5 billion. $2.5 billion is an up front payment. If it isn't an up-front payment, then NTTA shouldn't get the award. But if NTTA produces $2.5 billion in a time frame that they've committed to, then there is no discount of that particular value, it's $2.5 billion.

Second, excess revenue. North Texas Tollway Authority is reaching out, as they too try to plant this tree, with $833 million up front. Now, remember this is a very interesting twist because now we're changing state law. We worked hard, you supported us, we got now interest to be credited to the region based on funds that are put into your Fund 6 that are dedicated to our area. So in the case of the Cintra proposal, there's an increment of $25 million, a net present value of $700 million, but $25 million coming every year. What we're working towards with NTTA is an $833 million payment which doesn't come to us in $26 million payments over time, that $833 million comes into that account in cash on day one.

That day one cash up front　-- not day one, let's say three months in or whatever the commitment that they made　-- remember now what happens, you're not getting $25 million a year in that particular account, 10 percent interest is $830-, 5 percent interest is $40 million, you get the equivalent of $25- or $30 million a year in excess revenue plus you get the benefit of potentially $30 million in interest. Now, if the state law hadn't changed, that $30 million would be residing within the NTTA revenue stream.

Now, if we can get that commitment nailed down up front, you get a $25 million a year or so excess revenue payment, and you actually get interest that potentially is greater than the excess revenue payment. After federal rescissions, that $30 million a year is close to what we get in congestion mitigation air quality funds, just as an example, for our particular region.

Third, we do have to tighten down the toll rate plan. Lots of communities misunderstand tremendously, Commissioner, that issue. We get letters all the time that say you've got to go with NTTA because we can't risk the private sector escalation of rates. We've worked very hard between Bill Hale and Frisco over the last month so everyone understands what the RTC's pricing policy is. If you apply that policy over the last 25 years, it would be about 2 percent a year increase in tolls. Who knows if the next 25 years or 50 years will be similar to that, so I think we owe the region a white paper or position paper or something where the RTC, if NTTA is chosen, we clarify what that particular policy would be, and my hope is NTTA would honor the RTC's policy as part of that particular element, go in and use their revenues and their system financing if things don't meet the expectations, but maybe as a second or third last resort come back to the 121 folks with regard to those toll increases.

Senate Bill 792 in that discussion has a whole bunch of while that was being debated. Senator Carona and others have weighed in with regard to the critical nature of NTTA to deliver other projects. I think the issue is the other projects. I know we've spent a lot of time here on the 121 finance, that's all well and good. You could bring in eight economists and flip a coin, the RTC has already determined that NTTA is the right proposal, what we would like to do is work out with NTTA, using 792, and in an expedited fashion get that commitment nailed down from NTTA with regard to those particular projects. They've committed it to Senator Carona, they've committed it to the Regional Transportation Council, I think we've got to tighten up those particular commitments so we can move forward with regard to those particular elements.

The other opportunity we have is potentially a floating construction cost. NTTA's proposal is a high contingency, that particular revenue, if not used on 121, maybe can go help build another project. And remember, these are all discussions that occur within the same region, public sector to public sector. You open up those particular questions with the private sector, those get complicated because of the contractual nature that you have with a private sector entity. I think that's the RTC's probably bottom line position.

The last thing to point out is the $1.3 billion worth of public benefit. I stood here probably a year ago with an idea where the RTC had what is called irregular mobility dividends. That idea is we have NTTA use their horizontal leveraging capability to help build other projects. At certain points in time in the future, they may get into a situation where they have excess bonding capacity and then they could commit that bonding capacity to help the region build more projects. And at their meeting this past week, the commission has passed a resolution pledging to the local governments and the RTC and others a partnership position with regard to what you saw on the table as a public benefit.

I think the region has come an awful long way in a short amount of time. Fourteen months ago, NTTA presented a proposal to the Regional Transportation Council that they could not come up with up-front money. The Regional Transportation Council rejected it, they wanted competition. Commissioner Houghton, you and I have always talked about the benefits of this whole process has been competition. Competition has occurred, everyone has weighed in. You go from no up-front money to $2.5 billion, $833 million with interest, partnership position with $1.3 billion.

The only issue that remains in my mind is for the RTC to tighten down NTTA's commitments so you no longer have a risk situation of evaluating a proposal that's very mature with a proposal that still has the I's to be dotted and the T's to be crossed.

RTC has spent lots of emotional time on it, the region's suggestion, with all due respect, is to create a situation that brings closure to this process so we can move out on $2.5 billion worth of additional transportation projects, sit down, nail down that toll escalation policy, sit down, nail down four or five other toll road projects, so we can be a generation known to build projects and not a generation that just discusses or wants to build projects.

With that, Mr. Chairman, I'd be happy to take any questions.

MR. WILLIAMSON: Well, I have some whenever you and Amadeo get through laying out, but right there towards the end you said something, Michael, that's kind of the nut for us. You talk about tightening up, nailing down, tightening up those commitments. The situation we find ourselves in is we have a binding contract in the left hand, there is no tighten up, there is no nail down, there's no wishy-washy, there's no round up pitchforks and burn Austin down, it is a contract ready to execute, write you a check and start constructing. That's in my left hand; in my right hand is a one-inch thick document of promises.

Now, I'm not lecturing, Michael. You know that you're a favorite person in this building and we weigh heavily what you say, and when you recommend things to us, it's a strong thing. But talk is cheap. This is a written contract, signed. This is a bunch of promises based on a motion, and a motion will not reduce congestion, will not improve air quality, will not bring safety to our streets, it will not attract and retain jobs, and it will not preserve the value of our transportation system which every two years is eroded by other sources. So how are we to look at this?

MR. MORRIS: Mr. Chairman, I don't hear the RTC saying we have this terrific opportunity in hand, let's go take a flyer with something that may not occur at all. What I hear them saying is we have this particular position at hand, can you, as a commission, set 30 days, 15 days, 45 days and say, Okay, NTTA, we understand what your promises are, Michael and others have laid out six critical elements, you need to tighten up those promises so it is as tight a commitment as you have in your hand right now.

So when they say, Well, we will close in 60 days or our financing is contingent on some sort of element, I think the RTC is saying let's give them an opportunity to do that. Now, if they fail and say we can't close in 60 days or we thought we could put a bond up front, we discovered we can't do that, then I think it's a different day. I don't hear the RTC saying we don't care, we'll take $3 billion less and so on and so forth. What I think they're saying is we have on the table a proposal, to some it's more than a proposal, it's a binding commitment, I think the RTC has said let's dot the I's and cross the T's on that binding commitment, if that binding commitment is just as firm in the left hand is just as firm as in the right hand, the RTC is saying this right-hand commitment is stronger for the reasons I gave.

If this right hand never materializes in 30 days or 15 days or whatever your discretion is, then I think the RTC would very much want to proceed with the commitments that are there. I don't think the RTC wants this issue to go on very much longer, but I think they're saying we have a proposal that has potentially some upside benefits that obviously need to be tightened down but maybe there's a way you can establish a contingency, a time frame, to give the NTTA the opportunity to deliver those details up back to the satisfaction and as tight as you already have in your left hand.

MS. ANDRADE: And Michael, what is that realistic time frame?

MR. MORRIS: Well, I think there's two ways to do it. I would set a 30-day, no more than five-page principle agreement that sets out exactly that time frame of which some of those deadlines may still occur after the 30 days, or set a 60-day time frame, drop dead, not only are these the five page of principles that everybody has agreed to, here is the check for $2.5 billion or here is whatever the other elements that are in that particular principle. That, I think, is what the RTC is asking for.

MR. HOUGHTON: Let me ask you a question, Michael. Are you suggesting that it just be the RTC and NTTA, RTC staff and NTTA?

MR. MORRIS: No. There's a lot of very high quality people that have been in this process for a long time. We went out and got Pricewaterhouse because there was criticism in the region that some of your staff may be not as unbiased as they should be.

MR. HOUGHTON: Or forthcoming.

MR. MORRIS: This staff disagreed with that but honored the RTC's request to get independent financial review. That blew up in our face as others criticized us on short notice to try to go get independent financial review. If I had to do it all over again, I would have done exactly the same thing because this is such a big decision, it's important, lots of eyes are on it. And I would ask, if you set a 30- or 60-day time frame, you permit your staff who has been around this tree before to assist in nailing down which legal instrument should be used on which particular issue so we can bring closure to this as quickly as possible.

MR. WILLIAMSON: I can tell you this, I don't have any idea what the majority of the body feels right now, but if we're to pursue that option, we will appoint one person from this department and we will not meet except in open meeting and we will videotape everything, so don't ask us to participate with that if you're not okay with that, because I've had it with toll operators and House and Senate members and former board members accusing good state employees of positions -- that I still can't find the person who pressured NTTA into not bidding the first time, I'm still looking. So don't ask for that unless you're prepared to have it videotaped because we're not ever going to go through this again, we're going to tape everything we do.

MR. HOUGHTON: Well, Mr. Chairman, at a minimum, I would say that we would be joined at the hip with RTC staff, our staff, RTC staff to negotiate the points and maybe other points that we see from the dais here. If that is not acceptable, then I will vote against whatever minute order that comes up and we move on with something else.

MR. WILLIAMSON: All I'm saying, Michael, is if that's the path you wanted to go down and if there's enough support for it -- and I don't know that there is -- don't expect to do anything privately because I won't let my employees do that.

MR. MORRIS: I'm not sure what all that means, Mr. Chairman.

MR. HOUGHTON: In the open. You know, we've heard of transparency in the session. Well, this is going to be transparent.

MR. MORRIS: Well, everything we do at the RTC is always open, we've never had a closed meeting in our history. There were legal issues on this particular case, we elected to keep them in open environment, everything we do is open, every piece of paper in our office is open for anybody who wants to look at it.

MR. HOUGHTON: I would like to piggyback. The chairman was headed down a path, I think, and you hit it, regarding competition, how keen I personally am on competition. We compete, all of us here on this dais, every day in our private businesses. But Mr. Chairman, the vision that Governor Perry and you cast six years ago -- and I made this statement to Michael at the Dallas Morning News -- Governor Perry has won, and Ric, you've won. We have competition, there's $2.8 billion on the table, and how many months ago did you turn down an offer to build this?

MR. MORRIS: Fourteen months ago.

MR. HOUGHTON: Fourteen months ago there was no money on the table, and I want to remind people in the state and the Metroplex of that situation, and I am very proud to be associated with this.

And Mr. Chairman, I don't know what the minute order -- I haven't seen it yet, I've read parts of it -- our staff be joined at the hip with the RTC.

MR. WILLIAMSON: Well, let's establish a few things first. Are you done answering questions, or are you answering questions?

MR. MORRIS: I'm done, Mr. Chairman.

MS. ANDRADE: Well, Michael, as always, thank you for everything that you do, but I guess I sit here and I'm kind of confused because in communities that we get involved is what we say with our local tolling authorities is we want to help you, we want to provide you the resources and support to be successful, and I want to make sure that this community understands that is our staff has the experience, they've gone through this, we don't have to spend any more of the state's money than we have to, but I can tell you that our department is committed to helping you make the right decision for your community.

Am I wrong in saying that, Mr. Chairman?

MR. WILLIAMSON: It's always been that way.

MS. ANDRADE: It's always been that way. So I want to reinforce that is that I'm giving you the same message, is we're committed to providing you with the resources and support to help you make the right decision.

MR. MORRIS: And I think my observation, Commissioner, is it's not a bad day when two people are trying to hand you $6 billion, and I don't know if you can go to too many other places in this state that have done as much as Dallas-Fort Worth has done with regard to this. The issue to me isn't 121, the issue to me is we've got a whole bunch of other transportation we're going to build with the North Texas Tollway Authority and we want assurances that you can be both 121 and everything else we want you to be. And they are making that case. I don't want to be critical, but NTTA has come an awful long way in twelve months with regard to listening to the aggressiveness the Regional Transportation Council wants with regard to building more projects. And your districts have come an awful long way in doing ten or twelve environmentals all at the same time and trying to expedite projects.

So the point is we're focusing too much on the glass half empty, and I think today we should be celebrating the glass half full. This is an amazingly positive breakthrough, and if you give us the chance of nailing down these commitments to your satisfaction, and frankly, to the RTC's satisfaction, that these are real commitments, then I think we can move forward.

MR. WILLIAMSON: Let me focus a little bit, Michael, on what the glass looks like, and if you can stay close because I think some of these questions you can answer and some Amadeo can answer.

And Mr. Jackson, are you here? Could I get you first, please?

Michael touched upon two things, members, that we need to know about. One is how the federal government is going to react, and if you can't address that matter, we'll ask Amadeo to address that matter. Do you have any sense that you wish to share with the commission about that?

MR. JACKSON: I think Amadeo should address the federal question.

MR. WILLIAMSON: The second is the potential for litigation. Now, I know, having done this for six years, that we have to be very careful from this location to say or do things that, in effect, put us into that litigation. But there is some concern of each commission member about the legal position that not only Cintra but the other two unsuccessful proposers might be in as a result of our actions, and if you have anything you want to share with us now, this is the time to do it, and if not, that's okay.

MR. JACKSON: Cintra or the other proposers could file a protest if we went off course and selected NTTA, or Cintra could sue us -- I doubt they would -- and if they would, I don't see how they could be successful.

MR. WILLIAMSON: In a suit?

MR. JACKSON: Or in a bid protest.

MR. WILLIAMSON: Or in a protest. And would they protest with us or would they protest with the Federal Highway Administration?

MR. JACKSON: The protest would be with us, the suit could be both, and they could file a complaint with the federal government.

MR. WILLIAMSON: And to what extent would the filing of either of those, in your judgment, disrupt any agreement we might work out with the NTTA?

MR. HOUGHTON: It depends on how successful they would be early on, and I doubt that they would be and I would predict that it wouldn't slow anything down.

MR. WILLIAMSON: Thank you very much.

Amadeo, do you want to talk to us about the federal reaction, please?

MR. SAENZ: Yes, sir. For the record again, Amadeo Saenz.

We have been communicating with our local office here of Federal Highway Administration to discuss with them what impact this would have depending on what action, and of course, the whole thing depends on what action was the commission going to take, so without having specifics as to what specific action will be taken, they cannot make a determination. So based on the action that the commission would take, we would then submit to them this is the action, now tell us what are the circumstances.

MR. WILLIAMSON: But we know that the senior senator has been very active in helping us through this, one of our more senior House members, Ms. Johnson, has been active in trying to help us through with this. Our view is that that political pressure is good but the Federal Highway Administration is not going to take a legal position until we take a policy position.

MR. SAENZ: That's correct, sir.

MR. WILLIAMSON: What's the potential? I know there's been a lot of talk about paying back the federal government, but in reality, we never pay the federal government back, do we?

MR. SAENZ: Well, what it is, in other words, there's money that has been spent on 121, money that is currently being spent on 121 that we're asking for federal reimbursement. We usually spend the state dollars and then request a federal reimbursement and they reimburse us that money. What they would say is don't give me a check back but they would say we reimbursed you for this, we shouldn't have, therefore, reimbursements that you're asking for other projects we will not reimburse. So in other words, they just say you'll have to use federal dollars for other federal projects that you were thinking of using federal dollars.

MR. WILLIAMSON: Now, if you're sitting in Houston or San Antonio, the potential impact of that is that money would have gone into the metropolitan and urban mobility plan and a piece of that would have been redistributed to us.

MR. SAENZ: Yes, sir.

MR. WILLIAMSON: Not unlike what happened with State Highway 130, Segments 1, 2, 3 and 4, we basically went to Dallas, Houston, San Antonio and the Valley, took gas tax money, pooled it and that became toll equity for 130.

MR. SAENZ: That's correct.

MR. WILLIAMSON: The other parts of the state would look at it that way.

MR. SAENZ: Yes.

MR. WILLIAMSON: So worst case is we might have to set our MPOs down and say we need to do a reapportionment to take this North Texas decision and reapportion with each other in order to continue down the road of apportioning fairly to every part of the state.

MR. SAENZ: Yes, sir.

MR. WILLIAMSON: Of course, with your little maintenance announcement earlier, it soun