September 27 Transcript

Texas Department of Transportation Commission Meeting

STAFF:

Steven E. Simmons, Interim Executive Director
Bob Jackson, General Counsel
Roger Polson, Executive Assistant to the
Deputy Executive Director
Dee Hernandez, Chief Minute Clerk

MR. WILLIAMSON: It is 9:05 a.m. and I would like to call the September 2007 meeting of the Texas Transportation Commission to order.

It is a pleasure to have each of you here this morning. Please note for the record, the public notice of this meeting containing all items on the agenda was filed with the Office of Secretary of State at 1:52 p.m. on September　19, 2007.

Before we begin our meeting this morning, I would appreciate it if you would join with me in removing from your pocket or purse your cell phone, Dewberry, pager, two-way radio, and whatever else you might have that would go off and disrupt the day's meeting, and place that on either the silent or vibrate mode.

Thank you very much. It is our custom to open with comments from the members of the commission. I'll begin with Mr. Underwood, followed by Mr. Holmes, Mr. Houghton, and Ms. Andrade. Fred?

MR. UNDERWOOD: Good morning. I see we have some distinguished people from El Paso, welcome. Look forward to having a good day today.

I see a very distinguished gentleman that just walked in. How are you doing, Sir?

VOICE: Very good, thank you.

MR. UNDERWOOD: You're welcome.

MR. HOLMES: Good morning. We appreciate the hospitality from El Paso Chamber and group last night. I look forward to hearing your comments today. Thank you.

MR. HOUGHTON: I echo my fellow commissioners' remarks, and regarding last night it was a lot of fun, thanks to the Chamber, and congratulations on the Inner Loop.

And, welcome. We got a lot of discussion items here today, and look forward to visiting with you all. Thank you.

MS. ANDRADE: Well, I also echo my fellow commissioners, a special welcome to our September meeting. It's not as well attended, Mr. Chairman. I'm a little concerned, but I look forward to taking care of business and moving Texas forward. Thank you.

MR. WILLIAMSON: Thank you, Members. I associate myself with the remarks of the commissioners, particularly with regard to El Paso, thank you very much for the hospitality, the warm hospitality you shared with us last night.

And we look forward to celebrating your decision to move Texas forward in El Paso if that be the will of the commission later on in today's meeting.

Let me remind everyone that if you wish to address the commission during today's meeting, we ask that you complete a speaker's card, which you can find at the registration table in the lobby to your right.

If you're going to comment on an agenda item, we would appreciate it if you would fill out a yellow card such as the one in my right hand. If you wish to comment in the Open Comment period, and not about a particular item on the agenda, we would ask that you fill out the blue card, such as the one in my right hand.

In any event, while your comments and testimony is important to the commission and we always take time to listen to everyone, we ask that you try to limit your comments to three minutes so that we can move forward with today's business as expeditiously as possible, unless you are a sitting member of the House or the Senate, in which case we ask that you take all of the time you need to make your position clear.

And we welcome to the body the Honorable Representative Joe Pickett in the second row on the left. Is　-- are there any other members of the Legislature with us this morning?

(No response.)

MR. WILLIAMSON: Okay, thank you very much. And again, thank you, Members.

Normally, the first item on the agenda is the approval of the minutes, however this is a special morning for the second-floor staff, and the commission generally, and for myself individually.

And that is, this morning we get to celebrate the 15th year of service for my administrative assistant, and the administrative assistant to the commission, Mary Anne Griss. And Mary Anne, if you wouldn't mind, I would appreciate it if you would come forward, and let us make jokes, and do the best we can to gently embarrass you.

Steve? Read the citation?

MR. SIMMONS: Mary Anne, congratulations on 15 years with the department. It's been a pleasure, I've only really gotten to work with you I guess on the second floor for the last six years.

But we do have a certificate of service that I'm　-- that I ask the commission to present to you, but it basically reads, "In recognition and appreciation of 15 years of meritorious service with the Texas Department of Transportation, the commission presents this certificate to Mary Anne A. Griss, and extends its congratulations and best wishes for a long and happy continuance of service."

So, congratulations, Mary Anne.

MR. WILLIAMSON: And we're going to let you have the last word. Members, do you have anything you want to get off your chest right now while I've got her in the limelight?

(Laughter.)

MR. UNDERWOOD: No. I just wanted to say what a　-- your attributes are obvious or you wouldn't make it to 15 years, but I really have appreciated knowing you, and I'm sure you must have started when you were twelve years old, and whatnot　-- 　

MS. GRISS: Oh, I did.

MR. UNDERWOOD: -- and also, you must feel like 40 years, working for the Chairman.

(Laughter.)

MR. UNDERWOOD: So, excuse me.

MR. HOLMES: Yes, these errors go every direction. Mary Anne, you bring a great sense of comfort and good humor, and a beautiful smile that I think makes everything work better for all of us.

Fred and I have only been here since January, and you made us feel at home, and we appreciate that.

MS. GRISS: Oh, thank you.

MR. HOLMES: Thank you.

MR. HOUGHTON: Well, I've only been here three and a half years, and it's been a delight working with you. The class of the　-- you bring a lot of class to this organization, and I look forward to working with you. Been a lot of fun, Mary Anne.

MS. ANDRADE: Oh, Mary Anne, thank you so much for everything you've done for me. The support, the guidance, and you do add a lot to the Chairman. He's lucky to have you. Thank you very much.

MR. WILLIAMSON: I have to share the story. I mean, you know what's coming.

MS. GRISS: Uh oh.

MR. WILLIAMSON: When Governor Perry called me to service in this position, I arrived from the perspective of a House member, somewhat skeptical of how the department organized its affairs.

And one of the things I had always heard as a member, and I suspect Mr. Pickett has heard the same thing, is, when a commissioner is chosen, the executive director chooses the person they wish to assist the commissioner, in order to be sure that the executive director always knows what a commissioner is up to, where he or she is going, and what they're doing.

So I made my mind up, Bob, that I was going to choose my own administrative assistant, I wasn't interested in David Laney's administrative assistant being passed along to me. And I told Wes Heald that, my first visit to the department.

I said, You know, post, and I'm going to interview, and I will choose my own person. And that was how I met Wes Heald on a formal basis. And he had not one word to say to me; he just turned around and walked out.

So we posted, we interviewed, and some of the people I interviewed are in this room. And I interviewed you; I got through, and I looked around and I said, Man, I must be crazy. This is exactly the person I need to help me with my business.

So I'm glad that you responded to the posting and didn't just leave me in the lurch, and I appreciate six years of good, hard service. Now, you can speak.

MS. GRISS: Well, thank you. Thank you for changing your mind.

You know, this is great getting so much attention for just doing my job for 15 years. This is kind of nice. Thank you, it's been my pleasure. And I have one of the best jobs in the department, getting to work with the leadership.

So it's fantastic. The administration, the commission over the years, it's been a wonderful opportunity. So I hope I can stay a little while longer, I've enjoyed it. Thank you.

(Applause.)

(Pause.)

MR. WILLIAMSON: Okay, thank you. And thank you again, Mary Anne, for 15 years of service to the State of Texas.

The first item on today's agenda is the approval of the minutes of the past three meetings: the regular meeting of August 23rd, and the two special meetings of August 29th and September 17th.

Members, the draft of the minutes were presented to you in your briefing materials, and you've had the opportunity to review them. 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, minutes are approved, thank you, Members.

Mr. Simmons?

MR. SIMMONS: Good morning, Mr. Chairman, Commissioners. Our first item of　-- on the agenda is Aviation, which is approve funding for airport improvement project and I'll ask Bill Fuller to come up.

MR. FULLER: Good morning. My name is Bill Fuller. I'm with the Aviation Division. This minute order contains a request for grant funding approval of eight airport improvement projects. The total estimated cost of all requests is shown in Exhibit A. It's $7,128,402. Of that, $6,235,562 federal, $180,000 state, and $712,840 of local match.

A public hearing was held on August 16. No comments were received. We recommend approval of this minute order.

MR. WILLIAMSON: Members, you heard the staff's explanation of this minute order, and the recommendation. Do you have questions or comments directed to staff?

(No response.)

MR. WILLIAMSON: Do we have a motion?

MR. UNDERWOOD: So move.

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.

MR. FULLER: Thank you, sir.

MR. SIMMONS: Chairman, our next item is Public Transportation Item for the appointment of a new member to the Public Transportation Advisory Committee.

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

This minute order authorizes the appointment of Francisco Castellanos of Brownsville, Texas, to the Public Transportation Advisory Committee. Mr. Castellanos will be representing public transportation users on the committee.

Mr. Castellanos is the executive director of Cameron Works. In his capacity, he is responsible for managing workforce development activities in Cameron County, Texas.

Public transportation systems across the state are beginning to develop partnerships with local workforce boards to address job access and training issues. We are excited at the prospect of bringing this perspective to the committee's work.

Mr. Castellanos' term of service will be effective October 1, 2007, and run through September 30, 2010. PTAC is comprised of eleven members. Board members have terms which expire on September 30, 2007.

Three new members were appointed at the August　23, 2007, commission meeting. This appointment fills the fourth and final vacancy. We recommend your approval of this minute order.

MR. WILLIAMSON: Members, you've heard the staff's explanation and recommendation on this minute order. Do you have questions or comments directed to staff?

(No response.)

MR. HOUGHTON: So move.

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, Members. Thank you, Eric.

MR. GLEASON: Thank you.

MR. SIMMONS: Our next item is a discussion item. This is I guess our fourth discussion item on our financing, and impacts that the state and federal legislation has. So I'll ask Coby Chase to come up and begin the discussion.

MR. CHASE: Good morning. For the record, my name is Coby Chase and I'm the director of TxDOT's Government and Public Affairs Division. Today I will discuss our efforts at the federal level, as well as our plan to communicate the need to focus our resources on maintaining our system.

This goes hand in glove with the four previous presentations, that Amadeo Saenz, James Bass and I have made since June of this year.

First, let me bring the commission and those in the audience up to speed on our recent visit with members of the Texas Congressional Delegation. Chairman Williamson, Mr. Simmons, Chris Lippincott and I joined Cady North in Washington earlier this month to meet with members of Congress.

We had two broad objectives; communicate the financial challenges we have versus our needs, and discuss ways to improve our bottom line. Regarding our financial challenges, we discussed at length the need to refocus our attention on maintaining our aging highway system.

Because we must maintain our existing system, we simply will not have enough money to build new capacity. I'll go into further detail about this later.

We've clarified our views on earmarks. You may recall that we caught the attention of many in our Congressional delegation when we explained the effects of earmarking small amounts of money for projects that are not fully funded.

Such earmarks divert money from other identified priorities, and tie up the money until the rest of the needed funding becomes available. We had a healthy and productive discussion about this with members, and both sides now understand each other quite a bit better, and I expect good results.

Regarding possible solutions, we discussed the need to give states and regions more flexibility. You will recall that as we were making our way to D.C., someone unearthed the agency's federal priorities which we put on our website in February; actually drafts starting in December 2006.

And had been sent to lawmakers, local leaders, the media and other interested groups and individuals. Many people took exception to the item, in which we urged Congress to conform federal law to state law with respect to tolling interstates.

This was actually a timely event, and it facilitated our discussion about the need for flexibility. While I'm not supportive of surprising people, the net effect was that it prompted a healthy dialogue with members.

Our experience with the Katy Freeway project, which is nearly universally supported, was a time-consuming and extremely inefficient process to negotiate.

We need a streamlined application process when there is a compelling, publicly accepted reason to deviate from standard practice.

We had some frank discussions about the numerous federal strings that are attached to funding, and the various funding silos that seem to be established with no apparent thought put into how to measure and reward results.

Congress seems to sometimes recognize this, and they allow exceptions to certain federal requirements or prohibitions. But once it leaves Congress' hands, that's when the bureaucratic fun kicks in.

To the extent there is any flexibility in current federal law, it is a riddle wrapped in red tape inside a bureaucracy. In defense of Congress, none of this was created in one day or in any one piece of legislation, as best I can tell, and as best I can tell, never entered into maliciously.

I believe everyone recognizes it will take some time to repair the legal infrastructure that supports our transportation system. All in all, we had a very good trip. The members were receptive; they got the chance to air their concerns, and we were able to deliver a compelling message about where we stand and how we can improve our situation.

They intend to appoint a bipartisan Texas Transportation Working Group, and they have asked for a lot of data, because if nothing else, a Texan likes to be armed.

The bottom line is that we share a devotion to advancing the interests of Texas. Perhaps the most important consequence of the trip is that the delegation, and we understand that by educating each other, their constituents and our customers, we can advance our common interests much more effectively.

And now, I would like to point out that in the coming months, I believe we're　-- and I believe we're aiming for November, we will bring a set of federal priorities for you to consider, and it will be put out for public comment. I would anticipate final adoption in January or February 2008.

And I would like to discuss some of the legislation that Congress is working on. The Transportation Appropriations bill, it's more formally titled I think, Transportation Housing and Urban Development, or THUD, continues to make its way through the legislative process.

Each chamber has passed its version of the bill, and the Senate has appointed conferees, among them, Senator Hutchinson. In the meantime, Congress will need to adopt a continuing resolution to fund federal agencies after October 1; I believe the House just did this within the last 48 hours.

We believe the continuing resolution will fund programs at their current level. As we've discussed previously, both versions of the Transportation Appropriations bill contained about $3 billion in rescission　--

MR. WILLIAMSON: Stop. If this passes, you're indicating that the impact on Texas is $259 million?

MR. CHASE: Yes. Plus or minus a million.

MR. WILLIAMSON: And how much in federal rescissions have already been approved to date?

MR. CHASE: $666 million.

MR. WILLIAMSON: So if the bill passes in its current form, we will have been rescinded about $900 million?

MR. CHASE: Yes. A little short of a billion dollars we've returned to the federal government.

MR. WILLIAMSON: And the impact of rescission is, when we spend a state dollar on a federal aid program, send the invoice to the FHWA and it's approved, the state dollar gets reimbursed by the federal dollar, which then goes into Fund Six, and becomes part of our next round of state dollar expenditures.

MR. SIMMONS: Correct.

MR. WILLIAMSON: So the effect of the rescissions two years from now, literally is a billion-dollar permanent reduction in our State Fund Six balance. Assuming we continue to spend state funds.

MR. CHASE: Yes. I believe that to be correct, although let me talk to James Bass, let's bring James Bass up here in a second to　-- or when I've finished, to　--

But it is a billion dollars worth of projects we have to tell our local and regional planners and us, that do not build. Just take them off the books, there's no federal money for them. That's the practical effect.

MR. WILLIAMSON: Thank you.

MR. CHASE: And as the Chairman said, Texas' share is estimated in this round to be around $259 million.

Included in the House proposal is language restricting the flexibility of states to work with their local leaders in deciding the distribution of the rescission. The Senate version of the legislation does not have that.

Both bills are about $5 billion over the President's request, and therefore have attracted a veto threat. The Senate added an amendment by Senator Hutchinson that prohibits the use of funds to consider or approve an application to permit tolling on federal highways in Texas. Clearly, her intent is to ban complete toll convergence on interstates.

As you know, no transportation planning body in the state has any plans to propose such a total conversion, which would under state law be subject to voter approval.

However, the amendment appears to conflict with some projects in Dallas, Houston, Fort Worth, San Antonio and Austin, where we've found a way to add capacity to existing roads by adding tolled lanes or offering additional drivers a chance to use HOV lanes or to access capacity by paying a toll.

Remarks in the amendment indicate that is not her intent, so we will work with her on some clarifying language.

Unfortunately, the preference for omnibus funding bills is not　--

MR. WILLIAMSON: I'm sorry, Coby. I　--

MR. CHASE: Yes, sir.

MR. WILLIAMSON: It's just so much fun to interrupt you.

You said that the -- her amendment as offered and accepted if not clarified, would impact some projects in Dallas, Houston, Fort Worth, San Antonio and Austin.

Now, for those who are just absolutely opposed to the use of existing right of way for any type of toll project, that would be music to ears.

But I'm concerned about which projects those are; if they're projects that we don't consider to be roads of necessity or projects of necessity, maybe we don't　-- it doesn't matter to us either.

Do we have any idea what those projects are?

MR. CHASE: Oh, yes, sir: 635 in Dallas?

MR. WILLIAMSON: The depressing of 635?

MR. CHASE: Yes, sir.

MR. WILLIAMSON: That's been approved by the MPO?

MR. CHASE: Yes.

MR. WILLIAMSON: Okay.

MR. CHASE: 820 in Fort Worth.

MR. WILLIAMSON: And which part is that? The funnel project?

MR. CHASE: No　--

MR. WILLIAMSON: Or the fly　--

MR. CHASE: -- it's the Tarrant County connector; I mean the [indiscernible] North.

MR. WILLIAMSON: Really?

MR. CHASE: Yes, sir. U.S. 183 and U.S. 290 here in Austin.

MR. WILLIAMSON: Where is CAMPO on those two projects?

MR. SIMMONS: I believe they'll be voting next month on the next phase of the toll plan.

MR. SAENZ: Good morning, Commissioners. For the record, Amadeo Saenz. CAMPO in this month of October will be voting on the toll plan that would toll 290 and 183.

MR. WILLIAMSON: Is it expected that that's going to remain part of their　--

MR. SMITH: Based on what we've received in reports from the district, and the meetings that the MPO has had, it looks like that's going to be a favorable vote.

MR. WILLIAMSON: What other projects?

MR. CHASE: It's 281 in San Antonio, and I-45, U.S. 59 and U.S. 290 in Houston, which I believe are HOV to HOT re-designations.

MR. WILLIAMSON: But we're in contact with their staff, and　--

MR. CHASE: Oh, absolutely.

MR. WILLIAMSON: -- we're working together to put　--

MR. CHASE: It isn't that we're not talking. It's　-- we're definitely working towards a solution.

MR. WILLIAMSON: Okay.

MR. HOLMES: Mr. Chairman, may I ask a question?

MR. WILLIAMSON: Yes, please.

MR. HOLMES: Coby, did the Senator or her staff indicate that it was not her intention to catch those projects and eliminate those?

MR. CHASE: Yes, sir.

MR. HOUGHTON: Or like projects, Coby, in the future?

MR. CHASE: Well, these are the ones that would, within the year that's in this amendment, would be affected.

MR. HOUGHTON: Okay.

MR. WILLIAMSON: So　-- there's no threat, for example, to adding a toll lane to 35 North, from Hillsboro to Dallas if that were to be a proposal by the MPO. Or is there a threat?

MR. CHASE: Not if it's　-- if it's not　-- if it doesn't occur in the next fiscal year, no. There's no threat.

MR. WILLIAMSON: Any other questions?

MR. HOLMES: Just one more　--

MR. WILLIAMSON: Okay.

MR. HOLMES: -- or two more. This only impacts projects in the next fiscal year. Is that　--

MR. CHASE: Yes, sir.

MR. HOLMES: -- what I understand?

MR. CHASE: Yes. It's in an appropriations bill and if I understand it correctly, the practical effect is, the United States Department of Transportation simply can't spend money to approve any of these applications; it is to do certain things.

MR. HOLMES: You did not mention the toll lanes on Interstate 10 in Houston. Presumably that has already been approved, and so that would not be caught up in this amendment. Is that correct?

MR. CHASE: Yes, sir.

MS. ANDRADE: Coby, and didn't all this start from　-- I know in San Antonio I heard a lot about it　--

(Laughter.)

MS. ANDRADE: -- is that people feel like we're going to toll existing lanes. And that's not what we're asking. Is that right?

MR. CHASE: Well, we were　-- we've never asked for the Texas Department of Transportation to unilaterally decide to pick up a piece of interstate and put tolling on it. Or to toll it.

We　-- the state law, Governor Perry and the Legislature saw to it that TxDOT, by fiat, cannot do such things. However, we do believe that there are a number of situations that could arise in the future where it would make sense to put some sort of toll on some part of an interstate system.

Whether that money is used　-- I mean, and I'm not saying this is a good idea. I'm just saying, by way of example.

The decision possibly could have been made to toll Interstate 35 through Austin, and build State Highway 130 as a tax road. I mean, that might have made more sense in the mix.

And it's　-- and there are safeguards in there that you know, a local community would have to vote to do this. You and I have gone out to　-- and not a precise example but a close enough example: you and I have gone out to see the Alameda Corridor in California, which is a rail project, which sounds　-- from an engineering standpoint it sounds simple.

You take rail lines, drop them below grade so they don't run through neighborhoods and they can　-- and help me, here. I think it took, to get from the Port of Los Angeles to the other side of downtown Los Angeles, which you can see standing at the Port of Los Angeles, something like six or eight hours.

Which really in a　-- even in car, you can do it in 30 minutes or 40 minutes. Eliminate all of those so they go　-- they don't go through neighborhoods, they go around, and out.

And when I started here almost 14 years ago, I was reading about this project; it would pop up in different bills. They couldn't just go to one place and say, We think this is a good idea, let us arrange our financing and let's go. It took all sorts of legal maneuvering to get it done.

Katy Freeway project, by way of example here in Texas: it wasn't a straightforward process. We had to go through all sorts of hoops and rings of fire and whatever the case may be, to get it. And we got it done, thank goodness, through everybody's perseverance in that case. But it needs　-- we believe it needs to be more of an automatic process, you apply to do it at one place and the decision is made, and if part of that is, we don't want　-- we want to eliminate any sort of confusion about what can be done when you're going to put new lanes on an interstate and toll them.

I mean, you might want to make the decision to toll old lanes and have the new ones not tolled, or whatever the case may be. We wanted to match federal law with state law.

And　-- or at least, yes, try to make federal law as flexible as state law. And of course, subject to whatever local voter approval　--

MS. ANDRADE: I think we confuse the public when we say, We're not going to toll an existing lane, and then we go to Washington and we say, you know, give us permission to do this.

So I'm not　-- is this the right timing, to be asking for this, and with all of the confusion that's going on? You know, we're trying to help our public understand what we're doing, but I think that sometimes we　-- they may think we're giving them a mixed message.

MR. CHASE: Okay. I agree. And it clearly points out that, explaining it in a commission meeting for four months and putting it on the Internet for seven or eight or nine months, clearly　-- and mailing it to local leaders, and　-- all over the state, isn't enough.

It just shows that I mean, there are a lot of　--

MS. ANDRADE: I think　--

MR. CHASE: -- there are a lot of ways that things can be forgotten or clouded in other things. And there was one small subset of a much larger agenda. So I don't disagree with you, and as we know, I'm trying everything I can to get things in public right now.

MS. ANDRADE: And I think those of us that are very pro-transportation, you know, will look at those things. But the public that, you know, is trying to deal with daily survival is not going to sit at the computer and look at these things.

I think we just need to be conscious of that, and　--

MR. CHASE: Absolutely.

MS. ANDRADE: -- try to clear our message. Thank you.

MR. CHASE: Absolutely. The preference for omnibus funding bills which I briefly mentioned a moment ago has not diminished under Democratic control of Congress. We are hearing that the THUD bill is one of up to ten that are likely to be rolled into one bill, and the House has done this.

The problem with omnibus funding bills is that they run into the thousands of pages; they come out of conference with little time to review them, and even if you are able to read them, there's little opportunity to amend them.

One of my favorite quotes, really, regarding the last omnibus bill came from the House Appropriations Chairman himself. He said, I don't expect people to love this proposal I don't love this proposal. And we probably have made some wrong choices.

He seems to have been quoting my wife　--

(Laughter.)

MR. CHASE: -- that pretty much says it all.

The　-- on the　-- taking the discussion up in the sky for just a second, the House approved the Federal Aviation Administration Re-Authorization bill last week. The proposal re-authorizes the Airport Improvement Program, which Texas is the shining star in that program. I say that, not because I'm a Texan but because it's true; and provides $15.8 billion through 2020. This is a 10 percent increase over the current level.

Included in it is a measure that would raise the general aviation fuel tax from 21.8 cents per gallon to 35.9 cents per gallon, and the commercial aviation fuel tax from 19.3 cents per gallon to 24.1 cents per gallon.

The extra revenue would be dedicated to air traffic control modernization.

There is some breaking news regarding the Federal Highway Trust Fund. It will still go insolvent in 2009, but the $4 billion projected shortfall has not increased since last month, so there's good news. There is hope on the horizon.

All joking aside, this matter poses a substantial challenge for Congress. You can be sure that we at the Government and Public Affairs Division will involve ourselves in the discussions about how to address that problem and how to fix that shortfall.

I'd like to shift attention to the next federal transportation bill, whatever will succeed SAFETEA-LU. One　--

MR. WILLIAMSON: Is 2009 the end of the current Authorization Act?

MR. CHASE: Yes. Yes, sir.

MR. WILLIAMSON: Do we have another rescission in 2009?

MR. CHASE: Yes, sir. We do. It is $6 billion nation　-- or, it's　-- yes. The net effect to Texas would be $600 million more in rescissions.

MR. WILLIAMSON: And that's written into the bill　--

MR. CHASE: Yes.

MR. WILLIAMSON: -- that's not a matter of an appropriations bill amending the bill. That is going to happen.

MR. CHASE: It's a poison pill at the end of the bill.

MR. WILLIAMSON: So by 2009, we will have removed?

MR. CHASE: A little less than $1.6 billion at least.

MR. WILLIAMSON: At the minimum, less than $1.6 billion would have been removed.

MR. CHASE: Yes, sir. And one of the ways we plan to establish and communicate our priorities for the next federal re-authorization bill is to work with other states and like-minded associations.

I say, re-authorization. But we will actually, if I sense our discussion, our internal discussions as they are now, we will actually propose a top-to-bottom restructuring of the federal program, rather than re-authorizing the current, tangled, unfocused mess that it is.

Congress needs to take a hard look at the roles of federal, state and local governments, and private industry, to produce an integrated, goal-driven transportation system.

Included in that should be an emphasis on flexibility in transportation finance, procurement and operation of existing and new facilities. Everything needs to be pointed toward a sustainable, multimodal transportation system.

The bottom line is that, solutions should produce measurable results, as opposed to a system that simply rewards the process.

At this time I want to merge a few issues that we've been discussing lately for the past four months. I have dissected the appropriations bill in every other state and federal law that has impacted our bottom line. Our chief financial officer, Mr. Bass has explained the effects that recent legislation has had on our projected cash flow. And Mr. Saenz has been talking about the need to redirect funding from projects that improve congestion to projects that preserve our aging highway system.

I want to be crystal clear about what weights our state when all of these factors converge in sort of a perfect storm. We are running out of money. If the public does not appreciate this fact yet, I believe they soon will.

We are going to have to be more active about alerting our audiences to the reality we face. Toward that end, I make the following recommendations.

The first step is for our agency to boil down the problem into effects that everyone can understand. What projects are not going to move forward because we don't have the money; to answer that question we need to settle on a projected letting amount that the MPOs can use to prioritize projects with less money than they were expecting.

The MPOs need to report back to the commission, to the agency and the commission, what projects will fall off the schedule. I'm not talking about delaying projects, I'm talking about canceling projects.

We can deploy our administration, commissioners and district engineers and other personnel to assist the MPOs with this unsavory task. This list is going to generate some animated discussion, I suspect.

We can't let local officials who sit on MPO boards to take all of the heat, so we must do our part to explain why this is happening.

We need to tailor the message to those communities outside MPO boundaries as well. Let's face it, the rural areas are going to take a disproportionate hit as we shift funding to the metro areas that require the most maintenance money.

And we need to ensure that legislators are prepared. Their constituents, their local elected officials and major employers in the contracting and engineering community who will see a loss of business will be looking to them for solutions.

James and Amadeo will be before you shortly to convey some of the numbers behind this situation, but before I conclude, I'd like to mention Proposition 12, which will be on the ballot in November. Prop 12 is a constitutional amendment providing for the issuance of general obligation bonds by the Texas Transportation Commission, in an amount not to exceed $5 billion, to provide funding for highway improvement projects.

If approved, the Legislature would come back next session and authorize us to issue that debt. We won't know until then how much they will authorize and what conditions will be attached.

We are starting to get some inquiries about what we would do with this money; it's a legitimate question of course. But obviously, it's too early to say how the money would be spent with any specificity.

We are advising our public information officers to point out that given the impending funding shift from construction to maintenance, there will be many projects in the pipeline that will not move forward unless a significant chunk of new money comes our way. If the full $5 billion is authorized, many more projects will move forward then would be otherwise possible.

That concludes my remarks, I'll be happy to field any further questions you might have.

MR. WILLIAMSON: Coby, I'm sure that all of the members have questions. They may want to delay them until we hear from James and Amadeo. This is, in your view this is the fourth month we've been discussing　--

MR. CHASE: Yes, sir.

MR. WILLIAMSON: -- the future cash flows. And this is the schedule last discussed for this item because, our budget starts this month, or our current operational appropriation starts this month.

And I presume Mr. Saenz is going to make us aware of the changes that now will be made, as opposed to warning us about the changes that were going to need to be made?

MR. CHASE: Yes, sir.

MR. WILLIAMSON: And I want to be clear about Proposition 12. There is no authorizing statute; if the voters approve Proposition 12 in November, it will still be, at the very least, 30 days, 60 days after the Legislature convenes, in January 2009, before we could begin the six-month process of issuing the bonds?

MR. CHASE: Yes. At the earliest. At the earliest.

MR. WILLIAMSON: Is that the case, Mr. Jackson?

MR. CHASE: Make it a little longer than that.

MR. JACKSON: Unless there was an emergency appropriation, it wouldn't go in effect until September. And then that would just start the process.

MR. WILLIAMSON: So we're, at the　-- probably two years away.

MR. JACKSON: I'm sorry, that's September '09.

MR. WILLIAMSON: Okay. Thank you, Mr. Jackson.

Okay. Members, you can question or dialogue with Coby now, or we can hear from Mr. Saenz and Mr. Bass. What's your preference?

VOICE: Saenz.

MR. WILLIAMSON: Mr. Saenz, please.

Will that be accepting to you?

MR. SAENZ: Sure.

MR. WILLIAMSON: Mr. Bass, please. Does James know he's going first, Mr. Saenz?

MR. SAENZ: Yes.

MR. WILLIAMSON: We used to call him Fast Jimmy Bass; we now call him, No Money Jimmy Bass.

MR. BASS: Broker than the Ten Commandments.

MR. WILLIAMSON: Oh, my goodness.

(Laughter.)

MR. BASS: Good morning. For the record, I'm James Bass, Chief Financial Officer at TxDOT. Just to comment on an earlier discussion when Coby was up here, the effect of the rescissions we've had in place, and those that are expected to come this year, and the billion dollars -- yes. In simplest terms, that means, over a period of time we will have $1 billion less to spend than what we had planned and expected.

MR. WILLIAMSON: I think, James, that one of the things　-- I was listening carefully to Hope's observations about communication in San Antonio and　-- on the one hand I believe that there's some validity in self-critique.

On the other hand, I do believe people choose to hear what they want to hear, and choose to interpret it like they want to interpret it in some cases.

But you know, there's plenty of fault to pass around all of us, including myself. But I think people generally don't understand the flow of cash, out of their pocketbook, to Washington, D.C. back to the state of Texas and out to the contracting community.

And it's just always good to sort of reinforce how that works.

MR. BASS: I also think in some discussions I've had in the past couple of months, just the way the department normally operates on construction projects is not very well understood or known; such that when we receive an appropriation for a two-year period, people think, Well, there's that much more new construction that's going to be going on.

And I would say roughly 40 percent of a budget that we receive for a two-year period on that first day, September 1, 40 percent of that cash flow is for projects that have already been awarded, and are already active. so it's not bringing new and additional projects; a lot of that money is just going to make the ongoing progress payments on projects that have already started.

MR. WILLIAMSON: So in other words, we schedule things　-- most of our projects last at least a year, and　-- big money projects; some as long as five. So we have a construction schedule and a payment schedule, that crosses appropriation bills.

MR. BASS: Yes.

MR. WILLIAMSON: And we can only pay out what we're appropriated to pay out. And generally, we don't ask the Legislature to appropriate us more authority than our estimated revenue plus bond proceeds, might present themselves during the two-year period, plus the balance forward.

So we're paying for example the I-10 project, we were appropriated money in this current biennium　--

MR. BASS: Uh-huh.

MR. WILLIAMSON: -- that is for that project, which is five years old now.

MR. BASS: Right. And one thing just to clarify is, as you know, the Legislature makes their appropriation based upon the Comptroller's estimates.

MR. WILLIAMSON: Yes.

MR. BASS: And the reason I bring that up is because over time, people have expressed a concern that perhaps TxDOT was trying to game the system, and that we were low-balling our revenue estimate, so when the Legislature had to make their decision on how to allocate the state's resources, we were lowering that number of resources from Fund Six, knowing that during the Session or during the biennium when those revenues came in higher, we would get them through the estimated feature.

Number one, we would never try to do anything like that, because number one, it's wrong, and number two, people are going to pretty soon discover it, and we wouldn't want to be in that position.

But the system is protected against any one agency trying to game the system, the appropriations system, through that mechanism, because it is the Comptroller, and their revenue estimates upon which the appropriations are based.

So we can't assume we're going to have a billion dollars more than we really think and try and entice the Legislature to give us that appropriation, nor can we low-ball that number, and say, Hey, they're only going to give us this, so they won't be able to give more money to DPS and when that revenue actually comes in, it will automatically flow to us.

It just　-- the system is not designed that way, and would never work that way.

MR. WILLIAMSON: But with regard to the rescissions, with regard to most federal money, the only way we　-- that money comes into our fund, the state's fund is by first expending state gas taxes on a project.

And then giving the invoice to the Federal Highway Administration, and they approve it, and they reimburse a percentage of it back to us, and that goes into our fund and becomes identified as state proceeds.

MR. BASS: Correct.

MR. WILLIAMSON: So in effect, if there's one, point　-- what did you say it was, Coby? 1.6?

MR. CHASE: A little under.

MR. WILLIAMSON: There's $1.6 billion less available to reimburse state expenditures, at a point in the future which I presume you're fixing to incorporate into your ten-year budget, that's $1.6 billion less in state funds that will be circulated back through the system.

MR. BASS: Correct. And if I might, one other thing, to clarify what I've learned over time, we've often said as a department that we're pay as you go. That means many different things to many different people. And even, there are some states who say, they are pay as you go, but they are pay as you, encumbrance.

So if they are going to award a $30 million project, to be paid for by gas tax, what they do is, they wait until they accumulate $30 million of cash, and they set that aside on Day One. They then go award the project, and pay for the project out of that.

To my knowledge and those I've worked with over the years, TxDOT has never operated that way. We do pay as you go, cash flow. So we look at that $30 million project and expect it to pay out over the next 36 months, and we know what we think those payments are going to be, we know what we think the payments are going to be on projects we've already awarded, we know what we and the Comptroller think are the revenues coming in, and we look to see if we're going to have enough cash on hand to make those payments, every month.

It's much more aggressive than the other pay as you go model, but the result of it is that projects get delivered and open to traffic much sooner, than under that other encumbrance method.

But many people don't understand the nature and the cash flow and the uncertainty that we deal with on a daily basis.

MR. WILLIAMSON: So if you, for example, to be very simplistic, if you had a one billion dollar contract that was scheduled to take five years to complete, and the payment cycle was pegged on certain milestones that told you, every month over the next 60 months, we're going to pay whatever that works out to be, $80, $160 billion　-- $160 million? Oh, $80 million?

And if one or two variables were not correctly estimated, either the cost of the contract or the flow of cash from the federal government, state government or local government　--

MR. BASS: Uh-huh.

MR. WILLIAMSON: -- then you would have to do one of two things, I'm presuming: Extend the contract, to reduce the monthly payments. Or re-scope the project mid-stream, and renegotiate with the contractor, to reduce the cost back to match up your cash flow.

MR. BASS: Not exactly. What we had done previously, in the long history of　-- if we saw expenditures accelerating, going out faster than what we had planned, the adjustment was on future letting.

We would just award fewer projects than what we had expected, and delay them to free up cash to make the accelerated payments on the other project.

Through legislation in 2001, 2003, and actually thanks to Representative Pickett he was the sponsor of the short-term borrowing; it allows the department to borrow on a short-term basis for cash flow purposes.

And what that does is, it gives us more of a time period to make those adjustments, rather than　-- I think the, Wes Heald described it before, we had short-term borrowing, and a situation would arise, we would have to slam on the brakes.

MR. WILLIAMSON: Not tap the brakes?

MR. BASS: Not tap the brakes　--

MR. WILLIAMSON: Oh.

MR. BASS: -- slam on the brakes. Now, through the ability we have through the short-term borrowing, we are able to tap the brakes, take　-- and we have more of an implementation or a transition period to adjust and manage those cash flows.

And that has been tremendously beneficial to the operations of the department.

MR. WILLIAMSON: But nonetheless, your decision I presume, or the decision of the administration would be, not to slow down I-10, to stay the course and finish it; we just wouldn't get to 281.

MR. BASS: Correct. Rather than Project X being awarded in January, it may be June or July, whatever that works out, in order to free up sufficient cash flow to make payments on the existing projects. That's always going to be priority number one.

And then we look at the cash flow on those existing projects, see how much available cash flow exists going into the future, and how many additional projects we can plug into that cash flow.

MR. WILLIAMSON: So to the point Hope was making earlier about San Antonio and 281 and 1604, I don't know, Members, how you all deal with, when you see these controversies pop up in the media; I tend to try to stay away from it and just let local leadership work out　-- work it out with our staff.

But I do read the newspapers, and it appears that there are some in your area that believe that a certain amount of gas tax cash flow was reserved for 281. If what I understand correctly is the department system, not just with regard to Bexar County but with regard to every county in the state, our district engineers are working with local and regional planners to identify and schedule projects on the assumption that certain cash flow behaviors occur.

And then as those behaviors don't　-- either do occur or don't occur, an adjustment is made throughout the state. So everyone is racing ahead, falling behind, racing ahead, falling behind, depending upon the cost of the projects, and the flow of cash.

MR. BASS: Yes. And while the Comptroller typically comes out with two estimates during a biennial cycle, the biennial revenue estimate before the Session, and then a certified revenue estimate sometime after the Session, that data and information's valuable to us, but it's not timely on our day to day operations.

So we actually produce a monthly forecast of the inflows and outflows of the State Highway Fund, to help guide the direction of, how much can we afford to award in projects, this month, next month, two months from now.

MR. WILLIAMSON: Somebody down there had a question?

MR. UNDERWOOD: I'm just trying to understand　-- now, the rescissions play effect of this, then?

MR. BASS: Right.

MR. UNDERWOOD: They really threw a monkey wrench in the works, is what it boils down to, don't they?

MR. BASS: Right. When we work through the Districts with the regional leaders, through the　-- on the MPOs, they're looking out well beyond the current appropriation bill. They're looking out ten, eleven years, looking at those revenue forecasts that we think are going to come in, not only from state gas tax, but also what's going to be available from the federal government.

And so when we hear from the federal government that they're going to take back some authority to get reimbursed, from us, and that the Highway Trust Fund is going to hit a zero balance in 2009, 2010, you can imagine two, three years ago, that was not built into the federal projection.

Once we started hearing from the Office of Management and Budget on the federal side, from FHWA, US　DOT and others, those plans have to be adjusted. That there will not be as much money as originally planned, which equals, there's not going to be as many projects.

Another factor that you well know, you may still have $3 billion even if the revenue estimate was spot on; how many projects or how many lane miles will that deliver? Well, what's inflation been? And from 1997 to 2007, a ten-year period, our highway cost index doubled.

So what used to cost, my $30 million project I mentioned earlier, if that was in 1997, it would now cost $60 million to build the same project, just ten years later.

MR. UNDERWOOD: James, I want to make sure I understand this. We spend a dollar on construction, went out building roads; we turn the invoice over to the government, and they pay us basically 90 cents back.

MR. BASS: Well, they　--

MR. UNDERWOOD: Or I'm saying, some form back; they don't give us the dollar back. Isn't that correct?

MR. BASS: Correct.

MR. UNDERWOOD: And then all of a sudden, we go along, we have a rescission, they go, We were just kidding. We're not going to give you 90 cents, we're going to give you 80 cents.

MR. BASS: Uh-huh.

MR. UNDERWOOD: Okay.

MR. BASS: Well, what　--

MR. UNDERWOOD: I just want to make sure I understand this, and　--

(Simultaneous discussion.)

MR. BASS: -- a few steps in that, and once we've got it, gotten an agreement with Federal Highway on a project, they do not, to my knowledge have they ever come in and said, No, we're going to change the amount we're going to give you, or the percentage we're going to give you for that specific project.

MR. UNDERWOOD: No, I know. But what they do is, they take it away from the coming years.

MR. BASS: Correct. The future projects we thought, Hey these ten projects we're going to be able to get federal participation on, when that money is pulled back from us, it's then either eight or nine projects that are going to be able to get federal participation, and if that revenue stream is lost, then those other projects nine and ten will be delayed, and be started in some future year.

MR. UNDERWOOD: Thank you.

MR. WILLIAMSON: Continue, James.

MR. BASS: With that intro, if I could get the overhead on　-- thank you. One of the things we spoke about last November, December, and I think they were discussions during the Session were, the cash flows within TxDOT, how that money was going to be spent.

And I apologize, but I guess I'm highlighting the challenges we face in communication by putting this chart up on the screen.

(Laughter.)

MR. BASS: The　-- this shows the cash flows within TxDOT. And the first thing I'd point out is, a lot of times in our discussion, at the dais here, we're talking programming or contract. These are not contract awards; this is actual cash flow. Progress payments on construction projects.

And that blue line　--

MR. WILLIAMSON: Wait.

MR. BASS: Yes, sir.

MR. WILLIAMSON: Now, to me and I suspect to the other commission members, cash flow is different than project payments on a construction contract. So which is it? Is this cash arriving, or is this cash leaving?

MR. BASS: This is cash leaving. So if, in year 2005, we had signed a $300 million contract, you would typically see $100 million going out, in 2005, $100 million going out in 2006, and $100 million going out in 2007, for that one $300 million project that had been awarded. When you　--

MR. WILLIAMSON: So, and the projects we stack on top of each other to get to the top line?

MR. BASS: Yes. The first line there, the big blue block, is the maintenance expenditures, maintenance and preservation expenditures from the department.

MR. WILLIAMSON: Okay, stop right there. When Governor Perry ascended, one of the first things that he wished we would do, was truly separate expenses related to maintenance from expenses related to preservation, from expenses related to rehabilitation, and expenses related to new construction for added mobility capacity.

Do these estimates reflect that separation?

MR. BASS: Yes.

MR. WILLIAMSON: So the blue, when you say, maintenance, you really mean, maintenance.

MR. BASS: And a broader term, preservation. And maybe they provide an example. There's a 35 year old two-lane highway. And demands are such that it　-- we're going to expand it to a four-lane highway.

The existing two lanes need to be replaced. We would go in, and replace the existing two lanes and add Lane 3 and 4. The replacement of the existing two is going to show in the blue line there, the blue block, as major rehabilitation, maintenance, preservation, whatever term you prefer.

Lanes 3 and 4, where they're adding capacity to the system, would show up in the green block.

MR. WILLIAMSON: So in the instance of an unexpected drop in cash flow, cash inflow, we would drop the expansion of Lane 3 and 4, and simply rehabilitate Lane 1 and 2.

MR. BASS: Yes. Similar if you're at your home I would imagine, and replacing your roof and wanting to add a room, and something happens to your family income, you're likely going to continue to replace the roof, but you're going to take a serious look and revisit whether or not you need to add that additional room to your house.

MR. WILLIAMSON: Okay. So blue is scheduled maintenance expenditures.

MR. BASS: Right. And mobility is, the green line is mobility, and that is mobility paid for by the gas tax, by traditional Fund Six revenues.

MR. WILLIAMSON: So this is the amount of contracts that we projected would be paid, for new lanes from tax receipts?

MR. BASS: Yes.

MR. WILLIAMSON: Okay.

MR. BASS: Then the red line just above that, is debt service for the Proposition 14 Bonds. So the payday loans we've referred to in the past few months, these are projects that we've accelerated, and now we're having to pay the debt service associated with those projects.

MR. WILLIAMSON: In the construction or the actual delivery, those projects occurred prior to '07?

MR. BASS: Right. Some of them you'll actually see in the light purple　-- I apologize, the colors aren't too distinguishable up on the chart there.

But just below the orange　--

MR. WILLIAMSON: Right here?

MR. BASS: -- yes, that light purple one. That is expenditures of Proposition 14 proceeds. So that line or block is building the projects; the red line is paying the debt service for building those projects sooner.

MR. WILLIAMSON: Okay. You skipped over the light blue line; what's that?

MR. BASS: The light blue line is the Texas Mobility Fund, proceeds from the Texas Mobility Fund, going to build mobility projects, primarily added capacity projects. That program allows for 30-year debt, and this shows us expending that in the neighborhood of $6.2 to $6.5 billion.

There is one thing to point out. Because it is a 30-year program, every time we move into a new fiscal year, there's a new year that slides into, and a new set of revenues that slide into that 30-year window.

The issue, and it will be a policy decision that we have not yet brought to the commission, once we get to that point, once we fully utilize that program, we're going to have outstanding debt at our limit.

And if you recall in this, if the Comptroller is projecting $110 million of revenue to the Mobility Fund in a particular year, we can have no more than $100 million in debt service. It requires a 110 coverage ratio.

Well, our plan is to fully utilize that program, and so eventually, we will be at that $100 million level, from Year One through 29. So even though year 30 becomes available to us, we will not have the ability to do a standard bond issue; that is a current interest bond where we're actually making interest payments each year, because we'll already be bumping our head on the ceiling.

So the only way we would have the ability to get to that money out in year 30 is what's called a capital appreciation bond, or you might think of it as a balloon payment, or a balloon loan. Where you loan the money and you make no payment until the very end.

We can certainly do that, and use that money, but it will be much more expensive debt than what we've had before. So even in 2011 and 2012, there may be some additional capacity of the Mobility Fund, that's not reflected on the sheet, but that is a broader policy issue that has not been addressed yet, because we're still living within the original capacity.

MR. HOUGHTON: Not only policy issue, James, but could be a legislative issue.

MR. BASS: Correct.

MR. HOUGHTON: As to how, if we get the legislation tweaked, to allow us to continue to move on out.

MR. BASS: Or if there are additional revenues that are brought into that program　--

MR. HOUGHTON: Right.

MR. BASS: -- such that our ceiling gets raised, then we would have the ability to make those current interest payments each of the first 29 years, and that is cheaper, less expensive debt.

MR. HOUGHTON: But right now, this what we have.

MR. BASS: Correct.

MR. WILLIAMSON: Where's the cash outflows related to repayment of the debt, on　--

MR. BASS: On the Mobility Fund?

MR. WILLIAMSON: -- the Mobility Fund.

MR. BASS: They are not on this sheet. The thinking on that is, because prior to the Texas Mobility Fund, those revenues were not being expended on transportation.

They were brought into the transportation sector, so it didn't　-- payment of that debt service did not adjust our plan out into the future.

If you contrast that with the State Highway Fund, or Proposition 14, that debt service is being paid by gas tax and vehicle registration fees and federal reimbursements, that were always a part of the plan and going into it.

So we looked at the Mobility Fund as a mechanism to build additional projects and to accelerate the delivery of those projects. Proposition 14 merely allowed us, I don't want to say, merely, because it's a positive, powerful tool, but it allowed us to deliver projects faster. But nothing additional.

MR. HOUGHTON: But that's not new money　--

MR. BASS: Correct.

MR. HOUGHTON: -- Fourteen is just an advance on that gas tax money.

MR. BASS: But since the revenue is dedicated the pay the debt service on Mobility Fund, previously were not being spent on transportation, we saw that as new money. It was a big win for the transportation sector.

MR. WILLIAMSON: Well, I don't want to pick nits with you, but you know, we've been sharing this data with leadership across the street, and I would think that at some point in the future they might want to understand the Mobility Fund unencumbered versus encumbered.

Because I had one member comment that, Your Mobility Fund is always ongoing, so your construction, the blue line shouldn't be dropping off in the Year 2011, and I had somewhat of a difficult time explaining to her that, you know, when you borrow up to the 29th year, all you've really got left is the 30th year　--

MR. BASS: Right.

MR. WILLIAMSON: -- which is not very much.

MR. BASS: Right. And it gets very expensive, to get access to that money 30 years out without making any payment between now and Year 30. You're able to do it, but it's much more expensive. And so that's why it's more of a policy decision that hasn't really been broached yet.

MR. WILLIAMSON: Okay, continue.

MR. BASS: The very thin line, just below the orange block there, is payments on pass-through tolls. Again, these are the payments back to the local government, so　-- or in some cases, private sector, that's developed and initially financed that project.

So the payments on the pass-through tolls are for projects that have already been opened, and open to traffic in prior years. Because again, this is cash flow, dollars going out the door.

MR. WILLIAMSON: So expenditures on pass-through toll projects aren't reflected here either.

MR. BASS: Correct. Because those are being　--

MR. WILLIAMSON: They're reflected 25 years out.

MR. BASS: They're reflected earlier in there, and they were covered by either the local governmental entity, or the private entity that initially funded the construction, or a large portion of the construction.

MR. WILLIAMSON: But from our standpoint in painting the picture for the Legislature, the picture for pass-through tolls is painted as a small amount growing over time. Because our obligation is to reimburse based on the traffic count.

(No response.)

MR. WILLIAMSON: Okay.

MR. BASS: Yes. Then what we had in the top block up there as orange is comprehensive development agreements, projects being developed by the private sector by bringing in private equity to develop those projects on a go forward basis. And that was the picture back in November, December, and early in the Legislative Session; early in calendar 2007.

And if you've absorbed that and don't have any additional questions, I'll flip to what that picture looks like today.

MR. WILLIAMSON: Well, just to put a point on it: Our projections in December '06 led us to plan towards a construction budget of about $11 and a half billion in 2010.

MR. BASS: Yes. Including debt service on the Prop 14, and pass-through toll payments.

MR. WILLIAMSON: And that's Fiscal Year 2010, 24 months away.

MR. BASS: Yes.

MR. WILLIAMSON: Okay.

MR. BASS: We now look at how that current picture looks. They're transitioned to the sombrero. The　-- you can see there are some changes. Some of them may not jump out at you initially.

But if we focus, starting at the bottom moving up, you see that the blue bar near the far right has increased; and I think Mr. Saenz will talk about that more following me.

Pavement scores have declined I think more rapidly than expected, planned, and therefore to maintain those current assets is going to take more money. In addition to just the paving scores, as we all know, the cost of asphalt and everything else has gone up. So in order to maintain the same number of lane miles, it's going to take more money. So that takes a chunk up.

We then see, because of that, the green bar and the cash flow go away in 2011. And again I want to just highlight that this is cash flow. So if we run out of cash flow, for mobility projects in 2011, we have to back up, into 2010 and 2009, there's no cash flow going into the future for these projects, so we cannot award those projects in 2009 or 2010, because of the cash flow.

The debt service has stayed the same. The next line there for the Mobility Fund has stayed the same. And the expenditure of Prop 14 bonds has stayed the same, as has the pass-through toll line.

You will notice though that in aggregate, the top of that pass-through toll line is lower than what it was prior to the Session. One question would be, Well, why is that?

One thing they usually point out is that, during the Legislative Session, in current law, there is a transfer to be made from the State Highway Fund to the TERP Fund, Texas Emissions Reduction Plan Fund.

And prior to the Session, that transfer was in place for 2009 and 2010. Starts out at roughly $92, $94 million a year, and then it grows. In 2010 it would have been $95, $96 million.

During the Legislative Session, that transfer was extended such that we will make that transfer in 2011, 2012, 2013, 2014, 2015. So it was extended five years, at roughly $100 million a year, that's half a billion dollars less that we'll have from a cash flow perspective to maintain the system for mobility projects or whatever.

And it's just a difference in what the plan was in November-December, as what the plan is today. There's less money that will be available to the department.

In addition to that, you know there are other increases, there are other agencies that operate out of the State Highway Fund. DPS troopers received a payroll increase. Not suggesting not well deserved. It's simply money that wasn't in the plan before, that is now going to DPS and the plan now.

MR. WILLIAMSON: How much was that?

MR. BASS: The　-- I believe, I should have brought the number with me, is what I believe. Believe for the biennium it's roughly $50 million.

And then in addition to that, there's additional initiatives managed by the Department of Public Safety associated with border security, and a significant amount of that is funded from the State Highway Fund.

And I apologize, I would hesitate to quote you a number off the top of my head, but I can certainly get it for you.

MR. WILLIAMSON: While we're hearing from Mr.　Saenz, can you produce that?

MR. BASS: Yes.

MR. WILLIAMSON: So that's TERP and DPS. Were there any other additional, unplanned-for transfers?

MR. BASS: There were some, but I would say the other ones really were not material, just in the numbers that we're talking about. Those are the two major ones that stick out.

MR. HOUGHTON: The CDAs that you are　-- that you have on top of the Sombrero there, identify　-- is that the 121 Project, is that the　--

MR. BASS: Six thirty-five　--

MR. HOUGHTON: Six thirty-five　--

MR. BASS: -- One sixty-one　--

MR. HOUGHTON: -- One sixty-one　--

MR. BASS: NTE, DFW connector.

MR. HOUGHTON: Right.

MR. BASS: Those projects. And so as we move to the top of the sombrero, the orange part　--

MR. HOUGHTON: So you lop off　-- you just lop just　-- I'm not picking on NTTA or North Texas, you lop off $3 billion, that's one project. Which is safe to say you could shave that, that would be a big piece of that sombrero?

MR. BASS: That would be a big piece of the sombrero, yes.

MR. HOUGHTON: So, one project　--

MR. BASS: Yes.

MR. HOUGHTON: -- had that impact on　-- okay.

MR. BASS: And so, but the real impact is, you see in 2010, '11, and '12 there is no orange in there. And the reason you have a slope is just because of the, it's an area-graph rather than a bar chart.

But there's nothing in 2010, '11, or '12. And that's because　-- and some of it's been confusing, surprise, surprise, the word of the day, in our discussions earlier about what the department can do or can't do after Senate Bill 792.

As you all know, there's a moratorium on projects to allow the private sector to collect and operate a toll road until September 1, 2009. There is the ability for TxDOT, now there are projects that are exempt from that moratorium, and those are the ones you see　-- 　

MR. HOUGHTON: Right.

MR. BASS: -- that are, remain in the orange portion up there. There is, in law a sunset on our ability to enter into a contract with a private sector that includes private sector financing. That sunset date is August 31, 2009.

And I may have my dates slip, but as you can tell they are just one day apart. And so some of our responses to questions are, can we do X, can we do Y, and the answer is yes, for the next 24 months.

And so, looking at 87 projects that we've been tasked to look at and visit with the local tolling authorities and see who is going to move forward with those, if we want to deliver those through the use of private equity, our ability to do that ends at the end of Fiscal Year 2009.

So we would have 24 months, and just the logistics working with other parties and being able to do that, obviously all 87 projects will not be done in the next 24 months, so there is a loss of the ability of the department to deliver those projects utilizing private equity. And that's why we see the orange disappear in the last three years of this chart, and going forward.

Now, we're able to continue　-- I apologize. We are able to continue managed-lane projects, or design and build projects that don't involve private equity, until 2011. But again, there's no private equity; there's not incoming revenue from the private sector on a design-build project.

MR. HOUGHTON: But a big part of our project was the orange, to sustain us into the future　--

MR. BASS: Yes.

MR. HOUGHTON: -- to fill in the $86 billion dollar gap.

MR. BASS: Yes.

MR. WILLIAMSON: James, on pass-through toll cash flow line, I'm curious. We have on the agenda for the day a pretty substantial pass-through proposal, or recommendation from staff. Do the payments associated with that pass-through, are they reflected in this cash flow projection?

MR. BASS: Yes. What we've done in the out years is looked at pass-through, and again the existing projects that are already under agreement, and those to come, and somewhat of a soft cap or a planning cap is to have the maximum payments　-- because if you'll recall on all these agreements, we have a maximum annual payment and a minimum annual payment.

And within that band, actual traffic will dictate how much we pay. To be conservative on cash flow, this assumes that we're going to hit the maximum on every one of those projects. Just to make sure we have the cash on hand, if and when those payments are due.

We have a soft planning cap of $250 million that the existing ones you've already authorized plus the one you're going to consider today, would fit within that planning cap that we have.

MR. WILLIAMSON: Amadeo, I'm going to want to ask you some questions about that, so be prepared, please.

MS. ANDRADE: I'd like to clarify something. You said, others to come on this pass-through. Are those　-- do you include those pending applications, that we've received?

MR. BASS: The ones that we've put in to date are the ones that have been executed and fully approved by the commission. You'll recall it's a two-step process. So the ones that have been fully approved, whether we've executed them or not, are in there. And there is enough money for the one for you to consider at today's meeting.

However, as we go forward with all of the applications, in looking at the cash flow, I can't tell you that every application we've received for pass-through tolls, that we're going to have sufficient cash flow in the out years to enter into agreements on --

MS. ANDRADE: So those are not included in there　--

MR. BASS: -- those projects.

MS. ANDRADE: -- okay. Thank you.

MR. HOLMES: Mr. Chairman, may I　--

MR. WILLIAMSON: Please.

MR. HOLMES: James, if I look at this, it appears that unless there is a change in funding mechanisms for the department, there is basically no money for new capacity at all after '11. Is that correct?

MR. BASS: The one question would be, I would just clarify the policy issue yet to be made on the Mobility Fund, and how and if to access that Year 30 revenue as it comes in　--

MR. HOLMES: Which would be　--

MR. BASS: -- but absent that　--

MR. HOLMES: -- extremely small, and a zero coupon, 30-year note is a very significant and difficult policy issue　--

MR. BASS: Right.

MR. HOLMES: -- to get your arms around.

MR. BASS: The issue to look at is, yes. That leverage factor　--

MR. HOLMES: Yes, that's true　--

MR. BASS: -- and then try and estimate what inflation is going to be, or when we might have access to that money under different circumstances. But yes　--

MR. SIMMONS: Commissioner, I just want to make sure, there will　-- we'll need to stop adding capacity projects, probably in '08. Those are payouts on projects that we're letting go.

MR. HOUGHTON: That was my question, yes --

MR. HOLMES: That's a good point, Steve. These would be expenditures.

MR. SIMMONS: Correct.

MR. HOLMES: And expenditures are delayed by two or three years, which means that no new project's approved beginning in about twelve months.

MR. WILLIAMSON: Yes. We're actually paying cash today for projects that the department executed in 2005.

MR. HOLMES: Right. And some, like　--

MR. BASS: Right. And 2004, and 2003.

MR. HOLMES: -- well, it　--

MR. HOLMES: Now, if you assume that the $5 billion general revenue bond passed on November, and you assume that those bond proceeds are made available by the Legislature, that really couldn't start until 2010 anyway, roughly.

MR. BASS: Right. And　--

MR. HOLMES: And it would be　-- it wouldn't even approach the kind of funding that we have historically utilized for new capacity. Might be a billion or so a year.

MR. BASS: And one of the things we're in a guessing game unfortunately, since there is no enabling legislation, we don't know what that enabling legislation is going to look at.

And if it will　-- if the Legislature will choose to give specific direction to the commission on how they want to see the program implemented on certain areas of the state, or certain types of projects, or　--

MR. HOUGHTON: You mean, earmarks?

MR. BASS: Anything and everything. Or, if it will just be open and broad, and say, you know, to develop transportation projects needed in the state.

MR. SIMMONS: I think the example is, the Prop 14 where they said, 20 percent had to be spent on safety projects. And there was numerous bills during the last Session that, another 20 percent had to be spent on border infrastructure, and another 20 percent for something else. So, that's what I think is, James is alluding to.

(Simultaneous discussion.)

MR. BASS: Well, one of the things that's difficult if I may, the　-- we get new money 24 months from now, and we find out 23 months from now that we're going to get it. You know, go start building projects, with it is the expectation of many people.

Well, the right of way likely is not acquired, and the design plans and environmental process has not been completed. Because the option is, if we said, Hey, yes we have $5 billion and we're going to go award $5 billion on projects you know, next month, and get that construction started.

That would mean that we, within this tight, revenue cash flow, we had spent and acquired right of way, environmental process and engineering plans, on projects that we weren't expecting to let for years and years.

When we could have freed up that right of way, engineering money, and environmental money, to try and gain a balance between the whole development cycle for our projects. So yes, once we have the all-go sign, I would imagine it's going to take some time to do all of the development work, to get to actual construction.

And that's what is difficult from a planning perspective, and that's why the department deals with ten, eleven year plans, to make sure that all of those pieces fit together efficiently.

MR. HOLMES: The point I was working towards was that while that $5 billion potential bond money availability would be very helpful, it doesn't really come close to addressing the full needs of the department.

MR. BASS: Correct.

MR. HOLMES: Of the state.

MR. HOUGHTON: Well, you touched on it, Mr. Chairman I guess this may be for a little later. But you touched on the issue of new construction, stopping in or greatly reducing in this year; fiscal year '08. Is that an accurate statement.

MR. BASS: Yes.

MR. HOUGHTON: So in other words, we would not be adding new capacity to the system beginning this year. Could, could.

MR. BASS: Yes. I think this year there will be some, and Amadeo I think will speak to that in more detail than I'm prepared to right now. I think there will be some in 2008, and perhaps a little in '09. But yes, you're definitely seeing a decline　--

MR. HOUGHTON: And what you　--

MR. BASS: -- and this is something we've talked about for　--

MR. HOUGHTON: -- so what you're talking about is, sealcoats and overlays　--

MR. BASS: Yes.

MR. HOUGHTON: -- to preserve the system, the integrity of the system.

MR. BASS: And we, as I was mentioning, we've talked about this for years. We talked about the bubble, if you will　--

MR. HOUGHTON: Right.

MR. BASS: -- the Mobility Fund would provide to us, of influx of cash flow. And that bubble was increased by Proposition 14 and the $3 billion, we had the　-- originally we had the ability to access through that.

And so this is going to create a bubble, and it's　-- there's an end to every bubble, and we're on the down slope.

Now, another thing in addition to this $5 billion Constitutional Amendment, the Legislature increased the capacity of the Proposition 14 program from $3 billion to $6 billion. But when you look at the green and red bars on this chart, what we've been able to do with the $3 billion that we've moving forward on is to accelerate mobility projects, and then take the debt service away from mobility projects in the future.

And the way I think of it is, Well, in Year 18 you're going to be making a payment. Do you want to be paying the bondholders and the investors in Year 18 for a project that's been open for 18 years, or do you want to be paying a contractor who is working on that project in Year 18.

Well, out of that $3 billion, we're paying the investors. If we were to tap into that second $3 billion layer of the program, the debt service would start coming out of the maintenance funds, given our current cash flow projections.

And so again, that is a large policy issue　--

MR. HOUGHTON: Yes.

MR. BASS: -- do you, does the commission, think that that is a prudent course of action to take, to build new projects today, and reduce future maintenance and future flexibility going forward.

MR. WILLIAMSON: We're not going to do that. Questions of James?

(No response.)

MR. WILLIAMSON: James, make yourself available for a moment, if you would. Amadeo?

MR. BASS: If I may, I'm going to run upstairs real quick to get the information to you.

MR. WILLIAMSON: I want to know　-- I want an answer, a crystal-clear answer to the following question: How much additional Highway Fund Six revenue was transferred in the current appropriations bill compared to the previous appropriations bill.

MR. BASS: Okay.

MR. SAENZ: Good morning, Commissioners, Mr. Simmons, I was going to call you Mr. Behrens for a little bit.

For the record, Amadeo Saenz, Assistant Executive Director for Engineering Operations. And just to kind of continue with the discussion item that the　-- Coby and James have expressed, and a lot of the things that they've covered or are going to be repeated in my presentation.

And of course we have, our goals are to improve mobility, and of course as we say, reduce congestion, but improve mobility, improve safety, improve air quality, we want to support economic opportunity and we want to also make sure that we maintain our assets.

To meet our goal will require billions of dollars more than what our current tax money brings us. You will recall that the Texas Metropolitan Mobility Plan estimated that $86 billion was needed to address what was needed to reduce congestion by 2025.

Maintenance and rehab, and we've been talking for the last four months, we say that to meet our goal by 2012, we need to spend an additional $6 billion to get to that goal of 90 percent of our roads to be in good or better condition.

Some of the impacts that we've been discussing over the last few months: We discussed inflation and the Highway Cost Index; if you recall, when we looked at it between 2002 and 2006 we had an increase of 58 percent. In 2002 to 2007, it had gone up 73 percent.

That was an estimated number that I gave you in May; we have gone through the Fiscal Year 2007 and it actually turned out to be 62 percent. So we made a little headway with respect to the cost, between '06 and '07, or between '02 and '07 but it's still 62 percent more. It cost us 62 percent more to build a project, the same project in 2007 that it cost us in 2002.

We discussed the rescissions a little while ago, we　-- have given up $666 million. We expect that another $259 million that happened this year, and of course into SAFETEA-LU is an additional $600 million that will hit at the end of SAFETEA-LU in 2009.

Additionally, AASHTO has projected that the Highway Trust Fund is going to go into the negative in 2009. Original estimates were around $700 million, but now, their estimate is $4.3 billion. This could have an impact of $16 billion in projects that could be affected, because just like James was saying, a project　-- projects are let, and you pay them over time.

To be able to make up $4.3 billion in one year, that could affect about four times that much. And that's what AASHTO has been talking about.

In 2009 we also have some diversions from Fund Six, $1.57 billion as part of our appropriations bill. That's a 15 percent increase of what was in our appropriations bill for '06 and '07. And of course, 792 restricted the tools that we had, and the access to private money.

Planning, you know, versus cash flow. Our districts, as we've talked about, we plan over a longer horizon; we plan over a ten-year horizon, we also have our long-range plans that are 25 years. But over that ten-year period, we look at what we have in state and federal dollars, what we project in state and federal dollars as money coming in, and we project what our projected lettings will be, or projected programming, which eventually leads to lettings, will be over the years.

And based on what we had when we created the Fiscal Year 2008 that was done as part of the 2005 UTP, we projected about $5.1 billion that could be let in 2008.

Now, when we look at impacts to cash flow, when we look at cash flow and working with James, and we look at our cash flow based on the things that have changed that have impacted our influx of money, we can only let somewhere between $3.6 and $4.2 billion.

So we need to take some action. This means that we got to reduce our letting for 2008 from about $900 million to one and a half billion dollars.

MR. WILLIAMSON: Okay, stop.

MR. SAENZ: Yes, sir.

MR. WILLIAMSON: I don't want to be confused, and I sure don't want anybody that's watching this to be confused. That $5.1 billion planned lettings includes maintenance, rehabilitation, preventive maintenance　--

MR. SAENZ: Yes, yes　--

MR. WILLIAMSON: -- new capacity, that's every contract of any kind having to do with the maintenance　--

MR. SAENZ: Yes.

MR. WILLIAMSON: -- or expansion of our system. MR. SAENZ: Part of our planning process, we have twelve categories, we have projects in twelve categories. The $5.1 billion is the summation of what we projected to be able to let in all twelve categories.

MR. WILLIAMSON: And when you planned $5.1 billion five years ago, and you properly inflated it, it might have been $4 billion and you've been inflating it.

MR. SAENZ: Normally, we have been using five years of what we were using, based on past history and an inflation rate of about 4 percent per year.

MR. WILLIAMSON: So the $5.1 billion is now in actual 2008 dollars; I mean, that's what you think those contracts are going to cost.

MR. SAENZ: Five point one billion is what we estimate, in　-- for 2008, what those projects would cost us.

MR. WILLIAMSON: And so when Finance tells you, as a result of the things itemized, you don't have $5.1 billion to pay out　--

MR. SAENZ: I have no choice but to go in there and work with the districts -- in fact we've already implemented that, and ask the districts to reduce projects that we can let in Fiscal Year 2008.

MR. WILLIAMSON: And are those projects automatically new capacity, or are they maintenance?

MR. SAENZ: I　-- when I went to the districts, and recognizing the additional conversations that we had been having over the last four months with respect to our condition of our payments, and the deterioration that we were seeing because of the conditions, the weather conditions that we've seen over the year, I had asked the districts to look at mobility projects, to delay mobility projects in the amount of $965 million.

For Fiscal Year 2008, they were to work with the Metropolitan Planning Organizations and identify those projects that were originally scheduled that now would have to be delayed.

There may be more delays. As I mentioned, the　-- I've got a range between $3.6 and $4.1　--

MR. HOUGHTON: Right. Amadeo, dice up the $3.6 for me; if our cash flow is $3.6, what is new mobility in there, and what is maintenance.

MR. SAENZ: Okay. If our cash flow is $3.6, we probably have zero dollars in mobility left, from the mobility categories that we can reduce.

There are some categories that we can't touch, for example enhancements, CMAQ, those are all considered mobility categories, and those projects I cannot reduce. Those are needed to meet the air quality requirements in the non-attainment areas.

MR. HOUGHTON: And what number would that be if you added those up?

MR. SAENZ: If I add　--

MR. HOUGHTON: Of the $3.6, how much will go to new mobility?

MR. SAENZ: Of the $3.6 we would have zero new mobility, I don't have the number of the categories that　--

MR. HOUGHTON: Yes.

MR. SAENZ: -- would have to remain. But it would be, I would think it would be somewhere between $200 to $300 million.

MR. HOUGHTON: For the entire state?

MR. SAENZ: Yes, sir. Those are mandated categories.

MR. HOUGHTON: Yes, for mandated categories.

MR. SAENZ: So as I mentioned, we'd instructed the districts and the MPOs to delay $965 million from their 2008 lettings, so that we can come back into balancing.

That still only gets me to the $4.2 billion. We're going to continue to look at the cash flow on almost on a daily basis, on a monthly basis, to see if we need to get more projects delayed.

MR. WILLIAMSON: I want to use the right verbs.

MR. SAENZ: Yes, sir.

MR. HOUGHTON: When you say more projects delayed, what you really mean is, more projects eliminated.

MR. SAENZ: Well, in this case it would be up to the region to determine if they want to eliminate the　-- it will be eliminated from the 2008 letting schedule; but if it's a high priority, it may slip into 2009 if they so choose.

MR. WILLIAMSON: Well, that's where I was headed with my question.

MR. SAENZ: That's　-- why I say, delayed.

MR. WILLIAMSON: We --

MR. HOUGHTON: But with the notion that there's going to be less cash to do this.

MR. SAENZ: Yes, sir.

MR. HOUGHTON: So they could delay it, it could be delayed for two or three years.

MR. SAENZ: Well, it's　-- just basically a domino effect.

MR. HOUGHTON: Right.

MR. SAENZ: If we don't have enough cash in 2008, we delay　-- we take projects and reduce the number of projects in 2008, if they want to move them into 2009, and if we have the cash, then　-- we were already balanced, you have to push projects from '09 to '10, and from '10 to '11, and '11 to '12.

But at some point, if we run out of cash, there will be projects eliminated. But it would be up to the region, up to the MPO to determine, once we come up with a final number, as to what projects will be delayed, or how those projects will be reshuffled or rescheduled, and what projects will be eliminated.

MR. WILLIAMSON: So we don't presume to change the path we've been going down the last six years, of extending authority to regional planners, and asking local leaders to execute; we're going to stay with that?

MR. SAENZ: That stays with that. What we're going to do is, we're going to give them the best projections that we can to be able to stay within the cash flow that　--

MR. WILLIAMSON: Okay.

MR. SAENZ: So as I mentioned, projects are pushed out, in 2008 they still　-- we still want to be able to continue, because those projects, we have been working on and have almost complete. We want to complete the planning, the design, buying the right of way for those projects, should something change and additional money comes in, those projects will be ready to go.

So I would call　-- those projects are projects that I would want to continue development, but we're so close, put them in a shelf, and those projects can then be ready to go as soon as possible, unless the MPO decides that, Well, maybe this is not as important a project as I wanted to do, and I want to delay that.

But like I mentioned, we will have a ripple effect that will mean changes to 2009 and 2010 and even points beyond. Okay? Do we want to delay mobility? We want to look at possibly delaying, why do we delay mobility before maintenance?

We got to make sure we maintain what we have. We're not meeting our maintenance goals now. We don't build more before we can maintain what we already have. So that's why we decided to delay projects in Categories Two, Three and Four before we decided to do any delay projects in maintaining the system that we currently have. And that's our recommendation.

Because as we delay mobility projects today, we still need to be continuing, plan for the future; we need to continue to plan to make sure that we're addressing our maintenance and rehab needs, that　-- the discussion over the last few months. You know, so there needs to be something to look at, to determine what our funding levels need to be, for rehabilitation and maintenance, and then what changes would have to happen to the mobility funding, to be able to get us to where we want to be.

So if you recall, the last four months in May, we presented the issue of where we were at with our, meeting our payment goals. If you recall, we were　-- our goal is to be 90 percent of our roads in good or better condition, that means that they have a pavement score of at least 70, and we were somewhere in the mid-80s; we started at 82, 83, in 2002.

And we had gone up to about 86, and then we started dropping. We dropped down to 85, 83, and then our districts, looking at trying to make sure that they were maintaining their facilities, started to expend more money or advance some of their maintenance money into earlier years, so that they could keep their pavement scores up.

So in 2006, if you remember we spent about $1.8 billion in preventive maintenance and rehabilitation, and that kept our pavement scores pretty flat. So it kept us, we know that our funding level for 2006 of about $1.8 billion would keep our pavement scores where we were at the time, around 86, 86 and a half.

In June, we discussed kind of the statewide issue, and some strategies that we were looking at, to try to come up with a mechanism to address some of our bad pavements and most of our bad pavements are along the coastal areas and our big metropolitan areas.

Our rural areas, and especially in West Texas, have much better pavement base conditions, so our payments are in much better conditions, in fact we have several, about eight districts that　-- or nine districts that are already exceeding their pavement goal scores of 90, and we're only in 2007.

Kind of what we've concluded so far is that maintenance makes sense and saves us money in the long run, if we don't maintain our roads by putting the sealcoats and the overlays, we then have to rehabilitate those roads, and it costs us a lot more than what a sealcoat and overlay would have cost us.

We're not meeting our payment goals. We would need at least $3.4 billion more between now and 2012 to be able to stay even. And we would need $6.4 million more to　-- the whole state could meet the goal. Inflation has caused us to spend future funds, just to stay even.

And I got, this chart just shows you what our highway cost index has been. As I mentioned earlier, when we presented to you in May, we had estimated based on April figures that we would be at 73 percent increase over 2002. Actually it turned out to be 62 percent.

So what we're recommending to address our maintenance situation is to in a sense, in 2008 and 2009, because our districts have already expended those monies in prior years, is that we just keep the program as it is, and just let them spend their normal program.

In 2010, we were proposing that　-- we re-prioritize $225 million that we had; we had $1.3 billion scheduled, or $325, we re-prioritize $225 million to address our highest payment needs across the state　-- and I'm sorry, in the districts that have the lowest pavement scores. Districts that do not meet the current goal.

In 2011 and 2012, we want to make sure that we keep that funding level that we have put in place to move us forward, across the state for all districts but we also need to put additional money into preventive maintenance and rehabilitation, to address additional needs that we have not covered.

So kind of what we are proposing is that we take Mobility Categories Two, Three and Four, in 2011 and 2012, and any non-committed Category 12 money, which it would impact our pass-through tolling program, Mr.　Chairman, in 2011 and 2012 and move that money into the maintenance and rehabilitation category.

And as I mentioned, in 2010, we would just go out there and re-prioritize $225 million of what we already have planned, to try to address very quickly some of the needs that we have across the state.

MR. UNDERWOOD: Amadeo　--

MR. SAENZ: Yes?

MR. UNDERWOOD: -- let me interrupt you. When you say, re-prioritize, basically you're going to take money from one district and move it to another.

MR. SAENZ: Yes, sir. I'm going to take money, I'm proposing to take money from districts that have already met their goal, $225 million from the districts that have already met their goal, and then put them across the state into districts that still need a ways to meet their goal. They need to be able to make some improvements to meet their goal.

MR. WILLIAMSON: I don't want to focus on the districts that lose right now, because I think that would be inflammatory, but tell me which, specifically which districts need this additional cash flow.

MR. SAENZ: Okay. Let me　--

MR. WILLIAMSON: Unless you were going to do that anyway.

MR. SAENZ: I've got it on a slide right here. The districts in blue are the districts that have already met their goal of 90 percent good or better. The districts in red are the districts that are below the goal of 90 percent good or better.

And if you recall in earlier presentations, most of the districts that had the lowest scores were the districts along the Coast, as well as the metropolitan districts.

The formula that we want to use to allocate this money that we're moving over will address the pavement, the current pavement scores as well as the number of lane miles, as well as the additional　-- the current pavement scores, the number of lane miles and the amount of traffic.

So we will address the districts that have the lowest pavements scores, the highest traffic, and the largest number of lane miles, and in combination with more money for them to address their pavement needs that they are falling behind under.

MR. HOUGHTON: Well, I think you have a slide in here that shows that Dallas is at the bottom of the heap as far as their average pavement scores.

MR. SAENZ: Yes, sir. I　--

MR. HOUGHTON: I mean, it kind of illustrates the　--

MR. SAENZ: Right. This is really --

MR. HOUGHTON: -- big picture.

MR. SAENZ: -- when we look at it, these are the districts that are below the three-year average; their average is 86.93　--

MR. HOUGHTON: Followed by Houston.

MR. SAENZ: Right. And the districts that have the lowest pavement scores, which would be Houston and Dallas, are at 14 percent, would be the ones, the districts that we would target to more money, more of this money that we're proposing to relocate, or to reapportion to them, to put together a plan on how we address pavements.

MR. HOUGHTON: So the issue is, at the bottom far right you're taking $1 billion out of mobility and putting it into　--

MR. SAENZ: I'm taking $1.09 billion, $225 million is in maintenance that I'm re-allocating, but the rest of it is from mobilities in 2011 and '12, to address pavements.

MR. HOUGHTON: Right.

MR. SAENZ: I'll go back a little bit, just to make sure that I cover　-- as I mentioned, we're going to distribute the additional maintenance money and rehabilitation money, and the total of $1.9 billion, to the districts that are below the 90 percent goal.

Then we're going to base it on a formula that basically takes into account what condition they're　-- what the current condition of the pavements is, the number of lane miles that they have, as well as the amount of traffic. Those districts that receive this supplement, it's going to be conditioned that we put a plan and we show how this money will be spent, to ensure that we do get it used for addressing those roads that need it the most.

At the end of the　-- each year, then we will go back and require the districts to give us a report, and we can go out there and do some testing with our pavement testing equipment to make sure that we are making some headway.

As I mentioned, these were the districts that are below, and the red districts will be distributed the money based on the schedule that we have here. This is still preliminary, the　-- based on, we have some rough numbers, we will tweak the numbers a little bit to get more digits past the decimal point so that we make sure that we do that. But this was a rough estimate of, how would we distribute the $1.09 billion.

Kind of just in summary, we're not going to meet our goals with the funding, not even with this addition. We might say we're taking from Peter to give to Paul, we're taking from the districts that already have met their goal, and trying to apply it to districts that still need some help.

But we, in the long run we will lose less ground in that we're trying to get those areas that scores are worse, where the conditions, where the pavement condition is getting me from a point that I need more than it　-- that I need more than a sealcoat and an overlay, and I'm going to go into a rehab, I'm trying to salvage that so that I can use sealcoats and overlays to bring my pavement scores up, and bring the condition of the roads up to something that's good.

This decision will result in delay and cancellation of mobility projects. We're going to implement it as part of the 2008 SMP-SVP our unified transportation program.

This chart here basically shows in a nutshell, as I mentioned, in 2010 we're taking, we　-- our funding level that we originally had for 2010 that we gave to the districts last year, had $1.325 billion for preservation, maintenance and rehabilitation.

We are taking $225 million from those allocations and redistributing them to the other districts, and then in 2011 and 2012, because we want to make sure we do not lose too much ground in the districts that we took money from the year before, we're letting our allocations remain at $1.325, and then inflating them in 2012 to almost $1.4.

And, but then we're having to take from mobility $425 million and $440 million to do additional maintenance and rehab in those districts. The total equals $1.09 of additional maintenance money that we will address at key areas of the state. I want to　--

MR. HOLMES: Amadeo, can I ask it's kind of a baseline question.

MR. SAENZ: Yes, sir.

MR. HOLMES: Moving a billion, $900 million into maintenance, is that designed to keep the paving scores where they are, or do you think that that actually will move those up, close to or　--

MR. SAENZ: I think　--

MR. HOLMES: -- at 90, to 90 percent.

MR. SAENZ: -- I would at best hope I could keep my pavement scores as they are. If you recall, in 2006 and 2007, we spent about $1.6 and $1.8 billion, and we kept our pavement scores pretty flat.

What will happen, by taking and targeting the districts that have low pavement scores, putting more money into theirs, we're going to get a raise in those pavement scores for those districts. So our average may increase, but the money that we took away from the districts that were above may lose a little bit of ground.

So I would think that at best we could stay even to where we were at in 2005 and 2006.

MR. HOLMES: In terms of the average　--

MR. SAENZ: In terms of the average.

MR. HOLMES: -- overall average.

MR. SAENZ: Right. But we will have　--

MR. HOLMES: Good ones coming down, and the　--

MR. SAENZ: -- bad ones coming up.

MR. HOLMES: -- bad ones coming up.

MR. SAENZ: We'll have everybody bunched up much closer.

MR. WILLIAMSON: I asked James about the pass-through toll, specifically the ones in front of us today. He indicated that the cash flow for the El Paso pass-through toll project was accounted for in our future cash flows.

MR. SAENZ: Yes, sir.

MR. WILLIAMSON: What number or what level of pass-through tolls do we have pending that will not be accounted for?

MR. SAENZ: I believe I've got, or we have, about six applications that, well we have at least one application that has gone through the preliminary approval, which is the city of Lubbock.

And then we have applications that have been submitted at least three or four, that are right now on hold; we're looking at those applications to find out if those projects, how those projects meet our goals, and to see if we want to be able to carry them forward.

MR. WILLIAMSON: So if we don't　--

MR. SAENZ: Finalizing and determining how much available money I have in Category 12, which is the category that we have been using to fund those projects, will depend on which of those projects will move forward.

MR. WILLIAMSON: So if we don't approve the El　Paso project today, what would happen? Would it go to the back of the line?

MR. SAENZ: The El Paso project was　-- has already been approved. The　El Paso　-- what we have, we do not have a pass-through toll project today. What we have is a toll equity request from the El Paso RMA, for doing studies. We don't have a pass-through toll project on the agenda today.

(Discussion off the record.)

MR. WILLIAMSON: But if we don't authorize the toll equity, would they be able to proceed?

MR. SAENZ: Yes, sir. The　-- that project was approved, and the　-- toll equity request that we have received from the El Paso RMA is because of the language in 792, the requirement to do market valuation for toll projects.

There are several projects, I believe six projects in El Paso, that fall under the market valuation requirements of 792. The RMA, we have to negotiate with the RMA with respect to determining the market valuation　--

MR. WILLIAMSON: Uh-huh.

MR. SAENZ: -- for those projects. They request a toll equity, we're doing a toll equity request for them, so that they can hire staff to help them with the negotiations that need to take place as part of 792.

MR. WILLIAMSON: Okay.

MR. HOUGHTON: Mr. Chairman　--

Are you finished with your presentation?

MR. SAENZ: Yes, sir. This is the last page. As I mentioned, we want　-- what we're　-- the actions that we're taking or we're presenting to you today is, we want to plan for maintenance first; we're going to have to adjust for the impacts, it's going to cost them delay of projects, and those are tough decisions that we have to make.

We're going to continue and work with the districts and the MPO to give them the number and let them make the decisions as to what projects need to be delayed or in essence eliminated.

And then of course we need additional cash to move forward. It's going to be important as　-- during the interim when this committee that was set up by 792 that's going to look at our public-private partnership model, that we get the, or get the authority or continue to have the authority to be able to bring in private cash, so that we can develop projects in the future and we can have some more of the orange.

MR. HOUGHTON: Because of the severity of the situation, and it impacts '08 on mobility projects, they're reporting back to us how fast, on which projects get shelved or pushed out? We're going to give them what?

MR. SAENZ: The, we　--

MR. HOUGHTON: Thirty days?

MR. SAENZ: -- had already requested that information from the districts, so we already know what the $965 million project list is.

MR. HOUGHTON: Yes, but you have more than that. If you got　--

MR. SAENZ: Right.

MR. HOUGHTON: -- three, point　-- you got another $600 million　--

MR. SAENZ: I -- we have to go back and we'll go back and say, Okay, I have another $600 million　--

MR. HOUGHTON: Right.

MR. SAENZ: -- we will go back to them and ask them within a week, week and a half, to give us what that project list is.

MR. HOUGHTON: All right. My　--

Mr. Chairman, we've talked　--

If that's your conclusion of the presentation, this looks like we're shuffling the deck a lot here, moving money from like you said, Peter to pay Paul.

But I don't think we've taken the harder steps of looking at how we cut expenses internally. If we're cutting these projects, delaying these projects but we're going to maintain the same level of staffing, the same level of consultants, I got to believe we got to take some other steps　--

MR. SAENZ: Yes, sir.

MR. HOUGHTON: -- whether it's, and I don't mean to be specific, but pretty tough issues, hiring freeze, having one district help the other, whatever that may be.

MR. SAENZ: I would think that the first thing that we would want to do would be that we'd look at, once we determined what the final funding levels are, and what the final list of projects is, is we determine how we can save some money that actually is an outlay from the department.

MR. HOUGHTON: Can we, Amadeo do we have the staff available to help us, at these kind of levels of planning, construction, do we need as many outside consultants as we have　--

MR. SAENZ: No, sir.

MR. HOUGHTON: -- we do not?

MR. SAENZ: If you recall, based on the FTE limits that　-- allocations that we've had and have remained the same for many, many years, a year and a half ago, two years ago when we were discussing consultant contracts, we have the capacity to be able to design at least two, two and a half billion dollars' worth of design work, in-house.

MR. HOUGHTON: And that is　--

MR. SAENZ: So if our letting goes up to $3 billion, then we can bring in consultants to assist us with just the delta, the difference.

MR. HOUGHTON: Okay.

MR. SAENZ: So that would be one way. The, by being able to save some of this consultant contract money, and also if projects are going to be delayed for an extended period of time, and we'll have to have a balance, we may not have to purchase the right of way at this time, we should be able to result in some additional dollars that we could put into construction projects.

Again, it's going to wind up being a balance. We want to make sure that if we need　-- if the project is coming soon or will continue, we want to make sure that we continue and buy that right of way, and have it ready.

But if the project is going to be delayed for an extended period of time, we might be able to delay the right-of-way functions. And if it's going to be delayed for an extended period of time, we might be able to delay the design requirements on that project, so that we can save that money to put on other construction projects that we want to do now.

MR. HOUGHTON: And　--

MR. SAENZ: So we can come up with a　-- once we identify the total cost of　-- the total dollars available to us, come up with a strategy and a plan for you to show you how we can streamline the operations.

MR. HOUGHTON: Well, I think if we're going to do these types of things to the state of Texas, I think we have to demonstrate to the public that we have to take those measures internally.

MR. SAENZ: Yes, sir.

MR. HOUGHTON: At the same time.

MR. SAENZ: Yes, sir. We can also look at other measures and you know, expenditures with respect to capital equipment, expenditures with respect to　-- I was thinking capital, my mind went blank for a second.

MR. SIMMONS: Or capital budget, and　--

MR. SAENZ: Yes. Capital budget, to see how we can realize some savings there that we can put into our construction.

MR. SIMMONS: Mr. Houghton, this will, we already have been talking about that, and it's something we had to go through in 2005. So we know how to do it.

MR. HOUGHTON: Well, again I think if we're going to have this kind of impact on the citizens of the state of Texas, where mobility projects go to nothing, we've got to demonstrate that we're willing to pay the price too, that we have to do some things internally.

MR. SAENZ: Yes, sir.

MR. WILLIAMSON: Further questions of Amadeo?

(No response.)

MR. WILLIAMSON: Mr. Bass, you got the answer to my question?

Thank you, Amadeo.

MR. WILLIAMSON: Now, Mr. Saenz put a card up that said, transfer has increased 15 percent to $1.57 billion.

MR. BASS: Uh-huh.

MR. WILLIAMSON: Is that what you discovered?

MR. BASS: Yes.

MR. WILLIAMSON: Where did the additional transfers occur?

MR. BASS: This lists all transfers and sometimes a transfer is in the eye of the beholder. So so