March 27 Transcript

Texas Department of Transportation Commission Meeting

COMMISSION MEMBERS:

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

STAFF:

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

MS. ANDRADE: Good morning.

AUDIENCE: Good morning.

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

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

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

MR. UNDERWOOD: Thank you, Madam Chairman.

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

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

(General laughter.)

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

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

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

(General laughter.)

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

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

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

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

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

MR. SAENZ: Thank you.

(Applause.)

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

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

Thank you so much, Amadeo.

MR. SAENZ: Thank you.

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

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

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

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

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

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

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

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

(Pause for photographs.)

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

MR. UNDERWOOD: So moved.

MR. HOLMES: Second.

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

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

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

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

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

MS. ANDRADE: Thank you.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MR. BASS: Correct.

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

MR. BASS: Correct.

MR. UNDERWOOD: Okay. Thank you.

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

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

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

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

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

MR. UNDERWOOD: Exactly.

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

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

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

MR. UNDERWOOD: Right. Thank you, sir.

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

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

MR. HOLMES: Is purely letting.

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

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

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

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

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

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

MR. UNDERWOOD: Madame Chairman, I apologize.

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

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

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

MR. BASS: Correct.

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

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

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

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

MR. UNDERWOOD: Okay. Thank you.

MS. ANDRADE: Ned.

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

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

MR. HOLMES: Right.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MR. BASS: Six years.

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

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

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

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

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

MR. BASS: Right.

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

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

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

MR. BASS: Correct.

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

MR. BASS: Correct.

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

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

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

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

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

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

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

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

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

MR. BASS: No.

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

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

MS. ANDRADE: Commissioner Houghton, any comments?

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

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

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

MR. BASS: I understand that.

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

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

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

MR. HOUGHTON: Unfortunately.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MR. HOUGHTON: It would? Okay.

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

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

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

MR. HOUGHTON: Anybody take a shot at it?

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

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

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

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

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

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

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

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

MR. HOUGHTON: For ten years? No.

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

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

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

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

MR. HOUGHTON: You and Bill Clinton, huh?

MR. BASS: What is is, yes.

(General laughter.)

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

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

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

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

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

MR. HOUGHTON: Okay.

MS. ANDRADE: Thank you. John.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MR. UNDERWOOD: Madame Chairman?

MS. ANDRADE: Commissioner Underwood.

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

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

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

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

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

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

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

MR. UNDERWOOD: Thank you, John.

MR. BARTON: Thank you.

MS. ANDRADE: Members, any questions for John?

(No response.)

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

Amadeo, did you want to add something?

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

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

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

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

MS. ANDRADE: James, anything else?

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

MS. ANDRADE: Yes.

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

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

And with that, Madame Chair.

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

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

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

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

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

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

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

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

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

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

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

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

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

MS. ANDRADE: Thank you. Any comments?

MR. HOUGHTON: Thanks, Michael.

MR. HOLMES: Thanks, Michael.

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

MS. ANDRADE: Thank you very much.

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

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

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

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

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

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

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

Amadeo, anything else?

MR. SAENZ: Thank you.

MR. BASS: Thank you.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(No response.)

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

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

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

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

MR. CAMPBELL: Yes.

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

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

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

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

MR. CAMPBELL: Thank you very much.

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

MR. SHADDOCK: Rice University/Medical Center area.

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

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

(General laughter.)

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

MR. SHADDOCK: Understood.

MR. HOUGHTON: John, thank you very much.

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

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

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

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

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

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

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

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

We recommend your approval of this minute order.

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

(No response.)

MS. ANDRADE: What's your pleasure?

MR. HOLMES: Move it.

MR. UNDERWOOD: Second.

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

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Thank you, Eric.

MR. GLEASON: Thank you.

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

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

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

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

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

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

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

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

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

Michael Morris.

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

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

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

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

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

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

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

That's my comments today.

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

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

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

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

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

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

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

MR. GLEASON: Yes, we are.

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

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

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

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

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

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

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

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

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

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

MR. GLEASON: Yes, ma'am.

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

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

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

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

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

MR. HOLMES: So moved.

MR. HOUGHTON: Second.

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

(A chorus of ayes.)

MS. ANDRADE: All opposed, nay.

(No response.)

MS. ANDRADE: Thank you, Eric.

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

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

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

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