Texas Department of Transportation Workshop Meeting
Ric Williamson Hearing Room
Dewitt Greer Building
125 East 11th Street
Austin, Texas 78701-2483
Wednesday, January 27, 2010
Deirdre Delisi, Chair
Ted Houghton, Jr.
Ned S. Holmes
Amadeo Saenz, Executive Director
Steve Simmons, Deputy Executive Director
Bob Jackson, General Counsel
Roger Polson, Executive Assistant to the
Deputy Executive Director
MS. DELISI: Good afternoon. It is 1:31 p.m. and I call this 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 Secretary of State at 12:04 p.m. on January 15, 2010.
Before we begin, please take a moment to place your cell phones and other electronic devices on the silent mode, please.
Today's meeting will involve a series of discussions on various topics currently before the department and the commission. We will accept public comment that is relevant to the posted agenda items but we will not have an open comment period at the end. To comment on an agenda item, please fill out a yellow speaker's card and identify the agenda item on which you'd like to speak. You can find these cards at the registration table in the lobby. We will attempt to limit each speaker to three minutes.
Before we begin with the agenda for today, commissioners, does anybody have any comments they'd like to make?
MS. DELISI: With that, Amadeo, I'll turn the meeting over to you.
MR. SAENZ: Thank you, Madam Chair.
The first item today is a discussion item on the status of our independent audit that's being performed by Grant Thornton, and Ed Serna, who we want to congratulate in that Ed has been named as the new executive director of the Department of Motor Vehicles, will lead that discussion. Ed.
MR. SERNA: Thank you, sir. Good afternoon. For the record, my name is Ed Serna, and I am still the assistant executive director for Support Operations at TxDOT.
I wanted to give you a brief update on the status of our management organizational review. Grant Thornton, our consultants, are actually busy conducting interviews and are not able to attend today, but they did provide me with some information to get you updated.
The second thing I want to do is introduce the person that will be acting in my role beginning on February 1, so let me start off with that. In the back of the room is George Ebert; he's currently the director of Human Resources here at TxDOT and George will be...
MR. UNDERWOOD: Stand up, George, a little bit longer, please. Did everybody get a chance? Thank you.
MR. SERNA: Thank you, sir.
George will be interacting with Grant Thornton in my role. Of course, Grant Thornton reports directly to the commission, but there's someone -- in the past it's been me, in the future it will be George -- that kind of assists them in getting things done and keeping the project moving forward. Any questions that you have about where that project is at that you would normally ask me, please feel comfortable asking George that in the future.
With regard to where Grant Thornton is at to date, of course, they're in the middle of finalizing their analysis of the initial seven items that they were looking at in more detail -- and you may recall those were: accounting operations, communications, human resources, information technology as it applies to use within TxDOT, planning, design, building -- and they're working on finalizing their analysis there, they've already done all their field work, what I'll describe as field work.
They have started on the eighth which is the one that we recently added which was our contracting and procurement practice as well as a look at our DBE and HUB activity. They intend to meet with a number of DBEs. I think that they're going to the list of Disadvantaged Businesses and Historically Underutilized Businesses and select some to contact, get their feedback. In addition, they'll probably be contacting chambers of commerce and other interested parties to get feedback as well with regard their review of our HUB and DBE activity.
The other thing that we asked them to do is conduct a compensation study. They've already started gathering information, both from TxDOT staff as well as from organizations that have similar responsibilities in transportation and from public sources, or what they describe as relevant industry benchmark data.
The relevant industry benchmark data, if you're kind of curious, they'll be looking at the Wyatt Top Management Report, the Dietrich Professional Survey Report, relevant for engineering; of course they have a proprietary database regarding private sector compensation; they're looking at some information that our human resources department has provided them with regard to surveys and compensation studies that we've completed; and then they'll be looking at the American Association of State Highway and Transportation Officials 2008 study. The 2009 study hasn't been produced yet; it was due to be produced in December and we just haven't gotten a copy of it yet. But they'll be looking at those sources of information as well as gathering information from some of the other transportation organizations that operate in the state.
The other thing that we had asked them to do was to interview all the members of the House and Senate Transportation Committees. They have reached out to all those additional members. To date, they've been able to conduct one interview, they have four others that are currently scheduled, and to use their words, they're actually playing phone tag with the offices of the remaining members to actually schedule, but they're hopeful that they'll get all those scheduled and include feedback from all of those members in their report. So they should have that done in plenty of time.
They indicated to me, in a briefing that they provided, that they got some really good feedback. The one member that they have visited with is Representative Yvonne Davis and they got some really good feedback from Representative Davis, both in her role on transportation but also in her role as an advocate for or supporter of Historically Underutilized Businesses and Disadvantaged Businesses, kind of some leads and some suggestions for sources of information for them, so they were very appreciative of that.
Finally, they are still on track with their current schedule which is to complete the final report in April for delivery, as soon as the commission indicates it's ready for delivery. I know we have an open item that we need to discuss concerning scheduling that on the agenda, and staff will be getting with Mr. Saenz and with the individual commissioners to work on scheduling when that gets delivered and how that gets delivered to the commission. But they are still on track with their time line.
And they also indicated, and we reminded them that we would expect them to be available to us beyond delivery of the report if we had questions, if we wanted them to come back and talk to the commission, collectively or individually, about any of their findings, so they'll stand ready to do that also.
And with that, I'll conclude my update on where we're at and I'll answer any questions that you might have.
MR. HOUGHTON: One question, Ed. On the contracting phase of it, have we not been through a couple of those surveys before under contracting? I remember Deloitte did an analysis of our contracting. Was it not in-depth or was it segmented to one area of the agency?
MR. SERNA: We have been through a couple of those but they've normally been in particular areas or particular types of contracting. This was intended to be, one, I believe, something that was a little bit more global in its review, and then also specifically included that DBE/HUB component of contracting as well, so not just the DBE/HUB, the broader contracting, but then sort of a subset of our interactions and opportunities for those small businesses.
MR. HOUGHTON: So we're not revisiting. Are we going to go over old ground or are we going to build upon what we have?
MR. SERNA: I believe that we're going to build upon what we have. The indications that I've gotten from Grant Thornton is they're not going to kind of reinvent the wheel or just regurgitate what's already been provided, but they intend to build upon what we have, and also probably identify other efficiencies for us to make sure that our processes are, in fact, where they need to be given the other changes that they may be proposing, as well as the other changes that the department is working on with regard to its strategic plan, et cetera. So it's not really a rehash as much as a fresh examination, though in some cases some items have been already looked at.
MR. HOUGHTON: Okay. My congratulations to you, or condolences.
MR. SERNA: Thank you, sir. It's congratulations.
MR. HOUGHTON: Since you now have to take on specialty license plates.
MR. SERNA: Thank you, sir, I appreciate that.
MR. HOUGHTON: I'm going to miss it, I really am.
MR. HOUGHTON: So good luck to you and thank you for your service to the Department of Transportation.
MR. SERNA: Thank you, sir.
I did want to take the opportunity to express my appreciation to everyone on the commission, and to Mr. Saenz as well, for all the support that you've provided me over my tenure here at the commission on issues and the opportunity seriously to work on things like this, but then also, just in general, the opportunities that you've afforded me, so I've appreciated that very much.
MR. HOUGHTON: Where are you officing?
MR. SERNA: I'll be actually at Camp Hubbard. We're setting up the DMV kind of what I describe on the cheap, we don't want to spend a bunch of money, so those divisions are sitting where they're at. So I'll be at Camp Hubbard, Building 1 which is where VTR is primarily at right now.
MR. HOUGHTON: Kind of fits the mold of those car dealers, doesn't it.
MR. SAENZ: It's a nice 1950s building. I like that kind of antique stuff. I'm actually moving up from a 1930s building to 1950s building.
MR. SERNA: Thank you very much, I appreciate it.
MR. SAENZ: Thank you, Ed, and like I said, good luck, and look forward to continuing to work with you.
Commissioners, agenda item number 2 will be a discussion on the use of the State Highway 121 Regional Toll Revenues that are generated as part of the development of the State Highway 121 project, and John Barton, as well as some of our partners from North Texas, will lead that discussion. John.
MR. BARTON: Thank you, Director Saenz. For the record, my name is John Barton. I have the pleasure of working for you as your assistant executive director over Engineering Operations.
And Chair Delisi and commissioners, I believe that in past meetings you have asked the staff to prepare for you a presentation on the use of these Regional Toll Revenues that are generated from the fee paid by the North Texas Tollway Authority for the right to build and operate and receive the revenues from the State Highway 121 project in the Dallas area. So today we've been blessed with the opportunity to have Michael Morris from the North Central Texas Council of Governments be here with us, as well as Bill Hale, your district engineer for the Dallas District, to prepare and share with you some information about the management of the Regional Toll Revenue funding, the project selection process and management that they are using to develop a plan for the use of those funds, and then to answer issues and questions that you might have about the use of those funds.
So at this time, I would ask that Mr. Hale and Mr. Morris come forward and I'll turn over the microphone to them for their presentation. You should have a handout of the presentation that they will be speaking from in front of you, and I will step back and allow them to make their presentation. And then, of course, at the end we'll be happy to join them to try to answer any questions that you may have.
And just real quickly, before I do, for Chairman Vandergriff, I wanted you to know that Ed has just released an order for new furniture over at the new building, so although he's leaving us and said he was doing it on the cheap, I think that you might want to take a look at that requisition request.
MR. MORRIS: Madam Chair, thank you very much; members of the commission, Amadeo, thank you for everything you do; John Barton, thank you for everything you do.
It's a very exciting day to talk about this particular program.
MS. DELISI: I'm sorry to interrupt, but you might want to say your name for the record.
MR. MORRIS: I'm sorry. Michael Morris, director of Transportation at the North Central Texas Council of Governments.
Christie Jestis is here from our staff who works in this every day; Ken Kirkpatrick, internal counsel; we have several Regional Transportation Council members here. This what we call the Public Sector Credit Union Bank, we're very excited about it, there's lots of money in it, there's lots of customers, and we get to present it to you today. In fact, the Regional Transportation Council will be offering you $285 million for projects on your system that we are prepared to move forward on from these RTR funds, and let me walk you through the presentation.
There's the three topics: one, what do we do in our particular region to manage the Regional Toll Revenue funds. These are what we call the State
Highway 121 funds, or public sector revenues; we're going to talk about importance of project selection, how we've developed a transparent, internet-based piece of software. Commissioner Underwood, you came to our office two years ago, 18 months ago on that topic, we committed to you and outlined to you what we're planning to do, and of course, we implemented it and we're more than happy to share that transparency with you, the importance of leveraging. Every day we work on leveraging within the region. I think that's our success, and obviously the importance of cash flow, and I'll walk you through those.
On your list, and this is, I think, one of the reasons why I'm here, you obviously have an obligation of communicating with the Legislative Budget Board these items, so how do we maximize the communication between our staffs so you can do what you need to do with the Legislative Budget Board and we can manage this particular system. And then we are raising one policy question for you at the end of the presentation, and I'll say I'm raising that policy question; Bill Hale is not raising the policy question because we want Bill Hale to always be our district engineer in Dallas-Fort Worth.
With regard to the management of the RTR funds, we go through a lot with regard to project selection, and I think your Legislative Budget Board asks this, Amadeo sent me a note; we're preparing a response. We're more than happy to defend how these projects are selected. We use 25 criteria. We've developed a very analytical foundation; these projects are scored; they are presented to the Regional Transportation Council for approval.
The Regional Transportation Council has reached out and created subcommittees of elected officials in each county, we call those the county task forces, so the county task forces and the Regional Transportation Council in cooperation go through the analytics of each of these particular projects, RTC then recommends them to you, and then, of course, you need approval from the Legislative Budget Board. Then, of course, we don't do anything until we take them out to public meetings and we have lots of public meetings with regard to this particular program.
The second topic is this internet-based transparent software system. In September 2008, all of the RTR funds were put on the internet so people could see where they are, it would be what I would call a traditional accounting system. We have now gone to a pretty dashboard-oriented revenue and project-tracking system, Phase 1, it was operational since February 2009, and now we're in Phase 2 which will be operational next month.
This has been so successful in managing RTR funds, we're going to put all of the projects in the transportation improvement program in that, so you're going to see a Phase 3 and a Phase 4, as we then add all the projects with regard to this. So anyone at home can follow any project, there's maps associated with it. We have examples at the end of the presentation if you want to see some. I didn't include those in the presentation because I know you have lots of things to talk about today.
It is very transparent. We eventually will have a system where if a project changes or gets delayed, you can send emails out to folks who are monitoring the particular program, we have places for photographs, it is a system that can continue to grow in the future as we all wish to make this more and more transparent.
Let me talk a little bit about this Credit Union Bank notion, and this is a ledger like you would on your regular bank account, but at least in my bank account I don't have billions of dollars in it like this bank account, and I won't go through all of these, but I wanted to give you the spirit of what the Regional Transportation Council is doing.
The $2.4 billion number, as you remember, that's the near neighbor near time frame funds that came in on 121, the $737 million is the excess revenue; interest to date accrued is $162 million on those funds; projects that have come to you to then be let, those projects are $65 million under so far in the letting schedule.
If you drop down a little bit, the Regional Transportation Council has, quote, loaned these funds back out in order to do the Loop 12 improvements which has a light rail going underneath it, State Highway 161 which, as you know, you've supported us going to Phase 2 and 3, the interchange of George Bush at 30, doing the engineering on the Trinity in order to get 404/408 permits from the Corps. These all are reductions out of the bank.
Eventually those items get repaid, the elected officials in the east are sitting there waiting on their transportation projects until these loans get repaid which is later on in your agenda that talks about 161 and the Southwest Parkway.
Bring your eye down to the $625 million entry. Bill Hale and NTTA have negotiated on the George Bush Extension that TxDOT and the RTC will get 20 percent gross revenue on that toll road. The estimate of that over a 50-year period of $625 million, so we show that as an entry, but, of course, you know that money isn't available today but we want to just share with you that any point in time there's an expectation that this Credit Union Bank or this RTR fund can loan money out to the public sector to build projects which are often on your system to get expedited, and then sometimes there's a way to pay money back, sometimes there isn't, and then the software keeps track of all these expenditures in what is called the RTR, Regional Toll Revenue, or the 121 Program.
And obviously we can't call it the 121 Program anymore because soon we'll have revenues from 161, soon we'll have revenues from the George Bush Extension as we continue to keep this Credit Union Bank alive.
We've done a simple cash flow analysis for you. The top line is the revenues and the bottom line is the anticipated expenditures. Projects have already been selected, they are going through their regular design, those projects are constantly either being moved up or pushed back, depending on when they can be let. The RTC is anxious to let them as quickly as possible, as you know, because we're getting very good construction estimates as part of this particular initiative.
Your initiative with the Legislative Budget Board creates some level of confusion because what has the RTC really done, and frankly, I think I need to spend more time with your staff, whoever is communicating with the Legislative Budget Board, to increase the communication so they fully understand what it is we're doing and the transparency of what it is we're doing. And frankly, whoever is communicating with the Legislative Budget Board, if they could communicate with me more on what they need to do, I actually think we can make this very transparent.
Increased communication, I think, will solve whatever the understanding, and I think, frankly, the Legislative Budget Board or you may think we have picked more projects than we have available, they obviously wouldn't have available to them these loans and some of these other things we're doing. And I think we've got to coin maybe two phrases: maybe the phrase should be projects the RTC has selected, and then projects the RTC has programmed.
Because the RTC has selected specific projects but the RTC is very aware that until the monies come back from, say, Phase 2, Phase 3 of 161, they understand projects are at risk whatever happens to those particular funds, and then if programmed is the correct word, then that might be the word that we then use with the Legislative Budget Board so they know that the funds match with regard to that. I think we could actually have the software to do it automatically because you have receipts and expenditures and at any one time you'll know which projects fall underneath that cash flow window and which ones do not.
Remember, the long-term solution is the RTC remains very nervous and the elected officials that are here today are some of the more nervous ones that as this state continues to get in budget trouble, will there be legislators who try to steal the monies in this particular account or hold them hostage to balance the budget by not permitting you to proceed with the Legislative Budget Board. So we're doing, of course, everything we can, and you understand that history very well with regard to the attorney general's opinion and other strategies, but right now we have full speed ahead on getting these projects to construction as quickly as possible because of that potential risk.
And last, with regard to the policy question, we very much want these funds to go to construction. As you know, close to 2.5 billion of these dollars are on your system, and what we've done recently, because of your cash flow issues and shortages on right of way and engineering and construction costs, the Regional Transportation Council has backfilled almost $300 million. We think the legitimate costs should be construction, right of way, and engineering.
But when charges come from staff or overhead or people in Austin or who knows where are being charged to the RTR accounts, it becomes a very problematic thing for me because elected officials say, Well, why is someone charging to this particular project, I don't know; what are they doing, I don't know. I certainly don't want to audit those particular costs because we're getting pressure now to try to do that. Why can't we just keep - if we're giving you two-point-something billion, why can't we keep it on construction costs, right of way and engineering which is very transparent to us, versus to some of these others.
So let me just go through the policy question. Off-system projects, there are no TxDOT charges to those, $700 million of the $3.5 billion are off-system, there's no issues. With regard to on-system projects, a lot of these on-system projects, Bill already had federal funds for, and then he didn't have enough right of way or enough engineering or some construction costs changed, so the RTC puts RTR money on these projects and now we start to see administrative, not engineering costs or oversight or administration or some fees to this, of which I'm not saying they're not legitimate fees but the question is wouldn't it be a lot easier to manage it by charging those funds to somewhere within your particular system.
If I was a mall developer and I gave you a million dollars to build a new ramp or a frontage road in front of my mall, I think you should charge me 100 percent of the cost of engineering, right of way, construction and all the other costs that you have to do. But if we're partners in transportation and we're on our own putting the money on the best projects, $2.5 billion of them happen to be on your system, and Commissioner Houghton, if you said, Michael, I have good news for you, we're going to give you $2 billion, I think the last thing I should say is, Well, wait a minute, let me see how much I'm going to charge you for you to give me the $2 billion.
And that's really the policy question that we have: Is there not some other place, for example, in this case why doesn't TxDOT charge it to the federal components of the job, they were charging to the federal components of the job before we ever came in and bailed out the right of way and the construction costs.
And then lastly, we have some on-system projects that only have RTR funds, so you know, at one time they could have had engineering or right of way. I think like US 75 in McKinney, for example, we may have 100 percent of those particular costs and we just simply ask the policy question, it doesn't have to be solved today. Is there not some other bucket that you could charge other than the construction, engineering and right of way for these particular costs.
Madam Chair, there's information on the transparency of the software, you may not need a presentation on that. We have a very sophisticated system to keep up with the money. Your responsibility, not ours, is to communicate to the Legislative Budget Board. I think if we could increase the communication so your staff knew we weren't over in our commitments, but we have selected projects and we have programmed projects and we understand some projects are at risk if our loans aren't paid back, we're prepared to communicate that very easily to your staff. We're more than prepared to defend to the Legislative Budget Board the cost-effectiveness of these projects. In fact, we can show them the scores and the criteria on all the projects that we have selected, as well as the transparency of the software of these particular items.
And then, at least this staff member asks some consideration to what are the legitimate costs to the RTR. We certainly have a minute order that was very clear to us that all the costs for these particular projects would be charged, we very much support that, but since that time when you pulled engineering and right of way out of these particular projects, we've got to ask the question: Is that still the best position when you're able to take at least $300 million out because you don't have it, we're backfilling it because we still think Bill Hale has the best projects that he's working on.
The question is: Why get in this gray area with regard to who charged what time where to which project. Otherwise, the elected officials may say let's go audit those costs, and frankly, I think that's not the best use of either of our time.
Madam Chair, I'd be happy to take any questions. Bill Hale may wish to respond or contradict anything I say, that's fine; John may wish to add or subtract to it; we're here however you like on this particular item, it's a very exciting program.
MR. BARTON: Just to complete a little bit of the presentation, again, Bill is available to answer any questions you may have about projects and how they're moving forward. Before you tomorrow will be a minute order, I believe, regarding the authorization of certain projects under the program to be funded, and then, of course, as that's approved, we will submit that over to the Legislative Budget Board for their review and approval as well.
I think what you asked was to be briefed on the accounting of this process to make sure that we're not over-committing the State Highway 121 Regional Toll Revenues at any given time, knowing that the fund continues to draw interest. Michael and the region have been proactive in trying to plan for those additional uses, but I believe that he shared with you they do have a financially constrained plan, and Bill and his staff have confirmed that for us.
The issue of TxDOT's eligible costs has come up, and as Mr. Morris has laid out, over time there's been a discussion of what's appropriate and what is not appropriate. Philosophically, I think if James Bass was here as our chief financial officer, he would say that as a project is born and then ultimately cradle to grave, that the same source of funds should, theoretically in the best case scenario, fund all of those activities: the design, the construction, the right of way costs and the oversight.
Prior to having these new financial tools available, that's the way it all worked with Fund 6. With the different tools that we've had a hybrid approach to a lot of different projects, and in this case there was in the minute order that originally started this a clear definition that all project costs could be associated to the State Highway 121 Regional Toll Revenues. What the region is proposing, as I understand it, is that TxDOT's costs for right of way, engineering, design, if we pay for those services, and then, of course, the construction would be covered through the State Highway 121 Regional Toll Revenues for projects that are on our system. And they're asking simply that we would fund our own employees' time and our equipment's time if we're out there doing the construction inspection. That's a policy decision that you certainly can give us direction on and we would like to have that.
And Bill, Mr. Hale, I don't know if you would like to share anything about your certainty of the financial accounting of the funds. One of the concerns that Director Saenz has expressed and our purpose of having this discussion today was to provide assurances to the commission that we're not over-extending their authority by asking them to authorize projects that currently funds do not exist to cover because of anticipated interest.
MR. HALE: John, I'll briefly mention what we did on this thing. That's exactly right, we did make sure they all matched up, and we had them do some adjustments over the last several months, we had to go back in there because most of our projects in the district, when you first got this program started, included all Fund 6 projects, all RTR projects, and a combination of these projects, and we went down and through there and we got them set up and it was based on a schedule.
What happened with our funding sources as we got going is that some of the projects on the all funded part with Fund 6 were suddenly pushed back, and then the ones that had two accounts in there where they had both Fund 6 and RTR dollars in there, they were suddenly delayed because the Fund 6 dollars weren't available, and then the pure RTR projects were moving forward and we had to shuffle the projects that went through there. So we had to go through this exercise to move all the RTR money forward and the rest of the money back because it comes in as a cash flow and we will stock it to make it happen.
We also had to work in a partnership with all the counties because the majority of the money was in Collin and Denton counties and then we had to put some in Dallas County. Dallas County had quite a bit, but our entire district got a share based on a formula. So by doing that, we had to take those formulas and rework it, and we even had a great partnership with borrowing money from one county to the next to make things happen.
And we took all that, what you'll see tomorrow is that we took projects that had multiple sources of funds and moved RTR money on to those projects, we worked our operations up with design, construction and maintenance, we worked it all the way down, and then we had to take some projects that had construction on there and move them into design and construction to keep them going. And you'll see that happens first spending RTR money and then later spending the money that comes in on Fund 6 later on as we go down through there, and that's how this is set up, and we made sure that every dollar was accounted for.
And Michael mentioned in his presentation that we had to go down there, there were multiple sources, the revenue sharing that's coming off of 190 eastern extension, that's coming onboard, and now the rest of them, so we do have it coming that way, so we're getting a steady flow of dollars coming in with that. But we had to make sure the RTR was first and the Fund 6 started coming in second, and it does match up.
MR. HOLMES: John, recently there was a question from I think it was Fort Bend County about some charges that we were imposing on one of their projects, and it sounded like a similar discussion that Michael just addressed on some of our charges back to the RTR projects. Do you recall that, and can you contrast that for me and help me understand that?
MR. BARTON: I do, Commissioner. I believe that the matter you're referring to is an off-system project, it was not a projection the state highway system, where a local community had worked with the department to get some funding for a project to basically do a city street improvement, and in the agreement that we prepared for them, one of the things that they asked us to do was oversee the construction of the project, so we would have our employees out there on a city street overseeing the construction activities, which we do in some situations.
When we do that, however, because it's not on the state highway system, by statute we have to collect from the city through their own revenues, not the federal or state monies that they're using for the project, to repay us for those costs. And that's what they were asking us to do, they were asking us to waive our inspection costs, and unlike what Michael is suggesting from the region's perspective, they're asking us to just continue to pay our own costs for projects that are on our highway system that they're giving us the State Highway 121 toll revenues to cover. This local community was asking us to pay our own costs for a project that was off the system that benefitted that local community, and by statute, we can't do that.
MR. HOLMES: And so there's no statute that controls whether we charge or not charge on the RTR?
MR. BARTON: No, sir, there's not, and I think it's just more of a matter of policy. In other situations, we may have a project where a local community comes in and agrees to pay for the construction, and of course, then we cover the costs for designing the project, buying the right of way, or overseeing the construction management. And what I believe is being requested by the North Central Texas Council of Governments and their Regional Transportation Council is to adopt a similar philosophy but a little bit different: they're going to cover all project costs except our employees' time and our equipment cost for the construction management, as I understand it.
MR. UNDERWOOD: How many dollars are we talking about in something like this?
MR. BARTON: On a typical project of the magnitude that most of the State Highway 121 RTR-funded projects on our system are, you're probably talking, on average, 3 to 4 percent. Is that correct, Bill, from your experience?
MR. HALE: That's correct, we have a 3 to 4 percent direct cost that comes to us.
MR. BARTON: So for a $100 million project, and most of these are rather large projects, I guess they do range from some that are relatively small to some that are relatively large, but I think, on average, they're $30- to $40 million project size. Is that correct, Bill? So you would be, in that case, looking at somewhere between $600,000 and a million dollars worth of TxDOT costs that we would be covering from our normal funds.
MR. UNDERWOOD: I want to follow that up. So in other words, if I'm the community -- is my mouthwash that my wife gave me or is it this microphone? Do you hear me? Thank you. I think John is getting coached right now a little bit. John, so I understand this a little bit better, if you're a community and you think that you have $100 million for your projects and you want to be able to spend that on the projects and all of a sudden TxDOT is coming in there and saying that part of it, 3 or 4 percent of that you're not going to be able to use because that's going to go back as fees to us, not fees. I don't know what term you want to use, but they won't have access. And Michael is saying that he would like to have access to the total amount. Isn't that the bottom line?
MR. MORRIS: And Commissioner, it's a larger policy question. Right now we pick the best projects, we don't say we're going to put so much money in on-system, we pick the best projects, so the best projects ended up with the State of Texas getting like 75 percent of the money. What I don't want to have happen is local policy officials feel like, gee, my project I thought was $20 million and it ended up being $18 million, or whatever the number is, and then ten years from now someone says you know what, why don't we just pick off-system projects and then we're not charged. Well, that's a bad policy, you can't have a policy if it's on-system or off-system, you should put a policy on what's needed and what's unsafe and who cares if it's on- or off-system.
So what I'm trying to do is level the playing field. If TxDOT is not charging to any of the off-system projects, and it was okay when you guys had enough money for them to put money in for right of way and engineering, then I can understand it, but in the last few years you've pulled your right of way and engineering off and we're thinking I don't want these elected officials to ask me what's the $174 charge on State Highway 66 because it will be a waste of our time but it's the right fiduciary question.
MR. UNDERWOOD: Or you can go back and do the audit and say why did he have a $25 lunch when he could have had $5 at Burger King.
MR. MORRIS: Whatever. Is there a way we can just do it more administratively so you worry about your side of the issue and I worry about my side, and that's all I'm suggesting. There's got to be a cleaner way so we don't waste a whole bunch of time.
MR. UNDERWOOD: And dollars.
MR. MORRIS: And dollars when we're all partners building the same projects anyway.
MR. BARTON: And just to be clear, Commissioner Underwood, you perhaps were using the meal as an illustrative analysis only, but we don't cover our employees' meals costs.
MR. UNDERWOOD: I apologize. You're correct.
MR. BARTON: And I also wanted to point out that this is not just employees' salaries and our equipment costs, it's if we pay to have materials tested or any of our direct costs that we incur during the administration of the contract. Those are the costs that they're asking us to bear with Fund 6 state and federal dollars rather then being funded through the State Highway 121 revenues.
MR. MEADOWS: Could I just make an observation? I think that the issue that Michael Morris has put on the table definition has sufficient merit for us to consider it. Second, we can't make a decision today anyway. So I suggest that we have a workshop item so we can really get into this and have the information we need in order to make a good decision 30 days from now, something such as that. I appreciate you bringing it and putting it on the table.
I think we're going to spend a whole lot of time here today asking a lot of questions when, in fact, we really ought to approach it in a more comprehensive fashion at a later time when we can really focus on it. The idea has merit and ought to be explored.
MR. MORRIS: And Commissioner Meadows, I don't want to take the time here today. I want you to be comfortable we know where the money is, we know how much money it is, we know where it goes to, we're confident to go with you to the Legislative Budget Board or have you more comfortable when you do it. I think I've erred in not communicating more of what we're doing, I don't know who the Legislative Budget Board people are that do this.
If we can create a little task force, we can make it a lot easier, help defend these projects because your staff goes and we're not even invited, they've got to defend the projects, they don't even know how we pick the projects and all the quantification of scores. There's got to be a way we can put a team together so we can make it easier on you. That's the real message.
MR. MEADOWS: I'd like to just pause just for a moment because I think we should. As you have made your presentation today, I don't want it to be lost as to what the significance of your presentation actually is in terms of real dollars that are going to be directed toward providing and improving transportation infrastructure in that region. You're talking about $2-1/2 billion that is going to be directly brought to bear, and I think that's remarkable as we begin to think about how we, in a more innovative fashion, address some of the challenges we have.
I think we compliment you, we compliment the RTC, its membership, its leadership, the toll authority involved and our staff. I think these are great opportunities for the citizens of that region. It's money that is generated and derived from that region and is going to be brought directly to bear on transportation projects and it's $2.5 billion that we're not going to have to spend out of Fund 6, and I just think it's important to recognize it, you all have done a good job.
MR. BARTON: I believe that the direction then is to perhaps do another in-depth analysis and schedule an additional workshop discussion of this item on the policy implications and what we think staff's position might be on that in terms of a recommendation.
MR. HOLMES: John, you might also clarify, I thought I heard Michael say $300 million, and you said 3 percent. Did I miss that?
MR. MORRIS: I'm sorry, it was maybe in my communication. The policy question I'm introducing -- John Barton is right; it's 2 or 3 percent. The item you have on your agenda tomorrow, just to put the magnitude in perspective, when Bill brought the, oh, we don't have enough right of way or engineering funds, the RTC said we want these projects to proceed as originally scheduled, the Regional Transportation Council took their underages, the cost overrun pool, all their bubble gum and baling wire, and tomorrow's agenda, $325 million more dollars we're placing on these projects to keep them on schedule. We had held these for cost overruns, here's the cost overruns, so these projects can proceed as originally scheduled.
Now, they originally were scheduled probably with Fund 6 or Category 2 or something that isn't a right of way, that isn't there, so we're replacing what were your commitments with RTR funds to keep them on schedule. It adds up to over $300 million of additional RTR money we're placing on you system tomorrow on your agenda.
MR. HALE: Could I make one point? As this started happening, and this helps this out, because we had a project on 407 up in Denton, there were three projects to be let in sequence, the first one to be let was 35, the other two come after that. RTR money was placed on the second two, it had federal money on the first one. The first one should have gone first but it was going to be delayed because of the funding shortage, so we let the other two with the bottleneck before we could ever get to it, so we had to move money from other sources, from RTR sources on to that first one to go ahead and get it let and moved the federal dollars back on to other projects.
So that's how it happened, in general, over the entire set of projects we had: we moved RTR dollars on to them and state and federal dollars back, as that money comes in we bank it, and then we start using those dollars at that point.
MR. MORRIS: Commissioner, we're going to have an item in a moment, I'm underscoring this $300 million to put it in perspective, we didn't give you $300 million conditional that you do something on 161 or Southwest Parkway. It's good that this item is first so that you understand the magnitude of commitment we've made as we then talk about some of the other items on the agenda today.
MR. BARTON: I believe, Director Saenz, we have a clear understanding of what the commission would like us to do and we'll move forward accordingly.
MR. SAENZ: Thank you, John.
Commission, the next item is item number 3 that deals with a discussion on the potential funding scenarios for a couple of projects in the Dallas-Fort Worth area, State Highway 161 and State Highway 121, locally known as Southwest Parkway/Chisholm Trail, and John will lead us on this presentation.
MR. BARTON: Thank you, Director Saenz. Again, for the record, my name is John Barton. I do have a prepared presentation for you, I think there is a copy of that in front of you as well, and also would like to ask Michael Morris to again assist me with this presentation, as well as Allen Clemson, the director from the North Texas Turnpike Authority, and Maribel Chavez to be available to help us answer questions, our Fort Worth District engineer.
So as they make their way to the table, I would like to just begin this presentation and share with you a little bit of information about this particular project. the two projects in the North Texas area on State
Highway 161 and State Highway 121, Southwest Parkway/Chisholm Trail are certainly of great importance and magnitude, not only for the Dallas-Fort Worth Metroplex but for the state as a whole.
This slide depicts an overview of the State Highway 161 project. I won't go over the exact details, but as you can see, it's about an 11-1/2 mile project through the heart of the Greater Dallas-Fort Worth Metroplex area serving many important venues, most notably, perhaps, Arlington Stadium and the new Cowboys Stadium, and the department, with the North Texas Tollway Authority and the Regional Transportation Council on behalf of the North Central Texas communities, have been working to develop this project over quite some time. It's rather large in scope and certainly a well known project within the Metroplex.
The Southwest Parkway project is a project that starts in the central business district area of Fort Worth and runs south through the heart of Fort Worth for approximately eight miles to Alta Mesa Boulevard which is on the southern limits of the Fort Worth community. That is a project also that has been in development for quite some time, and again, a project that the department, our Fort Worth District and our regional partners have been working on to progress and to develop for the benefit of the region.
Tying into that is another portion of State Highway 121 that's locally referred to as the Chisholm Trail. It begins where the Southwest Parkway project ends, if you will, at Alta Mesa Boulevard and then runs southward for approximately 19 miles to the community of Cleburne, Texas, through the bedroom communities of Crowley, Joshua and others that are in Johnson County and have an opportunity to grow and flourish there while doing business in the Greater Dallas-Fort Worth Metroplex region.
So both of these projects combined make up what is referred to most commonly as the Southwest Parkway/Chisholm Trail project, and you can see from this particular slide, connecting the central business district core of the city of Fort Worth with the community of Cleburne and all those neighboring communities in between, opening up another north-south corridor parallel to I-35 for the Greater Fort Worth and the western side of the Dallas-Fort Worth region.
The costs associated with the project may be difficult to see on this slide, but they are enumerated there, and if you were to take time to look at it, you will notice that several key elements of this project have already been funded by the City of Fort Worth through their partnership with the region and the department, the Texas Department of Transportation through our efforts to develop the project over time, and most recently, the American Recovery and Reinvestment Act as the RTC and the region voted to fund a couple of very important projects in the central part of the corridor of the Southwest Parkway portion and in the Cleburne community on the southern end of the Chisholm Trail project.
To date we have been working very aggressively, commissioners. I think most of you were on the commission when this project first was initiated on State Highway 161 to enter into an agreement with the North Texas Tollway Authority to develop this project. Phases 1 through 3, as you can see, have already been constructed, the 2 and 3 are under operation and the North Texas Tollway Authority is operating those projects and currently collecting the tolls from them. And Phase 4 is a project that is ready to be implemented by the North Texas Tollway Authority to complete the construction of this important corridor, and is the subject of the toll equity loan agreement that we have been working on with the North Texas Tollway Authority for the last several months.
The toll equity loan process has been moving forward, perhaps slower than some would have liked but certainly with the best intentions by all parties, and those negotiations, if you want to use that term, are fairly close to being 100 percent completed. We've come to agreement on most of the terms of the toll equity loan and I would be more than happy for Allen Clemson to share with you additional information about that if you would like.
Also, another important matter before us in this particular regard is the Union Pacific Railroad and the agreement that we have to reach with them. We do have ongoing discussions with them, but it appears that we are close to concluding those discussions and coming to a resolution of the issues before us.
We looked at several different revenue projections, one of the issues that's very important in a toll equity loan agreement, and considered several different scenarios but have reached what we believe is a scenario that all parties can agree to as fair and at the same time minimizes the risk to the State Highway Fund in terms of jeopardy for a toll equity loan draw. So we believe that that process will conclude in the very, very near future, and again, something that we've all been anxiously awaiting and are hopeful will be completed in the very near future.
At this time I would like to ask Michael Morris, I believe, to continue on with the presentation to share with you a little bit of the overview of the partnership that we've been working on over the last several weeks in order to respond to requests to bring forward an idea and proposal, if you will, of ways to make this project and the State Highway 121 project move forward in the development process for the region. So I'm going to move to the table and I'm going to pass on the power point control to Michael and turn it over to him at this time.
MR. MORRIS: John, thank you very much. If there's one thing we need to celebrate and you should be very proud of is the integrated staff work over the last twelve weeks of TxDOT Austin and district employees, both districts, Allen Clemson, his staff and consultants, our staff in looking under every stone to deliver these particular projects, and I think our presentation, hopefully, will demonstrate that. But at least stop and celebrate how everyone took their name badges off to get these projects across the goal line. Tom Shelton is here from my staff, Ken Kirkpatrick and Dan Lamers who did most of the elements on our behalf.
I think it's also important to point out that these two particular projects were put on a transportation plan in our region long before there was even a metropolitan planning organization back in 1965, J.R. Stone did it, he later became Fort Worth District engineer; and Mayor Barr and Steve Simmons saved this project ten years ago when we weren't sure we were ever going to build the Southwest Parkway between 20 and 30; and Bill Hale, his staff and our staff got this project out of the Fifth Circuit Court on 161. This project has been bumped and bruised, the football is on the one-inch yard line and I couldn't be happier in the level of effort in the presentation that we bring to you today.
What we're trying to do is to adjust the scope of work and match it to all available funds. We know what funds we have on our table and we're not sure where your revenues are, we'll lay out what some of those possible strategies will be, and then ask your support for the tender minute order that you're contemplating tomorrow.
You originally, in a 2000 agreement, had an obligation for roughly, today's costs, $500 million in interchanges. As a result of the leadership of this commission and the leadership of the North Texas Tollway Authority, you guys sat down and developed a whole brand new partnership to deliver this project. Your minute order of 2008 has a toll equity loan for 161, it relieves you of the construction costs of 30 and 20, and then I'm using quotation from the minute order: "TxDOT and NTTA to cooperatively develop and evaluate strategies for financial feasibility for the combined Southwest Parkway/Chisholm Trail." And today we are to discover what that truly means.
Here's the Southwest Parkway/Chisholm Trail. I'll go through what is called Scenario 1-C. We suggest the whole project not be built out of the gate. For years we've talked about a staged construction in Johnson County. That's the recommendation to build half the facility. That's what's in blue. We also suggest we defer six of the ten interchanges in that blue area at 20. The stimulus project right now is constructing a lot of the movements in that particular interchange that will be used in place of the more expensive direct connections that will be built someday over time.
Let me share with you where the staffs have been. The project originally at $1.8 billion, all the partners that John Barton described, Maribel, Fort Worth, TxDOT, right of way RTC money, $365 million is already spent on the particular project or under construction. We went through very detailed engineering. Allen Clemson instructed his staff to open up every book and question mark. The staffs worked together, TxDOT, our staff and Allen, we took another $300 million out of the project largely gearing the correct urban design features in the southern portion of the corridor and the correct pavement thickness, elements like that were eliminated. That gave us a project cost of $1.2 billion. We then went to work on the staging, we came up with 1-C, we actually looked at and simulated 20 different alternatives. Here's the latest ones. 1-C is the option that I described to you before in the picture.
I'm going to turn this over to Allen Clemson to start talking about the financing, I'll be back. Allen Clemson, as you know, is the executive director of the North Texas Tollway Authority.
MR. CLEMSON: Thanks, Michael.
Right now the NTTA's estimates for the contribution of equity from the NTTA system is $400 million, and for 161, $367 million is required if the TIFIA funding is not available, and $354 million is if we're able to receive a TIFIA. Reviewing that, you can see that of the $400 million equity that we committed for the Southwest Parkway/Chisholm Trail and 161 is substantially consumed by that measure.
Also, in our pursuit of the TIFIA loan and stressing our financial analysis, if we do not receive a TIFIA, revenues off that toll project would have to be less than estimated every year, not just one year but every single year at over 13 percent before we'd make a toll equity loan draw. With the TIFIA loan, that improves to 17 percent, not one year but each and every year over the whole loan.
I would turn it back over to Mr. Morris and he'll cover some of our other.
MR. MORRIS: Knowing that you are facing what is the region doing with regard to reducing our risk, I wanted to put on one piece of paper all the partnerships. In the top left you have NTTA putting in more than $400 million of system equity; they have proposed to give $200 million concession payment to the eastern side of the region. The eastern side of the region is anxious to get its $258 million paid back because, remember, we delayed construction of projects in the eastern side of the region to loan the money for the $258 million.
In the top right corner is you, a terrific job in getting this project started, State Highway 161
Phase 1. Your original 2000 agreement which today has a $500 million cost component which in 2008 was eliminated for the partnership that we sit before you to try to understand what that partnership involves in getting the Southwest Parkway across the goal line.
If you look at the middle of this, we're sitting on Scenario C which builds the project from
Fort Worth all the way to Cleburne. We, collectively, RTC, Fort Worth, NTTA, TxDOT, have spent $365 million in the corridor. It's a little hard to turn your back on a project you've started constructing. The value engineering savings is $300 million, as I mentioned to you earlier, the stage construction is an additional $157 million, and all this work has been accomplished in the last ten weeks or so.
The RTC brought Phase 2 and 3, advancing the RTR funding and delaying other projects in the east. As you know, we worked with you on the Union Pacific Railroad agreement for $95 million, we kept our $300 million commitment on the Southwest Parkway and Chisholm Trail, we took a few bullets in the region to put $143 million of economic stimulus all on the one project, and we stand ready in what we coin the regional backstop which would be used first before we ask you to access any of your faith of the State of Texas, and I'll walk you through that regional backstop.
Steps to success started with NTTA, $400 million coming out of their system revenue on to these projects, and its money can't go back into the system until you are relieved of any financial obligations on these particular projects, and I'll talk about the partnership waterfall here in a moment.
If you flip over to the next page, at this particular point in time, $458- would be returned; we have looked at options on how the $458- can help build these particular projects. The RTC was briefed on this in a workshop in December. If the TIFIA is obtained, no reason why NTTA could not return on schedule the commitments that are in the current agreement, $258- for construction and a $200 million concession payment.
Let me walk you through what the Regional Transportation Council is prepared to support on Friday. We scheduled our meeting after your board meeting, your commission meeting on Thursday, four elements to it. There are conservative revenue estimates and I know several of you had questions on this on the Southwest Parkway/Chisholm Trail and on 161.
There are a lot of special events that occur near 161, you have a major league baseball team, minor league, horse race track, concert hall, major football stadium, major entertainment in Six Flags. You have a pricing structure where the toll users in Fort Worth are paying 4 cents additional fee for the lower speed limit and the higher amenities. That creates a great revenue cushion for you because you're getting the additional revenue up front, and you still have the revenue increases possible due to conservative estimates of traffic at that particular speed.
The second issue is this notion of one system. Remember, these two projects would be funded outside of the NTTA system, they each have their own waterfall. The suggestion is money is kept in each project and if one project needs money, it's taken from the other project; if the other project is doing better and Southwest Parkway needs it or 161 needs it, before any draw to the state, any surplus on either project, then a common shared bottom waterfall will be committed to the project.
Third, because of your Category 2 funding, NTTA has not been able to use the $91 million, the remaining portion of funds that we have on the Southwest Parkway for construction. The RTC will be asked for the fourth time to recommit its $91 million to the project, of which we offer it to you as a financial draw in case the Southwest Parkway were to get in trouble on that particular corridor. If, in fact, it never gets in trouble, the $91 million is intended to stay on the project so we can extend the staged construction in the interchanges and, more importantly, the four-lane section down to Cleburne.
And then remember, NTTA will be signing bond covenants with regard to their requirement of increasing the price of tolls. That has to occur before any draw, and the suggestion is they may wish to do that for the peak period to be consistent with other toll roads within the particular region. So what I described to you is the regional primary backstop before you would be asked to participate.
At this particular point, you then move into the TxDOT then ensures the backstop with regard to that. Allen can do better than I, but from a triple B minus to a double A, wherever you end up in the market, that magnitude of interest savings is something like $400 million. That's what creates the ability of $400 million more in construction and gets the ability of the project to be constructed. So your particular support has a significant, and obviously Allen will know the latest on what those bond ratings would be and what interest savings could be saved because of the good faith of what it is you're being asked to do to help deliver these particular projects.
Let me end my presentation and then Allen will walk you through schedule. We have a very tight, layered schedule of action, tender minute order, RTC, and you'll see what we're trying to accomplish between now and the February 28 deadline. Allen.
MR. CLEMSON: January 20, the North Texas Tollway Authority board approved a joint resolution that we hope to, that will be considered by the Regional Transportation Commission. This resolution creates that primary backstop, puts in place those mechanisms or gives the assurance to the highway commission that those issues will be put in place to reduce the risk and limit the probability of anybody reaching to Fund 6 to backstop these projects.
January 21, our staff along with TxDOT staff met with the rating agencies, with our financial advisors, talked through the toll equity loans, talked through the potential impact on Fund 6. We then followed up with the same rating agencies and went through the process to have the rating on our $400 million in CIF, or capital improvement fund financing, that we're contributing to these projects. It's too early to get the nod from the agencies and we haven't heard of any update, but we were received very favorably, we had favorable comments, and we think we're going to receive a favorable response.
Of course, today we're talking about these projects, tomorrow we're looking forward to a favorable tender minute order. On the 29th the RTC will meet and they will then debate and, we anticipate, approve the joint resolution and put the primary backstop framework in place.
February 11, the RTC meets; the 25th the commission meets; and then we have scheduled our North Texas Tollway Authority board meeting the following day, as we do have a deadline of February 28, statutory deadline on February 28 to submit to you our acceptance of the 161 project.
Next steps that are important to keep in mind. State Highway 161 Phase 4, we have a design-build contract that we have selected and we have awarded. We have a notice to proceed for the Phase 4 that is to be issued by March 1. If we fail to issue, it will be subject to escalation. Based on available funding and financing, we'll start construction on March 1 of 2010. It will open for traffic in 2012. Southwest Parkway, subject to financial feasibility, getting all the pieces to the puzzle in place, we can start construction in 2010, and to the extent of the UPR crossing the Davidson Yard, some of that work has actually started, those contracts have been let. Also, the I-20/183 interchange, using the stimulus funds, is also going to start in 2010.
And I'll turn it over to Mr. Barton.
MR. BARTON: Let me first thank Allen and Michael for the information that they've shared with you, and commissioners, as you know, this is a very important set of projects that you have directed staff to work on with the North Central Texas Council of Governments as well as the NTTA staff, and before I share the staff's recommendation based on these collaborative efforts over the last several weeks, I think it's important to recognize the leadership of these entities.
Michael has done a great job and his staff -- I think he mentioned Tom and many others, I'm sure that worked many long and hard hours on this. Allen Clemson has been a great individual championing this effort and working on this night and day with us, as well as Dartanian and others from his staff. Of course, Maribel provided the regional leadership, along with Brian Barth of her staff, and many others. David Casteel, of course, your assistant executive director for Field Operations was very instrumental in helping bring all those collaborative minds together to think of ways to improve the cost structure in terms of project delivery.
On the financial side, of course, James Bass as your chief financial officer and several others within the agency, John Munoz particularly, Jim Thomason is working on the legal side for us, and of course, Director Saenz providing the leadership for this agency has been instrumental.
And there are certainly many kudos to go out to all the consultants that helped us as well -- of course, they get paid more than we do for those efforts, so I'm not sure that I want to brag on them too much -- but URS and Halcrow, Royal Bank and KPMG staffs are all to be commended for their fine work and efforts to help us get to today. And I think the leadership of all three entities, the elected leadership and the appointed leadership.
So having said all that to make you feel better before I talked about the staff recommendation, I did want to share with you that through these efforts we've had the common goals in mind of delivering both projects through the North Texas Tollway Authority in a way that the risks are shared with all the entities involved and minimizes the risk to each of them to the extent possible and to Fund 6.
Based on that, before you tomorrow will be a minute order that would, if passed, authorize Mr. Saenz to continue these negotiations, and the schedule that Mr. Clemson laid out is very important, but within that would be the concept that we would consider financial means of delivering both projects, considering several tools, but the one that perhaps is most notable today would be combining the projects as a subsystem, if you will, to have them ring-fenced within a contained system outside of the NTTA system itself, and that they would be backstopped with the credit enhancement that has been envisioned for the Southwest Parkway/Chisholm Trail and the State Highway 161 projects. And so that minute order would give us the ability to continue to move forward with those negotiations within the context of that framework.
So at this time, I think what we would like to do is hear from the commission, try to answer any questions you may have, and get guidance, if you will, from you on how to move forward in anticipation of tomorrow's minute order.
MR. HOUGHTON: Do you see, John, one agreement, toll equity agreement, or two agreements?
MR. BARTON: Based on the information that we've looked at in terms of the financial conditions, we think it's important that the two projects, the State Highway 161 project and the Southwest Parkway/Chisholm Trail project being the two projects, be linked together and only severable at the, I guess, conclusion of the backstop, so it would be one agreement in my perspective that would encompass the backstopping of both projects.
MR. HOUGHTON: So we would have one agreement as you just described, a ringed, for lack of a better word, fence around these projects, and at some point in time if NTTA wanted the money out, it's wildly profitable, we would have to be released from that backstop.
MR. BARTON: That's correct, that would be my recommendation understanding of how it would be approached.
MR. HOUGHTON: And there's a mechanism for that on the release?
MR. BARTON: Excuse me?
MR. HOUGHTON: Is there a mechanism for that release as described?
MR. BARTON: Within the toll equity loan agreement that has been crafted for the State Highway 161 project alone, there are mechanisms within there that allow that release and that would just have to be expanded to encompass both projects.
MR. HOUGHTON: Michael, I still see $300 million short and that's something you're going to have to work on with NTTA.
MR. MORRIS: I think, Mr. Chairman, I think that's true --
MR. HOUGHTON: I'm not the chairman.
MR. MORRIS: I'm sorry, excuse me, Madam Chair. Believe me, I didn't mean it.
MR. HOUGHTON: Demoted her.
MR. MORRIS: I meant to say Commissioner.
MR. HOUGHTON: There goes the vote. Sorry, Bill.
MR. MORRIS: We have been working literally every day, night and day. My wife tells a funny story, some people call it Thanksgiving and Christmas and my wife says, Oh, we're getting to the time of year that you must be working on 161 and the Southwest Parkway. Because if you remember, two years ago we negotiated the terms for 161, that occurred at Christmas. So, Commissioner, we have been basically doing that for twelve weeks.
What I need to know, since we were not party and you were -- your commission was and the NTTA was party to your 2008 minute order, what I don't know -- and I'm trying to find the words of that particular statement. What I don't know what is meant in that particular minute order by the phrase "cooperatively develop and evaluate strategies for financial feasibility of the combined project." So we're here to have you tell us what is your intention of what you wish to do on the Southwest Parkway.
You specifically say you want to have a financial backstop to 161 and then you have this commitment in your minute order to deliver, you, NTTA and TxDOT, the Southwest Parkway, you communicate to us whatever your position is in that minute order and we then will know where to go forward with regard to the $300 million or whatever the next step would be.
As you know, our staff and neither the RTC was party to that minute order, so I have no idea what was contemplated or thought of or anticipated in that particular regard.
MR. HOUGHTON: Well, being a principal in the room at the Dallas-Fort Worth Airport administration building with Commissioner Meadows in attendance, part of that intent was on 161 to backstop, to give a credit uplift. that was it, and I think that now has morphed into something bigger, and I agree to it, I think it's needed, I think it's good for the State of Texas and it's good for the region. With that said, I think Allen has defined what our contribution is in real dollars from a triple B to a double A. I asked the question earlier, I didn't get the answer not here publicly, but I think it's about $400 million.
MR. MORRIS: That's my understanding but you better get that from Allen.
MR. HOUGHTON: So our contribution is $400 million in real dollars to this project but this commissioner believes we have fulfilled that obligation on a backstop, and now realizing two real projects, one that's been on the drawing board, according to Mayor Moncrief in his call to me last week, for 40 years, and I'm happy to see it get done. That's where I see it.
MR. HOLMES: Well, you and Fred and I were in the room at that time, and I recall it being one backstop on 161, and I think everyone's intention is to work cooperatively on whatever projects are important. Clearly, Southwest Parkway is an important project. Were there others in the room then?
MS. DELISI: I think you must have been talking about the public hearing?
MR. HOLMES: Yes.
MS. DELISI: Okay. I just wanted to clarify that.
MR. HOLMES: It was not upstairs, it wasn't in the airport in Dallas.
MR. SAENZ: It was at the commission meeting.
MR. BARTON: It was an officially called meeting.
MR. HOLMES: And we were sitting right down there. Right?
MS. DELISI: Yes.
MR. HOLMES: That's the way I remember it.
MR. HOUGHTON: The original intent, Commissioner, I get a call from Commissioner Holmes says, Well, Houghton, I see you've been at work again relative to the 161. But I believe we have fulfilled that obligation in offering that obligation in offering that uplift, a real dollar of $400 million, a backstop of Fund 6 which is outside something we've ever done before, that's my opinion.
MR. HOLMES: Mine as well, but having said that, how do we work together to try to figure out how to do both of these projects. That's really the goal.
And let me make sure I understand some of the numbers just so it can help me frame it. If we backstop both of them, the total guarantied amount would be how much, John?
MR. BARTON: I believe that the total guarantied amount, theoretically, if we backstop both projects, would be north of $8.4 billion.
MR. HOLMES: $8.4 billion?
MR. BARTON: Yes, sir.
MR. HOLMES: And let me ask one other question, Fred.
MR. UNDERWOOD: Oh, no, you've got the floor, you've got my attention.
MR. HOLMES: Michael, I think, or Allen, I can't remember. One of you mentioned a primary backstop by NTTA and RTC. What does that mean?
MR. MORRIS: Let Allen respond to the $8 billion comment, and then I'd like to walk you through what the primary backstop is one more time.
MR. HOLMES: Thank you.
MR. CLEMSON: Whole equity loan says under certain circumstances if there's not money to cover a certain cost, then we go to Fund 6 and it picks it up. And the $8 billion, the only way you get to $8 billion is if we build the road, spend all the money and don't open it, and that's the only way you get to $8 billion. The road, 161, half of it is open already, we're collecting revenues, and the real risk is I don't know how you measure the risk but I think we'll hear from the rating agencies, but the speculation you'll be required to possibly make no adjustments to Fund 6. We might be given the double A credit without you even having to appropriate any funds or encumber any funds, and it's simply a contingent liability that's out there that may or may not be drawn on.
And I think we've shown you, we've stressed these tests, very conservative revenue models, we've stressed them, and they'd have to underperform approximately 15 percent, not just one year or two or three years, which is normal for a trend, they'd have to underperform 15 percent each and every year over the 40 years of the project. So we think we've minimized, with all the stabilization funds, with all the capitalizations and all the reserves and contingency and pool of money, if we build the road, spend all the money and don't open it, it could be $8 billion on both projects but that is just absolutely a risk that is a pinhole, if even that.
MR. MORRIS: Commissioner Holmes. Maribel, if you could get us back to page 22, and commissioners, if you'd turn to page 22 in advance of the requests that we know we know we would have before you today and tomorrow that you would backstop both projects, the logic within our region was why don't we be the primary backstop, so what could we do within our region to minimize any exposure to the State of Texas.
The first thing, point number one, is to remind you that the revenues on the Southwest Parkway, especially in the section between 20 and downtown, should be higher than what's anticipated because of this very conservative speed limit on the particular corridor, and you guys have had some questions about that. And the reason why that's a positive thing for you is the community is paying 2 cents per mile addition for that. So Allen will be collecting the revenue for the 2 cents but you're going to have a pretty nice facility, of which it is thought, you may have additional users than what is currently anticipated.
On 161, you have nine or ten major entertainment events. God bless you, Madam Chair. Let the record show I said Chair.
MS. DELISI: Thank you.
MR. MORRIS: On 161, as you know, when you do financial forecasts you're not putting in Super Bowl games and NBA All-Star games, and we can show you on those days you see the spikes. And by the way, we're routing traffic on this project. If you remember, one of the reasons why we built 161 as quickly as we did was to get to the entertainment venues in both Grand Prairie.
The second point is the point that Commissioner Houghton just raised. We think you should create a subsystem, each project has a bottom waterfall, the waterfall on each of the revenues stays on those projects, and if 161 or Southwest Parkway underperforms, then revenue is taken from that other project and it doesn't effect a draw on your particular situation, and in fact, this would happen in this order. That would be, then, the second element.
The third element is, remember the RTC has already committed money to the particular project, unfortunately, NTTA cannot use the $91 million because it's currently scheduled in the Unified Transportation Program in 2015 or '16, so instead of taking that money and putting it on some other project, let's keep it on this project, and in fact, let's keep it on the Southwest Parkway, let's use it as an emergency fund so we don't have to access your draw, and by the way, if it's never needed, then we'll just go ahead and leave it on the project to continue to build the remaining phases of the Southwest Parkway.
And then fourth, again, before your doorbell rings, remember the bond covenants are going to require them to increase the toll price on these particular corridors so if they underperform, by definition, just like a city council who sells bonds, Commissioner, when you were a councilman, you're committing to the bondholder to raise the property tax to pay those bonds back. We're, on the average, at 14-1/2 cents on these corridors. As you know the maximum elasticity on this is a factor of two. If you go back to Chairman Williamson and our discussion of where these have been set in relation to how you maximize revenue, NTTA has a long way to go if these two projects were to underperform.
So we thought one great tool to offer you today is this creation of the regional primary backstop which has these four elements in it, integrate into your legal documents, those doorbells have to ring previous to anyone coming to the State of Texas and saying we have a problem, we need your resources to do it. And that, I will argue, wasn't on the table, Commissioner Houghton, when the minute order was written, so you developed a $400 million financial credit. I haven't put a pencil to this but this is a several hundred million dollar offer that the region is willing to do to help get the support of the commission in tying these two projects together and minimizing your access to your credit in Fund 6.
Did that help answer the question?
MR. HOLMES: Yes, thank you.
Is the full faith and credit of NTTA likely to be required for these two financings, or is it project financing?
MR. CLEMSON: No. It's stand-alone project financing and the system is separate. We are taking the $400 million off the system, all the surplus equity that we can pull together, and we're transferring it over to these projects.
MR. HOLMES: And so effectively, the NTTA has ring-fenced $400 million as its exposure on these projects.
MR. CLEMSON: Yes, sir, and the importance of that is preservation of the bond rating on that system. It would be detrimental if we start; it's part of the basis. We don't have the financial capacity to pull it into the system, they have to be stand-alone projects.
MR. HOLMES: And I'm not suggesting that it shouldn't be, I'm just trying to understand it. And so to look at it in another light, it would be unlimited exposure for Fund 6 but it's a very specific certain $400 million exposure to NTTA.
MR. CLEMSON: Yes, sir. It would be a contingent liability, potential or contingent liability to you and it would be a very complicated process for us to even begin to think about putting it into our system.
MR. HOLMES: I kind of like your side of it, actually, from the standpoint that I would prefer to see TxDOT have a very specific amount of capital allocated front-end that was certain and limited to that rather than an unknown amount because I share the same concern that you shared with us in respect of future liability for NTTA's system if it were to guaranty the entire amount -- I have that same concern about TxDOT.
To what extent, and I guess this would be a question to John or James, have we talked to any of our bond counsel folks and advisors, rating agencies as to what impact a $9 billion guaranty would have on Fund 6 credit rating?
MR. BARTON: We have and I would ask if Mr. Bass could join us to bring forward what information they learned, but I believe that that was a conversation that members of our financial staff and advisors had with rating agencies when they were in New York last week.
MR. BASS: For the record, I'm James Bass, chief financial officer at TxDOT.
Commissioner Holmes, the senior obligation for State Highway Fund revenues would continue to be our Prop 14 debt service which is triple A rated. The obligation to backstop 161 and/or Southwest Parkway/Chisholm Trail would be subordinate to that. So we feel this subordinate obligation would not in any way harm the senior obligation of Prop 14.
MR. HOLMES: And to what extent would it impact increasing the Prop 14 borrowings in the future?
MR. BASS: I'm not sure I fully --
MR. HOLMES: Okay. How much do we have outstanding on Prop 14 now and what has been approved so far?
MR. BASS: We've issued $3.1 billion, the commission has allocated projects in the neighborhood of $5.65 billion, we're just waiting for the expenditures to occur on that for us to issue the debt. There's roughly another $350- available of Prop 14 capacity for the commission to select projects, whether that be right of way acquisition, engineering or actual construction.
MR. HOLMES: So about $6 billion.
MR. BASS: Is the current cap.
MR. HOLMES: In the future this guaranty would be in effect for the life of this credits. Right?
MR. BARTON: For 52 years, unless we were taken out, yes, sir, for the life of the debt on the project.
MR. HOLMES: Fifty-two years.
MR. BARTON: Well, it depends on the debt structure.
MR. BASS: I think the maximum maturity of the debt scheduled, and the focus primarily has been on 161 to date but I think there's some different scenarios. I think the maximum maturity is maybe 36 years.
MR. CLEMSON: It's approximately that range, but also, in the toll equity loan agreement, we have to remove the debt or take the TELA out once we're commercially financially reasonable, so it's never anticipated to last. We have an obligation to relinquish that loan at the earliest possible date.
MR. HOLMES: But we have to look at it from the standpoint of what we've contracted to do, and it would be 36 years?
MR. BASS: Right. So currently in statute there's a $6 billion lifetime issuance on Prop 14, it's not $6 billion outstanding at any one time, it's you issue $6 billion and you're done. There's another provision in statute that has yet to come into play because the $6 billion is well under it. The other provision is debt service in any one year on Prop 14 cannot exceed 10 percent of the revenue to the fund in the prior year. And so I think what you're maybe saying are we eating up some of that 10 percent by making this commitment, this obligation going forward. Again, my answer would be no because the Prop 14, whether it's $6 billion or $9 billion or whatever, will continue to be the senior, the most senior call upon any revenues to the State Highway Fund.
The rating agencies, as NTTA and TxDOT staff visited with them last week, what was discussed with them as part of that was the waterfall of the State Highway Fund and where this commitment would fall within that waterfall. And so I do not think if the legislature chooses to increase that cap of Prop 14 going forward, I don't think it would harm, having this subordinate obligation would harm the credit rating.
Now, the fact if the legislature says well, rather than, in effect, having a 10-to-1 coverage ratio, debt service can be no more than 10 percent, if the legislature changes that, that changes the whole credit perspective of Prop 14, but that's separate and apart from this subordinate obligation.
MR. HOLMES: I'm not sure that I fully grasp your confidence that it wouldn't impact future funding and increase above the $6 billion of Prop 14 simply because this would be subordinated. My sense of it is were this to be called and we were actually funding as a result of this obligation that that would be taken into account, and it's hard for me to understand how it wouldn't be. Simply because, okay, well, maybe we can grab the money first, I mean, it's like saying that a lender on your home or your business is going to be happy with a first lien; it doesn't matter how big the second lien is. I just don't think that's realistic.
MR. BASS: Well, until we actually experience that situation and go to the rating agencies for an update on our Prop 14, as you well know, we will obviously never know. We have the benefit of not only conversations with the rating agencies, but on staff we have a former employee of the rating agencies and we've had these discussions. Now, can I guarantee you with 100 percent what I just said? No, but that's truly what I believe to be the case, the senior debt is not going to be impacted by the subordinate obligations.
MR. HOLMES: Current senior debt, but this is a 36-year program.
MR. BASS: Correct, and so again, maybe to rephrase, the $6 billion is triple A rated, if the legislature chooses to double or triple that, I'm not saying that will always be triple A rated because they've doubled the commitment on that senior obligation. I do not believe, and we would obviously strongly argue, that if a subordinate obligation came into play that it would affect our senior rating on Prop 14.
MR. HOLMES: Let me just ask another question and then I'll turn it over.
MR. UNDERWOOD: Go ahead.
MR. HOLMES: I happen to agree with you, Allen, I think you're the one who said that it's highly unrealistic that the full guaranty would ever be paid, simply because it would mean that you'd built the entire road and never opened it or never collected a toll, and it would seem to me that most rating agency review would agree with that concept. And so what I'm trying to understand is our obligation, would it be to NTTA or would it be to the bondholders?
MR. BASS: If I can answer that.
MR. HOLMES: I'm asking one of you guys.
MR. BASS: I may have to have counsel support here, but one of the issues that's taken so long in here is we often refer to this as a backstop of the debt. Well, the constitution says Fund 6 can only be used for debt service on Prop 14, and so one of the things, this is actually a toll equity loan that is available to NTTA for eligible expenses that they've had or will incur. Once we make that loan available to them, they are then able to use it for whatever legal purpose, for debt service, but it is not a commitment from TxDOT or the commission to pay debt service, it is a commitment to make a loan available for those eligible costs to NTTA who would then use it to fund their obligations.
MR. HOLMES: And so the creditors would not be third-party beneficiaries of that guaranty?
MR. BASS: Not that I'm aware. One of the concerns we have, speaking of credit ratings, is that the commitment obligation, backstop, co-sign, whatever term you want to use, is not oversold in the market because, again, it's to make the loan available to NTTA for eligible expenses. It's not as clean and direct. I think the bottom line effect is the same as we're backstopping the debt, or whatever term you want to use, but legally and mechanically it's a little bit different than that.
MR. UNDERWOOD: You've got to help me understand, this worn-out old forklift driver here, or whatnot. If we're backstopping it, we're backstopping it for the full amount, whatever it may be. Isn't that correct?
MR. BASS: Correct. As Mr. Clemson said earlier, the number $8.2 billion.
MR. UNDERWOOD: No, no, no. I agree with him, that's just something to scare somebody with, but the bottom line is that whatever it may be, we're backstopping it, we're going to pay it out of Fund 6 because we're going to loan it to them to pay their note. Do I understand that correctly?
MR. BASS: Correct.
MR. UNDERWOOD: How much do we pay in interest right now out of Fund 6 on Prop 14?
MR. BASS: Prop 14, once the $6 billion is outstanding, we'll get up in the neighborhood of $480 million.
MR. UNDERWOOD: About a half a billion dollars.
MR. BASS: Correct.
MR. UNDERWOOD: A year.
MR. BASS: Correct.
MR. UNDERWOOD: Now, right now, if we issue Prop 12, that interest money is being paid by the legislature for the next, through the next session. Isn't that correct?
MR. BASS: Correct, and it would come out of General Revenue.
MR. UNDERWOOD: Right, but they've honored to pay that.
MR. BASS: Correct.
MR. UNDERWOOD: Now, if they decide things are really tough around here, we've got to cut corners or whatnot, or we've got to balance the budget, we could very well easily have to start making that interest payment. Is that correct?
MR. BASS: I believe that would require a constitutional amendment. The $5 billion of Proposition 12 is state GO and so it is to be paid. The revenue that's pledged is money going into the state treasury not otherwise dedicated by the constitution. Most of the State Highway Fund is already dedicated by the constitution and would not be eligible, constitutionally, to pay debt service.
MR. UNDERWOOD: So you're saying that TxDOT will not have to worry about having to pay the interest on the Prop 12 money.
MR. BASS: I think it would require a constitutional amendment in order for us to have to be concerned with that.
MR. UNDERWOOD: Because I thought that it was only for this biennium.
MR. BASS: That's the way they appropriated it, but the constitutional language directs that debt service to come from revenues that are not otherwise dedicated in Fund 6.
MR. UNDERWOOD: Okay, because you see where I'm coming from, I'm worried all of a sudden that not only are we the guaranty of their note or whatnot, but then we have some more expenses that show up because we're having a tough time for the state balancing the budget which, you know, they do a good job of.
Question, SIB loan, State Infrastructure Bank, was that not ever considered? Because I agree with Commissioner Holmes, I'm really nervous about committing Fund 6 money.
MR. BASS: The existing SIB that we've had in operation since 1997 does not currently have the capital available to provide anything in the magnitude that would be required here. Jumping to the Prop 12 SIB, the $1 billion, I think timing issue and/or policy issue. We don't have access to that billion dollars in the Prop 12 SIB until September 1, I think the time line for the projects is to move forward sooner than that.
As you may recall, we've established an advisory committee to look at that billion dollars and how that billion dollar Prop 12 SIB should operate and how the commission might move forward in selecting those projects, and so that process has not been started yet. As a matter of fact, I think one of the items for your consideration tomorrow is to potentially add additional members to that advisory committee. And so, because of that, I think that concept and some of the things, the potential of a loan, whether it's from the SIB or some other public or private entity, would be a possibility, but it has not been. I would characterize it as not strongly focused on coming out of that Prop 12 because of those reasons that I said, the advisory committee.
MR. HOUGHTON: How big would that loan have to be?
MR. BASS: For one or both projects?
MR. HOUGHTON: Both.
MR. BASS: As I always do, I'll caveat my answer. The due diligence on Southwest Parkway/Chisholm Trail is far behind the level of due diligence on State Highway 161, and so I think the $400- number we talked about before or I heard mentioned before, in my mind is close to numbers just looking at 161 by itself. If you add Southwest Parkway/Chisholm Trail to that, I think it's easily another $400-, and potentially higher, and so you're looking at quite possibly all of the billion-dollar SIB if you're to do two projects.
Now, again, I want to caveat that because, again, the level of due diligence, at least from this side, on Southwest Parkway/Chisholm Trail is nowhere near the level we've had on State Highway 161.
MR. UNDERWOOD: But there's, excuse me, Allen.
MR. CLEMSON: Well, we were talking about the probability of risk and it may not be in response to the question, but the probability, the risk we're talking about, but the probability of that risk is something that if we could revisit just a little bit. We have on both projects investment grade traffic and revenue studies that are proven over time. Wall Street is used to them, they trust them, and they've been successful time and time again.
And the likelihood of, one, us missing it substantially, it would have to be very substantial that the revenue on these roads aren't going to produce as we've projected; and secondly, if for some reason they don't, which it would have to be substantial because the stress test says that if every year it produces 15 percent, in that ballpark range, we could virtually double the toll rates without crashing into the elasticity, meaning that we'd raised the rates so high we'd reduce our revenue.
So we do have a probability, we know what it is if the worst case happens, but then we put the regional wrap on top of it which is worth hundreds of millions of dollars, and we've shared that with Mr. Bass and others. So we think we all realize the risk and we're working real hard to mitigate it, to minimize it, and taking it very seriously that we don't stress Fund 6 and we don't put the commission and the gas tax payers of Texas under an undue burden.
But the value that you get for this level of risk, that we'd love to convince you is very small, is phenomenal, it just is virtually a non-expenditure of dollars that can generate maybe $800 million of value to these two projects. It's a phenomenal effort, it's just a tremendous thing that this toll equity loan could do for this state and this region, it's just phenomenal.
MR. UNDERWOOD: Sir, I don't think anybody on this commission is arguing the value, I'm just worried about the exposure to the citizens of Texas to their Fund 6 dollars, and I appreciate the fact that you protected your bond rating the way you've done your side, but I'm like Ned, I don't know where we're protected on our backside.
MR. BASS: If I can respond to that perhaps a little bit. Technically, since we are dealing with a toll equity loan, we had to go through this calculation that comes up at either 4.2 for one project or 8.2 or 8.5 for both of them. As was stated earlier, in my mind, that's just a technical mathematical computation.
So I think the real question you're asking is what's the likelihood and to what extent might that happen. Well, that's obviously the 64-8.4 billion dollar question. The projects in that regard are, in my mind, different in nature in that 161 generally is in an already developed area, and this, again, gets back to my comment on level of due diligence. So the revenue going forward projected on 161 is less dependent on future development in the corridor than Southwest Parkway/Chisholm Trail is. And again, as we have more due diligence on Southwest Parkway/Chisholm Trail, we'd better understand that difference.
But as far as the protections for Fund 6, there are reserves within the waterfall of the project and one of the primary reserves is next year's potential toll equity loan draw. So over this calculated number, it's broken into 36 years or 38 years, and there's a maximum amount each year that can be drawn. Within the waterfall of the project, one of the buckets before it gets down to the bottom is the amount of next year's potential draw will be held within the project and it gets called before Fund 6 does.
Another key aspect, I think, is that every two years there's an update on the traffic and revenue forecast, at least every two years, and it's looking out over the life of the debt but it's really focusing on the next five years, and if within those next five years the forecast shows year four we're going to have to make a draw on the toll equity loan, number one, we have plenty of warning that it's coming, but that also triggers a requirement for NTTA to get an update by their traffic and revenue engineers to give them a solution or offer a solution for them to fix that so there would be no draw in the fourth year.
The NTTA board then has the option to adopt that recommendation from the traffic and revenue firm or something that they feel is of equal or greater value, it's going to generate as much or more money. If they choose an alternative approach and one year later, generally speaking, one year later, if it hasn't produced the same amount, we go back again.
And so I kind of refer to that as an early warning system, there's reserves within the project, there's the early warning system from the reporting requirements such that there's time to make adjustments to protect Fund 6 that I believe the chance that we get a call upon Fund 6 is low. I'm not going to stand here and tell you it's never going to happen, can't say that, I think it's very low and I think we have protections in place to protect against the draw against Fund 6. In addition, in our meetings with the rating agencies, we're suggesting, I think as Mr. Clemson or someone said earlier, that we not be required to set cash aside within the Highway Fund.
If I can indulge you for just another minute along these lines, these are big numbers but one of the things we showed to the rating agencies was here's the projected revenue for the State Highway Fund, here's the obligations for Prop 14 debt service, getting up to
$480. Now, it's only for the $6 billion that we're allowed to do right now. Here's the commitments for other toll equity and pass-through agreements that we have that are higher in the waterfall. We already know, they're already committed. Here's what we expect to go to other agencies, so here's the money that would come to TxDOT and be under the control and operation of the commission in each of those years, forecasted amount of money, here's the maximum amount that technically, theoretically could be drawn under that and show the context.
And it ramped over time but it went from, say, 4 to 7 percent. Again, that was 100 percent draw which is highly, highly, highly unlikely. So those numbers get even smaller if you try and do an risk-adjusted number on that, so we're talking very big numbers. As you well know, the State Highway Fund has a lot of revenue in it and it's programmed and allocated to other projects. I'm not suggesting there would be disruptions but there's flexibility there with all of the warnings to address it.
MR. UNDERWOOD: One thing, everything is wonderful, it's going to work well, Allen, we're excited about that. I'm still confused, how will you be able to take TxDOT off this note, so to speak, because otherwise we're on it for 36 years, 52 years?
MR. BASS: They would issue another series of bonds and take bonds number two and pay off the bondholders from number one.
MR. UNDERWOOD: Now, he's speaking for you, you didn't even move your lips, Allen, that was amazing.
MR. BASS: We've spent some time together.
MR. CLEMSON: We spent a lot of time together. Exactly like Mr. Bass said, we do have valuations. When we get to a reasonably commercial feasible investment grade plan, we refinance the note, take it out.
MR. UNDERWOOD: What's your incentive to do that, I guess, and get us off the note?
MR. CLEMSON: We love ya but we'd rather not...
MR. UNDERWOOD: Not deal with the commission, I understand.
MR. CLEMSON: The toll equity loan that your staff has championed is very restrictive, it requires us to do a lot of things that we would rather not do. There will be money in the waterfalls and the reserves and the contingencies that we could put to good use other places, but they're in there giving you guaranties and assurances. So it's to our advantage to get to that money to enhance our system so we can go build some other roads, expand some other projects, it's important for us to take you out. That ring around those projects keeps us from getting to that money.
MR. UNDERWOOD: If I understand you correctly, what you're saying, what I would call the profit above your operating costs and your debt service stays in the bucket and you want a chance to get to the bucket.
MR. CLEMSON: Yes, sir.
MR. UNDERWOOD: Okay.
MR. MORRIS: And in fact, Commissioner, you're in the driver's seat with regard to that, you would see what those particular revenues are, you're going to be anxious to jettison your risk. Right? But you also don't want to jettison either of the projects if one project is actually helping to support the other. So you're in the great position to decide boy, these projects are doing pretty well, it's time for us to eliminate this particular risk, and our hope is that the legal agreement that's developed gives you some assurance that the commission, when the due diligence occurs on these particular projects, to permit that jettison to occur.
MR. UNDERWOOD: Well, I would like to say that if the jettison were more than likely, if Allen is right, you're going to come to the commission or you're going to come to TxDOT and say we want you out of this, we want to be able to control our destiny. Isn't that correct?
MR. CLEMSON: Yes, sir, and we're going to live by that toll equity loan, and as soon as we could refinance that debt consistent with that agreement, we're going to do that. It's not to our advantage to prolong the relationship financially, it's not in your best interest because we can take that excess revenue, we can continue to develop the system, we can expand the projects, we can add additional efficiencies to it.
MR. UNDERWOOD: And the way it's going to be tied, if I understand it correctly, James and John, is that both projects are tied together so that when you come to us, you're not going to pick and choose and cherry-pick, you're going to take both of them, even though one may not quite be as profitable as the other. Is that correct?
MR. CLEMSON: That's the way it's stated in the toll equity agreement, and if that's the way the commission wants it, that's the way we'll do it.
MR. UNDERWOOD: That's the way I would like to do it. I love ya but I don't want you cherry-picking this.
MR. CLEMSON: Yes, sir, I understand, that's reasonable.
MR. BASS: And just to make sure, this is one of the last items to fully be resolved in the agreement is this trigger to take us out, and it is not going to be a black-and-white test, that if for three years concurrently the revenues have exceeded projections by 120 percent, NTTA must. That is not going to be the language, as we understand it, the board cannot commit to do that through their documents, and so it is going to be the two parties getting together and monitoring this and to see if there are opportunities for TxDOT to be taken out.
I think both NTTA and TxDOT staff fully understand the commission's desire and intent to be taken out as soon as possible, and so we've put language into the agreement, but I just wanted to make sure that you all understood it is not a straight, black-and-white test that if this, then that.
MR. HOLMES: It's all well and good to be giving up the profits of a successful project. My concern is if it's not successful, and so I'd like to kind of examine that a little bit further and see if there are ways that we can accomplish the goals of enhancing your credit to the point that it works but limiting the exposure of TxDOT. To me that's really the goal. If we've already determined that this is not an agreement to pay debt service because we're not allowed to do that. Correct, James?
MR. BASS: Correct.
MR. HOLMES: And we're not in privy of contract with the creditors, and that it is incredibly remote that we would ever pay the total of the guaranty, they why isn't reasonable to look at what the projected revenues are, and I know you had the 13 percent or 15 percent lower of the life of the loan, there was an 80 percent chance it would be better than that, or something to that effect. Why don't we look at some of that analysis and determine what that level of support would be to get it from that triple B to A or double A, wherever that credit rating would need to be in order for this deal to work, and we obligate our future commissioners to fund that portion as opposed to the entire amount.
MR. BASS: I think you hit upon it exactly, it's a question of credit rating and how much with a full backstop capped annually we think it pushes the projects from triple B to double A category. If we come back, if I'm understanding, and say well, each year it's no more than 25 percent of the figure to make up a percentage, we have not had those conversations with the rating agencies, but the question would be how much does that, if at all, does it push it up the credit curve. Is that generally the concept you're suggesting?
MR. HOLMES: Yes, it is, and my sense is the real exposure is not going to be any different but that's the way we look at it sitting here in January of 2010 and this deal is going to live a long time and it's hard to predict the future a year out much less 20 or 25 years out. And so I would feel more comfortable with a very large long-term guaranty, if we could limit it just to the portion that actually credit-enhances this transaction to a point where it's affordable.
MR. BARTON: And we can do that analysis for you, Commissioner. I think, James, that would be something that we would be able to work with Allen and their financial advisors to evaluate.
MR. BASS: Right, and to get an ultimate answer, I'm thinking here, it's meetings with the rating agencies, well, what would the rating be if we do this because the rating agencies will not come back and say, it's kind of a high/low game: well, what if we do this, what's the rating; well, what if we do this.
MR. HOLMES: You know, we're working on setting precedents here. Right? We're likely to get to hear this story one more time or two more times or three more times, and I'd like for us to set precedents that we can live with if we are confronted with another deal that some how or another we feel required to do.
MR. HOUGHTON: James, are the rating agencies going to do that? They're going to put that stake in the ground?
MR. BASS: They're not going to want for us to go back five or six times and they take it to credit committee five or six times, but we'll bring them a structure of a deal. That was part of the discussion we had with them last week was what we described, the 100 percent of this calculated number, and ultimately they would have taken that to the credit committee and come back and said your rating is whatever.
The other conversation would be, well, what if we rather than did 100 percent of this revenue line, what if we, again, generally speaking, backstop 25 percent of it, again picking a number, and take that structure to them, what would that be, what would the rating be on that. A couple of things it does, obviously the higher rating, the lower the interest cost, but the backstop from the State Highway Fund, a full one also provides more debt capacity because of the coverage requirements can be lower with a full-fledged backstop. So there's more than just the simple look of the saved interest cost, it creates additional debt capacity by having a bigger backstop, if you will.
MR. MEADOWS: I just have a comment. I've had the opportunity to visit with every one of you all over the last twelve weeks and certainly understand the proposition and the challenges and the risks and am comfortable with many aspects of it. But Commissioner Holmes just raised an issue that I continue to be challenged by and I think we are challenged by and that's the precedent-establishing nature of this proposition that's on the table in front of us.
And I think it's important, as we move forward with this, however it is that we move forward, that we figure out or understand that we're establishing benchmarks or we're establishing criteria, quantifiable criteria by which future requests, which will come, you're right, whether it's a year from now or five years from now, but we need to make sure that as we move forward that we recognize what these benchmarks are because we are going to have to make -- future commissions, maybe this commission or some members of this commission or maybe a totally different commission and staff are going to have to make decisions with regard to this, and these are really serious questions, as we all know. I appreciate and respect the questions that are being asked here because I think they're very legitimate questions.
And at the end of the day we may differ in terms of our analysis, effectively, of what the exposure is because in many respects, it's a precedent-establishing process but it also is a business decision, it's a risk- management decision. And again, I find myself comfortable with it, I understand and respect the questions that are being asked and appreciate them being asked, but going back to the precedent issue, I really think that we need to carefully give thought to how it is that we define what those benchmarks are and whatever action it is that actually take. Does that make sense?
MR. HOUGHTON: Hold on. I want to talk about that just a little bit and there's maybe a couple of reasons we're here, and the pink elephant in the room that no one wants to talk about. We don't have authority, we don't have CDA authority, if we had the CDA authority; NTTA has CDA authority on 161 on Southwest Parkway, this would be a moot point, Allen, if you guys would exercise that authority. But you don't want to so you come to this agency, and I'm all for it, we offered it, Meadows and I, along with the blessing of this commission, we said we'll backstop these to allow you guys to build it.
But you have the authority to do this. I mean, you talk about we're wrenching our hands here and talking about and talking about it, but we don't have to be here, but we are here and I'm ready to move on, I'm ready to say okay, backstop it, I understand, it's risk-management. Unfortunately, the NTTA board has chosen not to look at the CDA authority and use it, and we then take on a big part of that risk, as illustrated by Commissioner Holmes. We're going to take that on. We feel good; we think there's enough traps in here that trap that money. And Michael, you're talking about ringing up and there's several barriers in front of us that you've provided. I'm okay with it. Unfortunately I'm repeating myself. You're not willing to take on that CDA authority, and if we had it, it would be a different day, but we don't. So that's my two cents, Commissioner.
MR. HOLMES: That's right, I remember the discussion when we agreed to backstop 161.
MR. HOUGHTON: Right.
MR. HOLMES: James, just so I would understand it, in the circumstance where TxDOT was called upon a year or two or five, or however many, to fund some shortfall, who's allocation would that come out of, where would that come from?
MR. BASS: The pledge would be maybe twofold and ultimately the second one will be a decision for the commission to make on a policy level.
MR. HOLMES: El Paso is where it would come from. He said Houston.
MR. BASS: To make the cash available in the time that they need it, it would be anything and everything necessary in order to free up that cash and make it available. So it may be everybody, it might be internal costs and a hiring chill or a hiring freeze to free up to make that cash available. So first to make the cash available, anybody and everybody. The policy question would then be, well, if there's a $10 million or $40 million call, where do we reflect that in the programming and the planning going forward, is that spread throughout the state or is it assigned to one particular region.
MR. HOLMES: But you offered it from the staff, we're going to get it from the staff? Is that what you said?
MR. BASS: No, no, no. What I was saying, we'll have a bake sale. My point was we get this warning and there's going to be advance warning that there's going to be a draw, it's not going to be Tuesday morning we need $35 million, the mechanisms are in place it's going to be far in advance of that. The commitment the department and the commission is making is that to make that $35 million available, we're going to take all steps necessary to make the $35 million available.
I'm not doing this to scare anyone but just to illustrate some extremes, if that's we're going to suspend letting for three months because we need to free up the cash, we're not going to hire any internal TxDOT staff for X months to free up that cash, we are going to do whatever it takes to make that $35 million available, again, within the context of a $6 billion free money operation projected going forward.
That's kind of the first test, we've got to get the money available. The second one is well, then over time and out of the planning and programming documents, where does that $35 million come from: does it come from everyone in the state share equally, in effect we take it off the top; do we go through and allocate to all areas of the state and then assess or charge that $35 million to the area that had the call.
MR. HOLMES: Well, presumably it would be charged to the area that received the benefit.
MR. BASS: And that's one of the things that the first time we've done this, this has not happened, to my knowledge, there is no such policy, and so obviously we'd look for the commission to direct that.
MR. HOLMES: Well, I think you ought to explore that.
Let me give you one other thought to just ponder. The ability or enthusiasm for NTTA to refinance when the cash flows hit 1.2 or 1.3 or whatever that number is, may or may not be enthusiastic about refinancing and we don't have a mechanism to require that, and we recognize that. But what we do have a mechanism to do is have pricing that the continuation of that guaranty after five years or ten years or twenty years, or whatever that time frame is, there is a pricing mechanism.
Typically a guaranty, if you go and commercially negotiate a guaranty, you're going to have to pay for it. Now, we already know it's worth $400 million; if that guaranty begins to be priced in year twenty at some level that is escalating, then they have an economic incentive to pay it off.
MR. BASS: So again, to make sure I'm following, the cash reserves are building up and after year X there's cash in there, for whatever reason the NTTA board chooses not to go forward, that the commission and the department start assessing an annual fee and start taking some of those reserves as a fee for continuing the backstop?
MR. HOLMES: It's just a guaranty fee.
MR. UNDERWOOD: It would be a guaranty fee whether or not it has cash in there. Isn't that what you're saying? It's the whole idea of saying: Look, it's going to get more expensive as we go along; now is the time that you might as well go ahead and bite the bullet and go to the market and take TxDOT out of it.
MR. HOLMES: The risk profile is in the first what, ten or twelve or fifteen years, that's when these deals are risky. And so I wouldn't put it at that level, I would put it well beyond that just so that we're comfortable that they really had enough time for a mature project that was working.
MR. UNDERWOOD: Right, that allows them to be able to go to the market and say look at our track record. But also for Ned and I, and I don't know how many other commissioners, that we know we're going to be taken out of this project at some point in time, but it's going to be economically feasible one way or the other: either it's doing real well and they took us out, or it's going to get so expensive they want to take us out.
MR. SAENZ: Just to kind of follow up a little bit, I think, Commissioner Meadows, you were talking about the staff getting you some kind of a risk profile or an identification of what types of projects would be suitable for this type of a backstop or this type of an enhancement?
MR. MEADOWS: No. I don't want to complicate the process at this point with that. I mean, it's a secondary issue but I think it's an important issue, and it's something that as we move through this, we need to make sure that we capture what the thoughts are. If, in fact, under whatever circumstances, terms or conditions this is approved, we need to make sure we look back at that and establish that as at least a minimum, because, again, the issue is going to come up.
MR. SAENZ: Right.
MR. MEADOWS: Whatever is quantifiable, whatever is clear, whatever is communicatable, we need to do that, but it's not important today, it's something that if this moves forward, and I don't know whether it will or not, but if it does, I think in it you should capture what those benchmarks are.
MR. HOUGHTON: I want to congratulate and commend the three parties for vetting this and looking at the risk. I understand the risk, I can see the risk and I feel good about the risk. You've done a great job on risk-management and explaining it, Allen, to you, and Michael and our staff at TxDOT. And I think this is a process, Bill, that we need to look at other projects that come forward, we've got a baseline to assess that risk. And James, to your team, John, Maribel. We'll see you tomorrow.
MR. BARTON: If there are no other questions, I want to thank Michael and Maribel and Allen for joining me, and Maribel is going to stay here for our next item. I don't know how you'd like to proceed, Director Saenz, but I do believe that you've asked us to do a couple of things. Obviously, the action item is before you tomorrow, but Commissioner Holmes has asked us to quantify the risk in terms of what it would take to avoid a backstop, just for edification purposes. And then as Commissioner Meadows pointed out, to investigate at a later point the policy matters that were considered as we develop this proposal, so we understand that.
MR. SAENZ: I guess one other thing, commissioners, as we move forward to tomorrow and we get the minute order to continue and to get to the negotiation, then we're going to have probably one, maybe two additional meeting requirements to process it through the toll equity process, and so we'll probably, as we move forward, have to make sure. That's what the minute order says tomorrow that there are some processes that need to be followed to be able to process the toll equity loan or toll equity for the project and we need to make sure we incorporate that into the schedule.
MR. UNDERWOOD: And also remember, John, James, whatnot, that these two projects are tied together, they're married forever. I go back to my cherry-picking analogy and whatnot, sir, because we would really like for this to work.
MS. DELISI: Excuse me. Before we move on, I've got two people who signed up to testify, two members of the city council. Okay, we'll take you tomorrow then. Both of you? Okay.
MR. SAENZ: All right, thank you, John.
Agenda item number 4, commissioners, we were asked last month to look into the potential funding options that were available for several projects up in the Dallas-Fort Worth area as well as on US 77, and John has been working with staff to come up with that presentation and I'll turn the program over to him.
MR. BARTON: Thank you, Director Saenz. Again, for the record for our reporter, my name is John Barton, assistant executive director for Engineering Operations here at TxDOT. And joining me at the table at this point in time, I've asked several parties to join me as we go through a discussion of several very important projects and I'll flip to the slides that we'll talk from in just a moment. They, too, should be in front of you.
But during your last meeting you asked us to prepare a report to you on the development and implementation of three specific projects, those being: Interstate 35 East in the Dallas-Forth Worth area, the I-35/I-820 interchange in the Fort Worth area, and then the US 77 corridor south of Refugio County in the Valley along the upper and lower Coastal Bend of Texas.
And let me scroll forward to that point on the power points for you real quickly. I'm sorry, I was going the wrong way, I was pushing the wrong button, that's usual for John. Bear with me briefly.
The first of these topics that we'll talk about, and I'll ask Bill Hale to join us at the table, is to talk about the Interstate 35 East Project in Dallas and Denton counties. This is a project of great import to the northern and eastern part of the Dallas-Fort Worth region, a project to consider opportunities to expand a section of Interstate 35 East between Denton and the Dallas community, and again, at the commission meeting you asked us to bring forward of this particular corridor, the challenges we face and a plan for moving forward.
So at this point in time I would like to ask Bill Hale and his assistant Bob Brown, who is our CDA coordinator for the Metroplex, to walk you through an overview of the project, a little bit of its history before we get into a recommendation on the path forward.
MR. BROWN: For the record, my name is Bob Brown and I manage the CDA program in the Dallas-Fort Worth area for TxDOT.
So just to provide a brief overview of the I-35E corridor, and the limits we're talking about is from north Dallas from Interstate 635 up to Denton up to US 380. It's a 28-mile long corridor, it's one of the most congested DFW corridors, it's on the top 100 most congested corridors list that's been developed. This is in a high population growth location in the Metroplex and on this corridor a lot of this interstate was actually built as US 77 in the 1940s and that infrastructure, unfortunately, is still in place and carrying interstate traffic today. It was widened in the '50s to become a four-lane divided highway and then widened in the '70s to make it an interstate highway.
So we have a lot of concerns about the conditions of the infrastructure, however, working with the RTC and the cities and counties in the area, we have developed a schematic plan, we have concurrence from all the cities and counties with the plan, and the plan is to reconstruct the entire 28-mile long corridor and then add basically eight main lanes, four managed lanes and continuous frontage roads.
On the map we've segmented the project up into three segments, what we call the south, middle and north. The further south you go, the more congested the corridor gets; however, some of the infrastructure concerns are present throughout the corridor. For instance, the area around UNT in Denton, Texas, if any of you remember what North Central Expressway used to look like in Dallas, that's kind of what that part of the highway looks like with very, very short entrance and exit ramps and a lot of concerns.
If you go to the typical sections, most of the corridor is a six-lane freeway, in the southern part there's some existing HOV lanes, and in the northern part it's just a four-lane freeway. And the next slide will show what is proposed. Again, the majority of the corridor we're proposing to, again, reconstruct the entire corridor to have four general purpose freeway lanes each direction, two managed lanes each direction, and then continuous frontage roads.
There has been quite a bit of project development that has taken place. The FHWA has approved this corridor as an express lane demonstration program in September of 2009 which allows tolling of the added managed lanes on the interstate. The schematics have been approved at all governmental levels and our environmental assessment is under review at the FHWA, and we anticipate public hearings to occur this spring and summer and have our finding of no significant impact which is the conclusion of the environmental process in mid 2010.
Again, this is a 28-mile long corridor, full reconstruction with a lot of additional right of way and so it's well over a $4 billion project, according to our current estimates. So as TxDOT has been developing this project, we've had a lot of discussions with the stakeholders. The stakeholders all understand that some type of an innovative financing and project delivery would likely be required.
The region has committed to the project, the region has committed a significant amount of the regional toll revenue funding to this project, and now the middle segment has the majority of the funding and that was basically a condition of allowing the tolling of State Highway 121, the region wanted this middle segment addressed, and then there's a little bit more allocated to the southern segment. Now, at this time there's no identified additional state or federal funding and will not be until other sources become available.
MR. BARTON: Thank you, Bob. To continue on with the discussion, now that we've briefly described the project and the history and where we are to date, I think what you challenged this group with was to work with our local elected officials from the region, as well as our transportation planning partners at the North Central Texas Council of Governments, to evaluate opportunities to move forward. And one that you specifically asked us to evaluate was not only how we could move forward with the pay-as-you-go system, which, as Bob has already articulated, would be difficult because of the size and the cost of the project, but looking at innovative approaches.
There are opportunities for a local authority to pick up a comprehensive development agreement and continue to develop the project using that. There are several entities within the region that could do that, obviously, the North Texas Tollway Authority, although they have here to date agreed that this as a managed lane project would perhaps be a better opportunity for someone else; the county toll authority, if one was created, could do that, as well as a local government corporation.
In December of 2009, as you will recall, we did pick up an opportunity to consider a revision to our current pass-through tolling system program to allow for the consideration of private pass-through proposals to move forward with projects such as this. And so those rule revisions are currently underway, and in fact, we had a public hearing on those very rules yesterday, I believe, to consider comments from the public and to begin the open comment period.
If looking at the private sector pass-through toll funding agreement option is considered, and of course would have to be conditioned upon the promulgation of rules that would allow that, then we would be able to competitively seek proposals from developers or potential developers to come in and assist in the financing, design, construction and ultimate operation and maintenance of the facility as it has been envisioned and laid out by Mr. Brown a few minutes ago.
The benefits are obvious that we would be able to leverage resources from other entities and a private sector partner to help partially fund the development of the corridor. We do believe, in discussing this with the region, that looking at a phased approach is probably an appropriate thing to do, and as Mr. Moore shared, as we discussed the Southwest Parkway/Chisholm Trail project, most corridors across the state and certainly within the Metroplex have been developed in phases as the demand for traffic justifies the investment of the funds in the activities of the region.
A pass-through toll arrangement would allow us to kind of balance the risk. Obviously, on the downside, if the revenues are short, we would be exposed to making up the cost to the potential developer, however, if the revenues come in higher, we would receive the benefits on the uptake as well and then could take those funds and reinvest them not only in this corridor but perhaps other projects within the State of Texas.
There are several options available under the pass-through toll financing program if a private sector model was to be adopted. The two most reasonable to consider, perhaps, would be availability-type payments. I think you've had conversations with some of our staff in the past about those. But they're basically payments over time to the developer as the product or the roadway is opened to traffic; the other would be a shadow tolling which is what we've used traditionally on the Pass-Through Toll Program which would pay the implementing developer over time based on the amount of traffic that used the facility.
And the concept would be that as the managed lanes generate revenues from the tolled component of those people that use those HOT lanes that the revenues generated from those tolling activities would be sufficient to cover the costs under either of these types of approaches.
So the staff recommendation for you today in terms of response to your request for a plan on how we would continue to move forward with the development and implementation of this project would be to continue the evaluation of the potential for a pass-through toll funded program that would allow for private sector participation, and if those rules are promulgated and adopted, then move forward with the procurement process. It would take approximately a year to complete that once it has begun, and of course, we would need to do our due diligence in evaluating whatever opportunities are brought forward by potential bidders and would require us to consider options to right-size the project to fit the available public and private sector funds that might be brought forward to develop a project.
The concept would be something such as this: a delaying of some of the additional general purpose lanes that were proposed in the ultimate concept as laid out for the project itself, and therefore, would require us to invest less money up front in order to provide a capital asset on the ground to continue to move forward with the development of the project.
At the end of the day, we believe that for the $500 million that is available through the RTR funds, our due diligence would be to ask potential developers to tell us how much of the middle section they could deliver. As Mr. Brown laid out, the middle and southern sections are where we have the heaviest traffic conditions at this point in time and then to look at the potential for delivering the south segment with perhaps some additional investment of public funds.
Of note, it may be important for us to prepare for the implementation of an interchange at FM 407 along the corridor. It's one of our more seasoned bridges, if you will, in this particular area. The condition of the bridge is not as good as we would like for it to be and it's a critical need to be addressed, so it might be prudent for us to develop the plan set for us to approach this as a traditional design-bid-build project and proceed with that project independent or in conjunction with a pass-through toll financed option.
So at this time, what I would like to do is allow Bill Hale to read a letter to you from Judge Horn. She had intended to be here today but was, unfortunately, not able to be here, and so I think she'd asked Bill to share this information you on her behalf.
MR. HALE: Thank you. I'm Bill Hale, the district engineer for the Dallas District, and Judge Horn had asked that I make this presentation because she wasn't able to make it here.
"As the county judge of Denton County, I want to take this opportunity to thank you and other members of the Texas Transportation Commission for your leadership in the advancement of innovative transportation financing for the development of critical transportation infrastructure throughout our state. And particularly, I want to express my support for the commission's efforts to modify pass-through financing regulations to make them more viable for such projects as the managed lanes on IH-35 from 635 to US 380 in Dallas and Denton counties.
"I trust that the commission will look favorably on the regulation changes being proposed by TxDOT staff related to pass-through financing and authorize the necessary actions to ensure their implementation. Denton County has already held two meetings with its six members of the Texas Legislature to brief them on the merits of pass-through financing and its potential to assist us in the development of IH-35E. Additionally, it is Denton County's hope that every effort will be made to ensure that IH-35E's public hearing will be conducted in June of this year with the final federal clearance being granted in the fall of 2010.
"Your consideration of this request is greatly appreciated. Sincerely, Mary Horn."
MR. BARTON: Commissioners, at this time I would certainly be happy to entertain any questions you might have or receive any comments on direction that you would like for us to take as we move forward. We had hoped to lay out for you a little bit about the project and the well-thought-out plan to proceed with the continued development and implementation of it for the region.
MR. HOUGHTON: John, the total project costs were $4.3 billion?
MR. BARTON: That's correct, I believe.
MR. HOUGHTON: Minus $500- from Michael?
MR. BARTON: $557 million total of RTR funding from Michael.
MR. HOUGHTON: What's our exposure to risk on this project?
MR. BARTON: Since we would be using the pass-through toll funded approach, it would be quantified, as Commissioner Holmes had suggested. At this point in time the recommendation is that we would develop a smaller scale project instead of the total $4.5 billion dollar figure and size it to the amount of available resources to bring forward and the anticipated revenue off the toll lanes. So I think that unlike the one we just talked about on State Highway 161 and Southwest Parkway, Chisholm Trail, we would be able to quantify that risk and it would be much lower.
MR. HOUGHTON: If you built the whole thing, if you were talking about building $3.7 billion, I'm not sure your risk is much lower.
MR. BARTON: If we were to build the whole thing. And that's the concept is we would ask developers for this amount of tax funding, $557 --
MR. HOUGHTON: You know where I'm going with this. You know, we're talking about we're in direct line on this risk and we are first based, the bondholders are coming to us looking for those dollars. As to the project we just looked at, we're down the waterfall a ways to get to us. So those are the things, I think, based on what Commissioner Meadows was talking about earlier. Risk management is fully vetting the risk on these projects because as we in the project earlier talked about committing ourselves for 36 years or so, we're committing ourselves on this one for an equal amount of time under the kind of financing method you're talking about.
MR. BARTON: That's correct and that's why it would be important to determine what you know are readily available resources, that $557 million of RTR funds and the anticipated revenue off the managed lanes, and then size the project to fit within that. Obviously, I don't believe that there's currently an option available to us to deliver the entire $4.5 billion program.
MR. SAENZ: I guess, Commissioner, you look at scoping a project to see what can be built under the parameters and then you can look at how you could transfer the risk to the private sector. Since they're going to finance it, their payback will be that revenue that's generated, their bid proposal will be how much project and for how long they would need to keep that project. So in essence, you're transferring the traffic risk to them and let them make that call. That's one of the options.
MR. HOUGHTON: I don't see on a pass-through where you're transferring the risk.
MR. BARTON: And it certainly is.
MR. HOUGHTON: On a CDA, I understand, you are transferring the risk.
MR. BARTON: Correct. And the proposal would be to size the project with the developers telling us how much they could build for the amount of money available.
MR. HOUGHTON: Sized or not, we talked about if the cars don't show up, who's holding the risk, where's the risk. If the cars aren't there, if traffic comes in under, who is in line, who's first in line? Is it the State Highway Fund that's in line to pay that shortfall?
MR. BARTON: It would depend on how you structured the deal, and I think the concept that Director Saenz was laying out was that we would tell the developers: Whatever the revenues are, you get them for the length of time that you say you need them, but if they don't come in, we're not on the hook for providing anything else.
MR. SAENZ: There is a mechanism under the pass-through tolling statute that allows you to transfer risk, and so that would be transferred and the proposers would then bid based on they're going to get paid based on what they see traffic coming in and that's capped every year.
MR. HOUGHTON: Again we'll see the risk-management
MR. SAENZ: We'll prepare the whole risk-management matrix.
MR. BARTON: And obviously, we're still quite some time away from getting the rules promulgated and then talking with potential developers to look at the scope of the project. What we had hoped to do today was educate you on where we are, what we think is a path forward, and then to see if you concurred with the continued development of the environmental impact statement, the clearing of the project, and perhaps the development of the interchange project that I mentioned as a stand-alone design-bid-build project just to be available if we need to move forward with that.
MR. MEADOWS: It seems to me like you're asking us to endorse the concept, conceptual plan to move ahead.
MR. BARTON: That's correct.
MR. MEADOWS: At the same time moving ahead with the practicalities, the environmental issues, everything that you laid out here. As far as I'm concerned, you're on the right path. We're not making a decision today but I think that the expectation is that we would have a plan that we at some point in the future, whether it's a year from now. I mean, it's a fairly short period of time that we would be asked to make some more concrete decisions.
MR. BARTON: You're absolutely right, Commissioner. We're not asking for decisions today, just simply trying to get your feedback.
MR. MEADOWS: A double entendre in there, by the way.
MS. DELISI: We have a couple of people signed up on this agenda item representing different parts of the state, so I think I'm going to guess which projects that they want to speak on and ask them to come up after the presentation.
MR. BARTON: And we're through with this one before we'd like to move on.
MS. DELISI: Okay. So I think I have one person signed up on this one which would be F. Wayne Boling. Is that correct, 35 East?
MR. BOLING: Madam Chairman and members of the commission. My name is Wayne Boling, I'm the executive director for the Corinth Economic Development Corporation. I'm here today representing our mayor for the City of Corinth, Paul Rugieri.
We have visited with the district engineer on this project and with Commissioner Meadows on this project. We are simply asking a very parochial request to try to get a portion of the City of Corinth, which is north of where the middle phase of this project would end, at Swisher Road, Farm to Market Road 2181, to get that extended by approximately a mile and a half to at least do a couple of new overpasses, especially at Corinth Parkway which is our major intersection within the city. We think it would be at a minimal cost in addition to what is proposed for this middle section to try to accelerate this proposal.
Right now I guess our biggest concern is the timing and the phasing of the project. With the middle phase going first, that will open up southern portions that go into Lewisville and then on into Dallas, but it does create a bottleneck within the City of Corinth. Currently, as you travel north on I-35 coming out of Lewisville going north to Denton, the highway on I-35 narrows from three lanes going north down to two lanes and there is a bottleneck, substantial bottleneck at that point every night, serious congestion at that point on in through the City of Denton.
So our proposal and request is to just upgrade at least a portion of this project to be added on to the middle section of this proposal. And with that, I'll be happy to answer any questions.
MS. DELISI: Any questions?
MS. DELISI: Thank you for coming.
Do you want to go into the next project?
MR. BARTON: Yes, Madam Chair.
At this time we would like to brief the commission on our efforts to evaluate opportunity to continue the development and implementation of an interchange at Interstate 35W and Interstate 820 in the community of Fort Worth.
With me this afternoon is Maribel Chavez, again, our district engineer from the Fort Worth District, and she will be providing us a brief overview of the project, if you will, and where we stand to date.
MS. CHAVEZ: Good afternoon, Madam Chair, commissioners. For the record, Maribel Chavez, I am the Fort Worth District engineer.
And very similar to what you just heard with respect to I-35E, we obviously have very similar needs on I-35W, in particular, the I-35W and IH-820 interchange which while on this power point we refer to it as the keystone to allow progress on I-35W, I think the locals probably have a different description for that interchange and it's probably not something I can say in public, but I'll just call it a bottleneck.
Obviously we have some pretty incredible congestion levels at that interchange, a 1950s-1960s design, with some left-hand direct connect ramps which obviously don't make for a very safe or certainly a type of interchange that we like operating. And the other thing, Commissioner Meadows, you're very familiar with that corridor. It's obviously a very important economic development corridor for the western side of the Metroplex, it being a gateway into the Alliance area. That bottleneck does, I'm sure, hamper our economic development opportunities up in that corridor, and so we are looking to try to make some improvements to that interchange.
Very similar to what you just heard from the Dallas District, that interchange, we've got some bridge and pavement conditions that obviously need to be addressed, not much life remaining in that interchange, and of course, the capacity has long been exceeded.
We were fortunate, and I thank the region for being very aggressive in trying to look at innovative ways to make improvements to this whole area in north Tarrant County, particularly the 35W and 820 and Airport Freeway corridors, and so we did move forward with a CDA procurement and we were successful in getting the North Tarrant Express concession CDA, and for a $570 million public investment, we are getting the value of $2 billion worth of improvements. So we very much appreciate that.
One of the things that you can see is that obviously with those traffic volumes you can see that we're way past the capacity of the corridor, both 820 and the Airport Freeway. I would tell you that 35W is very similar, we've way exceeded the original capacity of that whole system.
The North Tarrant Express concession CDA does have us building at least two of the ramps and those are the ramps that feed the eastbound managed lane, so of that overall interchange, at least out of the concession CDA, we're getting those two managed lanes that have a value of about $67 million. And so what we would like is, obviously, to try and get more improvements of that interchange, and I think, John, you were going to speak to the discussions that we've had with the developer on continued effort on the master development plan.
MR. BARTON: Thank you, Maribel.
Commissioners, I've had to move over here to the computer because apparently our clicker is no longer working, and so we're experiencing a little bit of a technical difficulty.
This particular slide shows you the layout of the master development plan areas of the comprehensive development agreement that we have with the North Tarrant Express Mobility Partners. They are currently evaluating options for delivering alternative projects within these areas and have been aggressively considering this with the North Central Texas Council of Governments, talking about what potential exists within the current master development plan to mesh with the air quality conforming analysis and those sorts of things.
And most notably, they've come to us with the idea that they should be able to, with some minor modifications to approach, deliver the improvements that are envisioned as Segments 3A and 3B which are the reconstruction of the existing general purpose lanes as well as the addition of the envisioned managed lanes in the center of the corridor from just south of, excuse me, connecting Interstate 30, if you will, in the heart of the Fort Worth Metroplex, northward to US 287 or close thereabouts north of Interstate 820.
Obviously this is several billion dollars worth of additional investment that they believe they can make and bring forward to us. They are working on a plan that they hope to be able to deliver to us in late March or early April that would lay out what type of additional public investment, if any, is needed in order to allow them to develop and implement those additional portions of much-needed transportation improvements in the Greater Fort Worth area.
I believe in my conversations with them to date that the proposal they will present should show that there is very little, if any, additional public investment necessary in order for them to implement that, which, in effect, would allow us then to concentrate our efforts on that keystone project that Maribel mentioned earlier which is the interchange of 820 and I-35W.
As Ms. Chavez did a very good job of pointing out, the current development agreement requires the construction of two of the direct connect ramps with the managed lanes that are being constructed on 820. As envisioned, I believe the developer may be able to provide the other direct connections associated with the managed lanes for the rest of the corridor, and so that would leave us the responsibility of trying to implement the general purpose lanes within this interchange.
Maribel and her staff have been working on a concept in that regard. They believe that it would cost approximately $200 million, it could be somewhat more, it could be somewhat less, but at this point in time it looks like it would be approximately $200 million. And so the recommendation would be that we prepare to be able to implement a separate design-bid-build project to construct the non-tolled elements of this interchange in concert and in coordination with the construction that would be undertaken by the North Tarrant Express Mobility Partners in their comprehensive development agreement.
The benefits to that are very simple to enumerate: it would give us the ability to control the project, both in size and scope; obviously it would be bid outside of the CDA so it would enhance our ability to get heightened competition for the construction of that particular project; and based on the proposal that we expect to get from the developers in March, we should be able to gauge our ability to actually move forward with that and come back with a formal recommendation for action by the commission to support that so that we can move forward with that construction in a time that would not negatively affect the completion of the North Tarrant Express Mobility Partners work.
So moving forward, we feel like we need to be prepared to evaluate their proposal that should be forthcoming in the next several weeks, and then based on that proposal, move forward with a plan for your recommendation to consider and perhaps adopt to provide the funding necessary to develop the general purpose or non-tolled elements of this interchange, thus allowing us to leverage that tax-supported investment for general purpose activities to allow them to develop more of the Interstate 35 corridor north and south of this interchange, specifically segments 3A and 3B, both
again, to remind you, reconstructing all the existing pavement and adding the new managed lanes at what we believe will be little or no cost to the taxpayers other than what was envisioned in their management of the toll components of the facility. And again, they would be adding the additional tolled lanes to direct connect both Interstate 35W's managed lanes with 820's managed lanes.
So we believe that in moving forward, if you were to embrace this approach and the master development plan proposal comes to us in March, as we expect, that we would move forwards with procuring a consultant to do the design work, complete that in the spring of 2011 so we can begin construction shortly thereafter, opening it to traffic, again, in 2015 to be in line with and in concert with the construction that the North Tarrant Express Mobility Partners will be undertaking as part of their current comprehensive development agreement as well as, perhaps, additional projects they would like to add based on their evaluation in the master development planning process.
So at this point in time I'd be happy to try to answer any questions you might have and take comments from you on the staff's recommended approach to continuing the development of this important project.
MR. MEADOWS: John, the only question I have is that. It's really more of a statement which is I assume that between now and the first of April that you all, from a staff perspective, are going to be examining the potential funding options for the public fund component of this.
MR. BARTON: We will, and as already has been mentioned today, James Bass, perhaps in passing, noted that we still have $350 million of Proposition 14 capacity and there could be potential opportunities from underruns on other projects, as well, to consider. So we will be looking at what available Fund 6 and other sources of funds are currently available, putting those together not only on this project but the one we just mentioned on Interstate 35 East, as well as the ones we're about to talk about on US 77.
MR. MEADOWS: Good, thank you.
MS. DELISI: Are there any other questions for these guys?
MS. DELISI: So then at this time I'd like to call up Jungus Jordan.
MR. JORDAN: Madam Chair, commissioners, we just -- I'm Jungus Jordan. I'm a city council member in the City of Fort Worth. I'm also the secretary of the Regional Transportation Council, and today you've addressed several issues in your workshop that are of vital importance to us in North Texas and we appreciate your due diligence in both Southwest Parkway/Chisholm Trail, I-35W, I-35E and all the projects you're looking at. My purpose in being here is to say thank you for continuing this discussion.
When we were here last month for Prop 12, you used the term, Madam Chair, I-35 is Main Street Texas; Ms. Maribel Chavez used the word keystone; I won't use the word she was referring to but I would say that that is the choke point on Main Street Texas, that is where the choke point starts in the north. And each of these projects are vitally important to the citizens of North Texas, and so on behalf of Mayor Moncrief and the citizens of Fort Worth and the city council of Fort Worth and the Regional Transportation Council, I want to say thank you for continuing the discussion of finding a solution for these, and we'll look forward to hearing your comments tomorrow. Thank you.
MR. HOUGHTON: John, are we going to talk about something other than North Texas anytime soon?
MR. BARTON: If you would allow us to proceed, we'll be happy to talk about the Coastal Bend of Texas and South Texas.
If you're ready for us to move on, I do have one last group to talk to us about the third project that you actually asked us to look at and bring back a plan for today. And this is actually a corridor project to look at US 77, as you know, which also coalesces with or is in line with I-69 and the development of that proposed interstate facility from Northeast Texas and beyond to Mexico through this particular part of Central and South Texas.
And today with me I have three people: Ed Pensock from our Turnpike Authority Division, Mario Jorge, our district engineer from the Pharr District, and Russell Lenz, our district engineer from Corpus Christi to assist me in sharing with you some information about this project. And so at this time I would like to ask Mr. Pensock to begin by giving us a brief overview of the corridor and then Messrs. Jorge and Lenz will add on additional information about the particular projects within their area of the state.
MR. PENSOCK: Thank you very much, Madam Chairman, commissioners. For the record, my name is Ed Pensock with the Turnpike Division of TxDOT. And to give a brief overview, we have about 120 miles from north of Harlingen to Interstate 37 in the Corpus Christi region that's currently allowed to be upgraded by a privately funded CDA as currently in our statutes that we can develop that project. It encompasses the five-county area, what you see. The I-69 corridor does stretch from the Rio Grande Valley Texarkana and that's the entire corridor.
The existing corridor is approximately four lanes, two lanes in each direction, it's non-controlled access for the most part, a lot of driveway intersections, a lot of at-grade intersections and crossovers, and the current operational concerns include gaps in freeway and driver expectancy is compromised by a lot of these driveways and a lot of these intersections, and there are bottleneck problems, there are bottleneck congestion problems in some of the communities and there are thru-put concerns in some of the communities.
MR. JORGE: Good afternoon, Chair, commissioners. We're going to tag-team the presentation a little bit. For the record, my name is Mario Jorge, district engineer in Pharr, and I just wanted to talk a little bit about the purpose and need of the project, what are some of the major issues that affect the corridor.
First of all, the Rio Grande Valley is a major urban center. The population, based on the 2000 census, in the Valley is approximately a million, but right across the border in northern Mexico we have another 2-1/2 million so it's a combination of 3-1/2 million people that interact both economically and socially on a daily basis. So that's an important point.
There's two major corridors that connect the Valley north, US 77 being one of them, and it is a significant freight corridor connecting the ports of Brownsville as well as Corpus and then on to Houston and beyond. There are eleven international ports of entry in the Valley itself that feed into these corridors.
As far as a potential evacuation corridor from the Valley, 77 is one that we are very careful about using as a hurricane evacuation due to the fact that it's leading traffic into Corpus so that's something that we coordinate very closely with the Corpus area. But in the case of an evacuation from the Valley and not from Corpus, it can be utilized, at the very least partially, to get traffic west from a midpoint.
There is significant expected growth in traffic, both in the Valley as well as on this corridor. We anticipate about 75 percent traffic growth on 77 itself. Currently it carries about 25 percent truck traffic. That number will probably either continue or possibly increase as further economic activity increases along the border.
There's several expansions planned by both boards. The Port of Brownsville, for example, has been working on a couple of projects that will increase the economic activity there, some new docks that are being planned for construction as well as a longer term channel deepening project. So those will have an impact to the corridor and to the freight.
And I think Russell will tag-team with me
MR. LENZ: For the record, my name is Russell Lenz, the Corpus Christi District engineer. I'm glad to be with you this afternoon.
Briefly, to accommodate a lot of the issues that Mr. Jorge just spoke about and the potential increase of traffic and freight movement, we envision a proposed facility that would be a four-lane freeway developed to meet minimum standards required by the FHWA for designation as an interstate highway for the entire route between I-37 and US 83 in Pharr or in the Valley. There would be limited frontage roads, we would only construct them, as we're currently proposing them, where we would need to provide the access.
There are long stretches where we would not have a need to have continuous frontage roads. We would also judiciously or strategically locate interchanges to provide for circuitous traffic and provide the mobility that's necessary while maintaining a reasonable cost, and as we envision it, to build the project from 83 all the way to I-37, we're looking at a cost of about $650 million. Now, there's also, as you know, a counterpart to this that is involving I-69 that Mr. Pensock has been involved with and he'll explain as well.
MR. PENSOCK: Thank you, Russell.
Elaborating on the opportunity with the comprehensive development agreement, which is possibly one way of implementing this project, you had conditionally awarded the master planning comprehensive development agreement to a team led by Zachry American Infrastructure, and we currently have that contract sitting at the Attorney General's Office where it is under review. We would hope that that contract would come out of the Attorney General's Office in the very near future, allowing us to execute it. The Zachry American Infrastructure proposal included a conceptual development plan for the entire corridor from Mexico to Texarkana and also very specifically a conceptual development plan for that segment between the Valley and Corpus Christi.
They had a very interesting plan to upgrade that segment of US 77 without using public funds, and using a system finance approach. As we go through that plan, I would also like to talk about the possibility of having some projects potentially advanced by TxDOT that could enhance that plan.
MR. LENZ: There are several projects located in the Corpus District, one being the southside mobility corridor that would and could provide relief to a heavily traveled SPID or State Highway 358 and provide another opportunity to get to the other portion of Corpus Christi from I-37. There's a managed lane project on SPID itself that would provide relief during peak-hour traffic as well as managed lanes on Crosstown Expressway that could potentially provide some relief also during those peak hours.
On US 77 there would be a relief route, as currently planned, around Driscoll and Riviera, that would provide an opportunity for truck traffic or heavy freight traffic to move around both of those communities without going through a narrow right of way through heavy congested areas.
MR. JORGE: Two of the other projects that are identified in the financial conceptual plan are in the Pharr District, in Cameron County specifically. One of the projects you're very familiar with, we've had numerous minute orders cut for the project and still have a couple more, so we can go out for bids. State Highway 550 is a project that connects the Port of Brownsville with US 77 in the Valley in the Brownsville area. The project is really three phases: the first phase is under construction; the second phase is about to be let in March with Recovery Act funds, and the third phase is the connection all the way back to 77/83.
The advantage to this project, or the stage that this project is at, is that a FONSI has been issued for all three phases and so it's cleared environmentally. Also, all right of way has been acquired. Well, actually you'll have one item on the agenda to accept a donation from the Port of Brownsville and that will be the final right of way needed for the ultimate section. So we've worked really close with the RMA to get that project moving in that direction.
And the last project in Cameron County is the West Parkway, as it's called, and that is to construct a new toll road from 77 to the BNM bridge on the abandoned right of way as they relocate to the West Rail, another Recovery Act project that is going out for bids in March.
MR. PENSOCK: The financial plan that Zachry had included in their conceptual development plan was very interesting. It contemplated total improvements of both US 77 and those seven projects that you just heard about up to being a combined cost of as much as $2-1/2 billion, a lot of money. The proposal contemplated not tolling most of the US 77 leg but tolling those seven projects that we just heard about and using the toll revenues from those seven projects to cross-collateralize and to help pay for and to fund the US 77 upgrades.
It's a very interesting plan, very innovative plan, a plan that does have some risks. The plan included two revenues, long-term toll collection by the developer for those seven projects. They would operate and maintain those seven projects. The plan included implementing taxing districts or transportation reinvestment zones or incremental financing districts along those corridors and directing some of that revenue to help maintain and operate those facilities. The plan included TIFIA loans, the plan included private activity bonds, the plan included a lot of different innovative financing mechanisms that centered around that long-term 50-51 year toll collection operation for those seven projects.
Again, the US 77 component, other than the two relief routes around the towns of Driscoll and Riviera, would not be tolled, whereas the five connecting projects and the two relief routes would be tolled.
Switching gears a little bit on the environmental process, TTA and the Corpus and Pharr districts have been working together to environmentally improve the proposal on US 77, the upgrades for US 77, and it's been a good process and we're making great progress along it. The Federal Highway Administration approved the use of environmental assessment to environmentally clear the construction on US 77. We've had a total of two rounds of public information meetings, we have developed an environmental assessment and we're about to submit that environmental assessment to the Federal Highway Administration.
With the concurrence with that environmental assessment, we contemplate having some public hearings, probably the spring or the summer of 2010, and we contemplate the finding of no significant impact, or FONSI, on the project by fall 2010, late 2010.
MR. LENZ: Mr. Jorge and I have worked jointly together to identify several projects that we could move forward with very quickly, that we could deliver. There are two projects in each district. The two projects that are in the Corpus District are located on the map in front of you. US 77 in Nueces County is the one at the top and right, and it involves the construction of the main lanes and direct connection in Robstown between State Highway 44 and FM 892, a project that is currently under construction. It would complete the gap in the freeway system and minimize the discontinuity in the facility. That project is estimated to cost $45 million. It does include the acquisition of one parcel of right of way, the remaining right of way has been purchased.
The other project is on US 77 itself in Kleberg County in Kingsville, and Commissioner Underwood, I believe you're familiar with that project, it's the intersection of Cesar Avenue on US 77, an area that we do have crossing traffic that is impeded and we do have some accidents there with the access to Naval Air Station Kingsville. This would correct that problem. We're estimating that construction project to cost $12 million, does not require right of way, and we believe we can deliver that very quickly as well.
MR. JORGE: Moving south, one project in Kenedy County that would probably be of immediate implementation is an overpass at Sarita at the school. It is an area that there's a significant number of school traffic that crosses every day, combined with the high-speed traffic on 77, high truck traffic. From a safety standpoint, it is one that we believe can be implemented quickly.
The fourth project for the south would be the completion of the controlled access facility or expressway facility from Raymondville south. There's one overpass that we would like to construct, that's Spur 56, and some additional mainlane construction. That will give us an interstate quality freeway from Raymondville to Harlingen, so it's an important last link.
MR. LENZ: As far as project time lines go, when we clear environmentally in November of '10, later this year, the projects in the Corpus District in Nueces County and Kleberg County, we believe the project in Kingsville we will be able to deliver and could have under construction as early as May 2011 if funding were available, and we could also do the work in Robstown and have those projects available for construction, again, beginning in November of 2011.
MR. JORGE: And both of ours, similar time line: the overpass at Sarita being the simpler of the four, we felt we can have ready for letting in February; the Willacy County project, sometime in June.
MR. BARTON: So just to summarize for you, commissioners, obviously this corridor has a lot of opportunity for potential development. We are awaiting Zachry America and awaiting the attorney general's review and concurrence with the comprehensive development agreement so we can execute it and get them moving forward. We believe, based on the district's efforts and that of the region so far, that there are over $92 million worth of projects that would be ready to implement by Zachry America almost immediately upon getting this comprehensive development agreement in place.
As they envisioned in their conceptual plan, as Mr. Pensock pointed out, they can deliver these projects without any additional investments by the state or federal tax revenues, and so we want to be in a position to assist them in having these projects ready to implement as soon as their comprehensive development agreement is in place and they've developed their plans sufficiently to move forward.
I think that it's also important to note that because of the pressing need for these projects, the Cameron County RMA has also agreed to participate in the development costs of the project within their bounds in Cameron County and are working closely with Mr. Jorge and his staff to continue the consideration and development of those two projects in Cameron County.
So as a recommendation in terms of where we move forward from here, I think it's important for us to continue to work with Zachry America, we'll fully evaluate the plan that they put forth once the comprehensive development agreement has been executed, and then plan for rapid implementation of the four projects that were laid out today with them, again, because they have indicated they can deliver those and many other improvements without any additional tax revenues.
But knowing that things do change over time, we will be prepared, if necessary, to come back to you, because these projects are of such import and necessity, and seek your advice and perhaps a decision on additional financial support should that be necessary. But at the bottom line at the end of the day, Mr. Jorge and Mr. Lenz and their staffs are moving forward and getting these projects ready to implement for Zachry America as soon as they're ready to step forward and move forward on the projects.
So with that, we'd be happy to try to answer any questions that you might have.
MR. HOLMES: You said that real fast, John, you said might come back for additional financial support.
MR. BARTON: Yes, sir.
MR. HOLMES: I thought these were Zachry projects.
MR. BARTON: They are. Zachry, under the comprehensive development agreement, though, they may come out and say that their initial analysis and their conceptual plan is no longer valid and they won't be able to implement or a portion of the project. So they're under no contractual obligation to move forward with these projects, they are to develop a master development plan, and they certainly intend, we believe, and their concept is to do all these projects, we just want to be ready to help them implement them quickly.
MR. HOLMES: This is a part of the world that I have some familiarity with.
MR. BARTON: Yes, sir.
MR. HOLMES: And the notion that there are many driveways and many entrances, there is that sign, Ed, that says: Next service station 56 miles.
MR. PENSOCK: But Commissioner Holmes, when you're down there and count all the ranch gates, there's more of them than you think.
MR. HOLMES: There are a lot of ranch gates, but we're not...
MR. PENSOCK: It's not urbanly developed, you're right.
MR. HOLMES: In the literally thousands of times I've been on 77, I've never had to go slower than the speed limit, and so what I'm concerned about is how Zachry is going to recover their cost. I'm supportive of upgrading 77 to interstate status, I think that's a goal of the Valley. I don't think it's going to make a lot of difference on a positive manner to the Kenedy Ranch or the Armstrong or the King Ranch or some of those, or Danny Butler's place, Iteria's and some of those, I don't think it's going to actually make them very happy, but I do think that it makes the population in the Valley happy to have an interstate designation. Are they planning to recover the cost of this $92 million out of tolls on these bypasses and overpasses?
MR. BARTON: I believe that the conceptual plan was that the seven projects that we enumerated earlier, those in the heart of Corpus Christi and then those in the Valley, would be tolled projects and the revenues generated from those, as well as the implementation of transportation reinvestment zones, loans through TIFIA, they believe that they could put together a financial plan that would allow those projects to fund the necessary improvements along 77.
MR. HOLMES: But they're not planning to toll these four, the Willacy, Kenedy, Nueces and Kleberg?
MR. BARTON: No, sir.
MR. HOLMES: That gives me some encouragement.
MR. BARTON: What we tried to do is look at those projects that absent any plan are necessary, and as you mentioned, much of the corridor is not urbanly developed and will not be, but these improvements are necessary. They would be, as Zachry America moves forward with the non-tolled construction elements, the ones that we think should be done first, and so we've been moving forward and will continue to do so in concert with their environmental document to do what we can so that as soon as they're able and willing to move forward, they can move those projects to construction.
MR. HOLMES: I assume that we're working closely with those ranches to figure out how they get in and out of their gates.
MR. BARTON: That is correct, yes, sir.
MR. HOUGHTON: Do they have legal access? They do have legal access.
MR. BARTON: Yes, sir.
MR. PENSOCK: The financing plan does have risks and any money that the State chooses to invest in the corridor potentially could lower those risks. There's another item there that if any money is invested by TxDOT, we could very possibly realize that on the back-end of a CDA negotiation through revenue-sharing, or the regions could realize the positive impact of that investment through revenue-sharing on those projects. So any investment that TxDOT chooses to make in projects, like the four that Mr. Lenz and Mr. Jorge talked about, is certainly not money wasted, it is certainly money that is only going to enhance and make that corridor stronger and could be seeing at the back-end a very real dollar-for-dollar possibly through revenue-sharing.
MR. HOLMES: And Mr. Jorge and Mr. Lenz, your communities are supportive of paying tolls and having some of those revenues used to improve facilities in other counties?
MR. LENZ: I think what we've found is there is a mixed bag: there are some folks who have said they have no objection to paying the tolls and supporting it; there are others who obviously don't; I don't know that there is a consensus one way or the other. Community-wise they're looking for some type of positive direction as far as what this would actually entail, they are supportive of the corridor, they understand the need for it long term and are willing to work towards a means to get to that end that's beneficial for everyone. They haven't openly supported or openly been against at this point.
MR. JORGE: And in our case in the Valley, working with the RMA, they have been very supportive of US 77 expansion. Their chairman, Mr. Allex, has gone on record as saying that this is one of the top priorities of the RMA. But with that said, they do have other projects that they are developing and so those were items that I think would have to be negotiated between Zachry, ourselves and the RMA.
One note, Commissioner Holmes, I do want to address, you mentioned the ranchers and we have met individually with each and every rancher in Kenedy County. We've addressed, I believe, all of their concerns; we've been able to strategically place an overpass here and there to address circulation issues; but we've had a very good communication line with all the ranchers.
MR. HOLMES: I presume that some of these access roads will be two-way?
MR. JORGE: There are a couple of instances where we'll have two-way access. In order to not have an overpass, for example, it would be a two-way access road to the ranch entrance, and we've coordinated that with the individual owners.
MR. HOLMES: There are a lot of gates down there but not all of them are used.
MR. JORGE: Yes, and that was one of the key issues with us is finding out which ones were the main gates, which ones are they operating their businesses from, their ranching and what-have-you, and so we were able to get all that discussed and ironed out and it helped us in identifying the locations of the interchanges.
With all that said, the Kenedy County ranch area from the entire corridor will probably be the lowest priority in terms of what's needed, and I think that's how these projects are identified.
MR. HOLMES: I just don't want to see us get into a circumstance that I think Commissioner Houghton was alluding to and that is we have some sort of condemnation damage for limiting access. While there are not many people going through there, there's some hydrocarbons coming out and there are service crews going in and we need to be careful about that.
MR. BARTON: And that's an important point. I think we can work not only with the ranches but with our Federal Highway partners to limit the cost of limiting access and doing it in a cost-efficient way that meets the requirements of an interstate designation but doesn't place an undue burden on the State nor the ranch.;
MR. HOUGHTON: And I would add certain hunters with leases down in that part of the world.
MR. BARTON: We do understand the local connection.
MS. DELISI: At this time I'd like to call up David Garza.
JUDGE CASCOS: Good afternoon, Madam Chair. And I know who the chairman is. Madam Chair, commissioners, thank you very much. My name is Carlos Cascos and I'm the Cameron County judge. David Garza is the judge pro tem and the commissioner that represents the San Benito area.
I think, Commissioner, you made a comment about the sentiments about people willing to pay tolls for infrastructure improvements in other areas. You know, that's a very good question. Cameron County faces similar challenges. We have international bridges that generate a significant amount of revenue and most of that money comes from the Brownsville area. We have South Padre Island Park that most of the revenue is generated from that one park to subsidize other parks.
So that question is unique in terms of what we try to do is we can't look at it parochially, we don't look at it with city limits, we represent not only Cameron County but South Texas as a region. And all of you are familiar with South Texas, you know how important regionalism is nowadays. But I understand the sensitivity, but at the same time, we're looking at the infrastructure enhancements of South Texas, and we just appreciate the work that your staff has done for us. Mario Jorge has been a great director for us and I want to thank you all, as well, for all your dedication and your public service.
With that, let me introduce Commissioner David Garza who will speak. Thank you.
MR. GARZA: Thank you, Judge.
Madam Chairman, commissioners, it's a pleasure to be here. I do want to mention a few things, and I've had the opportunity to visit privately, individually with some of the commissioners in regards what we see and envision in our area becoming. Commissioner Underwood, you were down there, we visited, we've had the opportunity to have Ted down there and we've really appreciated it, you've been down there a number of times, we certainly appreciate it, but we have an area that is totally underserved by an interstate in South Texas. We could have brought David Allex with us but he would have gone through the whole oval egg presentation, and I think you've had that about three or four times already.
We are somewhat skeptical on this CDA agreement that is ongoing because it's been ongoing for a long time and doesn't get off dead center. Our RMA has been very active, we shared the plan that we have for our area in Cameron County with at least three of you here, four of you here, commissioners, you've seen the plan. We've been told by everyone that sees this plan intra-county that it is an excellent plan and that we're doing everything that we were asked to do with the RMA which was developed five years ago to put a structure in place through either tolling, pass-through tolling, whatever we could do and however we could think outside the box to finance projects.
We've identified many projects that we want to do. We don't necessarily want to send our money up to Corpus or up to Austin as what is generated locally, we'd like to spend it in the projects that we have locally. We've identified $1.7 billion worth of projects that are doable projects and the key to all this, the economic development that we look at generating through the studies that we've done, because TxDOT has requested that we do these valuation studies on what we're working with, show us that it can be done and that they're viable.
The second causeway to South Padre Island and other very viable projects that TxDOT had on the drawing boards since Amadeo was down there with us, it didn't move very far along, the RMA has taken over, and that project is moving forward. The potential for the economic development just on the island for us is unbelievable. A three-mile stretch of island has 20 percent of our county valuation and we've got a lot of miles north of what that three-mile stretch is today, and the second causeway that we're looking at is on that north end.
All of these projects are tied directly to an interstate system that can take visitors from the Dallas area, from Fort Worth area, from San Antonio area, from Austin area, from all the other areas of the state and get them to us in a safe manner. It is also economic vitality for the area with the ports and what's occurring in the Panama Canal and what will happen in the future and the deepening of the port that we hope to see in Brownsville, to take full advantage of that also requires that we have an interstate leading out of there so that we can move product from Mexico, from the ports into Dallas, Houston and everywhere else in the State of Texas.
So I don't know how long we can wait. The RMA is ready to move forward on a number of projects. We've got two international projects that will go to construction within the next 90 days, we've got one highway project. You have it on the agenda for tomorrow. That will hopefully go to construction by March 1 that will be generating. It better go by March 1, you know. And we've got a switch yard relocation that's occurring in the Harlingen area that also better go to construction by March 1. And we're looking at all these things and we're saying we've got to have time lines on an interstate. Do we need to continue planning for that as a region or do we just say it's not going to happen for us, we need to figure out a different way. We've offered locally through the RMA to do studies, to do design work, you tell us what you want.
We couldn't, unfortunately, get the other proposition that was given out two months ago, we didn't have any projects in our area besides maintenance projects for TxDOT that got on that, but we want to have the opportunity to be congested. We don't have a congested area, maybe the intersection of 281 and 83, but we don't have a congested area that makes the grade to even have a study done. Give us the opportunity, allow us to partner with you. We're not asking for a backstop, we're asking for a field to play on. We want to be there; we have, I believe, the ability.
And you talk about Nueces County, I visited with the judge recently over there, and tolling, he says, that's a TxDOT responsibility, that's not my responsibility; we need a new harbor bridge. By the way, he said to give you a message, $900 million worth.
But it's all money. Help us figure out. When we run into dilemmas at the county level, we have very innovative administrators on staff that somehow find money. We're not asking for all of it today, we're asking for maybe an overpass a year for the next seven or eight years and it will get us there. The expressway between Brownsville and Mission, Texas took, I don't know, 15 years to complete, it was done one stretch at a time.
Figure us in on a yearly basis to what we can do, and what we can help with, we're willing to figure in too, and let's get this project moving, let's get this project rolling, let's get connected. We want to be, as Commissioner Houghton said, Main Street Texas, we want to be on Main Street. Right now we're in the suburbs, we're last on the agenda today. We want to be Main Street, we want to be on the corridor that takes folks from the border to the north end of the state, and we're not there yet.
So we'd appreciate any help. I'd like to see some time lines in a more definite way with the CDA agreements. We don't know if we can believe in the CDA agreements. If there's a different mechanism that we can use, Cameron County CCRMA is pretty much ready to listen and ready to help, and Cameron County backstops the CCRMA pretty much on a full basis. We've financed the organization since the inception and continue to be 100 percent supportive of what they're trying to do for our area. Thank you.
MS. DELISI: Thank you.
MR. SAENZ: Thank you, John. On all these presentations, commissioners, for your information, we continue to work with the attorney general on getting the legal sufficiency review for the I-69 CDA, we're in contact with them on a weekly basis and we'll continue to do that so we can get it done.
The next item on the agenda will be agenda item 5, and Coby Chase, and John will be back in a little bit. We're going to let him rest for a second to talk about a federal legislative update as well as what I call the Economic Stimulus Package II that's being talked about.
MR. CHASE: Good afternoon. For the record, I'm Coby Chase, director of TxDOT's Government and Public Affairs Division. I've been asked to talk to you today about things going on in D.C. as they relate to us and the possibility of the second stimulus bill.
As always the bearer of good news when I come up here, the Congressional Budget Office announced yesterday that the Highway Trust Fund again is teetering on insolvency; at the end of this fiscal year it should have a balance of about $3 billion which is the same position we were in a year ago and two years ago that reimbursements will be slowed down, so here we are again. They also project that if you were to Xerox SAFETEA-LU, adjust it mildly for inflation and just pass that as the next reauthorization bill, you would be $65 billion short of current funding levels. So that means that you'd have to raise the gas tax something like a nickel just to pay for the bill that we're under now if they just upped and passed that. So just kind of keep that in mind, that's some late-breaking news.
SAFETEA-LU expired, as you know, last September 30 and we're operating under our third continuing resolution. A fourth one is contained in the House version of the Jobs for Main Street Act, also known as Stimulus II, and that would take us through September 2010. It brings funding levels back to where they were at the beginning of 2009 before the large rescission was figured in at the end of SAFETEA-LU so it would fund you at your 2009 level before you received a rescission, so at about $3 billion for Texas, plus or minus $100 million.
But the continuing resolutions we're operating under now, they're calculated after the rescission, and it applies to all states, not just Texas, but what we believe is if they were to do that for the course of the entire year, that's about 30 percent underrun of what we believe we're entitled to and we would be leaving behind or at least setting aside a billion dollars. So that's kind of the challenge: they're funding us at the rescission level, post-rescission level right now as they do these continuing resolutions; what's in the Main Street Act, if it were to pass or pass separately, would bring it back up to the appropriate levels.
The House voted out the Jobs for Main Street Act in December, and overall, the size and scale of it is much smaller than the previous stimulus act, ARRA or Stimulus I, the House version of Main Street stands at $154 billion, and for all transportation programs that bill provides $37 billion, an identical amount to what was in the previous stimulus bill for at least transportation.
Do all of you have this, are these in your materials? Okay. I'll be referencing that.
Texas would receive another $2.6 billion for highways and transit. You can see that at the top on Main Street. For highways, $2.25 billion, almost virtually identical as it was last time, and TxDOT would control $1.5 billion, MPOs $675 million at their discretion, and then again, another $67 million to spend on the Enhancement Program.
For transit, well, transit is its own.
MR. SAENZ: I don't think we have that.
MR. UNDERWOOD: Some of the more privileged ones have it.
(General talking and laughter.)
MR. CHASE: There is no separate rail component in this bill and aviation funding is cut in half, and there's a very small discretionary component, $60 million for capital expenditures which remains a mystery but was generally considered a placeholder for something bigger and more substantial, but there's no giant slug of high-speed rail cash in there.
But the primary difference between the previous Stimulus and this one is the use-it-or-lose-it provisions, and that's very important. The new legislation right now, the House version, 50 percent of the money has to go to contract within 90 days and the second 50 percent under contract within a year, that's very important. That's not obligate, that's under contract, you have signed the contract, dirt starts turning. That's a very different dynamic.
We were having challenges enough coming up with quality projects so did a very good job with 120 days to obligate the money, now it's 90 days to get it to contract.
And in addition, previously the MPOs had one year to obligate all of their funds, the Main Street Bill requires all the funding to comply with those same 90 days and then one year to contract provisions. This under contract in 90 days poses a serious challenge to Texas, and probably many other states as, and Mr. Barton will discuss that in a minute. Of course, we'll meet any guidelines that are imposed on us, however, the quality of projects probably won't be congestion-busters, but I'll let John tell you that after he's rested up between presentations.
If you remember, though, the House did start in a similar place with the first Stimulus Bill and the Senate corrected it to 120 days. And one final note about the House bill. The economically disadvantaged language has been altered and I believe for the better. Language has been added that directs states to ensure an equitable distribution of funds in an appropriate balance in addressing the needs of urban and rural counties. Well, that's what you did with the ARRA money. If anyone asks me, my story will be that Congress decided this time to follow the lead of the Texas Transportation Commission. I will not back away from that story.
There is no Senate version, however, talks started this week within the Senate and what they're looking at is a little more than half the size of the House version, $82.5 billion, and for transportation their writings on an envelope puts it at $25 billion or about a third less than the House version. That's all we know, there's no breakdown among modes or breakout among modes to see what the dollar amounts are, but if you just subtract about a third, that would bring the Texas highway number down to $1.5 billion, about a billion of which would be at TxDOT's discretion.
They say they're aiming for passage either right before or right after the President's Day recess which is the week of February 15. The president does seem adamant about wanting another jobs bill as unemployment numbers don't seem to be changing as quickly as he'd like, but he's also proposing a domestic non-defense, non-security funding freeze. We don't know yet what the effect of that is and where they go back and calculate it, so we'll have to see and we may learn this evening, but talking to our friends on The Hill over the past 48 hours, they don't know yet what the effect would be on transportation and the White House hasn't been forthcoming.
But of course, we will be working with our delegation to ensure the best possible outcome for Texas under the Main Street Bill, should it pass, and with all of that good news, if you don't have any questions, I'll turn it over to Mr. Barton. Thank you.
MR. BARTON: Thank you, Coby. And again for the record, my name is John Barton, assistant executive director for Engineering Operations.
I believe you did get a copy of the slides that I'll be talking from real briefly and it's a two-page front and back on a single sheet of paper. But as Coby mentioned, the biggest issue that we see facing us is this 90 days to contract on 50 percent of the funding and the challenges that that will present to the State of Texas, as well as the other states across the nation. Quite frankly, it may be almost an impossible task but certainly we will rise to the challenge if that's what is brought before us.
The reason is simply this: the required federal planning process under the American Recovery and Reinvestment Act was not set aside nor does it appear that it would be under the Jobs for Main Street Act. What that means is that these plans or projects that we would like to move forward with would have to be in a conforming metropolitan transportation plan at an MPO level, voted on by their policy boards and then brought forward for inclusion in the State Transportation Improvement Program. All of those activities alone would take more than 45 days, and therefore, we are taking actions to be prepared by putting in placeholders, if you will, within all of those plans in order to be able to move forward.
Assuming that we were able to successfully meet that challenge, under contract is yet to be defined, but the normal bidding process requires that we advertise our projects after they've been approved for funding for 21 days, that we take bids on those projects, we then evaluate and review those bids and bring them forward for the commission to officially award, and then send the paperwork to the contractor to execute the contract. Having all of that done in a 60- to 90-day period of time is perhaps almost impossible. So we, with our sister states, are evaluating what necessary steps could be taken, perhaps even some emergency processes in order to be able to move forward that quickly if necessary.
But at the end of the day, what that would mean is that if the bill was signed later this fall, we would have to have 50 percent of the dollar amount under contract in the July time frame, the remaining 50 percent perhaps by March of 2011. So what that means is many of the projects that we would be moving forward would perhaps be more of the maintenance and preservation nature rather than the large-scale projects that we were able to successfully bring forward under the American Recovery and Reinvestment Act.
Having said that, I think it's important to note that we've already started challenging our districts and our metropolitan planning organizations to tell us which projects they could have ready within that short period of time that are not currently funded or are funded with other state resources such as the Proposition 12 Bond proceeds.
We are very fortunate that some very large and significant mobility projects, although not many, as Mr. Chase shared with you, could be possibly delivered quickly within the time frames allowed by the current version of the Jobs for Main Street Act, those being a project on Interstate 35 in McLennan County, one of the Proposition 12 Bond Program projects that you selected, the other being a portion of the Wurzbach Parkway project in the San Antonio community. So we would be able to bring those two projects and others like it from around the state forward if they were selected for funding under this particular program.
This particular slide just shows you that as we perform this task, we have identified projects and clumped them into several specific categories. Obviously preservation of our pavements is an important issue, as the maintenance of our system continues to be something we must focus on. We have looked at some mobility projects, as well as some Super 2 projects, and as you are aware, that is the widening of an existing two-lane facility to provide alternating passing lanes so you have three lanes, two in one direction and one in the other, in some of the more rural areas of the state to improve mobility and safety. Of course, bridge replacements and then safety projects and those other miscellaneous projects that don't fit within the character and nature of the other categories.
When you look at what our districts have identified that could be brought forward and under contract within a year of the bill's passage, the size of the program is quite large. Our districts and metropolitan planning organizations believe that they have identified $7.6 billion of projects within the various categories that could be implemented within one year of March 2010 should a Jobs for Main Street Act pass and have those windows associated with it.
The numbers of each project that we've identified are shown here on this slide and I won't enumerate all of them, but as you can see, the vast majority, over 1,300, are pavement preservation type projects, simply because they are much needed and are, of course, easier to develop and implement through the environmental processes as well as plan development.
When you graph the dollar amounts from each category and the time line in which we think they could be implemented, you would see what is shown on this slide which, again, I think is good news in many ways because by August of 2010, should we need to move forward under a Jobs for Main Street Act bill, we could deliver a sizable portion of mobility projects, namely the two I mentioned on I-35 and in San Antonio, as well as some much needed bridge replacement and preservation and rehab projects.
Looking at December 31, 2010, you can see we have grown the mobility projects by adding some of the other currently funded projects from Proposition 12 as well as other priority projects from the metropolitan planning organizations that are currently unfunded and that our rehab program has grown sizably, and then the last bar reflects the total amount of projects that are available within the next year should we be given an opportunity to develop them.
We would go through a project evaluation process and are currently actually taking the projects that have been identified and ranking them within each category based on discreet information and criteria. Some are reflected here for the first three categories, the second are shown here, and they all match back to the goals of the department in developing a program that addresses our maintenance, safety, mobility and congestion and air quality needs.
So I think that the good news is that we are preparing and must be prepared for any opportunity that Congress and the president may bring forward. As we continue to move forward, I think it's important that we continue to consider those things that Mr. Chase mentioned which would be providing economic opportunities for those areas of our state where employment and unemployment issues are facing our communities, as well as distributing the funds in a way that's fair and equitable to all regions of the state, certainly the direction that you gave us under the American Recovery and Reinvestment Act. And then perhaps taking a philosophy that combines the approach we took under the American Recovery and Reinvestment Act and that process that we put in place with the one that we deployed on the Proposition 12 Program which had clearly defined criteria for each category and was able to help us identify the most important projects within each of those to bring forward for your consideration.
So staff will continue to work with our planning partners from around the state as this issue takes shape over the next several weeks and we wanted to take advantage of this opportunity to share it with you because we may need to have rapid action by the commission in order to move forward with this if it becomes a reality for us.
So I'll be happy to answer any questions you have, and then I'm sure you would be more than happy to see me step down for the last time today.
MR. UNDERWOOD: Quick question, John. The $.46 billion in bridges, 126 projects.
MR. BARTON: Yes, sir.
MR. UNDERWOOD: I thought we had more bridges that needed work is the reason why I ask this question. It's not like the only holdup would be just whoever can do the project. It's not an environmental issue, is it?
MR. BARTON: Well, quite frankly, a lot of our bridges do have environmental issues associated with them, Commissioner Underwood, because many of them cross water features and any time we get within those areas of a creek or river, there are sensitive environmental issues that have to be addressed.
MR. UNDERWOOD: So that's going to limit how much, because I would like to have seen more money used on bridges in this case.
MR. BARTON: Yes, sir, and we know that we can certainly use more money on bridges, in particular on some of those mega-bridge projects like the Corpus Christi Bay Bridge that was mentioned.
MR. UNDERWOOD: Exactly.
MR. BARTON: But the $460 million that is identified there is, quite frankly, two years of our normal bridge program. So what that indicates is we've got two years worth of bridge projects already designed, environmentally cleared and ready to go that we could move forward with.
MR. UNDERWOOD: But it would be nice if some of this could have been used towards like the Corpus Christi bridge, because as the judge said, he's been waiting 30 years, as he thumped me on the chest.
MR. BARTON: And that's a very important point and very insightful that we do need to develop, as Director Simmons has told me on multiple occasions, a plan to deliver some of these mega-bridge projects, and not necessarily financing them, although that's important, but getting them to the point where financing is the only last element so that when something like this becomes available, we'll be ready to move forward. And I'm proud to share with you that due to Mr. Simmons' leadership, we have funded the necessary design and environmental assessment for the harbor bridge at Corpus Christi so that, although unfortunate in this case, it won't be ready for a Jobs for Main Street Act, it could be ready for the next type of opportunity.
MR. HOLMES: John, if I understood the chart, it said that this was not mode-specific. It could be some type of multimodal, other modes.
MR. BARTON: Yes, sir. Much like the American Recovery and Reinvestment Act, as I read the act, it's not mode specific, it just funnels the funding through the Highway Program and it could be used for transit or for rail or for port or for highway and bridges. Fred just mentioned bridges, are there any rail projects that might be attractive?
MR. BARTON: There may be, and we certainly have, through your leadership, done a great deal of work on the South Orient Rail, there's still some additional work to do from San Angelo down to Fort Stockton that would be, I think, implementable in this time period. We also have some other rail programs that you've initiated over the state in Northeast Texas, and so to answer the question specifically today, I don't know, but we certainly need to look out and see what rail projects are available. I know that our partners with the Rail District in Houston and other rail districts around the state, as well as our Burlington North, UP and Kansas City Southern partners can help us identify those projects.
MR. HOLMES: Well, there are clearly rail projects all around the state that I'm convinced that if we can design and implement a solution will provide tremendous benefits for congestion, air quality, quality of life improvements that I think would be really material. The Tower 55 is a great example. But there's rail going through the middle of town in Victoria and El Campo and many, many Texas cities, and so I would encourage you to take a look at those.
MR. BARTON: We will do that, and I appreciate that direction, and to just validate what you've said, although it's not needed, one of the projects you did fund through the American Recovery and Reinvestment Act was a relatively small project for a little over a million dollars, but it was to double track some rail in a portion of El Paso in the community of Chihuahuita, and that's going to be a tremendous benefit for that historic community, perhaps one of the oldest communities in Texas, and certainly they're excited about it and we just received notice that it's been authorized. So it's good news and they're looking forward to having that rail project moved forward.
And as you said, what seems to be a relatively small investment for a rail project can have huge returns on that investment for the freight movement as well as the safety and quality of life for that community, and Commissioner Houghton could tell you more about that project, but I know that for the El Paso community it's a big, big deal.
MR. UNDERWOOD: How soon will you be able to get back with us on the rail?
MR. BARTON: I'm sure that we can have a list of projects for you within the next two to three weeks, before your next commission meeting.
MR. UNDERWOOD: Thank you. Excellent.
MR. MEADOWS: Maybe we could find something for Barton to do, I'm a little worried he doesn't have enough.
MR. SAENZ: We'll get him a couple more items.
MR. BARTON: Thank you for spending your afternoon with me, I appreciate the opportunity.
MR. SAENZ: Thank you, John. You tried to be brief, you did good.
Okay, commission, the last item we have is an update that's led by Brian Ragland and our consultants on the implementation of the spirit of Sarbanes-Oxley.
MR. RAGLAND: Thank you. For the record, I'm Brian Ragland, director of the Finance Division.
This particular item I'm going to give you an update on the progress we've made on the direction you gave us in January 2009 to implement the spirit of Sarbanes-Oxley in our financial reporting processes. You asked us to do three things: one, we were to develop a practice of providing certifications by at least the executive director and the CFO on quarterly and annual financial reports, we've done, we've been doing that for quite a while and that's included as an example as Exhibit A; next you asked us to develop a code of ethics for senior finance personnel, and we've had that in place for quite a while as well, and that's included in your packet as Exhibit B; finally, you asked us to develop a system to ensure that our internal controls are adequate and effective, and to help us with that effort we contracted with Deloitte and they are here to say a few words on that effort.
Kathie Schwerdtfeger is here with Deloitte, and I'll turn it over to her, and that will wrap it up.
MS. SCHWERDTFEGER: Good afternoon, commissioners. For the record, my name is Kathie Schwerdtfeger, I'm a partner with Deloitte & Touche here in Austin.
The internal control project that Brian mentioned was aimed at assisting TxDOT in developing and implementing policies and procedures around this new Sarbanes-Oxley initiative. The goals of this particular project and what Deloitte was asked to do was document TxDOT's current internal controls over financial reporting, assess the design of those controls, and develop any recommendations for enhancements that we found. Also, we assisted with developing the requirements for the year-end internal control report.
We worked collaboratively with Brian's team and we executed the procedures and completed right before the holidays. We provided TxDOT the recommended new process for their control evaluation report at year-end, we documented all their key controls for each of their business processes and provided all that documentation to TxDOT, we communicated control opportunities where they can go in and adjust their controls to be more effective, and we also provided a tool for TxDOT to actually track their internal controls and to self-assess their controls.
Our recommendations are outlined for you in the summary that was provided. We commend TxDOT for having a strong system of internal control in place over financial reporting. All of these internal control evaluations always yield opportunities for enhancement. We're pleased to find that TxDOT's system of internal controls are thorough, they're focused, and they're focused on the right objectives of internal control which are properly recording and accounting for your transactions, safeguarding your assets and preventing or detecting fraud and abuse.
It is important to note that we evaluated only the design of the internal controls, the establishment of the policy and procedure on those controls and the communication of those to your staff. Management will come in and determine at a later date the actual effectiveness of the internal control by going through a process to test whether or not your employees are actually following what you've asked them to do.
With that, if you don't have any questions for me, I'll turn it back to Brian and he'll give you an update on where they are with that next phase of the process.
MR. RAGLAND: Thanks, Kathie.
Basically, we're just now absorbing what was presented to us by Deloitte and we're in the process of implementing those recommendations and the tools they've provided us, and as she said, in the coming months we'll be developing ways to test to make sure they're working the way they should be. And that's all I have.
MR. SAENZ: Thank you, Brian.
Commission, that's all the agenda items we have for today.
(General talking and laughter.)
MS. DELISI: That concludes the agenda for today. Is there a motion to adjourn?
MR. HOUGHTON: So moved.
MR. HOLMES: Second.
MS. DELISI: All in favor?
(A chorus of ayes.)
MS. DELISI: No opposed. Please note for the record that it is 5:23 p.m., and this meeting stands adjourned.
(Whereupon, at 5:23 p.m., the meeting was concluded.)
C E R T I F I C A T E
MEETING OF: Texas Transportation Commission Workshop
LOCATION: Austin, Texas
DATE: January 27, 2010
I do hereby certify that the foregoing pages, numbers 1 through 170 inclusive, are the true, accurate, and complete transcript prepared from the verbal recording made by electronic recording by Nancy King before the Texas Transportation Commission.
On the Record Reporting, Inc.
3307 Northland, Suite 315
Austin, Texas 78731