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Texas Department of Transportation Commission Meeting


Ric Williamson Hearing Room
Dewitt Greer Building
1125 East 11th Street
Austin, Texas

Wednesday, May 26, 2010


COMMISSION MEMBERS:

Deirdre Delisi, Chair
Ted Houghton, Jr.
Ned S. Holmes
Fred Underwood
William Meadows

STAFF:

Steve Simmons, Deputy Executive Director
Bob Jackson, General Counsel
Roger Polson, Executive Assistant to the
Deputy Executive Director

PROCEEDINGS

MR. HOUGHTON: Good afternoon. It is 1:31 p.m. and I call this Texas Transportation Commission to order. Note for the record that public notice of this meeting, containing all items on the agenda, was filed with the Office of the Secretary of State at 4:25 p.m. on May 18, 2010.

Before we begin, would you, please, Mr. Meadows, turn your cellular phone off and that obnoxious ring that you have on it in the off mode.

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. To comment on an agenda item, please complete a yellow speaker's card, and you'll find them in the back. We will limit each speaker to three minutes.

Before we begin today, do we have any comments from the commissioners?

(No response.)

MR. HOUGHTON: Commissioner Meadows, Underwood, Holmes? If not, we'll get right to it.

And where's Steve? There's Steve. So Steve, you're just right on time; you heard your cue. We're going to turn the meeting over you. We're going to skip over the presentation number 1 and go to item number 2 which is the report on the NTE.

MR. SIMMONS: Thank you, Commissioner, and for item number 2 I'm going to ask David Casteel to come up and I know he's brought a team with him to make a presentation on the North Tarrant Express.

MR. CASTEEL: Thank you, Mr. Simmons and commission. For the record, my name is David Casteel and I serve as the assistant executive director for District and Field Operations.

The discussion item before us today concerns the North Tarrant Expressway project. Specifically, we would like to discuss an intriguing and potentially exciting proposal to further develop infrastructure to meet the needs of Texans living and working in the Fort Worth area, and, in particular, those many who use the
I-35W corridor on a daily basis.

To help with this discussion today, we have Bob Brown who heads our comprehensive development program for us in the DFW area, Maribel Chavez who is our district engineer in Fort Worth and leads operations in a nine-county area, and Mark Tomlinson who heads our Texas Turnpike Authority.

Mr. Brown will begin the discussion by presenting a brief overview of the NTE project, discussing the most current proposal and outlining the next steps in the process to move forward. Ms. Chavez is available for any discussion concerning local needs and desires, and Mr. Tomlinson can further elaborate and discuss anything related to the analysis and proposal evaluation process. And with that, I'll turn it over to Bob Brown.

Bob, please introduce yourself.

MR. BROWN: Thank you, and for the record, my name is Bob Brown and I manage the CDA program in the Dallas-Fort Worth area, and again, we'll provide a brief overview of the North Tarrant Express master development agreement and a ready-for-development notice we received from the NTE Mobility Partners.

In mid-2009 the department entered into a comprehensive development agreement for the North Tarrant Express in Tarrant County. The NTE has two components: the concession CDA for Segments 1 and 2W which is also known as Interstate 820 and State Highway 183 and State Highway 121, as well as a master development planning agreement for Segments 2 through 4 which is Interstate 35W, State Highway 183 and also a portion of Interstate 820.

Now, the master development plan CDA is an 18-month effort where the intent is for TxDOT and the developer to develop a financing and development plan to deliver key segments with little-to-no public funding. Recently the department received a ready-for-development notice and an initial development submission which includes Segments 3A and 3B for approximately ten miles which is from along Interstate 35 West from downtown Fort Worth to US 287 in north Tarrant County. This corridor is within the top 30 of the most congested roadway list.

The proposal value is on the order of $2.8 billion, which includes a $1.2 billion capital cost. The development submission envisions using the same terms and conditions as the current North Tarrant Express concession CDA. The development submission has a base case which includes a full interchange at Interstate 820 and an option for a reduced interchange at Interstate 820. There would be a public funds requirement ranging from $173 million for a partial interchange to $287.5 million for a full interchange at Interstate 820.

There are a number of conditions and assumptions in the development submission, including the use of TIFIA and private activity bonds which hopefully will be available as this moves forward. Department staff and advisors are just now performing an initial review at this time.

So if I can, quickly, there's just a couple more slides where I'll show what the process is for the next major milestones. The terms of the master development plan CDA outline a process for entering into an additional concession agreement which includes three major milestones which include a response to the ready-for-development letter, a facility implementation plan, and then conditional award by the commission. And at any point in time, TxDOT can suspend this process.

So for the ready-for-development notice, if TxDOT concurs, that's Segments 3A and 3B are ready for development, notice to proceed one is issued, and then TxDOT and the developer prepare a facility implementation plan and notice to proceed is then issued. The CDA outlines a time frame of a maximum of 120 days for this process. The facility implementation plan allocates roles and responsibilities for all services, activities and effort necessary to achieve close of finance. So what we'd like to do is bring back more information in the August to September time frame at this milestone.

The process then envisions negotiations toward final agreement where the department will ensure we receive value for money. TxDOT and our advisors will be undertaking a cost reasonableness analysis using the open book process per FHWA requirements, as well as preparation of a shadow bid by TxDOT advisors which would entail determining what another bidder would propose, and also preparation of a reference case which is what would a financial plan be if TxDOT used traditional debt and delivery methods, and then we would finalize the agreement terms and conditions.

At the conclusion of the above, the agreement would be brought to the commission for conditional award, and, again, if we move forward, we're targeting to have that work done by the end of this calendar year because then the next step would be to send the agreement to the Legislative Budget Board and then obtaining the Attorney General's determination of legal sufficiency followed by a public hearing, and only then can the agreement be executed.

Just some other considerations. The environmental process is still ongoing for Segments 3A and 3B on a concurrent process, and our current schedule indicates we'd be able to achieve a finding of no significant impact during spring of 2011. Also, under federal regulations, the FHWA must approve the price reasonableness process. The FHWA must also approve the facility agreement, and to facilitate this process, TxDOT invites FHWA staff to all team meetings. And staff will update the commission on a regular basis, and again, we'll be presenting more information at a later date.

MR. CASTEEL: Thank you, Bob.

MR. HOLMES: Bob, when did you say the facility agreement would be signed? What was the timeline on that?

MR. BROWN: Under current statutes, there is a deadline to have that done by the end of August 2011, so we would envision trying to complete that, the agreement, by the end of the calendar year, and then allowing the OAG and LBB to then do their determinations during the spring so we could execute that in the spring or summer of 2011.

MR. HOLMES: Which is about the time you think the environmental process will be complete.

MR. BROWN: That is correct.

MR. HOLMES: So these are nearly co-terminus, although you can't sign the facilities agreement until you have the environmental. Is that what I read under that one point?

MR. BROWN: Well, under federal requirements, that is a possibility. It's okay to enter into the agreement prior to the environmental process completing.

MR. HOLMES: Is that what that slide said?

MR. BROWN: I don't believe so. That's just something it's very important to do to limit our risk of any additional changes that the public may request after execution.

MR. HOUGHTON: Would you go through the numbers again, where we are with the total project, what is private money, what is public money on the original and now what is the ask. We don't have any of that up here.

MR. BROWN: And I believe you probably want some information about Segments 1 and 2W.

MR. HOUGHTON: The whole thing.

MR. BROWN: The current concession CDA is a design-build value of $2.1 billion with a public funding contribution from TxDOT of $573 million.

MR. HOLMES: And that's on 1 and 2W.

MR. BROWN: Yes, sir.

MR. HOLMES: Five seventy-five?

MR. BROWN: Five seventy-three.

MR. HOUGHTON: So in that $2.1- is $573-?

MR. BROWN: Yes, sir.

MR. HOUGHTON: And now?

MR. BROWN: Now a design-build cost of $1.2- to $1.3 billion with a public funds request of either $173.8 million for the partial interchange to $287.5 million for a full interchange.

MR. HOUGHTON: Is that in the $1.3- or in addition to the $1.3-?

MR. BROWN: That's included within the $1.2 billion.

MR. HOUGHTON: So you're talking about total project cost, everything rolled in, tax, title and license of $3.4 billion.

MR. BROWN: Yes, including the original CDA.

MR. HOUGHTON: The original. So it looks like it's together to me, looks like one project.

MR. BROWN: It will work better as one project.

MR. HOLMES: Just so I understand it -- you've got some of these colors that are kind of difficult for me to read. Identify 1 and 2 for us and what's the length of that and remind us of that.

MR. BROWN: Segment 1 and 2W is roughly 13 miles from the I-35 West over to the State Highway 121 interchange, and then Segment 3A starts at downtown Fort Worth and then extends up to Interstate 820, and Segment 3B is from 820 to the US 287 interchange, and 3A and 3B together are approximately ten miles.

MR. HOLMES: And so what specifically is going to be done to them?

MR. BROWN: For this scope, the existing facility for the most part would be reconstructed and then a two-plus-two managed lane system would be built through that corridor.

MR. HOLMES: And so what would the total lanes be, both managed lanes and free lanes?

MR. BROWN: For the southern half of 3A, existing is three freeway lanes in each direction, as well as discontinuous frontage roads. Those elements would be reconstructed and moved laterally and then a two-lane managed lane system, two in each direction, would be built in that segment.

MR. HOLMES: And what about the discontinuous service roads -- would they be made continuous?

MR. BROWN: That's included in the ultimate plan, but the initial construction there would be discontinuous service roads. There's some very large crossings of the Trinity River and so those frontage roads would add a significant amount of cost which would have to be publicly funded which we would not be able to fund that at this time, and then there's also a very long railroad crossing just north of the river which would also be deferred. But the project will be designed and built in such a manner that when public funds are available. Then those elements could be added at a later date.

MR. HOLMES: Would any part of the discontinuous service roads actually be completed, other than the Trinity River and the railroad crossing? Would other pieces be put in place?

MR. BROWN: Not at this time, I believe.

MR. HOUGHTON: Commissioner Meadows?

MR. MEADOWS: Ned, I appreciate you asking the question about the scope of this project because I think it's important to note, and what was just described is that there is a tolled element of this project but there also is a free element of this project. I think that so often there's really a misunderstanding of our advancing some of these projects by focusing on the fact that there is a tolled element that appears to be exclusively a tolled element, and in fact there is a free component. In fact, the proposal that is on the table actually results in reconstruction of the existing free lanes, so actually there is a significant improvement in the free capacity, as well as expanding the overall capacity, in some cases, by double. So this is material.

And it's interesting to me to look at this. As we look at critical projects across the state, you know, I think it's important to begin with recognizing that this is Interstate 35 and this segment of Interstate 35 is one of the most congested segments of interstate highway in the State of Texas, but importantly, this is more than just even a regional issue; this is a statewide issue that is going to be significantly improved in terms of our ability to facilitate flow of traffic through this area, through this project as presented, and when you recognize that on the low side, a $173-, almost $174 million public investment results in an additional $1.2 billion of infrastructure.

At the same time, from a local perspective or a regional perspective, North Texas perspective, you all are familiar with this project and are aware that it effectively serves, from an economic development perspective, one of the most important and fastest growing regions in the State of Texas. In fact, in the last probably 15 years, I'm going to guess pushing 20,000 new jobs have been created in that area, and those are all new jobs, and a lot of Fortune 500 entries into our state, regional distribution, and that economic development activity is really suffering and will continue to suffer if we're not able to provide adequate infrastructure to serve it.

So really, working with these fine folks who have done a really wonderful job -- and I think we need to note that -- we have a place from which to begin further discussions and hopefully perhaps can refine this further, resulting in even greater savings. There is the opportunity perhaps of even some local participation from a funding perspective, so there's a lot of positive about this and I can't see a thing negative about it.

Anyway, I appreciate you asking about the scope of it.

MR. HOUGHTON: Are you sure you're not running for mayor of Fort Worth?

(General laughter.)

MR. HOLMES: Talk a little bit about the congestion relief, improvement in air quality, some of the safety issues. Clearly, we have to take care of the economic engines that run the state. Michael Morris, Bill, made that point this morning over in the Senate hearing. And so I'd like for you to kind of develop that a little bit for us.

MR. HOUGHTON: Have you modeled that, the air quality issues? Obviously they do at the MPO, don't they?

MR. BROWN: Yes. Each and every project in the metropolitan transportation plan is modeled from a holistic perspective and it does provide tremendous congestion relief which, without this delivery concept, would otherwise not be delivered. Some other benefits, the existing infrastructure is completely reconstructed and then the developer also picks up the own-in as well as the life-cycle costs of the corridor from right of way to right of way for this ten-mile corridor which is also another benefit to our statewide budget.

MR. HOLMES: And how long is that?

MR. BROWN: It's a ten-mile corridor.

MR. HOLMES: I'm sorry. Term of years.

MR. BROWN: Would be a 52-year term.

MR. HOLMES: So they would take care of maintenance and operation of it for 52 years.

MR. BROWN: That's correct.

MR. MEADOWS: Remind us what that O and M number is.

MR. BROWN: In the developer's proposal their total cost was $2.8 billion.

MR. MEADOWS: I'm talking about just the O and M that we're not going to be spending.

MR. BROWN: Just the O and M would be $1.6 billion.

MR. HOUGHTON: The sources of revenue, David, out of the original $2.1 billion, or Bob, whoever wants to tackle this, or Maribel, the $573 million, what pots did that come from?

MR. CASTEEL: I'll let Maribel address that because she worked with the MPO in development of that model, as well as with you.

MR. HOUGHTON: And what pot, if there is a recommendation that we get the $173 million?

MR. CASTEEL: I'll take the second part, Maribel.

MR. HOUGHTON: You get the second part? You're going to take the big bullet, huh?

MR. CASTEEL: Yes, sir, that's my job.

MS. CHAVEZ: Maribel Chavez, I'm the Fort Worth District engineer. Commissioners, what we had done as we were preparing this project, the entire project, all of the 810, State Highway 183, 121, 35W, that entire CDA -- what we had done was actually developed a financial plan in the region to identify our funding sources and that $573- is a combination of our Category 2 mobility dollars. We've also got some Category 1, some rehabilitation type funds in there; we have STPMM, MPO mobility dollars; we have CMAQ dollars. That's the source of the available public funds.

MR. HOUGHTON: 573?

MS. CHAVEZ: Yes, sir.

MR. CASTEEL: So the short answer to that question, it was cobbled together as a partnership with the MPO.

MR. HOLMES: And before you go on, Maribel, how much of that was MPO and how much was TxDOT?

MS. CHAVEZ: I guess when you say TxDOT, probably Category 1 is the rehabilitation. That would have been the TxDOT portion that would be under our control.

MR. HOUGHTON: Preservation/maintenance type dollars, is that what you're talking about?

MR. CASTEEL: Yes, sir.

MS. CHAVEZ: And that was about between $40- and $50 million, as I remember. So obviously, the overwhelming majority of it is Category 2, the mobility, the MPO's money, and the STPMM and CMAQ dollars are all within the RTC or MPO's prerogative.

MR. HOUGHTON: Now, the $173-, David, what hat are you pulling that out of?

MR. CASTEEL: Yes, sir. Again, in order to realize over a billion of infrastructure, the proposal, as presented to us, is requesting a public equity of around $173 million for a partial interchange and $287- for a full interchange. So without a full analysis of their proposal, should we need to come up with $173 million, which we're not sold on yet, we need to go through the process of examining that the most likely source of funds would be some of our Proposition 14 bonds. Through the process of the last year, we've had some underruns on some of our Proposition 14 bond projects, as well as there was a contingency held back on that should a good project show up, and the commission will have available to them somewhere over $300 million in Proposition 14 bonds.

Mr. Barton has discussed that on a couple of occasions with you and in the context of discussing the interchange at 820 and 35, the 35E project in Dallas and some projects between Corpus and the Valley, and he will be back next month to discuss those projects again and talk about how we might want to use some of the Proposition 14 bonds. As you know, the Proposition 14 bonds were broken into a certain portion of that had to be used for safety and we've almost fully allocated the safety portion of it. There will be one more project on the commission's agenda tomorrow, but the rest of it is at commission discretion.

MR. SIMMONS: And I might add that David put the disclaimer at the very front is we still have to look at the bid to look at it to make sure there is, but some other funds that are available, and I think Commissioner Meadows mentioned there's potential for local funds. There's some ideas of looking at the total scope of the project and everything like that.

MR. HOUGHTON: Is Judge Whitley putting up some money?

MR. CASTEEL: I may defer to Ms. Chavez or Commissioner on that.

MR. MEADOWS: I had the opportunity to visit with Judge Whitley who certainly was open to that discussion. I think it's important to note, and I think Steve just said it, and that is, that this is the beginning. We've received a proposal, and so we have a process to go through at this point, and I think that there are several different possibilities that would result in us successfully being able to realize, identify and move forward with at least the minimum side of this, if not maybe more.

MR. CASTEEL: Yes, sir. And as we go through the process and look at the scope and look at the terms and look at partnerships that can be developed, we certainly have some experience in that from our negotiations on Segments 5 and 6 on 130.

MR. HOUGHTON: What is going on with construction costs? Where are we? Is it going up?

MR. CASTEEL: Construction costs seem to have been flat, and there's always rumors that they're going to pick up again soon. There's rumor about oil and there's rumors about steel, but what we're seeing is flat costs and extreme competition.

MR. HOUGHTON: Bill, when do you anticipate this coming back to the commission, or should I ask that of David?

MR. MEADOWS: I was told that they have an internal goal of being back to us by the end of August.

MR. CASTEEL: Yes, sir, we would like to be back to you with at least notice to proceed two which defines the scope.

MR. MEADOWS: There is another step, though. We actually have to formally acknowledge -- you have to help me with the process here, but we will do that.

MR. CASTEEL: It's a three-step process, and of course, Mr. Tomlinson is here with us, but first we need to respond to their letter, and under the agreement that we have, we have 30 days to do that. Based on the information that we have, staff will be looking at that real hard and we'll most likely be working with our executive director. Go ahead and respond to that.

Then there's the facility implementation plan which we would have up to about 120 days to develop, and that's the scope that we talked about and the methodologies and some of the terms issues, and that one we would like to be back to you by the end of summer and talk about that. That discussion will determine the cost as we go forward. And then there's the full negotiation of the prices and the shadow bids and see if the cost reasonableness is there and develop the full facility terms and the cost sharing and revenue sharing and things like that.

MR. HOUGHTON: So you're not looking for an action item.

MR. SIMMONS: This is informational at this time.

MR. CASTEEL: This is informational, and staff can move forward with the response to the letter and we're not hearing anything that's telling us otherwise.

MR. HOUGHTON: Any other questions?

MR. UNDERWOOD: One quick thought, David, $173 million/$287 million, so we're about $100 million difference in this when we're talking about that particular intersection, basically, aren't we?

MR. HOUGHTON: But you're talking about two different products for the two different prices.

MR. CASTEEL: Yes, sir.

MR. UNDERWOOD: But my point of all this is, and we've had this conversation before, is to make sure that if the $173- -- that it will complement, if we need to enlarge this -- it will not encumber. Does that make sense?

MR. CASTEEL: Yes, sir. It wouldn't keep us from doing what needs to be done for the rest of the interchange. That would have to be part of the negotiations.

MR. UNDERWOOD: And if in the future all of a sudden we have some more money, we don't want to sit there and be tearing up something that you did with the first $173 million.

MR. CASTEEL: Yes, sir.

MR. UNDERWOOD: So I want to make sure that goes forward as you do your study, please.

MR. CASTEEL: Absolutely.

MR. UNDERWOOD: Thank you.

MR. CASTEEL: Staff has been aware of that.

MR. HOLMES: And David, if this happens and you allocated $173- or $2870-, whichever it happened to be, which projects would you not build that you would otherwise have built?

MR. CASTEEL: That's a very difficult question, Commissioner.

MR. HOLMES: That's why I asked it.

(General laughter.)

MR. CASTEEL: Yes, sir, thank you. Of course, the State, through the 2030 Committee, has identified billions and billions of dollars of unmet needs all across the state. There are important projects in every region that are unfunded at this time. With the very limited amount of Proposition 14 dollars available to us at this time, any of a number of projects could compete for those funds. What makes this particular one very attractive to us is that for an investment of $170- or $280-, over a billion dollars of infrastructure gets built and it gets built on one of the most congested corridors in the state.

I don't believe that we have any other proposals to us at this time like this, so to answer your question straight up, if we were to put $173 million towards this one, then $173 million wouldn't be built somewhere else. If we didn't put $173- towards this, then potentially $1.2 billion wouldn't be built here.

MR. HOLMES: I think the leverage piece of this is extremely important, not just from the private contribution into it but also for potential public contribution as well.

MR. CASTEEL: Yes, sir.

MR. HOLMES: And so I think it needs to be looked at in that context.

MR. CASTEEL: Thank you.

Mr. Tomlinson, did you want to add anything since you're up here?

MR. TOMLINSON: I would just say we are aggressively pursuing the evaluation of this proposal. It's a process similar to what we had ruing procurement, and of course, during the State Highway 130-5 and 6 negotiations that David mentioned as well, and we will have a recommendation back to you in late August, early September.

MS. CHAVEZ: Commissioners, I would only add that in our discussions recently with our local elected officials, with the local public, everyone is very excited about having received this proposal and obviously very excited about any potential and any possibility of making improvements to a very, very congested and complicated corridor as well. The proposal does obviously offer us significant congestion relief.

Bob was describing that in that portion of 35W just before you cross the Trinity, we do have three lanes in each direction, but it very, very quickly -- once you get over the Trinity River, it only goes to two lanes in each direction on 35. And in that segment that goes on 35 and crosses the 820 interchange and up north to the 287 split, all we have is two lanes in each direction of 35W. We've got over 200,000 vehicles that use that 8320/35W interchange, and the 2030 projections are I think it's almost 300,000 on 35W and over 200,000 on the Interstate 820 segment. So doing something to that interchange is very important and it's critical for us to open up that bottleneck so that the 35W, and more importantly, the Interstate 35 corridor through all of Texas continues to move and to work.

And then we've got something like 10 percent trucks in that segment of 35W, so that mixture doesn't help us at all. Obviously, one truck accident and we're shut down for hours. We've probably got similar percentage trucks on Interstate 820, probably about 6, 7, 8 percent as well.

The other thing that Bob was saying is that with the proposal, the improvements that are proposed, we've got some left-handed exits there at that interchange. We could actually make improvements to that situation and that would be pretty significant because that would add capacity and it would address safety in that interchange as well.

MR. HOLMES: Maribel, do you recall the annual accident rate in that stretch on 35W?

MS. CHAVEZ: I don't have that off the top of my head. I can make something up for you.

(General laughter.)

MR. CASTEEL: We'll get that for you, sir.

MR. HOLMES: And the delay hours too, I think you probably have that somewhere too.

MS. CHAVEZ: Based on the 100 most congested segments, we're actually in the top 30 on the 35 corridor, so it definitely is a congested segment in the entire state.

MR. UNDERWOOD: Maribel, are we moving that bottleneck now up to 287?

MS. CHAVEZ: Well, it does to some degree, but it provides significant movement from that very congested interchange area at 820 and 35, and where 287 and 35 come together, that's where we get quite a bit of that traffic coming into the downtown area, so we'll provide relief because I believe, Bob, the managed lane section that's proposed actually goes through up north of that 287 split, so we actually do provide quite a bit of relief even at that 287 interchange, and I think even in the proposal we'll be reconstructing that interchange as well.

MR. HOLMES: And the reason why I'm asking that, Maribel, is because what you don't want to do is still have that same funnel, all of a sudden you bring everybody down to two lanes again right as you get to the intersection of 287 and 35, we want to be able to feed the people off into those other roads.

MS. CHAVEZ: We completely agree, and that is part of this proposal.

MR. HOLMES: Okay. I didn't understand that. I just thought all we're doing is moving the problem down the road ten miles. So thank you.

MR. CASTEEL: No further questions? I just wanted to acknowledge staff's hard work on this. Commissioner Meadows did that somewhat, but these guys are putting in a lot of long hours and working very hard to get these kind of proposals to the commission, and I'd like to thank them. Thank you.

MR. SIMMONS: I'm sorry, commissioners. I'm doing my usual thing down here and sitting up here too, so I apologize.

I think we're now ready to go to the presentation of the Grant Thornton report. George Ebert would normally be here but he's tied up in the Project One with the Comptroller's Office, so I'll just go ahead and ask Susan to come on up and I guess Anna is coming with her, so we'll listen to the report.

MR. UNDERWOOD: Susan, as you start, I'd like to say Representative Darby, thank you for being here today, sir.

MS. PENTECOST: Chair Delisi, commissioners, Mr. Simmons, thank you very much for giving us this opportunity to speak with you today. For the record, my name is Susan Pentecost. I'm here representing Grant Thornton, and with me I have Anna Danneger who will also be doing part of this presentation.

We delivered earlier today the final report on the management and organization review of TxDOT, and so what we'd like to do this afternoon while we're with you is to highlight some of the background, the lead and the approach that we took to doing the assessment and the major themes and recommendations that we are presenting to you out of that.

From a background standpoint, this project was originally conceived early in 2009 when TxDOT decided to initiate a management and organizational review, and it was intended to focus on the management levels of the organization, so meaning the administration, the divisions and offices, the districts, and as happened subsequent to when this started actually, the regions also. The assessment was focused on finding ways to improve the transparency, accountability, communications and efficiency of the organization and Grant Thornton was selected to do the work through a competitive process late last spring.

The project itself actually kicked off at the end of June 2009, and from the very beginning we wanted to emphasize that our team has reported directly to the commission on this, and we appreciate your guidance and participation throughout the past months.

From a scope perspective, our very first step after we were awarded the contract was to begin reviewing documentation from TxDOT and doing some interviews with key stakeholders, including all the members of the commission, as a basis for finalizing the project plan for what we do. So coming out of that process, we had originally projected interviewing 50 stakeholders. That number quadrupled, so we tackled interviewing more than 200 stakeholders from a wide variety of external organizations, including the legislature, the U.S. Congress, Texas state government, transit authorities, metropolitan planning organizations, transportation-related associations and so forth.

We also, within TxDOT, interviewed all members of the administration, all the division and office leads, all of the district engineers, and we did visits to five representative district offices and interviewed a cross-section of people from those parts of the organization. Another change that occurred or in addition to this, as we were doing that initial planning, was the addition of an all-employee survey that was conducted within TxDOT early last fall.

And then in addition to that, as a way to assess the efficiency in the organization and to look broadly across the organization in key areas to see if there were additional things that should be explored, we identified seven management reviews at a diagnostic level in key business process areas, and those areas were: plan, design, build, human resources, information technology in the sense that it supports mission delivery, financial management or you might think of that as accounting operations, and communications.

In January this year, the commission further amended the scope of the work that we've been doing to include an additional diagnostic review of the procurement area, including an assessment of TxDOT participation with minority- and women-owned businesses, historically underutilized businesses, and disadvantaged business enterprise.

At that time, we were also asked to do a compensation study of 38 representative positions within TxDOT as a basis for assessing TxDOT's ability to attract and to retain people with the skills and experience that they need in order to effectively lead the organization, and we were asked to add some additional interviews to the list.

Through the many stakeholder interviews that we did, many people raised other questions and concerns about TxDOT or transportation, and they thought that these things were things that should be assessed. I'll give some examples, things like the quality and the use of mechanisms for innovative financing, the actual amount of funding required to meet future state transportation needs, the effectiveness of certain engineering practices, and a full assessment of cost savings across the organization.

I bring those up just to say that those were noted but they are outside the scope of the work that we were doing under this review, so the focus of the review is in what I have already covered.

Our approach relied heavily on our data-gathering techniques, and I've already mentioned that we did more than 200 interviews of a variety of people. Those interviews were not just gathering impressions, they also were based on fairly lengthy interview guides that were intended to get at, especially inside TxDOT, specific roles and responsibilities, methods of operating, processes, the management tools and techniques that people are using to do the business of TxDOT's work every day.

In addition, those interviews helped us highlight particular areas that warranted followup, they helped us with refining the work plan, and they also informed the design of that all-employee survey. So we started the interviews in August last year, we released the all-employee survey which was a confidential survey in September of 2009. 6,905 people from TxDOT responded to that survey which is a response rate of 55 percent. Of that, we had 21 percent of that number were from the divisions, 20 percent from the offices, 44 percent from the districts, 9 percent from the regions, and 3 percent from the administration.

In addition to questions that required people to check a box, effectively, we also had an open-ended question in the survey that would allow people to identify other things or to comment on what they considered important, and 3,286 people chose to provide written comments in addition to what they provided elsewhere in the survey. We took that insight as well, analyzed a significant amount of government-furnished information from TxDOT and from other organizations, as well as data that we specifically asked TxDOT to produce for us, and used that to develop our understanding of what the organization is doing. We conducted focus group meetings with subject matter experts in TxDOT to further explore and validate our understanding, and also met, as I mentioned, with representatives of some of the other agencies.

For the business process diagnostics, we identified key dimensions associated with each of those business processes and then we did a qualitative review that rated each of the process areas, and all of those are presented in our report. And then from the compensation study perspective, we did a comparison of compensation and total benefits with both public sector and private sector comparable organizations and positions to try to come up with those results.

What I'm going to cover at this point is our observations and recommendations that are focused around TxDOT leadership and culture, and then Anna is going to present a summary of sort of an overreaching view of the other recommendations that we presented in our report.

So when we look at TxDOT, the culture of TxDOT is so strongly defined and so significant that it really is fundamental to everything else that we observed, and it clearly reflects the 93-year history of the organization, the commitment that people in the organization have to the job that is getting done here, and I think it shapes the way in which the organization is led and managed. So we pulled this area out specifically because in all of the other recommendations or virtually all of the other recommendations that we make which may be quite specific in other parts of the report, the unifying thread in this is how TxDOT has led and managed and how the culture affects how the organization operates.

So as we did our interviews, one of the things that we found really striking is how really proud and committed the people who are doing the day-to-day work in TxDOT are. That came through very, very strongly, many of those people having spent their entire careers with the organization, even starting when they were interns or high school hires and continuing on through a full career.

And that said, they, I think, generally saw their role as much more than just a job. This is something that they're passionate about, they spoke strongly and actually emotionally about their passionate commitment to the state, to delivering quality work and products, and their attachment within the organization to each other, and their view of the importance of TxDOT in their individual communities. When we talked with external stakeholders, almost universally we got similar feedback from them in terms of the staff, especially out at the local level and the work that they're doing, that people are very proud of and impressed with that dedication and hard work.

Having said that, it's also striking, even with some of the most ardent of the people that we talked with who are so committed to the organization, that they said they are no longer proud of what they're doing here or of the organization. And what that appears to be growing out of is the organization has been facing increasing criticism, I think we're all aware of that, people are still doing what they believe they'd always done that made them successful, and it's difficult now to feel like what I was doing that's successful is no longer accepted as being successful and I'm not really sure how we turned out to be wrong and I don't really know what I can do about that and how to work that within the organization.

So I think that split in the direction that we're going is really affecting certainly morale in the organization but it's also an opportunity to take people who are still really dedicated and get things back where people want them to be.

From a cultural aspect, it appears that this strong culture we talked about very, very early, when we go back and read documentation about early characteristics of TxDOT as it went through its history, we see common themes with what we observe now, including the extremely decentralized decision-making and authority across the organization, the belief that headquarters really should just provide guidance and let the field do what they need to do to get their job done, the very broad span of control at the senior level in the organization, along with very concentrated authority in the executive director for final decision-making, a sense that money that's available should go directly into roads which certainly you can look at it as sort of a frugal view but at the same time it's not so much a view that looks at things in terms of return on investment for internal and other things that might improve the operations, but definitely a focus on the roads.

People in TxDOT see the organization as really having a culture and being something different than other state agencies, and that it's a place for a career, that most of the promotions, as we look at the leadership level in the organization, have come from inside the agency, and historically that's been true, has been a home for engineering graduates from the University of Texas and Texas A&M.

And I think the other thing that was really clear is to the degree to which people extend this view of the ethics and culture of TxDOT into their personal life, and again, that gets back to really it's not just a job, it's something more than that, that's a pretty amazing culture to have. It represents huge strength in terms of experience and commitment.

At the same time, when you're facing the kind of change that TxDOT is facing in the current world with the more complexity, the lack of consistency around funding or lack of stability around funding, different expectations about performance, transparency, accountability, business-minded approach to the work, that same culture can become quite a significant barrier to being able to make the changes or see the changes that may need to be made to make the organization thrive again.

From a leadership perspective, then we see that shaped by that culture. I think it's important to note that the most senior leadership in the organization certainly is respected, people cited them as super engineers and people recognized the hard work and commitment. One of the things we found, as we talked with senior leadership, a true belief that TxDOT is doing the right thing now and that the issue is more one around communicating that. So I think that while many changes have been initiated already in an attempt to respond to some of the criticism going on or in an attempt to make the organization more efficient, there is a bit of a limitation on the ability to come up with new and different ways of looking at things if you fundamentally really see that the way you're operating is the right way to operate to start with.

I think what's going to be extremely important in implementing any of the changes you might select out of recommendations that we've made is to look at the leadership and the cultural aspects of this as fundamental to realizing any other aspect of change. With that in mind, what we recommend in this area, sort of in this overarching world, is a real commitment to a window here as a period of transformational change for TxDOT, so not incrementally looking at how do I tune a process here and a process there, but really what should TxDOT be as you move into this sort of new future and how do you achieve that in the organization.

That will take executive level champions, clearly defined goals and objectives what you want to achieve should you accept that, and acceptance that there will be time and investment required to make that change happen. We suggest that during that period or for that period, the role that the commission will play in that is something to consider to see how this body fits in with helping TxDOT to achieve that kind of change, and we recommend cultivating a leadership team with the depth and breadth of leadership skills and experience that you need to set a vision for what the organization is going to be for the future, to communicate that and manage migration to it effectively and to be able to motivate the staff to get there.

I think beyond that, what we focus on is the need for really strategic leadership, the need to effectively use management tools and techniques to bring greater light to things like the cost as it flows through the organization and to enable the supporting tiers of management across the organization to effectively do the job they need to do, while the senior leadership level provides that strategic guidance and can control at a level appropriate to that part of the organization.

I'm going to turn this over to Anna to talk about another summary of the rest of our recommendations.

MS. DANEGGER: Thank you.

We've talked a bit about management and leadership and culture, and certainly those are critical to the organization but we also looked at organizational structure and got a bit more tangible in some of our recommendations.

Our recommendations around organizational design included modifying the senior leadership or administration structure to increase the relative importance of the enterprise support responsibilities to strengthen the relationships among the senior leadership team with the executive director, and to adopt a more business-oriented model. That would support a greater and more appropriate leadership role for the HR and IT functions within the organization, two of the eight process diagnostic areas that we looked at.

We also recommend that there be a separation of policy setting from implementation and oversight and operations, and that there be a dedicated project management office that can emphasize the critical importance of that discipline to TxDOT. As I said, those organizational changes are critical but the leadership and the management is most critical to this. Rearranging the organizational structure itself won't result in IT or HR or other non-engineering support leaders having an appropriate place at the table unless the culture allows for that.

Furthermore, as we talk about organizational change, I think we need to note that TxDOT doesn't need to rush simply to another reorganization, akin to regionalization perhaps, as a way to address issues that may be more systemic than the organization itself. TxDOT employees are already sufficiently stressed from a good amount of change that has been undertaken, and we noted as one of the themes in what we looked at with TxDOT is that TxDOT is a very reactive organization, and that many of the changes that are undertaken are one piece of change at a time reacting to a single issue and a band-aid approach rather than a systemic approach.

When we talk about those themes that pervade our recommendations, they include: strategic management and accountability, ensuring that there is, in fact, accountability at the personnel level, at the organizational unit level and for particular activities; that planning and implementing change is taken in a way so that it is not simply reactive; that change initiatives are evaluated in the context of the enterprise as a whole; that well-established best practices are used for change; and that communications with stakeholders that will be affected by change are thoughtful and proactive.

And finally, TxDOT needs to think of change initiative from a portfolio standpoint, weighing its priorities against other considerations to appropriately sequence change, allocate resources to the change and objectives at hand, and obtain value.

I mentioned a bit about performance expectation. Performances are critical in the context of the organization overall, but also in organizational units and in personnel units. A foundation to setting appropriate performance expectations and implementing an appropriate performance monitoring and management activity is a mission statement that is sound, agreed upon, and that clearly flows through to goals, objectives, strategies and performance measures. Key to this is data, and in our review of many of the different activities that we looked at at TxDOT, we found system issues and data issues that did not allow for clear performance management.

When we look at the particular business process diagnostics that we reviewed, I'd like to highlight what we found in each of those areas. The transportation plan, design and build areas were areas that we looked at that we consider core areas for TxDOT, and design and build really are those core competencies that are the bread and butter, if you will, of the agency. Plan processes, however, are lengthy and confusing and TxDOT doesn't always execute its plans or programs as they are established.

TxDOT has recently completed work on a revised plan and programming process. These recommendations are expected to move the agency forward in this area, but we believe that a wholesale bottom-up review of that plan and programming process remains a requirement.

In the human resources area, TxDOT fundamentally needs to treat human resources as a strategic contributor to the organization's overall success. TxDOT is not simply an engineering organization, it is also a business that has an $8 billion a year financial management responsibility, and it is a large organizational entity with over 12,000 employees. Accordingly, it can't focus simply on the engineering side of the work but must focus on being an effective and efficient business.

TxDOT leadership needs to work with the HR director and staff to tie expectations for human resources management to the TxDOT mission and its goals, to set clear expectations about the value that human resources management will deliver, and to identify and implement discreet performance measures against which human resources will be evaluated. And human resources, as I mentioned, needs a seat at the table.

Information technology, similar to human resources, TxDOT needs to escalate the role of IT leadership, needs to look at IT as an investment rather than a cost. The CIO should develop an enterprise view of IT within the organization to finding a target architecture for the agency that supports the strategy. As with human resources, the CIO and supporting elements of the organization should be held to well-defined expectations regarding the value that they'll deliver to the organization. TxDOT should seek ways that technology can be used, as I mentioned, as an investment to automate existing manual functions or ways in which it might support the organization in moving forward and doing its business.

As we looked at procurement, what we found is that TxDOT's letting activities are a critical component of its engineering delivery and are generally well run. Purchasing is centrally managed with appropriate oversight. Professional services or consultant contracts, however, are established without strict adherence to policies and procedures. Recognizing the inconsistent process application, TxDOT should develop standardized implementation of practices to form a single procurement architecture for all procurement activities and to deploy training on processes and procedures to ensure those who have signature authority and who execute in the contract arena have appropriate background and oversight.

In the communications area, the essence of our recommendations around improving communications, both internal to the department and external to the department, are that TxDOT needs to adopt a more disciplined and a proactive approach to planning, developing and managing its communications. Again, that theme of reactivity, TxDOT has increased the tempo of its communications but has not necessarily engaged in needs assessment to understand what audiences it must be communicating with and what messages those audiences require.

To begin with then, TxDOT should develop a comprehensive communications plan, taking into consideration its stakeholders, its message and content requirements, the periodicity of communications that are required, what channels are most appropriate for which stakeholders and so on. Additionally, TxDOT should improve the transparency, quality and consistency of its communication by rethinking presentation and availability of accurate data, the timeliness and awareness of what people actually want versus inundating people with data.

Finally, in the compensation study area, as mentioned, we looked at 38 representative positions. We didn't look simply at salary but we looked at total benefits in the compensation area, recognizing that we found benefits other than salary to be equivalent to 56 percent of salary which is really quite significant and that's a Texas state government policy of defined benefit, retirement and healthcare that provide that.

When we looked at those 38 key positions, then, and total rewards, we found that ten positions were below an average for private sector comparisons, twelve were above, and the remainder were within an appropriate comparison. However, those that were below included some of the most senior leadership positions and we do think that having your 56 percent of salary as benefits makes it difficult to recruit strategic leaders who bring a diversity of experience and background and who would be interested in leading the agency for a brief period of time perhaps. So we recommend that TxDOT seek legislative approval to offer increased salary in lieu of benefits for those very specific senior leadership positions.

That concludes the overall review of our study. I'm happy to take questions or engage in any discussion you'd like.

MR. HOLMES: Anna, just one quick question. When you were talking about procurement, you said a single procurement architecture.

MS. DANEGGER: Correct.

MR. HOLMES: Are you talking about a central purchasing unit, or what are you talking about? What does that mean, single procurement architecture?

MS. DANEGGER: That means looking at procurement as a function across the agency, so recognizing that the risks associated with a professional services contract, while perhaps not of as great a magnitude as that for a major letting, continues to exist. And so procurement needs to be recognized as having common risks and having common procedures across the types of procurement that exist in the agency.

MR. UNDERWOOD: My only comment at this point in time was if I ever have time to digest this, I'll look forward to talking to you a little bit more.

MS. DANEGGER: Unfortunately, we did not save trees.

MR. HOUGHTON: For the audience, I think we need to let people understand that these booklets were delivered to us at noon today, and consist of this, so I think there is somewhat of a pause here as to asking you questions, from my standpoint, until I go through some of it. I have had some chance of going through the outline but not completely.

And I guess, Madame Chair, we have June 7 or 8, or what day?

MS. DELISI: Tentatively scheduled for the 8th. There's another Senate Transportation hearing in Amarillo that day, and we're trying to make sure all the calendars match up. But we will have another specially called meeting to further discuss this once we've had time to fully digest this, staff will have the opportunity to give their thoughts on the report, and then we'll have more opportunity to engage Grant Thornton in discussions about what is in the report.

MR. HOUGHTON: Now, my understanding, Madame Chair, this report is now available as of today on the website?

MS. DELISI: It will be. Assuming when they got the report, it's supposed to go live on our website as soon as the presentation was made.

MR. HOLMES: At the end of the presentation.

MS. DELISI: Right.

It looks like we're pretty sure it's going to be June 8.

MR. HOUGHTON: Is that a Tuesday?

MS. DELISI: That's a Tuesday.

Are there any other questions or comments about the report at this time?

(No response.)

MR. SIMMONS: Thank you, Commissioners. Thank you, Ann and Susan.

The next item on the list, James Bass is next up for item 3, and he's to continue the discussion about the preparation of the of the Legislative Appropriations Request. James.

MR. BASS: Thank you, Steve. For the record, I'm James Bass, chief financial officer at TxDOT.

First I wanted to start off and apologize that I failed to meet or schedule a meeting with commissioners individually subsequent to the last meeting. Staff is scheduling those meetings; in the middle of June we have one of those scheduled and are in the process of scheduling additional one-on-one meetings. So the information I have to share with you today, I'm not necessarily looking for a response or a direction at this point but just wanted to make sure that the information was provided to you and then we'll have opportunities to follow up on that with more specific questions that you might have.

One of the items we had a question about last month and sent out some followup information a couple of weeks ago was on Proposition 12 and what, if anything, the commission wanted to request for 2012 and 2013. The obvious one is I'm assuming the commission would want the department to request the third billion of Proposition 12 to finish off the projects that are going to be awarded over the next coming months, but then that calls the question what to do with the fourth and the fifth billion, and we spoke last month about whether or not that would be directed to more of the traditional highway building program or if the commission had any desire or interest into putting any additional money into the State Infrastructure Bank.

I think the commission was in need of some additional information on what the SIB was able to do with Prop 12 as compared to what the Revolver which did not pass but was offered last legislative session, and so that was the information that was sent out a couple of weeks ago. And the key on that, and I know it's a confusing point in that the Revolver and even the State Infrastructure Bank have certain authority or abilities in state statute and in administrative rules, however, the source of funding that goes into either one of those instruments also has constitutional limitations. We're all very familiar with State Highway Fund can only be spent on highways. Well, Proposition 12, even though the debt is paid back with General Revenue, the constitutional language for Proposition 12 is just to fund highway improvements.

So some of the concepts that were in the Revolver of a reserve fund that would, in effect, backstop additional debt, what we've heard informally from the attorney general's public finance division is that that would not be an eligible use of Proposition 12 bond proceeds. And so I obviously don't want the commission to request money in a particular category or program with certain expectations if the legal limitations or restrictions aren't going to be able to deliver that. And again, that was the purpose of the information sent out a couple of weeks ago to compare and contrast what could be done in the Revolver and what could be done in the State Infrastructure Bank, and then also what could be done in the Revolver assuming the funding came from Proposition 12.

I don't know if you've had a chance to review that or had any questions about it. That's certainly one of the items in the meetings that we're scheduling that I plan to go into more detail with you in June.

Another question from last month was full-time equivalents or FTE allocations for the department and what level to request in the upcoming Legislative Appropriations Request, and we talked about perhaps just maintaining at the current existing cap or requesting more in line with the current levels of FTEs that the department has and what are anticipated to be needed going into the future.

I did want to bring in a third possibility that Mr. Simmons reminded me of that the department had requested back two sessions ago and three sessions ago, and rather than a set number of FTEs, the concept was that the department would be limited on the amount of salary expenses they could have, and that limitation would be based upon a percentage of the overall program. And so what would happen is if additional funding mechanisms were provided by the legislature and the program grew, that salary cap and/or FTE cap would have risen with it; if funding mechanisms became exhausted and revenue dropped off, then the salary and the FTE levels would naturally decline along with that.

MS. DELISI: Does anybody else in state government have anything like that, this would be unique?

MR. BASS: It would be very unique, and that was one of the discussion items back in those prior sessions in 2005 and 2007, that no one else has done that and so there was a little bit of uncertainty exactly how that would work and how it would be monitored, but obviously that's another option for the commission to consider in this upcoming appropriations request.

The other third item was dealing with rail funding, and this may be getting a little bit into the budget weeds but it's kind of on the presentation of rail funding. Again, getting back to the State Highway Fund, it's limited, can't be used for rail. There is the possibility of department and the state receiving federal funds for rail activities. So the question is how that's presented in our baseline request to the legislature. We can put those federal funds in the baseline request, people will see the interest in the commission and the department on moving forward on rail activities funded by federal dollars.

If adopted, in the process that funding somewhat loses its identity, so if that was done, just making up a number for discussion purposes, somebody would see rail activities TxDOT, $100 million, and they wouldn't necessarily know that's dependent upon the receipt of federal money, and so if the federal money did not come in, then I think the expectations would be well, TxDOT, you said you were going to spend $100 million and you only spent $5-, what happened. Well, the federal money did not come in.

Conversely then, through the non-dedicated portion of Fund 6, again making up a number, say we request that $5 million, some people might interpret that as a lack of interest or support for rail activities, but what would happen is even if the $5 million was appropriate and additional federal funds came in during the biennium, there's a mechanism that would allow the department to increase our budget in that area and spend those funds.

And so a lot of it is really an issue of presentation and how that might be perceived and so I wanted to put that out today and give you an opportunity to think about it in the coming weeks prior to our meetings in the middle of June.

Those are the three broad areas that I just wanted to lay out and discuss. I would like to open it up at this in anticipation of the meetings that we're currently scheduling with your offices right now. Are there specific areas of the appropriations request, the rider request, or any particular areas that you would have interest in hearing more about. We'll certainly come prepared to talk about it in its entirety, but if there was a certain area the commission wanted to focus on in those briefings, then we would welcome any comments you have on that.

MR. UNDERWOOD: James, you're going to have to help me a little bit, understanding a little bit. Yes, there are areas. We had our audit meeting this morning and some of the charges that we gave Owen, I don't know how to do this, how to make sure that he gets the budget that he's going to need, so we want to talk about that.

Also, from the conversation I just heard from Grant Thornton, they're going to want a higher visibility for our IT department. Are we ready to address that when we go before the legislature for the money that we will need?

MR. BASS: We certainly have in the appropriations request there will be an area that's very visible and you can see the IT projects, if you will, the Project One, the ERP project that we're working on with the Comptroller's Office. The followup project on the legacy systems within TxDOT that aren't going to be addressed by Project One, those will be very visible. If it's the staff and the people performing those functions throughout the department, they're part of a broader, bigger strategy line item in the overall budget. We can certainly bring that out to your attention that this is the funding level and these are the number of people that are dedicated to that activity within the department.

MR. UNDERWOOD: And I say that, James, because we're more than an engineering business or enterprise, so to speak, we also deal with communications and, in this case, getting information out, and that's part of our communications. And from what I understood from just the comments from the Grant Thornton people and whatnot, we've not done that good a job of taking care of that division so we need to really look into that as we go towards the legislature as to what we need to spend in that area is my point.

I don't want to pretend to tell you what we need to spend or what not or what the IT department needs, but I do know that that is an area that we need to work on because I think it will help all the other divisions by being able to move the proper information in a timely manner. I hate to think that we have one computer that speaks German, one English and one Italian and now they all of a sudden have got to come up with a common goal and a common agreement on something and whatnot. That's my version of the problem, that's not the exact, please understand that, but there is an issue in which we need to make sure the IT department has the funds they need to be able to do the job that we're requiring them to do.

MR. MEADOWS: James, just a quick question. Go back and explain to me very briefly this different perspective or approach possibly to compensation, FTE versus percentage, compensation cost being a percentage of some expense.

MR. BASS: Currently all state agencies have a fixed number of full-time equivalents. This alternative approach that we've requested twice before was here's a number, this is our plan, but that really will not serve as a hard cap, if you will. The hard cap would be how much can we spend in salaries as a percentage of the overall budget. So let's say we're $8 billion budget and that number say is 10 percent, well, then we could spend no more than $800 million on salaries in a year, big number, I realize.

Well, if part of that $8 billion is funded by Texas Mobility Fund, Prop 14, Prop 12, and as those resources dried up and let's say in a future year that $8 billion overall budget was now a $6 billion budget, well then 10 percent of that lower number would be 600 and we'd have to fit our salaries within that. And so it's a way to allow, I'm sure you may have heard with this downturn in our program, contractors having to release people consultant engineers release people, people have asked what has the department done, I think the department has done quite a bit through the hiring freeze, the other operational cost savings that we've talked about before to help offset the reduction in motor fuels tax. This would be a way that would kind of ingrain that into the process.

MR. MEADOWS: That's helpful. I will tell you if we were having this conversation and you were briefing me, I would be asking for comparative data to just to try to understand, to put it into some perspective, so just know that so when you come see me, and others might have similar sorts of questions.

MR. BASS: We'll be able to show you what we've done over time and what other agencies have done.

MR. MEADOWS: Well, I think I'd do a point comparison because you can come back and do a comparative utilizing our existing numbers. And probably you'd want to look at a couple of other things -- you'd probably want to look at a couple of other agencies that nobody else is quite so capital-intensive in terms of projects, but you'd want to look at that. But I'd probably get some comparative numbers on a couple of the large state transportation agencies and just look. I mean, that's what I would ask if I was sitting down talking to you about it.

MR. BASS: Okay.

MR. HOUGHTON: James, this is a significant shift in policy, if you're proposing something like that, significant, how about 180 degrees. From my perspective, this would be that if you have that downturn which we are now in, you would actually have to lay off people.

MR. BASS: Quite possibly, yes.

MR. HOUGHTON: If we had instituted this two years ago, four years ago.

MR. BASS: Right. I think the first attempt would likely have been how it was handled this time, through attrition, but if attrition, employee turnover, wasn't occurring fast enough to fit within this new lower number then, yes, you're exactly right. That is obviously a concern to a number of people.

MR. HOUGHTON: So management may be proposing laying off people.

MR. BASS: No, that is not what management is proposing.

MR. HOUGHTON: Well, no, no. What I'm saying is this is a big shift, come to think about it, because you would have to match up -- and there's no way attrition gets you there that fast. And if we're not going to build anything by 2012 -- excuse me -- we're out of new dollars.

MR. BASS: It may be quite different in 2005 and in 2007 when former makeups of the commission were comfortable requesting this approach, the expectation in 2005 we were growing.

MR. HOUGHTON: We were never going to go down.

MR. BASS: So it would have allowed us to staff up. But there's an upside; there's a downside.

MR. SIMMONS: But I think there's another paradigm shift in there too is rather than focus on just filling FTE positions, you think about the quality of the person that's going to fill it, so instead of filling like two engineering tech positions, maybe I fill it with an MBA or something like that, with one person, so rather than two, there's one.

MR. HOUGHTON: That's never prevented us, nothing has prevented us from doing that now.

MR. SIMMONS: That's correct.

MR. HOUGHTON: Okay. I just wanted to make sure.

MS. DELISI: What's our turnover rate here? Do you know?

MR. BASS: I don't know the recent one. I've heard in the past it's around 8 percent, plus or minus, is what I'm recalling from my failing memory.

MR. HOUGHTON: Eight percent of 12,000 each year?

MR. BASS: Annually, yes.

MR. SIMMONS: I wanted to say it was a little higher than 8 percent.

MR. BASS: We can confirm that. Again, it's from memory and it's been a couple of years since I looked at that number.

MR. SIMMONS: I think you also look at the service years that we have within the department. We have a lot of people within the next five years that will be retiring; I'm thinking it's close to like 30 percent are eligible.

MR. BASS: You are correct, sir. I have no other questions, if you have any other, I'd be happy to answer them, and I look forward to scheduling the meetings and having an opportunity to get into more details with you before next month. Thank you.

MR. SIMMONS: Thank you, James.

Our next item is a followup discussion regarding the toll operations that you asked us to follow up with you on, and Mark Tomlinson will be making that presentation.

MR. TOMLINSON: Good afternoon, Mr. Simmons. My name is Mark Tomlinson, director of the Turnpike Authority Division of TxDOT.

As Steve mentioned, in March the commission asked staff to prepare discussion on three items: statewide toll collections, truck incentives on the Central Texas Turnpike System; and effects of increasing the speed limit on State Highway 130.

Over a number of years, definitely the past couple of years, discussions within the administration and staff and the commission have talked about statewide toll collections, how it's being done now, how it could be done, and really a vision of possibly creating a single source for that statewide toll collection has emerged. Currently today we have a number of toll entities, some who have been in business for a long time, others who are relatively new in the business, and some who are coming into the business now and in the next five to ten years, but multiple entities collecting tolls throughout the state. Those entities will continue to develop toll projects, the RMAS, as they grow and mature, will of course also be adding projects that need toll collection services.

So really the basic thought here is possibly through a collaboration of those toll entities you could potentially increase the efficiency of toll collection, possibly lower the cost of toll collection as well. I think there's great potential for increasing the public understanding of tolling, acceptance of tolling by virtue of that, improving customer service which all toll entities try to do, and potentially capture the best practices of each of those toll entities.

Other benefits potentially are: eliminating duplication; economies of scale; the thought that the public could have a single, understandable and definable point of contact for their toll business; the potential to migrate to a single toll tag -- of course, we have toll tags that are interoperable today but potentially single toll tag could be more understandable to users; and potentially, if authorized by statute, allow toll tags to pay for more services then they are today, some tags can be used for parking today, some can't, but there could be a number of other services that the tag could be used to pay for. And this is a business that is really affected by technology advances, so better positioning the state to take advantage of those advances could be very important.

So in thinking about how you might go about creating that single source of toll collection, really three options or alternatives have emerged. We discussed the creation of a transportation corporation which is allowable in statute, although understand the limitation today is that transportation corporations can't really operate facilities, they can develop projects but they're limited in their scope. Contracting with an existing public sector provider such as NTTA or HCTRA is possible within their geographically defined areas, but those areas limit their application to statewide collection. So really, the creation of a coalition of a statewide toll collection committee has emerged and that's the option I'd like to develop further with you.

Statewide toll collection committee commissioned today would have the authority to set up a committee of representatives from all the tolling entities in the state. We believe that while it would be a goal and it would be important to have as many common business rules and practices as we could, we think each individual entity could keep their most vital and important business rules such as toll rates, toll escalation, violation processing and how they do collections, et cetera. The committee would set policies and guide toll collection operations statewide. The committee could work to design a contract structure for toll collections and then potentially contract with a single provider to provide the services of tag distribution, customer service, back office operations, billing, collection and enforcement activities, and then the committee would oversee that contract as well.

An example of this concept that's in actual practice today is the EZ Pass New York customer service center up in the New York and New Jersey area. Four large tolling entities there combined into one contract with EZ Pass, nine customer service centers handle over a bill toll transactions per year. And just for comparison to put it into perspective, the three largest tolling entities in Texas, HCTRA, NTTA and TxDOT, their total transactions on an annual basis are in the 915 million, almost a billion transactions per year, so we think it's a pretty good example.

So what we have thought of as a path forward, we did, prior today's meeting, notify all the local toll entities in the state to let them know that we'd be having this discussion with you. We also proposed a meeting in June, it's not scheduled, but we'd like to try to get all the entities together in the June time frame to discuss this concept further. Potentially at some point in those discussions the commission could entertain creating the committee through minute order, and then that statewide toll collection committee would decide their path forward and potentially craft the contracting method and methodology that they would use to move ahead.

I would pause at this point to see if there are any questions before we move into the second item.

MR. HOUGHTON: Where's Bob Jackson? Bob, I have to ask you a question since there's I guess some legal interpretations here of what we can and can't do with a Texas Transportation Corporation. What's being proposed here is a minute order that would create something under the control of the commission or the department. Is that correct?

MR. JACKSON: A minute order. It might actually need to be created by rule. It would essentially be an advisory committee.

MR. HOUGHTON: It would not have teeth is what you're saying.

MR. JACKSON: Yes.

MR. HOUGHTON: And who would control this committee?

MR. JACKSON: The commission would. So I think the intent is for the commission to demonstrate through the rulemaking and/or a minute order that you're going to try to give this committee as much authority as possible to come up with its own rules and oversee the contract.

MR. HOUGHTON: My question to you, Bob, you and I have had these discussions and it's no secret that I'd love to get out of this business and get it into the hands of somebody that knows what they're doing and knows what the marketing is, collections, again, expand the footprint of opportunities. I can't remember every discussion we've had but is there not an opportunity to create something like that with our existing system, CTTS, as to some type of -- what's the word I'm looking for -- a private sector developer to run this operation?

MR. JACKSON: We can consolidate a number of our contractors with hiring a new developer or contractor. We can also contract with CTRMA to combine our operations in any number of ways.

MR. HOUGHTON: How about the rest of the RMAs in the state?

MR. JACKSON: If we're just talking RMAs, we have the authority to contract with any RMA in the state to provide services for them or for them to provide services for us, so you have a lot of latitude with an RMA.

MR. HOUGHTON: With the RMAs.

MR. JACKSON: With the RMAs. We've also looked at the possibility of RMAs all getting together and we think they have the ability to hire one contractor. Once they do that, we could then contract with that same contractor.

MR. HOUGHTON: So if the RMAs had an inkling to do something, they could come together, create an organization or corporation and operate.

MR. JACKSON: I don't know if I'd say create an organization or corporation, but through an interlocal contract they can hire a single contractor.

MR. HOUGHTON: Okay. And then we could contract with them.

MR. JACKSON: Yes.

MR. HOUGHTON: Thanks.

MR. SIMMONS: Commissioner, I might also add that part of the committee concept would be to look at the concept of are there any impediments to doing something from a legislative standpoint to make those recommendations for possible change.

MR. HOUGHTON: Steve, I've been doing this for six years listening to this and I have now grown impatient, I am done.

MR. SIMMONS: I understand.

MR. MEADOWS: Mr. Houghton, I know this has been an issue that you have put on the table, and I absolutely agree and encourage us to move ahead. I've had, over the last couple of weeks, the opportunity to visit with several members of our staff with regard to this concept of the committee, and they've kind of refined it down to a point where I guess the way to begin this is to say what's our goal here, let's define that first, and then really what we're trying to do is make toll collection seamless, to simplify it, and to streamline it for the customers which happen to be the citizens of the State of Texas. If that's the goal and we have multiple entities, as you have pointed out, in the toll collection business, let's see if there's a way to accomplish that goal.

Now, we all know that there are a lot of issues, there are some political issues, there are territorial issues, there may be legal issues, but we're not going to know any of that until we at least invite the current entities involved in toll collection in the State of Texas, just sit down at the table and have a conversation. I don't think that that's going to require a legal opinion to just get those people together and see if there is any interest in advancing this. And I think that those entities that are involved in this business are clearly hearing what we're saying, and what we're saying is if there's a way in which we can provide this service better to the citizens of the State of Texas, let's do it. There's no reason for us not to pursue this, it doesn't take any action.

So I just would encourage us to do it and I think that's what Mark is proposing, and I for one would say that's something we ought to pursue, have a conversation, report back to us in a month or six weeks or two months or whenever it is that that group of people can get together, and if someone doesn't want to come to the party, they'll just miss it.

MR. TOMLINSON: Very good.

MR. HOLMES: Have you actually had any preliminary conversations with NTTA or HCTRA, or any of the others?

MR. TOMLINSON: Casual conversations, nothing definitive, and of course, we did notify them of this discussion item. Don't have any feedback at this point, no.

MR. MEADOWS: I just have to mention just one other thing just because it certainly falls within, I believe, what our agenda item is as we talk about toll collection. I cannot tell you, and I know all of us have had the opportunity over the last year or two to read news stories, turn on the television, in fact, here's the latest one that I think we all received in our news clips, this is disturbing in the extreme when you have some lady here -- and I don't know if any of this is true but I often trust the media, at least to a point, Gordon.

(General talking and laughter.)

MR. MEADOWS: I mean, owes $9,000. I mean, you look at this and it totally undermines all of our credibility. And what is amazing to me is that we don't seem to be taking a serious look at how we can be reasonable. What we've got to remember is that we're in business, people forget that a toll road is a business, we have debt to service and there are obligations and commitments, terms and conditions pertaining to that debt, I understand all that, but we're trying to increase revenue to service that debt and hopefully make a profit in the end to be able to do something else, and if we continue to treat our customers like this, we'll be out of business. In fact, you want to walk over there right now and look at that road and see that nobody is driving on it?

I mean, I really would like to see somebody quickly come up with what is possible to do to make us a better business in terms of providing service to the customers.

MR. HOUGHTON: Speaking of business, Commissioner Meadows, is Bass still in the room or around in earshot? If he is, I'd like to talk to him again on this issue.

Currently, James, on the CTTS what is our operating income?

MR. BASS: I don't know the total amount to give you the dollars.

MR. HOUGHTON: Are we in the black?

MR. BASS: It is enough to cover debt service, it is not enough to cover 100 percent of operations and maintenance.

MR. HOUGHTON: It is not.

MR. BASS: So as written and covenanted in the bond documents, the State Highway Fund is transferring money to support the operations and maintenance of the system.

MR. HOUGHTON: How much?

MR. BASS: It is in the neighborhood, it's varied from year to year but I'd say in the neighborhood of $50 million a year and it might be a little higher than that, I can get you the updated figures.

MR. HOUGHTON: So we're taking Fund 6 dollars, gas tax receipts, all sorts of revenue, and we're upside down on CTTS operationally.

MR. BASS: That's definitely one perspective. One of your former colleagues, speaking of 180 degrees difference, Senator Nichols, when he was on the commission, looked at it that any dollar that toll revenue brought in, that was providing a savings to the State Highway Fund for operations and maintenance. So there's just an example of you and a former colleague looking at it quite differently.

MR. HOUGHTON: If there's red ink or red at the bottom, it's red.

MR. SIMMONS: But James, the original traffic and revenue showed that it was going to be.

MR. BASS: Correct. The original pro forma cash flows showed that that would be.

MR. HOUGHTON: When was the last time we raised rates?

MR. BASS: Day one, when it went from zero to rates.

MR. HOUGHTON: How long ago was that?

MR. BASS: They've never been raised, they've been put in at the initial rate when the commission adopted that.

MR. HOUGHTON: How long ago, two years, three years?

MR. BASS: Operations started opening in 2007, the commission adopted the toll rate plan, I can't remember if it was back in 2002 in preparation for the bonds being sold, so that would have been the initial toll rate adoption.

MR. HOUGHTON: I think I've made my point. Thank you.

MR. SIMMONS: Thank you, James.

MR. TOMLINSON: Oh, by the way, with Mr. Simmons' permission and if it pleases the commission, we would be happy to try to report back to you in July concerning a meeting of the various toll entities and some of the outcomes, some of the thoughts and discussion.

MR. HOLMES: Before you go on, Mark, have we done any analysis of toll operations either within Texas or some of the other major entities around the U.S. and done any benchmarking to see who performs at a really high level in various categories so that we what least understand what we're looking for as it relates to the intrastate folks?

MR. TOMLINSON: A little bit, a little bit. It's very difficult, there's no standard for accounting really, and if you look at cost to collect, and I think the industry has been striving ever since its inception to kind of come up with a uniform way to analyze that so you can see who's doing well, who's not. We don't have that standard today, it's difficult sometimes to gather cost information from various different entities that are independent and working in their own regions. So I think the short answer is no; we can certainly make that effort. Our challenge will be coming up with common indices and common ground, but we can certainly attempt that.

MR. HOLMES: Well, it's back to Commissioner Meadows' goal to establish some goals of where we want to get.

MR. TOMLINSON: I understand. It's been a goal in the toll industry historically and we never have quite gotten there, but we can certainly continue that attempt.

MS. DELISI: Can I get some information about how, going back to that story that I actually got to see on TV, how the fine structure works?

MR. TOMLINSON: Certainly, and while I appreciate a strong trust in the media, I would also say sometimes they don't completely understand or get the complete story right, so there are some inaccuracies in that story.

MS. DELISI: I don't care about that one in particular, I would just like to understand, okay, if I drive through, I don't have a tag, I don't pay the toll, from there on what happens and how do the fees escalate and the fines and things like that.

MR. TOMLINSON: We'll send you a bill within 15 days. If you don't pay that, we send you another bill that is for the toll plus an additional dollar invoice fee. You then have another 30 days to pay that without a violation penalty at all. At the end of 75 days, we will then send a violation notice, it will have your toll, the previous invoice fee and a $5 violation fee. You then have 30 days to pay that. If you don't, then we send a second violation notice, that notice rescinds the $5 fee and adds a $25 fee in its place, so essentially 20 more dollars, plus the toll and previous invoice fees. You then have approximately 30 days to pay that. If you don't, then we move it to a collection contract that we have. They'll attempt for some time to make a collection from you.

If we're still unsuccessful, we now have a court's process in its very early stages but it is functioning, and we could potentially take you to court. The first step of that would be to send you a last-chance letter, what we call a last-chance letter, that would tell you you owe this much and we'd love for you to come in and try to settle with us. If you don't, we could potentially take you to court; 30 to 60 days later if we don't hear from you, we could then initiate court action in a JP court.

Ultimately, your cost, if it was a 50-cent toll and we went through that entire progression, with court costs and fees, it could end up costing you about $248. It's a lengthy process.

MS. DELISI: What's our cost to collect that $248?

MR. TOMLINSON: In that time we have spent a significant amount of money to collect from you, yes.

MR. UNDERWOOD: But I've got a better one for you now, Mark. Madame Chair, may I dovetail on this?

MS. DELISI: Oh, sure.

MR. UNDERWOOD: I didn't pay the toll, I went through this week, the following week I go through again and I've got another 50 cent toll. We're going to start that process all over again, aren't we, for 50 cents?

MR. TOMLINSON: Right, it's every transaction.

MR. UNDERWOOD: So there's a little misconception if you think it's only going to be $280. Each time that you go through each day starts another process. You're not going back and saying wait a minute, this person already is not paying this, we're only going to take them to court once, if they go through there 100 times, we're going to take them to court 100 times. You like that one, that ought to get your attention.

MR. TOMLINSON: We're going to take them to court one time and the way it's structured now, if you have 100 transactions in violation, we're only taking you to court on three of those transactions. Of course, we will have done extensive work to refine our records and make sure they're acceptable to the court, but you'll be taken to court on three transactions. If the court finds in our favor, they most likely are going to have you pay all of the tolls, to work with us to pay all of the tolls, and whatever percentage they think is fair and equitable of whatever fees have accrued plus their court costs.

MR. UNDERWOOD: Mark, I'm still confused because from what you said earlier to the Chair is that each time somebody goes through and doesn't pay the toll, you send them a bill and these accumulate.

MR. TOMLINSON: Well, we were talking about a single transaction.

MR. UNDERWOOD: I understand, but now we're talking about each time I go through there. I don't have a toll tag, I'm just having fun going to work and having fun coming home, and through the luck of the Irish and my better half has hidden the toll bills that come in and I don't get a chance to see those, or something happens, the dog bites the mailman and I never get to see it, or I just don't pay it, but each time that happens, sir, isn't it correct, that generates a new process each time I go through there and don't pay it? Because you're not going to sit there and say oh, okay, let's look at it at the end of the month. Do you do it at the end of the month or do you do it each week or do you do it each day?

MR. TOMLINSON: Say on day one you drive through a toll gantry, I mentioned that day 15 we'll send you a bill, it will have all transactions in that time frame that we have registered. If it's nearing day 14 or so, one of those might not be processed but all the others are.

MR. UNDERWOOD: So you're saying every 14 days.

MR. TOMLINSON: Right, you'll get a bill for pretty much what you've used in that 14-day time period.

MR. UNDERWOOD: So I go to work for so many months without paying the toll or my tag has been warped a little bit because of some reason or whatnot, somebody replaced the windshield and thought they could stick the old one back on there and it's not been registered, so every 14 days we're going to start that process then instead of daily.

MR. TOMLINSON: It's 15 and then the next 30-day interval, and all the transactions in that time period will be sent to you. And we invite you at any time to call our customer service center if there has been a problem with the tag, and we occasionally have a bad tag read, or the dog ate your homework or whatever the situation is.

MR. UNDERWOOD: Or my better half put it in a drawer and forgot to tell me about it each month.

MR. TOMLINSON: Yes, and we have violation conversion offers at various different levels, depending on what happened in your situation, so we do try to work with people.

MR. UNDERWOOD: We really need to look at this, Mark, as to this because if there is an issue, instead of every 14 days just arbitrarily firing something out, we need to have somebody saying wait a minute, something is wrong here or whatnot, or there may be an issue here.

MR. TOMLINSON: Can certainly analyze it and have discussions.

MR. UNDERWOOD: Otherwise, we're going to get so much bad press. Thank you. I'm sorry, I'll get off the soapbox.

MR. MEADOWS: Just a couple of things I think that are important for us to know, and I'm saying this as if I know 100 percent that it is fact, I believe it is, because I've asked somebody in the agency to pursue this and I've not gotten a final answer, but I asked a question about the collection percentage on our much-heralded amnesty program. Madame Chair, you're familiar with this? This was in the Austin area.

MS. DELISI: Yes.

MR. MEADOWS: I understand that, when I asked about 30 days ago, the collection percentage was 4 percent.

MS. DELISI: It was pretty low, wasn't it?

MR. TOMLINSON: It was about 11 percent, I believe.

MR. MEADOWS: So what I would suggest, I mean, I'm not trying to reach any conclusions here, but that might indicate that perhaps our program overall might not be working in an ideal fashion, and it might make some sense for us to invite someone with like a graduate degree in common sense to just walk in and have a careful look at how it is step-by-step we pursue this process. Because I don't think we need to be reading any more about what appears to be extraordinary unfairness. It just, again, I've already said it, it hurts our business.

I know that there are undoubtedly some stories that are blown out of proportion, I'm just asking for us to take a very serious look in a common sense way at how it is that we're doing business because I suspect that we can do it better.

MR. TOMLINSON: Certainly can and don't disagree with anything said. I would try to frame the discussion a little bit by noting that about 77 percent of our transactions are done with a TxTag. The vast majority of the business, most of those transactions, the customer has automatic replenishment so they drive, if they want a bill we send it to them, otherwise they can check it on the internet, for the most part very happy customers. About 10 percent, 10 to 13 percent are cash customers, they pay at the gantry and they're done. It's that remaining percentage that is pay-by-mail, which in my mind is meant to be customer service friendly and trying to invite people to use the road, that these, for the most part, are created from.

But certainly understand and we can take a very close look at these structures and how the entire enterprise operates.

MR. SIMMONS: We'll get that going.

MR. HOLMES: Isn't this largely a result of electronic tolling? I mean, if you had manned booths, then it just simply doesn't happen that way. And of course, you slow down the process, you slow down traffic.

MR. TOMLINSON: Right, and that was the origins of this.

MR. HOLMES: So you've got this tradeoff.

MR. TOMLINSON: Yes.

MR. HOLMES: And have you seen any reviews or studies of toll entities that have extremely lax enforcement of electronic toll collection versus ones that have a robust collection? I'm told Fort Bend Toll Road Authority has a robust collection system.

MR. TOMLINSON: I think most entities, because of bond indentures, have to have a fairly conservative approach to toll collection, they have money they need to repay. They operate differently, there are variations all up and down a spectrum, but I think it's pretty much incumbent on every entity to make a strong attempt to collect the tolls that they're owed.

MS. DELISI: And is there a difference between the toll collection and the violation collection? I go through it, you send me a bill, I pay it, versus this situation where we're trying to collect a violation. Is there a difference on collecting them?

MR. TOMLINSON: Yes. Well, there comes a point after which you don't pay, that 75-day period where you kind of change from being a customer to it's a violation now, we still want to work with you, and you're still seeing an invoice that comes on the same letterhead to you but there's notice that you've now moved into the violation stage, here's what you owe and please contact us or send us the money.

MR. SIMMONS: Mark, let's get that flow chart that we have that explains it, and then show also the example of the different letters that are going on out there.

MR. HOUGHTON: Well, I'd like to also see an accounting of what it costs, Commissioner Underwood talked about, the transaction cost every time somebody busts it, what does it cost for us to collect it. I'd like to see what we're paying for all this. But I will say, and my final word, this isn't going away. I'm the last of the Mohicans, six years ago when we started this talking about this nonsense, and we keep sweeping it or just keep pushing it and pushing it, and I don't think it's going to work this time.

MR. TOMLINSON: Understand.

Moving on to truck incentives, we were asked to look at a variety of truck incentives to try to move truck traffic on to the relief route essentially formed by State Highway 130 and State Highway 45. In the upper right-hand part of the slide you can see the current truck traffic today on those facilities is about 1,000 to 1,100 trucks per day. We applied three different potential reductions, a 25 percent, 50 and 75 percent toll reductions. You can see in that upper chart the truck traffic, how it increases with those various reductions up to almost 2,000 trucks per day. The lower bar chart shows the daily truck revenue we have now and what we would project with this reduction.

Of course, the question, because of the bond indenture, we really need to have the affect of the incentive be at least revenue-neutral, desirably revenue-positive, so your question is do you attract enough additional trucks to offset the toll reduction for individual trucks. And so it appears on the bottom chart that with a 25 percent reduction we stay about revenue-neutral, slightly revenue-positive, for the larger reductions it's increasingly revenue-negative, but it does appear that the 25 percent toll reduction would gain a 33 percent increase in truck traffic.

So we would like to propose going ahead with moving forward with steps to institute that 25 percent toll reduction, as well as continue dialogue with the state's trucking agency or association, as well as individual trucking companies to see if there are other ideas or other incentives that might be more attractive.

MR. MEADOWS: Mark, I just was going to mention, and you all probably saw this, that Representative Darby's committee yesterday a representative from the H.E.B. company was asked about their trucking operations and asked if they used State Highway 130, and the representative of H.E.B. said specifically in testimony that they did not use Highway 130 because of the cost associated with it. The followup question, as I recall, in the testimony was would you consider using it if the toll rate was less, and the answer was yes.

So that, anecdotally, would indicate that this is something that we need to seriously consider pursuing, and I would encourage us to visit with some other people in that industry to just make sure that we get the pricing right. There's no reason to go through this exercise if we don't have a good feel for what it's going to yield.

MR. SIMMONS: And I was at the hearing and it was Ken Allen from H.E.B. that made that presentation, and his discussion was not only do I have to pay the toll but it's 17 miles further by going that route at this time, and so they lump in the fuel cost in that, but he also went on and said during rush hour then the drivers have the authority to go and do the tolls. One other thing he did say is in the Houston area they're predominantly using the toll roads because of the ability to get around the time needed to keep the stockers busy. If the trucks are delayed then they've got people waiting around in the stores, so that's another price that comes into play.

MR. TOMLINSON: This slide just shows you existing truck traffic on Interstate 35 and existing truck traffic on State Highway 45 Southeast and State Highway 130. The 25 percent reduction in tolls is shown at the bottom, the existing tolls are shown in the light green at the top. Today our truck transactions are roughly split between TxTag and pay-by-mail. The TxTag transaction would cost an individual truck about $25.60; with a reduction, it would take it down to less than $20 or $19.20 toll there, and we estimate that it would bring between 130 or maybe 180 additional trucks per day to the system.

So our next steps would be for this to work we would have to have a certification from our traffic and revenue engineer, need to work on TIFIA approval, disclosure of the new rates to bondholders and financial markets. We've had a meeting with TMTA, we'd like to continue that dialogue, as well as I mentioned with individual trucking companies, to see if there are other potential incentives that might be attractive to them.

So if there are no more questions on truck incentives, I'll talk about speed limit increases on State Highway 130. The current speed limit is 70 miles an hour, of course, right now. We analyzed five mile an hour increases incrementally there, 75, 80 and 85 miles an hour, and the chart shows the incremental revenue for each of those five mile an hour increases it's roughly a 14 percent increase in revenue for each five mile an hour speed limit increase. Of course, we would need an engineering study to ensure safety, and statutorily we don't have the authority to actually implement increased speed limits on State Highway 130.

MR. HOUGHTON: Whose numbers are these, Mark?

MR. TOMLINSON: It's Stantech, our T&R revenue firm. But I'm sure you're aware, we currently have some legislation that allows speed limit increases on our rural interstate highways. Of course, there's some conditions to be met there. Potentially, if legislation similar to that was passed, we could consider implementing that here on 130.

MR. HOUGHTON: Can you dust off the numbers on State Highway 130, Segments 5 and 6 on what their numbers look like? They have number that are similar, not similar, but speed limits like this, on what their revenue estimates were.

MR. TOMLINSON: Certainly can.

MR. HOUGHTON: I remember it was significant.

MR. TOMLINSON: Yes. I'm sure you're aware, in that CDA there are increasing concession payments to TxDOT if we are able to raise the speed limit on that segment of highway. If you go to 80, it could be an additional up-front payment, if we choose that, of $67 million; going to 85 would increase it to $100 million; or we could choose an increasing revenue share, a banded revenue share, as well.

MS. DELISI: How long does it take to do the engineering study?

MR. TOMLINSON: It was about a six-month study. Oh, I'm sorry.

MS. DELISI: How long would it take?

MR. TOMLINSON: Probably a month or two.

MS. DELISI: That's it? Okay. So if you're authorized this, we could get it done over the summer before it would be enacted.

MR. TOMLINSON: Yes, ma'am. Any further questions?

(No response.)

MR. SIMMONS: Thank you, Mark.

Our last item will be presented by John Barton dealing with the new TIGER II Discretionary Grant Program.

MR. BARTON: Good afternoon. For the record, my name is John Barton, I'm the assistant executive director for Engineering Operations.

As Bernard puts that up on the screen, I think you'll recognize that keeping in the lighthearted nature of the items that you've had before you today and other meetings that we've been in, I thought I would carry on with a discussion about the national infrastructure investment program, commonly referred to as TIGER II, and although this is a lion and not a tiger, Commissioner Meadows, I thought it would help focus us as I shared with you a little information.

We can all dream, and as I look at that and that rich mane of hair on the lion there, I think that at one point in time it could have been.

MR. HOUGHTON: Excuse me, John. Why are you giving this presentation? I thought Coby was supposed to be giving this presentation.

(General laughter.)

MR. BARTON: Well, sir, Coby was very well prepared to do so, but he felt like it was inappropriate for a full commission meeting to transpire and expire without me being before you, so since this is the last item of the open meeting today, I thought that I'd better take advantage of it.

The United States Department of Transportation published an interim notice of funding availability on April 26 of this year announcing the availability of $600 million worth of TIGER II, as it's referred to, grants. These grants are similar to but they're certainly not identical to the TIGER program that was established under the American Recovery and Reinvestment Act of 2009, so I kind of wanted to just step through some of the details of this grant program to share this information with the commission and to seek your guidance on moving forward as the Department of Transportation under this opportunity for Texas.

This is the National Infrastructure Investments Program.

MR. HOUGHTON: Excuse me, John. Are you going to read your presentation like Coby reads his presentations?

(General laughter.)

MR. BARTON: No, sir. I'll just talk from a few points.

There are $600 million available under the Transportation, Housing and Urban Development and Related Agencies Appropriations Act, and so it's in the appropriations act and not in the Recovery Act, and again, the applicants that are eligible for submitting nominations under this program are those that were similar to the original TIGER Program: state and local governments, any tribal government and we have a few here, transit agencies and port authorities, as well as metropolitan planning organizations. And in this case they've encouraged and will accept multi-state or multi-jurisdictional applications as well.

The projects that are eligible are similar to what they were under the original grant program, those being highway and bridge projects under our normal federal program, they also are accepting public transportation projects again that are eligible under the federal program, as well as passenger and freight rail projects and port infrastructure investments. And anecdotally, we've heard, and perhaps that's not the correct adjective, but we've heard from the secretary, Mr. Lahood, as well as in the webinars and workshops that have been held so far by the US DOT, that they are focusing a lot of attention and will place priority on those more non-traditional type projects, specifically those related to rail and ports.

Applications are going to be evaluated under two screening criteria, the primary criteria and some secondary. They are the same that we had under the original TIGER Program, those being: long-term investment outcomes that improve the state of the transportation system, economic competitiveness that would be brought about by the project, livability issues, the environmental sustainability of the project, and safety, as well as jobs creation and economic stimulus benefits. And the secondary criteria, again the same as they were originally: innovative approaches to delivering projects and then partnerships expressed between the various groups that come together to submit the grant.

A significant portion of this program will be directed to specific purposes: $140 million of the $600 million will be directed toward projects in rural areas; $35 million will be for planning grants so that entities can plan future work; $25 million will be given to the US DOT for them to administer the program, and $150 million will be for TIFIA loans and to help support up to $1.5 billion of federal credit assistance on projects from around the nation. So if you add all those up, that's $210 million, leaving $390 million available for other types of projects from around the nation, and any project that is selected will have to be obligated by September of 2012.

Again, they've limited it, they've asked for applications that are no less than $10 million and that are no greater than $200 million. It's kind of an interesting point. No more than 25 percent of the funds can be awarded to any single state so a project in any single state can be no larger than $150 million, obviously then, but multi-jurisdictional or multi-state applications could be up to $200 million. In rural areas they will accept projects that are as low as $1 million.

The deadlines for submitting applications, there is a pre-application requirement that's July 16, so entities here in Texas will have until that date to provide their pre-application, and you must do that to be accepted in the final application, and the final applications are due on August 23. They will not announce the selections until sometime after September 15 of 2010, and they don't have the exact date but they know it will be no sooner than September 15 of 2010.

So with that brief bit of information about the TIGER II Program, I kind of wanted to just jump off into perhaps some thoughts about how we would move forward. As you recall, under the original TIGER Program, we did form a work group that involved members of our metropolitan planning organizations from around the state, as well as representatives of the Texas Rail Association, the Texas Port Association, and the Texas Transit Association. And we took brief one-page nomination submissions from around the state, and that group looked at those and evaluated them and came up with a list that they thought would be of higher quality.

Looking at the rail and port projects from that particular process, those that seem to be the most valuable here in Texas included projects like the Tower 55 rail project in the Dallas-Fort Worth area, some rail projects in the Houston area that were promoted by the Gulf Coast Freight Rail District, we had a couple of port projects, one in Brownsville and one in Corpus Christi, and then the South Orient Railroad corridor projects that we have and continue to work on.

In preparation for today, I asked our staff within our Rail Division and within our Planning Division to reach out to the Texas ports and Texas rail companies and ask them about projects that they felt like would be good candidates to be working on. In addition to the ones I just mentioned, the Rail Division brought forward a list of projects that included a railyard relocation in the El Paso area associated with the BNSF railroad there, some work on the Texas short lines which include the Dallas-Garland Northeastern Rail, Northeast Texas Rail, and the Texas Northeastern Rail, as well as some improvements on the Heartland Flyer tracks.

And then in the port arena, in addition to the two I mentioned, they did also identify one from the Sabine Pass Port Authority down in the Port Arthur-Beaumont area.

And so I think that there is probably a relatively small list of substantial projects in the State of Texas associated with port and rail improvements, and because of the focus that's been placed on those types of projects within the US DOT's workshops and webinars, as well as comments by the secretary himself, I thought it might be appropriate to consider if we would want to entertain reaching out to these groups again in the very short time that we have and engaging them about cooperatively developing applications to submit, and I would appreciate any comments or direction the commission might have for me at this time.

MR. MEADOWS: Well, I think you've raised the right point, John, and that is really we need to right now focus on the process, to make sure that the process is a fair process that we employ to sort through this. I mean, basically, one of the questions really being asked is who is the applicant agency for the specific projects. Am I correct in this? As I recall TIGER I, we basically, as a commission, chose to endorse projects that met basic criteria across the state, particularly or specifically roadway projects.

MR. BARTON: That's correct.

MR. MEADOWS: I'm not sure exactly what the right process is, but the good news is we've already been through a process through TIGER I so we have a pretty good sense of what the highest priority projects are. They've already been identified through a really inclusive process. Again, as you pointed out, we engaged the MPOs in the discussion so we pushed the decision-making, to some degree, back down to the locals, and as that percolated up and we sorted through it, we began to rank projects based on criteria established by all participating in the process.

So I don't want to reinvent the wheel. It would seem to me like with regard specifically to rail you'd want to go back and reexamine that process, make sure the process was the right one, and then in order to achieve success, it seems to me like our likelihood of being successful probably is enhanced or increased if the state is the applicant. Is that accurate, do you think, or do we know?

MR. BARTON: Well, we do know. The feedback that we received after the first process and talking to other states and to US DOT is that there is certainly additional value in the recognition that it's a state DOT application rather than an application of a local sponsor. If the state DOT has determined that it is of statewide significance to the point that they are a party to or the submitter of the application, then it carried significant value and weight with US DOT.

MR. HOLMES: Not necessary for the state to be a sponsor, it's just that it adds more value, but if you put everything on the list, does it sort of negate that?

MR. BARTON: It would negate it if we put every project that we submitted from Texas on a list, and under the original program there were well over 100 applications from various entities throughout the state. The application process is very cumbersome and it is very lengthy, it requires a very extensive cost-benefit analysis to prove the value of the project, and so obviously in the short time period we have, it would be very unreasonable and unlikely that the Department of Transportation could take on 100-plus projects, but it is worth, I think, noting and considering if we should take on a smaller handful that are targeted in those areas that seem to be getting focus which are rail and port.

MR. MEADOWS: I guess my next question would be given the really limited number of dollars available on a national basis, I think at some point you have to be realistic and focus on what is likely to yield the best result for Texas. Does that mean that we put all our eggs in one basket and we aggressively pursue that one in hopes that we capture some of that money, or are we better served by, again, taking more of a shotgun approach, or somewhere in between, maybe we narrow it down to the top two projects or something such as that and endorse both of those or be the applicant for both of those and let the results fall. I'm just sort of looking for some direction because I haven't been down this road before.

MS. DELISI: Well, what do they say the definition of insanity is, doing the same thing twice and expecting a different result? So I think we should maybe try something different this time and maybe hope for a better result than we got the first time around. So whether it's one project or two, at that point it becomes arbitrary.

MR. HOUGHTON: What's the most that we can get?

MR. BARTON: The most that the State of Texas could get individually would be $150 million.

MR. HOUGHTON: So we're going to roll the dice on one project?

MS. DELISI: My opinion is I don't think we should do just one project, because if there's a defect in our one project, then it's easy for them to say nothing for you.

MR. HOUGHTON: But what do you cut?

MS. DELISI: Well, we make those decisions all the time.

MR. HOLMES: Well, it certainly ought to equal more than $150 million. Right? That's the easy one.

MR. HOUGHTON: I guess most of these projects could suck up the entire $150 million. I mean, every project on that list could probably suck up the entire $150 million, could it not, John, or close to it?

MR. BARTON: Well, actually they are significant projects, they range in size from approximately $25 million up to about $150 million. So it's clear that we could obviously put in applications that would be near the maximum amount the state could get, and based on what we saw in the first TIGER program and the response we got in terms of rail and port projects, if we focus simply on that, as I've indicated perhaps may be wise. I think if we were to reach out again to the ports and rails to reaffirm that those projects are still viable and we selected or chose to move forward with all of those that are ready to implement, you're looking at less than ten nominations from across the state.

MR. HOLMES: What would be just a rough estimate of the aggregate dollar value of those ten?

MR. BARTON: Commissioner, looking at the information that I have in front of me, the aggregate would be close to $350 million.

MS. DELISI: Do you have enough time to do ten applications?

MR. BARTON: I have that we have time to be a party to ten applications. With or without our participation, I think those ten applications will be prepared and submitted by the other entities, whether it's the rail companies, the MPOs or the port authorities. So I believe that working cooperatively together, it's not unrealistic for us to be ready to present those.

MR. HOUGHTON: We would sign on to sign on to ten, but there could be 30 behind that submitted from other entities.

MR. BARTON: There could be, and there certainly, I'm confident, will be roadway-related projects as well as transit-related projects that are submitted by various entities, and as we did the last time, we did provide letters of support and endorsement and that was, I think, successful, I think it did play a role in selection of the projects that we did get here in Texas which were the trolley system in Dallas and the TIFIA support in Fort Worth. I think we can continue to reach out and provide that as an opportunity to partner in some way with others that are preparing applications and allow our district staffs to review their projects and if they feel like they're of high quality, to submit a letter of support in response to those requests.

MR. HOLMES: John, looking at this short list of port and rail projects, it looks like only a couple of them have the environmental clearance, one in the Port of Corpus and the San Angelo South Orient deal. How big of an impediment is that?

MR. BARTON: As I mentioned in my brief comments, these projects would have to be obligated by September 2012, so what that means, Commissioner Holmes, is that as we look at these, we would have to have a high level of confidence that if they don't already have environmental clearance, that the environmental assessments could be done and approved within the next 18 months. And so for many of the projects that we've looked at from a staff perspective, we think that they are close to being implementable in that time period and we would have to assure ourselves of that before we signed on.

MR. HOUGHTON: So could you come back at the June special meeting and make a recommendation on the top ten or top eight, top seven, top six, top whatever?

MR. BARTON: Yes, sir, we certainly can do that.

MR. HOUGHTON: That's fast enough, isn't it?

MR. MEADOWS: In doing that, I just want to make sure that I would think we would just want to reaffirm back through our process, I see Michael Morris sitting here, our stakeholders that were engaged in the development of the initial list.

MR. HOUGHTON: We may not want Michael Morris's project.

MR. MEADOWS: I get whether I want it or not.

MR. HOUGHTON: I wonder if Michael Morris wants to get in the toll collection business.

(General laughter.)

MR. BARTON: If I understand the commissioners' comments correctly, and I would believe that I agree, we would reach out to that group that we convened before which was Roy Gillyard from El Paso, Tom Nescala from Corpus Christi, Melba Owen from Midland-Odessa, those were the MPO representatives, and then Dennis Kearns from the Texas Rail Association, John Roby from the port authorities, and Doug Allen from the transit group, and review these projects again, make sure that we've included those rail and port authorities so that they can make sure we know of all their projects, get our staffs to do that review with these individuals and ensure that we are qualifying which projects are the best in Texas to consider for the department's participation as a nominating entity, and do that before June 8. Seems like a reasonable to ask request and certainly we have days to work on it. We'll be happy to do that.

That's all I have. Thank you.

MS. DELISI: That concludes the posted items on today's agenda. Now the commission will recess into an executive session under Section 551.074 of the Texas Administrative Code to conduct deliberations on the employment and duties of a person who would be responsible for implementing changes that result from the independent management and organizational review of the department.

(Whereupon, at 3:53 p.m., the meeting was recessed, to reconvene following conclusion of the executive session.)

MS. DELISI: The meeting of the Texas Transportation Commission is reconvened. For the record, the time is 4:38. The commission has concluded its executive session. Is there any other business to come before the commission? There being none, I will entertain a motion to adjourn.

MR. UNDERWOOD: So moved.

MR. HOUGHTON: Second.

MS. DELISI: All in favor?

(A chorus of ayes.)

MS. DELISI: The motion passes. Please note that it is 4:38 p.m. and this meeting stands adjourned.

(Whereupon, at 4:30 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: May 26, 2010
I do hereby certify that the foregoing pages, numbers 1 through 104 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.





05/28/2010
(Transcriber) (Date)

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