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Below is the HillCo client report from the September 4 House Select Committee on Transportation Funding, Expenditures and Finance hearing.

The committee met to hear testimony regarding potential revenue sources, identified savings and efficiencies (HB 1, 3rd Special Session), surplus property report, debt reduction possibilities and other issues related to transportation infrastructure funding.
 
 
Thomas Galvan, Transportation Analyst, Legislative Budget Board (LBB)

  • Possible methods to move dedicated funding streams back to transportation:
  • Shifting GR allocations from DRP and state traffic fines
    • Combined allocations to GR are around $120 million per year
    • Of funds collected, 1% held in GR for DPS administration, 49.5% goes to trauma centers; 49.5% goes to state highway fund
    • Before money can flow into the mobility fund, it must exceed $250 million
    • Rep. Larry Phillips asked what the cap would have to be changed to for money to flow into the mobility fund
      • Less than $127 million
  • Eliminating 1% statutory allowance for comptroller’s motor fuels tax enforcement
    • For 2012-2015 the 1% was about $32 million per year
    • Chairman Joe Pickett noted the comptroller only spends what they need to then transfers the balance to fund 6; the 1% may need to stay in fund 6 then the comptroller can just make the case for an increased appropriation to manage the fuel tax; may provide clarity
    • Rep. Ron Simmons asked if there is a budgetary necessity to keep the 1% provision
      • Pickett noted it probably just sounded like a good idea at the time; changing the statute will not change anything; motor fuels tax all flows through GR anyway
    • Taking the 1% from the comptroller would allow about $8 million to go to education and $24 million to go to the state highway fund
  • Reducing motor fuels tax collection allowance for motor fuels distributors and suppliers
    • Suppliers and distributors can currently retain 2%; distributors can retain 1.75% of taxes remitted to suppliers leaving suppliers with .25%
      • About $66 million for 2014; moving from 2% to .5% would sent $13 million to available school fund and $39 million to transportation
    • Pickett noted the industry makes the case that they need that allowance to do their business; may need to partner it with a reduction in paperwork and reporting to get industry buy-in
    • Simmons noted retailers get an incentive for timely filing of sales tax
      • Maybe a quarter of a percent
  • Allocation of motor vehicle sales tax to state highway fund
    • A very small amount currently goes to the property tax relief fund; $19.5 million in 2013
    • The small percentage surcharge that comes from heavy diesel vehicles generates $15 million into the Texas emission reduction plan (TERP)
    • The vast majority of motor vehicles sales tax goes into GR; $3.4 billion for 2013
    • One option is depositing 10% into state highway fund and increasing that by 10% each year until 2025
      • Would generate $379 million for state highway fund the first year; $2.2 billion by 2020
    • Another option is to deposit collections in excess of 2015 amounts into the state highway fund beginning in 2016
      • Would generate $150 million in 2016; $177 million by 2020
  • The state loses about $60 million every year in exemptions to the motor fuels tax for federal government vehicles; they give us a similar exemption and it is a net positive to the state
  • There is a dollar that is added onto registration fees that goes to DPS to support the motor vehicle financial responsibility verification program

 
Tom Lambert, TCEQ Analyst, LBB

  • Clean air account and Texas emissions reduction plan (TERP) account
  • Clean air account revenues include several fees that relate to motor vehicles; these mostly come from vehicle inspections
  • For non-attainment counties they can opt-in to the Check Texas program where a majority of funds are used to grant rebates to low-income individuals who want to replace vehicles that fail emissions tests
  • Liz Day, CFO for TCEQ noted there are 16 counties who participate in the program; opting-in creates an additional fee for vehicle inspections; the additional funds go to the LIRAP program; TCEQ is initiating rulemaking to allow for an opt-out provision because Collin County wants to stop participating; they collect $4 for each inspection but the same amount is not being appropriated back to them
  • Rep. Dan Huberty asked about Harris County
    • In 2014 Harris brought in $19 million and was allocated $2.2 million; the allocations dropped off in the last few years because of low balances in the drive a clean machine and LIP programs
  • Phillips asked if there is a federal restriction or if counties could be allowed through a statute change to spend the money as they want
    • There is not a federal requirement
  • Pickett asked if counties participate in the program differently
    • There are different components in the emissions testing but in reality there are not significant differences
  • Phillips noted legislation could address the fact that counties don’t get very much of their investment back through the programs; when did the program start
    • 2002; in the early years of the program money was being collected and not spent then they started spending more than was being collected to catch up and a deficit arose so spending was cut 90% and that has not changed yet
  • Pickett asked what the balance in the account is
    • $88 million that has been taken in through the LIRAP fee and not spent; the clean air account has $126 million
  • Phillips noted counties may not want to opt out if they had spending flexibility; how many employees manage the program
    • 2 FTEs

 
Lambert continued his presentation

  • There is a transfer of $500 thousand each year from TERP to the clean air account which was set up in statute
  • The majority of clean air account funds are appropriated to TCEQ; spent $53 million in FY13 and about the same appropriated each year of the current biennium
  • TCEQ uses these funds for air inspections and monitoring as well as air quality planning and the air check Texas program
  • Phillips asked who does air inspections and enforcement; who does that
    • TCEQ regional offices
  • The clean air account unappropriated revenues remain in the account and can be used for budget certification; in last budget $219 million was used toward certification
  • Phillips asked if law states the available uses for the fund if it wasn’t used for certification
    • There are specific uses but also a general caveat to protect the air resources of the state; would be best to put a different use in statute for a specific purpose
  • Phillips asked about air quality planning; if the amount for LIRAP was not collected anymore would the federal government discontinue some funding
    • Not necessarily; parts of the state implementation plan would have to change to represent the changes
  • TERP is a grant program available in non-attainment areas; grants are provided to reduce emissions of vehicles and equipment
  • Funds come from many different vehicle fees including inspections, title transfers and registrations
  • Simmons asked if there is an adequate program in place to show tax payers they are getting value from all the fees they pay
    • Cost effectiveness is studied as far as pollutants being reduced per dollar; industry pays around $10,000 to buy a credit for creating a pollutant and it costs about $550 to mitigate that same amount of pollutant
  • Simmons noted sometimes programs come along and get funded then nobody goes back to look and see if they still produce the benefit they were intended to produce

 
Don Lee, Executive Director, Texas Conference of Urban Counties

  • Concerned about the fact that counties are not getting back what they are putting into clean air account and TERP
  • Simmons asked if the commissioner’s courts decide if they will participate in charging additional inspection fees or if it is an election
    • Generally the commissioners make that decision

 
Joe Weber, Executive Director, Texas Department of Transportation (TxDOT)

  • Since the last meeting of this committee, the LAR has been submitted
    • Total annual need for road and bridge infrastructure is $5 billion per year
      • $3 billion for congestion and connectivity
      • $1 billion for maintenance
      • $1 billion for energy sector road needs
    • The potential prop 1 infusion of funding to the highway fund is addressed as well as potential situations with federal funding
    • The baseline request is $1.25 billion less than the current biennium
    • Also included requests for projects that do not include roads and bridges
  • Pickett asked if the reason it is less is because the bonding cap has been reached
    • Correct
  • Commission convened a prop 1 stakeholder meeting last week to discuss how potential money will be allocated
  • TxDOT was also required to identify $100 million in savings; have identified over $140 million in multiple areas
  • Pickett noted HB 1 required the agency to find $100 million in savings of funds appropriated; that is an important distinction because the legislature wasn’t looking for one time savings more looking for savings in operational expenses; should not just be surplus property sales
    • James Bass, TxDOT CFO responded that most of the savings will come from fleet operations and changing to synthetic motor oil; that should be around $23 million
  • Pickett asked if appropriations requests will be reduced for capital expenses from here on out
    • Yes
  • Pickett asked if restructuring of FTEs will occur
    • Yes; reductions will be made and other efficiencies; more outsourcing and contracting out of maintenance will have to happen; the baseline LAR has 187 less FTEs than last biennium
  • Pickett and Phillips discussed that savings can also be found by decreasing contracted labor and increasing FTEs
  • Simmons noted the savings from HB 1are intended to be used to pay down bond debt; doing things like selling a piece of property are not savings or ongoing cost reductions
    • Weber noted the language asked for savings and efficiencies and part of being efficient is getting rid of unnecessary stuff; will continue to work to find more savings
  • Pickett asked of the $140 million, what categories saved what amount is surplus property
    • Fleet operations – $23 million, operational savings/FTEs – $27 million, debt management – refunding and restructuring of debt paid off $65 million in bonds to save $102 million that would have been paid out over time
    • Pickett inquired if it would be normal savings
    • It normally would be done over time – because of the legislative language they structured it so that savings was all up front
  • Real Estate Division Discussed
    • Roland Tilden, Real Estate Management, was brought up to answer questions on the asset selling process
    • Includes priority period, sealed bid process to public, then goes to commission to approve price
    • Tilden said in regards to land portfolios they do have options to sell or to lease
    • A benefit of leasing is that ongoing cash flow is created
    • Set goal of saving over $125 million by end of CY 2015
    • Proper real estate management will be ongoing – transition to divesture, management of lease properties, highest and best use for communities, etc.
    • Condemnation process was further explained – goes to commissioner court to establish a price for the property and at this point the condemning authority can put funding in account and occupy the land until ultimately settled
    • Power of eminent domain – is TxDOT selling property through eminent domain – staff said that property is being screened out

 
James Bass, CFO TxDOT, Mobility Fund Discussion

  • Bass said if not issuing debt from mobility fund then excess revenue would be – $90 million and in 2016 amount would be $122 million
  • Bass said revenue would remain in mobility fund and could pay for same type of projects that the bonds could pay for and pay as you go projects
  • Bass pointed out that average inflation on Hwy Cost index is 4.5% and borrowing on mobility fund is 4.25% – so borrowing allows for ability to avoid inflation over time
  • Pickett argued the mobility fund is being leveraged to borrow more money
  • Mobility fund is perpetual fund said Bass
  • Bass said bonds have been refunded, appropriations act required a debt reduction report, and TxDOT has reduced future debt service by over $500 million
  • Pickett suggested a statutory change that would stop issuing debt from the mobility fund would allot – $200 million in the biennium – a new revenue source to add to things coming in
  • Pickett argued there are still other tools to allow borrowing (ie Prop 14)

 
James Bass continues discussion – focus on November Prop 1

  • Pickett noted he and others on the Legislature get asked often how the funding from Prop 1 will be spent – he has responded through formulas but then TTC names blue ribbon panel – which is not covering geography of state, etc.
  • Pickett is concerned the committee will just name projects more than even distribution of funding
  • Pickett argues a total of $2.2 billion heading to TxDOT
    • Pickett asked Bass about Design build project that came in $200 million under
    • $900 million can issue in Mobility funding
    • $120 million in surplus property
    • $450 million which requires state match and gets you to $600 million when Feds fund trust fund
    • Pickett gets a total of $1.8 billion total and asked if there is a committee set to go spend it
    • Pickett refines total by adding $402 million waiting to be appropriated – so $2.2 billion outside of Prop 1
  • Bass states that not all of $2.2 billion is new money – some funding was already allocated to projects
  • Pickett argues he does not have confidence in the current UTP
    • Pickett said he sent letter the other day to TxDOT about conflicts in messaging
  • How can UTP be a better process that can be defended asked Pickett?
    • Weber noted it’s possible the process has flaws and continuing to look at it and modify it and get insight on how to fix it
    • Pickett asked if anyone is looking at the UTP and asking if the right thing is being done
    • Pickett thinks staff is hard pressed to do the right thing when the UTP will be voted up and down with no amendments with subsequent public hearing with no discussion 
  • Staff puts recommendations to the TxDOT Commission said Weber – he does not vote on it
    • Weber’s guidance to staff at TxDOT while working on the UTP was that the focus is on transportation as a system not just highway and bridges
    • Pickett said he does not believe there is a competitive process in mobility dollars
  • Phillips cautions some funding dedicated to areas can be best and someone else needs to make those decisions other than the legislature  and decide what is best for Texas as a whole

Weber continues discussion – focus on Energy Sector  

  • Pickett used Energy Roads example and based on numbers there is some politics going on
    • Hoping TxDOT has a plan and can use monies now that can be put into energy sector, said Pickett
    • Weber noted energy sector roads is a problem and they are focusing on it
  • Pickett said prioritization needs to be in place
  • Rep. Israel asked how they quantify efficiencies with assets so remote
    • Weber said there are many questions to ask including how long the roads will be used and how long is the play
    • That is why they are working on the surging
    • Israel questions why they just divided the funds equally among 191 counties
  • There was a process that was used said Bass and it was defined by SB 1747
    • Phillips notes it did not come out of his committee and they did it by overweight permits
    • Both times it was debated from the Senate and the House floor the sponsors said yes that the process in the formula includes weight tolerance permits and using that process all 254 counties were eligible
  • Phillips use this unintended consequence as a discussion were funds will be diverted as TxDOT receives more funding
  • Discussion on safety and possibly worst roads in Energy Sector getting next round of funding

Victor Vandergriff, Texas Department of Transportation Commissioner (TxDOT)*

  • Prop 1 committee has met – Vandergriff will go to meeting tomorrow
    • Vandergiff stated to date discussion is where should funding be allocated – no voting or shifting to look at projects at this point
    • Prop 1 committee planned for tomorrow and another one on the 16th and then report to Commission – Sept 18
    • Vandergriff is representative from Commission
    • Committee members have been apprised of correspondence from Transportation Funding Committee
  • Rep. Larson noted Commission made an “arbitrary” decision getting involved in transit
    • Very concerned about $92 million – Commission got it wrong and local leaders and Larson requested the money go back into mobility fund/ order said it was transit 281 funding
    • Vandergriff said he understands the frustrates and wishes they could do as Larson asked
    • Larson said the funding was taken and given to MTA and he has asked several times for that funding to be rescinded
    • Larson has zero confidence in the Commission at this point – making decisions that went against the voters
    • Vandergriff said he is regretful of Commission decision and would have liked to have acted as Larson indicated they should
    • Weber noted anytime he sees a letter from a member it means something to him but then when looking at something with overwhelming voter support it gets confusing – maybe needs to be looked at more closely – recently local community is saying we don’t want the trolley cars

 
James Bass continues discussion – Category overview/formula funding 

  • Phillips begins his statement in regards to how funding is disbursed through formulas
  • For example Category 6 – bridge funding is not necessarily formula
    • Bridges evaluated every two years, engineers asses and gives them rating
    • Worse ratings get funding and it is not based on location – asset management approach
    • In theory just a few counties could see funding from this category
  • Pickett said there needs to be assurance that all areas will get piece of pie based on this new funding coming in
  • *Vandergriff discussion on Prop 1 and $92 million above as noted takes place here
  • Discussed how funding would go through funding in TxDOT so description ensued of 12 categories (once in category then based on that funding formula)
  • 12 categories that map to four strategies
  • Pickett wants to review funds going into the category over last several years
  • Bass said Prop 1 Committee is focusing on conceptual issues
  • Pickett and Phillips discuss confidence issues and transparency with TxDOT
    • Phillips makes final ask of what can be done to restore confidence
  • Vandergriff noted several steps in the right direction by the TxDOT Commission but still working on improvements
    • UTP is better and gives criteria to projects
    • Discussions on how Prop 1 should be spent by legislature and setting up an internal committee while keeping the Commission out of it – not trying to game the system
    • Thinks leadership is necessary – need proper direction
    • Agency hearings as a whole leave something to be desired but Vandergriff thinks it can be addressed
    • Has had good discussions recently, Collin County example
    • Does not anticipate having another issue like Larson’s in the near future
    • Commissioners need to do a better job explaining it is ok to disagree and recommend a different project for funding
  • Out of $5 billion additional funding need, $1.7 billion bond proceeds will be met with Prop 1
    • The $1.7 billion request is listed as an exceptional item  
    • Will require action of LBB to appropriate it
  • Discussion of categories were picked back up and reviewed
  • Not much money has been put in category 2
    • If received $3 billion for connectivity and congestion about $2 billion would go into this or a bit more
  • TxDOT was requested to get back to the committee how much has been let in each category over the last decade
  • The LBB must approve funding before it can be spent
    • LBB can dictate all funding to go towards one category or through formula or formulas
    • It is anticipated TxDOT would request funding around December if voters approve Prop 1
  • Pickett asked about toll roads charging veterans
    • It was noted that certain toll roads need to repay the bond holders but other toll roads can be free when there is no lien holder
    • There does need to be a payment on the turnpikes that have bondholders
      • When selling equipment using general revenue received to pay those fees but at some point will get less general revenue
      • Will not be able to continue to support the program in this fashion so they have requested this funding as an exceptional item
  • Discussion of 6 principals adopted by the select committee and passed onto the Commission
    • The Commissioners did not adopt the principals but they sent them onto Prop 1 Committee  
    • Simmons was concerned that the select committee asked them to adopt reasonable perimeters and failure to adopt shows issue
    • Phillips said he did not understand that the committee was adopting something they wanted the Commissioners to adopt
      • They were good principals but not very specific and generalizations
      • It was a good reminder which is why he voted for it
      • Some have thought the way the principals were written that it was like giving MPO veto authority – but members clarified that was not the intent
  • Rep. Workman inquired about safety improvement index for Category 8
    • Gave hwy 71 example and asked if fatalities have heavier weight
    • Fatalities, serious injuries and property damage only have diff financial weights
    • Staff explains process buy right of way move utilities, etc but they had the attention and it took time
    • Program is also competitive so locals can put up some funding to buy down cost ratio
    • It is a district decision said Pickett
    • Workman said fatalities should have scale like earthquake so each fatality exponentially increases scale
    • Phillips points out bus crash example – staff looks at frequencies and anomalies

 
PUBLIC TESTIMONY
Don Dixon, Self  

  • Believes $5 billion in supplemental request is a need and hopes it can be addressed
  • Cautions when funding – get away from policies of past such as tolls, debt, status to use the road
  • Get rid of RMA’s and let TxDOT do their job
  • Don’t think it is a wise use of money to go to city transit
  • Railways private entity – taken care of with private money

 
Terry Hall, Texas United for Reform and Texans for Toll Free Highways

  • Feel strongly that when property is taken – no private entity should have power of eminent domain to make money of someone else’s land
  • Fighting private companies are exploiting common carrier pipeline  
  • 281 in San Antonio – $32 million taken from 281 and given to 1604 – close to $200 million stolen from 281 and being told not enough money to fix roads without tolls

 
Duane Gordy, Community Development Education Foundation

  • Local decision makers need assistance
  • Have held several public hearings and looking at ROI for transportation dollars