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Below is the HillCo client report from the May 6 Select Committee on Transportation Funding, Expenditures & Finance hearing.

Handouts: http://www.legis.state.tx.us/tlodocs/83R/handouts/C4762014050609001/C4762014050609001.pdf

Chairman Pickett Opening Remarks

  • This is half of the equation – at some point they will be meeting with the Senate
  • Approach will include an appropriations aspect and every aspect of transportation funding will be discussed
  • Not all projects are large – any amount of funds saved or found in efficiencies to go back into maintenance is beneficial

Reps. Phillips, McClendon, Martinez, Workman, Munoz, and Simmons expressed support of committee   

Lt. General Webber, Executive Director TxDOT

  • Applauded committee putting TxDOT under a microscope
  • Wants to ensure credibility – credibility and integrity of agency is very important to him

Victor Vandergriff, TxDOT Commissioner

  • Looking forward to insight from this process
  • Additional funding needs include: $1b energy, $1b maintenance & $3b for projects =$5billion
  • Just the project list is over $70billion and if add some other connectivity could approach $90 billion
  • In past have used all tools that have been provided and the agency is running out of those opportunities now
  • Wants to hear from the legislature what they want the agency to do going forward

David Ellis, Texas A&M Transportation Institute

  • There is $4b a year in unfunded need
  • Pickett clarified that when added to the $20b a biennium already appropriated then the need would total $28b a biennium
  • 2030 Committee was to identify transportation need in upcoming years
    • Maintain mobility and pavement standards in 2010 with goal to keep things from getting worse
    • This scenario yielded $4 billion estimate
      • Can obviously spend less if you make standards lower
    • Keeping things from getting worse is a difficult situation when faced with growth of population and TxDOT funding needs with a deteriorated funding stream
      • Fuel tax – less due to fuel efficiency of cars
      • Construction Cost inflation – fuel tax purchases a little less construction every year. 20 cents value of tax – now purchases about 7.2 cents of construction
      • Rep. Simmons asked about construction costs and asked if TxDOT used any hedging practices buying construction materials to offset potential increase but witness did not know
  • Pickett discussed transit and tolls
    • Most transit systems are heavily subsidized
    • Misconception that toll roads are financed completely by tolls
    • Example given of a toll road opened up with no debt – registration and gas tax money funding is being used
    • There was once a time when every project in UTP had to be looked at as a toll viable
    • Pickett clarifies does “not hate tolls” – but some of these things are not the panacea
  • Gas tax is what we use towards transportation and has not changed since 1991 said Pickett  
  • Avg. Texan pays $9.52 per month in gas taxes and Pickett believes we are paying less than a few years ago
  • Ellis said yes because of fuel efficiency increases
  • There are more miles traveled because there are more of us but per capita (on household basis) it is decreasing

Thomas Galvan, Legislative Budget Board

  • Review provided of handouts which gave an overview of selected fees and fines
  • Drivers License Fee – $24
    • Pickett clarified diversions happen both ways so to be fair to both sides
    • If they talk about ending diversions, shouldn’t discussion be about ending all of them
  • Motor Vehicle Registration Fee – $50.75
    • Methodology is illustrated handout
    • Formula/Fees are administered weekly
    • Same formula applies to all counties
    • Details broken down by county will be later given to committee 
  • Vehicle Safety Inspection – $12.50
    • Phillips asked about clean air account – it is not constitutionally dedicated it is statutory
    • Clean air account – does have a balance in it
    • Phillips asked when the amount retained by inspection stations was increased and would like documentation specifying those details
    • Total revenue generated from all inspection fees would be $388 million biannually
  • State Traffic Fine – $30
    • Methodology is illustrated on handout
    • Pickett pointed out that bar was raised on funds going to Texas Mobility Fund and then it was backed out after first biennium
    • Less than $130 per year is going into GR bucket
    • No forecast of anything from this fund going into Mobility Fund in upcoming biennium
  • State Gasoline Tax – 20 cents per gallon
    • Methodology is illustrated on handout
    • Simmons asked if they are incentivizing people to pay taxes on time, Pickett replied it is a little different because the funding is needed for administration
    • Up to $7.3 million per fiscal year goes to County and Road District Highway Fund 57 but it was pointed out by members that it was not much funding when divided equally among counties – however division is actually done by road miles in the county
    • Discussion on amounts needed to collect gas tax – members review deduction for expenses compare Texas v Florida
      • Pickett calls this a hot button issue, he got a DPS escort to his car after his amendment failed trying to change
  • During discussion of state highway fund appropriations to agencies other than TXDOT – Pickett pointed out what he called diversions from Fund 6
  • Phillips asked for breakdown chart of DPS funding and notes this is the entire DMV budget
    • Correct said witness in regard to this account funding all of DMV budget
  • Chart of diversions since 1987 was requested
  • It would cost $1.2 billion – $1.3 billion for the biennium to end diversions out of Fund 6
    • Phillips questions if they all should count as diversions – request for chart that gives an actual number of what would count as diversion
    • By ending diversions would also be displacing funds 
    • More details were sought on the various items on the appropriations to other agencies
  • Pickett said this next session may be a good time to review this
  • Phillips inquired if a study was conducted on the value being received for the funds they are spending – to witnesses knowledge they have not

Kirk Davenport, Comptroller’s Office

  • Motor Fuels Taxes collection is illustrated in handout
  • Members asked for various clarifications on the amounts and processes  
  • By moving the tax to the terminal it resulted in some net gain in revenue for the State but it also allowed for distributor to retain some of the funds
    • Phillips asked if the amount gained was the same as the amount that was projected to gain – information will be collected on that request
  • In 2013, the total amount of motor fuel taxes collected was $3.2 billion, $791 million went into the school fund and $2.3 billion went into Fund 6

Rob Coleman, Comptroller’s Office

  • Reviewed how the motor fuels tax is divided
  • Phillips pointed out that electric cars weigh the same as other vehicles on the road
  • Unclaimed refunds go to GR – $22.8 million (motorboat portion)
    • People can apply for refunds
    • A change in statute could mean it would not go to GR said Pickett
    • Just a few million could fund a small project said Pickett but unclaimed funds going to TPWD and GR – it could be going to Fund 6
  • In 2013 the 1% collected for administration costs was approximately $33 million and then the comptroller subtracted its operational costs and returns the rest of the funds to GR so it can then be distributed to the available school fund or Fund 6 – approximately $14 million was returned last year
    • Methodology can be figured a different way agreed Coleman to Pickett’s assertions
    • Phillips asked if 1% was shown on LBB chart – it is noted Coleman
    • If 1% were redirected there would be a budget certification issue

Jeremiah Kuntz, Texas Department of Motor Vehicles

  • Reviewed handouts which illustrated vehicle registration fees which are based purely on weight
  • There are optional fees charges by counties such as road and bridge fee
  • Fees now in smaller number of categories
    • Phillips points out this system is now much easier and they have gone through significant re-tooling to make the recent changes
  • Workman inquires on HB 2305 (83rd) to have sticker on the windshield
  • A registration transaction can take place in numerous ways such as at HEB or at counties
  • All credit card processing online goes through one system and there is a $3 charge for using the system online
    • Vendor (Texas Online) keeps $2 of that online charge
  • Pickett said plan is to have one service fee – uniform transaction fee
    • Agency has contracted with TTI to determine how much is the actual cost to conduct the registration transaction 
  • Pickett said there will be a change of culture because registration notice will not be completed until individual goes to get car inspected first
    • This will happen in the way similar to the way insurance can be verified
  • Counties can charge various fees
    • Pickett points out $10 initiated in January in El Paso and rolled out plan of what they were going to do and has had very little pushback on it
  • Flow chart on methodology is reviewed
    • After numerous conditions are met then funding can go into highway fund
    • Calculations are done monthly
    • Many large counties hit minimum in February so state highway fund gets infusion of revenue starting in February – for the most part
    • About 64 counties never hit their minimums
    • $1.2 billion went to the state in FY 2013 and about $425 million went to the counties
    • There is a 5% motor vehicle sales tax commission which is a temporary provision
      • Provided in legislation which actually did a method of finance swap (HB 3588)
      • Started in 2006 and will sunset in 2015  
    • $10 road and bridge fee is a dedicated account
  • Question on when rule will be promulgated on a uniform transaction fee
    • TTI is conducting a study which should be completed soon
    • If there any net increase from this fee – the legislation should know prior or at the very beginning of session
  • Base fee is $50.75 but have to pay $2 so consumer cannot pay less than $52.75
  • Agency is looking at flattening out fees
  • Automation of online transaction costs – $2 flat fee
    • Goes to Texas.Gov
    • State also pays a hosting fee
    • Cost associated with setting up counties – currently all 254 counties are set up
    • County can do own credit card processing with in person transaction
    • FOR ALL internet transactions, it all flows through Texas.Gov and a flat fee of $2 is assessed for those transactions whether is for a $50.75 avg registration or an $840 registration
    • Members inquired about the real costs associated with conducting the transactions

James Bass, John Barton, Commissioner Vandergriff, and General Weber of TxDOT

  • As an example of TxDOT as a unique agency – Bass describes the process on a contract award
  • Cash flow is done to show there is sufficient revenue to make payments over time on a project that will last many years
  • A single project could show up in many different budgets
  • A breakdown on expenses of TxDOT
    • $4.87 b for projects that were began prior to the biennium
    • $8.57b to maintain and replace the existing system
      • Could also be funded partially by bond proceeds
    • $2.4 b to pay back borrowed funds (prop 14, prop 12, Texas Mobility Fund)
    • At this point 75% of funds have been appropriated and no new projects started
    • At this point in the calculations, TxDOT in FY 2014-2015 has allocated $15.85 b with no new additional projects
  • Bass noted that often focus is on “contract award” – not paying it out over years – which can cause a slight disconnect
    • Interest groups often focus on “letting” rather than payout over time
  • John Barton points out the $4.87b is carried over so it could be a new project or reconstructing a prior system. Most are going to rebuild or maintain, not necessarily a build out of a new system
    • Could not answer (at that moment) how many of these projects will mature this biennium
    • It is expected this number will decrease over time
    • 3 years is the avg. life of projects carrying over from one year to another
  • TxDOT estimates need of $4 b in 2016 because bonding options are going away – at capacity
  • Federal program will also end in a few months so this adds to the uncertainty
  • Simmons asked for a breakdown that shows true maintenance vs replacement
    • Contracts have multiple elements so may be hard to find break
  • Phillips inquired what routine maintenance saves in the long run
    • Maintenance does increase road life
    • Energy sector with heavy traffic – road life in that area will get consumed quickly    
    • Texas second only to Saudi Arabia in oil and gas production
  • Staff notes they are trying to balance between maintaining and constructing new projects but would appreciate direction from the legislature
    • What is expected/demanded of transportation network was explored in 2030 report
  • $4 billion annual shortfall if addressing congestion and condition level staying at 2010 levels
  • Add $1b to address maintenance needs of energy sector
  • Simmons says the legislature needs to be convinced of those numbers
  • Pickett said TxDOT could prioritize right now
    • TxDOT staff said they get mixed messages and would prefer to hear from the legislature what is direction TxDOT should take with reduced funding
    • Currently agency feels it is being told to maintain current system but also bring on new projects
  • 40% of $1 TxDOT gets is from federal funding
    • The federal funding is reimbursements not a block grant
    • Federal Highways may not have enough cash on hand to fully reimburse the state
    • MAP21 ends this September so do not yet know what agency will receive
  • Phillips asked about how much comes back to Texas and is it the full share of fuel tax
    • Bass noted $1 goes to DC and for highways Texas gets an average of .75 back
    • 15 cents goes to transit account so added to amounts Texas gets back in total – it is 86-87 cents per dollar
      • Difficult to track on the transit side because it goes directly to most local entities, transit authorities
    • GAO put out report that Texas gets $1.01 back but the math was incomplete according to footnote said Bass – a transfer of $55 billion was not assigned to individual states 
    • Texas is by far the largest contributor – donor state
  • Pickett said in 2003 the legislature decided that transportation was not a priority so general revenue was not primarily used for TxDOT
  • Concessions fees are another source of revenue and funds can only be spent in the area that generated the revenue
  • Pickett said any toll authority should be paying into a perpetual maintenance fund but it did not happen that way
    • People not from the region may also be paying into the fees
    • Pickett would like to know total amount of tolls comprehensively coming into Texas
  • Pickett points out Texas has three bonding programs and two coming to end of life – he asked if the agency quit borrowing what would TxDOT need
    • If did not issue debt would have $61 million in cash in 2015 but it is anticipated the borrowing capacity on that amount would be $600 million
  • Capacity to issue debt is $18b but repayments including interest would total $31.5b
  • Phillips is concerned there is buyers remorse and how does it sunset
    • Pickett pointed out two programs are already going away
    • Statute is capped in two programs (Prop 12 & 14), Mobility Fund cap really goes back to certified revenue estimate which is why it is referred to as a perpetual fund
  • Members discussed which method provided better financing – cash method vs paying down bonds
  • Simmons said if have excess GR then maybe this would be first place to look to pay down
  • Pickett talks about discussions of refunding sales tax with excess GR but it may not really generate that much per person instead, he argues, that surplus should go towards paying down debt
  • Last gas tax change was 1991 and purchasing power of fuel tax has steadily declined
  • Purchase power of the dollar and inflation rates were discussed
  • TxDOT anticipates issuing – $4.2b in debt on projects already awarded:
    • $600 million by end of calendar year in Texas Mobility Fund
    • $700 million in Prop 14 by early calendar 2015
    • $2.9 b out of Prop 12 with first series coming out early Fall 2014
  • Pickett asked if TxDOT really thinks they are going to sell all the bonds
    • Staff said they will come close to issuing half of the amount in Prop 12 this year
    • Model payout curves have been forecasting quicker payout than in reality
    • Projects are in pipeline and have been awarded but payout going slower
  • Financial model for paying down debt is asked for and what happens if no other debt is issued and paid down
    • Pickett points out the $4.2b has already been promised so bad idea to stop that but maybe a model for paying down and stopping the Texas Mobility Fund (TMF)
    • Phillips asked if revenue going into TMF can pay down other bond debt
      • TxDOT said no – constitution prohibits
      • Can pay for pay-as-you go projects and to pay down TMF   
  • Major projects take about 10 years to complete
  • Pickett asked TxDOT about finding $100m in efficiencies
    • Today staff feels they are north of $100 million in efficiencies
    • Phillips asked how much is property
    • TxDOT is selling some properties that they would not have looked at about 3 years ago
    • Phillips is concerned about selling of equipment/assets and wants to make sure safety of citizens is being maintained
    • General Webber spoke up noting  TxDOT will not be looking at quick fixes and will be going back and looking at districts and will be also discussing options such as putting equipment in a pool
  • Under Rider 18 TxDOT has $434 million – members inquired
    • Nov. 2012 agency requested funds and did not get a response
    • Oct. 2013 agency requested funds and was told not at that time
    • TxDOT would like to know how legislature wants them to move forward and expend those funds
    • Pickett suggested maybe request should include more detail
  • Discussion on miscommunications between TxDOT and legislature ensued
    • Pickett would like more communications such as in his bonding example
    • Pickett wants to build confidence
  • Staff has been painted as more confrontational rather than communicative said Weber – they are working on having a more pro-active approach
  • Pickett talks about UTP and wants more detail on what specific projects they are purchasing with appropriations
  • Phillips asked when was last time the congestion index was visited
    • Congestion opinion may vary from person to person
    • TTI analysis compares driver wait times so a fairly consistent analysis
  • Pickett then asked about non-compete clauses and wants to know what tolls reduced congestion
    • Almost at point where better not to charge fair on bus – is this the same for tolls?
    • Barton says congestion has improved due to tolls
  • Pickett said with pass through financing – no debt on toll – so would it be better to not have a toll at all?
    • Pickett said he has a toll in El Paso because they were forced to
    • Agency staff cautioned that if they don’t charge a toll, there would still have to be a mechanism to generate fees to maintain the road
    • TxDOT could do analysis about removing toll charges and cost to Texas if they did so
    • Pickett gives example of Avery Ranch and how residents must wait at traffic lights because they are avoiding paying toll
  • Pickett inquires about CDA’s /toll roads
    • Moody’s rating agency has recently downgraded a toll project – not all tolls make money and state will not be financially liable if it doesn’t
  • Phillips noted he carried CDA bill in last couple session and wants to know how many CDA’s are on list that need to be continued?
    • Moving forward with all of the ones they have the authority to execute on and a small handful were given to regional mobility authorities
    • Barton reviewed list
    • CDA’s include concessions and design build as well
    • Phillips asked about rumor of savings 20% if did design build for everything
      • Barton said design build model is a valuable tool but not for everything
    • Webber said design build are primarily great when no money is available but need to be careful when sit down at the table to negotiate
  • Rep. Huberty said it is his understanding that there is a provision in the law that limits design build projects
    • Barton agreed
    • Huberty gives example of a project that went belly up but wants to know what can be done to help make it better for TxDOT to outsource or be better at what they do
    • Barton said flexibility is important and access to tools when appropriate
    • Agrees some of the restrictions have been limiting
    • Barton agrees maybe the number of projects was prudent but not necessarily cap on amount of contract
    • Would suggest contract manager at risk may be something the legislature would like to review for a tool for TxDOT
  • Pickett asked TxDOT to give committee recommendations on design build criteria different than what they have today
  • Barton said TxDOT is also working on decision making matrix for selecting right tool for right project 
  • Rep. Larson asked TxDOT about energy sector road projects and how projects were picked
    • Larson mentions traffic in San Antonio energy area and continued safety issues
    • Need to do something with transportation if Texas wants to continue to have a viable energy sector
  • Barton spoke on the energy road program
    • Formula for disbursement is in bill
    • Weight tolerance permits in county vs weight tolerance in state was a variable – so more counties became eligible than initially thought
  • Pickett asked if TxDOT has put together a plan for energy roads as an exceptional item in the LAR
    • Detailed discussion with TxDOT Commission has not occurred yet 
    • Pickett advises TxDOT to have a plan on the energy roads and cautions TxDOT it will be another area of criticism if they do not address
  • In closing comments, Bass told committee that significant transfer is done to TERP around $90 million per year that is outside of the appropriations process that the committee may want to review