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Editor's Report

You may be saying "I'm just the contractor. I don't care where the money comes from, just as long as I get paid." Recently, a lot of contractors have started worrying about where the money comes from when TxDOT (Texas Department of Transportation) suddenly began pulling projects from their February, March and April highway lettings.

April 21, 2008

You may be saying "I'm just the contractor. I don't care where the money comes from, just as long as I get paid." Recently, a lot of contractors have started worrying about where the money comes from when TxDOT (Texas Department of Transportation) suddenly began pulling projects from their February, March and April highway lettings.

TxDOT's Budgetary Shortfall

Over the past few months, economic fear has been mounting in relation to TxDOT's fiscal year 2008 highway letting budget. Texas legislators strongly criticized new TxDOT Executive Director Amadeo Saenz during an unusual joint meeting of the Senate Finance and Senate Transportation and Homeland Security committees on February 5. State Senator Steve Ogden (R-College Station) contended that TxDOT did not even make use of the $3 billion in bonds that the Legislature gave them the authority to sell in 2007, so he questioned the reported shortfall.

2000 $3 billion
2001 $2.3 billion
2002 $2.9 billion
2003 $2.1 billion
2004 $3.7 billion
2005 $4.4 billion
2006 $5.2 billion
2007 $3.5 billion
2008 $3.1 billion
2009 $2.7 billion
2010 ($2.4 – $2.7 billion)

During that February joint legislative meeting, Saenz and TxDOT Chief Financial Officer James Bass admitted to a $1.1-billion error in bookkeeping. They explained that $1.1 billion was inadvertently counted twice as money borrowed through selling bonds.

Consequently, TxDOT's FY 2008 letting calendar, which started in September 2007 and already had $4.2 billion scheduled, will have to be reduced by $1.1 billion between February and August 2008.

"We were fortunate that this error was caught before contracts were let," said Chris Lippincott, TxDOT spokesman. "To prevent this sort of bookkeeping error from occurring again, both letting management and programming and scheduling have been transferred from their respective divisions, Design and TPP, to CFO James Bass," Lippincott added.

What's Ahead For The Rest Of FY 2008 And Beyond

"Because the January 2008 letting schedule had already been advertised when the error was discovered, the first letting affected was February 2008," Saenz explained. "Between February and August we're reducing $1.1 billion."

According to TxDOT, $34,042,000 in projects has been postponed so far from February through April (as of our publishing deadline). That is $965,958,000 short of the $1.1-billion goal, meaning that lettings over the next four months (May through August) could be very small indeed.

These delayed projects might be the first that TxDOT contracts at the beginning of FY 2009, according to Steve Simmons, TxDOT deputy executive director.

The Bubble Burst

Remember how you felt when your Christmas present didn't last very long — like the bubble burst?

"We created a bubble," Saenz stated.

With the passage of the Texas Mobility Act in 2005, "2005 to 2007 were designed to be boom years," explained Chris Lippincott. "Then the system overheated before our cash flow rectified itself. Confronting inflation, servicing this debt, and our reimbursement to the U.S. government being larger than expected all contributed to the slow-down."

"In 2003 and 2004, we received two bond programs," said Saenz. "We increased our letting in 2004, 2005 and 2006 by $3 billion, less right-of-way and engineering, but now once those projects are let to contract, we have less money in the future to do projects because we have to use some of that money to pay for debt service. That $3 billion that we issued already will cost us $250 million a year for the next 20 years in debt service."

Fast Fix

Before the end of February, Lieutenant Governor David Dewhurst, Speaker of the House Tom Craddick, Senate Finance Chairman Steve Ogden, and House Appropriations Chairman Warren Chisum jointly sent a letter to the Texas Transportation Commission Chairwoman Hope Andrade. The letter stated that they had begun taking steps to appropriate $300 million of General Revenue funds to offset the cost of the debt service.

According to AGC of Texas president Tracy Helmcamp-Schieffer, "Upon receipt of the letter, TxDOT deferred to Governor Perry, who issued a statement indicating no interest in additional bonding, explaining that bonding will not address the roots of the funding crisis but only defers it for another couple of years." Schieffer has implored AGC members to contact their legislators and impress upon them how sorely this quick financial infusion is needed for the industry.

"The reduced lettings will have statewide impact," according to Jennifer Newton of the AGC of Texas. "Contractors of all sizes, and specialty contractors, will be affected."

See related articles:

"Highway Bonds 101" on page 14 of this issue.

Archived article "Texas Highway Funding" is in the January 7, 2008 issue of Texas Contractor.

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