Texas Highway Contractors Tightening Their Belts

The highway construction industry hasn’t experienced this much pain since the late 1980s. We have entered an era of negative growth.

After two healthy years of contract awards, the Texas Department of Transportation (TxDOT) was forced to throw on the brakes and reverse that trend from February through August this year. Due to an accounting error in their FY 2008 budget, $1.1 billion had to be removed from the highway letting schedule over a period of only seven months.

Read more details about the TxDOT highway letting crisis in the April 2008 Texas Contractor issue or online at https://www.constructionequipment.com/article/CA6550371.html. These percentages were calculated from back issues of the Texas Contractor Industry Calendar and the AGC of Texas Bulletins.

The number of construction contracts from March through July ranged from 20 percent to 35 percent below their corresponding months in 2007.

TxDOT was able to add $60 million back into the pot during the last couple of months of the fiscal year, which ended in August, but it did not make a great deal of difference. August finished on a stronger note, with 86 construction projects let for a total of $596 million. But that was still approximately 18 percent less than August 2007.

Business promised to be better if only contractors and suppliers could hold out until September. But the summer of 2008 brought more bad news. Adding insult to injury, the price of oil products began to skyrocket during this time, giving TxDOT even less bang for their buck. As the prices of asphalt and diesel rose, so did project estimated costs, and paving jobs have almost dried up.

In August, Gov. Perry, together with Lt. Gov. David Dewhurst and Speaker of the House Tom Craddick sent a letter to the Texas Transportation Commission with his recommendations for highway funding to be considered by the next legislative session, which will begin in January 2009. His ideas include:

• Ending the practice of funding the Department of Public Safety (DPS) with gas taxes that are needed for road construction, and return to funding the DPS with general revenue;
• Creating a Transportation Finance Corporation or similar entity that will allow public Texas-based investment funds to invest directly in Texas transportation projects that offer a potential solid long-term return; and
• Passing authorizing legislation and appropriation for the Proposition 12 bonds approved in Nov. 2007.
• Sell 1.4 billion on Proposition 14 bonds.

TxDOT has already announced that their new 2009 fiscal year, which began Sept. 1, will be less than $3 billion – numbers that we have not seen since 2001 to 2003. Their $2.7-billion budget began with a highway letting that awarded only 49 construction projects for a total of $238,728,420 as compared to September 2007, when there were 76 projects awarded for a total of $412,489,766.

Although FY 2009 had not promised a return to the heyday of 2005-2006, there had been hopes of a return to stability.

But the report from the Sunset Review Board dashed the status quo. Its uncomplimentary report has placed TxDOT on a short leash.

Considering ways to improve its operations, TxDOT is planning to replace some administrative functions in their 25 district offices with four Regional Support Centers (RSCs). “The consolidation of support functions could create a more efficient working environment and generate a cost savings estimated at $35 million,” said Amadeo Saenz, TxDOT executive director.

Saenz stressed that the restructuring would not result in a reduction of services at the district level. “TxDOT would not cut services to the public. Our goal is to provide services in a way that is smarter and less expensive.”

To make the transition easier, TxDOT will use modern “virtual office” technology to allow some employees to continue to work from current office locations even though their job functions are aligned with a regional office in another city.

Saenz added that Phase I of the reorganization could start as early as this September and take about a year to complete. Though the restructuring is estimated to result in a reduction in about 600 job positions, Saenz noted that normal attrition and retirements are expected to minimize the need to reduce the number of TxDOT employees.

Phase II, which would involve the restructuring of the divisions and offices in Austin, could begin next year and be completed in 2010. These departments will be restructured in a way that is responsive to the Sunset Review and the actions of the upcoming 81st Legislature.