Texas Highway Funding

From the Texas Contractor Austin Bureau | September 28, 2010

Amadeo Saenz, P.E., a transportation engineer with 29 years' state experience, took over as the executive director of the Texas Department of Transportation (TxDOT) at the end of September — and began working to find ways to allow the agency to meet the state's highway needs despite increasing demand,rising costs and decreasing resources. Saenz, 51, was named to Texas' top transportation position by the Texas Transportation Commission in late September to replace Michael Behrens, who retired at the end of August.

Since 2001, Saenz had served as TxDOT's assistant executive director for engineering operations — so he says the agency's problems were not a surprise to him, or to the department. Saenz estimates Texas has $70 billion to $100 billion in unfunded transportation needs for the next 25 years. But TxDOT's ability to come anywhere close to meeting those needs looks doubtful, due to problems caused by stagnating revenue sources, escalating costs, and cuts in expected federal aid as resources are devoted to other programs, including military spending.

In the biennial appropriations bill passed by the Texas Legislature in 2007, TxDOT was allocated more than $8.721 billion for fiscal 2008, but the funding has not developed as anticipated, and the agency is having to cut back on what it intended to spend for maintenance and new construction projects.

The spending plan outlined by the Legislature called for approximately $3.5 billion in new construction and $2.3 billion in maintenance for the year, with $1.2 billion coming from the Texas Mobility Fund, $2.7 billion from the State Highway Fund and $3.3 billion from federal reimbursements. Unfortunately, the revenue has not materialized as expected and TxDOT is in the midst of adjusting its budget to squeeze out the most amount of money for projects — but with maintenance work taking priority.

Saenz says the current funding problems are hardly a complete surprise. TxDOT anticipated problems back in 2001, when the Legislature gave the agency new tools to fund transportation projects, including the ability to issue debt based on the state motor fuel tax, he reports.

"But we knew at some point that the money would be spent ... and that the funding would be less because of inflation and debt service," Saenz stated.

Saenz explains the current fiscal problems facing TxDOT are due in large part to increased highway construction costs. Between 2002 and 2007 the highway cost construction index increased not by the 3 percent to 4 percent annually which had been the case, but by 62 percent to 63 percent, Saenz says. Consequently, TxDOT's buying power was diminished at the same that demand for new highway construction and maintenance was increasing.

"We were not able to get to all of the programs that we had rolled because of the high inflation costs," Saenz explains.

In recent years, TxDOT has been concentrating on maintaining the state's highway infrastructure. Saenz says the department's goal in 2002 was to have 90 percent of Texas highways in the same or better condition by 2012. However, he explains, "what has happened is that we're having to put more money into maintenance," and less into new construction. The problem is that pavement begins to deteriorate "from day one," but that deterioration is "not a straight line," he says. The longer maintenance is delayed, the faster a roadway deteriorates and the more costly it is to fix the problems.

Another major factor in the financial crunch being experienced by TxDOT is that for the past 18 months, the amount of federal dollars for planning has decreased, with the federal government taking back $666 million in planning funds, with that money being diverted to other programs. The current congressional appropriations bill has an additional rescission of $250 million to $260 million. That means TxDOT will not be able to carry out projects which the agency had anticipated would be funded, he says.

"The other thing is that under the current federal transportation bill, the funding level is set to deplete any level in the Federal Highway Trust Fund," Saenz continued. "The plan was that it would go into the red by $500 million to $600 million ... The most recent projection is that it's $4 billion in the red. That means they're short $4 billion to reimburse the states ... Texas won't be able to get its 80-percent reimbursement."

TxDOT is looking at projections as to what work it will be able to perform in 2008, but the picture isn't very good, he admits. Because of the need to maintain the state's roads, and because other sources of revenue are declining, "the only place left to go for money is to get it from the construction budget," Saenz says.

So in 2008, TxDOT will reduce the number of construction projects. By 2012, if the situation doesn't change, there will be "zero dollars" for construction, Saenz reports. Saenz says TxDOT is working the "piece together a budget to see what we will have." The department is looking at what it can do to meet the most pressing needs, he explains. "We've looked at the state as a whole, to see where they're at the 90-percent or better goal," Saenz reports.

As a result, TxDOT has shifted $225 million around to areas with more critical needs. The department plans to go to the Texas Transportation Commission with projected budgets from the next several years, up to 2012.

Saenz reports there is some good news among the doom and gloom. "We're very happy that voters approved Proposition 12," he says. That constitutional amendment, which was approved Nov. 6, provides for $5 billion in bonds for transportation projects, but the Legislature will have to decide how much of the authority to use.

"It's not going to solve the state's transportation problems," Saenz comments, "but it will carry us down the road for a bit." Saenz estimates Texas has $70 billion to $100 billion in unfunded transportation needs for the next 25 years.

TxDOT is looking at public-private collaborative ventures to help meet those needs, but Saenz notes that in the 2007 legislative session "we got some pushback" regarding such initiatives. The result was a moratorium on toll roads and establishment of a study commission to look at such public-private projects. "We're looking forward to working with the commission," Saenz reports. That will happen during 2008, with recommendations expected to go to the Legislature in January 2009.

TxDOT also is going through the "sunset" review process, to determine what changes may need to be made to improve its operations. "It's a good opportunity to have outsiders look at the department, and see what can be done better, and what we're doing well," Saenz says.

Meanwhile, TxDOT will be working to determine how to adjust its operational budgets to providing savings that may be used for maintenance and construction. Saenz says TxDOT is looking at various options to become more "lean and mean," including whether it would be cheaper to perform some services in-house or to contract them out.

"If we don't have money for new construction projects, what do we need in design staff or consultants," he asks, adding that the department will be looking to resolve those questions and others as it moves along in 2008. "Do we need to buy new equipment this year or are we able to wait until next year? Can we delay some work that is not related to the highway system? Do we need to buy right-of-way now or can that wait?" And Saenz won't rule out the possibility of staff cuts — but reports that for the moment, TxDOT is simply capping the number of employees that it has.

TxDOT is working with transportation agencies in other states to prepare for the next federal transportation bill, and has been keeping the Texas congressional delegation informed about the state's concerns and needs. Saenz also thinks the department needs to get the message out to the public about what's happening with TxDOT and with the state's transportation system.

"I don't think we've communicated our story to the public really well," Saenz says. But he hopes that the word will be communicated, including the message that there is "no one magic pill" that is going to solve the problems.