Friday, May 04, 2007

"State auditors were unable to document nearly half of the $86 billion TxDOT has said is needed to fund the state’s roads"

TxDOT may have overestimated state funding gap


by Christine DeLoma

Volume 11, Issue 36
The Lone Star Report
Copyright 2007

With the Texas Department of Transportation (TxDOT) long under the legislative microscope, recent news from the State Auditor’s Office couldn’t have come at a better (or worse) time for the agency.

The auditor’s April 30 report questions the accuracy of TxDOT’s $86 billion estimate of the state’s future transportation needs.

Transportation Commission chairman Ric Williamson had repeatedly cited the figure as one of the many reasons the state would not be able to afford to build its roadways without private sector assistance.

Yet state auditors were unable to document nearly half of the $86 billion TxDOT has said is needed to fund the state’s roads as outlined in the agency’s July 2006 strategic plan.

“The accuracy of the estimated costs for metropolitan and urban regions cannot be determined because of lack of supporting documentation at both the metropolitan planning organizations and the Department,” the report states.

In addition, the report indicates that TxDOT may have overestimated the funding gap by at least 10 percent by including costs that it shouldn’t have included and by errors in its mathematical calculations. Excluding these costs would put the funding gap at $77.4 billion.

This isn’t the first time TxDOT’s funding gap estimate has come under scrutiny. An October 2006 report issued by the Governor’s Business Council (GBC) also raised questions over the accuracy of TxDOT’s numbers. GBC’s study estimated the state’s funding gap is closer to $60 billion after excluding local costs. (The auditor’s report did not address this.)

Nonetheless, TxDOT officials used the audit report to underscore the need for more transportation funding. “Today’s report is further documentation of a multi-billion dollar funding gap between the transportation system our state deserves and one we can afford with current resources,” said TxDOT executive director Michael Behrens. “No matter what number you choose, Texas has a big problem: more people, in more cars, driving more miles on an already congested highway system.”

How did TxDOT identify future funding needs?

In an effort to quantify transportation needs, TxDOT asked the eight largest metropolitan planning organizations (MPOs) to identify the amount of money that would be needed to fund projects in their respective 25-year Metropolitan Transportation Plans.

Williamson, who testified at the Feb. 13 House Transportation Committee meeting to explain the basis for the numbers, told lawmakers that TxDOT had told the MPOs to calculate project costs without considering financial constraints or funding methods.

A few lawmakers, including Rep. Nathan Macias (R-Bulverde), equated the methodology to tallying up a “wish list” rather than identifying a real need. “[W]hen you’re given the idea of planning without any resource constraints, that tends to allow for whether intended or not, the inflated requests,” Macias said.

Williamson said the MPOs were asked to include projects that would reduce serious traffic congestion, increase public safety, and increase economic development. Each MPO used its own methodology in estimating costs.

Totaling the estimates for each region, TxDOT projected $188 billion in transportation needs. With only $102 billion in traditional funding available, the remaining unfunded needs came to $86 billion.

Inaccuracies in funding gap estimate

The State Auditor’s report identified several inaccuracies and weaknesses with TxDOT’s $86 billion estimate. For one thing, TxDOT accepted each MPO’s cost estimate without further examination or review.

When auditors reviewed MPO mobility plans, they found one plan included approximately $8.6 billion that should not have been part of the estimate. According to the report, a mathematical error caused the Austin MPO to overstate the funding gap by $3.7 billion on account of including costs for roadway reconstruction and rail freight relocation.

Examining other cost estimates, auditors found five of the eight MPOs (Houston, Austin, El Paso, Lubbock and Corpus Christi) lacked the documentation to support the $27.9 billion in identified costs outlined in their Texas Metropolitan Mobility plans. Without a paper trail, auditors were unable to verify the accuracy of the estimate.

To estimate the cost to urban regions, TxDOT used “broad and generalized assumptions,” the report states. The agency assumed that the unfunded needs for urban areas were at least equal to the $9 billion in urban projects currently funded within the MPOs’ plans.

“The Department acknowledged that this was a simplified method to estimate the urban regions’ funding gap and did not have any verifiable information to support its assumption,” said the report. To address these concerns, TxDOT will work with urban regions to come up with a Texas Urban Mobility Plan.

TxDOT has stated that improvements to cost-estimating methodologies are already underway. “TxDOT will develop common definitions for costs to be included in the funding gap calculation as well as a set of general assumptions that regions should agree to in estimating future public revenues,” according to TxDOT’s management response included in the report.

Auditor questions size of tax gap estimate

The auditor’s office found errors in TxDOT’s calculation of the so-called “tax gap,” that is, the difference between the cost of building and maintaining a roadway and revenues available to cover the cost.

TxDOT has used its estimated tax gap analysis to illustrate how tax revenue does not pay for the entire cost of a particular roadway.

Here’s an example. According to TxDOT’s calculations, it will cost $1 billion to build and maintain the proposed 15 miles of State Highway 99 in Harris County over 40 years. The agency also estimated that during the same period tax revenue would produce only $162 million, or about 16 percent of costs.

Williamson and his staff have publicly illustrated this example on numerous occasions.

The auditors, however, found significant errors in TxDOT’s calculations. The agency failed to take into account revenue from vehicle registration fees. For SH 99, that would add $66.4 million in revenue.

According to auditors, TxDOT also included reconstruction costs at the 30-year mark, despite generally accepted assumptions that the life expectancy of a roadway is more than 40 years. After subtracting the 30-year construction cost from a project such as SH 99, the roadway would cost only $287.8 million to build and maintain. After these corrections, auditors maintain tax revenue will pay for at least 80 percent of the highway’s cost.

The audit report recommended that if TxDOT wants to include reconstruction costs it should extend its “analysis period beyond the 40-year life cycle of a road segment to ensure that expenses are associated with revenues.”

TxDOT has indicated it has corrected its calculations to include vehicle registration fees. “We agree with the recommendations… and we have already begun to revise the tax gap methodology to reflect the recommendations noted in the audit report,” TxDOT responded. “We have also begun evaluating options for the appropriate consideration of reconstructions costs, depending on the analysis being considered.”

Moratorium legislation heads to governor’s desk

Legislation imposing a two-year moratorium on private toll road contracts now heads to the governor’s desk. It is unclear, however, if Gov. Rick Perry will sign the legislation.

The House voted May 2 to concur with Senate amendments to HB 1892 by Rep. Wayne Smith (R-Baytown).

The measure includes an amendment by Sen. John Carona (R-Dallas) that places restrictions on the terms of comprehensive development agreements. It includes language from Carona’s SB 1929 that prohibits non-compete clauses that penalize the state for building ancillary roads near a private toll road, requires contract review by the Attorney General’s office, and specifies buy-back provisions if the state wants to buyback a road from a private developer.

In a statement released April 30 after the Senate’s passage of the legislation, Perry criticized the measure that would allow local toll road authorities to enter into comprehensive development agreements.

The governor also warned that federal highway dollars may be in jeopardy as a result of the moratorium.

“I will review this bill carefully because we cannot have public policy in this state that shuts down road construction, kills jobs, harms air quality, prevents access to federal highway dollars, and creates an environment within local government that is ripe for political corruption,” Perry said.

Another moratorium bill, SB 1297 by Sen. Robert Nichols (R-Jacksonville) was approved by the House Transportation Committee May 1. The bill now heads to the House floor.

© 2007 The Lone Star Report:

To search TTC News Archives click HERE

To view the Trans-Texas Corridor Blog click HERE