Thursday, April 03, 2008

"Wow, what an embarrassment."

Community Profile: Bob Daigh, TxDOT Austin District Engineer

Community Impact Newspaper
Copyright 2008

Q. What is one thing you would like people to know about TxDOT?

A. Most people don’t realize that the Austin district of TxDOT oversees the federal and state transportation system for 11 counties. The Austin district does that through the tireless efforts of about 639 dedicated, hardworking folks who are working every day to improve the safety and mobility for the citizens of Central Texas. Those are the people who are out there during the ice storms, trying to make it so the ambulance can get to the hospital. Those are the people, when everyone else is at home watching TV, who are out there in the middle of the flood, trying to block off the state road so that no one gets out there and drowns. Many times, they put their lives at risk for the benefit of Central Texas. I think that’s something that most people don’t understand.

Q. What are your responsibilities as the Austin Distict Engineer at TxDOT?

A. My primary duties are to implement the policies of the [Texas] Transportation Commission and the TxDOT administration. I manage the workforce of the Austin district [of TxDOT] and carry out those policies. I also work with the communities’ elected officials to try to ensure they understand the policies. I try to develop a work program, which promotes congestion relief, improves safety and continues to maintain our roads the best we’re able to, given the meager funding that we have.

Q. What projects are you most proud of?

A. There are different projects for different reasons. The Central Texas Turnpike project, which is the largest highway-only construction project that is bond financed in the country, and one of the largest in the world – to have been involved with that is obviously a source of pride.

[In 2003 to 2004,] the Cabela’s work that we did on [IH] 35 and our partnership with the City of Buda and Hays County to help bring Cabela’s to Hays County has a little bit of special meaning to me because that was the first business development type of activity or project that I was involved with. It was not only business, it was safety. It was the first project during my tenure that the department stepped forward to engage the local elected officials and assisted them in securing some economic development that they were badly wanting. What made that project special to me was that the mayor of Buda had negotiated certain tax breaks for Cabela’s but he had not abated the school tax, so I knew that if Cabela’s would come to the area, that there would be a significant revenue stream created for the schools in the area, and portions of Hays County were principally rooftops at that time, similar to the situation that Pflugerville has historically been in. There are small details like that most people aren’t aware of.

Q. What is the Central Texas Turnpike System?

A. The offering statement, which was used to secure financing, included the northern extension of Loop 1 from FM 734 (Parmer Lane) up to SH 45, it was SH 45 from essentially [US] 183 over to [Toll] 130, and it was SH 130 from IH 35 north of Georgetown down to [US] 183. Those three elements were all financed together in one package through bonds sold on Wall Street. That was the largest highway-owned project.

At the time, it was the biggest bond sale the state had ever done at about $2.2 billion. It was also the first toll project that really the state had undertaken in modern times.

Q. How was the Central Texas Turnpike project financed?

A. When we financed the Central Texas turnpike project, the goal was to absolutely maximize the amount of pavement that we could get on the ground. We stretched the financing to the limit. To do that, what the department did was what’s generally called backstopping, which means we would subsidize the Operations and Maintenance (O&M) expenses for the project until the traffic was high enough to collect enough revenues to where O&M support would no longer be required.

In this financing, the period of O&M support was anticipated to be well in the 20-plus year range, so that if you get traffic that is higher than projected, that means you’re getting more money than you projected. But what that extra money is first doing is lowering the amount of support you’re receiving from TxDOT. That’s not how most roads are financed. That’s not how 183A [Toll] was financed, and that’s not how we’re going to finance any of the other toll roads going forward. This was a very unusual financing because the state felt it was in their interest to maximize the pavement on the ground to make the connections that we’re making.

Q. How is the Central Texas Turnpike System different?

A. This was a 100 percent TxDOT deal, that’s what’s different. When we did this deal, there were three requirements that we had in the bond indenture. One was that we do some interchange improvements to [US] 183 and [Toll] 45.The next requirement was that unless we can’t do it environmentally, we need to construct 183A [Toll]. The third requirement was unless we can’t do it environmentally, we construct [Toll] 45 southeast.

So the 183A [Toll} project was basically set aside for the Central Texas Regional Mobility Authority as their first project. That was a starter kit for the CTRMA. It was environmentally cleared by TxDOT, the counties got together and formed the CTRMA, and so [the 183A Toll project] was given to them and TxDOT delivered the seed money.

Q. How is toll road construction traditionally financed?

A. Very few projects, if any in the entire world, can be financed totally in a traditional manner selling bonds. That means that you are able to, just from the traffic using the road, go to Wall Street and convince them that you would have enough traffic volume that would be willing to pay a high enough price to allow you to go Wall Street and borrow enough money to build the project. Generally, there is always going to need to be some cash involved. So the amount of cash participation may need to be 75 percent or 50 percent or 20 percent. It will vary for each project. Likewise the percent of bond financing will vary. Obviously if you have a project and if you finance that project you’ve got to pay just like the rent on your house or your house bill, you’ve got to pay the banker. You’ve borrowed money and so you’ve got to pay the banker or they get kind of mad at you.

Borrowing money from Wall Street is no different. You have a payment to make for the debt. But what you also have is you have to pay for the operations and you have to pay for the maintenance. Under normal financing what you do is the first dollar you get goes towards operations and maintenance and until you pay for operations and maintenance, a dollar doesn’t work its way to be available to pay for the debt service. And that’s how the bond holders generally like it because even if they don’t get paid, they want that road running and well-maintained or their asset will depreciate and that hurts their ability to ever get money.

Q. How does TxDOT prioritize which projects to do next?

A. That is really the decision of Capital Area Metropolitan Planning Organization. CAMPO is a federally mandated and created entity. Their principle role is to develop a coordinated multi-modal transportation plan for the region. That’s their charge. And they must develop and approve the list of projects that will go to construction. That list has to include all projects that receive a federal dollar, any federal monies, or are deemed to be regionally significant.

Q. How did TxDOT miscalculate $1.1 billion?

A. We blew it. You have to understand it isn’t one thing. It is the perfect storm of events. TxDOT has experienced, principally because of the rise in oil prices, tremendous inflation. That’s no secret. Everything we do takes large equipment. We’re using huge amounts of diesel. We have a very energy intensive construction process. There has been 100 percent inflation in the last few years. Without question, that’s part of it.

We also have an aging system. The interstate system is 50 years old. The FM and RM system is maybe 40 years old. Roads are like the roof of your house. Over time, you get a little leak, so you put on another layer of shingles. Then time goes by and you go and put up another layer of shingles. But you get to a point, after you get that second or third layer of shingles on, you have to go and scrape off all the shingles, and replace some plywood, and you put on a new roof from scratch. Roads are like that. We can continue to do surface treatments, and band-aid them and hold them together, but there gets to be a point in time when you have to just rehabilitate the road. You gotta scrape it all up and put it all down. We are facing an enormous maintenance liability. The design life of a pavement is generally in the 20 or 30 year range. These roads, many of them, are all approaching that life span, especially with the accelerated roads and traffic that we’re seeing.

You have all of this and you have some miscalculations, or over-projections of federal dollars that are going to come in. We have increasing costs and increasing need, and now we’ve over-projected how much federal revenue is going to come in. We didn’t curtail our spending fast enough. That’s just how it is. It’s ugly, it’s embarrassing, but that’s just how it is.

Given all of this backdrop, which is enough, I mean that is crashing the bus into the wall as it is, but we accelerate the crashing of the bus with an unfortunate, honest mistake, where evidently, monies were allocated to pay for both some projects that have been let [already started], and also simultaneously allocated for some future builds. Wow, what an embarrassment. And it took a long time to find it.

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