Thursday, May 27, 2010

"By going into debt to build roads, TxDOT ended up with less money for new roads than if it had just used gasoline tax money."

The TxDOT management audit


Paul Burka
Texas Monthly
Copyright 2010

The consultant’s report, released yesterday, is now available online. Here are a couple of its salient observations:

TxDOT funding situation

At present, State Highway Fund revenues are not as stable as in previous years, nor are they continuing to increase at the same pace as in the past. In addition, from 2005 through 2007, TxDOT used a combination of State Highway Fund revenues and bond funding for operations and capital investments. During this period their expenditures for these areas outpaced revenues, resulting in TxDOT using approximately $700 million of reserves to pay for operating and project expenses during this period. This resulted in two issues.

First, when TxDOT bumped up spending through the use of bond funding, baseline expectations for TxDOT spending levels in any given year were expanded public transportation facilities and systems including the issuance of bonds for raised both inside and outside the organization, even though that approach was not sustainable and represented a marked deviation from historical spending levels.

Second, TxDOT incurred a significant debt service burden associated with the bonds it issued – and that servicing reduces the availability of General Revenue and Fund 6 dollars for TxDOT to use for operations and new projects. [In other words, the bondholders had to be paid from the funds--general revenue and Fund 6--that were being used to pay for the projects.] The end effect is that TxDOT’s available budget (for maintenance, new projects, etc.) is effectively lower than it would have been before the bond funding was issued. At the same time, maintenance requirements are increasing as a result of having increased the size of the highway system (every new road brought into the system must be maintained).

* * * *

My comments:

In other words, the Legislature acted in a fiscally irresponsible manner when it issued several billion dollars in bonds to pay for road projects. By going into debt to build roads, TxDOT ended up with less money for new roads than if it had just used gasoline tax money.

This is what happens when lawmakers spurn the pay-as-you-go principle. This is not fiscal conservatism. This is spending beyond your means. You can’t blame TxDOT. The blame belongs with the Legislature and in particular the leadership at the time, Dewhurst and Craddick. And with the voters, who approved the bonds. (I am proud to say that I voted against them.)

I have said this before and I will say it again: the responsible thing to do was to raise the gasoline “user fee.” It has its deficiencies as a revenue-raiser, most notably that that the “fee” is levied on a per-gallon basis, and greater fuel efficiency means that fewer gallons of gasoline are being consumed. Even so, it is the logical source of more dollars for transportation.

One of the points that the “Management and Organizational Review” (MOR) makes is that the culture of TxDOT is often counterproductive:

The challenge

Conversations with TxDOT’s senior leaders reveal a deep-seated belief that TxDOT is doing all the right things and that criticisms leveled against the organization will decline when TxDOT is better able to demonstrate to people how right the organization is. While this belief might be understandable – in context of the organization’s culture and people’s individual commitments to the work they are doing – it is counter to meaningful self-examination and redirection of the organization.

This does not mean that leaders in the organization are not initiating change. Rather, it means that the way change is undertaken and the nature of the changes undertaken are driven out of the long-standing viewpoints and operating models.

Meaningful adjustment in TxDOT cannot occur without leaders who understand and accept that the organization’s performance and management is not meeting expectations. TxDOT requires leaders who truly believe that the world has changed and that TxDOT also must change (emphasis added). The leadership also must conceptualize what that future organization should look like and should do, and must successfully motivate staff to go that direction. Furthermore, the leadership needs to bring management discipline to the organization in ways that may go counter to the existing culture and to their own perceptions of their roles and value in the organization.

For the link to the complete report, click HERE.

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