Moving Goods and People
in a New Texas
The structure of US business in the Internet Age is evolving rapidly. Much of the modern economy—increasingly reliant on “just-in-time” and zero-inventory methods—is driven by a need for speedy deliveries of products and raw materials, making reliable transportation systems important to continuing economic growth.
Most business growth today occurs outside of traditional downtown districts, and businesses relocate more frequently than in the past. Perhaps more importantly, people shift jobs more frequently as well. Transportation patterns are in a constant state of flux due to the new mobility of the American worker.
Finally, the new economy is global in nature, largely unbounded by lines on maps. This requires transportation planners to think in terms of interconnected, “multimodal” networks, rather than individual arteries. As the world “shrinks” from a communications and transportation standpoint, and more players influence transportation decision-making, transportation solutions involve complex institutional and social issues as well as physical improvements.
In the past, most traditional transportation solutions were relatively straightforward. When demand increased, we simply built more roads, more rail lines, and more airports. Today, however, a host of issues make it much more difficult to build or expand such systems. Land and construction costs have escalated steadily, as have concerns about the impact of transportation projects on communities and the environment. At the same time, an increasing share of local, state, and federal transportation resources must be used to maintain and rehabilitate our aging infrastructure.
As a result, the demand for new highways has outpaced governments’ ability to meet that demand by 20 to 1 for the past 20 years.[1] New solutions are required, strategies that are likely to involve some combination of the following actions:
• Focus available resources on investments promising the greatest overall economic and social returns.
• Use new technologies, including the Internet and wireless systems, to improve the flow of traffic and communicate information on travel options to the public.
• Provide an improved, more “seamless” balance of transportation options for the movement of people and freight.
• Ensure that transportation investments are better integrated with the favored locations of businesses and residences. Use market forces to shift traffic in time or location.
Texas’ Transportation System
The Texas Department of Transportation (TxDOT), with over 14,000 employees, operates America’s largest state-owned road system, and also provides assistance to Texas airports and public transit systems. TxDOT’s core functions are planning, designing, building, maintaining, and operating the state’s transportation network.
At present, the department is organized into 27 divisions and offices, with decision-making authority largely decentralized among 25 districts across the state that are home to 119 area engineering offices and 288 maintenance offices. Design, construction, and maintenance work are jointly approved by the agency central office and the appropriate district office and performed at the district level or by individual engineering or maintenance offices.
TxDOT’s available revenues for the 2000-2001 biennium are estimated at just under $8.5 billion, from a combination of state motor fuel tax funds, federal aid, motor vehicle registration fees, and other revenue sources. The Texas Transportation Commission, which holds ultimate administrative authority over TxDOT, reports that the agency is letting contracts at a rate of about $3 billion per year and that its highway construction costs are rising at an average of five percent annually.[2] Virtually all of TxDOT’s construction contractors are selected on a “lowest responsive bidder” basis, while design contractors are selected through a process that prioritizes quality over price. The Legislature also has required TxDOT to outsource half of its maintenance work.
On September 1, 1997, the Texas Turnpike Authority became a division of TxDOT, and the agency is examining toll-road approaches as a way to alleviate traffic in major urban areas more quickly and economically than would be possible through conventional financing. Discussion at several e-Texas hearings turned to toll roads. “People understand roads are not free,” said Robert Eckels, Harris County Judge, at the February 17, 2000 e-Texas transportation hearing. “And the people of Houston are receptive to toll roads.” El Paso Mayor Carlos Ramirez said toll roads are a good alternative that includes a public and private partnership. “If we look at toll facilities, especially in the high volume areas, it will help us tremendously,” Mayor Ramirez said during the March 9, 2000 hearing in El Paso. “Private and public sectors working together for toll facilities works, and I think the State of Texas is ready to take that step.”
For the last 80 years, TxDOT has overcome many obstacles to build one of the world’s best transportation systems. The Information Age will bring new challenges. To meet them, TxDOT will need exceptional vision, new skills, and the ability to react quickly to the changing needs of the emerging economy. In the next century, planners, electrical engineers, systems analysts, and business managers—among others—will play just as important a role in transportation as do civil engineers.
Challenges to Texas’ Transportation System
Increasing Demand
Texas’ transportation systems must meet new demands spurred by a growing population, increasing numbers of cars and trucks, and heightened environmental concerns. TxDOT has a huge geographic area (79,000 miles of state highways) and must satisfy the needs of both isolated rural communities and major urban centers. In addition, the need for constant repair and improvement to existing roads has become more urgent since passage of the North American Free Trade Agreement (NAFTA), which substantially increased the number of heavy trucks passing through Texas. NAFTA-related traffic now accounts for about 16 percent of all Texas truck travel.[3] At present, TxDOT estimates that just 30 to 35 percent of the state’s roads provide a ride quality in the desirable range. Most importantly, local governments and citizens are demanding a more active role in transportation decision-making. TxDOT must react to these pressures by adapting its planning and funding allocations to meet new challenges. Between 1990 and 1998, Texas’ population increased by 15 percent, from 16.9 million to 19.6 million, with 90 percent of the increase occurring in metropolitan areas.[4] Between 1990 and 1999, the average number of vehicle miles driven in an average day on Texas’ state-maintained roads rose by 39 percent, from 284.8 million to 394.8 million miles.[5]
NAFTA’s Impact
In 1996 (most recent figures available), the majority of NAFTA truck freight between the US and Mexico was carried on Texas highways, and 75 percent of all NAFTA traffic traveled on rural interstate and other highways.[6] The volume of traffic on those roads has increased considerably since then. Nine “ports of entry” along the Texas-Mexico border reported more than 2.3 million truck crossings from Mexico into Texas in 1999, a 250 percent increase over the total in 1994 when NAFTA became effective.[7] The total value of US merchandise trade with Mexico traveling by truck rose by 93 percent between 1994 and 1999, from $74 billion to $143.4 billion.[8]
International trade is vital to the state’s economy. Exports account for 14 percent of our gross state product, up from six percent in 1985. And Mexico is the state’s most important trading partner. In 1999, $41 billion or almost half of Texas’ exports go to our southern neighbor.
According to TxDOT, 13 Texas highway corridors carry almost 90 percent of NAFTA truck traffic. Interstates 35 and 10 (through El Paso, San Antonio, and Houston) together carry about half of all NAFTA truck traffic, with traffic on I-20 (El Paso through Dallas-Fort Worth), US 77 (from Brownsville to US 59) and US 59 (from Laredo through Houston) accounting for the remainder. The department further reports that NAFTA traffic comprises more than two-thirds of all truck traffic on I-35 from Laredo to San Antonio, US 281 from the McAllen-Edinburg-Mission metropolitan area to US 59, and US 77 from the Brownsville-Harlingen-San Benito area to US 59.[9]
The impact of NAFTA traffic, while focused on a relatively small number of highways, already has imposed significant social and infrastructure costs on Texas. Based on an assessment of the impact of NAFTA on Texas highways in 1996, TxDOT estimated the traffic cost to Texans—through traffic congestion, increased air and noise pollution, accidents, and pavement damage—to be about $600 million. Based on that estimate, the cost to Texans living in the border highway districts of El Paso, Laredo, and Pharr during that year would have been about $178 million, or 30 percent of the statewide total (see Figure 10-1).[10]
Congested Urban Areas
Texas has one of the nation’s fastest-growing urban populations, and growing congestion on our cities’ roads was cited frequently as a concern during e-Texas’ hearings. “In Houston, $1.9 billion is lost per year due to transportation congestion; 780,000 hours per day are lost in work hours,” according to John Butler, Jr., a former TxDOT commissioner who participated in the February 17 hearing in Houston. “Vehicle traffic will have increased by 82 percent in the 20 years from 1990 to 2010.”
According to the American Highway Users Alliance, three of the nation’s top 15 traffic bottlenecks are in Houston. Including these, 19 of America’s 150 worst traffic bottlenecks are located in Houston, San Antonio, Austin, and the Dallas-Fort Worth area.[11]
Traffic congestion in major Texas cities increased throughout the last decade. A Texas Transportation Institute study found that the annual delay per driver in Austin rose from 11 hours in 1982 to 53 hours in 1997. In Fort Worth, this delay rose from eight to 38 hours; in Dallas, from 15 to 58 hours. Houston, Texas’ perennial traffic capital, saw an annual increase in driver delays from 37 to 58 hours (see Figure 10-2).[12]
Unfortunately, problems created by traffic congestion are not limited to inconvenience or even to additional risks to personal safety. High-technology companies and NAFTA-sparked trade have produced major economic benefits for Texas, but the state’s infrastructure must remain adequate for the economy’s needs if this prosperity is to continue. Already, Texas has lost at least one source of employment opportunities due to traffic: when Dell Computer Corporation decided to locate a new facility in Tennessee instead of Texas, one of the major reasons cited was traffic congestion on Texas roads.[13]
Highway Funds Allocation
The planning and funding of highway projects are inherently controversial, due to their impact on regional and local economies. Community leaders always want to know if they’re getting their ‘fair share’ of highway spending. The federal government and nearly all state and local transportation agencies throughout the country continually struggle to allocate funds in a manner that is fair and equitable, and still addresses strategic priorities. TxDOT takes these issues seriously and has worked hard to develop and maintain equitable planning, programming, and allocation mechanisms.
Even so, many state officials, local governments, business interests, and private citizens are not happy with TxDOT’s allocation processes, and mistrust its outcomes. In a survey conducted by NuStats Research and Consulting for the Texas Comptroller’s office, nearly two-thirds (62 percent) of all respondents believed that their region does not receive a fair share in TxDOT-related funding (see Figure 10-3). To some degree, this can be attributed to enormous growth in highway investment needs due to NAFTA and the state’s unprecedented economic expansion. Simply put, no region of the state is likely to feel it receives a fair share of funding when, by TxDOT’s own estimates, the agency can address only 36 percent of its spending needs.[14]
Over the last 20 years, TxDOT has continually expanded the number of its program funding categories and sub-allocations. The result is a convoluted funding framework comprising 33 funding categories—several with sub-allocations—and a maze of formulae and project ranking mechanisms. The process is extremely complex. The number of funding categories could be drastically reduced. Moreover, TxDOT’s complex planning and funding processes have failed to produce any statewide consensus on how funds should be spent—instead, turning the selection of projects into competition between different areas of the state.
Innovations in Transportation Policy
Intelligent Transportation Systems
The transportation needs of the New Economy are only beginning to influence governmental planning efforts. Prolonged economic prosperity has led to congested roads and gridlock in urban centers. Our ability to move ideas and information is rapidly outpacing our ability to transport people and products efficiently. However, some promising new technologies may alleviate this problem, leading to changes as dramatic as the move from horse-drawn carriages to the automobile. While we are still far away from the world portrayed in “The Jetsons”, the traditional driving experience will undergo radical changes as computer technologies blend with our existing transportation network.
Much of this new technological capacity falls under the banner of intelligent transportation systems (ITS). ITS is a broad category of innovations including Advanced Traveler Information systems, which provide real-time traffic information to drivers; Advanced Traffic Management Systems (ATMS), which can monitor traffic flows and synchronize the operation of traffic signal systems; and Automatic Vehicle Identification (AVI) systems, which can be used to collect road user fees and identify commercial carriers.
The most widely used ITS technology is AVI toll collection. Drivers who establish accounts with a toll-road authority and place a transponder on the windshield of their vehicles no longer have to carry change to pay tolls; instead, their road use is recorded automatically and billed to their accounts. Improved traffic flow and convenience are most dramatic at toll plazas configured to allow nonstop passage at highway speeds. AVI already provides daily benefits to millions of persons using systems such as New York’s EZPass. AVI transponders or “tags” also are useful for paid parking arrangements, particularly at airports.
A number of technical hurdles accompany ITS solutions, and the Federal Communications Commission has taken steps to dedicate enough bandwidth to assure reliable access to the dedicated short-range communication spectrum used for these applications. One important reason to secure sufficient capacity is the potential of ITS technology to enhance public safety; ITS systems could warn motorists approaching railroad crossings that a train is coming, help drivers avoid collisions at intersections, and even signal oncoming vehicles about the presence of ice on bridges.
ITS technology promises to become ubiquitous in our society once the price and size of its components fall sufficiently. One potentially useful application would call for TxDOT to integrate an ITS “tag” into vehicle registration stickers or license plates. These tags could be used in multiple ways, including assisting cities in enforcing air quality standards. Studies indicate that 80 percent of the pollution caused by automobile traffic comes from only 20 percent of the vehicles on our roads. An ITS tag embedded in a car’s registration sticker could carry air-quality compliance information entered during mandatory checkups and readable by appropriately equipped police officers.
Many state transportation departments already have implemented some form of ATMS. Some expect future systems to include locator systems for buses that would integrate bus schedules into the overall traffic control system, so a bus could obtain priority routing if it is running late.[15]
The increasing sophistication of ITS products signals the eventual arrival of fully automated control and collision avoidance systems. Adaptive Cruise Control, a technology already available in Europe and Japan and just entering the US market, tracks the vehicle immediately ahead and adjusts speed as necessary. Current systems work only at cruising speeds, but second-generation systems now being tested will operate in stop-and-go traffic as well. In Europe, Daimler-Chrysler is developing “Drive & Work,” a system that ultimately will take over lane guidance and speed control from the driver entirely, while a dash-mounted computer screen allows the driver to access e-mail and the Internet. A modified steering wheel with a trackball and function keys will allow the driver to perform computing tasks while keeping his/her hands on the wheel.[16]
Key Features of Intelligent Transportation Systems[17]
•Tags embedded in registration stickers that carry relevant vehicle information
•Electronic toll collection (AVI technology)
•Real-time information to drivers
•Technology that monitors traffic flows and synchronizes traffic signal systems
•Fully automated control and collision avoidance systems in vehicles
•Adaptive cruise control (eventually leading to complete lane guidance and speed control)
Wedding the auto to the personal computer is seen by many as the next frontier for wireless communications. The term “Telematics” has been coined to describe the emerging market of automotive communication technologies that combine wireless voice and data transmission with location-specific security and traffic information services. These services are delivered by a central service center or via Internet access, as opposed to autonomous, navigation-only systems that use on-board CD-ROM maps. Various telematics systems already are available to drivers in Europe, North America, and Japan. Navigation systems are in greatest demand in Europe and Japan, while North American consumers seem more interested in emergency response systems. Frost & Sullivan, an international marketing consulting and training company, predicts that the telematics market will achieve annual revenues of $7.2 billion by 2005.[18]
As an interesting alternative to rail lines, automated transit systems now being tested could guide buses electronically. One such project in England is expected to begin service by the end of 2000.[19] Electronic guidance of buses on dedicated lanes could open the way for a new mode of public transport, moving buses rapidly along a narrow path and in close proximity to one another, approaching the people-carrying capacities of light rail systems. The major advantages of such systems are cost—less than half of light rail—and routes that could easily be changed to suit shifting travel patterns. They also could serve as test cases to determine if an investment in light rail is worthwhile.
Next Generation Contracting Approaches
Numerous creative contracting techniques being introduced by state departments of transportation (DOTs) and toll authorities promise to reduce costs to taxpayers while increasing accountability. Four of these techniques deserve special mention: “A+B” bidding, design-build contracts, performance-based contracting, and pavement warranties.
A+B bidding can be valuable in speeding project delivery. A+B is bidding based on cost plus time; the contracting procedure focuses on the lowest initial cost, but also factors in the cost of the time required for project completion. The “A” component is the traditional unit-price construction bid; the “B” component is a bid enumerating the total number of calendar days needed to complete the project, as estimated by the bidder—a significant factor in busy traffic areas, where construction delays create substantial congestion. For the contract award, the bid price is viewed as a combination of the actual construction cost and time cost factor.[20]
Next Generation Contracting Techniques
•A+B Bidding
•Design-Build
•Performance-Based Contracts
•Pavement Warranty
According to American Association of State Highway and Transportation Officials (AASHTO), 27 states and the District of Columbia have used A+B bidding under special Federal Highway Administration (FHWA) provisions encouraging states to use innovative contracting practices. Of these, Maryland, Missouri, and North Carolina have been the most active users.[21]
Under a design-build contract, the state contracts with a single entity to provide road design and construction services. When used selectively, such contracts offer numerous advantages over traditional approaches, including substantial time savings, simplified project management, superior cost controls, and a reduced need for contract modifications (“change orders”). In addition, the approach is well-received by financial institutions, an important consideration for projects funded by revenue bonds.
Utah used design-build to construct its I-15 in time for the 2002 Winter Olympics. Other major design-build highway projects in the US include the new generation of toll roads: E-470 in Colorado, Transportation Corridor Agencies projects in Orange County, California; Pocahontas Parkway in Virginia; and the private tollroads of SR 91 in Orange County and Dulles Greenway in Virginia. Prior to passage of the federal Transportation Efficiency Act for the 21st century (TEA-21), design-build contracts needed special FHWA permission; the new federal law will allow states to use design-build contracting without special permission for federally funded projects worth more than $50 million.
Performance-based contracts stress end results over the traditional contractual terms with detailed specifications and strict inspections of work in progress. In a performance-based contract, a government lists the desired performance criteria it wants achieved and gives the contractor the freedom to determine how to meet the criteria. For the contract monitoring process to succeed, the performance criteria must be objective and measurable. To promote this new model, some European countries select the contractors who will build their projects early in the design process, so that they can recommend the equipment, materials, and workmanship to be incorporated in the design specifications.[22]
The Veterans Memorial International Bridge at Los Tomates in Brownsville, Texas, which opened April 30, 1999, was a cooperative project involving Mexican and US federal agencies and state, city, and county officials. An $18 million project to construct a connecting roadway, directed by TxDOT’s Pharr District engineer, was accomplished through a performance-based contract that offered a bonus of up to $250,000 if the project was completed ahead of schedule. The project was completed 87 days ahead of schedule, resulting in a bonus of $218,000 to the contractor.[23]
A pavement warranty is a contractual guarantee that a road will function appropriately for a certain period of time. If it does not, the provider will replace or repair the road surface at no cost to the government. The current warranty used for almost all government-funded projects in the US is the performance bond, which simply guarantees the contractor’s materials and workmanship during the project and for up to one year after completion. Longer-term warranties, however, are common in Europe.
On March 22, 2000, the Ohio Department of Transportation announced that 75 of the department’s new projects will contain warranties requiring contractors to guarantee their work and materials. A new Ohio law requires some materials and techniques to be guaranteed by contractors. At least 20 percent of the department’s total projects and 10 percent of its construction budget must be warranted for two years. New construction will be warranted for at least seven years, and resurfacing and rehabilitation for at least five years. Materials protected by the warranties include asphalt and concrete pavements, bridge decks, and striping. Of the department’s total $1.1 billion construction budget, $200 million is being spent on projects that include warranties.[24]
One of the most interesting long-term pavement warranties concerns a 125-mile road-widening project (from two to four lanes) on New Mexico’s Corridor 44. The contractor, Koch Materials, guaranteed to pay for the upkeep and repair of the road for 20 years.[25] New Mexico expects the road’s pavement serviceability rate (PSR), or road quality, to be 4.5 on a scale of 0 to 5. Furthermore, the contract requires a PSR of 3.0 for 20 years after completion of the final segment. The New Mexico State Highway and Transportation Department estimates that this warranty contract will save the state $89 million in highway maintenance costs over 20 years.[26]
State DOTs Shifting to the Networked Organizational Model
State DOTs traditionally have been large, self-contained entities that place little reliance on private contractors other than for road construction. As outsourcing has become more common, however, the private sector has stepped forward to play a larger role.
Fifteen years ago, TxDOT performed all of its maintenance projects in-house. Outside entities since have assumed responsibility for about half of the work, and in most cases, TxDOT concedes it is being performed effectively and efficiently. The department also has pilot projects under way outsourcing maintenance of sections of interstate highway in the Dallas and Waco areas with the added innovation that contractor payments are based on the achievement of various performance measures.[27] According to Amadeo Saenz, District Engineer for TxDOT’s Pharr highway district, his district saved $500,000 over a three-year period by changing from in-house, water-based striping of roadways to thermoplastic striping provided by a contractor.[28]
Today, almost every state DOT has contracted for some responsibilities beyond construction, including areas such as rest-area maintenance, road maintenance, and engineering design. Some states have taken privatization much further. Virginia’s DOT has outsourced responsibility for maintaining entire sections of its interstate highway network.[29] South Carolina’s DOT has divided the state into two areas and hired a firm for each to handle all functions involved in road projects, including rehabilitation work. The outsourcing arrangement is expected to complete projects in only seven years versus 27 years under traditional approaches.[30]
Similarly, US toll road and turnpike authorities have enjoyed considerable success in building and maintaining roadways by outsourcing most of the activities involved and focusing instead on managing the project and its private vendors. Specific contractual performance standards, such as quality of product, project delivery time, financing, and warranties are negotiated, and the level of payment is based on actual vendor performance.
Alternative Financing
To hold the line on further deterioration of the Texas highway system and meet 50 percent of its optimum needs, TxDOT estimates it needs an additional $1.5 billion in projects annually, over and above its current $3 billion-a-year level.[31] Perennial shortages of funding have caused even California, the birthplace of the freeway, to create toll-road agencies and allow private entities to build roads and collect user fees.[32] State DOTs also are examining opportunities to “sell” unused capacity on High Occupancy Vehicle lanes by converting some of them to toll lanes. Such steps can provide funding for other activities, including mass transit projects.
The US government already supports a number of innovative financing options for transportation. For instance, the federal government now permits states to issue bonds backed by future federal grants. Since 1998, seven states including Massachusetts, New Mexico, and Ohio have issued these grant anticipation revenue vehicles, or “GARVEE bonds,” for highway construction projects, and five more are considering doing so.[33]Comptroller Rylander recommended to the 76th Texas Legislature $700 million in GARVEE bonds in order to allow the use of accelerated highway construction financing. The proposal passed the Texas Senate by a vote of 22 to 7 but did not pass the House.
In addition, a new program created by the federal Transportation Infrastructure Finance and Innovation Act (TIFIA) provides credit assistance to certain state transportation projects deemed of national importance. In 1999, the federal government issued $1.6 billion in TIFIA credit assistance for five major transportation projects. This assistance can take the form of direct federal loans with flexible repayment schedules, full-faith loan guarantees, and standby lines of credit.[34]
Strategies for Moving Goods and People in a New Texas
The pace of commerce in the Information Age calls for fundamental changes in our transportation systems. TxDOT must learn to adapt to an economy powered by services and high technology; changing patterns of business and personal transportation. And it can do so by adopting innovative management techniques that can provide higher-quality results for the agency’s ultimate customers, the businesses and citizens of Texas.
Utilize Alternative Financing Techniques to Meet Texas’ Growing Transportation Needs Effectively
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Strategies in Brief
• Utilize Alternative Financing Techniques to Meet Texas’ Growing Transportation Needs Effectively
• Use Innovative Contracting Options to Speed Road Construction
• Achieve Greater Cost-Efficiency by Consolidating Project Contracts
• Streamline TxDOT Internal Business Practices
Transportation patterns are in a constant state of flux due to the new mobility of the American worker.
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One of the most pressing issues raised by Texans in e-Texas hearings is the lack of funding needed to ease traffic congestion. At an April 13, 2000 Brownsville hearing, Alan Johnson, executive vice-president for Texas State Bank, noted that, “We need alternative funding methods to meet our transportation needs. NAFTA has increased the international traffic in the Valley. Infrastructure is not just a transportation issue, it’s a safety and economic development issue as well.”
As noted above, TxDOT has estimated that its current funding streams will meet only 36 percent of Texas’ needs for road construction projects over the coming decade. TxDOT’s analysis attributed its declining ability to meet Texas’ needs to two major factors—inflation and traffic increases.
According to TxDOT, the inflation rate for highway construction has averaged 5.7 percent over the last five years, well above the level of consumer price inflation. This inflation rate will largely offset additional federal highway funds coming to Texas as a result of passage of TEA-21.[35] Texas traffic increases, moreover, have been much greater than expected in the pre-NAFTA era. According to TxDOT, vehicle miles traveled in Texas have increased at a rate of 4.1 percent annually over the last seven years—16 times faster than the state’s construction of new lane miles.[36]
ACTION: Maximize the effectiveness of TxDOT resources.
TxDOT should make the best use of all opportunities to maximize the impact of its revenues. These opportunities include new funding mechanisms such as GARVEE bonds and federal credit assistance available through TIFIA. Both programs are designed to maximize the ability of states to use federal funding to further their highway projects and complete them more quickly than would be possible under traditional approaches.
In addition, TxDOT could use Texas’ State Infrastructure Bank (SIB) Program to increase its funding by issuing revenue bonds for state and local construction projects. A SIB is a revolving fund that can provide a wide range of financial assistance, including loans, for construction projects on the state highway system. Texas was a pioneer in establishing its SIB, and in 1999, TEA-21 authorized SIBs in only four states. TxDOT administers Texas’ SIB. TxDOT has disbursed $39 million of its fund and approved $25 million in loans. $171 million currently remains available in the program at present.[37]
If the Legislature directs TxDOT to make greater use of innovative financing techniques, the department must strike a balance between traditional pay-as-you-go financing and the various new approaches. A careful balance of old and new financing approaches should give the state the greatest flexibility to maximize the impact of its revenues on statewide, regional, and local priorities.
Use Innovative Contracting Options to Speed Road Construction
“Time has a way of killing projects,” Jerry Hiebert, executive director of the North Texas Tollway Authority (NTTA), told us at e-Texas’ Arlington hearing. “The more time we spend on planning, permitting and funding, the less likely the project will be implemented.” The need to move faster was stressed in Brownsville, too. “We need to get construction of I-69 started,” said Cameron County Judge Gilberto Hinojosa. “We believe the payoff for Texas and the United States will be very large.”
We heard from numerous local officials that TxDOT needs to focus more on delivering projects quickly and less on time-consuming process. “TxDOT has become process-driven instead of schedule driven,” says George Human, Director of Transportation for the City of Richardson. “You need to find a way for the agency to become schedule driven.”[38]
ACTION: Increase use of A+B bidding.
Though TxDOT claims to be slowly increasing the use of A+B, to date it has not made extensive use of the concept. According to a May 2000 report, between 1997 and 1999, the agency used this method in only three contracts.[39] The last A+B project awarded by TxDOT was for a $50 million Interstate 10-Loop 410 project in the San Antonio area. The contractor faces $22,500 per day in penalties for each day after the 805 allotted in the contract, but also can win the same amount in bonuses for completing the project up to 45 days early. A vice-president for the contractor stated that the A+B method should shave 25 percent off the project’s time schedule.[40] TxDOT’s criteria for A+B bidding provide sufficient latitude for the increased use of this method without any policy changes. The agency should encourage further use of this tool.
ACTION: Authorize design-build contracting to complete highway projects faster.
Design-build contracting currently is not allowed under Texas law, and TxDOT is required to accept the lowest responsive bid for construction work.[41] This approach was dictated in large part by the Federal Highway Administration, although recent changes in federal policy allow for the use of more innovative methods, such as design-build contracting. As of May 2, 2000, FHWA has approved 142 design-build projects in 27 different states.[42]
The private sector offers an innovative example of the use of design-build. Texas’ first private toll road opened in October 2000—the 21.2 mile, $51 million Camino Colombia, which runs east from an area 20 miles northwest of Laredo to Interstate 35. This project, constructed through design-build contracts with several contractors, will carry truck traffic to and from Monterrey, Mexico’s biggest center for trade. The US Camino Colombia, Inc. was formed by area landowners in 1989 to develop the road and will charge cars $3 to travel on it. Truck rates will range from $12 to $20.[43]
Design-build is a useful option. It will not necessarily replace traditional contracting methods, but should be used in circumstances where it will provide benefits to the taxpayer, such as increased completion speed on complex projects. The experience of other state DOTs shows that large, complex projects benefit most from this method.
Achieve Greater Cost-Efficiency by Consolidating Project Contracts
Over the last five years, the average TxDOT construction contract cost nearly $2.2 million. From 1995 through 1999, the agency let only 14 contracts worth more than $50 million.[44] The agency must devote a considerable amount of effort and resources to mobilizing, inspecting, and managing each of many contracts.
TxDOT’s tendency to spread projects among numerous small contracts is due at least in part to the complex funding streams that finance its operations. TxDOT divides its available revenues into 34 federal/state and state-only funding categories, each with its own purpose.[45] This complex allocation and sub-allocation of funds produces relatively small pools of money that encourage the agency’s district offices to pursue piecemeal approaches.
It is also a function of TxDOT’s Cost Efficiency Index (CEI) process, which ranks projects by the number of days of user benefits that would be needed to pay for them. Benefits to the traveling public are quantified as time savings through increased travel speed. The lower the CEI, the higher the ranking and more desirable the project.[46] The CEI process often favors breaking candidate projects into small pieces to compete more effectively for funds.
ACTION: TxDOT should look for opportunities to aggregate its projects.
Larger projects should be developed in ways that reduce the number of contracts to be administered. In addition, larger projects can more easily take advantage of new financing methods such as GARVEEs or design-build approaches.
Although some may express concern that aggregating projects will harm small businesses, experience has shown that there are ways to address those concerns. First, TxDOT contracts out a significant portion of work in small contracts and will likely continue to do so. As mentioned above, the average construction project over the last five years has been $2.2 million. The percentage of contracts let under $2 million during the period 1997-1999 was 89 percent of the total.[47] The amount of rural highway mileage in Texas also means there will continue to be a great number of small contracts available.
Second, the projects which are prime candidates for combining into larger jobs are those which have been artificially broken into smaller pieces to meet funding criteria. Those projects can be completed more efficiently as one larger project, but this will not be the case with every project. Finally, experience in other states also indicates that large projects are in reality done by local subcontractors. When the E-470 Authority in Colorado entered into a $321 million design-build contract in 1995 with Morrison Knudsen and Fluor Daniel, they subcontracted all of the construction work to local contractors.[48]
Streamline TxDOT Internal Business Practices
Given TxDOT’s limited resources, the agency should strive to streamline and improve its business practices so that it can devote as much of its funding as possible toward meeting Texas’ transportation needs.
TxDOT is a large, decentralized organization with 25 district operations, 27 divisions within its headquarters, and more than 14,000 employees. In such a large organization, many business processes cross organizational boundaries, making it difficult to identify weaknesses in the system. Reengineering through advanced technology or better personnel allocations could improve the agency’s business processes and maximize its positive impact on Texas’ transportation needs.
ACTION: Use private-sector practices to reduce costs.
TxDOT can reduce its expenditures for handling and storing materials and supplies by using just-in-time purchasing practices. TxDOT purchases materials and supplies in bulk and stores them at regional and district warehouses. Just-in-time purchasing practices require suppliers to deliver materials and supplies where they are used when they are needed. Applying just-in-time practices throughout TxDOT should significantly reduce the amount of warehouse space the agency needs, as well as the resources required to receive, store, inventory, and distribute materials and supplies.
Also, TxDOT maintains and repairs vehicles and equipment during regular business hours. To keep projects on schedule, TxDOT must work around equipment repairs or keep “backup” equipment on hand for use while other equipment is being repaired. TxDOT uses both methods. By contrast, the private-sector practice of scheduling preventive maintenance before or after normal business hours would allow TxDOT to reduce its fleet by as much as 10 percent.[49]
ACTION: Use technology to streamline business processes.
TxDOT has created a Registration and Titling System (RTS) to help standardize and speed up motor vehicle titling and registration transactions performed both by TxDOT and county assessor-collectors. However, RTS does not include all titling and registration transactions. As a result, Texans must contact their counties for some transactions, TxDOT for others, and in a few cases, must interact with both. TxDOT should expand RTS to allow Texans to complete all transactions at the county level. TxDOT should go even further to allow many simple transactions, such as individual fleet vehicle registrations, to be completed via the Internet, further improving customer service.
ACTION: Flatten management layers and reallocate staffing to increase efficiency.
TxDOT has both a large decentralized workforce spread around the state and a large central staff in Austin. The agency should evaluate moving more production staff to the districts and more administrative staff functions to Austin.
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