May 23, 2000

Members Present

Comptroller Carole Keeton Rylander, Deputy Comptroller Billy Hamilton, Co-Chairman Dr. Wendy Gramm, Co-Chairman Hector De Leon, Commissioners John Fainter, Massey Villarreal, Noe Fernandez, Dr. Tom Saving and Elizabeth Lang-Miers.

Background

The e-Texas commission is made up of 14 task force members and three co-chairs. The three co-chairs are Hector De Leon, Dr. Wendy Gramm and Tom Leoffler. Commissioners include: Senator Robert Duncan, Kevin Eltife, John Fainter, Noe Fernandez, Bill Hammond, Tom Hicks, Laura Ayoub Keith, Elizabeth Lang-Miers, Sonceria Messiah-Jiles, Charles Miller, Ro Parra, Thomas Saving, Gerald Smith, and Massey Villarreal.

Executive Summary

Co-chairman Dr. Wendy Gramm opened the hearing by thanking everyone for attending and their hard work to make e-Texas a success. She introduced her co-chairman Hector De Leon.

Audience in attendance at Commission meeting held at the University of North Texas System Center at Dallas.

Co-Chairman Hector De Leon then introduced Texas State Comptroller Carole Keeton Rylander.

Comptroller Rylander spoke briefly on the vision of e-Texas, a citizen commission charged with developing recommendations to help Texas state government meet the challenges of the Internet Age.

Discussion

Three primary issues were discussed at the commission meeting:

• Transportation and alternative funding methods,
• Asset and Financial Management for Texas, and
• Environment and Natural Resources

Commissioner Massey Villarreal opened the discussion of Transportation with brief remarks regarding testimony heard at the four e-Texas/Texas Department of Transportation review hearings held across the state. While each region has their own set of unique concerns, funding for transportation projects is the primary concern for all regions.

Pamela Bailey Campbell, Principal for Hagler Bailly’s Infrastructure Finance and Strategy, presented the transportation task force vision for transportation in Texas. She said for the past 20 years, the demand for new highways has outpaced governments’ ability to meet the demand by 20 to 1.

New solutions are required, she said. Solutions are likely to grow from a combination of the following:

• 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, and
• Use market forces to shift traffic in time or location.

TxDOT operates the largest state-owned road system in America. It employs more than 14,000 people and its revenues for the 2000-2001 biennium are estimated at just under $10 billion. TxDOT revenues are generated through a combination of state motor fuel taxes, federal aid, motor vehicle registration fees and other sources. According to the Texas Transportation Commission, TxDOT is contracting roughly $3 billion per year, and highway construction costs are increasing at a rate of 5 percent annually.

In the new century, Campbell said, planners, electrical engineers, systems analysts and business managers, among others, will play just as important a role in transportation as do civil engineers.

Campbell then outlined some trends in transportation. They include:

• Intelligent Transportation Systems–providing advanced traveler information systems which provide real-time traffic information to drivers;
• Attaining environmental regulation standards–air quality and non-attainment areas currently exist that do not meet the Federal environmental air standards;
• Outsourcing–Virginia’s DOT hires private companies to maintain entire sections of its highways and South Carolina’s DOT divides the state into two regions and different firms for each area handle transportation projects;
• Innovative Contracting Techniques–using design-build contracts, performance-based contracts, and pavement warranties;
• Alternative Financing–using Grant Anticipation Revenue Vehicles (GARVEE bonds), bonds backed by future Federal grants, and the Transportation Infrastructure Finance and Innovation Act (TIFIA), which provides credit assistance to certain state transportation projects deemed of national importance; and
• New Governance Models–separating the purchaser from the provider.

Campbell then outlined eight areas TxDOT should immediately focus its energy to achieve short-term improvements.

1. Maximize the effectiveness of TxDOT resources
2. Match organizational structures with customer needs
3. Improve accountability for performance, both for TxDOT and its contractors
4. Improve TxDOT’s competitive business practices
5. Apply proven business practices to internal TxDOT operations
6. Improve project processes
7. Accelerate project delivery
8. Increase the role of technology in TxDOT operations

Texas Transportation Commission member David Laney followed Campbell stressing the department’s support of alternative funding methods. "We at TxDOT in each of the five years have aggressively pursued supplemental, innovative financing projects," says Laney. "They represent valuable tools in addition to the pay-as-you-go approach."

Laney said due to the current funding methods transportation projects are implemented in stages. With the help of GARVEE funds, he said project time could be cut in half. He also indicated that GARVEEs and other alternative financing models would allow TxDOT to free up more dollars in some years for other projects.

In the last legislative session, use of GARVEE bonds was not passed. Laney said, this next session, TxDOT would support the passage of GARVEE bonds with certain limitations. Those limitations are:

• Minimum project size of $100 million,
• 100,000 vehicles must benefit from the project,
• No geographical limitations,
• Project work is done on a continual basis until complete,
• Maximum term of bond is 15 years, and
• Debt service never to exceed 10 percent of the Federal portion of the project budget.

Tom Johnson, executive director of the Association of General Contractors, indicated that the association prefers other alternative financing vehicles that bring with them a new revenue source to GARVEE bonds which do not create new money. According to Johnson, future federal government transportation spending, which GARVEEs rely on for backing bonds, is not a stable source for backing bonds. Instead, Johnson encourages toll equity that would bring new money into the revenue. "If you consider bonds," Johnson told the commission. "Consider a new revenue source, such as tolls, that would retire the bonds."

E-Texas co-team leader Laure McLaughlin and team member Mike Hay presented the vision for the Asset and Financial Management Task.

McLaughlin said the public is growing accustomed to 24-hour-a-day, seven-days-a-week access to information and services from businesses. They soon will expect the same from government. She said governments are realizing the value of e-procurement, online auctions, just-in-time delivery, life-cycle planning, activity-based costing and management, performance measurement, budget transparency, and public-private partnerships.

McLaughlin outlined the goals of the Asset and Financial Management Task Force. Those goals include:

• Accountability–requiring decision-makers to be responsible for the consequences of their actions;
• Uniformity–guaranteeing that no special favors are granted so that what applies to one agency must apply to all to achieve maximum efficiency and fairness;
• Transparency–providing all citizens with sufficient information about all government financial transactions so they can judge how well public resources are being used;
• Velocity–recognizing the constant compression of time and distance brought on by modern technology and communications, and demanding constant change to meet each challenge;
• Efficiency–striving constantly for the highest benefit in all transactions; and
• Customer satisfaction–the most important element for a truly accountable government, showing respect for its citizens and their judgement, a respect that over time may be returned.

Mike Hay discussed the stages of the life-cycle approach in asset management: plan, procure, distribute, manage, dispose and assess. He explained that in fiscal year 1999, Texas had assets of $230.7 billion, 83 percent of those were cash, investments and cash related investments, and 10 percent were fixed assets.

Glen Insley, investment manager for First Capital, discussed investment strategies for a global economy. He said 51 percent of the U.S. economy is a traditional buy/sell market of goods and services, and 49 percent is the transformation of raw materials into products or the traditional manufacturing sector of the economy. The Internet and e-commerce are "fast-forwarding" the growth trends of the good and services sector at the expense of the manufacturing sector.

Comptroller Rylander; Glen Insley, Investment Manager, First Capital; and Commission co-chair Wendy Gramm.

Insley argued that governments need to think in more global terms when investing funds. "States and cities need to be global investors in order to take full advantage of market opportunities," Insley told the commission. "Limits on foreign securities need to be revisited."

Susan Anderson, senior portfolio manager for Public Financial Management, Inc., discussed the conservative approach to asset and financial management and how it pertains to the public sector.

Financial management of the public sector is different than that of individual and private investors, she said. Goals for the public sector should be more conservative. They include:

• Safely maximizing assets,
• Creating a financial future,
• Providing comfortable retirement, and
• Ensuring the stability of healthcare.

Anderson outlined two categories of asset management in the public sector: operating and infrastructure, and pension and endowment.

Operating and infrastructure is more short-term, is community direct and volatility is unacceptable, Anderson said. Pension and endowment is more long-term, community indirect and allows for moderate volatility.

Susan Anderson, Senior Portfolio Manager, Public Financial Management

The two have different objectives. Operating and infrastructure requires preserving assets, having no loses, getting the bills paid, carrying no outstanding debt into the next cycle, earning a reasonable rate of return and avoiding volatility. She said government should never pass a tax increase to cover existing debt.

The pension and endowment objectives include preserving assets, providing respectable long-term income, keeping ahead of inflation, managing volatility and avoiding actuarial under-funding limits in pension funds.

In her conclusion, Anderson said the public sector, when managing finances and assets, must:

• Understand the objectives,
• Evaluate the resources and capabilities,
• Establish reasonable performance goals,
• Balance risk/reward tolerance levels, and
• Realize the consequences of risk.

Noe Fernandez, e-Texas commissioner for the Environment and Natural Resources Task Force, discussed the future of the environment in Texas.

"Private market-based environmental innovations help create a climate in which people face the consequences of their actions and have incentives to be responsible stewards of their land and resource," Fernandez said.

Between 1988 and 1997, Texas improved in all but one of the six major air pollution categories monitored by the Environmental Protection Agency (EPA).

The water quality in Texas ranks above the national average. Fernandez said 69 percent of the state’s river and stream mileage is considered suitable for drinking, fishing and swimming. The national average is 55 percent.

Trends in environmental protection outlined by Fernandez includes:

• New technologies– providing massive amounts of information regarding the environment via the Internet; agencies are beginning to use online environmental reporting and permitting;
• Decentralized decision making–making more decisions at the state and local levels rather than at the Federal level;
• Performance measurement–the Texas Natural Resource Conservation Commission (TNRCC) is developing a sound set of environmental measures that clearly indicate the condition and quality of the state’s air, water and land resources;
• Compliance and enforcement–moving away from an enforcement-centered vision of environmental policy and toward one that concentrates on solving environmental problems;
• Environmental permitting–implementing one-stop permitting instead of multiple permitting, implementing industry wide standards and streamlining the permitting process;
• Voluntary approaches–providing incentives for voluntary compliance and site cleanup through initiatives such as the Voluntary Cleanup Program and the Clean Industries 2000; and
• Market based approaches–for example, assessing environmental fees based on the amount of pollution the permit holder releases to the environment.

Fernandez then outlined the obstacles to environmental innovation. Those include:

1. Inadequate use of technology
2. Transition costs
3. Inadequate measurement tools
4. Resistance to change
5. Public perception
6. State and Federal relationships
7. Overly prescriptive regulation
8. Government duplication and inefficiency

He then offered the task force strategies and recommendations for environmental protection and natural resource management in the new economy. They include:

• Using technology to cut costs and improve environmental quality;
• Maximizing state and local decision-making in environmental protection and natural resource management;
• Providing more financial incentives and market-based tools to encourage economic growth while protecting the environment;
• Establishing a results-based environmental protection system that sets goals and standards and allows flexibility in achieving them;
• Using innovative compliance approaches to improve performance and provide increased flexibility; and
• Ensure that state environmental programs are as efficient and effective as possible.

Patrick Meyers, project manager for water2water.com discussed developing a web enabled marketplace for water. He said, water2water brings together the needs of government, the local water district, and municipal, industrial, agriculture and environmental interests to participate in a transparent Internet water market.

He said the market makes water price information available, allows more informed price-based decision making regarding water, provides increased flexibility to market water, allows water to go to users who value it the highest, and allows the market to determine the economic impact of environmental policies and regulations.

Kirsten Koepsel, manufacturing specialist for Texas Manufacturing Assistance Center, discussed reducing business costs through the International Standards Organization 14000 (ISO 14000). ISO 14000 is the most prominent environmental management systems standard now in use.

The ISO promotes international trade through standardization. An ISO standard is a documented agreement of technical specifications that companies use as production guidelines. ISO 14000 is a series of international, voluntary environmental management standards.

She discussed the importance of environmental management systems (EMS), a set of operating policies, procedures and methods that incorporate regulatory requirements throughout an organization’s business and manufacturing processes. These systems can help companies move from mere compliance to improving their overall environmental performance with pollution prevention approaches. This allows these regulated companies to meet their obligations more efficiently, thus maintaining a competitive position in various markets.