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HURRICANE HARVEY SPARKS LEGISLATIVE DISCUSSION ON INFRASTRUCTURE

Posted By ACEC Texas, Friday, October 20, 2017

 

With Hurricane Harvey less than two months in the past and the next legislative session 14 months away, state political leaders have started discussing policy responses to the event.  There is at least a glimmer of possibility that the storm event has changed the conversation about infrastructure funding in Texas.

One of the biggest issues will be whether and how to use the state's Rainy Day Fund (Economic Stabilization Fund), which has a balance of over $10 billion.   Early on, some pushed for a quick special session to appropriate funds for recovery, since Hurricane Harvey was the ultimate "rainy day."  Governor Abbott quickly ruled that out but suggested it will be an early order of business for the Legislature in 2019.  The biggest question will be how much to allocate for repayment of direct recovery cleanup costs versus investment in new infrastructure that will help mitigate damage from future events.

Disasters typically have a mixed impact on the state budget.  Sales tax collections drop off when business activity stops during an event, but can spike after with an increased level of spending for repairs.   In this case, however, several smaller towns were devastated and face recovery costs and loss of property tax base.  The Texas Education Agency has moved forward with a package of relief for school districts with lower attendance because of the storm, an effort that could cost $400 million over the biennium.  Comptroller Glenn Hegar has loosely estimated that direct costs to the current state budget could be $2 billion dollars.

There is a strong argument that a portion of the Rainy Day Fund should be invested in flood control projects to help mitigate future events.  Six years ago, the Legislature and voters approved Proposition 6 which used $2 billion from the ESF to create the State Water Implementation Fund for Texas (SWIFT).  However, these funds go primarily to water supply and water quality projects.  Flood control projects can fall between the cracks; they do not generate revenue as water and sewer projects do and typically overlap multiple governmental jurisdictions.  The Legislature should consider a similar allocation from the Rainy Day Fund specifically to fund investment in stormwater management infrastructure.

Fortuitously, the Texas Water Development Board had been making plans even before the storm to develop a state flood plan in order to better understand the magnitude of funding needs.  The report is expected to be completed prior to the next session.

House and Senate committees meeting during the last month have discussed a number of other ideas - building additional reservoirs, dredging existing reservoirs, and better early warning systems and communication of information.  Some, of course, want the federal government to pick up these costs (perhaps prefiguring an argument against using state funds).   House Natural Resources Committee chairman Lyle Larson has said that the storm made the case for expanded state efforts for aquifer storage and recovery projects which could have captured a portion of the momentous rainfall for future use.  Senate Agriculture, Water, and Rural Affairs Committee chairman Charles Perry has said that upgrading dams should be a priority, noting $93 million in needs.

The hurricane may also provide some impetus for the idea of a local option sales tax to fund infrastructure projects.  In California, for example, voters in counties (so-called "self help counties") can adopt a half-cent sales tax with revenues going to pre-determined transportation projects, with the taxes expiring in ten years and the voters having the ability to renew them.  This is a model Texas should consider.  With considerable pressure on local property taxes, it is not feasible to rely on them as a source for rebuilding.   A local option would allow voters in a region to fund specific projects for themselves, without relying on a statewide solution or imposing costs on other areas.  Potentially, this could allow voters to prioritize stormwater management in one area, transportation improvements in another, and water supply in another. 

The bad news is that the next legislative session in still 14 months away.  Just as the memories of droughts fade away after a rain, the memory of flood events - and the urgency to address them with policy solutions - can pass with time.  Local officials and the engineering community must work to maintain a political commitment to address this problem.

 

 

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THOUGHTS ON HURRICANE HARVEY AND THE FUTURE

Posted By ACEC Texas, Wednesday, September 20, 2017

Hurricane Harvey was a tragic and catastrophic event for the Greater Houston area and the state. The current focus of energy and resources is clearly on recovery through support to residents and businesses, repairs to damaged infrastructure and restoring the vibrant economy of our state.  The use of emergency funding from the federal government implemented through state and local entities will be the spark to move us forward on this path of recovery. This is the immediate challenge.,

However, an equally important challenge will be establishing a vision for the Greater Houston area – and the State of Texas – about how to address the long-term needs of drainage infrastructure.  This vision must include (1) a comprehensive plan of capital projects and development guideline upgrades that reduce the incidents of flooding, (2) an enlightened awareness of all renters, homeowners, and business owners on their risks of flooding, and (3) a program to provide adequate funding to implement the necessary changes in our flood control systems in a reasonable time frame.

The Houston area is flood-prone based upon its geographic location in the flat subtropical zone. The rainfall amounts experienced in three days of Hurricane Harvey averaged 36 inches and exceeded 50 inches in some areas.  Absolute protection from this kind of event is probably unaffordable.  However, the impact it had on the greater Houston area and much of Texas highlights the insufficiencies of our drainage infrastructure.

The design of drainage infrastructure since Houston’s founding has changed over the years, based upon drainage criteria considered acceptable at the time.  Today, older areas in the greater Houston area can flood following a 6-8 inch rainfall event because the storm sewers, street, and streams were designed for less intense flows in an earlier time.  Addressing the problems in these areas will require expensive retrofits and, in many cases, buy-outs of particularly flood-prone areas.  This needs to happen quickly.  Strategic and timely buy-outs will prevent rebuilding in areas that can be utilized to support drainage improvements along bayous and tributaries.

Investment in flood mitigation and protection works.  There are many small-scale and large-scale examples across the region.  Had the Harvey rainfall been something less than the largest rainfall event in history – or if the Addicks and Barker reservoirs had been larger, better maintained, or supplemented with additional flood mitigation improvements – the reservoirs would have protected homeowners along Buffalo Bayou.  Levees across southeast Texas protected numerous homeowners.

Different levels of flood protection have different costs – in terms of the cost of necessary flood control infrastructure projects, in building and housing costs, in economic development foregone, in human and economic impacts.  Policymakers in the Greater Houston area will have to determine what is the desired and acceptable level of protection based on the cost.  Then a plan can be put in place to achieve that goal, with specific projects and outcomes charted and adequate funding identified to execute the plan.

This vision must be clear and concise.  It must be understandable and widely accepted as the right direction for the region. For example, a goal might be the effective management of one foot of rain in a day (24 hours), every day.  Or there might be different goals for different watersheds that address the different conditions in each.   

But there must be a plan with specific projects and specific desired outcomes that gains public trust.  This would include understanding the current status of existing infrastructure, developing alternatives, evaluating the feasibility of alternatives, and recommending solutions.

This may require changes in design criteria for new development. An event such as Harvey was outside the realm of reasonable design criteria.  But in light of the magnitude and impacts of rain events in the past 3 years in the region, discussion of changes in criteria for development – based on good science and policy - seems merited.

Implementation of any plan will require significant new funding.  Efforts are already underway to seek federal and state funding for projects.  However, those funds will need to be supplemented at the local level.  Given the political pressure on property taxes, it is unrealistic to consider that this plan can be funded with property taxes. It is time to revisit the idea of a local option sales tax for infrastructure, an idea that came before the Legislature a decade ago. 

The order of magnitude of needed funding is in excess of $30 billion.  This will require a long-term commitment dedicating a reliable funding stream for planning, obtaining rights-of-way, and funding projects. The impacts on mobility, public services, and business operations, in addition to the homes flooded and lives impacted, are too broad to ignore. 

We must beware of simplistic answers.  This event was not about unregulated development or lack of zoning.  Developers have been required to mitigate the impact of development on downstream watersheds in recent years.  And Houston’s approach to development has yielded some of the lowest housing costs and highest quality of life of any major American city.  

Furthermore, Americans are not going to retreat from the coast (or from earthquake prone areas).   Houston and New Orleans and Florida are not going to be abandoned.  There will always be natural disasters that exceed the best laid plans of men.  The value of Houston to the national and global economy must be protected.  This is a big challenge that will require utilizing the ingenuity of many professionals, including the engineering community, and the involvement of every citizen.   Texas survived the most catastrophic rainfall event in US history.  Now that same spirit must be focused on developing a plan for the future.

Hurricane Harvey has highlighted the drainage insufficiencies of the Houston region and the state. It is now time for leadership to define the vision, define the plan, and commit to the funding to ensure the continued growth and sustainability of the state’s economy, create a place for residents to live, work and play, and provide an environment where businesses can prosper.

Tags:  Flooding  Harvey  Infrastructure 

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Did The 85th Legislature Go Backward on Infrastructure Funding?

Posted By ACEC Texas, Monday, August 21, 2017

One of the major issues that the Texas business community has focused attention on over the past five years has been infrastructure. What can we do to ensure that a growing state is building the necessary highway projects and water supplies, and how do we put in place the necessary management strategies to meet the demands of growth?

As we stand between the completion of a regular session and the beginning of a special session that is focused largely on social issues, it is worth asking the question: How well did the 85th legislature and the statewide leadership keep the promise on water and transportation?

Unfortunately, the answer is somewhat lukewarm, but there were some positive developments, including the creation of heavy-haul corridors around some of the state’s ports to facilitate the movement of goods, together with the TxDOT Sunset bill, which reinforced the need for outcome-based planning and performance metrics.

On the other hand, several bills that would have improved state water-management strategies were either caught up in political maneuvering between the house and senate, or were vetoed by the governor. These bills included studies on aquifer storage-and-recovery opportunities; the establishment of a regulatory structure for utilization of brackish ground- water; and incentives for seawater desalination.

In the area of mobility and highways, the 85th legislature took at least a pause, if not several small steps backward, on the issues.

In 2010, a group of citizens called the 2030 Committee convened to look at the state’s 20-year transportation needs. The work suggested that the funding gap was approximately $5 billion per year in constant (2010) dollars, coupled with continued reliance on toll strategies to fill part of the gap in metropolitan areas. It is important to note that this estimate was what it would take to keep congestion and road and bridge conditions at a 2010 level not improve them.

So where are we in meeting this goal seven years later? To its credit, the legislature has ceased diverting highway funds for non-transportation needs, allocating approximately $650 million more per year into road projects. Proposition 1 in 2015 allocated a portion of oil-and-gas severance taxes to the State Highway Fund. However, because of the decline in production and prices, what started at about $1.7 billion per year has declined to less than $500 million per year.

Under Proposition 7, passed in 2016, a portionup to $2.5 billion each year of the state’s general sales taxes will go to improving mobility. Interestingly the Legislature chose to put $300 million of those revenues into paying the debt service on existing bonds, rather than putting the funds into new projects.

Finally, the legislature chose to take several toll-road strategies off the table. A proposal was voted down to authorize work on several public-private partnerships, which typically leverage public dollars with significant private investment. Lawmakers also limited Toll Equity Grants, under which state funds are put in to pay part of the cost of a toll facility, expanding the scope of what can be built, leveraging public dollars. It is difficult to put an exact number on the leveraging effect of toll equity and compre- hensive development agreements (CDAs), but a conservative estimate would be that more than $1 billion per year in Texas projects might be foregone that might otherwise have been developed.

So a close look at the progress toward the goal of $5 billion per year, counting forward and backward steps, would be that instead of $5 billion in new revenues (in 2010 dollars), plus continued use of tolling, the current status is around $2.7 billion to $3.2 billion (in 2010 dollars), plus significant limitations on toll projects.

This analysis is not intended to diminish the effort of legislative and statewide leaders to fund infrastructure for the 2013-17 period; however, it should generate skepticism about the idea that this box has been checked. To state that “we put $5 billion into roads and set up a water trust fund, so now these problems are addressed” is plainly and simply not the case.

This effort is not done (and may never be done) as long as our population in Texas grows by approximately 1,000 people per day, and a critical drought may be just around the corner.

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A “THINK TANK” PLAYS LOOSE WITH THE FACTS

Posted By ACEC Texas, Thursday, April 9, 2015

The Texas Public Policy Foundation recently released a report on transportation funding titled The Road Forward:  Improving Efficiency in Texas Transportation Spending.   The conclusion is that Proposition 1, ending diversions, and contracting “reforms” will provide plenty of money for transportation through 2017.

Of course, the legislative debate on transportation funding is not about getting through 2017, it is about long-term needs.  Leaving this aside, one does not have to get far into the report conclude that it appears to be a conclusion in search of evidence, and that the evidence is contorted to get to the conclusion.

First, the initial statement in the report is that Proposition 1, adopted by voters in 2014, provides at least $1.5 billion annually for transportation.  A glance at the Comptroller’s Biennial Revenue estimate or the state budget tells you that that “fact” is wrong.  The BRE and both appropriations bills estimate the funding from Prop 1 at approximately $1.2 billion per year.  Furthermore, since Prop 1 revenues are tied to oil and gas severance taxes (and in turn to oil and gas prices and production), most budget analysts expect that part of the revenue estimate to be revised downward.   A more realistic estimate of State Highway Fund transfers is probably $1 billion annually in the next biennium.   One billion dollars over the biennium is apparently a rounding error if you are trying to make a point.

Second, the chart on page five of the report regarding inflation in the highway construction area is borderline manipulative.   The table states that the Highway Cost Index (a measure of relative inflationary or deflationary changes in the cost of materials) was 1.27 in 2006 and 1.03 in 2014, projected to be 1.06 in 2016.  In other words, the conclusion is that cost of highway construction has declined.

Again, these “facts” are either wrong or misrepresented.  The graph attached is from the Federal Highway Administration’s website and depicts the National Highway Construction Cost Index (HCI).   The HCI was in fact 1.27 in March of 2006, but in September of 2014 it was 1.13, not 1.03.  (There is no forward projection of the HCI that we are aware of.)   More to the point, using the trend from 2006 – 2014 is duplicitous.  This period suggests a downward trend line in the HCI, whereas looking at a longer period (2003-2014) demonstrates exactly the opposite. Further, TxDOT’s HCI, which is Texas-specific and therefore more pertinent) demonstrates an even greater increase in costs.  This index shows a 12-month moving average in April 2004 of 121.2 increasing by March of 242.4.  The TPPF report clearly understates the significance of the increase in commodity costs of construction materials.

Finally, the report considerably exaggerates the savings that might accrue from increased use of design-build procurement procedures.  TxDOT has the ability to use design-build processes and its ability will increase after September 2015 when an annual limit of three projects for year sunsets.   (The TPPF report states that engineering interests are attempting to maintain this limitation but that statement is flatly wrong.)   

The report suggests that money could be saved by removing a requirement of existing law that DB requests for proposals include approximately 30% schematic design.   No evidence is offered for this and it would be difficult to find many in the engineering/construction industry that would agree.  Some design is required to gain environmental clearance for a project and to put potential proposers on a level playing field in submitting proposals.  In fact, removing this requirement would more likely escalate the cost of bids and proposals as responders include a higher level of risk-pricing.

As to the idea that, expanded use of DB could generate 30% cost savings, again, most in the industry would scoff at that number, including both proponents and opponents of design-build.   The Federal Highway Administration’s study of design-build effectiveness in 2006 concluded that:

. . . design-build project delivery, in comparison to design-bid-build, had a mixed impact on project cost depending on the project type, complexity, and size. The surveyed design-build project managers indicated that project delivery approach (i.e., design-build versus design-bid-build) can be a contributing factor in controlling and potentially reducing project costs. However, project delivery approach was perceived to be less of a factor in affecting project cost than other characteristics of the project or its participants.

When project cost information was used from the project surveys, the design-build projects experienced no appreciable change in total cost due to off-setting cost increases and cost decreases among the project sample surveyed, which both vary widely. When cost information was used from a subset of similar design-build and design-bid-build projects, the design-bid-build projects demonstrated more favorable cost results.

Project costs experienced most growth from contract award to project completion. Respondents to the design-build project survey indicated that the leading cause of project cost changes was change orders: owner required additions or subtractions and design-builder or contractor suggested additions or subtractions. This was true for both project delivery approaches, with design-build projects being significantly more sensitive to delays, additions, or subtractions caused by third parties than design-bid-build projects.

Change orders represented 5 percent of the total costs for the surveyed projects. Claims represented less than one-tenth of one-percent of total project costs. The subset of design-build projects had fewer change orders than the comparable design-bid-build projects, but the average cost per change order was greater for the design-build projects. This can be attributed to the greater size of design-build projects. This was confirmed by the fact that change orders represented about the same share of total project costs for both design-build and design-bid-build projects. In contrast, the dollar value of claims per project was significantly lower for design-build projects than for comparable design-bid-build projects, with the subset of design-build projects having no reported cost of claims.

This is a less-than-ringing endorsement of the idea of 30% savings.  And in fact, the executive summary of the study includes a chart on the estimated impacts of using design-build on cost, duration, and quality which shows the median impact on cost as 0.0%.  

There are valid reasons for using design-build project delivery, but any expectation of achieving 30% cost savings is not one of them.

  


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Can We Afford to Take Tolls Off the Table?

Posted By ACEC Texas, Monday, March 23, 2015

Anti-toll sentiments are busting out all over at the Capitol these days – rallies against tolls and bills against system financing of toll roads, against managed lanes, against toll equity contributions, and more.  There is a sense that now that the Legislature is getting serious about funding transportation, we can forego the toll solutions that have expanded drastically over the past decade.  But is that true?

There is no question that the proliferation of toll roads has been related to the Legislature’s (and the previous Governor’s) unwillingness to consider traditional financing.  There were other options:  One analysis indicated that the growth in gross toll revenue connections by the state’s toll road agencies since 1991 was almost exactly what would have been raised by a half-cent annual increase in the state’s motor fuel tax rate.  But in the absence of greater traditional funding, the metropolitan areas of the state embraced the only option the Legislature gave them for capacity expansion of major thoroughfares – tolling.

There probably is an amount of money that the Legislature could commit that would allow toll solutions to be taken off the table, but with current proposals we are a long, long way from it. 

In 2012, the state’s 2030 Committee estimated that the state faced a $170 billion gap (in 2010 dollars) between available funding and the amount needed to maintain current conditions over 25 years.  Legislators were told in follow up hearings that approximately $50 billion of that gap would come from local funding, primarily toll-based.  That is where the idea of $5 billion in needed state revenue ($120 billion over 25 years).

Depending on the day – and the bills in question – the 84th Legislature seems headed toward stopping diversions from the highway fund ($600 million per year) and dedicating a portion of either the state’s motor vehicle sales tax or general sales tax ($2-$2.5 billion net of debt service repayment) to the state highway fund.   Furthermore, absent the passage and adoption of a constitutional amendment, this may or may not be a long-term commitment.  In any event, the funding will need to be leveraged with toll solutions where appropriate to achieve any significant inroads in mobility.

It is appropriate to invest new money into the free-access, non-toll system, as HJR 13 and SJR 5 do.  But toll options can expand mobility, and should not be taken off the table.

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STATE CONTRACT & PURCHASING PROBLEMS – OUR PERSPECTIVE

Posted By ACEC Texas, Wednesday, February 4, 2015

State contracting problems have been in the news lately – thanks to the Health and Human Services Commission – and there is a lot of discussion at the Legislature about the extent of the problem.   Is it widespread?  Or limited to this agency?  Due to a lack of oversight? What are the solutions?

Here’s our perspective on this:  The problems are not widespread.  Rather they are mainly associated with HHS (obviously), information technology procurement, and with overuse of purchasing cooperatives.  The Legislature can learn from the experience of the design and construction industry in dealing with purchasing co-ops and craft a solution that is appropriate to the problem.

The idea of purchasing cooperatives is rooted in the power of bulk purchasing.  If a group of governmental entities can find the best price on desks, computers, school buses, or other commodities through a master bid, why not make this price available to others?

Where this model breaks down is when it gets expanded to services rather than commodities, to site-specific or variable projects, or to large-scale projects rather than incidental ones. 

In the design and construction industry, this pre-pricing model showed up several years ago under the name of “job order contracting.”  The notion was that certain construction could be pre-priced (e.g., dollars per feet of sidewalk or per square foot of drywall, etc.) then procured on an “indefinite delivery/indefinite quantity” basis.  At the same time, purchasing cooperatives proliferated, set up by government agencies and associations, often seemingly to get the fees that came to middlemen as a percentage of sales.

Inevitably, of course, the combination of job order contracting and purchasing cooperatives led to abuse.  Cooperatives let select vendors lock up large sections of the state.  Local contractors often did not even know about projects or have an opportunity to bid. There was little transparency transparency on activities, or on where the money went.  Large purchases were done under master contracts with little involvement of governing boards.  One agency formed a private company to house its co-op, with its staff as directors, to shield transparency.  One school district built an entire new school with JOC.

But at least in the construction area, abuses led the Legislature to enact some reform.  Purchasing cooperatives cannot be used to procure architectural and engineering services.  Job order contracts are limited to maintenance, repair, or minor construction (not new buildings).   The term of the master contract is limited to two years.   A maximum aggregate contract price must be established when the proposal is advertised, and the governing body must approve any work authorization or task order that exceeds $500,000.   Any task order that requires engineering or architecture must have oversight of a design professional on the staff of or selected by the governmental entity.

What does this experience offer to the State’s current problems?  A lot, since the problems at HHSC seem mostly rooted in the inappropriate use of a purchasing cooperative.  Some the lessons learned in design and construction can be applied here.  First, services should be excluded; IT problems are probably similar to engineering and architectural problems in that they are not generic and are not really suitable to being pre-priced.  Limit the aggregate contract price.  Require approval of job orders.  Set a limit on the contract.  And mostly, provide transparency.

But the Legislature should resist the argument that this HHSC issue is symptomatic of broader problems. There is little evidence of this at this point.  In the design and construction industry, the State executes hundreds of millions of dollars in design contracts and billions in construction contracts – all competitively procured, all publicly noticed, all with conflict of interest provisions, all with oversight, all with procedures to enforce accountability.  There are occasional problems, but they are dealt with expeditiously.

We hope the Legislature will take this opportunity to further reform and limit purchasing cooperatives, and shine the light of day on them, without creating more solution than there is problem.

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