A glimpse at DOTD spending

State, feds work together to maintain programs in face of budget uncertainty

By Sam Barnes

In the shadow of an uncertain financial future for the Louisiana transportation industry, some contractors are speculating about just how this might affect the state's backlog of transportation work.

To provide some insight into the direction DOTD (Louisiana Department of Transportation and Development) is headed in the coming years, Louisiana Contractor sat down with Dr. Kam Movassaghi, secretary, DOTD; John Basilica, undersecretary, DOTD; and Tony Sussmann, Louisiana Division administrator for the Federal Highway Administration, to discuss these issues.

The interview is printed in "question and answer" format to allow the participants an opportunity to express their views verbatim Following are their responses:

Louisiana Contractor: Mr. Basilica, what is the current budget for DOTD? How does it compare with last year? Previous years?

John Basilica: DOTD's current construction budget is slightly less than last year, $930 million vs. $880 million. This total includes all federal highway funds, state transportation trust funds (TTF) and the TIMED program funds.

Louisiana Contractor: Why did the budget numbers drop? How do you feel that will affect the status of projects in Louisiana?

Basilica: The $880 million figure was based on the President's original budget request for federal highways that was $8 billion less (nationwide) than the previous year. Louisiana stood to lose $50 million.

Congress essentially restored this funding when it approved the Omnibus appropriations bill earlier this year. The impact on Louisiana, therefore, has been negligible and none of the projects have been adversely affected.

It should be noted however, that even at this level of funding, there is only sufficient TTF to match the federal program. This results in some 6,000+ miles of state highways, out of 16,800 total state miles, that cannot be addressed because these miles do not qualify for federal funds.

Louisiana Contractor: What is the breakdown of how the money will be spent in the coming year, i.e. pavement preservation, new construction, etc.?

Basilica: Our budget for fiscal year 2003 to 2004 (July 1, 2003-June 30,2004) is actually still under development and review by the Legislature.
We tentatively plan expenditures in the following budget categories, provided of course federal and state funds are received in projected amounts:

• Preservation of roads/bridges: $231 million
  
• Operations: $34.2 million (rest areas, weigh stations, traffic signals, contract maintenance etc.)
  
• Safety (highway and railroad): $33 million
  
• Capacity: $92 million (new road construction or widening of existing roadway)
  
• TIMED Program: $225 million
  
• Misc. projects: $72.3 (enhancement projects, federal earmarks/demo projects, etc.)
  
• Engineering, ROW, utilities: $180 million

Louisiana Contractor: Mr. Sussmann, how are current federal dollars earmarked? Are there new initiatives of FHWA that are reflected in how the money is appropriated?

Sussmann: The bulk of the funds are divided into general programs such as the National Highway Program, Interstate Maintenance Program, Bridge Program, and Surface Transportation Program, etc. Some funds are earmarked by Congress for specific projects and programs.

Louisiana Contractor: Explain the process of how federal money is appropriated.

Sussmann: Congress passes an annual highway appropriations bill indicating how much funds and obligation limitation will be distributed to the states. The funds that Congress appropriates come from fuel tax dollars that are collected and sent to the U.S. Treasury and put in the Highway Trust Fund.

Louisiana Contractor: How is it determined on a year-to-year basis how much Louisiana, or other states, will receive?

Sussmann: The funds are distributed by formulas and other procedures that are prescribed by law. The formulas consider such factors as lane miles, population, fuel use and number of deficient bridges, etc.

Louisiana Contractor: Dr. Movassaghi, how would you characterize the relationship between DOTD and the construction community? In what ways has it changed, improved etc.?

Movassaghi: I believe we enjoy a very productive relationship with our construction contractors. We are attempting to accommodate a long-standing industry request, specifically from the asphalt industry, to even out our bid lettings so that they can plan their production schedules around a more predictable income source.

We conduct partnering sessions with the industry and are also working together in an effort to inform public officials as well as the general public of the need to increase revenues for transportation in order to bring our infrastructure to the level it needs to be for the state to successfully compete for industry and jobs in this new century.

With the acceleration of the TIMED program through the sale of bonds, we expect that overall transportation construction will increase as a result. The department and industry will need to work closely together to ensure that this acceleration goes smoothly.

Louisiana Contractor: In what ways is DOTD attempting to further improve that relationship?

Movassaghi:DOTD recently distributed a "customer satisfaction" survey to our contractors. We are soliciting feedback on the quality and timeliness of our interactions with consultants and contractors. We will use the feedback received to identify areas that need improvement and will then take steps to improve our performance in those areas.

Louisiana Contractor: Are there ways the construction community, or the public at large, can assist DOTD with determining needs in the state?

Movassaghi: Each fall, DOTD, in conjunction with the Joint Legislative Committee on Highways & Transportation, conducts public hearings across the state to receive public input on needs, priorities and planned improvements. Notices announcing these public hearings are published in local newspapers and provide the public as well as contractors an opportunity to make known their concerns.

Individuals are also welcome, at any time, to personally contact DOTD. For issues of local concern, district administrators may be contacted. For policy or planning issues, headquarters' officials may be contacted by telephone or by email via our website, www.dotd.state.la.us.

Louisiana Contractor: Discuss the status of the TIMED program. On track? What's been done? What's left to do?

Movassaghi: We are definitely on track - all projects will be completed or under construction by 2010, except the three major bridges, which will be completed by 2012.

The TIMED Program will ultimately widen 11 Louisiana highways to four lanes. Two have already been completed: U.S. 90 from Morgan City to Houma ($256 million) and the Jefferson Parish West Bank Expressway ($33 million).

Louisiana Contractor: Discuss the current funding structure of the TIMED program.

Movassaghi: The TIMED program is expected to be funded through a combination of revenue bonds and pay-as-you-go funding. It is currently anticipated that about 80 percent of the program costs will be funded from revenue bonds and 20 percent will be funded with pay-as-you-go funding.

As of the beginning of 2003, approximately $1 billion of the $3.5 billion TIMED Program has been expended. The goal of the TIMED Program plan of finance is to minimize the borrowing costs for the program through using the current funds in the most efficient manner possible.

The sources of the pay-as-you-go funds are the monthly collections of the Act No. 16 taxes, which is the 4 cent/gallon gas and special fuels tax, and interest earnings on the TIMED Fund balance. In fiscal year 2002, the Act No. 16 tax collections were approximately $110 million.

The bonds issued will be revenue bonds secured by the 16 cent/gallon gas and special fuels tax as well as the 4 cent/gallon gas and special fuels tax. However, it is the intention of the TIMED Program plan of finance to only use the collections from the 4 cent/gallon gas and special fuels tax.

In August 2002, $275 million of gasoline and special fuels tax revenue bonds were issued in order to provide the funds needed to accelerate the completion of the TIMED Program.

Since the original "pay as you go" method of financing would have resulted in the program taking 30 years to complete, DOTD pursued and was successful in expediting the program through this first bond issuance.

Underlying Ratings of A1, A+, A+ (Moody's, S&P, Fitch) were achieved on the 2002 bonds. Bond insurance was obtained from AMBAC at a very favorable premium of 22.4 basis points, producing "AAA" ratings from all rating agencies. An all-in borrowing cost of 4.88% was achieved on the 30-year, level debt service bonds, which is a very low borrowing rate by historical standards.

The current bonding plan does not assume a bond issue in 2003. However, it is anticipated that future bond issues will occur annually in 2004 through 2009. The exact size and timing of future bond issues will depend on the program needs, cash flows and market conditions.

Accelerating the completion of the TIMED Program will help drive economic development in rural parts of Louisiana.

Louisiana Contractor: Mr. Sussmann, How would you characterize the relationship between FHWA and DOTD? In what ways has it changed, improved, etc.?

Sussmann: The partnership relationship between FHWA and DOTD is a cooperative one working toward the same goals as spelled out in our strategic plans aimed at developing and constructing projects as rapidly as possible within the limits of available funds and in conformance with our federal and state laws and regulations.

Louisiana Contractor: Are there ways you feel the relationship could improve in the future?

Sussmann: We will need to continue our efforts at streamlining our internal processes and measuring our results to get the funds out there as rapidly as possible.

Louisiana Contractor: How does FHWA's Louisiana Division help determine transportation needs in the state?

Sussmann: Needs are determined by the state through development of a statewide transportation plan and by plans developed in cooperation with Metropolitan Planning Organizations. These plans are primarily for new construction.

Maintenance and rehabilitation needs are developed by the state through monitoring of the conditions of the state highways using special equipment for measuring pavement condition and by evaluation of the structural integrity of bridges.

The state uses this information to develop a seven-year program of projects which is presented to the public each year by means of hearings in each of the LDOTD districts and through meetings with the MPO's.

Louisiana Contractor: What modes of transportation infrastructure does FHWA cover?

Sussmann: FHWA only covers highway modes of travel and provision of highway access to other modes of travel such as access roads to ports or airports. Some FHWA funds are transferred to the Federal Transit Administration at the request of the state and local governments.

These funds then can be used to support transit activities. Some FHWA projects may benefit other modes of transportation such as improvements to eliminate rail-highway crossings or provide signing for access to other modes.

Louisiana Contractor: Does FHWA get involved in the research or the promotion of new construction technologies in highway construction?

Sussmann: FHWA performs certain research activities through its research programs at the FHWA Turner-Fairbanks Research Center. Results of this research are made available to the states and other parties.

A lot of research is conducted by the states themselves individually or jointly by sharing costs. FHWA provides funds to conduct research activities by the states, but much discretion is left to the states concerning what research they want to undertake. Promising new technologies, developed from federal, state and private research, are evaluated and promoted by FHWA at the national and State level.

Louisiana Contractor: Are there ways the construction community, or the public at large, can assist FHWA with determining needs in the state?

Sussmann: While FHWA makes information available to Congress and the states gathered through monitoring of highway conditions, the needs of the state are not determined by the FHWA, but by the DOTD. The DOTD seeks to engage the public and other partners by providing many opportunities for public input.

A series of hearings was just recently completed throughout the state to allow for comment of the state's updated long-range transportation plan. This is a 30-year plan encompassing all modes of transportation. Advisory councils representing all modes of transportation were involved in developing the plan.