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07.02.24  Auditor scolds agency for corridor project

 

07.02.24  Audit rebukes corridor costs

 

Full Audit Report

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The State Auditor's report highlights the fact that no one, including TxDOT or any other state agency can produce a reasonably accurate projection of TTC-35 costs or revenues. Nor can they predict the direct and indirect cost to the state.

The report provides significant evidence that enormous financial decisions are being made to move TTC-35 forward without adequate information, disclosure, debate, analysis, study or review. The long-term risks and liabilities created by TTC-35 are virtually unknown.

CorridorWatch.org notes that TxDOT has put the anticipated cost of the first four priority corridors at between $145 and $184 billion. Based on the Auditor's findings the cost of those priority corridors could well exceed $754 billion.(1)

Regardless of the source of construction funds, the entire cost including maintenance, operation, interest, and return on investment will be paid almost exclusively by Texas consumers. Toll road and rail users will pay directly while consumers of goods and utilities transported on or across the corridors will pay indirectly. Taxpayers will also foot the bill for the billions of dollars that flow from other state taxes and fees expended in this project.

If nothing else this report demonstrates that the TTC concept is poorly defined and has no reliable financial structure.

 

(1) All of the elements of the TTC as defined by the Crossroad of the Americas Plan, which is the implementation plan, are identical in size, capacity and facilities. The Auditor has identified $105.6 billion in project costs associated with TTC-35 and that TTC-35 represents 14% of the four priority corridors. CorridorWatch has applied that cost per mile to the remaining three corridors to reach a total cost of $754 billion.

An Audit Report on
The Department of Transportation
and the Trans-Texas Corridor
SAO Report No. 07-015

Overall Conclusion

In 2005, the Department of Transportation (Department) signed a $3.5 million Comprehensive Development Agreement contract with a private sector entity (Cintra Zachry, LP) to partner in planning Trans-Texas Corridor 35 (TTC-35).

TTC-35 will comprise 14 percent of the Trans-Texas Corridor’s planned 4,000 miles (see Appendix 6 for maps). According to the Department, Cintra Zachry, LP’s role is to assist in:

  • Identifying priority projects.

  • Assessing those projects’ preliminary feasibility.

  • Establishing a process to develop potential corridor projects over an extended time period by creating a Master Development Plan.

Administration of Contracts. The Department has been successful in certain key aspects of administering its Comprehensive Development Agreement contract with Cintra Zachry, LP and negotiating the first road project for TTC-35. However, weaknesses in the Department’s

accounting for project costs create risks that the public will not know how much the State pays for TTC-35 or whether those costs are appropriate.

TTC-35 Estimates. The Master Development Plan contains conceptual plans for the design, construction, financing, operation, and maintenance of TTC-35. The Master Development Plan anticipates that TTC-35 could be developed through a series of 50-year contracts over a staggered timeframe and could cost more than $105.6 billion.1 According to the Master Development Plan, the design, right of way, construction, operations, maintenance, and financing costs will be provided through a developer, but in some cases these items could be partially paid by the State. There will be a separate contract for each segment, or group of segments, of TTC-35; each contract will be between the segment’s developer and the Department. As of January 2007, none of these segment development contracts had been executed, although the Department is currently negotiating such a contract for State Highway 130 (segments 5 and 6) with Cintra Zachry, LP.

Reliability of Financial Information. There is a lack of reliable information regarding projected toll road construction costs, operating expenses, revenue, and developer income. Auditors made an effort to sum the elements of costs, operating expenses, revenue, and developer income contained within the TTC-35 Master Development Plan. Upon its review of the sums, the Department stated that this financial information was not correct because it is not possible to accurately estimate profits due to many unforeseen variables. This report contains financial information auditors summed from the Master Development Plan for every 10 years of the 50-year life of the projects (see Table 8 in Appendix 2).

1 Unless otherwise specified, dollar amounts in this report are expressed in current dollars.

This audit was conducted in accordance with Texas Government Code, Section 321.0132.

For more information regarding this report, please contact Sandra Vice, Assistant State Auditor, or John Keel, State Auditor, at (512) 936-9500.

Key Points

The Department has been successful in meeting contractual requirements but should strengthen certain aspects of its financial and administrative oversight of TTC-35.

Although there are weaknesses in the Department’s oversight, the Department has been successful in certain key aspects of administering its Comprehensive Development Agreement contract with Cintra Zachry, LP and procuring the first road project for TTC-35. For example:

  •           Cintra Zachry, LP produced a Master Development Plan for TTC-35 that met requirements of the Comprehensive Development Agreement contract.

  •           The Department is negotiating the first road project, State Highway 130 (segments 5 and 6), through the TTC-35 Comprehensive Development Agreement contract in a manner that complied with applicable laws, rules, and regulations.

  •         Weaknesses in the Department’s accounting for project costs creates risks that the public will not know how much the State pays for TTC-35 or whether those costs were appropriate.

Although the Department could receive $3 billion in concession payments from the developers of TTC-35, it could be required to forgo that revenue and, instead, the State could pay from available resources for any segment to be built.

Concession payments could be reduced if factors such as the cost of financing each road segment, inflation, and interest rates increase the developers’ costs.

Significant changes in the cost of financing each road segment could result in the Department foregoing any concession payment. Instead, if the Department chooses to build the road segment, the State may have to pay a portion of the costs from available resources.

The development of TTC-35 could involve the use of public funds.

The Master Development Plan for TTC-35 states that the development of TTC-35 will require minimal public funds and that the near-term facilities will require no public funds. Some potential uses of public funds include:

  •            Some of the TTC-35 development and planning costs, including $3.5 million to produce the Master Development Plan; shared costs for future updates of the plan; and the cost of environmental studies and preliminary engineering, according to the Department.

  •            Some costs for two of the near-term road projects, freight rail lines, and high-speed rail lines using available state resources if the Department chooses to build these projects, according to the Master Development Plan. (See also Table 6 on page 49 for additional cost estimates.)

  •            Additionally, the Department does not define federal credit assistance as public funds. The Master Development Plan anticipates that developers may apply for $3.9 billion in federal Transportation Infrastructure Finance and Innovation Act (TIFIA) loans to fund the construction of the seven near-term facilities of TTC-35.

The Department did not initially make all documentation related to the Trans-Texas Corridor public.

For 18 months, the Department kept confidential the conceptual financial plan and the conceptual development plan contained in the TTC-35 Comprehensive Development Agreement contract with Cintra Zachry, LP. It did this because it considered these plans to be proprietary information and incomplete for purposes of the Texas Transportation Code, Section 223.204. The TTC-35 Comprehensive Development Agreement contract required Cintra Zachry, LP to finalize the financial and conceptual development plans, and the Department considered the contract to be incomplete until they were delivered. The Texas Transportation Code, Section 223.204, exempts Comprehensive Development Agreement contracts from public disclosure until a final contract is executed.

In May 2005, the Office of the Attorney General ruled that the contract was an open record under the Texas Public Information Act. The Department and Cintra Zachry, LP exercised their rights to challenge that ruling by suing the Attorney General to maintain the confidentiality of portions of the contract. In September 2006, when Cintra Zachry, LP delivered the Master Development Plan containing the finalized plans, the Department posted the Master Development Plan and the entire Comprehensive Development Agreement contract on the Trans-Texas Corridor Web site. Subsequently, the Department and Cintra Zachry, LP terminated their suits against the Attorney General.

Given the scope and public nature of the Trans-Texas Corridor project, it is important that the Department makes all documents, plans, and contracts related to the project public in a timely manner.

Summary of Key Recommendations

This report contains recommendations addressed to the Legislature and the Department of Transportation, including the following:

Legislative Oversight

The Legislature should consider taking action to increase the availability and reliability of financial information by requiring:

>        The Department of Transportation to increase transparency by increasing the public’s access to information about the Trans-Texas Corridor.

>        The Department of Transportation to transfer the toll revenue projection function and associated resources, from the Department to the Office of the Comptroller of Public Accounts (Comptroller) and having the Comptroller project the toll revenue for each geographic region of a toll road segment prior to the Department signing an agreement with a developer to operate, lease, or finance that toll road segment. Having an independent third party project toll revenue could play a valuable role in increasing the reliability of financial estimates.

>        The State Auditor’s Office to audit each annual financial statement for a toll road segment (or a combination of segments).

Reliability of Financial Information

The Legislature should consider taking action to:

>        Clarify the Texas Transportation Code to require that surplus2 toll revenue and other revenue paid to the Department associated with toll projects be deposited into the State Highway Fund (Fund 006) in the State Treasury and be subject to legislative appropriation.

2 According to the Department, Texas Transportation Code, Section 228.053(b), provides that a project could have surplus revenue if revenue exceeds (1) the cost for maintaining, repairing, and operating the project and (2) the principal and interest on bonds as they become due and payable. The section also provides for the creation of unspecified reserves for these purposes.

The Department of Transportation should:

>        Prepare a financial forecast that includes toll revenue, construction costs, operating expenses, and developer income before a contract is signed for each toll segment. It should provide that forecast to the Governor, Legislature, and Comptroller of Public Accounts.

>        Account for project costs in a manner that allows the public to know how much the State pays for TTC-35 and whether those costs were appropriate. In addition, it should post these costs on its Web site in a timely manner.

Legal Review

Text Box: The Department of Transportation should submit draft Comprehensive Development Agreement contracts and draft agreements to design, build, operate, maintain, lease, or finance sections of toll roads that will last more than four years or involve the State or another entity spending more than $250 million to the Office of the Attorney General for review and approval.

Summary of Management’s Response

The Department generally agrees with our recommendations, and its responses are included in Chapter 6.

Summary of Objectives, Scope, and Methodology

The objectives of this audit were to:

>          Verify that Cintra Zachry, LP is developing the Master Development Plan and Master Financial Plan for the I-35 high priority segment of the Trans-Texas Corridor (TTC-35) in accordance with the contract terms.

>          Determine whether the Department’s procurement for the first Trans-Texas Corridor construction project complied with applicable laws, rules, and regulations, including requirements in the March 2005 Comprehensive Development Agreement contract.

>          Determine whether costs charged to the project are allowable under the contract.

The scope of this audit was limited to the procurement, contractual, and reporting activities associated with the Trans-Texas Corridor for fiscal years 2002 through 2006. The audit also included a review of costs for consulting services the Department received in fiscal years 2002 through 2006.

The audit methodology included:

>             Collecting and reviewing information through interviews with Department staff and examination of documentary evidence such as the Comprehensive Development Agreement contract between the Department and Cintra Zachry, LP executed on March 11, 2005.

>             Conducting procedures and tests such as testing and reviewing contractual expenditures for accuracy; reasonableness; and compliance with agency, statutory, and contractual provisions. Reviewing and sum totaling projected toll revenue and construction, financing, and operations expenses contained in the TTC-35 Master Development Plan.

 
 
 
 
 
 
 
 
 
       

This Page Last Updated: Tuesday February 27, 2007

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