TEXAS TRANSPORTATION COMMISSION STAFF BRIEFING

Dewitt Greer Building
125 East 11th Street
Austin, Texas

7:30 a.m. Thursday, May 25, 2000 Briefing

COMMISSION MEMBERS:

JOHN W. JOHNSON, Chair
ROBERT L. NICHOLS
DAVID M. LANEY
 

DEPARTMENT STAFF:

CHARLES W. HEALD, Executive Director
HELEN HAVELKA, Executive Assistant, Engineering Operations
 

P R O C E E D I N G S

MR. JOHNSON: It is 7:37 a.m., May 25, and I would like to call this briefing of the Texas Transportation Commission to order. Public notice of this briefing, containing all items of the agenda, was filed with the Office of the Secretary of State at 10:37 a.m. on May 17.

Wes, would you introduce the topics of discussion this morning, please?

MR. HEALD: Thank you. Commissioners, we have three items we wanted to brief you on this morning, and I'll just go ahead and introduce all three of them at the same time.

We'll start off with James Bass and we, I guess, are being mandated to get into something we call asset management -- which disturbs us greatly -- and James will explain that to you; Dianna Noble will have her usual topic on air and water quality; and then J.D. Dossett, who heads up our Small Business Enterprise Program, our SBA Program, will explain the new direction we're going with that program.

So we'll start off with James.

MR. BASS: Good morning. As Wes said, we're here to talk about asset management, and I'd like to start off by introducing a resource witness. If you have any questions that are too tough for me to answer, Mr. Duane Sullivan is here, the director of our Accounting Management Section of the Finance Division, and they're the section that's responsible for preparing the department's annual financial report and implementing the Governmental Accounting Standards Board Statement Number 34 which is commonly referred to as GASB-34, and that statement deals with asset management for local and state governments, and that's what we'll be talking about today.

The Governmental Accounting Standards Board is an independent private sector organization that establishes generally accepted accounting principles for state and local governments -- or commonly referred to as GAAP; it operates under the auspices of the Financial Accounting Foundation, and it's supported by private funding from the larger accounting firms.

It's interesting to note that state law requires that TxDOT reports its financial information in accordance with GAAP, and it's the comptroller in the state of Texas that has the authority to interpret what is or is not GAAP, approve financial statements, and freeze appropriations if that financial information is not prepared according to the requirements.

GASB-34 is a new policy statement that establishes new reporting requirements for preparing these annual financial reports for state and local governments. Statements of fundamentals shift from the current reporting model. Some of the new changes that GASB-34 has implemented is a management's discussion and analysis; that's just a basic narrative at the beginning of the financial statements providing an analytical overview of the government's financial activities and performance during that year. At this point, it's somewhat unknown if that's going to be handled by the comptroller for the entire state or if each agency may have to do that on their own.

It may be interesting to note that if we do eventually issue bonds, that TxDOT itself would probably have to prepare its annual financial report in full compliance, and then we would be required to have that MD&A, or management discussion and analysis, in our own annual financial report.

Another piece of the new requirements that as yet is undecided if it will be agency-specific or statewide and handled by the comptroller is some required supplementary information. For example, it's just different schedules and information that will be at the back of the annual financial report. As an example, one of those reports is a comparison of the budget at the beginning of the year and then the budget at the end of the year with the adjustments.

Another change is for the financial statements themselves and they're going to be required to be prepared in full accrual basis of accounting which is a change, but the main change and biggest concern that's got everyone's attention is the infrastructure reporting. The state highway system, the roadways, bridges, right of way, will now need to be included in the financial statements and be reported at historic cost.

One of the first questions is why did GASB-34 come up with this and feel like the infrastructure needed to be reported. From their standpoint, they thought it was a huge investment from the public sector and it was being carried nowhere on the books; they had not been valued or carried on the asset sheet at all, and they're hoping that by providing this information to the general public -- who are the ones who are actually paying for the infrastructure -- they'll be able to ensure that what the public is paying for is being properly managed, and to answer the question: Are assets increasing or decreasing over time from year to year?

TxDOT will be required to implement GASB-34 beginning in FY 2002 for any new infrastructure that's added at that time. Then, in FY 2006, we'll be required to retroactively report infrastructure assets that had been existing prior to FY 2002 at historic cost and subsequent usage cost.

The question then becomes how do we report that infrastructure cost. There are two methods. One of them was pushed heavily by AASHTO; the initial one is the traditional depreciation cost where the expense in a year is reported by taking the historical cost of the asset less the estimated salvage value, and then depreciating that over the estimated useful life.

One of the advantages of the depreciation method is that it's easy to compute once you figure out what that average useful life of the roadway system is. The disadvantage is this may not really be valuable information to the public, to the investors of the highway system: this is what we historically paid; it's been depreciated over time; here's the value that it is today. It's nothing more than a book value.

There's also some fear that if we report this data, it could easily be misused or misunderstood. For example, if we think about bridges, if we were to capitalize them and depreciate them over time and it reached its estimated useful life but still a fully functioning bridge, we might be carrying that bridge at a very low asset value or say that it's reached its estimated useful life and someone may question: Well, TxDOT has this bridge; it's reached its estimated useful life; but it's carrying 100,000 vehicles a day, not realizing that that bridge is still going through inspections every year and it's safe, just that the accounting records show that it's at a low value.

Another concern is the average useful life, having to come up with that figure: What is the average useful life of a roadway, of a bridge? There's been some concern from some of the engineering divisions of having to come up with that figure and then have it published as that's what we're targeting for, that's the estimated useful life.

The other approach I mentioned, which was heavily pushed by AASHTO, and the Government Accounting Standards Board has offered it as an alternative to the depreciation method, is the modified approach. Under the modified approach, you don't calculate depreciation, and the expense for the year are those maintenance costs to maintain the asset and those are reported as a usage cost for the infrastructure.

This requires that condition assessments of the infrastructure be performed at least every three years and that the three most recent assessments be disclosed. It also requires that the management of the agency or the local government disclose what service level they hope to maintain for that infrastructure, and then at the beginning of each year, they need to estimate how much money it will cost to maintain the system at that level, and then also in the financial reports they have to report over the past five years what that estimated cost was going to be and what the actual costs were over that five-year period.

One of the problems with that method is that if you do not attain those target levels at any one point in time -- and there's some question even amongst GASB staff, it sounds like, as to what equates to attaining those goals and when do you fall below since you have to report three condition assessments over a period of time -- but if you do not attain your goals, you're then required to revert back to the depreciation method.

One of the advantages of it, it seems to be, is that this would provide more useful information to the general public for determining whether the maintenance needs of the infrastructure are being met.

Again, we have some concerns, internally, as do other state DOTs across the nation as well. Providing some of this information to the public and the legislature may bring some unwarranted criticism and perhaps some appropriation changes to TxDOT. There are some fears -- I'm not sure how founded or unfounded they are -- that we might actually eventually get to a point to where we receive appropriation for just maintenance of bridges, just maintenance of the roadway, maintenance of the right of way, and we would lose some of the flexibility that we currently have now just having those funds appropriated as maintenance.

One of the things I will mention, for Texas -- which not every state is doing this -- Texas is already under the performance based budgeting method in our appropriations requests, so we're doing something somewhat similar to this already in our appropriations requests, in that whenever we request a level of funding, we have to report our performance measures and we have to report at what level we believe the payments are going to be. If we receive $600 million in maintenance, the scores would be X; if we receive $650- it would be X plus some factor. So we're already reporting some very similar information in the LAR, but now it would be required to also be reported in the annual financial reports.

Some of the decisions that we're still facing working with the comptroller's office and other divisions within TxDOT is at what level of detail should this infrastructure be reported: should it be as simple as roadway, right of way, and bridges, or more detailed and do roadway, signs, drainage, safety devices, right of way, et cetera, on and on, ad nauseam.

Another decision to be made is do we use depreciation or the modified approach and do we use depreciation for one asset, for bridges, perhaps, and the modified approach for roadways. Then, if the modified approach is selected for any of those classes of assets, at what service level do we plan to maintain and what will be the cost to maintain that service level? Another question will be how often will those condition assessments be performed and who will be performing those condition assessments?

Duane Sullivan, as I mentioned earlier, has been working on two separate committees: one with the comptroller's office trying to devise a plan of action, not only for TxDOT but also to provide some guidance to other state agencies that have infrastructure roadways: the university systems, parks and wildlife, and also to provide some guidance to local governments in the state. The comptroller does not have direct authority over the local governments but they would like to provide some assistance, if at all possible, to the local governments in implementing this new statement.

Duane has also been working with representatives from other TxDOT divisions trying to devise how we want to approach this and attack it. Again, the first hurdle will be FY 2002 when we need to begin reporting the new infrastructure assets.

We have some handouts that we'll pass out for you to look at later, if you'd like, or for your aides to look at. We'll be happy to answer any questions off that or attempt to answer any questions that you may have at this time.

MR. NICHOLS: Going kind of back to the beginning where you started, you were talking about the Government Standards Board. What is activating the need for this; which action is doing it? Is it based on AASHTO or the Government Standards Board?

MR. BASS: The Governmental Accounting Standards Board issued a statement which automatically becomes generally accepted accounting principles, and so it becomes --

MR. NICHOLS: Is that state or is that federal?

MR. BASS: The GASB is a not-for-profit, private organization, and it's funded under the Financial Accounting Foundation, which is supported by private funding.

MR. NICHOLS: So because this board decided this is what needs to be done, then we're saying all the state agencies have to do this?

MR. BASS: Uh-huh.

MR. NICHOLS: But you also said the comptroller's office has the final say on whether you do or you don't?

MR. BASS: Right. There's a state statute that requires in the state of Texas that the annual financial report be prepared in accordance with GAAP, and in the state of Texas, if there's any question as to what is or is not generally accepted accounting principles, that determination comes down to the comptroller.

And what happens, similar to the Legislative Budget Board overseeing the appropriations requests, the comptroller's office oversees the annual financial reports for the state. They send out their instructions to all the different state agencies who then prepare their annual financial reports, submit them to the comptroller, and the comptroller combines those all together for a --

MR. NICHOLS: Has the comptroller's office had any comments related to this change? Do they understand it's coming or what's the significance of it?

MR. SULLIVAN: Well, the comptroller is looking for input from the agencies. They've formed various subcommittees, of which I'm the chair of the subcommittee looking at the infrastructure reporting requirements, and we've got representatives from the universities. The universities have to implement this too.

MR. NICHOLS: So these conversations are just beginning, and this Government Standards Board took this action how long ago?

MR. BASS: It began, the thought process on this, what I've heard, began actually 15 years ago. The announcement of it in its final form, I'm not sure of the exact date; it's probably been, probably a year ago.

MR. NICHOLS: So we're just now -- so they took the action 12 -- we've known about this for a good while but it's just now you are coming up with your analysis on how it impacts us and all that kind of stuff?

MR. BASS: Uh-huh.

MR. HEALD: Robert, we started hearing about it about a year ago and, you know, there was a move by AASHTO to try to stop it, and believe it or not, probably over half of the states were for it. So our move to try to get them to redirect this some other direction just kind of fizzled.

You know, what we're concerned about, you can imagine what a drain on our staff that it could be, you know, to place values and try to determine values on bridges, especially right of way throughout the state. So it's big, it's going to really be, I would say, a major effect to TxDOT.

MR. BASS: And some of those other states, I would imagine, that were pushing for it, as we talked about the modified approach does perhaps offer some valuable information to the public; it reports the condition assessments of the system, but currently in Texas we're already doing that and we have been doing it since the early '90s under the performance-based budgeting. In some meetings that I've been in asking other states, there are very few of them that are doing that already as part of their budget process, so I think they saw that as an improvement for them, but that's something that Texas is already doing in another area, or something very similar.

MR. HEALD: And another concern -- I think James just touched on it -- if you start appropriating money or allocating money based on some kind of condition assessment nationwide, then you're rewarding mediocrity; you're rewarding those not taking care of their system.

MR. NICHOLS: I don't quite understand that.

MR. HEALD: Well, if you get more money because your roads are in bad condition, then to some extent, you're just rewarding those states more than you are the other states because they're not taking care of their system.

MR. NICHOLS: Now I understand.

MR. PICKETT: It is almost the ultimate job security for accountants, and this just happened to be worked up by accountants.

(General laughter.)

MR. JOHNSON: Are any states currently already doing this? I assume that perhaps there are.

MR. BASS: They haven't started yet. I believe Tennessee, I would say, is probably ahead of the curve and they're actually looking at early implementation. I'm not sure if they're going to attempt to do that in this year's financial report or if they're going to wait until next year. As I mentioned, the requirements are that in 2002 we begin reporting new assets that were acquired during that year and then 2006 we go back retroactively and pick up all the historic costs.

I know that Tennessee and a few other states, maybe very few other states, are actually looking at early implementation.

MR. JOHNSON: What about subdivisions such as toll authorities? Are some of them already doing this sort of asset management?

MR. BASS: No.

MR. JOHNSON: Well, it occurs to me -- I mean, you mentioned universities -- private universities, I mean, they do this and it's not uncharted waters for public universities to sort of template over what private universities have done, but this is sort of uncharted waters, it occurs to me, from what I've heard. Some things just bounced through my mind such as are some improvements going to be classified -- instead of expenses, are they going to be capitalized? I mean, they'd have a useful life of two to five years, for example.

MR. BASS: If it's a significant improvement to the asset, and that's some of the questions. In one of the presentations, they were saying even as part of a large construction project, it could be some aspects of that constructions project would be considered maintenance and would be expensed in that current year, and others could be seen as improvements to the overall infrastructure; and, therefore, that portion would be capitalized.

MR. JOHNSON: Well, resurfacing, for example, you might get a useful life of multi-years, two to five, maybe, if we're fortunate. Would something like that perhaps be capitalized?

MR. SULLIVAN: It depends on what rules that we come up with.

MR. JOHNSON: So we can sort of put our own framework.

MR. BASS: We have some flexibility to establish -- exactly.

MR. JOHNSON: How does one determine the historic cost of some of our assets? That's an interesting challenge, it occurs to me.

MR. BASS: Very interesting. We actually have a Big Chief tablet upstairs on the third floor that has some numbers going back to 1916 or '17, I believe.

(General laughter.)

MR. BASS: And we've asked Tennessee, they actually had the AASHTO, American Association of State Highway Transportation Officials, back in 1964 published a book covering the first 50 years in the United States and has some expenditure data for all of the states. We've asked to get a copy of that; we haven't received it yet, but we want to then compare that to our Big Chief tablet to see if those numbers are anywhere close, but we do have some information that's available.

Another option could be trying to figure out what the replacement value is of the system today and then discounting that back over time by the FHWA cost index. And so the statement does allow a lot of flexibility and some estimates to be used in looking at that historic cost. One of the things they're thinking about is that once you value these assets, the majority of it, the largest percentage is going to be in the past 20 years or so in looking at it from a historic cost basis, because that's when the highest volumes would have been.

MR. PICKETT: Mr. Chairman, part of the problem on this is going to be we still have some highways out there that were built back in the '50s, some of our farm-to-market roads, low volumes that have not been improved. They actually were constructed for something less than $5,000 a mile. Now, trying to upgrade those -- now, we wouldn't build them exactly the same today, but there are just all sorts of possibilities on playing games with the numbers and then we get back to what Wes was saying: if the game is not played properly, then we could end up getting not our fair share -- it seems like nobody does.

MR. JOHNSON: James, is it safe to say that it's going to take a lot of district staff to help put this program together when we have to bring it on the road?

MR. BASS: Some of that, I think, will be determined by whether or not we go with the depreciation method or if we go with the modified approach, which would require the condition assessments, and that's one of the questions still being developed. If we do go with the modified approach and do the condition assessments, who is going to perform them? Some of that information is in the pavement management information system, the ride scores and pavement scores are being entered currently and we're reporting those as a performance measure in the appropriation process.

So that would likely continue, or if we end up out-sourcing that function, then it wouldn't require as much of a drain on district staff.

MR. JOHNSON: What about land value? How do we approach that?

MR. BASS: Duane has been working with the Right of Way Division, and I'll let him comment on that, if he can.

MR. SULLIVAN: Well, for the historical cost of the right of way, we're just going to look back at the old financial statements and see what we spent on right of way per year to come up with historical costs. In the future, ROAS should be capturing that parcel by parcel.

MR. NICHOLS: One thing that's interesting on your depreciation approach, you've got your original cost, you've got your salvage value at the end, you depreciate it over 30 years, and we know the salvage value at the end in dollars is probably actually greater than the original cost was to start with. Is that correct?

MR. SULLIVAN: The true market value?

MR. NICHOLS: Well, yes.

You're informing us of this to make us aware of something that's coming. Are you asking us any questions?

MR. HEALD: No. Just informing you just so you know what's on the horizon.

MR. NICHOLS: And these hearings with the comptroller's office are going to begin when?

MR. BASS: Well, I don't know that I would call them hearings. There have been meetings, advisory committees, if you will, that have already been ongoing probably for the last several months. I'm not sure when they began.

MR. NICHOLS: The decision of implementation of this in the state or how it's to be implemented really is more up to the comptroller's office than it is to us.

MR. SULLIVAN: Well, we have the ability to provide our input at this time. I am the subcommittee chair for the reporting requirements for infrastructure, and so we have a great deal of input into what the requirements are going to be and whether we use the modified approach or the depreciation approach and what level we get down to as to the level of detail that we report our infrastructure at, that's undefined right now.

MR. NICHOLS: How long have these meetings been going on with the comptroller's office?

MR. SULLIVAN: Just a couple of months.

MR. NICHOLS: Is there any particular deadline at which they say: Okay, this is the conclusion, this is what we're going to do? I mean, are they looking at making a final decision in 90 days or six months?

MR. SULLIVAN: I would say in the next two months we need to have most of the requirements identified. The universities who have to implement these changes a year earlier than everybody else are especially anxious to have some requirements identified, both the level that the assets are going to have to be reported at and the methodology for coming up with historical costs and whether or not we're going to use the modified approach or depreciation.

MR. HEALD: We probably need to move along, if it's okay.

MR. PICKETT: The thing, I think, that concerns us is that there could be a huge amount of effort involved in this, and really, as far as what we're doing on trying to provide a good transportation system, the bottom line is we're not really getting that much out of this based on what we're already doing.

MR. BASS: Right. One of the things that Duane and I have talked about, and I think with the internal TxDOT committee, is taking advantage of whenever they allow us to estimate figures on the historic costs going back, we're going to try and take full advantage of that whenever we can, because we don't see a whole lot of value to spending days and months additional and that number is not going to be materially better by spending all that additional time, so we're going to try and take full advantage of every estimating possibility that they allow.

MR. LANEY: Mr. Chairman, can I say something?

MR. JOHNSON: Please.

MR. LANEY: I hate to see your department swamped by this thing, James, and I sense that it may be something that just washes over you and just covers you. You might at least think about the notion of setting up, along the lines that we did with a couple of other projects, including 130, a separate project office overseen by your office, importing that talent from outside, because I don't know if we've got that capacity inside. But if you do that, you might think about the cost coverage we'd need in our legislative appropriations request and somehow or other just get it covered, so you can do business as usual without having to fight this fire for the next year and a half. Anyway, it's a thought.

MR. JOHNSON: My fear is that this could distort, or if someone wanted to make a case, they could use this to distort the actual need for funds, whereas, experience would tell you otherwise. Numbers don't lie, they say, and you know, give it an interpretation in a certain way, they could utilize the results of this to reflect on needs and basically diminish our funding capability or attempt to diminish our funding capability; whereas, experience tells you otherwise: it ought to be increasing.

MR. BASS: I think that's one of the major concerns from some of the other divisions, as well as finance, is that some of this information perhaps could be misused and/or misunderstood and applied and TxDOT would then feel the effect of that.

MR. SULLIVAN: One of the requirements of the modified approach is that we report the required maintenance expenditures as compared to the actual maintenance expenditures for the current year and the last five years, and one of the questions is, who is going to set the condition levels that we're going to attain and what methodology and who is going to determine what the required maintenance expenditures are to maintain those condition levels.

MR. NICHOLS: But we do something like that now, because I know that you can crank out -- and I've seen some of these reports that say, okay, to reach this level and maintain at this level, this is the amount of funds we need, and then you've got these curves going down to improve the system, what funding it takes, so we've got some basis for that number now.

MR. BASS: Some of that comes through in the appropriations request. For example --

MR. NICHOLS: In your needs assessment you put some of that together.

MR. BASS: Right.

MR. NICHOLS: You know, with the current funding, our system will be deteriorating at a certain rate; to bring it up to this level and maintain it, we need this amount; and to improve it, we need this amount. That's kind of what part of that is for, so that part is not necessarily bad, it's just a huge accounting nightmare to get there, and we already know that number.

MR. HEALD: Are we ready to move along?

MR. BASS: Thank you, gentlemen.

MR. HEALD: Dianna.

MS. NOBLE: Good morning, commissioners, Mr. Heald. For the record, my name is Dianna Noble, and I'm the director of Environmental Affairs, and this morning I'll be covering two issues: air quality and water quality.

Under the first item, air quality, I'll be discussing the Houston conformity lapse, the eight-hour designation, and the June 26 joint meeting with the Texas Natural Resource Conservation Commission. Related to the Houston conformity lapse, by letter dated April 28, Federal Highway Administration approved the Houston-Galveston conformity determination, and what that means is we are no longer in a lapse in Houston. As a result, projects that were suspended in terms of PS&E work, right of way acquisition, and construction have been re-initiated.

Related to the eight-hour designation, as I mentioned at the March meeting, EPA had issued guidance in March indicating when they would be doing and the process they would be doing as related to the eight-hour designation as a result that was being affected by the May 1999 court decision that questioned EPA's authority in terms of enforcement of the eight-hour standard. We are proceeding to work under that guidance which includes the following:

EPA had requested from the governors that by June 30 they propose boundary designations. Between June 30 and the fall of 2000, EPA would be considering that proposal by the governors, including public involvement. In the winter of 2000, they would be responding back to the proposed designations with a 90-day period for public comment. So, we were anticipating eight-hour designations to occur in early 2001.

Yesterday, we were notified that the Supreme Court has accepted the request from EPA to hear the issue related to whether or not they have the authority to enforce the eight-hour standard. We were also informed that more than likely the Supreme Court would not make a decision prior to the spring of 2001. I have not heard, and we are currently trying to determine whether or not that will affect the guidance as issued by EPA in terms of the eight-hour designation. As I mentioned to you, the original guidance had implied that the designations would be occurring by early 2001.

At the June 26 joint commission meeting with TNRCC, we will be providing to you a more specific update related to the science that TxDOT is collecting in order to determine conformity under the eight-hour designation, as well as what may take place as a result of the fact that the Supreme Court more than likely will not make a decision prior to the spring of 2001.

Do you have any questions related to the air quality?

MR. HEALD: Dianna, what about Dallas-Fort Worth? You might bring them up to speed as far as where we are as far as their conformity plan.

MS. NOBLE: The Dallas-Fort Worth area currently has a conformity determination; however, they are in a similar situation that we were in with Houston-Galveston. They have submitted a conformity determination based on the 9 percent rate of progress, which means that more than likely we will have to do a conformity determination on the budget that was established under the 9 percent rate of progress. Just like Houston, they also have submitted what is called the Attainment Demonstration SIP which some groups are perceiving that as actually what establishes the budget.

So the issue is more than likely we will have to do another conformity determination in Houston based on the Attainment Demonstration SIP and we will have that similar situation in Dallas-Fort Worth. But we currently have a conformity determination in Dallas-Fort Worth, so we are not in a lapse, but we anticipate having a very similar pattern, as was experienced in Houston-Galveston, in the Dallas-Fort Worth area.

MR. LANEY: Dianna, wasn't some litigation just also brought in connection with the imposed emissions budget plan in Dallas?

MS. NOBLE: There have been three lawsuits that were filed on the demonstration SIP that was submitted by TNRCC alleging that the state did not have the authority to require these emission reductions on industry. My understanding -- and TNRCC is better able to explain this -- is that that litigation could have tremendous implications because of the fact that the way conformity or attainment works is that you have a budget that includes both point sources, off-road sources, and mobile sources, and each one of those three areas have an emissions budget that is associated with it. So point sources are told this is your budget and this is what you need to do to meet that budget.

If they are challenging the budgets that were allocated to them, depending on the outcome, those budgets may be transferred to both mobile and point sources, so we'll just have to wait and see what the outcome is of the lawsuits.

On the water quality side, as you know, we've had some issues related to the Clean Water Act, Section 404, the wetland issue. We had three projects that were issued cease and desist orders in February and we had been working with the Corps of Engineers to resolve those. By letter dated May 23, EPA officially notified TxDOT that they have assumed the negotiations for resolving those three projects and the related cease and desist orders, so we, rather than working with the Corps of Engineers, will be working with EPA to negotiate resolving the cease and desist orders.

For your information, as of May 15, we have trained ten districts. They received two hours' worth of intensive type training, not on what a wetland is but the issues related to maintenance and construction as related to 404.

We also, through discussions with the Corps of Engineers, agreed that there would be a benefit of assigning a TxDOT person, at least partially, to have an office at the Corps of Engineers to facilitate the communication. That position will currently be filled by somebody from Gary Trietsch's staff in the Houston District. I had posted a position for a permitting assistance officer that will assume that responsibility once that position is filled.

We also have another issue that I would like to bring to your attention. In July of 1999, the Corps of Engineers had proposed new nationwide permits and we had made comments on those new nationwide permits; they were proposed at the time. In December, the Corps of Engineers published the final nationwide permits and there were some extensive changes to what had been originally proposed. Regardless, those nationwide permits will take effect June 6.

As a result, we have hired a consultant through an emergency contract to revisit the projects that were scheduled to start with the June letting to reassess how the water quality issues were addressed to see if they are in compliance with the newly issued nationwide permits.

One of the more significant issues that we are currently dealing with -- and this is so that you know that it is affecting our letting -- is that through discussions with the Southwest Division office of the Corps of Engineers, they are not accepting information related to the nationwide permits until the effective date.

So our efforts to try to revisit those projects prior to the letting, that information has been sent back to the agency. So there's basically a dead period, 44 days prior to June 6 and 44 days after June 6, in which any project that would possibly use the nationwide permits, we are not able to process. So there have been several projects that we have had to delay the letting until we are able to resolve the permitting issue.

And that's all I have, if you have any specific questions on water quality.

MR. HEALD: And I might say that there's a significant number of projects that we've had to delay. I don't know how much money we're talking about, but this is probably going to impact our $3 billion letting this year. And also, Mike and Dianna and I have been meeting on some kind of, I guess you could say, regular basis with the Corps and I think we've got another meeting set up, don't we, Mike?

MR. BEHRENS: June 8.

MS. NOBLE: June 8.

MR. HEALD: June 8. So we're trying to establish a little better rapport with the Corps and I think it's very successful; however, it's this tie to the EPA that has us disturbed. I think that's about it.

Okay. Any questions? Okay, J.D.

MR. DOSSETT: Good morning, everyone. I'm James Dossett, director of the Business Opportunities Program section, and it's indeed a pleasure to be here this morning to provide you with an overview of our new Small Business Enterprise Program.

I'm sure that most of you are aware that back in February we settled a lawsuit with the Kossman Contracting firm out of Houston, Texas, and out of that we got a consent decree which required the department to establish a small business enterprise program that would be without consideration to race or gender as far as highway construction and maintenance contracts that are funded entirely with either state or local funds. The idea behind this new SBE program is that it will allow all small businesses to compete on an equal footing with all the contractors, specifically DBE and HUB contractors.

In order for a firm to participate as an SBE, he will be required to get an SBE certification, and to be eligible for SBE certification, the firm's annual gross receipts, including its affiliates, must not exceed the United States Small Business Administration size standards for four consecutive years. The SBA size standards are categorized by four-digit standard industrial classification codes which are stated in 13 Code of Federal Regulations, 121.201.

A firm must meet the size standards for the SIC codes designated by the principal business of the firm. Now, DBEs and HUBs will automatically be provided this SBE certification so we won't have to go back and re-certify any of the DBEs or HUBs who are presently doing business with the department. But other firms who are seeking to become SBE certified will have to submit an application to the department, and our section will be out reviewing those and certifying those firms. The certification should last for approximately two years.

In regards to goals, we will be setting an overall annual goal and the transportation commission will establish these goals on an annual basis for the SBE goals and it will be based upon the availability of certified SBEs. We will not be establishing individual contract goals unless we have a problem meeting our overall annual goals. So initially, we'll be attempting to meet all of these goals through race-neutral type means without any type of goals established on our projects.

In the program manual, we will be utilizing a special provision that has two particular parts. If there is a goal established on a project, we will be using what we call Article A of the special revision which requires as a condition of the contract award that the contractor submit a commitment agreement for each SBE that they intend to use on the project. If the contractor is unable to meet the goal, like on our DBE and HUB program, we will be asking them to provide us with a good faith effort to give us some idea as to why they were unable to utilize SBEs or HUBs on the program.

In the case of projects where there are no goals assigned, we will be using Article B of that special provision and what that article encourages, primarily, is that we would use HUBs and SBEs in subcontracting and material supply activities and to prohibit any type of discrimination.

There will be reporting required; there will be a monthly SBE report and a final SBE report for this program. And this program has been submitted to the Texas Register back on the 14th of April and we were asking for comments up until May 15, and to date I think we have one comment from AGC which had some concerns about the commitment of SBEs on projects without goals at the time of award. We've gone back and looked at those comments and we're making adjustments to our rules where we will allow them the same time frame that we would for projects with goals which would be, I think, 14 days after conditional award.

So that concludes my presentation. If there are any questions, I'll try to answer them now.

MR. HEALD: J.D., and I guess commissioners, now, if I understand this, you know, the AGC, their program is alive and well, it's good, and there's a lot of DBE work out there that the contractors weren't reporting, because they felt like if they reported all that -- they were meeting their goals, previous goals, but if they reported all that -- at least that's what they said -- they felt like that we would raise the goals, we'd step up the bar another notch. So we're really going to strive to capture all the DBE work that's taking place out there, and I think we feel pretty good about it, don't we, Mike, as far as the total numbers?

MR. BEHRENS: (Nodded yes.)

MR. HEALD: So I guess the jury is out right now as far as how it's going to work, but it looks good, and the Federal Highway Administration has approved the program and we're going to give it a lot of attention.

Questions?

MR. JOHNSON: One observation. It seems sort of disingenuous that they would not report accurately. Obviously, there's a motive, but still that's not an excuse.

MR. HEALD: Well, I think that the goals were set fairly high before, several years ago.

MR. DOSSETT: I think it had to do with the understanding or the definition or commitment and goal. A lot of times the contractors would use contractors over the goal, they would write out commitments to them, and those commitments would be in excess of what the actual goal would be for the project, and the posture at that time of the department and Federal Highway Administration was that whenever a commitment was agreed upon, whether it exceeded the goals or not, that that should be what the goal would now become.

And that became kind of a problem with prime contractors, because they were actually exceeding what the established goals were for the project, and to some extent, they felt like they were being penalized by it. So they were only reporting those dollars that were being paid as it related to what the actual goal was, so that's why this has happened.

We met with Federal Highway Administration a couple of years ago and were able to get them to agree that the goals should be whatever the actual goal was established and that anything over that would be in excess of the goal and we would report it; so now they feel a lot more comfortable in reporting those dollars that exceed what the actual goals are.

MR. HEALD: The part about prompt payment to the small businesses, did you get through that issue okay?

MR. DOSSETT: We haven't had any real negative feedback from it, but we've gotten a lot of comments as we've gone across the state providing information about the new DBE program, and it is my understanding -- I heard last week when I was at civil rights conferences -- that there may be some action taken by the national AGC to take a look at whether or not they can readdress how they're going to deal with prompt payment, but across the state so far, it's been a pretty good feel from AGC that that's not going to be a problem.

MR. HEALD: Okay. Any other questions? If not, that will conclude our staff briefing.

MR. JOHNSON: Is there a motion to adjourn?

MR. LANEY: So move.

MR. NICHOLS: Second.

MR. JOHNSON: It is now 8:25 and this meeting stands adjourned. Thank you.

(The briefing was concluded at 8:25 a.m.)