Call to Order and Roll Call
The3rd meeting of the Interim Joint Committee on Transportation was held on<Day> Tuesday, September 3, 2013, at 1:00 PM, in Room 149 of the Capitol Annex. Representative Hubert Collins, Chair, called the meeting to order, and the secretary called the roll. A quorum was present, and the July 22, 2013 meeting minutes were approved.
Members:Senator Ernie Harris, Co-Chair; Representative Hubert Collins, Co-Chair; Senators Jimmy Higdon, Paul Hornback, Ray S. Jones II, Morgan McGarvey, Dorsey Ridley, Albert Robinson, John Schickel, Brandon Smith, Johnny Ray Turner, and Whitney Westerfield; Representatives Kevin D. Bratcher, Denver Butler, Leslie Combs, Tim Couch, David Floyd, Keith Hall, Richard Henderson, Kenny Imes, Jimmie Lee, Donna Mayfield, Charles Miller, Terry Mills, Rick G. Nelson, Tanya Pullin, Marie Rader, Steve Riggs, Sal Santoro, John Short, Arnold Simpson, Diane St. Onge, John Will Stacy, Fitz Steele, Jim Stewart III, and Addia Wuchner.
Guests: Mike Hancock, Secretary, Transportation Cabinet; Tammy Branham, Executive Director, Office of Budget and Fiscal Management, Transportation Cabinet; Nancy Albright, Executive Director, Office of Project Delivery and Preservation, Transportation Cabinet; Tom Underwood, State Director, National Federation of Independent Business; Ryan Flota, President, Kentucky Household Goods Carriers Association; and Raleigh Brunner, Wildcat Movers.
Discussion of the Household Goods Movers Certificate Process
Tom Underwood, State Director, National Federation of Independent Business, discussed the Household Goods Movers Certificate process and the coinciding proposed bill (BR 92) that will be sponsored and introduced in the 2014 session of the General Assembly by Senator Tom Buford. Mr. Underwood stated that in allowing more Kentuckians to be able to start their own businesses, and work together in the household goods moving industry, better service is provided for consumers. The proposed bill gives the Transportation Cabinet more authority and autonomy in terms of regulating the industry.
Section one of the bill directs the Transportation Cabinet to issue a household goods certificate to any qualified applicant, if the applicant conforms to the provisions of KRS Chapter 281 and the administrative regulations. It also removes house goods certificates from the situs requirements of KRS 281.625, and directs the Transportation Cabinet to promulgate administrative regulations to establish requirements and set forth standards for household goods carriers (requires at a minimum, keeping the same regulation currently in force.)
Section two of the proposed bill exempts applicants of household goods certificates from notification requirements and the protest process outlined in KRS 281.625. Section three exempts household goods certificates from the certificate issuance provisions and the certificate transfer provisions of KRS 281.630. Section four establishes an initial application fee of $250 for household goods certificates. Section five establishes a fee of $250 for renewal of household goods certificates.
Section six of the bill requires household goods certificate holders to obtain and retain criminal background checks of employees who have direct contact with the public or may enter into a private residence or storage facility, for a period of three years. It also requires that background checks be performed at the expense of the certificate holder, completed prior to employment, and completed using an entity from an approved list issued by the cabinet. Lastly, section six directs the cabinet to promulgate administrative regulations to implement this section, including a list of disqualifying criminal offenses.
Mr. Underwood thanked Chairman Collins, Senator Buford, and The Household Goods Movers Association for working together to create legislation to resolve the issue to the best benefit of the industry and the consumers. He stated he appreciates the fruitful and constructive interaction between all parties involved.
Mr. Flota added that the current law stands as a protest provision where competitors are allowed to protest an application, and historically that has amounted to what competitors veto, so new moving companies cannot get into the industry. This bill does away with the competitors veto process. President Flota thanked the committee members for their time.
Mr. Brunner thanked all participating parties for allowing the issue to be resolved. He stated the protest portion of the law was written over 50 years ago and it is inadequate to move forward. He stated he wants to see new businesses welcomed to Kentucky.
In response to a question asked by Representative Floyd, Mr. Underwood stated the intent of the background check portion of the bill is to disqualify people who have been convicted of violent crimes or sex crimes. Therefore, customers will know that the movers they have in their homes have not been convicted of those types of crimes. The bill draft gives the cabinet authority to draft the list of disqualifiable offenses and it would follow the regulatory process and in be given to the Administrative Regulations Review Committee. Representative Floyd stated that someone who has been convicted and served time has already served the time, and is limited for the rest of his or her life on so many job opportunities. Representative Floyd does not want this provision to be another limitation.
In response to a question asked by Representative Floyd, Mr. Flota stated a person or persons that offer their services to move household goods for profit will have to adhere to the process outlined in the proposed bill in order to ensure consumer protection. Mr. Underwood added that the bill makes a dramatic structural change in allowing people to enter the market on a level playing field. This change to the law would create the best protection not only for the consumers, but for the movers as well.
Chairman Harris encouraged the cabinet to be thinking about what disqualifiable offenses to list, and as the Chairman of the Administrative Regulations Committee, he stated as long as the list meets the intent of the legislation, it would allow the cabinet authority to act on the list and a non-compliance letter could be issued if need be. Chairman Harris stated there needs to be something in legislation to clarify the list of disqualifying offenses.
Mr. Underwood stated the bill is still in the molding stage and both points from Chairman Harris as well as the point brought forth by Representative Floyd are still able to be discussed.
Chairman Collins thanked all parties for their cooperation that resulted in a proposed bill.
Road Fund Receipts Update
Mike Hancock, Secretary of the Transportation Cabinet and Tammy Branham, Executive Director of the Office of Budget and Fiscal Management gave a brief update on road fund receipts.
Ms. Branham stated that for 2013 fiscal year (FY) the official revenue estimate was just shy of $1.5 billion. The revenue that was actually collected in FY 2013 was $1.4916 billion, missing the estimate by only $8 million. The largest difference in the estimate and actual figures was $12 million in motor fuels taxes, which is largely attributed to the decline in vehicle miles traveled and taxable gallons consumed. Taxable gallons were on the decline in 11 of 12 months: in FY 2013 compared to FY 2012. Vehicle miles traveled were down or constant nine of the last twelve fiscal months over the previous year.
In response to a question asked by Chairman Collins, Ms. Branham stated if everything remained constant, including consumption and vehicle miles traveled, and the 2.4 cent per gallon increase stays in effect for all of FY 2014, she estimated an approximate $58 to $60 million in additional revenue will be collected in FY 2014.
Ms. Branham stated the cabinet was able to lapse $17.7 million Road Fund dollars through the surplus expenditure plan to the state construction program closing in FY 2013. There was a 3.3 percent growth the Road Fund from FY 2012 to FY 2013, most of the growth being in the motor fuels area.
In FY 2014, the cabinet is still operating under the official enacted Consensus Forecasting Group (CFG) estimate which is $1.5682 billion. Based on CFG’s August estimate, it anticipates slightly lower road fund revenues than in previous projections. Ms. Branham stated if the August estimates were to hold true, the projected $37 million reduction in motor fuels taxes from the current estimate would be revenue shared. About 48.2 percent of that (or approximately $18 million) would be lost by the various revenue sharing programs. Part of the reason is the price of fuels will not maintain the current variable tax rate for the second quarter of FY 2014. It is anticipated it may drop slightly after the next survey month.
Vehicle usage tax projections are stronger than were anticipated in December of 2011, primarily because in recent years people have been driving their cars longer, and now those cars are becoming less reliable and consumers are being forced into the market. The other taxes category projections are expected to be $13 million less than the official estimate.
In response to a question asked by Chairman Harris, Ms. Branham stated the current per gallon tax for gas is 32.3 cents, but that includes 1.4 cents that goes to the Underground Storage Tank Fund. The variable portion of the tax that is subject to be adjusted each quarter is currently 25.9 cents.
In response to a question asked by Chairman Collins, Ms. Branham stated if the average wholesale price (AWP) drop doesn’t happen before the session, and the AWP was frozen during the session, that would prevent the tax from falling any lower than current levels.
Chairman Harris stated he and Chairman Collins recently attended a meeting at the National Conference of State Legislatures, and after hearing discussion among other states, he realized how fortunate Kentucky is that gas tax that is indexed with inflation, and the Kentucky Constitution keeps General Fund money separate from Road Fund money.
Road Fund Cash Balance Status Update
Ms. Branham gave a Road Fund cash balance status update and referred to September of 2007, which is when cause for the current cash balance could be linked to. There was a low point in August of 2009, but in September of 2007 the cabinet began to realize that the program was overloaded from a cash perspective. In September 2007 an internal committee for the Road Fund Cash Management Program met and realized that almost $405 million worth of project obligations were going to be added to the cash management plan that had not been anticipated.
Ms. Branham stated in order to give an idea of what $100 million means to the program and trying to balance cash to a floor of $100 million, based on the spending for FY 2013, $6 million per calendar day or 8.4 million per work day at a $100 million cash floor amount is only 16.7 days working capital per calendar day, or 12 days based on a work day. Therefore $100 million does not stretch far when it starts to hover around the floor.
In 2007, there was an influx of project obligations against the road fund program unexpectedly and the economy began to take a turn for the worse. The cabinet cut $445 million of resources from the model during FY 2008, FY 2009, and FY 2010 cash projection outlooks. The Road Fund cash projections nosedived and the program was halted. From January of 2008 through September of 2010, the cabinet made only a net $12.4 million in authorizations in the state construction program. To put that in perspective, 2006 saw $336 million worth of authorizations and in 2007, $771 million.
Ms. Branham stated the cabinet experienced a $264 million Road Fund budget cut at the beginning of FY 2010 and over 2 years later, after it began to hit the brakes on the program, things were still looking bleak. However, the construction program was kept going because the cabinet then had the American Recovery and Reinvestment Act (ARRA) funds, as well as economic development and GARVEE bond programs since 2005. The cabinet has had $2.4 billion dollars in bond authorizations.
Things began to take an upward turn in March of 2010 as $45 million of the $264 million Road Fund budget cut was restored to the state construction program. Debt restructuring was legislated which reduced current debt service. In FY 2010, FY 2011, and FY 2012, revenues exceeded expectations by more than $110. Because of general cabinet-wide Road Fund slowed spending, $160 million was lapsed in those three fiscal years to the state construction account through the surplus expenditure plan.
Because the construction program was kept going through other sources, in 2007 the cabinet had more than $600 million in construction phase projects on the books and in the works. Ms. Branham stated today there are just around $300 million of those projects on the books. The construction projects are spending out so much faster than the design, right-of-way, and utility phases, resulting in very large cash balances. Currently, the total outstanding unspent obligation in the state construction program is $746 million of which $353 million (47 percent) are state priority project (SPP) obligations.
Secretary Hancock stated as the 2012 highway plan was put together, one of the things the cabinet worked hard to accomplish was to look at how much cash was anticipated to come into the program, and then try to balance that with expenditures as best as possible. The cabinet put some very quick spend projects in the Governor’s recommended highway plan to try to move some pavement rehabilitation projects. There was also a large amount of state money that was allocated to the I-65 widening project in south central Kentucky. That was done in order to spend the cabinet’s cash balances down and use federal funds in other areas.
Secretary Hancock stated in FY 2009, there have been two Base Realignment and Closure Commission (BRAC) bond issues where the cabinet put $156 million in BRAC bonds to work. There is a $400 million SPB bond issue that is obligated in full. The cabinet has obligated approximately $250 million of a $400 million SB2 bond issue, at the same time the cabinet had had ARRA funds that were in progress. The state expended approximately $421 million of federal funds under the ARRA expedited construction program.
So far in the biennium, the cabinet is on track regarding SPP funds. Approximately half of the funds that have been indicated for SPP have been obligated. Many projects in the pipeline have significant design, utility and right-of-way requirements and as the cabinet attempts to do its best to spend those dollars quickly, right-of-ways can only be relocated so quickly, and utility lines can only be relocated so quickly.
As the cabinet works to complete these projects, it has tried to continue the state program and the federal programs moving along in parallel. The cabinet has also tried to target about $1 billion per year of lettings that go to construction each year and has been successful in the last couple years meeting that. Since 2008, including the $900 million Louisville River Bridges project in the estimates, in five years the cabinet has awarded $5 billion worth of highway project awards. That kind of program needs a baseline of support from design, right-of-way, and utilities, and as demonstrated, those things do not spend out quickly. The program has a lot of design, right-of-way and utility work that will pay off in construction projects going forward. This must be remembered when evaluating the current cash balance, which, at $500 million, is much higher than it should be.
Secretary Hancock concluded by saying if the current cash balance and the proposed projects that the 2012 General Assembly told the cabinet to focus on are compared, the cabinet is in the process of making those projects pay off over time. Therefore, the money that is in the bank today will be needed to complete those projects. If the cabinet expedites the spending of that money today and spends it on quick spend items other than the items the General Assembly instructed us to spend it on, then the cabinet will spend money that will not be there for the projects in the pipeline. It is an important consideration to make. There are those in the industry and other places who would say that the cabinet has a big balance and needs to spend it. There is no one who wants to spend this balance worse than he does, because he knows the message it sends and it says that the cabinet is not spending the money quickly enough. However, he feels that data shows the cabinet is very conscientious; it closely monitors where the cash is coming from and where it is going. The balance is a result of a lot of factors, some of which the cabinet has control over, some of which it does not. The cabinet is working hard to spend that cash down. He does not feel like there are apologies to be made for trying to execute the program the General Assembly put the cabinet back on track to execute.
Representative Combs stated that the Road Fund can be used by the state and has the ability to perpetuate the economies in the areas where roads are being built, by creating jobs, and helping the surrounding counties. She stated that she is aware several out-of-state companies make bids on construction projects, as well as other work the cabinet has. Because there are economic development dollars available to perpetuate in Kentucky communities, she would like to see those jobs contracted out to Kentucky companies, within the best of the state’s ability. She stressed she does not want the state to pay a premium dollar for these jobs, but would like to see the contractors and other people providing services through the cabinet to acquire the best price possible for services.
In response to a question asked by Senator Higdon concerning the $25 application fee and the $25 license fee that is administered by the Kentucky Transportation cabinet (KYTC) for the household goods movers certificate, Secretary Hancock stated he would provide a list to him of other antiquated fees that the cabinet is collecting that might need to be reviewed in the future.
In response to a question asked by Representative Simpson, Secretary Hancock stated the construction process involves open bidding which proves to be difficult in allowing preferences of companies to be made. Furthermore, the cabinet is prohibited from offering in-state preferences for federal highway projects.
Ms. Branham stated that Kentucky law has a limited reciprocal preference process only from a purchasing standpoint and not a highway construction standpoint. If a vendor comes from out of state (example Ohio) and bids on something in Kentucky, and Ohio gives preference to in-state bidders, Kentucky then applies that same preference to its in-state bidders, but only against the bidders from Ohio.
Representative Simpson requested historical figures from the previous five years as to the expense of reciprocal agreements to the state. Secretary Hancock stated he will provide those figures.
In response to a question asked by Senator Ridley concerning replacement of the current motor fuels taxation process in the future because of the vehicle miles traveled usage declining, and the reduction in the use of motor vehicle fuels usage. Secretary Hancock stated the problem has been foreseen for a while as vehicle miles traveled is down across the country. A big reason for vehicle miles traveled being down is because there is a different kind of migration pattern today than was seen in the past. Residents from rural areas in the state are moving to the urban areas because of location convenience. As vehicle miles traveled is decreasing, the vehicle miles per gallon standards are increasing; therefore the traditional means of funding transportation in America is going in the wrong direction.
A good example of this trend is the Federal Highway Trust Fund, funded by the Federal Fuel Tax of 18.9 cents per gallon. There is a congressional desire to sustain transportation at one level of funding, but the income to the Highway Trust Fund is substantially less than that. Congress has made up the difference by infusing Federal General Funds into the Federal Highway Trust Fund. A precipitous decline is anticipated in the year 2015 in which the Federal Highway Program will go from $42 billion a year nationally to virtually zero in 2015. As that occurs, Congress will struggle as it seeks to create a Transportation budget in the current year and later next year. All of these issues are future issues if there is not another way to fund Transportation. All of the states and the United States Department of Transportation are interested in the trend and concerned as well. Secretary Hancock stated in 20 years if something has not changed, the roads will merely be able to be maintained at best.
Chairman Collins stated that states have recently been discussing electric cars, hybrid cars, natural gas, and how they would obtain funds for usage of the roads from citizens that utilize these sources. Some states are charging a flat fee per year for the use of the road. He indicated more natural gas vehicles are emerging. United Parcel Service recently bought 1,700 vehicles and stations will be installed across the United States that will allow them to fill their vehicles with natural gas.
Rep. Hall stated he welcomes the use of liquid natural gas (LNG) and compressed natural gas (CNG). The fuel tax paid under specialty fuels is 30 cents per gallon which goes into the Road Fund. He stated LNG and CNG reduces pollution, and in using them, Kentucky gas would be used.
Overview of KYTC Maintenance Activities
Secretary Hancock stated the need for additional maintenance funding should be a discussion point through the upcoming biennial budget process. The maintenance budget has been frozen at the current level since 2010, and while the cabinet has gotten by, it has just barely gotten by.
Nancy Albright, Executive Director, Office of Project Delivery and Preservation gave a brief overview of the KYTC maintenance activities. Ms. Albright highlighted the five major areas of maintenance: 1. Roadway Maintenance, which includes snow/ice removal, mowing, tree/bush issues, striping, pothole patching, ditch cleaning, pipe/culvert repair, litter/dead animal pickup, guardrail repair, and replacing missing and damaged signs; 2. Bridge maintenance includes deck replacement, structural steel repairs, expansion joint repair/replace, piers and other substructure repairs, paint, and emergency repairs; 3. Traffic Maintenance includes traffic signal installation, operations and repairs, new sign installation, operating and maintaining of roadway lighting, intelligent traffic systems, 511, and operation and maintenance of the Cumberland Gap Tunnel; 4. Guardrail maintenance includes addressing uninstalled guardrail needs, one mile of guardrail costs approximately $142,200; and 5. Rest area maintenance which includes contracts for custodial services and grounds keeping and inspecting properties for contract compliance. Ms. Albright stated these maintenance tasks are addressed for approximately 15,000 miles of road networks that the state owns.
Ms. Branham stated the maintenance budget has not increased since 2010. The current maintenance budget is just under $325 million, which is no longer able to adequately address the maintenance operations. The list of maintenance activities that was provided is lengthy, however it is just the highlights and does not include some of the smaller things that are too numerous to mention. No program can be sustained at its current level for 5 fiscal years without any current growth without some loss of service, and the same applies to the cabinet’s maintenance program. Lack of timely maintenance will lead to early replacement costs, leading to a pay now out of the maintenance fund, or pay later out of the construction fund scenario. The maintenance budget has been underfunded since 2003 and the cumulative effect is now being felt.
In response to a question asked by Chairman Collins, Ms. Branham stated when a guardrail is damaged, it attempts to collect repair funds from the liability companies of the vehicle owner that caused the damage, but is often not successful. Secretary Hancock stated the percentage of repair funds that is collected is a low percentage.
In response to a question asked by Chairman Collins, Ms. Albright stated the cabinet has not installed raised reflectors in the center lines since 2007, however, it maintains reflectors in certain areas such as two-way left turn lanes, and interstate interchanges.
In response to a question asked by Chairman Collins, Secretary Hancock stated the needs far outweigh the ability to meet them, and as a result a modest request would be made to increase funding in the upcoming budget process. Chairman Collins agreed that it was in the best interest of the state to keep the roads in good condition and in order to do that, there must be maintenance funds available.
In response to a question asked by Representative Bratcher, Ms. Albright stated the cabinet has an agreement with Jefferson County to maintain the roads. The cabinet maintains the higher order roads, such as interstates and major thoroughfares while the metro government maintains the lower order roads. The main reason for that agreement is so there is no confusion and duplication of effort or roads missed. In the agreement, whoever is plowing a particular route plows the whole way from point A to point B. Ms. Albright stated that system really seems to be working well and is more efficient. The Louisville Metro Government sends the Kentucky Transportation Cabinet a bill for the work that it performs on state roads every month. That bill is reviewed and processed to pay for the work that was done as long as there is documentation of work.
In response to a question asked by Representative Short, Secretary Hancock stated there are only two two-lane parkways, and they are both in Eastern Kentucky, but he will confirm that answer.
In response to a request from Representative Short, Secretary Hancock stated he will provide the Committee with a percentage of the state approved contracts that are awarded to out of state contractors.
Ms. Albright stated much of the maintenance work is unforeseen because of Mother Nature or father time leaves the state with a situation that needs to be addressed immediately and is unpredictable. The biggest of those situations is winter and snow/ice removal. There are costs that are incurred every year to prepare for winter weather even if that weather never occurs. Those costs include buying salt, calcium chloride, and getting the salt trucks prepared. The cabinet also has to hire and make sure the contractor partners are available to help with cleanup. Even in a relatively mild winter, keeping the roads drivable costs several million dollars.
In response to a question asked by Chairman Collins, Ms. Albright stated any funds that are saved in the previous years do carry over.
Ms. Branham stated that 2011 was a bad winter and fortunately 2012 was much milder. If Kentucky would have experienced the same level of ice and snow clean up in 2012 as it did in 2011, the Department would have been completely over budget by the middle of March in 2012.
Ms. Albright stated that while the maintenance budget has had an increase in the budget from the 2003 levels, the cost of work needed and getting that work accomplished likewise increases over time. She stated the effect of deferred maintenance in the system is also reflected by poor pavements. Poor pavements are defined by a visual assessment, pavement roughness testing, and traffic volumes. There are higher expectations for the higher traffic volume roads, therefore those roads have a higher level of service that they have to meet. Poor pavements, as the cabinet defines them, means that the roads need to be resurfaced at least within the next year. Occasionally it may mean the road needs more than resurfacing. Currently, the recommended amount is that 28 percent of the payments need to be addressed next year. The cabinet will be unable to address all of those roads, so there work will be left undone. As more roads become in a state of poor condition, and are being patched instead of resurfaced or rehabilitated, they cost extra money just to keep them open and passable, until the cabinet can resurface them.
The same situation holds true for the bridges as the roads. The term structurally deficient has been used frequently to define these bridges. Structurally deficient means the bridges need maintenance work. The cabinet owns 585 bridges that are “structurally deficient” as defined by the Federal Highway Administration. There are many more bridges in this category than can be addressed. Many bridges will be added to the list in the upcoming years as fair condition bridges decline into structurally deficient.
The cost of keeping bridges in good repair include, but are not limited to; superstructure replacement with an average cost of $750,000; concrete deck replacement with an average cost of $400,000; concrete overlays at a cost of $250,000; expansion joints repair and replace as well as substructure repairs, and structural steel repairs all at an average cost of $150,000 each; emergency repairs at an average cost of $100,000; bridge painting at a cost of $200,000; and preventative maintenance at an average cost of $15,000. On top of these costs there may be environmental concerns, railroad involvement and traffic control that will impact these costs and make them rise even more.
Ms. Albright stated traffic devices are not something that is discussed frequently until they are no longer working. The Kentucky Transportation Cabinet maintains and operates approximately 5,000 electrical devices (traffic signals, school flashers, and beacons,) and that number grows larger every year. The cabinet no longer has specific funding for rebuilds and upgrades to electrical devices (that funding was previously over $1 million.) The cabinet no longer has specific funding sources for locations that warrant interchange lighting. Projects to improve traffic signal management and operations have demonstrated benefit cost ratios exceeding 40:1. Traffic devices are appreciated by the traveling public and keeping them in good repair is even more appreciated, but as funding is stretched tighter, the ability to keep them working properly becomes harder. As lighting needs increase, funding decreases. The cabinet spends more time maintaining older traffic signal systems that cost more money to keep them operating.
In response to a question asked by Representative Simpson, regarding to snow and ice removal, Ms. Branham stated in January of 2009, parts of the state were hit by an ice storm and counties were left with budgets that were too small to fund the cleanup costs. As a result, the Governor asked the cabinet to explore ways in which Road Fund dollars may be able to be used for clean up. Most of the roads under the snow and ice conditions were covered by either Federal Emergency Management Agency (FEMA) or Federal Highway Administration Emergency Response (ER) funds, and where the counties could not come up with their share, which was 15 percent, the state covered that either out of revenue sharing dollars or Road Fund dollars. If the county could not afford the contract at all, the cabinet covered the expense under the umbrella of contracts in each area and paid those costs for them. The cabinet received a substantial amount of money back in ER funds, but to date it is at $13 million in the estimate of unreimbursed expenses. The money was only Road Fund authorized roads, not parking lots or other entities. Ms. Branham stated that if Kentucky experiences a bad winter, and the funds are exhausted for ice removal, the cabinet will reallocate money that is needed to keep the roads safe and passable.