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A Mississippi Business Journal Q&A: Covering the shortfall a challenge for agency

MDOT director faces tall task with far fewer dollars

Mississippi Department of Transportation (MDOT) executive director Larry L. “Butch” Brown Sr. has a tall task ahead: finding new ways to fund $1.3 billion in outstanding highway contracts and securing money for new projects despite having more than $300 million siphoned from the agency’s budget to the state’s general fund.

Brown, a native of Natchez who earned marketing and management degrees from the University of Southern Mississippi, owned business ventures in the areas of transportation, warehousing, real estate, wholesaling and the hotel trade before serving as mayor of Natchez from 1992 to 2000. He was selected for the top post at MDOT in August 2001 and was confirmed in April 2002. He was briefly ousted last November when state transportation commissioners voted 2-1 to dismiss him, but was reinstated after northern district transportation commissioner Zack Stewart, who voted against him, left office and was replaced by Bill Minor.

The Mississippi Business Journal asked Brown how MDOT plans to cover the shortfall, progression on the state’s intermodal transportation program and the status of other projects.

Mississippi Business Journal: Within a period of one year, one month and a week, more than $300 million will be moved from MDOT’s account to the state’s general fund. Can you recap the legislative action leading to this change?

Butch Brown: For the 2004 fiscal budget, the Mississippi Legislature transferred $50 million to the general fund. This year, the Legislature transferred another $83 million into the 2004 budget that concluded June 30. In addition, for the 2005 budget, they transferred $99 million more. That’s $232 million. For fiscal year 2006, because of the impact and the way the legislators structured the language, we’re now obligated for $76 million, which would hit us on July 1, 2006. You’re talking roughly $308 million, and there’s no recourse, no method for repayment. When the Legislature decides to transfer funds, that’s what they do. They make the law and we have to abide by that. It’s disconcerting to us because dollars collected from fuel taxes are being transferred for a non-fuel tax purpose. Fuel taxes were imposed to construct highways and transportation infrastructure and are now being diverted to other uses.

MBJ: How will the movement of money affect MDOT’s working cash balance?

BB: By the end of fiscal 2005, we’ll be in the red. We’ll have no balance. At this time last year, we had about $340 million in our operating cash balance. Understand that MDOT has under contract about $4.5 billion of work, of which we still owe about $1.3 billion, and that’s without us letting any additional work. Today, we probably have $50 million in that one account. Remember, we don’t have surplus or investment accounts. If you knock a few zeros off and put it into your personal banking situation, you’ll understand how frightened we are.

MBJ: In particular, how did the money being transferred to the state’s general fund affect the retirement of the bonding debts for building gaming roads?

BB: There were $325 million of roads built for gaming industry infrastructure. The gaming funds were dedicated to the retirement of the bonding debts for building the gaming roads. The governor’s action of putting the gaming tax dollars into the general fund means regular fuel tax income is being used to pay off those bonds. It’s an inequitable transfer of transportation funds. Counties that have no gaming revenues are paying for infrastructure in counties that do.

MBJ: What’s the trickle down effect?

BB: Of course, we have less money. We’re a self-funded agency with two incomes: state fuel tax and federal fuel tax. If we don’t have enough state income, then we don’t have enough money to match federal funds. Some people are under the impression that MDOT receives federal money like we automatically receive state fuel tax income. That’s not the case. We have to use our state income to pay the bills and then we send in a bill to the Federal Highway Administration (FHA) for reimbursement. It’s a cash flow problem. If we don’t have enough in our checking account to pay the bills, then we won’t be able to tap the FHA reimbursement account.

MBJ: What alternatives has MDOT considered?

BB: We’ve brought in our senior staff, our colleagues at the FHA, state economist Phil Pepper and his staff and our colleagues at the American Association of State Highway Transportation Officials. We’re reaching out to gather as much information and data as possible. We’re also looking for creative ways to use innovative financing. For example, we’ll use one immediately on the Greenville Bridge, a $300-million project, of which we’ve funded only about $125 million. We generate bridge replacement credits, and we’ve identified about $42 million of bridge replacement credits, which allows us to use credits instead of cash in seeking our reimbursements in matching funds from the FHA. We’ll build another $125 million to $150 million worth of approaches to the Greenville Bridge using a non-cash credit, but the FHA treats it like cash.

Design-build is certainly an option for us now. We’re looking at allowing some private construction so we can turn around and lease-purchase the completed project. For example, if entrepreneurs or public-private entities wanted to build a $100-million highway, they could build it to our specs and those of the FHA. Because it’s reimbursable on an 80-20 basis, our lease amount for the state would only amount to 20% of the lease cost. In other words, if a $100-million project were going to cost us $160 million to lease-purchase over a 20-year period, our annual payments would be $8 million or so toward that lease-purchase. And when we sent in for reimbursement, the FHA would pay 80% of that $8 million. By the end of 20 years, we’d own that project for somewhere in the range of $30 million to $40 million. In times like these, you’ve got to put on your entrepreneurial hat, and I’m really proud of the people that surround me at MDOT because they’re making it work. Even though we can creatively finance some projects, a number of projects would still have to be postponed because we simply don’t have the money.

MBJ: What action concerning MDOT would you like to see take place in the 2005 legislative session?

BB: We hope that legislators, the governor and his staff will all take a deep breath and look at what has been done to MDOT as a result of redirecting gaming fund bond money to the general fund. Just that stroke of a pen creates about a $1 billion net effect on our budget for the next six to eight years and we can’t afford that. We can’t complete our mission of providing a transportation infrastructure, and we can’t operate as a business with those kinds of transfers out of the blue. Those bonds were issued. The bond purchasers were told they’d be paid by gaming fund revenues because they were built in gaming fund venues. That’s not the case any more. It’s making our job very difficult. MBJ: We understand you’re very interested in further developing the state’s intermodal transportation program and that you participate on intermodal councils on a nationwide basis. Can you share your plan with us, and your thoughts on its importance to the economic development of the state?

BB: A law was passed in the 2002 session that established a multi-modal council, and fiscal year 2005 is the first year we’ve put “multi-modal” funding in place. About $5 million is earmarked, and there’s a formula for disbursement of those funds. We hope to grow that amount. We’re encouraging the council to stretch those dollars by leveraging them with federal matching funds and grants. We hope to coordinate a program of intermodalism where we use all of those combinations for a total system of moving goods from point A to B.

Focusing on intermodal transportation is important because our highways are congested. We can’t build them fast enough. Truck traffic is doubling every 10 years. We’ve got to utilize the other modes as best we can to augment the total system.

MBJ: What is the status of the 1987 Highway Program and the Vision 21 Program?

BB: Vision 21 phases in behind the Highway 1987 program, which completes this year. Our movement now is into Vision 21, and we have a $200-million-a- year commitment. We’re going to try to meet that commitment, but it’s going to be very difficult based on what’s happening right now with our funding.

MBJ: MDOT will be taking over some law enforcement functions of the Public Service Commission on July 1. Can you tell us why the change was made?

BB: The Legislature realized we had two agencies stopping the same truck with different jurisdictions, one for weights and permits and the other for equipment and standards. We’ve merged the two, and through attrition over the next three years, we’ll have fewer people involved in the total of two agencies and we’ll be able to do a better job, not only for the state in terms of saving money, but it will also be better for the trucking industry because they’ll have one less agency to contend with.

MBJ: I understand you are in favor of toll roads, but legislation paving the way for the construction of toll roads didn’t pass this session. What are some benefits of toll roads for Mississippi?

BB: Tolling is an option to the user. If people want convenience, speed and less interference, they can use toll roads, but there will always be alternatives in toll legislation that provide for alternative non-tolls. Tolls will never generate enough money to pay for a project in Mississippi, but it will go a good distance in assisting with the debt service of a project. It’s just another arrow in the quiver to help pay the bills. We’ll be back asking for tolls again because we need more money. Even without legislators and the governor’s office interfering, there’s never enough money to go around.

Contact MBJ contributing writer Lynne W. Jeter at mbj@thewritingdesk.com.

About Lynne W. Jeter

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