The year 2016 looks to be an exciting ride for the Texas construction industry.
Road building recently got a major kick in the pants when Texas voters overwhelmingly supported Proposition 7 with an 83 percent approval November 3, 2015.
The constitutional amendment will direct funding to the State Highway Fund from the state's sales and use tax, as well as the state Motor Vehicle Sales, Use and Rental Tax.
"It represents the single largest increase in transportation funding in Texas history, without issuing debt," said Texas State Senator Robert Nichols (R-District 3), who authored the proposition.
If the state collects more than $28 billion from the sales and use tax in one fiscal year, the next $2.5 billion of tax revenue will be directed to the State Highway Fund for 15 years - from September 1, 2017 through September 1, 2032. If the state collects more than $5 billion from the Motor Vehicle Sales, Use and Rental Tax in one fiscal year, 35 percent of the remaining revenue collected that year will be added to the State Highway Fund for 10 years - from September 1, 2019 through September 1, 2029. Both may be extended in 10-year increments by a simple majority vote of both Chambers of the Legislature during any regular session.
This was the second time within a year that Texas voters supported creative legislation to fund transportation projects. Proposition 1 also received tremendous support (80 percent) from Texans at the polls November 4, 2014. That constitutional amendment authorizes annual disbursements from the state's oil and gas production tax collections to the State Highway Fund, also without new taxes, fees or debt. Predictions were for an estimated $1.7 billion to be transferred into the State Highway Fund in the first year alone.
Because of the recent drop in oil and gas prices, the Texas state comptroller recently estimated the contribution for 2015 would be closer to $650 million, said Jack Ladd, President of Move Texas Forward, a non-profit corporation dedicated to educating Texans about the state's infrastructure needs and advocating for funding and policies to support transportation infrastructure.
Even with the widespread support and overwhelming success of both Prop.1 and Prop. 7, Texas needs more transportation funding simply to keep pace with current growth, he said. "Prop 7 won't make a whole bunch of new roads and fix all of our problems. It will only ensure we stay at 2010 congestion levels."
Ladd added that Texas is expected to gain 18 million people by 2040, which means an additional 18 million vehicles on Texas roads.
"Without the proper investment, gridlock and roadway safety will worsen, and our economy and quality of life will suffer," he said.
Move Texas Forward will be concentrating its efforts in the next legislative session on protecting toll roads.
"There is a large contingency from the Dallas/Fort Worth/Denton area that wants to get rid of toll roads," Ladd said. "They are targeting some specific ones in that area, but if we get rid of all of them throughout the state, the current $4 or $5 billion funding gap will grow to about $10 billion."
Still, Ladd praises efforts like Nichols' in the state senate and a Texas public that understands and supports measures such as Prop.1 and Prop.7, especially in light of the U.S. Congress' repeated inability to support long-term transportation funding on the federal level.
"They've kicked the can down the road about 36 times since 2009," he said.
President Barak Obama signed into law the $305 billion Fixing America's Surface Transportation (FAST) Act on December 4, 2015.
While Congress was congratulating itself on crafting the first long-term highway and transit bill since 2005 (and overwhelmingly coming to consensus to approve it the day prior to receiving the president's signature), industry experts lamented the plan's insufficiency for providing enough long-term funding for improvements to the nation's aging highway and transit systems.
"The slight boost to overall transportation funding included in this five-year measure will help cut traffic, improve transportation safety and keep our economy globally competitive," said Stephen E. Sandherr, Chief Executive Officer of the Associated General Contractors of America. "We will continue to urge Congress and the administration to find the kind of long-term and sustainable funding mechanisms that the current measure lacks."
Critics pointed out that, despite the bill providing a slight increase in transportation funding, it is still shy of the $400 billion over six years estimates transportation officials say is required to keep traffic congestion from worsening. Nor does the Act increase the gas tax or create any new, ongoing revenue source for the Highway Trust Fund.
"Identifying a new way to pay for highway and transit upgrades is crucial if we want to avoid the temporary extensions and patchwork funding provisions that preceded this bill," Sandherr said. "Ultimately, we want to make sure that the sequel to this bill fully funds our highway and transit program for generations to come."
Changes on the Horizon
Conversely, on the Lone Star State's home front, the biggest short-term challenge may lie in actually delivering $5 billion worth of transportation projects over the next few years, Nichols said.
Ladd agreed that the Texas Department of Transportation (TxDOT) and the Texas Transportation Commission (TTC) certainly have their work cut out for them with the influx of funding, as well as the learning curve surrounding HB 20, passed this past July. HB 20 requires the TTC to develop rules and implement performance-based planning and programming dedicated to providing the executive and legislative branches of government with indicators that quantify and qualify progress toward attaining TxDOT goals and objectives established by the Legislature and the TTC.
It also requires Metropolitan Planning Organizations (MPOs) and TxDOT district staff to work with local officials to develop 10-year plans for the use of funds allocated to their area, and to develop criteria for transportation project selection. TxDOT and MPOs must include the following criteria for consideration in project selection: projected improvements to congestion and safety; projected effects on economic development opportunities for residents of the region; available funding; effects on the environment, including air quality; socioeconomic effects, including disproportionately high and adverse health or environmental effects on minority or low-income neighborhoods; and any other factors deemed appropriate by the planning organization.
In other words, under HB 20, the TTC and TxDOT are required to develop and implement a scoring system to define to legislators and voters why particular projects get funded before other ones, as well as keep track of the progression of that funding throughout the duration of the projects.
"HB 20 has removed a lot of the tools that TxDOT used for design-build contracts, and has also moved the prioritization of projects toward more localized control as opposed to more central," Ladd said. "It has also reduced commissioners' discretionary spending and made it more difficult for TxDOT to recruit the type of people they want."
By the beginning of December, it was still unclear how HB20 would affect TxDOT operations, but Ladd predicted a decrease in delivery of projects for 2016, despite the increase in funding.
"The legislature had good intentions in ensuring no favoritism or cronyism, but I think they went at it with a hatchet instead of a scalpel," he said.
The new scoring process had not been released by press time for this issue of Texas Contractor.
However, Russell Zapalac, TxDOT's Chief Planning and Project Officer, said in late November that, although things had not yet been finalized, TxDOT didn't anticipate major changes in how projects will be delivered or contracts let.
"The department will work closely with our partners around the state in the contracting and construction community to ensure they are given an opportunity to provide input," Zapalac said. "As TxDOT moves forward with implementation of the new, performance-based planning and programming processes and design-build changes called for in HB 20, these processes will be incorporated into the project delivery methods to ensure the right projects are delivered by the best method; whether it is through traditional or design-build contracts."
The design-build provisions of HB 20 and Rider 47 of HB 1 have increased the minimum highway project cost estimate from $50 million to $250 million, a change that may make it more difficult to expedite the delivery of some much-needed smaller projects, Zapalac noted.
However, he added that, in addition to traditional and design-build project delivery, Texas law allows for issuance of Comprehensive Development Agreements.
"CDAs provide the broadest range of options for structuring projects," Zapalac said. "These projects can be procured using a best value process, which considers factors such as experience, safety management, expedited construction schedules, innovations, long-term maintenance requirements and price to determine the best value to the state."
TxDOT Aviation Capital Improvement Program
In addition to its road surface transportation program, TxDOT's Aviation Division contributes to the state's overall economic vitality by helping cities and counties obtain and disburse federal and state funds for reliever and general aviation airports included in the Texas Airport System Plan (TASP).
TxDOT's Aviation Capital Improvement Program (CIP) is a plan for general aviation airport development in Texas, including a detailed listing of potential projects based on the anticipated funding levels of the Federal Aviation Administration (FAA) Airport Improvement Program (AIP) and the Texas Aviation Facilities Development Program.
Through multi-year programming, the FAA, TxDOT and airport sponsors are able to more easily anticipate airport needs and accommodate changes in project scope, cost, and schedule.
· The Aviation CIP is a tentative schedule of federal and state airport development projects for the years 2016-2018. It is developed based on the following assumptions about future annual federal and state funding:
Approximately $19 million annual federal AIP funding throughout the period, plus $24 million in Non-Primary Entitlement Funds
· Approximately $8 million average, annual federal discretionary funding throughout the period
· Approximately $16 million annual Texas Aviation Facilities Development Program funding throughout the period
Because of year-to-year funding uncertainties, the TxDOT Aviation Division programs slightly more dollars during each fiscal year than can be funded. During project development, technical analysis may lead to significant changes in project scope, cost, timing, and funding source. Some projects may require additional time for development before implementation, causing them to be postponed. By allowing a small amount of leeway for flexibility, the Aviation Division is able to replace postponed projects with well-developed projects to best use available funding.
Inclusion of a project in the CIP is not a commitment for future funding. However, projects in the CIP are under strong consideration for funding.
The 2016-2018 CIP represents a significant investment in preserving and expanding the Texas Airport System. Approximately 80 percent of the funds programmed for this plan are allocated for Safety and Preservation of system airports, primarily projects designed to meet design/safety standards, security enhancements and pavement preservation. Approximately 20 percent of the CIP is currently programmed to enhance our system in the form of new or extended runways, expanded aircraft parking aprons and aircraft hangar developments - all based on local demand for increased capacity. This continues TxDOT's ambitious vision of preserving system assets while dramatically enhancing safety, capacity and function.
The 2016-2018 CIP currently includes about $238 million of general aviation airport improvement projects. Over the three-year period, this represents programmed project funding of about $148 million federal, $54 million state, and $36 million in local contributions.
The FY 2016 budget is currently estimated at $87.7 million, and the 2017 FY budget is anticipated to be $90 million. Through November 2014, TxDOT had already awarded $7.2 million in projects for FY 2016, which accounts for approximately 67 percent of state-funded ($10.9 million) aviation projects at community airports across the state.
A Projection on Texas Ports
The future is equally exciting for Texas ports as they work to satisfy their current and future customers' needs.
Texas ports have invested more than $300 million in capital improvements since 2010, according to the Texas Ports 2015-2016 Capital Program Executive Summary. Improvements are both to support continued business in agriculture, chemical processing, warehousing, distribution and recreational cruising, and also to support the extraordinary growth due to shale plays in the U.S. and Canada and anticipated, increased container cargo traffic due to the expanded Panama Canal channel, which is scheduled to open this year.
In early December, even as Governor Greg Abbott toured the Cuban Port of Mariel, a port 30 miles west of Havana that has been dredged 60 feet deep to accommodate Post-Panamax vessels, McCarthy Building Companies, Inc. was preparing to mobilize on a $38.7 million upgrade of Wharf 2 at the Port of Houston Authority's Barbours Cut Terminal designed to upgrade the existing Wharf 2 to support larger wharf cranes that can accommodate the larger vessels that will be traveling through the Panama Canal.
The PHA project includes upgrading 1,000 linear feet of wharf, installing new foundations and crane rails, and construction of a new stevedore support building, high mast poles and the electrical infrastructure required for three, new 100-foot gauge electric dock cranes.
McCarthy previously completed (fall of 2014) another project on the adjacent Wharf 1, which included the rehabilitation of a 1,333 linear foot structure used for the receipt and shipment of containerized freight intended for both foreign and domestic trade. Completion of the Wharf 2 project is scheduled for early 2017.
Some, including Lieutenant Governor Dan Patrick, have been saying that not enough is being done to prepare Texas ports for the larger, Post-Panamax vessels, and that Texas may wind up losing future business to other states along the Gulf and East Coasts.
Others, such as Harris County Judge Ed Emmett, counter that Texas ports stand to gain more increased activity from a boost in the natural gas shale plays and liquefied natural gas exports, rather than larger container cargo imports.
Regardless from whence the increased business comes, Texas ports will struggle to keep pace with the requisite maintenance and capital improvements construction, according to a press release issued by the Port of Corpus Christi October 5, 2015 that labeled America's seaports as "endangered."
According to the release, a $9.3 billion U.S. trade loss is projected from the use of undersized vessels in shallow harbors and narrow channels by 2020. Added product costs due to shallow harbors may reach $14 billion by 2040.
Furthermore, the same crumbling surface highway infrastructure issues that affect traffic congestion in Texas cities also adversely affect business at ports.
Also stated the Port of Corpus Christi release, "In a recent report by the American Association of Port Authorities, Texas port leaders identified the need for more than a billion dollars in landside freight infrastructure investments over the next decade. Nationwide, nearly one in three port leaders said they need at least $100 million in intermodal upgrades to handle projected 2025 freight volumes. The total investment required across all port locations is estimated to exceed $29 billion."
About 20 percent of all U.S. port tonnage goes through Texas ports, and three of the state's 16 ports - Houston, Beaumont and Corpus Christi - are among the nation's busiest, said John LaRue, Executive Director of the Port of Corpus Christi and Chairman of TxDOT's Port Authority Advisory Committee.
Again, according to the Texas Ports 2015-2016 Capital Program, in 2012, Texas was the number two state in the nation for waterborne commerce defined by tonnage, moving over 485 million tons of cargo, and the number two state for cruise passengers, exceeding 1.2 million travelers per year. Texas ports generate over $5 billion in local and state tax revenue, and over $9 billion in federal import tax revenue each year.
LaRue adds that the recent passage of the Water Resources Reform and Development Act of 2014 (WRRDA) provides promising opportunities for the growth of Texas ports. WRRDA authorized new channel deepening projects for the Port of Freeport and the Sabine-Neches Waterway, and reauthorized the deepening project for the Corpus Christi Ship Channel.
Getting authorization for the projects is the first step to receiving federal funding for design and construction, LaRue explained.
Port of Houston
Dredging and road building are certainly ongoing components of the Port of Houston Authority's $200 million annual construction program, said Brock Lewis, P.E., the PHA's Chief Construction Manager Over Project and Construction Management, but the Panama Canal expansion is driving much of the work there.
"We are dredging, digging and doing everything to get ready for it and hoping that if we build it, they will come," Lewis said.
In the next few months, the PHA will be letting a contract for a massive container yard. The 25-acre Container Yard 6 South will be constructed adjacent to another, 21.5-acre container yard currently being built by Trans-Global Solutions, Inc. of Houston, for a contract of $23.8 million.
Port of Victoria
The Port of Victoria is also taking a similar "if we build it, they will come" approach with plans to double an eight-berth barge dock that was completed this past September.
The formerly deemed "sleepy, little" Port of Victoria has been bustling with new business in recent years as a result of the nearby Eagle Ford Shale play. The shallow draft port, about 25 miles inland on the mid-coast of Texas, went from having no oil moved across its docks in 2010, to 2 million barrels per month in December 2013. The amount of oil and condensate moving through the port and on to refineries remained steady from 2014 through 2015, averaging 2.1 million barrels a month for a total of 25.2 billion barrels each year.
"We had more than 18 million barrels total in 2013 and less than 1 million per month the year before that," said Mike Sizemore, with Sizemore Media, which represents the Port of Victoria (POV). "Every month, it seems like we set a new record on oil, and we've got a huge frac sand operation."
By the end of 2013, more than 700,000 tons of the sand used in fracking operations had been delivered to the port by barge or rail transport. That amount decreased with the slow down in exploration and drilling - from 40,110 tons per month in 2014 to an average of 23,657 tons per month in 2015.
However, the port also continues to be home to Fordyce Holdings, Inc. (the port's oldest customer) and other sand, gravel, fertilizer, oil and gas midstream companies and chemical operations.
While the port has invested in projects to expand its capacity - including a 155,000-square-foot dock completed in late summer 2014 and the recently completed eight-berth barge dock - keeping pace with the growing cargo volume has been a challenge for port facilities and staff.
Crude oil is transported from the Eagle Ford area to the Port by truck, rail, and pipeline. It is stored and then loaded onto barges. Barges move south down the Victoria Canal and then east and west on the Gulf Intracoastal Waterway (GIWW) to refineries in the Houston and Corpus Christi areas.
The port's barge transport has been working 24/7 to maintain throughput, and the crude oil boom is expected to remain strong until 2040.
The port will have about $9 million of projects underway in 2016, the most sizeable being construction of a mirror of the recently completed barge dock, said Skip Kaup, the port's Executive Director. "We are going to basically be doubling the capacity of that wharfage."
The port will also be addressing some infrastructure needs, including adding an access road.
"Our primary goal is to make the port more attractive for companies that want to expand," Kaup said. "Adding more infrastructure makes us more attractive. If you're just a green field, companies say, "˜Yeah, it's a nice piece of property but how do we access it?'"
Sizemore added that one of the port's sites became a McCallum Sweeney certified site in early 2015. The designation indicates a site has been pre-qualified for environmental, flood zones, etc.
"When major manufacturing, or petro chemical developers are performing site selection their projects, that certification indicates to them that the preliminary work has been done," Sizemore said. "It puts us in a position to better compete for large projects."
Port of Galveston
There will definitely be more opportunities for work with the Port of Galveston in 2016 than there have been in prior years, said Peter Simons, Deputy Port Director responsible for operations and engineering.
The Port of Galveston's total construction budget for 2016, as approved by the board in November, is $51 million, including $27 million in new project starts and $23 million in projects currently underway.
Simons explained that the entire amount of new projects wouldn't be completed in the 2016 calendar year, as some projects will take longer than 12 months.
The port awards the vast majority of its construction projects as best value contracts, he added. "We don't simply look at the bottom line with respect to the construction projects. The first year I started here, we hired a contractor with the lowest bid, and it turned out to not be the lowest with all of the delays and change orders."
The port posts all construction opportunities on its website and interested contractors may sign up to receive automatic notices of all port lettings.
"We are also available to meet with companies to discuss their capabilities and interests, and we'll share with them the port's anticipated capital investment plan," Simons said.
At 55 percent, the recreational cruise industry represents the lion's share of business at the Port of Galveston, already the fourth largest cruise terminal in the U.S.
A $13.1 million, 60,000-square-foot project to expand and improve the Port of Galveston's Cruise Terminal 2, the largest ongoing project at the port, will wrap up in 2016.
The project will almost double the terminal's current capacity and includes three components.
Webber Construction is building a two-story structure that will be connected to the existing terminal building by a walkway. Once the project is completed, the existing building will be wholly dedicated to debarkation, Simons explained, and the new building will be wholly dedicated to embarkation operations, including security screening, check in, waiting and boarding facilities.
Texas Gulf Construction is responsible for the second component of the project -upgrading the moorings the ships tie off to, and the port is performing renovations to the existing cruise terminal building.
The cruise terminal project has already attracted new business for the port.
"Disney Cruise Lines returned to the Port of Galveston this year with the arrival of the Disney Wonder in early November," Simons said. "She will be hosting seasonal cruises for the 2015-2016 winter season."
Royal Caribbean's Liberty of the Seas also recently re-positioned to the port from her previous port in New Jersey, Simons said. "She is replacing the Navigator of the Seas, but the Liberty carries 600 more passengers."
Through an unprecedented, innovative partnership, construction is underway on a new vehicle-processing center operated by Wallenius Wilhelmsen Logistics Vehicle Services Americas (WWL-VSA).
"It's a partnership between the Port of Galveston and WWL-VSA, which will be importing BMWs into the U.S. and working with the manufacturer to perform repairs and upgrades to the vehicles," Simons said. "It will be sort of a dealership on steroids, operating from a multi-building complex that includes processing, car wash and re-fueling buildings to process vehicle imports and then ship them to dealerships in Texas, Louisiana, Oklahoma, and points beyond."
The venture represents a significant economic development opportunity for the City of Galveston and the Port of Galveston, promising 33 full-time factory-trained technician positions, as well as jobs for 20 longshoremen and security-related positions to support the facility.
"It's a departure from what the port normally does," explained Simons. "Most of what we have are roll-on/roll-off cargo, including construction equipment and farm equipment, some oil and gas support work and some Del Monte fresh fruit imports from Central America."
Another big project that will kick off at the Port of Galveston in 2016 is the $17.5 million - $23.5 million project to fill in one of the slips at the east end of the port, creating new cargo storage area.
"The project will involve constructing a steel sheet pile wall in front of the existing slip area to create 4.5 acres of upland with either asphalt or concrete paving," Simons said. "The budget range depends on how much cargo storage area will actually be created."
Simons anticipated the design work would be awarded by the end of January and awards for construction contracts would start in late February or early March. Many other "typical marine construction" contracts will also be awarded in 2016, including replacing pilings, concrete decks and pile caps, Simons said.
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