Response: The rules as proposed do not make any requirement of a specific level of financial strength that must be shown. In fact, §5.53(a)(9) refers the financial strength component specifically toward the capability to develop and complete the project. An entity's proposed project, showing sufficient financial strength through strong project-specific financing, would not be unacceptable absent any other financial information to the contrary. However, that is why overall strength of the entity must be a consideration. No additional action affecting the substance of these rules as proposed is made as a result of these comments.

Comment: Montgomery County notes that several of the proposed amendments place substantial discretion in the hands of the department creating too much subjectivity and, therefore, potentially discouraging participation. For example, proposed §5.54(a) would grant the department the discretion to periodically limit the periods of time during which they will accept proposals based on "circumstances that may impair the ability of entities to equally participate in the program." No further guidance is offered. The subjectivity inherent in allowing the department to periodically determine whether "equal participation" (a vague and undefined phrase in itself) is possible would undermine local initiative and give the department too much discretion. Local transportation needs do not fall neatly into program cycles. Montgomery County recommends focusing on adequate funding for the program and leaving the application process open, rather than allowing it to be periodically closed at the discretion of the department for subjectively determined reasons.

Response: The revised rule allows the commission the flexibility to accept pass-through proposals individually as received or by providing for a program call for a specified period of time during which proposals will be accepted. Some entities have expressed concern about: the time and cost spent in submitting proposals individually when funds are not available; having their proposal equally considered with other proposed projects as opposed to simply which entity is the first to submit a proposal; and knowing which costs would be eligible for reimbursement under a pass-through agreement prior to spending resources to develop a project proposal. This revision allows the commission to consider those concerns under various proposal submission and funding scenarios. No additional action affecting the substance of these rules as proposed is made as a result of these comments.

Comment: Montgomery County states that proposed §5.54(b)(5) would require the notice regarding availability of pass-through financing to specify the categories of project costs that will be considered eligible for reimbursement. This, too, should be a project-specific determination, as the cost categories needed will vary based on the unique characteristics of the project. It should not be up to the department to prescribe this in a "one size fits all" approach. Montgomery County recommends removing proposed §5.54(b)(5) or modifying it to reflect a project-specific approach.

Response: One of the purposes of the new section is to provide some level of program continuation even in periods of very limited cash flow. Another purpose is to extend the opportunity for participation to as many entities as possible. By limiting the financing to specific areas of participation, the limited funds can be extended to more entities and projects, acknowledging that the level of participation on the part of the proposer will increase if specific project cost categories are excluded from reimbursement. No additional action affecting the substance of these rules as proposed is made as a result of these comments.

Comment: Montgomery County notes that proposed §5.55(1) would require the commission to consider the proposer's proposed financial contribution to the project from sources other than the department prior to authorizing negotiation of a pass-through agreement. Montgomery County recommends modifying this rule as well to clarify that financing costs that local entities will bear are included in the calculation.

Response: The commission has consistently indicated that financing costs will not be considered as part of the negotiation of the reimbursement amount. The inclusion of these costs would negate much of the benefit of the pass-through program approach from a state level perspective. No additional action affecting the substance of these rules as proposed is made as a result of these comments.

Comment: Montgomery County states that proposed §5.55(7) would require the commission to consider the potential benefits to regional air quality that may be derived from a project. Montgomery County recommends specifically limiting that requirement to non-attainment or near non-attainment areas, as the benefit of air quality is otherwise irrelevant.

Response: Other than re-numbering, there has been no revision to the current rule language. It continues in its original form. The commission has indicated that one of their goals is improving air quality throughout the State of Texas. The commission has not indicated that this goal is limited to non-attainment or near non-attainment areas. Therefore, this paragraph allows for the entity to make a statement about any potential benefits to regional air quality that may be derived from the project. No additional action affecting the substance of these rules as proposed is made as a result of these comments.

Comment: Montgomery County notes that proposed §5.55 lists several criteria that the commission must consider prior to authorizing the executive director to negotiate the terms of a pass-through agreement. Some of the criteria are far too subjective, including "the extent to which the project would close gaps in the state transportation system" (§5.55(9)) and "the relationship of the proposed project to stated commission goals" (§5.55(17)). There is tremendous subjectivity involved in determining whether or to what extent a project would close gaps in the state transportation system. The relationship of a project to commission goals is equally subjective, as there are not identified goals or criteria against which to measure the project. Again, as noted at the outset, subjectivity in the process reduces its predictability and will discourage local participation, which is not in the best interest of the department or the state. Montgomery County recommends removing these two items from the list of criteria to be considered by the commission or, in the alternative, outlining specific goals or parameters for measuring these criteria to reduce their subjectivity.

Response: The commission and department staff need the ability to consider a project from several perspectives. A project's effect on closing gaps in the system may be statewide, regional, or local in nature. The commission's stated goals of reducing congestion, enhancing safety, expanding economic opportunity, improving air quality, and preserving the value of transportation assets are another set of issues with which projects may be considered. A project proposal should have the flexibility to address these issues from an equally varied set of perspectives and explain the individual project's impact on these issues without restriction. No additional action affecting the substance of these rules as proposed is made as a result of these comments.

Comment: Montgomery County recommends clarifying the time frame for the pass-through agreement discussed in proposed §5.57(b) and changing the reference to the "project development agreement" in the proposed §5.59(c)(4) to "pass-through agreement" and cross-referencing §5.57(b).

Response: The comment is not clear with respect to the time frame discussed in §5.57(b). The agreement will begin upon execution by both parties and terminate upon completion of the reimbursement payments. If the comment references the deadlines for key stages of project development, those deadlines will be negotiated by both parties as part of the agreement and will vary for each individual project. With respect to naming the referenced agreement, the agreement once executed has to do with the development of the project and the reimbursement schedule. While the suggested reference could be used, the agreement reference to project development seems more definitive at the point of agreement execution. No additional action affecting the substance of these rules as proposed is made as a result of these comments.

Comment: Montgomery County recommends that proposed §5.57(b)(4) be deleted. Pass-through financing was established as a means for local communities to accelerate the development of needed transportation projects by allowing local entities to seek reimbursement from the department for upfront costs of constructing or expanding a state highway project. As a result, local control, and more specifically the delegation of control over key project development responsibilities to local entities, is a critical component of the pass-through program. Yet, as noted previously, many of the proposed changes have the potential to erode local control. For example, proposed §5.57(b) sets forth various requirements for the contents of a pass-through agreement, including "allocation of responsibility for all significant work to be performed, including environmental documentation, right of way acquisition, utility adjustments, engineering, construction, and maintenance" (§5.57(b)(4)). Montgomery County submits that there should be no "allocation" of responsibility for the referenced activities - those responsibilities should, as they do now, remain under control of the local government sponsor. Making these negotiated items in a pass-through agreement means that the department may try to assume responsibility for some or all of the activities. That, in turn, divests the local entity of control over important project development functions and introduces uncertainty into the project development process - uncertainty which is untenable if a local entity is financing a project from third party sources. In other words, the delegation of responsibility for key functions like environmental reviews and right-of-way acquisition to a local project sponsor allows them to retain control over timing and performance - important controls they would lose if the department insists on performing these functions in the negotiation of a pass-through agreement.

Response: Other than re-numbering, there has been no revision of the language contained in proposed paragraph (4) (see current §5.56(b)(3)). Section 5.57(b)(4) assigns responsibility to the parties in the agreement. It prevents work from having to be repeated by both parties and ensures that significant work is not overlooked. For example, if the department has already completed a portion of the environmental documentation, the agreement will provide for the department to turn that documentation over to the entity and let the environmental process progress forward from that point. This paragraph will not take project control from the local entity once the project development agreement is executed. No additional action affecting the substance of these rules as proposed is made as a result of these comments.

Comment: Montgomery County recommends that §5.57(b)(10) be deleted. The reference is to an agreement including "deadlines for key stages of project development." Even with the current delegation of key functions to local sponsors there are too many unknowns to commit to project deadlines within the body of a pass-through agreement. Those deadlines can be subject to a number of influences, not the least of which is the department and the time it takes to review various submittals and information as part of its oversight function. Current practice is to incorporate milestone dates in project development schedules, which are primarily determined between the local sponsor and its project developer. Doing so allows the local entity to retain control over the schedule and, if desired, transfer risk and responsibility to its project developer. Therefore, those deadlines do not belong in a pass-through agreement with the department, and requiring otherwise will further divest local entities of control over their project.

Response: Other than re-numbering, there has been no revision of the language contained in proposed paragraph (10) (see current §5.56(b)(9)). The pass-through toll program has experienced delays in some projects moving forward after execution of the project development agreement. This has contributed to funds for the program being in limbo with respect to how much and when the department may have to start reimbursement payments. Internal auditors have cited these project delays as contributing to the inefficiency of the program. The purpose of this paragraph is not to take over the project schedule, but to encourage the upfront development of a realistic project schedule that allows completion of the project and reimbursement to the entity to progress in a timely and efficient manner. No additional action affecting the substance of these rules as proposed is made as a result of these comments.

Comment: Montgomery County states proposed §5.58(a)(1)(A)(i) requires the commission to consider, in determining the level of pass-through fares, whether "the project's estimated benefits to mobility warrant a pass-through fare at a level that is more or less than the department's estimate of project costs." This gives undue weight to the department's cost estimates, which could be incorrect. The proper measure should be estimates agreed to by the department and the project sponsor. Montgomery County also directed these same comments to §5.58(b)(1)(A)(i).

Response: Other than re-numbering, there has been no revision of the language contained in proposed §5.58(a)(1)(A)(i) or (b)(1)(A)(i) (see current §5.57(a)(1)(A)(i) and (b)(1)(A)(i)). The department's estimate acts as a baseline to ensure that the department does not pay more for the project than the project would have cost the department if done internally. The proposer will also be able to submit their independent estimate as part of the project application. Past experience indicates that the parties discuss differences in their respective estimates. However, because of the long term commitment of state highway fund resources, the department will rely on its own independent project estimate. It is noted that differences in project cost between the two parties can still be a factor in the negotiation of the final project reimbursement amount. No additional action affecting the substance of these rules as proposed is made as a result of these comments.

Comment: Montgomery County states that clarification is also needed regarding §5.58(a)(1)(B)(i), which provides that the commission may approve payment of pass-through fares in excess of the department's current estimate "by the difference between the department's current estimate and the department's estimate for the time when the project would likely have been completed in the absence of a pass-through agreement." It is well known that the department faces serious funding challenges, and that the pass-through program was shut down (notwithstanding its popularity and success) because of funding constraints. It is unclear when, if ever, the department may have sufficient funds to complete projects brought forward under the pass-through program. Montgomery County recommends deleting this possibility, and limiting the payments to agreed upon cost estimates plus some stated adjustment for inflation. Montgomery County also directed these same comments to §5.58(b)(1)(B)(i).

Response: Other than re-numbering, there has been no revision of the language contained in proposed §5.58(a)(1)(B)(i) or (b)(1)(B)(i) (see current §5.57(a)(1)(B)(i) or (b)(1)(B)(i)). It should be noted at the outset that the department will have funds available to honor all project reimbursements as reflected in executed project agreements. The difference between the department's current estimate and the department's estimate for the time when the project would likely have been completed would generally be an inflation factor. As stated in a previous response, the department's estimate acts as a baseline to ensure that the department does not pay more for the project than the project would have cost the department if done internally. If a case of differences in applying the future inflation factor occurs, the reimbursement amount is still subject to negotiation between the two parties. No additional action affecting the substance of these rules as proposed is made as a result of these comments.

Comment: Montgomery County states that proposed §5.58(a)(1)(A)(iii) requires the commission to consider, in establishing the level of pass-through fares, whether "the public or private entity proposes to share in the cost of the project." Montgomery County recommends modifying this rule to clarify that financing costs that local entities will bear are included in that calculation. Financing costs can be a major component of the project development costs that local entities will bear, and there is no reason not to consider those as part of a local entity's cost sharing and financial contribution to a project. Montgomery County also directed these same comments to §5.58(b)(1)(A)(iii).

Response: Other than re-numbering, there has been no revision of the language contained in proposed §5.58(a)(1)(A)(iii) or (b)(1)(A)(iii) (see current §5.57(a)(1)(A)(iii) or (b)(1)(A)(iii)). The commission has consistently indicated that financing costs will not be considered as part of the negotiation of the reimbursement amount. If the department had the resources to bear the financing costs of the state highway system project, then there is little benefit to using a pass-through agreement in terms of completing the project. Simply stated, the department could just complete the project now and finance the cost based on future revenues and incur the debt service internally. No additional action affecting the substance of these rules as proposed is made as a result of these comments.

Comment: Montgomery County notes that proposed §5.58(a)(1)(B)(ii) states that the commission will not consider any financing costs incurred by the local entity in determining the level of pass-through fares. To do so ignores a significant component of project costs and potential cash flow requirements facing a local entity. Also, to do so seems inconsistent with the intent of Transportation Code, §91.075(b) which provides that pass-through fares may be reimbursement for the "acquisition, design, development, financing, construction, relocation, maintenance, or operation of a passenger rail facility or freight facility" (emphasis added). Montgomery County therefore recommends deleting §5.58(a)(1)(B)(ii).

Response: The language contained in proposed §5.58(a)(1)(B)(ii) is unchanged from current §5.57(a)(1)(B)(ii) language. The commission has consistently indicated that financing costs will not be considered as part of the negotiation of the reimbursement amount. The inclusion of these costs would negate much of the benefit of the pass-through program approach from a state level perspective. No additional action affecting the substance of these rules as proposed is made as a result of these comments.