Transcription:
Caitlin Devitt (00:03):
Hello and welcome to another Bond Buyer podcast. I'm Caitlin Devitt, Senior Infrastructure Reporter for The Bond Buyer. My guest today is Carlos Braceras, the Transportation Secretary for the State of Utah. Mr. Braceras joined UDOT in 1986 and has served as its chief since 2013, 10 years. As the head of UDOT, Mr. Braceras manages the state's 6,000 mile system of roads and highways and overseas capital plans for transit, as well as active transportation projects like bike and walking trails. He says his goal is to 'create the safest transportation system in the world to provide choices for all users to get where they want, when they want, and in the way they want.' His tenure comes as Utah is the fastest growing state in the U.S. per the last census, and also as the country as a whole is having a transportation moment, so to speak, with an infrastructure driven administration in the White House and the 2021 passage of the Infrastructure Investment and Jobs Act. Carlos, thanks for being here.
Carlos Braceras (01:05):
Great to be here with you. Caitlin.
Caitlin Devitt (01:06):
What's your biggest challenge when it comes to financing projects, and has that changed at all since the passage of the IIJA?
Carlos Braceras (01:13):
Well, we have the largest transportation program in the state of Utah that we've ever had, and you couple that with the IIJA, which makes up just about 20% of our budget with a really robust state funding that we receive. And the challenge is really for U.S. workforce and for both us at the state, but also for our partners, our consultants, and our contractors because we are pushing very significant projects out for design and construction. So it's a really dynamic period for us, but it's exciting as well.
Caitlin Devitt (01:58):
So how are you addressing that workforce challenge?
Carlos Braceras (02:02):
Yeah, I mean, so internally what we're working towards is at the state and government, we cannot respond as quickly with just pure salaries. We're doing our best on salaries. We have some positions that are 80% behind market, so you have to keep working on that. But we're trying to create the atmosphere, the culture where people want to be here, where they feel like we care about them as people, we care about their families, and they have a sense of pride of working here at the organization. So we work really hard on this idea of being a choice, the place where people want to choose to work and to be able to raise families and have that balance of life, of life balance. And so that's kind of the primary biggest tool we have in the shed to be able to try to deal with our workforce.
(02:58)
But we're also recognizing that our contractors, our consultants, you cannot just turn the switch and throw a lot of money at a program and expect the private sector to respond as well. They have to look at the long-term and be able to have some sense that it's a steadily growing market. It's not a sugar rush. So in the past, we used to go and do big bond programs and we would have a big amount of dollars out, and then we would have to pay off those bonds and they would drop, I know I'm speaking with a bonding firm here, but our legislature is working towards doing early payment of our outstanding debt. And what that's allowed us to do, they've paid upfront $800 million last session, and that's paying just a little under three years of our debt. And we've been able to take what we would use for debt payment, and we've turned that around and put that into pulling projects, moving projects up in terms of cashflow. So putting out more projects. We believe that if the contractors and consultants see that there's not going to be a drop and the work is going to be there in the future, they'll make those long-term investments in equipment and in people, material sites, all those things that they need to do to be able to respond to the size of the program.
Caitlin Devitt (04:30):
Well, interesting. That early payment is interesting. I've seen your Twitter feed too, where you really celebrate the people, what you were talking about with the people that work for the state. It seems like we really do that on your social media.
Carlos Braceras (04:44):
Are we allowed to call it Twitter?
Caitlin Devitt (04:46):
Yeah, I know...
Carlos Braceras (04:48):
It's very complicated.
Caitlin Devitt (04:51):
How much is inflation a challenge for you guys right now?
Carlos Braceras (04:54):
Yeah, we've got about a little over $5 billion of projects in what we call our program, and we have, our natural tendency was to build a 5% increase in costs year over year and into that program. And then we went and saw about a 14% increase and then all of that with a 10% increase. And so a 10% sounds, oh, that's better, but it's still 10% on over $5 billion. And so what we end up doing is we manage the cashflow, so the legislature appropriates monies to us, but we also by statute are receiving a percentage of statewide sales tax. So for our major capacity program, which is really our single biggest revenue source, we take out 20.68% of the statewide sales tax for capacity projects. And so they'll take a guess at what that's going to bring in. And we are responsible for managing to whatever the number is.
(06:01)
So if it comes in higher, we can move projects up. If it's coming in slower, we basically put the break on and we slow down projects. So that's our management tool is cash flowing projects as we have to adjust for inflation, it feels like things are getting better, but we're still not back to it at 5% increase. We're still needing to see a little bit more adjustment, seeing some signs of, I'll call it contractor capacity issues. We just advertised a very significant project, well, significance depends on the item holder. It was a new interchange on the interstate, about $80 million was the engineer's estimate. We had one bidder that came in quite a bit higher. And so I think we're still adjusting to that inflation, but we also have a lot of projects out there, and so the market is still figuring out how to adjust as well.
Caitlin Devitt (07:06):
Yeah, that's one of the questions I wanted to ask you. I mean, we've heard this nationally about cities and states not getting a lot of bids. So is that's something that you're seeing a little bit of?
Carlos Braceras (07:18):
Yeah. Oh, absolutely. I mean, it's that limited competition affects bids. Obviously. We kind of think our job is to create a level playing field where we can have vigorous competition and that competition will get best value for the state. And so we always have to look at ourselves if we only received one or two bits and ask what did we do wrong in our bid proposal here? Did we put too many restrictions out there? Did we throw too much risk to the contractor? And so we're constantly asking ourselves that question. And these large jobs, most of the large jobs we do are with our state money, and most of those are best value. So design build progressive design build or CM/GC because we feel that's a better way for us to manage risk up those projects and bring in some innovation from the private sector.
Caitlin Devitt (08:21):
And just for those [who may not know] CM/GC is Construction Manager / General Contractor.
Carlos Braceras (08:26):
General Federal contractor, yeah, thank you. We're an acronym animal here.
Caitlin Devitt (08:31):
The state has become known for its use of alternative delivery, like design build, progressive design build progressive design build in particular. I think it's been starting to become a lot more popular. Can you tell us a little about the pros and cons of progressive design bid?
Carlos Braceras (08:45):
Yeah, thank you for that. Yeah. The state of Utah is everyone looks at us as we're a very conservative state, and I would say politically we're very conservative, but from a transportation perspective, we know how to take calculated risks. We're the first state in the country to use design, build, in transportation. And the progressive design build model is a little closer aligned actually, even though the name sounds closer to design build, it's a little closer aligned to CM/GC, where in CM/GC and progressive you put out a proposal, a limited proposal, we ask for a limited amount of information back, and you basically best value select a contractor under a CM/GC, and you would then merge in the owner's design team and kind of force that marriage between the two on progressive design build. The designer and the contractor come together and they make that proposal.
(09:46)
And so they've basically, it's that they come as a couple and the relationships tend to be better right off the bat, under CM/GC, you see some of that normal storming and norming that you have to go through. So it takes a little bit of time to get those teams to mesh under progressive design built to be found. Those teams come to the plate really already singing the same song and working together. And we've had some, I mean, we just kind of ribbon on a project U.S. 89 just north of Salt Lake City that was, we were doing the environmental on this in the mid nineties, and we've been doing quarter preservation for the last 20 years, and we finally got the project funded and underway, and through the environmental process, it was difficult. We had a lot of controversy, lawsuits. I mean, it was a complicated because kind of putting an interstate type of facility, we converted an existing arterial into an interstate type of facility through it through neighborhoods and the progressive design build, we decided to go that way because we said, you know what?
(10:59)
In this case, the final solution is more important and the relationships are more important than a timeframe. And that allowed the team contractors, the designers, the owners, UDOT's folks to work with the communities in a way that we really haven't been able to do before. And I'll tell you, you go up onto that project and you talk to the community members, and it's a love fest. They all know each other. Our contractors and designers have been in, it felt like every living room in those multiple cities, neighborhoods. And it was a remarkable outcome under progressive design, build our CM/GC. But I would say if time is your goal, don't use that method. If time is critical, design built will serve you better, but if you still are flexible on figuring out what the right solution is and you'll want to work more closely with the community, progressive design builds a really nice way to go.
Caitlin Devitt (12:03):
Interesting. And we know that a lot of times that kind of community opposition and litigation is a big hold up for the US infrastructure projects.
Carlos Braceras (12:11):
Yes. It is.
Caitlin Devitt (12:12):
In terms of full on public-private partnerships, have you considered any design, build, operate, finance, maintain projects, any asset sales or other types of privatization?
Carlos Braceras (12:23):
Yeah, we've looked at outsourcing, maintenance and operations on entire facilities. And what is the bits we've received back is the risk of snow becomes such a high risk for the private sector. We have a dry road policy and we will push until the roads are clear and we just have to then move money around from different areas. And so this last winter was a massive winter. We needed to move money from construction. We moved $20 million out of construction over into operations to be able to finish the snowplowing and the subsequent flooding that came about. The private sector has a hard time pricing that kind of risk. So our best success with privatization has been in privatizing specific activities, so activities that the private sector can better manage risk. So things like mowing, we want to have a private sector mow the facilities and they can price that much more competitively when they can manage the risk.
(13:37)
And so we do multiple activities in with the private sector in that way, and we've been more successful that way. We have tried a big, we did some bids on a new interstate type of facility, we call it Mountain View quarter years ago where it was a design build, finance, and then toll facility. But the toll piece was the anchor to that section because this was on the west side of our community, and we have a little bit of an east and west side identity crisis where quote, the east side are them, were affluent, and they got their free interstate two 15, and here we're going to have to get toll to have our new facility out west. The west side is where all the fast growth is taking place. So that was what caused that process to really sink. It wasn't the public private side of it, it was all idea of tolling.
(14:39)
We do, we have a HOT lane, so high occupancy tolling facility. We have over 80 miles of continuous variable price tolling on Interstate I15, which is very accepted and very successful from a financial perspective as well as it's keeping those, we are moving more people in that lane than we are in the general purpose lanes. So a lot of lessons learned on that. We probably jumped the tolling game a little too soon without a little more allowing the community to get there with us. Tolling will be part of, we just completed an egress on little Cottonwood Canyon, so it's access to two of our more, I'll say, I don't want to upset any of our ski resorts, but two very popular ski resorts with incredible congestion issues. And we have another canyon next to a big cut with canyon leads up two other ski resorts. So part of this process is we're going to toll both those canyons and build a mass transit system in there. And so that will be probably the most visible sign of tolling in our state. And we're looking at options right now in terms of the transit component. Do we look for a private partner to do this? Do we work with our transit partners here in the state? And so we'll probably go out and have everyone bid on that and see what the market gives us.
Caitlin Devitt (16:16):
Do you have a timeline on when you're going to go out with those bids?
Carlos Braceras (16:18):
Oh, yeah, yeah. Record of decision was issued the second week of July and so we're in the design piece right now. We're finalizing up the approval. We need federal highway approval on the tolling of these two roads because we have spent federal money on them in the past, which is the hook. So we feel that that process is going well. And our goal is by the winter of stretching here, the winter of 24 or possibly into 2025, we can have that up and running. That's our target right now.
Caitlin Devitt (16:58):
Okay. We'll be right back after this important message. And we're back talking with Carlos Braceras, head of the Utah Department of Transportation. Whenever I talk with state transportation people, I want to talk about or want to ask about the diminishing gas tax as a revenue source. You mentioned earlier the sales tax revenue is important for you guys, but also of course, gas tax is important not nationally for state dots. Utah was, I believe, the second state in the country, I think behind Oregon to set up a voluntary road user charge program, which is also known as mileage based user fees or vehicle miles traveled tax. That's one way to deal with the declining gas tax and with the rise with the expected rise of electric vehicles. So how's that program going?
Carlos Braceras (17:56):
Yeah, it's going well, and there's a lot of support from it from our legislators. We have over 4,000 people enrolled in it right now. It's, it's primarily electric vehicles, and they have a choice of whether or not they want to enroll in that. There's a fee that was imposed by the legislature, we will waive that fee and they will pay the actual miles they drive, but they'll never end up, even if they drive more miles, they'll never pay more than that fee would've been. So there's a lot of incentive to sign up for it. And there's a lot of folks that, myself included, I believe this is the future for how we fund transportation. I believe there needs to be a nexus between what I use and what I pay, and the user will make more responsible choices when they're faced with paying for usage.
(18:54)
So that connection is really important. Now, at the federal level, we've kind of broken that connection because the Highway Trust Fund used to be paid exclusively with the gas tax, diesel tax that was charged at the pump primarily. And because the trust fund can't even support what we were paying in the last authorization, we have a disconnected revenue source out of the feds. But that's another story. The issue that we're dealing with on, we call it road use discharge program. So the issue that we still need to solve both as a state and as a country for this to really move forward in a more robust way is we need to lower the cost of operation. The cost of collection is much too high.
(19:48)
We collected the RUC in Utah for the gas tax, so we have about 28 points of collection. It's pretty cost effective to collect that money. That cost to collection was low. We pay the tax commission just under $6 billion a year to collect those gas taxes. We don't have a, we're collecting from individuals right now, and that model needs to evolve. We're trying to figure that out. We're doing a couple pilots where right now we're going to be looking at, because we have a back office operations for our tolling operations, and we have a separate back office operation for our rogues charts program. We're looking to see if we can try to merge those to generate some more cost effective processes. So I think that's going to be the piece that as a country we need to get past. But I'm really happy to see the feds are the IIJA had some money to do some pilot work, but also to set up a, I don't know what they called it, a steering committee, a commission, whatever, to really, I think that, I'll call it a commission, is going to be key to helping guide where this goes in the future because some serious questions that we still need to resolve, but I'm convinced it's the way to go.
(21:06)
And our legislature, they said, yes, that's going to be the future. But in the meantime, they increased the gas tax in 2015. But what they did, which was really important, is they indexed it to CPI and they put a cap on. It can't go above, I think it's 42 cents now. So every year, every January one, our price per gallon goes up based on last year's CPI. And so that helps mitigate some of our inflation, but the inflation we're seeing on construction activities is higher than what we see through CPI right now. So we're still falling behind on the gas tax side of things, even though people are driving more, they're driving more fuel efficient vehicles, and we're seeing a pretty dramatic shift to electric vehicles as well.
Caitlin Devitt (21:59):
Yeah, the inflation on construction is so much higher than CPI. It's interesting. Well, is that federal pilot program going yet, do you know?
Carlos Braceras (22:10):
No, it's not. I'm on the board of BU as well, the mileage base, user fee association based out, it's in the east coast, and we've been pushing and asking those questions. I think when you look at the IIJA and the amount of new programs, formula programs, and then couple that with the incredible amount of discretionary programs, those poor folks at U.S. DOT are just, they're scrambling. They're doing their best. I know many of 'em, good people, but I can't imagine what it's like trying to implement all of the items that were contained in the IIJA. It's massive.
Caitlin Devitt (22:58):
Yeah, hundreds of new programs, right? Yes.
Carlos Braceras (23:00):
And it spans broader than it ever used to in terms of eligibility. So it's a tough one. It's great, but it's tough.
Caitlin Devitt (23:12):
So what risks should, in your opinion, state DOTs be taking right now?
Carlos Braceras (23:16):
Boy, that's a great question because I think that's a challenge for all. I'll just say all government agencies. I mean, sometimes it's easier to find yourself trying to manage an organization, lead an organization to not get in trouble. I don't want, and our fellow partners in the media, they make their bread and butter by getting the gotchas. When you're at a transportation agency, you're on stage every single day. You're out on the road doing stuff where people can see you, and it affects their lives. So it's easy to get caught making a mistake. And so we're just really blunt with our employees, and I say this all the time to my governor, you know what? We're going to make mistakes. I have no tolerance for sitting around and waiting until we have all the perfect information and guaranteeing we're not going to make a mistake.
(24:11)
We're going to move forward and take chances, calculated chances, and when we make mistake, we'll be the first to admit, we screwed, screwed up. Here's what we learned, and how is it not going to happen again? But I'm lucky right now, I've got Gov. Cox, who is this year's chair of the National Governor Association. So he's a busy governor, but always busier than he was before. He always says, be recklessly good. That gives us a lot of license here to be taking chances and risk. And so what are the things that we should be taking risks on? I think we need to be looking internally all the time and challenging ourselves on what are the things we can stop doing. I think government is, we are great at keeping things going that we've been asked to do 30, 40, 50 years ago. And a lot of times when asked, why do you do that? We've always done it. So what can we not do and how can we reallocate those resources, the people of the money to things that are our priority today? And that's, like I said, that's a really hard thing to do. We're trying to do that, but it's just, we're a very tiny DOT. We're 1,700 employees.
(25:38)
If we're not the smallest DOT in the country, we probably the second or third smallest, but we have a massive program. Our ongoing money is our basis basically $2 billion a year. And we get, last year we got another $1.3 billion at one time on top of that. And they've asked us to do some new stuff. So we're taking a lot of risks, learning how to be a transit capital provider, building heavy rail, light rail, BRT.
Caitlin Devitt (26:10):
Is that new, that transit capital?
Carlos Braceras (26:12):
Yeah. That came about in the 2022 legislative session. It was a realization that we're growing so fast. At the time, we were the eighth most urbanized state. Now we're the seventh most urbanized state, and we're not going to be able to, the projection say we're going to almost double it again in 35, 40 years, whatever that year is, but we're not going to double the lane miles we have. So that realization that mobility is important that we need to get into the transit game, and that was a big step for our legislature. But when they decided they wanted to get into the transit game, the transit districts are basically local districts, and the legislature doesn't have the, I'll call it the hook into that agency the way they do with a state agency. And so they wanted to put big money to it, and they then says, well, UDOT, you're going to be the guys that we're going to hold responsible for doing it.
(27:15)
So 2022, we're standing up at transit division right now. They asked us to do it in 2022, but it wasn't until this last session that they gave us the authorization to stand up a transit division to actually do it. So we're hiring people to do that right now. So that's exciting. It's scary, but it's the right thing to do. So the state is starting to invest big in transit. Most of that investment has been in our largest transit partner here. It's the Utah Transit Authority, but we have another six transit district around the state, and we're going to be working with them to provide money to either match the work they're doing or to help build new capital delivery. We're going to be in the transit operating business with the projects I told you in Little Cottonwood, big Cottonwood Canyon, either through contracting that out to the private sector or agreements with our Utah Transit Authority that will play out over the next year of what role we have in that transit operating business.
(28:25)
So that along with getting ongoing funding, I'll call it significant ongoing funding for active transportation, $45 million a year last year. And what that does is we want to create a statewide, regional, paved active transportation system. So I use the word paved because we have a huge recreational folks here in Utah, and we always have a need for more recreation, but we're using this as transportation, and our local governments have done such an amazing job over the last 20 years, a lot of it with grants from us, but building trails in their communities, but they don't connect together. So this idea is to basically create the interstate of trails if you want to connect those local trails together, we think between the active transportation and the transit and continuing to build roads, we're going to be able to maintain the mobility in Utah in the future.
Caitlin Devitt (29:22):
Very cool. Connected throughout the state, this trail?
Carlos Braceras (29:24):
Yes. Yes.
Caitlin Devitt (29:26):
Okay. Well, one last question. Maybe when you say pavement, maybe you'll be in light of my next question. Smart cement. What's one technology that you think is going to make a big change for the transportation industry or for state DOTs?
Carlos Braceras (29:41):
Boy, I mean, I think obviously our biggest asset is pavements. It's the same for every DOT, and it's not the sexiest asset that we have, but concrete and asphalt makes up that largest asset. And so taking care of it with the latest materials that we have, we need to make our quality better. We need to improve quality of our materials for our pavements. That's big. Our bridges, IIJA gave us a great tool to be able to help our local partners, our local bridges, and we're doing like 78 local bridges with the IIJA formula money, which is pretty exciting. But what I like is what I think of as the future of transportation, and I think this combination of electrification, but also connected vehicles, this idea of connecting vehicles together. So we applied for a couple grants. We didn't get it.
(30:44)
It pissed me off, so we went and did it on our own. And so we hit the first operational connected corridor where we connected. We worked with our transit agency, and the lowest reliability bus route was on a route Redwood Road here in Salt Lake, salt Lake County, and it was in the low eighties, and we connected it to the traffic signals. The traffic signals basically knew how many people were on each bus. They knew to schedule the bus, and they moved to keep that bus on schedule. The bus is operating now, I think it was 93, 94% reliability. The theorem here is if you provide reliable transit service, people will depend on it and they'll get on it. And so we can reduce that roadway traffic. So that was up three, four years ago. We've now connected our snowplows in the urban area to the traffic signals as well.
(31:38)
So the signals know when the snow, the plow is down basically, and we're plowing the roads, and we'll give preemption to the plows. Again, the theorem being, the faster we can plow the roads, the safer the roads will improve safety, and we're doing, we're working with a private sector partner, Panasonic right now, to create a data ecosystem so that we can now receive the data from these connected vehicles because there's going to be more and more of them out there, and we can use that information to make real time decisions, to improve safety and to improve mobility on our road system. We're just at the very, very beginning of realizing the potential of what this is going to look like. Everyone likes to jump to the autonomous vehicle, and I think that's, that's going to be hard, be hard. I think you're going to see that deployed in fleets and in very specific use cases here in the next 10, 15 years. But that connected vehicle I think is going to take off a lot faster. And so we're really excited about that.
Caitlin Devitt (32:43):
Yeah, it's very exciting. We're seeing some of the problems with the autonomous vehicles in San Francisco, almost comical blocking of intersections.
Carlos Braceras (32:53):
Or driving into wet concrete.
Caitlin Devitt (32:56):
Right? Reminds me of when GPS first came out and people would just blindly follow it and drive into the drink.
Carlos Braceras (33:04):
We're still struggling with that with some of the decisions over the road truckers are making and they're routing. They find themselves on mountain passes where they're stuck. And so being able to work with the mapping platforms to be able to kind of filter out, even though it might look good on a map, some of these routes are not practical,
Caitlin Devitt (33:29):
Especially in the mountains. Yikes. Carlos Braceras of the Utah Transportation Department, thank you very much for being here with us today. And thanks to the listeners of this latest Bond Buyer podcast. A special thanks to Kevin Parise who did the audio production for this episode.
And don't forget to rate us, review us and subscribe at www.bondbuyer.com/subscribe. For the Bond Buyer, I'm Caitlin Devitt and thanks for listening.