Call to Order and Roll Call
The 1st meeting of the Interim Joint Committee on Transportation was held on Tuesday, June 4, 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.
Present were:
Members: Senator Ernie Harris, Co-Chair; Representative Hubert Collins, Co-Chair; Senators Jimmy Higdon, Bob Leeper, Morgan McGarvey, Albert Robinson, John Schickel, Johnny Ray Turner, and Whitney Westerfield; Representatives Denver Butler, Leslie Combs, Will Coursey, David Floyd, Richard Henderson, Kenny Imes, Jimmie Lee, Donna Mayfield, Terry Mills, Rick G. Nelson, Marie Rader, Steve Riggs, Sal Santoro, John Short, Arnold Simpson, Diane St. Onge, John Will Stacy, Fitz Steele, Jim Stewart III, Tommy Turner, and Addia Wuchner.
Legislative Guests: Representative Dennis Horlander.
Guests: For the Kentucky Transportation Cabinet: Michael W. Hancock, Secretary; Tom Zawacki, Commissioner of the Department of Motor Vehicle Regulation; Terry Barnes, Project Manager, KAVIS project; Tammy Branham, Executive Director of the Office of Budget and Fiscal Analysis; Steve Waddle, State Highway Engineer; For 3M: Tracy Williams, Project Manager; and Steve Edwards, Government Services Manager; and for the Governor’s Office of Economic Analysis: Greg Harkenrider, Deputy Executive Director for Financial Analysis.
LRC Staff: John Snyder, Brandon White, Dana Fugazzi, and Christina Williams.
Implementation of transportation-related legislation from 2013 Regular Session
Michael W. Hancock, Secretary of the Transportation Cabinet, and Steve Waddle, State Highway Engineer, Department of Highways, Kentucky Transportation Cabinet, discussed the implementation of HB 445. House Bill 445 allows the Transportation Cabinet to have design-build capability for up to five projects each fiscal year that have a construction cost of less than $30 million. Secretary Hancock stated that process will begin on July 1, 2013 for FY 2014, and the cabinet staff is evaluating reasonable alternatives and candidates for using the design-build process.
Mr. Waddle reiterated HB 445 provides that the projects for design-build must be existing projects in the biennial plan, and that staff in all 12 districts are evaluating all projects in the biennial plan to identify good candidates for the potential design-build process. The cabinet has not selected any projects, although some are strong candidates.
Mr. Waddle stated that one criterion for determining a design-build project is completion of the initial design, including completion or near completion of environmental clearance. Environmental clearance includes having all necessary permits obtained and historical assessments made. A second major criterion is non-complex right of way acquisition and minimal utility impact. The potential for substantial time savings is also a determining factor. A common misconception with the design-build process is that money is saved upon the completion of the project. Design-build projects rarely save money; instead, the savings that is realized is time savings. The cabinet wants to ensure that a potential design-build project is in the best interest of taxpayers.
In response to a question by Chairman Collins, Secretary Hancock stated that the Mountain Parkway at Campton project was labeled a design-build project, but what was done on the Campton project, as well as few others, is known as a turn-key project. A construction firm was instructed to obtain a designer, buy the right of way, coordinate the relocation of utilities, and then build the project. In this particular case, the contractor seemed to realize the difficulty in buying the right of way and relocating utilities. He was unsure if the Campton project was completed faster than it would have been if the normal course of action had taken place.
In response to a question by Chairman Harris, Mr. Waddle stated that the federal requirements for the environmental portion of a design-build project are slightly stricter.
In response to a question by Chairman Harris, Mr. Waddle stated that design-build is an accepted method by the Federal Highway Administration (FHWA), and that Chairman Harris is correct in assuming that a state-funded project nearing completion of the environmental process can be completed in a timelier manner. A little more control is given to the cabinet if the project is state funded rather than federally funded. If a project is chosen appropriately, the funding source should not make a difference.
Secretary Hancock and Tom Zawacki, Commissioner of the Department of Motor Vehicle Regulation, discussed the implementation of HB 440.
Commissioner Zawacki stated that a working group has been formed between the Transportation Cabinet and the Department of Revenue to work out details to accommodate the implementation of HB 440. The cabinet has established data requirements to be pulled from the vehicle regulations database for vehicle registration and drivers licensing. The cabinet is automating the preparation of letters to be sent to delinquent taxpayers. The letters will include the specific vehicle make and model, vehicle identification number (VIN), and color.
Commissioner Zawacki stated that the majority of revocations would occur on individual driver’s licenses. The Department of Revenue believes there is more leverage on the revocation of driver’s licenses than a non-renewal for registration. Other licenses such as professional licenses may or may not be suspended or revoked if the taxpayer is delinquent.
Commissioner Zawacki stated the implementation of HB 440 should be utilized in AVIS starting in the fall of 2013. The cabinet is studying the cost and time needed for the necessary changes after KAVIS is activated.
Chairman Collins stated he was troubled with the potential implementation of HB 440. A taxpayer may not have the money available to pay the taxes and, if the driver’s license is revoked, will be unable to travel to work to earn the money needed to pay the delinquent taxes. Revocation provisions in the bill are permissive and not mandatory. The new enforcement mechanism is different from the process for vehicle property taxes, where the license is suspended for not paying property taxes, of which people are already aware.
Chairman Collins stated it does not rest easy with him that the bill is going to this extent considering a taxpayer already must pay taxes on an automobile before renewing a license. There is a common misunderstanding that a person trading a vehicle does not owe property taxes on it for that year. A person under this misconception is surprised with having to pay taxes on a vehicle no longer owned in order to renew a driver’s license.
Chairman Harris said the bill almost creates the potential for a sort of “debtor’s prison,” and that HB 440 was never seen by the Transportation Committee and would not have passed if it had been.
In response to a question by Chairman Harris, Commissioner Zawacki stated HB 440 was not a Transportation Cabinet bill, but the cabinet is before the committee to discuss implementation of the revocation process.
In response to a question by Chairman Harris, Commissioner Zawacki stated the Department of Revenue (DOR) is responsible for implementing HB 440. It is his understanding that a delinquent taxpayer who pays in full or agrees to a payment plan will not be subject to any license revocation or suspension.
Representative Lee stated he would like to have a discussion with all parties at a future meeting date to discuss the possible prorating of the ad valorem taxes on vehicles. Chairman Collins agreed.
In response to a question by Chairman Collins, Commissioner Zawacki stated he was unaware if someone were able to see if there was tax due on a title lien through the Kentucky.gov website.
Representative Floyd stated it was disturbing to know that HB 440 as the General Assembly implemented it is permissive in the language and thus may allow for selective enforcement of the law by the Department of Revenue. He said the language should either be changed to make it uniformly applicable or it should be removed all together.
Chairman Collins stated that these issues will be discussed by the Department of Revenue at a future meeting.
Implementation of Plate 2 Customer vehicle licensing system and delays in implementation of the new Kentucky Automated Vehicle Information System (KAVIS)
Chairman Collins stated that the 2010 General Assembly, in order to adjust the statues to conform to the KAVIS system under development, passed legislation requiring a person who traded or sold a vehicle to keep the tag to place on a new vehicle. This is known as the Plate 2 Customer system. The bill was to come into effect January 1, 2013; after several delays, the effective date was pushed back to January 1, 2014 during the 2012 session. It now appears that KAVIS will not be ready until the summer of 2014.
Tom Zawacki, Commissioner of the Department of Motor Vehicle Regulation, Terry Barnes, project manager, KAVIS, Tracy Williams, 3M project manager, and Steve Edwards, Government Services Manager of 3M and an executive sponsor on behalf of 3M for the KAVIS project testified about the background and schedules of the Plate 2 Customer and KAVIS programs.
Mr. Edwards stated the Plate 2 Customer program is tied to the KAVIS effective date, which is expected in mid-year 2014. The statute requires the Plate 2 Customer program to be effective by January 1, 2014, but that is not possible because KAVIS will not be ready.
Mr. Barnes stated the anticipated effective date was in 2013. The reasoning behind the 2013 year was the year was not an election year, allowing county clerks to focus on implementing the new system. The project managers overscheduled their resources and realized a quality product was not going to be provided. Because a quality product was necessary, they had to delay the project’s effective date to mid-year 2014.
Mr. Barnes addressed the committee’s concerns regarding the new schedule and provided reasons why the committee should remain confident in the new schedule. The cabinet and project managers have worked hard to gather feedback and understand the work that must be completed. The cabinet has built additional time into the schedule and allowed time to complete administrative work.
Mr. Barnes stated there are risks and issues that could affect the project schedule. The project team must understand how that affects KAVIS. The team has utilized a design-build and test process to be incorporated into the KAVIS application.
Mr. Barnes stated SB 96, a 2013 bill that required motor safety training as a condition of registering some large trucks, could impact KAVIS. The biggest impact will be new change requests resulting from testing of the software. Change requests are carefully evaluated to determine if the change is critical or can be initiated later.
In response to a question by Chairman Collins, Mr. Barnes stated the KAVIS budget is a capital budget, funded by a one dollar charge on every motor vehicle registration. This was allocated before the project start date. The maintenance budget will be managed by Jon Clark, Executive Director for Transportation’s Office of Information Technology, and Commissioner Zawacki after implementation of KAVIS. Commissioner Zawacki said there is no way to assure the project will continue to be under budget because of the change orders that occur during each testing process and the unknown cost impact. Each change order is carefully evaluated to ensure it is critical before the KAVIS effective date.
In response to questions by Chairman Collins, Commissioner Zawacki stated there are no contractual penalties for not meeting timelines, and that the mid-year date that has been given for the implementation of KAVIS is approximately June, July, or early August of 2014. Commissioner Zawacki could not promise that KAVIS will be ready by those dates, but that is the goal.
Chairman Collins said there are three options that the General Assembly could take. One option is to repeal the statutory changes and consider adopting them when KAVIS is operational. The second option is to extend the effective date to another fixed time. The third option is to take no action and allow the effective date for the statutes to remain. When KAVIS becomes operational, the statutes will go into full effect, even though there will be a time period where the statutes do not mesh with the actual vehicle licensing process.
Commissioner Zawacki suggested making the new Plate 2 Customer statutes effective when KAVIS goes live with no specific date provided.
In response to a question by Representative Lee, Commissioner Zawacki stated KAVIS will be capable of issuing paperless titles, but the issuance of paperless titles will not be one of the features that will be available at first because it was not one of the requirements in the request for proposal. KAVIS could support paperless titles, but a statutory change is required.
In response to a question by Chairman Collins, Mr. Edwards stated there are approximately 15 full-time employees and five full-time employees are assigned to the KAVIS project.
In response to a question by Chairman Collins, Mr. Edwards stated that other states that have implemented a system comparable to KAVIS have needed three to four years to complete and launch their systems.
In response to a question by Chairman Collins, Mr. Edwards said the features Kentucky included in KAVIS are not things that 3M has not experienced in other states, but some of the processes are different and require customization. Ms. Williams stated the mandatory insurance program in Kentucky is unusual and is an area of the system that had to be created from scratch. Imaging solution with the technical solution components was put together as a customized solution for Kentucky. Even though there are aspects of the rebuilt title process in other states, Kentucky is also unique in that area. All of the items on the list have a component of customization to them.
In response to a question by Chairman Harris, Mr. Barnes stated the cabinet and project team refer to statute and existing policies within the Transportation Cabinet when deciding how to initially build the system and input the requirements. When they evaluate possible changes to the system, the first question is whether the change is driven by statute.
In response to a question by Senator Westerfield, Mr. Barnes stated that many components have been completed and are being tested by county clerks, members of the Department of Revenue (DOR), Property Value Administrators (PVAs), and Motor Vehicle Licensing in test labs located in Transportation Cabinet facilities. While some items have completed the testing process, because each item is system interrelated, they may need to be retested with other changing aspects of the system as change requests surface.
In response to a question by Senator Westerfield, Mr. Barnes stated that change orders are being received as a result of new requests for the system to accomplish new or different tasks. Change orders are received as a result of issues arising in the statutes or in regulatory structure that were not anticipated.
In response to a question by Representative Wuchner, Mr. Barnes stated that data cleansing consists of project employees taking the unstructured data that has been entered into the AVIS system over the previous 30 years and transforming it into a database for KAVIS. For example, a county clerk can currently enter a social security number for a customer as all zeros in AVIS, and the system will pass it with no errors. With KAVIS, a county clerk will have to validate the social security number. Data cleansing entails evaluating the old data in the database and writing rules that state how to transform the current data to be able to input it in the new database. This process has been done four times and involves approximately four million vehicles. He estimated that the system is approximately 65 percent to 70 percent complete on data cleansing, on the application to manage that data, and on the functions the clerks, PVAs, and DOR need within the system.
In response to a question by Chairman Collins, Mr. Barnes stated that the capital budget for KAVIS is $25 million and has remained unchanged. About $11.5 million has been spent or allocated.
In response to a question by Chairman Collins, Mr. Edwards stated that, to assure that KAVIS will be available by fall of 2014, the project managers have added more staff and resources. He added that the project teams continue to evaluate processes to find ways to improve with design-build and test. The teams make sure any defects that arise are accurately identified and meet the cabinet and county clerks’ expectations. All parties with the KAVIS project are fully committed to the success of the project and understand the committee’s frustration.
In response to a question by Chairman Collins, Mr. Barnes stated that a critical change will be incorporate by the team before the go live date. If the change is not crucial, it will be addressed after implementation.
In response to a question by Chairman Collins, Mr. Barnes stated that the counties are utilizing the lien management process in a variety of ways. Some counties have obtained legal advice as to the correct way to manage liens. This advice has become a factor in how lien management has been built into KAVIS.
In response to a question by Representative Mills, Mr. Barnes stated that KAVIS will not have any impact on processing charges that are assessed by county clerks when a person uses their credit or debit card.
In response to a question by Senator Higdon, Mr. Barnes stated that the software and hardware that is being used to develop KAVIS is the latest technology.
In response to a question by Representative Stacy, Mr. Barnes stated that the three biggest cost drivers of the KAVIS project were the fixed price for the 3M contract ($10.2 million), labor cost from the Kentucky Transportation Cabinet (KYTC) and Commonwealth Office of Technology (COT) ($7 million), and the hardware to support the new system ($1.5 million), for a total of approximately $19 million. There are change requests totaling approximately $3 million.
In response to a question by Representative Stacy, Mr. Barnes stated that the $10.2 million is based on services delivered. 3M has been paid approximately $4 million. Software costs are covered by the 3M contract. At the completion of the contract, KYTC will own the software.
In response to a question by Representative Stacy, Mr. Barnes stated that 60 to 65 percent of the project is complete, but there is not necessarily a correlation that can be drawn between how close the application is to being completed and the amount budgeted and spent. Change requests total about $2.7 million, which is in addition to the $10.2 million allocated for the payment of the 3M contract.
In response to a question by Representative St. Onge, Mr. Edwards stated that 3M has implemented similar systems in other states. 3M develops a plan for a project that is done collaboratively based on the requirements of the Commonwealth, and it is substantiated based on what 3M’s course system provides. Factors include how much of those requirements can be met, how much can be edited or configured relatively modestly, and what has to be customized. Changes can occur that either come from specific county requests or evaluation of the process after the course system in action. Additional legislation or different business processes the project team may want to implement into the project also factor into the development.
Motor fuel tax rates for FY 2013-14
Tammy Branham, Executive Director of the Office Budget and Fiscal Analysis, Transportation Cabinet, testified about the motor fuel tax rates for FY 2013-14. The variable portion of the rate is based on a calculated average wholesale price (AWP) of gasoline, which is surveyed four times per year. In the April survey, the actual average wholesale price was $2.884, resulting in a tax increase of 10 percent, which is the maximum allowable increase from one fiscal year to the next. For most of the survey month, the average rolling wholesale price was several cents below the calculated maximum rate. Nine percent of the AWP rate nets an additional 2.4 cents a gallon, bringing the total rate to 32.3 cents per gallon for the first quarter of FY 2014.
There will be another survey completed in July, when the rate cannot increase for the second quarter of FY 2014, but it is subject to change and could fall to the base rate established by legislation in 2009 of an AWP of $1.78. If that were to happen, the state would lose 9.8 cents per gallon from the first quarter rate in FY 2014.
If all numbers were evaluated on a quarterly basis and consumption remained stable, Kentucky could expect $18 million in revenue from this adjustment in the first quarter of FY 2014. This amount was already built into the FY 2014 Consensus Forecasting Group revenue estimate and is not additional money. All motor fuel tax collections are shared with the rural and municipal aid program. About 48.2 percent of these revenues are shared with the city and county road aid programs and the rural secondary programs.
Ms. Branham stated that the Consensus Forecasting Group set the motor fuel revenue estimate for FY 2013 at $850.4 million. Revenue collections of motor fuels through April, which is the last official collection info available, were at $688.4 million, leaving a gap of $162.0 million needing to be collected in May and June. Based on the most recent interim report from the Governor’s Office for Economic Analysis, Kentucky will miss the entire road fund revenue estimate by approximately $36 million, with the bulk of that in motor fuels. In FY 2014 the Consensus Forecasting Group has set the motor fuels revenue estimate at $901.9 million, which includes the anticipated maximum wholesale price of gasoline in the first quarter.
Fuel consumption is down and taxable gallons have been down 10 of the last 12 months. May and October of 2012 were exceptions and only slightly above the previous year. According to the Department of Revenue, taxable gallons are down five percent overall.
Ms. Branham stated vehicle miles traveled (VMT) fluctuated in 2012 from one month to the next. VMT has been down the last two months, but she only has data through March of 2013. VMT was down slightly in February and moderately in March.
In response to a question by Chairman Collins, Ms. Branham stated that the projected revenue total is expected to be down from what the forecast. For FY 2013, the estimate is just under $1.5 billion.
In response to a question by Chairman Collins, Greg Harkenrider, Deputy Executive Director for Financial Analysis, Governor’s Office of Economic Analysis, stated that gallonage is down across the country. For a substantial period of time, Kentucky was an exception to the trend in that fuel revenues were growing steadily due to the state being a crossroads for several interstates. This is the first time Kentucky has taken a sizeable pinch in gallonage. There is no question that hybrid and electric vehicles will cause a drop in gallonages. As the vehicle fleet becomes newer, and the rates of miles per gallon increase, gallonage will drop without an increase in miles driven.
Chairman Collins stated an idea that has been mentioned is to charge the electric or hybrid vehicle owners a certain fee per year for the use of roads since they will not be using gasoline to help fund roads.
Mr. Harkenrider stated gasoline usage was actually higher in 1999. The motor vehicle usage tax is not a growing source of revenue for the road fund. The FY 2003 motor vehicle usage tax was $432.9 million, and in FY 2012 it was $416 million. Cars are lasting longer, and consumers do not replace them as often.
Chairman Harris stated that there was a change made in HB 440 on new vehicles that allowed a new vehicle trade in credit for usage tax on motor vehicles.
With no further business before the committee, the meeting was adjourned at 2:50 P.M.