State Highway Fund Annual Continuing Disclosure Report. For the Fiscal Year Ended August 31, 2015

Transcription

1 State Highway Fund Annual Continuing Disclosure Report For the Ended August 31, 2015 Filed by Texas Transportation Commission Pursuant to Undertaking Provided to Permit Compliance with SEC Rule 15c2-12 Filed on February 25, 2016

2

3 State Highway Fund Annual Continuing Disclosure Report For the Ended August 31, 2015 Filed by Texas Transportation Commission Pursuant to Undertaking Provided to Permit Compliance with SEC Rule 15c2-12 With CUSIP Prefix 88283L February 25, 2016 The financial information and operating data with respect to the Texas Transportation Commission (the Commission ), the Texas Department of Transportation (the Department or TxDOT ) and the State Highway Fund (the State Highway Fund or SHF ) set forth below is to be provided annually in accordance with the contractual continuing disclosure undertakings (collectively, the Undertaking ) of the Commission described in the various official statements for the Commission s outstanding State Highway Fund First Tier Revenue Bonds (the Bonds or the First Tier Senior Obligations ) as an obligated person, as required by United States Securities and Exchange Commission Rule 15c2-12 (the Rule ). Pursuant to the rules of the Municipal Securities Rulemaking Board (the "MSRB") described below the participating underwriters for each issue of the Bonds (each an Issue ) were required to file a copy of the official statement or offering document for each Issue (collectively, the "Official Statements") with the MSRB, copies of which are available at The Official Statements should not be considered to speak as of any date other than the date indicated in such document. Capitalized terms used in this Annual Report and not otherwise defined herein shall have the meanings given in the Official Statements. The titles and numbering of the tables set forth below and containing the financial information and operating data required by the Undertaking, in some instances, may deviate from the titles and numbering used for comparable tables contained in some of the official statements that the Commission is obligated to update pursuant to the Undertaking. In addition, certain financial information and operating data presented below may be in addition to what may be required in any particular Undertaking. Information in this report regarding the Commission, the Department and the State Highway Fund has been compiled and provided by the Department from Department records and other sources which are believed by the Department to be reliable and is provided in satisfaction of the Undertaking. This report contains information prescribed by the Rule and the Commission and Department do not make any warranty concerning the usefulness of such information to a decision to invest in, hold or sell bonds, notes or other obligations payable, in whole or in part, from the sources pledged to the First Tier Senior Obligations. This report contains or references the following information: Page 1

4 I. Updated Annual Financial Information and Operating Data: Table 1 Table 2 Table 3 Table 4 Table 5 Table 6 Table 7 Table 8 Table 9 Table 10 Table 11 Table 12 Debt Service Requirements and Projected Coverage Statement of Revenue, Expenditures and Changes in Fund Balance State Highway Fund Revenues by Source State Motor Fuels Tax Revenues Credited to the State Highway Fund Taxable Gasoline and Diesel Fuel Consumption in Texas State Motor Vehicle Registration Fees Credited to the State Highway Fund Vehicles Registered in Texas Other State Revenue Sources Credited to the State Highway Fund Reimbursements from Federal Funds Federal Transportation Funds Apportioned and Allocated to the Department Federal Transportation Obligation Authority for Department Guaranteed Highway Programs Appropriations to Department from the State Highway Fund II. Texas Department of Transportation Annual Financial Report (Audited) The Texas Department of Transportation s Annual Financial Report (With Independent Auditor s Report) (the TxDOT 2015 AFR ) for the ( FY ) Ended August 31, 2015 is hereby incorporated by reference as filed with the Electronic Municipal Market Access System (EMMA) on December 17, 2015 under CUSIP Prefix 88283L. The report may be accessed at [The Remainder of this Page is Intentionally Left Blank] Page 2

5 I. Updated Annual Financial Information and Operating Data Outstanding First Tier Senior Obligation Debt Service (1) Annual Continuing Disclosure Report State Highway Fund FY 2015 (Cont d) Table 1 State Highway Fund Debt Service Requirements and Projected Coverage For the Ended August 31, 2015 (In Thousands) 2015 Pledged Revenues (3) Aggregate Debt Service Coverage (before BAB subsidy) Aggregate Debt Service Coverage (net of BAB subsidy) BAB Subsidy Payments (2) Net Debt Service 2016 $ 322,552 $ (25,124) $ 297,428 $ 7,426, x 24.97x ,013 (25,191) 308,822 7,426, x 24.05x ,250 (25,191) 306,059 7,426, x 24.27x ,247 (25,191) 306,056 7,426, x 24.27x ,251 (25,191) 306,060 7,426, x 24.27x ,244 (25,191) 306,053 7,426, x 24.27x ,245 (25,191) 306,054 7,426, x 24.27x ,746 (25,191) 376,555 7,426, x 19.72x ,558 (24,035) 376,523 7,426, x 19.72x ,693 (23,673) 356,019 7,426, x 20.86x ,483 (23,182) 329,301 7,426, x 22.55x ,643 (21,821) 342,822 7,426, x 21.66x ,160 (18,128) 386,032 7,426, x 19.24x ,655 (12,449) 386,206 7,426, x 19.23x ,744 (6,329) 386,415 7,426, x 19.22x , ,866 7,426, x 40.84x , ,863 7,426, x 40.84x , ,868 7,426, x 40.84x , ,865 7,426, x 40.84x Total $ 6,134,948 $ (331,078) $ 5,803,871 Note: Numbers may not compute due to rounding. (1) For purposes of illustration, the interest on the variable rate Series 2006-B Bonds and Series 2014-B Bonds, being a portion of the Outstanding First Tier Senior Obligations, is assumed at 2.5%, including remarketing and liquidity fees, as applicable. (2) Amounts reflect a reduction in Build America Bond ( BAB ) subsidy payments ( BAB Subsidy Payment ) due to certain automatic reductions in federal spending (the Sequester Cuts ) pursuant to the Balanced Budget and Emergency Deficit Control Act of 1985, as amended by the Bipartisan Budget Act of 2013, on the Commission s Series 2010 Bonds issued as BABs (which are direct-pay tax credit bonds). For 2016, the BAB Subsidy Payment for October 1, 2015 was reduced by 7.3% (the reduction rate in effect for the federal fiscal year ending September 30, 2015) and is assumed to be reduced by 6.8% for the April 1, 2016 BAB Subsidy Payment (the reduction rate announced by the federal government for the federal fiscal year ending September 30, 2016). The same 6.8% reduction in BAB Subsidy Payments is assumed to apply to the BAB Subsidy Payments through the federal fiscal year ending September 30, 2024 (October 1, 2024 BAB Subsidy Payment), which is the last Page 3

6 federal fiscal year for which the federal government has currently enacted the Sequester Cuts. Reductions in BAB Subsidy Payments that may occur due to Sequester Cuts in future federal fiscal years are not shown and neither the Commission nor the Department make any representations as to whether Sequester Cuts will remain in effect and cause a reduction in receipts of BAB Subsidy Payments or other federal funds for any future years. (3) Pledged Revenues are presented on a modified accrual basis. BAB Subsidy Payments are not included in Pledged Revenues. For an explanation of what constitutes Pledged Revenues, see the Official Statement dated June 30, 2015 for the Commission s SHF First Tier Revenue Refunding Bonds, Series 2015 (the Series 2015 Official Statement ). [The Remainder of this Page is Intentionally Left Blank] Page 4

7 Table 2 Statement of Revenues, Expenditures and Changes in Fund Balances State Highway Fund (1) For s Ended August 31 (In Thousands) REVENUES: Taxes (2) $ 2,313,017 $ 2,366,486 $ 2,419,421 $ 2,488,136 $ 2,582,837 Federal Revenues (3) 2,173,413 2,525,989 2,653,415 3,329,875 3,145,008 Federal Pass Through Revenues 8,495 5,811 1, Licenses, Fees and Permits 157, ,952 85,417 26,239 25,648 Interest & Investment Income 46,176 21,288 16,275 22,739 19,067 Land Income 6,679 9,650 15,637 13,649 15,590 Settlement of Claims 27 22,715 11,616 16,920 21,995 Sales of Goods and Services 213,066 7,871 53,108 34,501 28,548 Other Revenues 4, ,831 8,381 TOTAL REVENUES (4) 4,922,311 5,081,628 5,257,014 5,952,956 5,847,074 EXPENDITURES: Salaries and Wages 574, , , , ,722 Payroll Related Costs 219, , , , ,049 Professional Fees and Services 321, , , , ,008 Federal Pass Through Expenditures 11,881 16,334 24,157 14,407 24,017 State Grant Pass Through Expenditures , Travel 4,067 4,641 4,923 7,453 7,888 Materials and Supplies 349, , , , ,082 Communications and Utilities 47,933 45,984 45,514 45,236 46,031 Repairs and Maintenance (5) 812,847 1,493,112 1,888, , ,169 Rentals and Leases 10,823 9,040 10,022 26,357 26,508 Printing and Reproduction 1,994 1,973 1,754 3,620 3,643 Claims and Judgments 8,142 5,861 6,155 11,668 4,618 Intergovernmental Payments 378, , , , ,868 Public Assistance Payments 15,818 34,938 10,388 21,780 31,994 Other Expenditures 465,746 22, , , ,975 Total Transportation Expenditures 3,223,410 3,625,101 4,449,911 2,966,857 3,269,571 Principal on Pass-Through Tolls 34,339 57, , , ,696 Interest on State Highway Fund Bonds Other Financing Fees 5,555 5,132 1,977 7,156 3,205 Capital Outlay (5) 2,506,287 2,385,290 1,972,758 4,243,349 4,496,619 TOTAL EXPENDITURES 5,769,923 6,073,369 6,529,759 7,322,401 7,881,092 EXCESS (DEFICIT) OF REVENUES OVER (UNDER) EXPENDITURES (847,612) (991,741) (1,272,745) (1,369,445) (2,034,018) OTHER FINANCING SOURCES (USES): Transfers In (2) 1,265,717 1,721,623 1,565,247 1,814,231 3,355,983 Transfers Out (2) (1,079,345) (1,063,308) (1,082,000) (838,441) (944,641) Bonds & Notes Issued ,533 - Bonds Issued for Refunding , ,080 Premiums on Bonds Issued , ,433 Payments to Escrow for Refunding (945,414) (910,971) Insurance Recoveries 10, Sale of Capital Assets 3,363 11,064 4,318 7,732 70,255 TOTAL OTHER FINANCING SOURCES (USES) 200, , ,565 1,689,489 2,485,138 NET CHANGE IN FUND BALANCES (647,268) (322,362) (785,180) 320, ,120 FINANCIAL STATEMENT-FUND BALANCES BEGINNING FUND BALANCES (6) 864, , ,340 (471,546) 3,093,910 Restatements (6) (1,584) 383,622 36,303 3,245,412 - BEGINNING FUND BALANCES, Restated (6) 863, , ,643 2,773,866 3,093,910 ENDING FUND BALANCES (7) $ 216,080 $ 277,340 $ (471,537) $ 3,093,910 $ 3,545,030 Note: Numbers may not compute due to rounding. See footnotes to Table 2 on following page. Page 5

8 Table 2: Footnotes (1) Department audited financial statements were prepared for fiscal years 2012, 2014 and 2015 due to legislative requirements; all other years presented were unaudited. All Department financials are presented on a modified accrual basis of accounting. (2) The State Highway Fund is considered a shared fund and is appropriated for use by multiple state agencies. TxDOT is considered the controlling agency for the State Highway Fund and reports the total cash balance in the fund at fiscal year-end. TxDOT reports interagency transfers with other agencies that collect and deposit to or expend out of the State Highway Fund. Transfers In primarily reflects Proposition 1 funding transferred from the Comptroller of Public Accounts and vehicle registration fees transferred from the Department of Motor Vehicles. For a description of Proposition 1, see the sub-caption THE STATE HIGHWAY FUND - General in the Series 2015 Official Statement. Transfers Out mainly reflects transfers to Department of Public Safety for its cash expenditures out of the State Highway Fund. (3) Federal Revenues increased significantly in 2014 because of construction that began on major projects resulting in a corresponding increase in federal reimbursements for capital expenditures related to the projects. Federal Revenues decreased in 2015 by approximately 6% as a result of a small reduction in expenditures eligible for federal reimbursement. (4) Total Revenues, as reported in the Statement of Revenue, Expenditures and Changes in Fund Balance is different from Pledged Revenues as defined by the Master Resolution. For further information on Pledged Revenues, see the Series 2015 Official Statement. (5) In 2014, TxDOT adopted the depreciation approach for highways, for which the modified approach was previously used. Certain highway expenditures that were reported as Repairs and Maintenance expense in prior years are treated as capital outlays beginning in 2014, which is the primary reason for the 2014 decrease to Repairs and Maintenance expense and increase to Capital Outlay. (6) Due to the implementation of Government Accounting Standards Board statement 65 ( GASB 65 ), the 2014 beginning fund balance was restated by $3.2 billion to reflect the adjustments of deferred revenue for unamortized balances of upfront service concession arrangement payments received prior to (7) The lower ending fund balances of the State Highway Fund from 2011 to 2013 were largely due to the issuance in 2010 of State Highway Fund bonds and gradual expenditure of those bond proceeds subsequent to the bond issuance. The substantial increase in 2014 mainly reflects the impact of Restatements (see note 6) and the issuance in 2014 of State Highway Fund bonds. The net increase in 2015 is mainly the result of an increase in Transfers In for $1.7 billion in Proposition 1 Funds offset by a $702 million decrease in bond proceeds and a $559 million increase in expenditures, including significant increases in professional fees and repairs and maintenance. Table 3: State Highway Fund Revenues by Source (In Millions) The following table sets out the amount of total State Highway Fund Revenues, which are derived from each of the following sources for the last five fiscal years: State of Texas ( State ) motor fuels tax, State motor vehicle registration fees, other State revenue sources, and reimbursements from federal funds. Such sources are affected by a number of economic, demographic and environmental factors, including population growth in the State. Revenues in the following tables are presented on the modified accrual basis of accounting, unless otherwise indicated, and exclude Restricted Revenues. Total Fund Revenues have increased approximately 5.5% over the last five fiscal years. State Motor Fuels Tax State Motor Vehicle Registration Fees Other State Revenue Sources Reimbursements from Federal Funds Total Fund Revenues (Table 4) (Table 6) (Table 8) (Table 9) 2011 $ 2,272.0 $ 1,137.5 $ $ 2,182.1 $ 6, , , , , , , , , , , , , , , , ,426.9 Page 6

9 Table 4: State Motor Fuels Tax Revenues Credited to the State Highway Fund (In Millions) The State currently levies a motor fuels tax of $0.20 per gallon on gasoline and diesel fuel, and $0.15 per gallon equivalent on liquefied natural gas and compressed natural gas. Sales of motor fuels for the exclusive use of the federal government or a public school district in the State are exempt, and sales of liquefied gas for the exclusive use of the federal government, local county government or a public school district in the State are exempt. The Comptroller of Public Accounts (the "Comptroller") retains 1% of the gross receipts for administration and enforcement, and after providing for refunds or non-highway use collections, distributes the remainder as hereinafter described. Pursuant to Article VIII, Section 7-a of the Texas Constitution, 25% of the net revenues generated from the State motor fuels tax (net of enforcement, administrative and refund charges) are deposited to the credit of the "Available School Fund" in support of the State s primary and secondary schools, and 50% of such revenues are deposited to the credit of the SHF. The remaining 25% is deposited to the county and road district highway fund, which is administered by the Comptroller, until a maximum of $7.3 million annually has been deposited, after which the remaining amount is deposited to the SHF. The following table sets out the amount of the State motor fuels tax credited to the SHF for the last five fiscal years, which has increased at an average annual rate of approximately 2.8% over the last five fiscal years, and the approximate percentage of Total Fund Revenues for such years that constituted State motor fuels taxes. Not shown in the table below, is the average Percentage of Total Fund Revenues from the State Motor Fuels Tax over the last five fiscal years, excluding reimbursements from federal funds, which is approximately 59.1%. State Motor Fuels Tax Revenues Percentage of Total Fund Revenues 2011 $ 2, % , % , % , % , % Table 5: Taxable Gasoline and Diesel Fuel Consumption in Texas (In Millions of Gallons) Total motor fuel consumption has increased at an average annual rate of approximately 5.0% over the past five fiscal years, with gasoline consumption increasing at an average annual rate of approximately 3.8% and diesel consumption increasing at an average annual rate of approximately 8.8% during such period. The following table sets out the amount of the taxable gasoline and diesel fuel consumption in the State for the last five fiscal years. Gasoline Diesel , , , , , , , , , ,209.9 Page 7

10 Table 6: State Motor Vehicle Registration Fees Credited to the State Highway Fund (In Millions) The State currently charges motor vehicle registration fees under a number of statutory provisions. The Texas Department of Motor Vehicles shares motor vehicle registration responsibilities with county governments that assist with this function. Revenues from vehicle registrations are shared between the SHF and the counties and have increased at an average annual rate of approximately 5.2% during the last five fiscal years. The table below sets out the amount of such revenues credited to the SHF for the last five fiscal years, the approximate percentage of total motor vehicle registration fee revenues represented by such amount, and the approximate percentage of Total Fund Revenues for such years that constituted motor vehicle registration fees. Not shown in the table below, is the average annual Percentage of Total Fund Revenues from Motor Vehicle Registration Fees over the last five fiscal years, excluding reimbursements from federal funds, which is approximately 32.4%. State Motor Vehicle Registration Fees (1) Percentage of Total State Motor Vehicle Registration Fees to Total Collections, Net (2) Percentage of Total Fund Revenues 2011 $1, % 19% , % 20% , % 20% , % 18% , % 19% (1) State motor vehicle registration fees increased despite a decrease in reported number of registered vehicles in Texas. The decrease shown on Table 7: Vehicles Registered in Texas is the result of a change in software system by the Department of Motor Vehicles and the way registered vehicles were counted. (2) Represents estimated percentage of total state motor vehicle registration and license fees to total collections, net of refunds, for the State, counties, and for specialty license plates. Table 7: Vehicles Registered in Texas (In Millions) The following table sets out the number of vehicles registered in the State for the last five fiscal years, which has increased at an average annual rate of 2.1% over the last five fiscal years: Number of Vehicles (1) 23.8 (1) Vehicle registrations are assumed to have decreased slightly in FY 2015 because of the single sticker rule for inspection and registration adopted by the 83rd State Legislature in 2013 (HB 2305, amending Chapter 548 of the Texas Transportation Code). Beginning March 1, 2015, vehicles are no longer issued a separate inspection decal, and a single registration decal for each motor vehicle will signify that the vehicle has passed the required inspection and is registered in this State. Prior to the implementation of the single sticker rule the first half of FY 2015 registration count was much more robust compared to the first half of FY 2014, approximately 7% higher. In the second half of the FY 2015 compared to the second half of FY 2014 the registration count was lower by approximately 1%. Drivers who cannot pass an inspection cannot obtain a registration decal under the single sticker rule. Page 8

11 Table 8: Other State Revenue Sources Credited to the State Highway Fund (In Millions) The State generates or receives funds from a variety of sources that are credited to the SHF. Such sources of funds include, without limitation, sales taxes on motor lubricants, funds from local governments that are participating in State highway projects, interest earnings on the dedicated funds deposited to the credit of the SHF, oversize and overweight trailer permit fees, vehicle title certificate fees, revenues from Texas Highways magazine, and other reimbursements received by the Department. With the exception of the sales tax on motor lubricants and interest earnings on dedicated funds, these other revenue sources are not dedicated or committed by constitutional provision to the SHF. Other State Revenues credited to the SHF have decreased at an average annual rate of approximately 4.2% during the last five fiscal years. The following table sets out the aggregate amount of funds generated from these sources and credited to the SHF for the last five fiscal years and the approximate percentage of the Total Fund Revenues for such years generated from such sources. Not shown in the table below, is the average annual Percentage of Total Fund Revenues from Other State Revenue sources over the last five fiscal years, excluding reimbursements from federal funds, which is approximately 8.6%. Other State Revenues (1) Percentage of Total Fund Revenues 2011 $ % % % % % (1) Excludes Proposition 1 funding, loan repayments received by the State Infrastructure Bank, and amounts credited to the SHF from the Texas Mobility Fund for payment to contractors. For administrative purposes, expenses of the Texas Mobility Fund are processed through the SHF and reimbursed from the Texas Mobility Fund. Table 9: Reimbursements from Federal Funds (1) (In Millions) Federal transportation program funds credited to the SHF for the last five fiscal years, and the percentage of the Total Fund Revenues represented by federal reimbursements, are shown in the following table. Such funds have increased at an average annual rate of approximately 10.3% over the last five fiscal years. Percentage of Reimbursements from Federal Funds Total Fund Revenues 2011 $ 2, % , % , % 2014 (2) 3, % 2015 (3) 3, % (1) See section entitled Supplemental Information for information regarding the potential impact of recent developments affecting programs funded by the federal government, including federal reimbursements. Excludes funds received for projects financed through the American Reinvestment and Recovery Act (ARRA) beginning in fiscal year (2) Reimbursements from Federal Funds increased significantly in 2014 because construction began on major projects (resulting in a corresponding increase in federal project capital expenditures). (3) Reimbursements from Federal Funds decreased in 2015 by approximately 6% as a result of a small reduction in expenditures eligible for federal reimbursement. Page 9

12 Table 10: Federal Transportation Funds Apportioned and Allocated to the Department (1) (In Millions) The following table provides a history of the apportionments and allocations, as applicable, to the Department for certain federal highway funding programs in the State for the last five federal fiscal years. Federal Guaranteed Highway Programs Discretionary/ Allocated Highway Programs (3) Transit Programs (2) Total 2011 $3,288.1 $3.2 $60.9 $3, , , , , , , , ,408.4 (1) Based upon data from the United States Department of Transportation. Excludes federal funds apportioned and allocated for the State s Aviation Programs. (2) Transit Programs reflect funds that are administered by or flow through TxDOT and awarded to sub-recipients. Funds given directly to sub-recipients in the State are excluded. (3) Several discretionary programs were discontinued for the federal government s Moving Ahead for Progress in the 21st Century Act (MAP-21), which included the Consolidating Planning Grant Program. This federal grant program provided approximately $8.8 million and $9 million in federal fiscal years ( FFY ) 2013 and 2014 but was no longer available in FFY Table 11: Federal Transportation Obligation Authority for Department Guaranteed Highway Programs (1) (In Millions) The following table provides a history of the obligation authority limit to the Department for federal Guaranteed Highway Programs in the State for the last five federal fiscal years. Federal Obligation Authority limitation - Guaranteed Highway Programs (2) 2011 $3, , , , ,333.8 (1) Excludes obligation authority limitation for the State's Aviation and Transit Programs. (2) The overall Obligation Authority limitation received has historically been less than the apportionment for Guaranteed Highway Program. However, in FFY 2014, the Obligation Authority limitation exceeded the total FFY 2014 apportioned funds since TxDOT requested and received additional funds from a redistribution of Obligation Authority that other states were not able to use in FFY This redistribution allowed TxDOT to spend more on projects in fiscal year 2014 than had been anticipated. Page 10

13 Table 12: Appropriations to the Department from the State Highway Fund (In Millions) The following table sets out the appropriation of funds by the State Legislature to the Department for the five most recent State biennia, including the current State biennium and the approximate percentage of total appropriations from the SHF represented by such appropriations. State Biennium Percentage of Total State Highway Fund Appropriations Amount Appropriated (1) $13, % , % , % , % (2) 16, % (1) Amounts include appropriations made to other State Agencies (e.g., the Employees Retirement System of Texas) for the benefit of the Department. Minor revisions reflect final adjustments to the State s General Appropriations Act. (2) The Department received an increase in SHF appropriations in State Biennium mainly due to a large beginning balance in the fund, increased federal funds, and higher than anticipated registration fee revenue. III. Supplemental Information Summary of State Highway Fund First Tier Revenue Bonds (In Thousands) Bonds Issued to Date Original Principal Amount (1) Principal Amount Outstanding as of 08/31/15 (2) Description Series 2006 $ 600,000 $ 27,985 Series 2006-A 852,550 46,170 Series 2006-B Variable Rate Bonds (3) 100, ,000 Series ,241, ,235 Series ,995 80,840 Series 2010 Taxable Build America Bonds Direct Payment 1,500,000 1,500,000 Series 2014-A 1,157,795 1,157,795 Series 2014-B SIFMA Index Floating Rate Bonds 300, ,000 Series , ,080 Total $ 6,696,265 $ 4,111,105 (1) See TxDOT 2015 AFR Schedule 2A- Miscellaneous Bond Information, page 134. (2) See TxDOT 2015 AFR Schedule 2B- Changes in Bond Indebtedness, page 136. (3) The related Standby Bond Purchase Agreement (only one SBPA) to such bonds has the same security as such bonds. Page 11

14 Subsequent Events Proposition 7 On November 4, 2015 Texas voters approved the ballot measure known as Proposition 7, which created a Constitutional amendment to increase transportation funding. The amendment to Article 8 of the Texas Constitution increases money to construct and maintain roads (other than toll roads) by adding up to $2.5 billion a year in state sales tax revenue to the State Highway Fund beginning in fiscal year In fiscal year 2020, the State Highway Fund would receive 35 percent of vehicle sales and rental taxes after the first $5 billion of such taxes is raised annually. The funds collected can only be used to build, maintain and restore non-tolled public roads and certain transportation related State general obligation debt. Proposition 7 also authorized the State Legislature to reduce the amount of Proposition 7 funds eligible to be deposited in the State Highway Fund by up to 50 percent in one fiscal year. This provision gives the State Legislature the ability to respond to economic downturns or other changes in the State's funding needs. Eighth Supplemental Resolution On January 28, 2016, the Commission approved an eighth supplemental resolution authorizing the issuance of State Highway Fund obligations (including Bonds) in one or more series for new money and refunding obligations through January 31, No assurances are given regarding whether such State Highway Fund obligations will be issued. The FAST Act On December 4, 2015, the Fixing America s Surface Transportation (FAST) Act was signed into law by the President. The FAST Act authorizes federal highway, highway safety, transit, and rail programs for five years starting in federal fiscal years ( FFY ) 2016 through The FAST Act represents the first long-term, comprehensive surface transportation proposal since the 2005 Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users ( SAFETEA-LU ) which was replaced by the Moving Ahead for Progress in the 21 st Century Act (MAP-21"), portions of which were most recently extended by the Highway and Transportation Funding Act of The FAST Act generally extends present law excise taxes (highway motor fuels taxes and nonfuel highway trust fund excise taxes) through September 30, 2022 with the heavy vehicle use tax being extended through September 30, 2023, both such extensions becoming effective October 1, The FAST Act sets federal-aid highway program obligation limitations at $42.3 billion for FFY 2016; $43.2 billion for FFY 2017; $44.2 billion for FFY 2018; $45.2 billion for FFY 2019; and $46.3 billion for FFY Additionally, the FAST Act incorporates a mechanism that automatically makes available for obligation to states additional revenues deposited into the Federal Highway Trust Fund beyond the FAST Act without further action by Congress. Under the FAST Act, Texas apportionment for highways is currently estimated by TxDOT to be $3.5 billion for FFY 2016; $3.57 billion for FFY 2017; $3.65 billion for FFY 2018; $3.73 billion for FFY 2019; and $3.82 billion for FFY Such estimated amounts are subject to rescission by the federal government as set forth in the Federal-Aid Highway Program ( FAHP ) as further set forth in APPENDIX Page 12

15 C - INFORMATION CONCERNING THE FUNDING OF FEDERAL-AID HIGHWAYS of the Series 2015 Official Statement for an explanation of rescissions. The terms and conditions of participation in the FAHP or the FAST Act are subject to change at the discretion of Congress. There can be no assurances that the laws and regulations now governing the FAHP or the FAST Act will not be changed in the future in a manner that may adversely affect the ability of TxDOT to receive federal-aid revenues. Changes in Executive Leadership Executive Director: On December 17, 2015 James M. Bass was named Executive Director, effective January 1, 2016, following the retirement of Executive Director Lt. General Joe Weber at the end of December Chief Financial Officer: Effective January 6, 2016 Benjamin H. Asher was named Interim Chief Financial Officer, following the appointment of James M. Bass to Executive Director. Mr. Asher continues to serve as the Project Finance & Debt Management Officer. [The Remainder of this Page is Intentionally Left Blank] Page 13