Texas Parks and Wildlife Commission
Finance Committee

COMMISSIONER HIXON:  So move.

COMMISSIONER DUGGINS:  Second.

COMMISSIONER FALCON:  Hixon, Duggins.  All those in favor say aye.

(A chorus of ayes.)

COMMISSIONER FALCON:  Opposed?  All right.  Committee Item Number 1 — Update on Texas Parks and Wildlife Department Progress in Implementing the Parks and Wildlife Land and Water Resources Conservation and Recreation Plan.  Mr. Smith?

MR. SMITH:  Thank you, Mr. Chairman.  I want to provide a brief update on our Internal Affairs program, as required by the Sunset legislation.  Two quick issues I want to comment on.  One of the things that the Internal Affairs team does is make sure that our employees are safe in the workplace.  We had a very unfortunate incident over the last year, in which one of our coastal fisheries employees was the subject of a stalker and someone was harassing her and very much appreciate the work of the Internal Affairs team and our law enforcement team who protected her during that incident and then shepherded through an investigation to get a guilty verdict against the individual that was harassing her, including orders that they stay away from her and so really, really proud of their effort protecting her in that regard and wanted you to be aware of that.

Also, we had a very unfortunate incident in East Texas in which a county attorney had filed an official oppression charge against one of our captain game wardens for a routine personnel action in which an employee was terminated.  We were astounded with respect to the interference in a routine personnel matter of the agency and that a colleague might be charged with official oppression for carrying out normal and customary supervisory duties.  We find that to be a very, very, very dangerous precedent and with the work of Internal Affairs and Law Enforcement and the support of the Texas Rangers and the Office of Attorney General, those charges were dropped and hopefully will not be re-activated.  But, again, something that gave us a great, great, great, great pause.  Captain Carter had just dropped off the court decision on the charges and the verdict against the individual that was harassing one of our colleagues and if anybody would like more information on that I’ll just have you visit with Captain Carter after the meeting.  So appreciate the work in that regard.

I also just wanted to let you know ‑‑ we’ve talked a little bit about the spirit of volunteerism over the course of this meeting and certainly plenty others and just how critical that is to operating all of our sites throughout the agency.  Just to put that in perspective, in 2010, we had nearly a million hours of volunteer time devoted to the agency.  You put a value on that, it’s about $17 million and in state parks alone, you know, that equates to nearly 300 FTEs.  So we have volunteers in our state parks with hunter and angler education.  All of our urban outreach, freshwater fishery center, wildlife management areas, really every facet of our work is enabled through the spirit and work of volunteers and really, really proud of them.

One of the budget riders that we had pursued this session was to get special dispensation to be able to cook a hot dog for a volunteer that comes out to a state park or a fish hatchery or a wildlife management area to thank them for their efforts, and the House has certainly been very supportive of that, a very simple and easy way for us to say thanks to folks who make our work possible.  So, with that, Mr. Chairman, I’ll turn it back over to you.

COMMISSIONER FALCON:  Thank you very much.  Any comments, anybody?

Legislative Update, which is Committee Item Number 2.  Gene?

MR. SMITH:  I think I’m going to do that one and call on Gene when the going gets rough, as I’ve frequently done during the course of this session and let me start off, Mr. Chairman, by acknowledging members of the leadership team that have been working diligently ‑‑ and this is a very, very busy session and so Gene and Ann and Pete and David Sinclair and Clayton and Harold and Lacy have been very, very busy, among others.  Responding to bills and appropriation matters.  It’s a very, very busy time for us.

Obviously, the major issue that’s top of mind for everybody is what’s transpiring on the Appropriations process?  The House budget bill and the Senate budget bill are in different stages of review and decision so you can’t exactly compare apples to apples.  With respect to the House bill, the Appropriations Committee has voted a bill out of committee that is now thought that it is going to be presented to the full House for deliberation on Friday, at which point it will also be subject to further changes as legislators offer amendments to the committee substitute and I’m going to come back and walk you through the committee substitute for House Bill 1 so I can sort of characterize the likely impacts to the agency so that you have an understanding of that.  With respect to the Senate budget bill, S.B. 1, that is still under deliberation in the Senate Finance Committee.  A work group has not yet been convened to address Article 6, which is where the Parks and Wildlife budget is located but we expect that to occur imminently.

Let me talk a little bit about one of the impacts in House Bill 1 and I want to particularly acknowledge the Speaker and Chairman Pitts and Representative Darby from San Angelo, Representative Miller from New Braunfels, who’s been very receptive and supportive to the approach that you tasked us with, which is to making sure that the legislature understood the agency’s perspective, that we absolutely understand that we’re going to have to manage down to some new fiscal realities but we’re just asking for legislative support and discretion about how to prioritize those cuts so that the agency can make those decisions and we’ve gotten strong support in that regard and we’re grateful to those key legislative leaders in the House for that.

Here’s basically what the budget does, as it is now characterized.

COMMISSIONER HOLT:  This is for the new biennium.

MR. SMITH:  This is for the new biennium for FY ’12 and ’13.

COMMISSIONER HOLT:  Is everybody aware that there have been more cuts for this year’s budget?

MR. SMITH:  So just ‑‑ do you want me to describe that quickly, Mr. Chairman?

COMMISSIONER HOLT:  Yes, quickly.  I think ‑‑ lets us understand where we are as of August or where we’ll be by the time August 31st or September 1 rolls around for the new biennium.

MR. SMITH:  Okay.  So in the current fiscal year, we were recently asked by the legislature to reduce our current year budget by another 2-1/2 percent.  That constitutes about another $6 million reduction and so we’ve been working with the legislature to identify those cuts.  That’s on top of the 5 percent budget reduction for the current biennium that we had already taken, which you are already familiar with.  So what I’m going to talk about now is this specific committee substitute for House Bill 1 that will be deliberated by the full House again, and the Senate version is still underway.  So we’re just talking about the House version, as it stands right now.  Undoubtedly, it will be subject to change as it gets to the full floor.

COMMISSIONER HOLT:  Can I ‑‑ that $6 million though.  How is it going to affect the Department between now and August 31st?

MR. SMITH:  So the $6 million in terms of where we proposed looking to take those budget cuts, were to make reductions in Capital Authority, Capital Construction Authority, so we would have to defer some capital construction and repair projects and not expend those dollars.  And, also, look at potentially not using some of the land acquisition authority that we had for the proposed purchase of a replacement park at Eagle Mountain Lake State Park.

So that’s an issue that we’ll talk about a little later in the executive session but as we were looking at the specter of cuts that were ahead of us in the next biennium and thinking about what funds were going to be available to us, we had some very, very difficult decisions about where we could find that magnitude of cuts and not further debilitate operations of this agency going forward.

And so we visited with a number of Commissioners about that decision, Chairman Holt in particular and Commissioner Duggins, because of the sensitivity of the Eagle Mountain Lake matter.  We still had some funding there and we’ll talk about that in executive session.

COMMISSIONER HOLT:  Okay.

MR. SMITH:  So looking forward to the proposed budget for next biennium.  Let me describe the impacts, if I may.  As a proposed reduction to the agency’s budget, the $173.8 million and that’s roughly a 27 percent diminution in the budget.  There’s a proposal to eliminate 259 FTEs in the first fiscal year and then they would restore back several FTEs in FY13 but for ‑‑ so we’d have a loss of 254 FTEs there.

The budget, as it now stands, eliminates all funds for any capital equipment purchases so that’s trucks, it’s trailers, it’s boats, it’s computers, it’s printers, it is weed eaters, it’s lawn mowers, it’s basically kind of the tools of the trade for a field-based operation like the Parks and Wildlife Department, also including things like telephones and answering machines and so forth.

Under this budget, all grant programs are proposed to essentially be eliminated:  local park grants, outreach programs, trail grants, shooting range grants, landowner incentive program grants.  The budget, as it now stands contemplates eliminating all new capital construction authority for the agency and limits our capital construction spending to ‑‑ only to unexpended balances that we have for capital projects that are already in the work and I think Rich has described those impacts to you previously.

All funding for land acquisition is proposed to be eliminated.  Proposed to be a 15 percent across-the-board cut to all divisions and agency administration and then every single division inside the agency is further cut with respect to specific programs.  So Communication Division funding is proposed to be reduced by 21 percent, which will affect our Outreach and Education magazine, TV show, radio show, hunter safety, boater safety, angler education, urban outreach, information technology hit particularly hard over the biennium, a little over 23 percent.  There’s some key budget issues associated with those cuts that we’ve been working on.

State parks.  The cuts are significant in terms of reductions in minor repair funds.  You’ve already heard about the elimination of the grant programs there, significant reductions in interpretation, outreach, natural resources, cultural resources, a proposal to shut down two regional offices and it is assumed that seven state parks will have been transferred to local communities for their ownership.  I’m going to come back to that, Chairman, if I could because I think that’s an important discussion.  A proposal in the House budget to reduce Law Enforcement Division funding by about 10 percent and elimination of 25 game warden positions and a deferral of our next game warden training academy.

Inland Fisheries Division reduced by $3.8 million over the biennium and an elimination of all state funds for our aquatic invasive species control program funds that we talked about earlier.  And then also, significantly reducing funds for our Golden Algae research program, a major, major issue in our fish hatcheries.  Also a proposal to significantly reduce the Coastal Fisheries Division funding by almost $3 million and reduce the license buy-back program.

Wildlife Division also significantly impacted with a proposed reduction of over $7 million over the biennium, with proposed significant reductions in wildlife research and our wildlife diversity program.  Remember, the wildlife diversity program are the scientists that are working on the species that are rare and imperiled and trying to keep species from being listed on the Threatened and Endangered Species List and this would have a significant impact on our ability to work on things from lesser prairie chickens and so forth.

A very significant impact ‑‑ our Infrastructure Division, both in terms of operational funds but also because of the elimination of any new capital construction repair authority, which is where a significant portion of that division’s budget comes from.  So that Division will be hit very, very hard if the budget goes through as it stands.  And also a significant reductions in grant administration.

On the bright side, if I could, with your direction, we have been working to try build support there in the House for certain flexibility as to how we manage down to this new reality.  We’ve gotten strong support in the House for that.  Issues, you will recall, that we talked about last time were as the budget was built and still stands in the Senate, is the proposal with certain programs ‑‑ our game warden training center, our magazine, our hunter safety, our boating safety, our public hunting program ‑‑ that essentially those programs would be suspended for six months, meaning starting September 1st, people would be laid off, those programs would be inactive or dormant and then they would be resuscitated in March.

The problems with that, I think, are self-evident with something like a public hunting program, where we lease a million and a half acres.  We have contractual obligations.  You know, the idea that we would shut down our public hunting program on the opening day of dove season and then try to wind it back up once turkey season starts and then be in a position to lease land in the next year, very problematic.  And so the House got that entirely and suggested that they just level those impacts over the course of two years for all of these programs that we’re talking about.

A key issue for us, as you have heard before, is Budget Rider 27 or the Entrepreneurial Rider that would allow the agency to capture revenue that we would generate from visitors to state parks, the sale of hunting and fishing licenses ‑‑ to be able to use those funds above and beyond the comptroller’s biennial revenue estimate, to help fund critical needs.  And so we very much see that as an emergency bridge to get us through the next biennium.  Again, with no funding for critical capital needs, the ability to capture and utilize those funds would be absolutely essential.  Also, the specter of being able to reinstate certain services, like at state parks.  This is a really important need for us and that’s currently in the budget going before the full House.

Also, some other issues that you have talked about.  Again, I won’t go into all of these. But, you know, being able to purchase food for volunteers, purchase food for game warden cadets, exempting interns from our FTE cap so those aren’t counted against that cap, that would give us flexibility as how we manage down to our new FTE level.  Restoring Coastal Fisheries FTEs that were inadvertently reduced in the budget as a function of a technical mistake.  Those kind of riders and technical amendments we’ve gotten strong support for in the House and certainly are desirous of seeing those replicated in the Senate.

I think, Mr. Chairman, what I’d like to do before I talk about any of the bills with respect to this budget, let me stop and see if there are any questions on that and then I’d like to come back to the issue of the state park transfers, if I could.  Any questions on any of that?

COMMISSIONER FRIEDKIN:  The 173 is out of the LAR request.  Is that right?

MR. SMITH:  Yes, out of the LAR base.  Yes.

COMMISSIONER HOLT:  Over the two years.

MR. SMITH:  Over the two years.  Over the biennium.

COMMISSIONER FRIEDKIN:  And that’s what’s represented in the substitute ‑‑

MR. SMITH:  That’s right.  Yes.  And, if you will recall, it’s slightly higher than the $162 million I think we had presented earlier.  That’s an artifact.  Remember, we have those pass-through funds that go to the General Land Office for coastal erosion?  They decided to basically take that funding and put it in the General Land Office’s bill pattern, as opposed to its coming through us.  So that makes sense.  It’s always been a cash flow issue for us anyway in terms of having to pre-fund that so we think that makes sense.  But that’s why the numbers are a little higher than what you’ve heard before there.

I guess ‑‑ I’d like to mention the state park issue because I think this is a critically important one.  As you know, there were seven state parks that were specifically identified in the budget that were assumed to have been transferred to local communities.  The budget was reduced by both FTEs and appropriations, as a function of that.  Those sites, just to remind you again, Daingerfield State Park, the Wyler Tramway, Big Spring out in West Texas, Blanco, Lockhart, Sebastopol Historic Site in Seguin and then Lake Casa Blanca International State Park there in Laredo.

Brent Leisure and Scott Boruff have taken the lead in going to visit with all of those communities to ascertain what interest, if any, they might have in assuming ownership and stewardship of those sites.  Before we did that, we met with all of the affected legislators to make sure that they were aware of the proposed transfers.  None of them were aware of the proposed transfers and so we certainly called that to their attention to make sure that they were cognizant of that.  Scott and Brent have met with those communities.  There have been public meetings.  Six of the seven communities have told us that they are not in a position to assume ownership of those sites and certainly they expect it to continue to be operated as a state park.  I believe that the city of Seguin is still contemplating whether or not they might have an interest in the Sebastopol Historic Site.

So, a couple of implications of that.  Remember, that funding is out of the budget.  So it’s assumed those parks are transferred.  I think, in some cases, we’re seeing communities, like Blanco and Lockhart and Big Spring, come to the table with substantive proposals about how they want to help us operate those facilities to keep them open, providing resources, either cash or in kind, and so Scott and Brent are working on solidifying those commitments.  But, I think now that we have done this due diligence, I think it’s important for this Commission to understand that we don’t see any way to be able to further manage down to these proposed budget reductions without the possibility of not only altering the operations of some state parks but also closing state parks.

And so I want to be very clear about that.  We want to go through a thoughtful and methodical process that we would present to you, in which we would look at a variety of factors in a decision matrix as to what parks we would recommend that we may suspend operations for a period of time until additional funds were generated.  That will be a very substantive discussion with you.  There will be a lot of interest from local communities and the legislature in that process but I just want to foreshadow that I don’t see any way around that, based upon the existing budget situation and I want to make sure that we’ve talked about that.

Mr. Chairman, I’m happy to stop with that and see if anybody has any questions on that particular element.

COMMISSIONER HOLT:  I don’t think we’re happy with that.

COMMISSIONER HIXON:  Who put forth the original list of those seven parks?

COMMISSIONER HOLT:  LBB.  Legislative Budget Board, to let you understand, you know, and we’ve gone to all the local communities.  Of course, they would like to try to keep them open but most of them are telling us they don’t have the abilities to take them on and then the issue is not just those but there may be others that we’re going to have to ‑‑ I like the term "suspend" operations versus close but, in a way, you’re saying the same thing, at least in the next two years, yes.

MR. SMITH:  The origin of that list, just to elaborate on what the Chairman said, there was a legislatively directed study that you will recall, the Quality State Parks study, in which a consulting firm was hired to make recommendations back to the legislature about specific actions that we could take to continue to polish the gold on our state parks.  And, in that was a recommendation that the legislature or the agency explore the feasibility of whether or not these particular seven parks could be transferred to local communities.  It was not a recommendation, it was simply a ‑‑ explore the feasibility of ‑‑ and so we think that was the origin for that particular list.

And I will say, certainly, as we go through the analysis to present it to you, I suspect that there may be parks that are on that list of seven that would not be on our recommendation to suspend operations, simply because of the amount of investments that we’ve made there, the fact that they offer unique recreational opportunities, protect special places are unique in some way, basically cover their operating costs, et cetera, that we may not recommend those.  So I suspect our list ‑‑ there may be some overlap but it will not look entirely the same.

COMMISSIONER SCOTT:  So if we get the deal approved on being able to have control of our budget and you just got to do what you have to do, does that impact the parks situation?

MR. SMITH:   I think ‑‑ that’s a good question, Commissioner.  It certainly gives the agency a little more latitude and discretion and flexibility about where to make those budget reductions and then, particularly, how they would affect, you know, which state parks, as we’re talking about that.  And so ‑‑

COMMISSIONER SCOTT:  So that ‑‑ so since this came from the LBB to start with, with these seven, if you get the other deal changed, that’s going to also change the LBB’s original stuff.  Right?

MR. SMITH:  It will certainly modify that, in terms of the Bill, if it’s adopted as it now stands now in the House.

COMMISSIONER SCOTT:  Yes.

MR. SMITH:  We’ve been working with the LBB and legislative staff and legislators on this.  I mean, they ‑‑ we’ve presented this issue in both the House Appropriations Committee and Senate Finance Committee, so they’re well aware of these issues that we have and us bringing these forward as areas of concern.  So a very sobering picture with respect to the budget realities ahead and I just wanted to make sure that all of you understood kind of what we’re facing as we go forward.

Mr. Chairman, unless there are any other questions on that, I thought I’d say a few words about key legislation that is proposed to impact the agency and to make sure that you are aware of that.  Suffice to say, I mean,  there are several hundred bills out there that, if all passed, would impact the agency in some form or fashion.  You know, there are over 50 of them that specifically target Parks and Wildlife programs, operations, funding, activities, et cetera.  We’re monitoring all of those.  Have prepared bill analyses, we have subject matter experts that are there to testify as resource witnesses. As all of you know, the agency cannot take a formal position for or against a bill.  We have to be officially neutral.  So what we are limited to doing is simply describing the impacts of the bill if requested by a committee and legislators.

So let me talk about a few of those.  I mean, there is a veritable grab-bag of legislation out there with respect to these bills.  You know, everything relating to boating and water safety, exempting certain individuals from paying hunting and fishing licenses, a mechanism to help fund oyster shell recovery and restoration.  There’s a host of deer and deer breeder-related bills that are out there under consideration, proposal to, you know, allow the collection of reptiles and amphibians on public roads.  A bill to allow for the sport hunting of feral hogs out of helicopters.  I mean, it’s any element of our business, there’s something out there that touches it.  So the team is very, very busy staying on top of that and being accessible to the legislature.

There are four or five bills that I will particularly bring forward to your attention.  House Bill 3297, which is a bill that proposes to transfer our boat registration and titling functions to the newly created Department of Motor Vehicles.  As you will recall, that state agency was created out of TxDOT to handle drivers license registration.  We handle about $22 million worth of boat registration and titling a year.  Ninety-two percent or so of that boat registration work is done in our 29 law enforcement offices and our Austin headquarters.  This bill would propose to transfer that to the Department of Motor Vehicles, although the Bill’s author also understands that they need to do everything to make sure that the funding that’s collected would be redeposited with the agency so that the agency was not impacted financially from it.  If that passed, that would obviously have a significant impact to our operations and to our FTEs that are involved in that program.

Senate Bill 252 purports to change the process for the revocation, suspension and denials of deer-breeding permits.  This has been a big issue this session.  Ann Bright, Clayton, David Sinclair, Mitch Lockwood have been working extensively with the legislative sponsors, the Texas Deer Association and others, to try to negotiate acceptable language with respect to how we handle that and so a lot of effort that is being put into that and I think as of yesterday we had reached a level of language that we felt was workable and so did other parties, and so a lot of effort being put into that as well as a lot of other deer breeder bills.

Senate Bill 1480 proposes to restore our authority with respect to exotic aquatic species.  As you will recall, you know, we were looking at adopting a white list.  Step back from that, with the guidance and direction of Senator Hegar.  This bill is offered by Senator Hegar would restore the Commission’s authority to develop a black list, which as you will recall, would prohibit then certain species to be possessed, sold, or transferred or brought back into the state.  That, obviously, is an important tool in our efforts to continue to fight against the proliferation of these aquatic, exotic species.

H.B. 790 and S.B. 390 proposes to repeal the Sunset date on the Freshwater Fish stamp.  As you will recall, when that was passed it had a termination date of September 1 of 2014.  Thanks to the support of our anglers, that generates $6 million a year that goes to support the maintenance and operations and repair and production of fish in our fish hatcheries, a direct, direct benefit to our anglers, rural communities, the lakes, and this legislation would repeal that Sunset date and just make it permanent.

The last bill that I will mention and, again, there’s a lot of them, so I’m not going to go in all detail, but H.B. 1301, and also H.B. 3418 and S.B. 1584, put in statute what is contemplated in the budget already and the budget assumes, on both the House and Senate side, that $1,600,000 a year will be earned as a function of individuals who go to register their vehicle, that, at that time, they will make a voluntary $5 contribution to state parks, at that time.  And the Legislative Budget Board has estimated that that would generate $1,600,000 a year to support the state park operations.  And so that assumption is built into the budget.

That model ‑‑ the origin of that – was Washington State, where it was tried there as a means to support state parks.  After the first year, it was clear that it didn’t generate much revenue on an opt-in and so they immediately switched it to a voluntary opt-out, in which individuals, when they registered their vehicle, could say that they wanted to opt-out and not provide a voluntary contribution to support state park operations and, you know, we’re hearing from some interests by some legislators who were interested in an opt-out idea at maybe, say, $1 a vehicle registration, as another alternative to this.  And so that’s currently under a lot of discussion now.

So a lot going on on the legislative front and some very significant and substantive bills out there, in addition to, obviously, the appropriations one and I want to thank Gene, Harold, Lacey, Pete, Clayton, Ann Bright, David Sinclair and many others who just, you know, really spending almost every waking day and hour of the day and night up there, being available to the legislature, as needed and I thank them for their leadership.  And, Mr. Chairman, I’d be happy to answer any questions anybody would have.

COMMISSIONER HOLT:  Any questions on that, after that happy and exciting report.

MR. SMITH:  Not one of my more scintillating, was it, Mr. Chairman?

COMMISSIONER HOLT:  Well, you didn’t have any choice.  I appreciate the overview and, obviously, the next couple of days, we’re going to be up walking the halls this afternoon, tomorrow afternoon, being with leadership, the Speaker of the House, Lieutenant Governor, et cetera and various committee heads.  To give Carter and his group credit, they’ve already worked through a lot of this because, you can imagine, a lot of this is just education.  These committee heads or subcommittee heads have kind of no idea, you know, what some of this could or could not mean to our department.  It’s brought to them by their constituents and so, you know, they obviously feel a need to answer those constituents.

Sometimes they do it without thinking through or the full consequences of what could or could not happen and I think we’ve gotten through a lot of that and mitigated a lot of these issues that could have turned into a real problem.  To say we’re still not going to get hit like every agency ‑‑ so I don’t think we feel, and Carter speak up ‑‑ we’re being picked on more than any other agency.  It’s a fact of life that, you know, it’s been announced by Susan Combs, the Comptroller, and others that there’s a certain gap and that gap has to be resolved and it’s a big gap.  I don’t know, 20 to $25 billion, whatever it is, over the next two years and so we’ve got, you know, absorb our fair share of that hit.

The key for us is trying to have the flexibility.  They give us a number, whatever that number is, and we’ll fight through on some of them and argue on some and, you know, like everybody is but at some point there is going to be a number that we’re going to have to cut.  And, you know, okay, we can live with that but let it be that we make the decisions where those cuts are and we, you know, we’ll get to that number for you.  And so that’s why we’re really focusing now on the leadership.

Dan and I are going to go over and spend quite a bit of time over the next two days to get them to understand that, you know, we can run this ‑‑ we’ve got a great group of professional here and we can run this agency in a proper manner if we’re allowed the flexibility to make appropriate decisions, just like you would ask for in your business or whatever you all do.  And I think that’s starting to get across ‑‑ okay? ‑‑ that we can do that.  They’re saying, you know, it’s a credibility issue and we had, a few years ago, some credibility issues on our park side and I think that’s been resolved and so I think overall there’s a high level of trust downtown and with the leadership, starting with the governor’s office downtown, that if we tell them we’re going to do something that we will do it and do it the right way.

And so now the key is how to translate that into these bills that will end up coming out, you know, May 31st, June 1st, whatever.  So that’s where we are.  But we are going to get whacked.  I mean, there’s just no doubt about it.  It’s just ‑‑ hopefully, we can figure out where it will hurt us the least and they’ll give us the right to do that.  So I want to give Carter and his group a lot of credit ‑‑ a lot of credit for focusing on that.

MR. SMITH:  Thank you.

COMMISSIONER DUGGINS:  Mr. Chair ‑‑

COMMISSIONER HOLT:  Yes, sir.

COMMISSIONER DUGGINS:  Carter, could you elaborate on Representative Harper Brown’s bill because you said that this is the one where the bill proposes to transfer the titling and motor vehicles over to this new division of TxDOT.

MR. SMITH:  Actually, it’s a separate agency now, the Department of Motor Vehicles.

(Simultaneous discussion.)

COMMISSIONER HOLT:  In a way.  It’s a consolidation, yes.

COMMISSIONER DUGGINS:  But my question is, you said that the revenue that we have historically received from the titling and registration would remain with us under her bill?  I had not understood that.

MR. SMITH:  Well, when the bill first came out, we were very concerned because the way it was written, the revenue that was generated from the collection of that would be transferred over to General Revenue and not be deposited into Fund 9, which obviously supports our fisheries, our wildlife, our law enforcement.  There’s also a provision that we’re able to transfer $3 million to state parks, again a critical part of our operations.  We called that to the Representative’s attention to let her know that our interpretation of the way the bill was worded was that those funds would be swept into General Revenue and that the agency would lose that funding, which would be huge.

And she made it abundantly clear that that was not her intent.  Her intent ‑‑ she was driven by a desire to consolidate services in an agency where you have vehicle registration and trailer registration, to have boat registration there as well, and so that, as we understood, was the catalyst for her proposing this concept but, No, she has been very responsive to our concerns, specifically with respect to the funding issue and has changed her bill to make allowances for that.

COMMISSIONER FRIEDKIN:  But, within that bill, the DMV would still process some of that ‑‑

MR. SMITH:  Yes, so ‑‑

COMMISSIONER FRIEDKIN:   ‑‑ with their own fiscal impact, obviously.

MR. SMITH:  Yes, DMV would have its own fiscal impact.  You know, right now, just again to describe it for you, DMV has 16 regional offices and, of course, the way they handle vehicle registration, as you know, through county tax assessor-collectors.  The statute already requires county tax assessor-collectors to register boats.  Frances Stiles and her team have been working, you know, diligently to try to get counties to do that.  Seventy-one counties have done that.  But still, 92 percent of the boat registration titling happens in our law enforcement offices, in Austin headquarters here so we handle a big part of that business.

If it were to be transferred to DMV, there would be a couple of things that would happen.  One, you know, that would have to adopt our software, which no doubt they could do and they would have to then find the employees there to run that in their offices as well as continue to work with the counties, which we’re obviously doing.  But there’s also a very important law enforcement component of this.  You know, Texas is one of the top two or three states with respect to boat theft.  And so what we have here is the administration of this program coupled with law enforcement.  So if there’s dealer fraud, if there’s a problem with the vehicle title or registration our administrative staff can walk next door to law enforcement and work together to investigate those issues immediately.  So there’s a real synergistic relationship there that we’ve developed over the couple of decades that we have housed this program at Parks and Wildlife.

We certainly plan to continue to encourage counties to register boats but that effort has been ongoing.  I would be surprised if we see much growth there.  I think what counties are registering boats and can do it under the revenue allotment now are probably really already doing that, for all practical purposes.  So ‑‑

COMMISSIONER FRIEDKIN:  In terms of convenience, they don’t have anywhere near the state footprint really, in terms of regional office, do they?

MR. SMITH:  Yes, they’ve got about half of the offices that we have.  Yes, that’s correct.  Also, as you know, somebody going to register their boat, they’re also buying their hunting and fishing license at the same time and so that’s a nice convenience.  From our perspective, whatever we can do to make it easy on the customer, we want to do.

COMMISSIONER DUGGINS:  But initially, the point of one of the big problems was ‑‑ the thought was that the bill would deprive us of the funding source but ‑‑

COMMISSIONER HOLT:  Yes.

COMMISSIONER DUGGINS:  — but leave the responsibility for law enforcement and the costs associated with it.

COMMISSIONER HOLT:  Well, it’d be a double whammy.  But her focus really was much more just trying to figure out how to consolidate.  I mean, she kind of hadn’t even thought through all that.  And, again, to be fair to Linda and the others, I mean, this is part of the problem.  It’s our job and we have to go down and spend the time to education them ‑‑ well, fine.

Consolidation sounds great on its own but here are some of the issues it’s going to create, you know, on a daily, weekly, monthly basis.  Not just law enforcement but then also the dollars.  Okay.  And then how important that is to us.  So, you know, then once you walked her through it, she could get it and understand it and she changed her bill around.  So – but to give credit, you know, to Carter and his whole group.  I mean, this kind of thing you kind of have to stay on to Harold and others ‑‑ just stay on top of them literally, almost minute by minute, in this six-month period.  You have to remember, you’re trying to cram all this in.  Luckily, they only meet every two years from one point of view but on the other hand, they’re trying to do a whole lot in a very short period of time.  So to give our legislators credit and leadership down there.  They do ‑‑ it’s a heck of a ‑‑ I mean, they’re working their tails off in this period of time and especially in a year like this, you know, when you don’t ‑‑ you just ‑‑ you’ve got to make hard decisions and there’s going to be dollars cut   ‑‑ every agency’s going to get cut.

COMMISSIONER FALCON:  Thank you.  Any other comments, questions?  Committee Item Number 3 — Financial Overview.  Mr. Mike Jensen.

MR. JENSEN:   Good morning, Chairman Falcon, Chairman Holt, Commissioners.

(Pause.)

MR. JENSEN:  Before I get into the presentation, I’d like to recognize some contributions of some staff who work in Administrative Resources for me.  For the record, my name is Mike Jensen, Director of Administrative Resources.  I have some people who have been helping behind the scenes.  Gene McCarty and Carter Smith.  Julie Horsley has done a great job and she likes to be behind the scenes but, from time to time she does present here.  She’s Director of Planning and Analysis.  She has staff.  I’m sorry the Aggies left the room because she has a graduate degree from there.  Alejandro has an A&M degree as well.  He does a great field data analysis for the Commission.

Lance Goodrum, our Budget Director, has done a bunch of number crunching.  He’s very quick at turning around the information that Carter needs and there are other staff ‑‑ Justin Halvorsen, who reports to him, is responsible for Fiscal Note Analysis.  Whenever these bills are heard, we have to provide them a fiscal note analysis in advance of these hearings so Carter mentioned there’s hundreds so there’s hundreds of these going on and fifty that are very important.

I did want to mention them and since I have a couple of people who normally don’t get a chance to attend a lot of these meetings, when we talk about the finances, we talk about the boat revenue, Frances Stiles is actually here.  So if you have some real difficult questions, now’s the time to ask them because she can help me out.  Tom Newton is also here because the item that following this budget is something that he helped gather the information for.

With that, I’ll go ahead and get started.  I will be relatively quick.  I know your time today is important.  You need to get downtown.  So we’ll start with an overview of the revenues from the three primary sources.  We’ll speak about how we’re comparing with the biennial revenue estimate that the Comptroller put out and then we’ll look at the budget adjustments and that will conclude this piece of the subcommittee.

State park receipts are looking good this year.  Every month, with the exception of one month this year, has exceeded the same periods from last year so we’re up about ‑‑ almost 11 percent, $1.4 million.  If you look at the five categories here, the park passes themselves were up a million dollars so we’re doing a great job there and concessions were up $176,000, which is 11 percent.

Facilities is hanging about even but entrance fees are doing very well ‑‑ $524,000 up, so that’s up 15 percent.  So every month has been great.  February is 20.9 percent compared to the prior February.  January compared to January is 12 percent.  December was 24 percent higher than the prior December and October was 21 percent higher than the previous October.  So our park staff have been doing a great job despite all the stuff that’s being filed out there and the concerns that we have with statewide reduction because of fiscal concerns.  Our staff are working hard and they’re fulfilling the mission.

On the boat revenue, we’re down slightly.  We’re down 62 percent and we’re about to enter the peak period in the next couple of months.  We’re going to see these numbers significantly increase.  During the course of the year, Carter mentioned we generate approximately $22 million through registrations and titling and the sales tax.    Carter did also mention that 15 percent that was collected is ‑‑ by statute we’re permitted to transfer that into Fund 64, which is the State Parks account.  When these revenues are generated, they go into Fund 9, which is the Game Fish and Water Safety account.

At this point in time, taxes are down about 1 percent ‑‑ about $7,000.  Titles are up 3.9 percent ‑‑ $51,000 and the reason everything is really down right now and as a whole registrations are down 10 percent, that’s $432,000 but, as I mentioned earlier, we’re going to see an increase over the next three months because we are entering the peak period for registrations and renewals.   If you look at the account, new registrations are actually up by about 3.2 percent.  Renewals are down slightly but we’re performing better at this point than we were two months ago and the transfers are up by 8 percent.  Titles, by count, are up by 4 percent so we did have some sales of some boats in the months of November and December and January, it appears.  And, the tax revenue is still down but it is slightly improving as we’re moving into the year.  We started the year almost 7 percent down.  Last meeting we were at 4 percent down.  Now, we’re 1 percent down so we are improving.

License sales revenue, which goes into Fund 9, Game Fish and Water Safety account.  Total revenue is up .7 percent ‑‑ that’s $479,000 but that’s including some restricted, dedicated accounts that ‑‑ like the lifetime licenses, the endowment account.  If you pull the lifetime license funding revenue out of there, Fund 9 revenue is actually up 3.2 percent or $2.2 million.  All categories are doing very well.

This next slide’s going to give you a variance analysis, which compares 2011 against ’10.  Resident fishing licenses are doing excellent.  If you look at the variance, we’re up 10.9 percent.  Non-resident fishing licenses are up 5.4 percent.  Hunting and non-resident hunting licenses are up 2 and almost 4 percent, respectively.  The combination licenses, while it’s a small percentage, it does account for $206,000 so we’re doing well on all the licenses.  We knew the other category would be performing poorly because that includes the lifetime licenses and when they increased the fee effective ‑‑ beginning the fiscal year 2009, we knew there was going to be a huge spike in ’08 that kind of trickled in to fiscal year ’09 as well.  So we’re not expecting a large amount of lifetime licenses to be sold.  There are many, many other smaller licenses.  Those, on a whole, are doing well so it’s mitigating some of the negative aspects of the lifetime licenses.

If we look at the count, total number of licenses sold, we’re up almost 4-1/2 percent.  As we combine resident and non-resident hunting licenses together, we’re up 2 percent.  The same for fishing.  If you combine the two together, we’re up almost 11 percent and the total of the combination licenses are up nearly 2 percent.  This slide will give you a variance comparison between each of those categories.  If you can look again at the resident fishing, that is performing extremely well.  Resident hunting has a smaller percentage of 1.7 percent but it’s performing very well too, in terms of volume and the combination licenses are performing very well.

The next slide does a comparison between four high- level perspective Fund 9, which is Game Fish and Water Safety, which is a dedicated account, state park fund, Fund 64, another statutory GR-dedicated account and a local park fund, which is 467.  And "Other" is made up of a number of different accounts, including artificial reef, lifetime licenses, conservation capital account and the shrimp buy-back account.  So if we look at the Game Fish and Water Safety, collections have met and slightly exceeding the BRE.  We’re performing well there.  The trends are slightly behind prior years and part of that is due to declines in interest earnings because the BRE, the Comptroller’s target was extremely high for interest when they created that and it won’t be adjusted until we have a new biennium.

Now the second reason is, we’ve had declines in boater sales and in Use tax and in registrations but it looks like that’s beginning to improve.  The second line there, the State Parks Fund, is Fund 64.  These collections are slightly behind the BRE through February.  We’re doing very well for oil and gas royalties.  Part of that is because there’s greater production volumes and another part of that is because the Comptroller, for this fiscal year, the BRE was reduced by $710,000, for that category.

State Park fees are up almost 2 percent but we’re still only about 36 percent of the BRE for that revenue category.  And this has the same issue with interest.  The Comptroller’s office, when they created the BRE, their interest anticipation was way too high.  I imagine that’s going to be significantly adjusted when we go into the next biennium.  467 collections are ahead of the target.  The primary factor there is federal funds.  And down there in the "other," the reason we’re doing well there is primarily tied to the artificial reef account.  We have approximately $2.5 million in donations that are in that account from a number of different sources.

COMMISSIONER HOLT:  Are we using those dollars?  Do we just let them sit or use them as they come in.  I mean, help me.

MR. SMITH:  Remember, the artificial reef program dollars, as you will recall, are those donations that companies make to us when they decommission those oil rig platforms and we keep those in an account and then use them to aggregate to do big reefing projects out there.  You know, those are very expensive projects ‑‑

COMMISSIONER HOLT:  Right.

MR. SMITH:  ‑‑ when you’re having to barge out rubble and other reefing materials.  There’s a lot of permitting, there’s a planning and because of just the size of them, you know, these are million-dollar-plus projects.  So, yes, we’ll aggregate them and then use them so I suspect they’re already all prescribed and planned for.  They just happen to have, lately, we’ve had a lot of donations come in from oil and gas companies.

COMMISSIONER HOLT:  So you put a certain value on that but that production platform, let’s say, will stay in that location until you decide what you’re going to do.

MR. SMITH:  Yes, that’s ‑‑

COMMISSIONER HOLT:  That sort of thing and so now we get a third party to evaluate it, come up with whatever it’s worth?

MR. SMITH:  So basically what I understand they’re required to do by law is, as opposed to them having to fully remove that platform ‑‑

COMMISSIONER HOLT:  Right.

MR. SMITH:   ‑‑ then they have the option to make a donation to us, an equivalent of half of what it would otherwise cost them and then that goes to us and then we can utilize for the reefing program.

COMMISSIONER HOLT:  Okay.

MR. JENSEN:   The next slide shows you where we are with our adjusted budget.  As of January 24th, we are $476.7 million.  We have a number of adjustments since then that moved us up to $496.2 million.  If you look at the Local Parks UB, that amount is $8.8 million; UB means Unexpended Balance that we’re moving this money from one year into the next year.  So those account for three of the riders that we have.  Rider 8, 35 and 13 and 30.  Rider 8 is for construction landowner incentive grants, Rider 36 is a specific statutory ‑‑ rider set-aside to Missouri City and Rider 13 is indoor recreation, direction from the rider.  And Rider 30’s off-highway vehicle and transportation and recreation grant money.  That added up to 8.8.

Federal grants.  We have eight different federal grants that total $5.6 million.  We have other appropriated receipts of $2.8 million.  $1.7 million of that is artificial reef donations, or UB and a million is a Palo Duro Canyon Group Recreational Facility donation.  We have a capital unexpended balance of 1.1 and that is made up of a variety of different things that include federal funds.

We have a fringe adjustment of $700,000 approximately and aquatic vegetation unexpended balance of approximately $500,000.  The subtotal adjustments are $19.5 million and that makes an adjusted total budget, as of February 28th, $296.2 million.  This is a very high level review of budget versus expenditures by object of expense.  Most of our budget is going to be in ‑‑ typically in salaries and in capital projects because of the bond money we have.  So we have an adjusted budget of salaries, $151.1 million, operating equipment is $110.3 million, grants is $50.2 million, capital projects is $141.7 million and benefits are $42.9 million.

We have 50 percent of the year expended and 50 percent remaining.  You can see that most of the divisions, given what we’re looking at the legislative session are extremely conservative.  We’re waiting to see what the outcome is going to be for end-of-year purchases because Carter reported ‑‑ right now we’re anticipating no dollars in capital, although they did put some place holders there so the division directors and executive management are being as cautious as they can to see what can be done at the end of this year to help us get through a difficult biennium.  So that’s part of why there was more remaining than normally would be anticipated.

COMMISSIONER HOLT:  Okay, walk me through capital projects.

MR. JENSEN:   Capital projects?

COMMISSIONER HOLT:  Yes, you’re showing adjusted budget $141 thousand ‑‑ $141 million, excuse me, and you’ve spent 20-, or have encumbered it in one way or another.  That leaves you $120 million between now and August 31st?  Help me on this.  Isn’t this appropriated dollars?

MR. SMITH:  So these are ‑‑ if you will recall, Chairman, these are the capital repair and construction dollars and so ‑‑

COMMISSIONER HOLT:  Yes, the ones we fought so hard to get.

MR. SMITH:  Oh, sure.  And these are in the pipeline so and you’re going to see a significant amount of this get encumbered, not only this year but particularly by the end of next fiscal year so they’re moving through their four- and five-year project horizon, really just as we expected.  I mean, as I understand it, and I’ll ask Rich to confirm this, but at the end of next fiscal year, we should have upward to 85, 86 percent of these funds encumbered.

COMMISSIONER HOLT:  We will be able to do that?  That’s what I’m trying to understand.

MR. MCMONAGLE:  I’m sorry, I just walked in.  Rich McMonagle, the Infrastructure Division.  I’m sorry.  The question was?

MR. SMITH:  So, Rich, the question that we were talking about was, in looking at the table that Mike had described and how much we had encumbered or expended with respect to our capital projects versus what was available and I was simply saying that we had these projects in the pipeline, they were moving as expected and we expected the vast majority of this to be fully encumbered by the end of next fiscal year.  Is that correct?

MR. MCMONAGLE:  And that is correct.  Right now ‑‑

COMMISSIONER HOLT:  The next fiscal year being what year?  2012?

MR. MCMONAGLE:  2012.  So here’s where we sit right now, just in general terms.  We have 213 projects right now.  At the end of this fiscal year we’ll be down to 130 and the end of the fiscal year after that, we’ll be down to 34, without any new money.  So the 2012 ‑‑ what’s happening is, the ’08 and ’09 program, the bond program ‑‑ those projects are coming to an end over the next year and that’s the preponderance of what this money is and about the only exception ‑‑ the big thing we have hanging out there, of course, is the battleship.

COMMISSIONER HOLT:  Yes, and that battleship ‑‑ part of that 120 million that’s let’s say is available?

MR. MCMONAGLE:  Yes, sir.

COMMISSIONER HOLT:  Okay.  So that’s its own issue and I understand that one.  I guess what I’m asking is, is ‑‑ if the $120 million isn’t expended/encumbered by August 31st of 2011 ‑‑ and now you’re in a new biennium, can you use whatever monies is available in 2012 and beyond and ‑‑

MR. MCMONAGLE:  Yes, sir.

COMMISSIONER HOLT:   ‑‑ encumber it, contract it, whatever.

MR. MCMONAGLE:  Yes, sir.  The only thing that is not transferable or what we’re being restricted on is all but $750,000 of Fund 9 money.

COMMISSIONER HOLT:  Okay.

MR. MCMONAGLE:  So what we’ve done, we’re in a concerted effort to get all of that money from Fund 9 encumbered ‑‑

COMMISSIONER HOLT:  Yes.

MR. MCMONAGLE:   ‑‑ that which we can’t we’ll ‑‑

COMMISSIONER HOLT:  Between now and August 31st.

MR. MCMONAGLE:  Yes, sir.

COMMISSIONER HOLT:  That’s the only real issue for ‑‑ okay.  Okay.  That’s why I still get confused.  After eight years, I’d figure this out.

COMMISSIONER SCOTT:  To follow up on your thoughts.  You’re asking something I was curious about as well.  So that was a bond issue.  I wasn’t here so back in ’88 ‑‑ when was that bond issued passed?

MR. MCMONAGLE:  In the 2007 session.

COMMISSIONER SCOTT:  So that money remains with TPW until it’s used.  It can’t be taken away.

MR. MCMONAGLE:  No, sir.  It has a five-year ‑‑ there’s a five-year life span so ’08, ’09, ’10, ’11, ’12 so it ends the end of next fiscal year.

COMMISSIONER SCOTT:  Okay.

COMMISSIONER HOLT:  By the end of ’12 ‑‑ fiscal year ’12, you have to have to have it encumbered.

MR. MCMONAGLE:  Completely expended.  Yes, sir.

COMMISSIONER HOLT:  Expended.  Oh, completely expended?

MR. MCMONAGLE:  Yes, sir.

COMMISSIONER HOLT:  Not just contracted or encumbered?

MR. MCMONAGLE:  That is correct.

COMMISSIONER HOLT:  All right.  So you don’t have that long.  You’ve got, what ‑‑ 18 months.

MR. MCMONAGLE:  Yes, sir.  But all those projects ‑‑ those are projects that are ‑‑

COMMISSIONER HOLT:  Okay.

MR. MCMONAGLE:   ‑‑ in place now.  Most of them are ‑‑ I mean, they’re in construction right now or very close and most of them are closing in the next year, as I said.

MR. SMITH:  Remember, when you look at the four- or five-year life span on this, you know, 85 percent of our costs of these projects are in the last couple of years of construction so that’s why you’re seeing all that.

COMMISSIONER HOLT:  Okay, okay.

MR. SMITH:  I just want to say this infrastructure team has done an extraordinary job of working to try to accelerate the expenditure of these funds.  I mean, they have been working very, very diligently to get these going so I just want to acknowledge Rich and his team.  They’ve been very mindful of this issue.

COMMISSIONER HOLT:  Yes.

MR. JENSEN:   And for Commissioner Scott’s benefit, Rich has presented to the Commission before and it shows the five-year cycle and what Carter just mentioned is part of that slide, a big chunk of the money ‑‑ the majority of the money is spent in that last period on that chart.

COMMISSIONER HOLT:  And, as you all said, just to let you know, $25 million of it ‑‑ I’m using that number, I think, correctly, that’s appropriated to Battleship Texas.  Now whether that’s going to get spent by 2012 or not ‑‑

MR. MCMONAGLE:  No, sir.  In fact ‑‑

COMMISSIONER HOLT:  I assume that’s not ‑‑ that, in itself, almost reached ‑‑ go ahead..

     MR. MCMONAGLE:  Yes, sir.  And, in our legislative appropriation request, we asked for an extension ‑‑

COMMISSIONER HOLT:  An extension on that one ‑‑

MR. MCMONAGLE:   ‑‑ for that one.

COMMISSIONER HOLT:   ‑‑ because that one’s such an engineering nightmare, to be blunt with you.

COMMISSIONER SCOTT:  I can imagine.

COMMISSIONER HOLT:  We’re trying to figure out what to do with the Battleship Texas.  Essentially, we’re trying to figure out ‑‑ probably going to dry dock it somehow and save it.  Like I say, I’ve been here eight years and we haven’t figured it out yet.  Okay?  We did get $25 million but now we’re being told that ‑‑ you know, that’s probably not even going to cut it.  It’s going to take a lot more than that.

COMMISSIONER SCOTT:  Sounds like it might sink to the mud.

COMMISSIONER HOLT:  Well, we tried to give it to the city of Houston and they didn’t want it.  Everybody said, Please don’t put it in the Port of Houston waterway because it’ll sink.  And that’s all we need to do is block off the whole Port of Houston.  So I tell them all, we’ll do that on Dan’s watch.

MR. SMITH:  Just a quick little update because I know the Battleship ‑‑ it’s a big issue and it is, you know, one but, you know, we have a world class global marine engineering firm that’s been selected, AECOM, to do the design work.  They’re going to be shepherding this through as we go through a two-year NEPA and Section 106 project to make sure that we’ve got all the cultural reviews.  It’s just a ‑‑

MR. SMITH:  It’s a federal linear process that we have to do but we’ve got some real experts that are quarterbacking this now, Chairman, so just want you to know that.

COMMISSIONER HOLT:  And, of course, that reduces the price, you know.  Thank you, Rich, appreciate you coming.

MR. MCMONAGLE:  Sure.

MR. JENSEN:   That actually concludes this item.

COMMISSIONER FALCON:  Any questions or comments?  Let’s go ahead and go to the next Committee Item, Number 4 - Combination and Super Combo Allocation Rules.  Mike Jensen.

MR. JENSEN:   Good afternoon.  My name’s Mike Jensen, Director of Administrative Resources Division.  This short presentation is to discuss a rule adoption that is out there for you to consider.  It relates to a methodology for allocating the revenue that’s collected for Super Combo licenses.  A Super Combo license, for resident and senior, is made up of five stamps plus a hunting license and a fishing license.  Of those five stamps there are two that are bird-related ‑‑ Migratory and Upland Game Bird stamps ‑‑ and there are two that are fish-related ‑‑ freshwater fish and saltwater fish with a drum tag.

There’s also an archery stamp.  So we get to the Public Comment, a lot of the attention is focusing on that particular stamp, although the purpose of this rule change is simply to allocate the revenue that’s collected because when the Super Combo is purchased, it’s purchased at a discount.  If you’re getting a regular Super Combo, you’re getting a discount of $18.  If you’re getting a Senior, it’s discount of $18, so the total cost of those licenses, with the discount is $68 for the Resident and the Resident Senior is $32.

The way the rule currently works is the discount is prorated or we look at the utilization from the survey or a combination of both and that’s historically how we’ve done it.  Staff has reviewed the trends from the past five-year surveys and there hasn’t been much variation between them so what the rule proposal is asking you to consider is looking at the ‑‑ doing a survey once every three years as opposed to doing a survey every year.

The cost of the survey is approximately $15,000 a year.  Because there’s very little variation between the years, we think it’d be a more efficient use of resources and staff.  The way the rule is reading, it allows us to look at an average of the prior three-, four- or five-year surveys, in terms of determining what the utilization or prorated share of each of those elements would be.

The reason that this is an issue is four of these stamps have specific statutory restrictions when the legislature created them, the fish stamps and the bird stamps.  The archery stamp doesn’t have that restriction.

All five of the stamps go into Fund 9, which is a dedicated account.  But the bird stamps and the fish stamps have greater restrictions.  The archery stamp goes into Fund 9 dedicated account, does not have additional restrictions on it.

And, that is primarily what we’re getting back on the Public Comment.  Last Friday we had only 28 comments but since then we actually have 59 total comments.  Forty agree and 19 disagree and the main theme of the disagreement is, it’s more of a question.  If these other four stamps are restricted, why isn’t the archery stamp restricted?  And, basically, the answer to that is, that’s in state statute.  The legislature created those restrictions when those stamps were created.

A similar type of restriction was not created by the legislature when the archery stamp was made available.  All the money from all these stamps do go into Fund 9, which is dedicated and I think I did a poor job of this last bullet on this slide.  Let me go back.  We have the Super Combo allocation.  The difference between a Super Combo allocation and the combination licenses are the discount is only reflected on the hunting and fishing licenses on the regular combo licenses.  It’s not calculated against the stamps.  On the combination licenses you can have a fish stamp ‑‑ saltwater fish stamp, freshwater fish stamp, or you can have both, but those are not discounted on the combination licenses.

This rule revision also makes it ‑‑ it clarifies that difference between the combination licenses and the Super Combination licenses.  That’s essentially what we’re asking for with this rule change is to allow us to do a survey once every three years and then we use those survey results to look at the prorated share that should be put into the stamp funds and the hunting and fishing license on the Super Combo licenses.

Tomorrow we’re going to present this recommended motion for you to consider and just wanted you to see it for today.  You don’t have to take action on this today.  That’s all I have on this particular item.  If I can answer questions, I’d be more than happy to try to do so.

COMMISSIONER FALCON:  Any questions, anybody?

COMMISSIONER DUGGINS:  What’s the purpose of the survey?

MR. JENSEN:   The survey ‑‑ currently, the way we do the allocation into the dedicated accounts ‑‑

COMMISSIONER DUGGINS:  Allocation of what into what?

MR. JENSEN:   Well, you have five stamps and four of those have specific restrictions.  As a result, they have sub-accounts.  In order to determine how much to put into those sub-accounts we look at utilization or we look at a prorated share.  That’s what the current rule says.  The current rule also says to do a survey every year and so, in order to know how much to put in the Upland or Migratory stamp funds and the freshwater fish and the saltwater fish stamps, we have to look at that utilization survey.  We’re still going to do that but because there has been very little variation from year to year, we want to do the survey once every three years and we’ll do an average of three, four or five.  The purpose of three, four or five is, we may have a year that has a strange anomaly and we want to be able to smooth that out.  The whole purpose is to get the correct amount into these restricted stamp funds.

COMMISSIONER DUGGINS:  And how do you do that?  What do you ask in the survey?

MR. JENSEN:   Tom ‑‑ would you like to come up, Tom?      COMMISSIONER HOLT:  Or Gene can answer, one or the other.

MR. MCCARTY:  Gene McCarty, Deputy Executive Director.  We send out a survey to those ‑‑ to a subset of those people who have purchased the Super Combo and we ask them, did they utilize their Super Combo to hunt, to fish, to hunt migratory game birds, to hunt Upland game birds, to fish in saltwater, to fish in freshwater or to hunt in the special archery season.  So we ask them specifically if they used their Super Combo to participate in each one of those then we use that data to weight ‑‑ determine their general overall participation ‑‑ their, I guess, their level of participation in each one of those activities.

COMMISSIONER DUGGINS:  But that doesn’t capture a person with a Super Combo who buys a Super Combo with the belief that a portion of that is going to Upland Game Birds ‑‑ to the Upland Game Birds sub-account at least.  I’ve heard from a number of quail hunters that say, Right now I’m not hunting quail because there’s no quail in north Texas but I buy this license believing that a portion of the funds are to go into the Upland Game Bird account.  It seems to me, you might want to wait.

MR. MCCARTY:  That’s the way we used to do it and that’s exactly why we used to do it that way.  About six years ago the State Auditor’s Office came in and said that was wrong, that you can only allocate based on participation, not based on intent of purchase and so we had to create this ‑‑

COMMISSIONER HOLT:  Only SAO.

MR. MCCARTY:  We had to create this survey to allocate specifically on utilization, not on intent of purchase, because before that we used a lot of different information just to ‑‑ to allocate based on what we believed to be the universe ‑‑ the universe of utilization.

COMMISSIONER DUGGINS:  So this is a directive from John Keel’s office?

MR. MCCARTY:  This is a finding in the State Auditor’s report of about six years ago.  Yes, sir.

COMMISSIONER FRIEDKIN:  What are our survey return percentages?

MR. MCCARTY:  For each individual?  I don’t have that ‑‑ oh, here we go, here we go.  It’s right here.

COMMISSIONER DUGGINS:  Are you asking how does the report say for the ‑‑

(Simultaneous discussion.)

COMMISSIONER SCOTT:  Yes, that was going to be my question.

MR. MCCARTY:  Okay.  Is John here?  John, do you want to come up and answer that because you know the response rate.

MR. TAYLOR:  My name is John Taylor.  I’m with ‑‑ a data analyst with the Inland Fisheries Division.  I don’t have those numbers with me right this second ‑‑ oh, here they are.  Good.  Good.

MR. JENSEN:   Those are ‑‑ we have survey results.  These are not the response rates ‑‑

MR. TAYLOR:  Off the top of my head, it’s about 48 percent.

COMMISSIONER HOLT:  They’re fairly high; that’s not bad.

MR. TAYLOR:  Better than we get with a lot of our surveys.

COMMISSIONER HOLT:  They’re paying money.  They want to see where it’s going to go.

MR. TAYLOR:  And the response rate for Seniors is quite high as well.

COMMISSIONER FRIEDKIN:  Thank you.

COMMISSIONER HOLT:  Okay.  Any questions for Mike?  We kind of need to keep moving on.  I’ll explain why in just a second.

COMMISSIONER FALCON:  I will place this item on the Thursday Commission meeting agenda for public comment and action.

Mr. Chairman, we have two more items if ‑‑

COMMISSIONER HOLT:  What we want to do is, if possible, is have Vandita’s Internal Audit Report done and then, on the Big Time Texas Hunts Program, put it off until the May meeting.  And I know Linda and Carly and others have done a lot of work on that.  We want their report.  The problem is, Dan and I have to be downtown with the Speaker at a certain time or we’re getting pushed here and we have one executive session item that we have to do.  Okay?

COMMISSIONER FALCON:  Should we go to Committee Item Number 5 then?

COMMISSIONER HOLT:  Yes, go to Committee Item 5, yes.  Welcome.

MS. ZACHARIAH:  Thank you, sir.

COMMISSIONER HOLT:  Yes.

MS. ZACHARIAH:  For the record, my name is Vandita Zachariah.  Good afternoon to all of you.  I am the Director of Internal Audit and new with the organization.  The purpose of the presentation today, sirs and madams, is to provide you with a brief summary of the revised internal audit charter.  I’m hoping that each of you have a copy of the document.  I will walk through it very briefly for you.  In addition, I’d like to update you on the status of Fiscal Year 2011 Internal Audit Plan Implementation and then, finally, I would like to list the external audits that have been completed this fiscal year or that are ongoing and all of these are from the State Auditor’s Office.

The purpose of the Charter ‑‑ the Internal Audit Charter is to really describe the scope of internal audit activities and those include both audit and advisory work that we do within the organization.  The document really lists out the roles and responsibilities of the Internal Audit Director ‑‑ really important, as I manage the Internal Audit program.  Then the responsibilities of the Executive Director and the Commission and then, finally, the responsibilities of the Operational Management within the organization.

Internal Audit’s primary goal is to support the agency in accomplishing its mission, goals and objectives and we do this through independent evaluations of the Texas Parks and Wildlife Department programs, processes, and systems and those programs, systems and processes that the Commission oversees and Executive Management manages.  Really, the focus of areas that Internal Audit develops are through an independent risk assessment that we perform on an annual basis and based on this risk assessment, we go ahead and develop what is called an Internal Audit Plan and the Internal Audit Plan that’s currently in place actually comes to you for approval.  As you know, the document typically identifies both audit and advisory work.  Our focus, moving forward, is going to be definitely audit, which is a mainstay of our internal audit organization but we’re also going to be focusing significantly on advisory work and then follow-ups.

Significant audits have been done in the past, both by the State Auditor’s Office, some by the Department of Interior and we’re going to be looking at those and trying to see what management has done in the past and currently to implement those recommendations.  So it’s through the performance of audits and advisory work that we provide value to the organization and each of these areas focus on governance, risk management and then compliance with the rules and regulations.  Any questions so far?

(No response.)

MS. ZACHARIAH:  I’d like to get just briefly into key responsibilities for the Director of Internal Audit, please.  As I mentioned previously, my role is to develop the program and maintain it.  In addition, I also make sure that I develop an internal audit plan that comes to you for approval and that any changes are also approved through the Executive Director and come to you for approval, as well.  There will be some changes that I will be recommending for s to the existing plan and those will be submitted to you in the next month or so.

It is also important, of course, for the internal audit function and the director to communicate the results of audit and advisory work through operational management, executive management and also to the Commission and for you to weigh on those recommendations and then make sure that those are implemented by the operational management.  That is really the crux of what we do.  It is also important for me to make recommendations to you, sir, and communicate budget, budgetary and staffing requirements for this Internal Audit function to be effective within the organization and I plan to do so on an annual basis.

The Director’s ‑‑ that is, the Executive Director’s responsibilities and the Commission’s responsibilities include really to ensure that the internal audit function remains independent.  It is also to approve the Internal Audit Charter and the Internal Audit Plan, which is an annual document.  It is really important that you also review Internal Audit budget and staffing requirements periodically to ensure that significant risks get attention on a timely basis.  And then, finally, of course, review the Internal Audit and Advisory’s reports and then status update information.

Key responsibilities of the operational and senior management include providing unrestricted access to program administration activities, personnel and information systems and then also to review the audit reports and to provide timely management responses.  We, of course, take those management responses, insert them into draft reports and those are what finally get issued to management and then also if the report goes to the Executive Director, then I’m also required to report that externally to our Oversight bodies, which are the State Auditor’s Office, the Sunset Commission and the Governor’s Office of Budget and Planning.  Any questions at all regarding the Charter?

(No response.)

MS. ZACHARIAH:  Thank you.  With that, then, I would like to move to the next item on the agenda, which is really the Plan implementation itself, which is Fiscal Year 2011 Plan.  There were several projects that were carryover projects from the previous year, Fiscal Year 2010.  Five of those in total.  These include a review of construction processes, procurement card processes and applications review of the Texas licensing connection, recreation grants program and then, finally, selected federal grant programs.  So we have reviewed all of these and this was done prior to me taking office and reports have been issued in each of these areas.

In addition to these carryover projects, the following three – maybe there are more than three really; there’s many encompassed within the audit of the state parks but really three general areas.  There were three additional audits that were completed and two have been combined together.  These relate to ARRA funds, what is the American Recovery and Reinvestment Act of 2009.  That particular project dealt with both grants management and then compliance review and reporting itself and then three audits of state parks have been completed as well.  And then an assistance project of the Battleship Texas was completed prior to my taking office and Cindy and her team were very instrumental in completing all these projects, so I want to thank them.

Currently, the following five projects are underway:  these include the TxParks application controls, a review of law enforcement offices, state parks, the ethics survey and then, finally, Texas Freshwater Fishery Center, specifically.  Most of these audits are either going through their final quality assurance review process or are in the reporting stages of the work.  The Ethics survey probably will be an advisory project, sir, I will be advising the Executive Director, management on just any recommendations that stem from that particular project and we will make sure that the report also comes to the Commission for consideration.

Planned projects for Fiscal Year 2011.  There are several of these that are currently in what we call the pre-planning stages.  These include a review of contracting processes.  This is one project that will probably be cross-divisional and I would really like to ‑‑ in support of management and this being a session year, kind of delay the start of this particular project.  This is going to require some time commitment on their part.  We want to delay this just a little bit.

The other projects that are ready to start in pre-planning or planning are the Sand and Gravel audit, IT governance, Hunter and Boater Education, Fleet Management, Web-based Applications and Network Security.  This particular project really ‑‑ this is a combination of two existing projects on the Plan and what we’re trying to do is take the network security component, which was a completely separate project and look at only those aspects that deal with web applications.  So we’re going to combine the aspects of network security with web applications but it’s going to be a limited scope of network security that we’re going to be looking at.  Then maybe need to do a larger, broader scope network security later but we will determine that as we complete this work.

And then, of course, as I mentioned previously, we will also be doing a follow-up review on previously identified findings, issues, recommendations, both through internal audit and through external audits that have been performed at the department.  Any questions at all on Plan Implementation?

(No response.)

MS. ZACHARIAH:  Finally, I’d like to discuss, just briefly, the external audit coordination that we have been doing and also HR has been performing in one particular area.  The audits that the State Auditor’s Office completed so far include the A133 ‑‑ it’s really a compliance review, sir, of the statewide Single Audit Act and they specifically followed up on a previous finding which relates to the schedule of expenditures of federal awards and, really, the recommendation was primarily that the review processes in the preparation of the statewide schedule of expenditure of federal funds be enhanced further and I know that management is working on that.

In addition to that specific finding, there is also a review that was completed ‑‑ another compliance review that was completed by the State Auditor’s Office that deals with historically underutilized businesses.  This was, as I mentioned, also compliance review and there are some findings that came out of that and I know management is working in providing responses to Senator Royce West.  He requested some information from the organization and those are being provided and management is working on implementing the recommendations that have been developed or identified by the State Auditor’s Office.

The audits this year that are in progress or in planning, from the State Auditor’s Office, include a review of data security related to the disposal of surplus and salvage equipment.  In addition, there’s a classification audit that’s been ongoing.  The lead, as I mentioned previously, is Al Bingham in Human Resources.  They’re looking at the program specialist positions and whether those are classified appropriately.  I think there are some preliminary recommendations that the organization has received, as I know it, they’re making some recommendations to make some adjustments to these positions and Al is working closely with the State Auditor’s Office in making those changes, I believe.

In addition, planning for A133 statewide single audit

have begun and what they’re requesting from us at this point ‑‑ we do not know if this will end up being audit work or not yet ‑‑ KPMG, which is the private vendor that works with the State Auditor’s Office has requested some information regarding our ARRA funds, which has been, again, the American Recovery and Reinvestment Act and they just ‑‑ I think that will help them plan to determine how much money we get and the expenses for the past year or so.  They’ll really be looking at 2011, fiscal year.

That really concludes my presentation.  I will open it up for any questions that you may have of me.

COMMISSIONER DUGGINS:  I know the time is short but on this statewide ‑‑ the State Audit Office audit of whether or not we’re cleaning hard drives before we dispose of surplus equipment, how is that efficient use of state resources?  Why aren’t you and your office better suited to audit that, to the extent that a risk assessment that justified it?

MS. ZACHARIAH:  I think that’s an excellent question, sir.  As I see it, it was not included in our plan.  In terms of use of resources, I would probably say their main concern really is, is confidential information being handled appropriately so when we dispose of salvage equipment or surplus equipment, are we truly cleaning up our drives and making sure there is no confidential information on those drives?

Your question about should Internal Audit have done this, I can’t speak to our risk assessment, sir, I was not part of that but I can open it up to Cindy and kind of have her comment on that specifically.  Periodically, I think we are part of a larger group of agencies where they’re including several and I am not sure if we, in any way, showed up as high risk.  I do not have enough information yet.  But I can certainly follow up and find out with the State Auditor’s Office, in terms of how we got selected in that particular review.

COMMISSIONER DUGGINS:  It seems to me that that [inaudible] job could be better performed by your department than Mr. Keel’s office and I am mystified as why they’re concerned about what’s on equipment when everything on there seems to be subject to the Freedom of Information Act request at all times.  Anyway, I don’t want to take up any more of your time.

COMMISSIONER HOLT:  They are worried about, you know, are we shooting those catfish with arrows or not.  That’s what it goes back to.

COMMISSIONER DUGGINS:  That was two years ago.

COMMISSIONER HOLT:  That was even more than two years ago.

MS. ZACHARIAH:  I will also say that this may be in some ways a blessing because quite often it’s the discretionary projects that are the larger projects that the State Auditor’s Office does that typically encompass larger scope and purpose and objectives of audit work.  This may be just ‑‑ periodically they will make their presence known at agencies and especially agencies that have larger funds and this is their way of also ensuring that we’re complying with the rules and regulations that are established.

COMMISSIONER HOLT:  Right.

MS. ZACHARIAH:  And there are some Texas Administrative Code things that we may need to comply with in this instance.

COMMISSIONER HOLT:  Well, you’re new; you’ll figure that out for the next meeting.  Vandita, thank you.  Sorry to rush you.  I’ve asked Carter that he and I sit down with you, probably after the May meetings, and Dr. Falcon, and go through this, all of this, one on one, so we can make sure ‑‑ by then you’ll have been here 90 or 120 days, and make sure we’re doing this correctly.

Remind you all Vandita sent you reports to the Commission, okay ‑‑ directly.  And, so, I guess, the Chairman, or the Commission and the Chairman directly.  But anyway, we’ll do that after the next May meeting.  Sorry.  We’re getting a little rushed today because of these other [indiscernible] meetings.

MS. ZACHARIAH:  Not at all, sir.  Thank you very much for your time and attention.

COMMISSIONER HOLT:  Sure.  Thank you.  With that, what we’re going to do is take a break, go upstairs.  We’ll do the one executive item that we have to deal with and grab a quick lunch and then Dan and I and Carter need to go downtown and probably, Ralph, I’ll ask you or somebody just to quickly chair and, Margaret, if you don’t mind, and if you can finish your committee and we can get that done today.  Sorry we’re in such a rush but we were able to luckily get in with the Speaker of the House but only if we get down there, you know, before two o’clock.

COMMISSIONER DUGGINS:  That’s engraved in stone.