Lessons Learned From Managing Public Agencies

Roundtable features senior practitioners engaging in open discussion on the most pertinent issues facing the infrastructure industry both today and tomorrow. This edition features perspectives on lessons learned from managing public transportation agencies.

Rolando Amaya (RA): You each have significant managerial experience with public agencies. What challenges did you find to be most daunting during your respective tenures? How did you mitigate them?

Ronald Freeland (RF): It is always a challenge to get staff to buy into your direction. You can do that by setting an agenda and creating a vision for the agency that you’re leading very early on. I would normally do that by creating a vision statement that is both simple and straightforward. This allows people to understand what you’re doing and why you’re doing it. I have also found that it is important for the vision statement to remain consistent with the mission statement of the agency.

Barbara Reese (BR): Two things—the first is maintaining your focus. There are always a lot of things going on around you. I have learned that you have to learn to try to stay publicly focused on one or two things. Always keeping that in mind and keeping your focus on the tasks at hand. Second, whether it’s the lack of money or the inability to find the right people, the lack of resources is always a daunting challenge. At every level of my career these are two challenges that have never changed.

Cliff Eby (CE): At the federal level, you don’t necessarily have the ability to set your own agenda or mission. You can try to tweak the agency with reauthorizations or appropriations, but that’s generally something that is difficult to accomplish. The focus comment is very appropriate, given that the scope at the federal level is far greater than that of any state agency. I have found that to make the most impact, it is important to focus your efforts and bite off small pieces of your agenda where you think you can.

The day-to-day of running a federal agency is not difficult; it is structured for you. The main challenge is making a change in a federal agency. A good example of this is getting people in the right spot on the organizational chart in your agency. You can’t change the responsibilities of an individual who is better suited for a different area of the organizational chart in less than about a two-year period.

Those challenges make it very tough to make any change at the federal level. What you have to realize fairly quickly is that while you may have grandiose ideas, it’s going to be very tough to accomplish everything. You’re better off concentrating on something that’s narrow and supports the President’s priorities for the Department.

BR: I agree. While not as difficult as the federal level, the state level is similar—everybody’s watching what you change and if there’s any misstep you’ll never hear the end of it. It’s knowing where to focus that is always the challenge.

When I was asked to become the first Chief Financial Officer (CFO) for the Virginia Department of Transportation (VDOT), I had everything from accounting, to capital outlay, to procurement and budget and debt. There were unique challenges in each of the areas. It was difficult to determine where to start.

I had to leverage my personal experience, identify the trouble spots, and make decisions about where to focus resources to fix some things and put a band-aid on others. Before I knew it, it was five years later and I was left wondering if I made the right decision because the problems that I didn’t address right away have now become the topic of the day. Internally, you’re always second guessing your decisions. At the same time, you have to project confidence that you made the right decisions to prevent others from second guessing your judgment.

Another key is to do that day-in and day-out and not lose focus or just become so exhausted from it that it prevents you from accomplishing things and making small, positive changes.

CE: While we’re talking about challenges, a major challenge at the federal level is the number of audits and the resources you have to devote to the process of being audited. A couple of times I estimated that 25 percent of the agency’s resources were being used responding to audits.

The outside perspective is helpful, but often the auditing agencies do not have a core competency in the subject matter they’re auditing. So the first thing they come in and do is interview you and you talk about all the things you do, all the programs you do and then typically the next question is, “Well, what are you doing to improve?” and you layout your improvement program. Inevitably, the audit comes back and says here are the things you’re doing wrong, and it’s all the things you pointed out in terms of the program, which is fine because you can control that process. What you don’t want is somebody that perceives themselves to be an expert and coming in and going off on a tangent. Those audits take extraordinary amounts of time because you don’t want to embarrass the agency and you want to make sure that you’re putting your best foot forward.

BR: I started my career as an auditor, Cliff. Everything you’re saying is exactly right. You do spend a tremendous amount of time dealing with auditors of all shapes and sizes. At least at the federal level you didn’t have the state auditors looking at you too; we would get it twice. The thing about audits that was always helpful was they did make you realize that you need to take a little bit of breath to check something and set it right. You had to know how to talk to the auditors too, you had to be able to cultivate a relationship with them to the point where you could maybe get them to help you accomplish something every once in a while.

RF: The state of Maryland has both legislative audits and internal audits that you’re conducting on your own. You do spend a significant amount of your time going through audits. I’ve always found the audit findings to be pretty helpful if you look at them objectively. You’re not always going to be doing everything right but they give you a roadmap in terms of what you should be improving.

RA: How did you leverage your consultants? What practices did you find most helpful from the consultants with whom you worked?

RF: I’ve used consultants in two ways. One for when we’re delivering a project—a toll road or an addition to a rail line—and also to help supplement the expertise that we have on staff. If you’re working for a public agency and you’re building large projects, consultants are essential because they come with a lot of experience that your staff may not have, especially if you’re not delivering projects on an ongoing basis. If they work well with the staff—I find that most consultants do—then you end up with a better overall product.

The other way that I’ve used consultants in my career is basically to work alongside the staff and to come up with a more robust set of skills. A lot of people in public agencies who do not have other work experiences basically don’t have the expertise either in engineering or design, or for that matter planning, that you need when you’re working on projects. I’ve found it very useful in the past, and I’m sure I will in the future, to use consultants to supplement staff expertise.

BR: I agree. I looked for consultants to provide skill sets that I needed but did not have available for a particular project or activity. I used them to work side-by-side with the staff with the hope that the consultants would teach the staff things and vice versa.

There are instances where you just have to acknowledge the fact that you need consultants. For example, the salaries that people with expertise in the innovative finance or public-private partnership world demand are simply too high for public agencies. In addition, it takes so long to hire people in public agencies that by the time you’ve posted that ad and gone through all the steps, you’re nine months down the road and your need has compounded.

We even started continuous hires because it just took so long to get anybody through the hiring process. For instance, you might interview somebody for an analyst position and find that they do not fit that position, but would be great in another position. You could try to hire them over there but it is a painful process as a public manager. You literally have to acknowledge that you’re not going to be able to buy and create a public agency position to bring you that skill that you need, so you have to leverage the expertise that consultants offer.

I always wanted the consultants that worked for me to keep it short and simple, stay focused on what they were supposed to be working on, and have done their homework. I never appreciated anybody coming in that hadn’t done some homework about what was going on in the organization overall. Just knowing that they had enough interest in my world to do their homework went a long way. I’m not saying you should spend days and nights researching – it could be an hour on the internet looking at the agency web site or something similar. The consultants that did their homework were the ones I always went back to for help on the next project.

RF: Regarding hiring, I’ve had the same experience. It takes so long to advertise, recruit, and hire that you’re always in a hiring mode. That’s especially a handicap at the executive level. If one of your immediate staff or direct reports leaves or retires and moves on to other opportunities it can take as much as six months to a year to fill the job.

RA: What are the most significant challenges facing transportation agencies today? How can transportation agencies best address those challenges?  What can we, as consultants, do to support transportation agencies in meeting those challenges?

CE: Performance measurement and the fact that we don’t do a very good job in either the private or the public sector in measuring the performance of our assets is a major challenge for our industry.

I don’t know that we have even the right tools to do it – understanding subsidies associated with various forms of transportation that make it hard to measure the real effectiveness of our assets.

I’ve always felt that transportation value will rise in everybody’s opinion if we can level the playing field with respect to balancing the externalities, balancing the subsidies, and letting each mode of transportation compete in terms of government funding. The model that the US uses for the most part for transportation allocation has been the Highway Trust Fund and political earmarks. That model is broken today; it’s not working but we don’t have the tools to figure out a better way. That’s a huge opportunity for public agencies, to figure out how to measure performance that works for them and provides value to their constituencies.

BR: Performance measurement can take some of the political externalities out of the process. At the very least it can give the executive the credibility they need to stay the course on issues because there’s a rational reason for it and they can reiterate that over and over again until somebody gets the message.

I was at the Capital Beltway I-495 high occupancy toll lanes opening this morning and Governor McDonnell was talking about the infrastructure maintenance challenge that’s in front of the state of Virginia. That maintenance challenge has been in front of Virginia for 10 years now. Every governor thinks there’s a way to fix it when they first come in, and by the time they get to their last year in office they realize that it takes resources and a new way of looking at things.

From my perspective, the hardest thing for a DOT or highway agency that’s used to having all the financial and staffing resources is to “right size” so that transit and rail have a better place at the table. Transit agencies tend to be smaller and can’t do everything—soup to nuts—whereas a lot of the DOTs could, and now that dynamic seems to be shifting around the country. Transportation agencies need to find the right balance between highway and transit.

RF: Maintaining the infrastructure that’s already out there is always going to be a challenge. Throughout my career I have found that the there is far more enthusiasm from elected officials and the general public for brand new facilities that are opening up. I’ve had a lot of difficulty in convincing elected officials that you need to maintain the infrastructure that you have so that you can continue to have a good transportation system.

I think one of the other challenges that we face now, and we’ll face in the future for transportation, is security. We live in a world that’s unsafe and a lot of our assets are very susceptible to terrorism. If you take a look at transit, in particular, we don’t really have a lot of security. That’s increasingly becoming a challenge for which we do not have the resources.

I don’t think you can ever eliminate the risk of terrorism, but I think we can reduce the level of risk. It’s not fixable in terms of security; we live in a very open society. It’s a matter of assessing the risk and minimizing the risk where you can.

CE: Another concern I have going forward is the future of availability payments and how sustainable they are. If you’re building a 50- to 100-year project, you should be looking at a 50- to 100-year revenue stream, but it just seems that it’s a bit too faddish right now to borrow from the future and use availability payments for all these projects.

We’re taking on more liabilities. In five years, where are we going to come up with the money for that next project once we already have several 30- or 60-year liabilities on the books? We’re living off of financing mechanisms for the next several years and not addressing the structural capability to support the needs.

BR: You have to ask why this is a good transaction to enter into with an availability payment. What are we getting from it 15 years down the road other than the payment? That goes back to performance. The question really becomes does the public entity have the wherewithal to, one, negotiate a really rock-solid contract upfront and, two, you can contractually obligate the private partner into providing stellar service, but is it important that one asset has better performance than all your other assets?

I don’t think the thought process has entirely matured on these deals, but I would like to see some more of these projects happen so we can get a body of work to analyze and determine what works and what doesn’t work.

So how would we pay for availability payments? Tolling is one answer. Transportation is a service and you pay for the service. People need to acknowledge the fact that maintenance is subsidized and we cannot afford to continue it. Tolling isn’t a bad thing, but how do you get people to start talking about it as if it’s not?

RF: I’m in favor of tolls, especially with respect to highways, bridges, and tunnels. I think that’s a user fee that people can buy into as long as the price isn’t too high. It’s difficult to keep tolls low with the sheer cost of large projects today, such as the Intercounty Connector (ICC) in Maryland. You’re talking billions of dollars in order to bring a new project online.

Interestingly, when I expected to really be criticized with the ICC’s proposed tolls we simply weren’t. There were a couple of negative articles; that’s it. I think it’s because of the need for a fix. If you were traveling in Montgomery or Prince George’s counties the congestion really becomes a problem. Based on that experience, I’m willing to believe that in the future, taxpayers would be willing to pay tolls where there’s a need.

It doesn’t necessarily mean that the public sector is going to own the project forever either. With respect to the ICC, one of my objectives was that, if the traffic and revenue forecast were what they were projected to be, it would be a perfect project to have the private sector run.

BR: Another major challenge is the National Environmental Policy Act (NEPA) process. It’s such a constraint. You never know how short or long it will take, or what commitment you’re going to be required to make. It’s just such a risk. Every executive I’ve ever worked with has done everything in their power to avoid the NEPA process. In the P3 space, you cannot generate any interest in a project until it is through the NEPA process.

CE: And with its constraints, the NEPA process takes a lot of opportunity for innovation out of the process so you don’t have the flexibility that you would like to have by the time you get there. So if you think about it, the private sector is looking for the public sector to bring the projects up to a NEPA level before they’re willing to jump in. Unfortunately, the biggest opportunity for innovation is probably prior to the NEPA decisions. I really don’t know how you get around that.

RF: It certainly slows project delivery and the private sector just isn’t willing to take that kind of risk. In the private sector you just can’t sit around for two, three, four years, however long it takes to get through the NEPA process, before you start generating revenue on a project.

RA: Similarly, what emerging challenges do you see on the 10- to 20-year horizon? How can transportation agencies best position themselves to meet those challenges? How can we best assist our clients in preparation for those challenges? Are there fundamental changes that need to be made on either side?

BR: I don’t see the previously discussed issues going away. The question is what new issues get added to the pot? Right now in transportation we have to accept our new economic reality and determine what it is that we’re going to be able to afford. We’re going to have to help our public and private clients determine how to operate successfully in this new environment.

CE: Back when I was with the DOT, transportation ranked 12th on the list of priorities for Americans. Number 11 at the time was conversion to digital TV. If you think about it, most Americans probably spend more time in front of their television then they do in transport, so it probably was appropriate.

If you look at the past Presidential election, we heard a lot about infrastructure for jobs, not for transportation purposes. The transportation discussion was never an issue and I’m not sure where transportation really ranks in the US or globally.

My long-term fear is that people are going to look at other areas and request that more resources be devoted to health care, to education, and to things we typically hear about before they say transportation.

That leads me to another worry: the assets we’re putting in place now have 50-plus-year lives, so look at the 50-year horizon. What is the future of public transportation 50 years from now?  Will managers hop on planes to go meet with their counterparts in 50 years? With modern technology where it is, I tend to think the next generation of managers is much more comfortable on the phone, texting, and using video images to stay in touch with the people. My generation is always eager to hop on a plane to meet someone. What happens when that expectation changes?

Will transportation assets be for vacations and excursions rather than commercial uses? With the rise of telecommuting, the real need for transportation from a business standpoint is going to be to get your goods to local markets because people won’t be commuting en masse. The most efficient transportation system is the one that doesn’t use transportation. Transportation is a cost and it’s a service that’s not producing anything.

If you can minimize transportation as an input you’re more productive. So when you’re putting resources in place that are going last 50 to 100 years, you need to be thinking more than the next five to 10. None of the travel demand type models out there can really do that.

BR: Are you for smart growth then? Because with high-density population centers, transportation really becomes about moving goods to serve the people.

CE: Yes. For example, freight-rail track miles have declined 40 percent from their peak levels. Can we improve on the usefulness of our infrastructure? Are we making the right decisions? Are we doing the right things? As a leader in this business, these are the questions that concern me.

RF: If you look out 50 years, I agree with you, Cliff. There will be less travel and we’ll need less in the way of transportation resources. However, as I take a look out over the next 10 to 20 years, the thing that really worries me is whether or not we’ll be able to maintain the transportation infrastructure that we already have.

We have a funding model that’s broken and nobody has come up with a better model. We’ve got infrastructure that’s really aging and some of it is aging pretty rapidly because some of our highways were built in the 1950s and ‘60s. I see that as a major intermediate challenge—the reinvestment that’s going to be needed to maintain the transportation assets that we have. I’m not talking about just highways and transit assets, but ports and the airports, as well.

Trade-offs are going to have to be made: whether people will want to pay more taxes on fuel or if they want to pay for more highways. I think we’ll see more toll roads in the future.

I also think that you have to get the private sector more involved in transportation infrastructure.

CE: We all know that an effective transportation system really is a tremendous asset and it encourages economic development, but relative to improving healthcare and relative to improving education, can I convince anybody that it’s so much better?

RF: Right. In my experience at the state level, we always ranked the resources this way: public safety, public health, public education, and then transportation. Those particular needs are front and center and people react to them more positively. Whenever I went to the state capitol, I knew that transportation wasn’t going to be at the top of the agenda unless we were building a project that everybody really favored and supported.

So I agree with you. It’s difficult to make the argument if you’re making a tradeoff between public education, for instance, and public transportation. Quite frankly, if you take a look at it, we still have one of the best transportation systems in the world, if not the best, despite our lack of resources. So I think we’ve done fairly well.

BR: I agree with you both. There is a critical economic development component to transportation, whether it be job creation or transit-oriented development or a new green field highway project or new freight rail where you’re moving goods and people quicker. But this tends to be overlooked in the minds of the general public. Other public priorities have a larger presence. If you need health care, you see the doctor, they have a stethoscope, you know you’re going to get a pill at the end.

For public safety, you see a jail, you see a criminal, you know he gets locked up, you see a courthouse. Transportation, on the other hand, is ingrained inside of us, people don’t really think about it as other than something that’s there to be used. It’s viewed as a public right not as a public priority.

RA: Funding is and will continue to be a tremendous constraint on both delivering new projects and maintaining our existing assets. As a result, one would think that “outside-the-box” thinking will be imperative to deliver projects moving forward. What do leaders of public agencies and policy makers think about new and innovative project delivery models? What factors do they consider when deciding to try something new?

CE: Most public agencies are skeptical of any change because it involves risk. The simplest thing to do is stick with things that have worked in the past. You really can’t blame anybody for that, particularly if the agency is not rewarded for its innovation. It’s often not worth the career risk to them.

BR: As a general rule of thumb, in the public sector, if you are doing something better, it is best to test it first as a pilot program.

RF: Yes, I would agree. It’s difficult in the public sector to be innovative because you’re living in a fishbowl, everybody is watching you, and if you take a wrong step, then you’re in for a lot of criticism.

In Maryland, one thing we were worried about was using a design-build procurement for the free extension to the light rail system in Baltimore because we had never been through the design-build process before. It was really an odd experience for us. It was the best way to complete the project, but I personally didn’t feel like we had as much control as we would have had if we had used a design-bid-build procurement. The project was delivered as planned, but in that instance, our innovation was not rewarded.

CE: Whenever you’re changing the way something is done and moving resources from one constituency to another, you’re disenfranchising someone’s past investment. They immediately look at that as a threat and not as an opportunity. It’s just very difficult to make those changes without taking on an awful lot of groundwork.

BR: When you talk about doing new and innovative things you have to have some legislative acceptance or champion. This is something I see in the P3 market. It’s always been the private sector companies finding a champion within the legislature who goes to the public agency and makes it happen.

RA: Any new procurement model introduces more risks. How do agencies reorient themselves to take on more risk or be willing to pay others to take that risk? How would you encourage a skeptical transportation agency to adopt an innovative, outside the box, procurement model? Are there any new and innovative models that have caught your eye? How about P3?

RF: The state of Maryland, after it witnessed what went on with the Indiana toll road, put rules on the book that would prohibit P3s.

They did roll that back for the Seagirt Marine Terminal, but it took us some time to convince the elected officials that it was a project worth doing.

Then there’s the problem of concession length. If you’re going to have this kind of concession, for what period of time do you actually do the contracting? How do you protect yourself against the risk of your partner going belly-up?

When we were dealing with the Seagirt Marine Terminal, we literally had to have investment bankers and financial advisors help us through the process because none of us had been through it before and we wanted to make sure we were cutting a good deal for the port.

CE: I’d like to move a little bit past just P3s. One of the things that I’ve been discussing is how to minimize the barrier that traditional conflicts of interest create.

There has been so much consolidation in the industry, that rail talent in particular is becoming very concentrated. When one or two firms that worked on NEPA or earlier planning work can’t bid on subsequent phases, you’re limiting the competition and with the talent consolidation, you’re running the risk of not getting the best talent working on your project.

One of the approaches we’re seeing now with design-build is the independent quality engineer. They’re hired by the contractor. The contractor goes out, picks them, and hires them. They report to the state, but everything is paid directly by the contractor. Traditional thinking would flag that as a huge conflict.

All of that being said, in terms of new delivery models, I think any model that allows continuity from the development phase all the way through to the end phase for a firm is actually beneficial to streamlining the process and the thinking around conflicts of interest is getting in the way of that.

When you talk delivery models, I don’t want to always think that any new model has to include P3. For example, how do we tap into the willingness of individuals to pay for transportation? The railroads were financed through land grants. Is there a way that we can get equity participation by tapping into the benevolence and interest that many have out there? They’d feel like they’re making a contribution towards something that they really care about.

Let’s use a proposed rail line as an example—if you were willing to contribute or make an equity investment of say $100,000 and could get a free pass for the next 100 years that would be designated to an individual to ride that system.

RA: What three lessons learned can you offer your colleagues 1) in transportation agencies and 2) in consulting?

RF: If you’re running a transportation agency you have to set a direction. You have to communicate that direction and you really have to get the staff and the external parties all focused and moving in the same direction. That sounds like it’s pretty simple, but all of us have public sector experience and know that a lot of times people are not going to be on the same page as you.

Setting a direction and being steady and consistent in terms of what you’re trying to accomplish is really important. I’ve also found that it’s very important to continually communicate to the staff in terms of what your expectations are and where the agency is headed.

Something that both Cliff and Barbara have touched on earlier also is a lesson learned that I’m experiencing right now in Detroit. You have to have metrics. You have to have performance measurements and they need to be reasonable because if not, you really don’t know if you’re being successful or if you’re making progress. I would suggest that anybody who is involved in the public sector put performance measurements in place and review them on a regular basis.

Thirdly, we don’t pay enough attention to staff development. That’s been my experience. If you can develop the staff and they expand their skills and they expand their expertise then it’s really a lot easier to run an agency. Over my career I’ve spent a lot of time developing staff, making sure that they get the proper training, and go to the proper seminars.

On the consultant side, I think the best consultants blend in with the staff. They come with a level of expertise that is sometimes unique. They come with experiences from different projects that they’ve worked on and they can really be very instructive to the staff.

My concept of the consulting side of it, and being a consultant, is you really need to add value. You add that value by working not just with the executives but with the mid-level and lower-level managers as well because, to the extent that you’re successful in doing that, and you’ve got a presence throughout the organization and if the leadership changes, you’re going to continue to be able to do work with that particular agency.

BR: A legislator a long time ago told me to always go to the fundamentals. In his mind that was the constitution and the law because a lot of times the answers for what you’re trying to solve are already there. Believe it or not, many times I found that to be true or at least it gave me a path on how to approach whatever I was trying to solve.

I always try to remember that. It’s sort of a 101 kind of thing but it does work. Always try to keep the problem down to the very simplest level so that anybody can understand it. I always tried to encourage staff development. No idea is silly because it can always spur something else, so always encourage that.

Something that took me a long time to learn as I went through my professional life was that everybody can contribute. I do think as you go up in the ranks and you become at the executive level, your time is so compressed. There’s so many things on your plate that I know I had a tendency to dismiss some folks, not listen to what they had to say, and it took some time to learn that you really do need to stop a minute and listen to what everybody has to say whether they be a consultant or your own staff.

I think consultants play a role. I always told consultants that, as far as I was concerned, they’re staff. I needed to put a team together that could help me deliver whatever was expected, and that’s how I think most public-sector executives like to think of consultants because they know they need the help. As long as you come in and produce and contribute it really was irrelevant whether you were a staff person or a consultant at the end of the day.

CE: Stepping back, it sounds like we all had similar experiences. One thing we didn’t talk about is that it was a gratifying experience. Even though you may have only made a little change it was rewarding. Overall, I found the personal relationships to be the most rewarding. There is much mutual respect on both sides for the work that we did.

BR: I will always be a public servant. I grew up in a public service family and that’s who I am.

Public service is such a great career, but today trying to attract people into it is hard. It’s getting harder and harder all the time and that’s where consultants become more and more important to us. I think if you’re a public servant, you’re a public servant always. That doesn’t change no matter who you work for.

RF: I agree with Barbara. I certainly have gotten a lot of gratification from working in the public sector. You don’t go into public service thinking you’re going to make a lot of money because you’re not. But the way I always looked at it is every single day when I left my office I knew I was making a contribution to my community. That’s important to me.

It’s why a lot of us get involved in public service. It’s not the most financially rewarding career but there is something that’s an intangible, and that is the satisfaction that you get by knowing that you’re making a contribution. You’re making a contribution in many cases on quite a large scale that you don’t necessarily get a chance to do in the private sector.


Image Header Source: Dwayne Bent (Creative Commons)

Geographies: United States
Sectors: Other
Topics: Policy