The Union Connection the expansion of the ITS system with ITIP, we feel it is prudent to com- plete this [ITS] strategic planning effort,” Kratofil concluded. Nine months later, on August 4, 2004, MDOT would indeed sign an agreement with Traffic.com to participate in the ITIP program. It would turn out that the IBEW’s generous offer to help come up with the local agency match was unnecessary, as the agreement would stipulate that the “balance of funding” beyond the $2 million in federal funds—in other words, the $500,000 “non-federal match”—would come from “private sector partners.” That contribution from the “private sector partners” was pure fiction, of course, since it didn’t involve any new funds in the program to match the federal dollars. Traffic.com was simply given credit for its own in- vestment in its own profit making business. I heard through the grapevine from a well-placed source that MDOT would never have agreed to par- ticipate in the program had the normal local agency cash match not been “waived” in favor of this substitute “match” that really wasn’t any kind of match at all As of early November 2008, none of the other DOT’s I had sent FOIA requests to had discovered similar correspondence. I suspect that years earlier other IBEW locals had sent similar letters to other state DOT direc- tors, but these letters had long ago been either tossed or filed away where no one would ever think to look. Conclusion The key question was whether the International Brotherhood of Elec- trical Workers Union was urging participation in the ITIP program out of a sincere desire for more local jobs for its members—however few and temporary those jobs might be—or was a much more compelling (and lucrative) incentive at play? Only the authorities, who had access to data and sources I didn’t, would be able to definitively answer that central question. 339 25 The Revenue Sharing Swindle o prospective state and local agency participants, the idea of revenue- Tsharing was undoubtedly one of the TTID program’s most appealing aspects. After all, the main private-sector partner in this public/private partnership, Traffic.com, had agreed to share a portion of its revenues from the sale and marketing of information based on TTID data to other private sector organizations. Since in most cases the local agency partner was not required to put any of its own funds into this partnership, this revenue-sharing kickback would be a real bonus. Virtually all of the agreements that state and local transportation agencies signed with Traffic.com from 2002 to present include the same sliding scale showing what percentage of revenues was to be shared with the local agency partner: (1) 0% for REVENUE up to $250,000 (2) 5% for REVENUE between $250,001 and $1,000,000 (3) 10% for REVENUE above $1,000,000 On-air (radio/TV) traffic reports are a very lucrative market, and Traf- fic.com routinely markets its travel reports to numerous radio and TV sta- tions and other related private sector customers (e.g., XM Satellite Radio), 340 The Revenue Sharing Swindle so such revenue sharing could result in a considerable amount of dollars shared back with the local agency partner. As if to underscore how much money is potentially involved, these agreements typically provide a sam- ple revenue-sharing calculation: For example, if annual REVENUE is $1,500,000, the share reinvested in the PROJECT will be $87,500, calculated as follows: (1) from $0 to $250,000, = $250,000 x 0% = $ 0 (2) from $250,001 to $1,000,000 = $750,000 x 5% = $37,500 (3) from $1,000,000 to $1,500,000 = $500,000 x 10% = $50,000 TOTAL = $87,500 Important Early Clues Early on in my investigation of the “’smart road’ scam,” I discovered that the FY2002 Defense Appropriations Act played a key role in direct- ing $50 million of the program’s funding to Traffic.com for the TTID program’s nationwide expansion. (See sidebar, “How Did Defense Leg- islation Help Create Traffic.com’s Monopoly?”) That Act very emphati- cally required that the contracts for these new cities include the very same terms used for those initial deployments—and specifically the same “rev- enue-sharing model.” Here are the very specific requirements that were spelled out in the FY2002 Defense Appropriations Act (emphasis added): (C) FOLLOW-ON DEPLOYMENT.(i) After an intelligent transpor- tation infrastructure system deployed in an initial deployment area pursuant to a contract entered into under the program under this paragraph has received system acceptance, the Department of Trans- portation has the authority to extend the original contract that was competitively awarded for the deployment of the system in the fol- low-on deployment areas under the contract, using the same asset ownership, maintenance, fixed price contract, and revenue sharing model, and the same competitively selected consortium leader, as 341 The ‘Smart Road’ Scam were used for the deployment in that initial deployment area under the program. How Did Defense Legislation Help Create Traffic.com’s Monopoly? Surprisingly, language inserted into a defense appropriations bill—not a transportation appropriations bill—helped ensure that the bulk of federal funding ($50 million) for the Transportation Technology Innovation and Demonstration program would go solely to Traffic.com on a sole-source basis. The key legislation: The Fiscal Year 2002 Defense Appropriations Act. In fact, the FY2001 Transportation Appropriations Act had appropri- ated $50 million to expand the TTID program to 25 new cities. However, the language in that bill did not specifically say where those funds had to be spent. After the Federal Highway Administration’s Deputy Executive Direc- tor ruled in early 2001 that the program’s $50 million expansion would “require recompetition,” Traffic.com’s lobbyists and legislative support- ers went to work. They devised a clever legislative trick that would en- able a sole-source procurement for Traffic.com that completely bypassed the normal transportation appropriations process. Language in the unre- lated FY02 Defense Appropriations Act gave the USDOT the option to extend the original small pilot program in Philadelphia and Pittsburgh nationwide solely to the same supplier (Traffic.com), and in early Febru- ary 2002 Transportation Secretary Norman Mineta announced that he was exercising that option. During the transportation reauthorization process in 2005, numerous companies who competed against Traffic.com in various markets com- plained to their legislators that the TTID program had created a monopoly for Traffic.com—and they were absolutely right. In other words, the FY2002 Defense Appropriations Act very specifi- cally and emphatically required that the same “revenue sharing model” used for those initial deployments in Pittsburgh and Philadelphia was to be followed for the later agreements. 342 The Revenue Sharing Swindle But what was that original revenue-sharing model? As a result of the Sunlight Foundation’s Freedom of Information Act request for all TTID program contract documents and Senior Fellow Bill Allison’s persistence (see Chapter 17, “Finding Sunlight”), we had received copies of a June 2002 FHWA task order and most of the agreements that Traffic.com signed with state and local agencies representing the participating cities. Those agreements typically spelled out further details of the revenue-sharing provisions, and constituted the other part of the “contract.” However, despite Bill’s persistence, the Sunlight Foundation never received a copy of the “contract” for Pittsburgh and Philadelphia, consisting of the initial task order and an agreement with PennDOT, both likely signed sometime in the 1998-2000 timeframe. Since I didn’t have access to the initial TTID contract, I could only guess as to how much money was supposed to go to the state/local agency partner (PennDOT). But I had an excellent clue: On June 7, 2001, Traffic. com issued a press release in which it stated “The company also presented a check in the amount of $33,610.64 to the U.S. Department of Trans- portation (USDOT) and the Pennsylvania Department of Transportation (PennDOT), partners with Mobility Technologies in a unique public-pri- vate cooperative.” If Traffic.com could write a revenue-sharing check to the agency part- ner in the amount of $33K for just the first year of operation for one of the less populated cities (Pittsburgh), I reasoned, the total amount of shared revenue for 25 cities over the life of the program (at least 10 years) could be substantial. Using that initial check size as a (lowball) yardstick, I made a quick estimate: $33K/yr x 10 yrs/city x 25 cities = $8.25 million However, the total figure over the life of the program would likely be much larger, because: 1. Many of the cities represented much larger markets for Traffic.com’s traffic information than Pittsburgh, and 2. Over time as Traffic.com’s own portfolio of offerings grew, the revenue 343 The ‘Smart Road’ Scam would correspondingly grow. 3. For gross revenues over $1 million, the shared-revenue percentage would double (from 5% to 10%). It seemed feasible, taking the growth of Traffic.com’s business into account, that the total amount of revenue sharing for all 25 cities could easily reach $15 or $20 million or more. What the Contract for the Follow-on Deployments Showed That June 2002 task order between the FHWA and Signal Corpora- tion, which listed Mobility Technologies, Inc. (Traffic.com) as the “criti- cal subcontractor,” applied to all of the city agreements that followed the initial deployments in Pittsburgh and Philadelphia. It included the follow- ing revenue-sharing provisions: (D) REVENUE SHARING In the event that the Contractor performs marketing activities or re- ceives revenues from the sale/marketing of information obtained un- der this task order to other private sector organizations, the Govern- ment shall not be liable for any additional costs (i.e., in excess of the amounts provided under this task order) resulting from this marketing effort (e.g., marketing costs, advertising, operations, distribution, li- ability costs, etc.).