ITS corrupted: intelligent racketeering slowly unravels over traveler data monopoly

- by Jerry Werner and Peter Samuel   Regular road construction conjures up images of brawny asphalt paving contractors getting together at a hamburger joint to agree whose turn it is to put in the "low" bid for local state highway work, and discussing which official needs to be "helped" in order to ensure that "that new bastard" - not "one of us" - is kept off the list of "qualified contractors."

Some might think that high-tech, 'smart' solutions are not as liable as the paving and construction work to be corrupted.

But sadly it isn't so.

A recent USDOT Office of Inspector General (OIG) report (see http://www.oig.dot.gov/library-item/5246) is a reminder that besuited, well-spoken, conference-attending and university-degreed types talking trendy talk are just as likely to be crooks as the brawny, cussing guys in jeans and garish baseball jackets.

When the procurement is left vague and is a mix of project development, demonstration, trial and design, then the welcome mat is out for hustlers.

In this case the corruption has revolved around Congressmen and Senators who repeatedly intervened to prevent the Federal Highway Administration (FHWA) from awarding ITS (intelligent transportation systems) contracts on a competitive basis, but insisted that they go to businessmen who were paying them off.

The racket was quite simple.

U.S. congressmen and senators paid by the company that benefited from FHWA grants worked assiduously with legislative maneuvers and orders to FHWA to prevent competitive procurement of traveler information services that might have jeopardized the grants and the monopoly given to the favored contractor.

The long-term recipient of FHWA funding for traveler information services under the Intelligent Transportation Infrastructure Program (ITIP) -- later renamed the Transportation Technology Innovation and Demonstration (TTID) program -- was managed by David Jannetta, a friend and funder of Congressman Bud Shuster, long-time Chairman of the House Transportation and Infrastructure Committee.  Over $50m of FHWA grants went to Jannetta's company Traffic.com (previously called Mobility Technologies) for its traveler information services to be available in 27 of the country's largest cities via its website and other means (e.g.,  511 telephone access).  Traffic.com is a subsidiary of ITS firm NAVTEQ, which itself was recently acquired by huge cell phone maker Nokia.

Jannetta was formerly mayor of Altoona, the major city in Congressman Shuster's federal Congressional district in central Pennsylvania.  Jannetta was a co-founder of the company (originally called Argus Networks) in 1997, and served as its President for many years until he left the firm in 2007.  He also served on the Board of the trade association ITS America for several years.  Congressman Shuster's son, Robert L. Shuster, was on Traffic.com’s payroll as a registered government lobbyist until recently.

In the U.S. Senate, Republican-since-turned-Democrat Arlen Specter was a key enabler of taxpayer funding of Traffic.com/Mobility Technologies/NAVTEQ.

The Traffic.com racket goes back a decade.

The FHWA side is well documented by a report out of the Office of Inspector General (OIG).

While the OIG’s report concluded that the “TTID addressed statutory goals,” it quickly added “but FHWA did not optimize the program’s benefits for the public partners.”  (In each of the 27 cities that chose to participate in the program, Traffic.com was required to team up with a “public partner,” typically a state DOT.)  The report went on to fault numerous aspects of the FHWA’s management and oversight of the TTID program, including:

1. Mismanagement of the revenue-sharing elements of the program: “FHWA allowed the service provider to interpret ambiguous task order language on revenue sharing to provide less to the public partners,” the IG reported.

2. The TTID program’s “restricted data rights” limited the amount of “system integration” achieved in the program, one of its primary goals.  Despite the fact that the TTID data was subsidized by public dollars, the public partner does not have the right to fully use that data in most cities.)

 “Of the 11 metropolitan areas we tested, 9 did not integrate their traffic data networks with the service provider’s network, leading to redundancy and inefficiency,” the OIG reported.

3. Substandard data availability: the OIG found that, beginning in September 2006, the FHWA’s oversight contractor reported that it found “chronic substandard data availability" from Traffic.com.

4. Reduced revenue sharing:  Traffic.com was supposed to share its commercial revenues from the TTID data with its public partners, but the OIG found that the FHWA left the calculation of the public partner’s share to Traffic.com, concluding that “FHWA did not ensure that the determination was optimal.”  The agency also allowed Traffic.com to use the revenue sharing funds for system operations and capital improvements, which were not specified in the federal task order.

5. "Atypical funding measures”:  the OIG found that the FHWA paid most of the federal share of $2 million per metropolitan area to Traffic.com well in advance of receiving traffic data, despite the fact that the funds were supposed to pay for data rather than just the deployment of new sensors and other infrastructure which Traffic.com owned.

OIG report manages not to name Traffic.com

There is one truly bizarre aspect to this OIG report.

Nowhere in 23 pages are the names Traffic.com or NAVTEQ (Traffic.com’s parent) ever mentioned. 

One footnote refers to Traffic.com’s earlier name, Mobility Technologies, in small print, but readers not familiar with the business will likely miss the connection. 

Instead, the OIG report refers over and over to NAVTEQ/Traffic.com just as the “private partner” or more often as the “service provider.”

This about a company that was eventually sold for $8 billion!!! And a company whose high profile subsidiary Traffic.com was built largely on uncompeted federal government grants. (Digital mapmaker NAVTEQ closed on a buy of Traffic.com March 2007, and Nokia the huge wireless/mobile telephone company bought NAVTEQ for $8.1b July 2008.)

FHWA Was an Easy Target But the Wrong One

The Federal Highway Administration was clearly the primary target for the OIG’s criticism, but the true cause for the lopsided nature of the TTID program and the lack of public benefit lies more with sleazy legislators and the “pay-to-play” culture that now permeates our legislative system.

“FHWA officials told us their overarching position was that Congress drove TTID—statutory provisions established how the program was to work, and FHWA did not have flexibility to manage TTID in any other way,” the OIG reported.

In fact, as the OIG’s report points out, early-on the FHWA wanted to open up the TTID program to competition.

Quoting from the report: “In 2001, FHWA planned to use a competitive selection process when Congress authorized the $50 million expansion.  The FHWA Deputy Executive Director’s April 2001 memo stated, ‘. . . there may be less expensive ways of acquiring the data. We believe that competition will allow the marketplace to sort this out and result in the greatest return on the public investment in these data.’”

“However, FHWA referred us to at least nine letters from members of Congress that generally directed the Department and FHWA to use the ITOP accelerated procurement process, rather than full and open competition, to select a service provider,” the report continues.

The OIG’s audit team only touches on the all-important factor of Congressional pressure in their report, almost in passing.

The legislators who sent those nine letters are never mentioned by name.  The extraordinary role that Traffic.com’s high-level political connections played in this matter is never laid out.

Specifically, the obvious cause-and-effect between Traffic.com’s well-timed contributions to key Senators and congressmen  and those individuals’ efforts to create and sustain Traffic.com’s sole-source arrangement at key points in the legislative process is ignored.

Altoona PA, pop 49k, where the racket was worked from

Not once does the OIG’s report mention the key role that former House Transportation and Infrastructure Committee Chairman Congressman Bud Shuster played in creating Traffic.com’s original earmark, or the fact that Traffic.com’s long-time former President, David Jannetta, was formerly the mayor of Altoona PA, the largest city in Shuster’s old Congressional district.

Nor does it mention that Congressman Shuster’s son, Robert L. Shuster, was the long-time lobbyist for the company.

“In October 2000, Congress authorized an additional $50 million for TTID.  FHWA planned to award these funds on a competitive basis; however, in January 2002 before FHWA did so, Congress authorized the Secretary to extend the original task order, which required use of the existing service provider and task order terms,” the OIG’s report states.

However, their report doesn’t mention the numerous contributions on Traffic.com’s behalf that were made to Pennsylvania Senator Arlen Specter by Robert Shuster, his wife Kelly, Jannetta, and other founders of Traffic.com in the fall of 2001, around the time that Specter was working behind the scenes to reverse the FHWA’s strategy of openly competing the TTID program.

Specter did so by adding language in the unrelated FY2002 Defense Appropriations Act that directed funds to Traffic.com on a sole-source basis.

Don 'Bridge-to-Nowhere' Young was in on the action too

The OIG’s report also doesn’t mention that on the very same day (July 29, 2005) that Senator Hatch and Congressman Anthony Weiner were issuing press releases heralding their success in opening up the TTID program for competition, House Transportation and Infrastructure Committee Chairman Don Young was trying to cut off funding for their new provision through his statement on the House floor.

Through Jannetta, Robert Shuster and another long-time company lobbyist C.J. Zane, Traffic.com was making contributions to Young’s reelection campaign and political action committee.

If you believe in the old adage “follow the money” you might suspect that some legislators or their family members financially profited beyond just political contributions from their support for Traffic.com’s sole-source arrangement.

Off-shore stock dealings

Cayman Islands venture partnerships held a significant amount of Traffic.com’s stock, but the limited partners in these entities were never publicly disclosed.  Could well-known political figures have held some of these shares?  These offshore dealings would have made it possible for Traffic.com’s legislative supporters to hold substantial equity in Traffic.com “under the radar” of U.S. regulators like the Securities and Exchange Commission.  Did high-level elected or appointed officials hold some of the  hundreds of thousands of penny stock warrants worth millions when Traffic.com went public for $12/ share in early 2006?  The OIG was made aware of these and other possibilities, but chose not to pursue them.

The OIG chose not to “follow the money” in their audit of the TTID program, instead intentionally limiting the scope of their audit to the program management and oversight, not the political pressures that led to the program’s glaring and obvious deficiencies.

The FHWA was an easy target, but was just doing what it was told to do by corrupt legislators. The OIG at USDOT clearly decided the legislative shenanigans - the real story behind the Traffic.com racket - were too hot to touch.

Racket affected at least one toll authority

In Chicago, the Illinois State Toll Highway Authority is the TTID local agency partner. They found that they could not access Traffic.com’s publicly subsidized but privately controlled traffic data - as mentioned in a May 2007 FHWA report entitled “Real-Time Traveler Information Services Business Models: State of the Practice Review.”

see http://ops.fhwa.dot.gov/publications/rtis_busmodels/index.htm

Quoting from that report:

“On the other hand, some agencies who entered into ITIP contracts in order to take advantage of external funding to kick-start or otherwise enhance its traveler information program have found the restrictions on the ITIP data limiting. In the case of the Illinois Tollway, for instance, the ITIP agreement prohibited the posting of ITIP travel times on the agency’s DMS. In response, the Tollway developed a program to calculate its own travel times, without the ITIP sensors.  As a result, the travel times on the DMS and the Traffic.com Web site would differ slightly.” 

So the Illinois Tollway was contractually prohibited from using taxpayer-subsidized data to compute travel times for display on their own dynamic message signs (DMS).  Because the Tollway was determined to provide such travel times as a service to its customers, it had to come up with an alternate way - at added cost - to do so.

AUTHORS: Jerry Werner has consulted in the ITS field since 1991, and served as Editorial Director of the National Transportation Operations Coalition from 1998 through 2005.  Peter Samuel is Editor of Tollroadsnews.com. Their article “The ‘Smart Road’ Scam” that appeared in the fall 2008 issue of Regulation magazine described the dubious legislative history of the TTID program.  See http://www.cato.org/pubs/regulation/regv31n3/v31n3-noted.pdf#page=1

Werner is finishing a forthcoming expose about this very counterproductive federal program, also named The ‘Smart Road’ Scam, that cites over 400 references to correspondence, lobbyist reports, public financial disclosures, and other information obtained through Freedom of Information Act requests and other sources.  For more on Traffic.com’s political payoffs to U.S. federal legislators, be sure to check out Chapter 19 from his new book, “Pay-to-Play.” 

see http://www.itsonline.com/ttid/tollroads/smartroadscam_ch19_d2.pdf

TOLLROADSnews 2010-01-20