Toll hearing focused on private turnpike deals

Senator calls for moratorium on 50-year tollway leases.

March 02, 2007

By Ben Wear, Laylan Copelin, AMERICAN-STATESMAN STAFF

Texas senators on Thursday peppered state transportation officials with questions about whether their turn to private toll roads is really the best route around the state's growing traffic jam.

In an all-day hearing attended by hundreds of irate Texans, members of the Senate Transportation and Homeland Security Committee questioned officials about upfront fees and back-end profits for the state's private partners, as well as whether the job could be done better with public financing and more oversight by elected officials rather than solely by the governor's appointees on the Texas Transportation Commission. In short, the senators wanted to know: Are private toll roads a good deal?

The Transportation Commission's response: With the Legislature having saddled it with a frozen gasoline tax ever diminished by inflation, private financing was practically the only deal left to them.

At times, Thursday's hearing resembled the noisy backlash at toll road hearings around the state for the past several years.

But it veered on to a less emotional path when the senators and transportation officials began discussing how best to mitigate the looming gridlock spreading throughout the eastern third of Texas and how to pay for the next generation of transportation.

Senators made it clear, however, that they think it's time to put on the brakes.

In particular, members of the transportation panel worry that private toll roads inevitably mean higher tolls for drivers — that is, voters — and that profits from toll roads that could have been spent on still more highways will instead go to corporate shareholders.

"I would like to see (the Texas Department of Transportation) slow down considerably to let us vet this more," said state Sen. John Carona, R-Dallas, the committee chairman and of late a caustic critic of the Transportation Commission and its toll road policies.

As for so-called comprehensive development agreements, leases that give private companies control and the proceeds from tollways for up to 50 years, Carona said, "My hope is that TxDOT will agree to a moratorium."

In an interview, Carona acknowledged that the Legislature itself, by failing to raise the state gas tax since 1991 even as construction costs have skyrocketed, helped create what has become a mountainous backlog of needed highway projects around the state.

And it was lawmakers, after all, who passed a huge transportation bill in 2003 that gave the Transportation Commission the very policy tools that senators now find over the top.

"Every one of us, myself included, are to blame" for a transportation funding shortfall estimated to be about $80 billion over the next generation, Carona said. Carona has filed a bill that would allow the gas tax to float upward based on an index of highway construction cost increases.

Carona and other legislators, most of them in the Senate so far, also think that the Transportation Department and the five commissioners who run it have taken a heavy-handed approach on the toll issue. Thursday's hearing, fully four years into what has been a historic change in how the state pays for major highway projects, was one of the few where people on both sides of the issue were given an orderly and complete opportunity to present their case.

Members of the public were given the chance, as they were last summer in more than 50 hearings around the state on the proposed Trans-Texas Corridor, to have their say on the subject, and about a hundred people signed up to speak to the committee. Those three-minute presentations overwhelmingly focused on Gov. Rick Perry's Trans-Texas Corridor plan of cross-state tollways and rail lines and chiefly disparaged the plan.

Many of the speakers live on land that could be taken for either the twin road to Interstate 35 or a new route called TTC-69 from the Rio Grande Valley to Northeast Texas.

But the bulk of the eight-hour hearing involved presentations by people close to the issue — bond financiers, Transportation Department staffers and commissioners — and the dialogue carried more light than heat.

Jere Thompson Jr., a Dallas businessman and scion of the family that owned 7-Eleven, served on toll road authorities for Republican Govs. Bill Clements and George W. Bush.

Thompson criticized the long-term leases with private toll road operators as "a rush to sell the crown jewels of the state."

The Transportation Department has reached two such deals so far, both with Spanish company Cintra and minority partners. The company will build the southerly 40 miles of Texas 130 from Mustang Ridge to Seguin, giving the state $25 million and a cut of the toll revenue for the next half-century.

Tuesday, Gov. Rick Perry and Dallas-Fort Worth officials announced that a Cintra-led partnership had beat out two competitors to build Texas 121 north of Dallas by pledging to pay the state $2.1 billion up front and at least $800 million more in the coming decades.

Thompson argued that public toll road authorities, such as the North Texas Toll Road Authority, could build and finance toll roads cheaper than private investors, a contention disputed by state transportation officials.

He said the state had flip-flopped its priorities for paying for roads — gasoline tax, tolls and private financing — to put private equity investors as the first option.

In an interview after the hearing, Ric Williamson, chairman of the Transportation Commission, disputed some of what Thompson had to say.

While public entities may get cheaper financing upfront, Williamson said, private investors can make a better offer to the state because of tax consequences of writing off depreciation, for example.

More important, Williamson said, the state didn't have the cash necessary to get public financing in the bond market, or at least the copious amounts that private companies are likely to bring to the table for almost 30 projects similar to Texas 121.

Think of it as a person buying a house, Williamson said: The State of Texas didn't have the down payment to get a loan. Private companies such as Cintra have that equity.

Dennis Enright, a financial analyst with NW Financial Group LLC invited to testify by Carona, said putting private companies in charge of toll roads, and getting a big bonus on the front end from them, inevitably leads to higher tolls for drivers.

"Without the upfront money, the tolls would be a fraction," Enright said.

He said drivers on the Texas 121 toll road would, in effect, be subsidizing roads for other drivers.

"Is a toll a toll, or is it allowed to be a tax?" Carona said. "Today's tolls are just disguised taxes."