Extraordinary misinformation about Texas concessions

March 12, 2007

State senator Jane Nelson (Repub) says on her website that she "led the fight to correct more than 5,000 factual errors in (Texas) public school textbooks." When it comes to tollroads in Texas Nelson is capable of plenty of factual errors herself. Take her website statement on her coauthorship of the concession freeze bill SB1267 where she claims:

"State prevented from building competitive capacity"

Nelson Claim: "Non-compete clauses (in TxDOT concessions) prevent the state from building roads that would compete with toll roads."

Two toll concession documents have been negotiated by TxDOT so far and both explicitly state that TxDOT will have the right to add capacity. Clause 11.3.1.1 of the State Highway 130, Segments 5 and 6 concession contract says under the heading Competing Facilities and TxDOT Rights (p77) that TxDOT will have "the unfettered right in its sole discretion at any time and without liability to... add capacity..." True there are provisions for compensation to the extent the concessionaire can prove that his revenues were reduced. But then those rights to claim compensation are heavily circumscribed. (Article 5)

Exhibit 17 (exhibit is the TxDOT term for an Addendum or Appendix) called Competing Facilities Provision provides for plenty of non-compensatable increases in capacity:

• all upgrades and increases in capacity already planned in the statewide improvement plan, in the statewide mobility program, and in the regional plans of the Austin capital area and San Antonio-Bexar can be implemented without their effects being eligible for compensation

• frontage roads are excluded from compensation except addition of a 3rd frontage road lane in the northern Segment 5 of SH130

• I-35 expansion effects on the concessionaire's traffic and revenue are totally non-compensatable (p3 of Exhibit 17)

The SH121 concession has the same "unfettered right" for TxDOT to add competing capacity and similar limited compensation rights for the concessionaire in the same chapter 11. Exhibit 18 excludes from compensation all increases in capacity provided for in state and local plans - the 2025 Plan for the Dallas Ft Worth metro region, and the 2030 plan. Specifically excluded as a cause for compensation are any effects on the SH121 revenue from improvements or expansions of US75, US380, I-35E, I-635 LBJ Fwy and the President Geo Bush Turnpike. The only realistic cause for compensation would be enlargement of frontage road lanes beyond the planned three in each direction. Four frontage road lane each side would be unusual and difficult to find space for anyway.

"Operators have unlimited authority to raise tolls"

Nelson states that under the concessions "the operators have unlimited authority to raise tolls."

But both toll concessions have clear and detailed limits on tolls.

They set maximum toll rates to start with, plus contain a formula for allowable increases every two years. Article 3.2 says the concessionaire's (they use the term developer) "authority to charge and collect tolls is limited by, and conditioned on... the maximum rates for each user classification for such year determined according to the toll rate policy, schedule and methodology set forth in Exhibit 4..."

Exhibit 4 called Toll Regulation describes vehicle classes - cars, cars with trailer, large trucks, tractor-trailers etc - and maximum base rate tolls for each depending on when the tollroad opens. Then it specifies that on January 1 of each even numbered year maximum toll rates may be increased according to a rather weird formula which when studied closely just amounts to the consumer price index.

Real allowable toll rates are maintained constant throughout the life of the concession - just about the total reverse of the claim by the Senator that the concessionaire has unlimited authority to raise toll rates. The authority is very limited.

The concession contract for regulating maximum tolls on SH130 segments 5 and 6 is slightly more lenient than CPI. It provides for adjustments in the toll rate caps in line with state per capita product. To the extent the people of the state get richer so the maximum toll rates increase. Again authority to raise toll rates is limited. (FIRST POSTING MISTAKENLY REPORTED BOTH WERE CPI ADJUSTMENT - CORRECTION 2007-03-13 15:30)

"Provisions for repayment of upfront fee"

Nelson claims that "buyback provisions require us to repay the upfront money."

I couldn't find any such provisions in either of the concessions produced so far, but these documents are 200 to 300 pages long and proving a negative in these circumstances is difficult.

"The contracts haven't been publicly disclosed"

I called and asked the senator's office what she was referring to by speaking of buyback provisions which required the upfront money to be refunded.

Spokesman Dave Nelson had me speechless for several seconds. He said the contracts "haven't been publicly disclosed."

In fact the SH130-5&6 contract has been on the TxDOT website since early July because I downloaded a copy then and wrote about the contract at http://tollroadsnews.info/artman/publish/article_1376.shtml

The SH121 contract is much newer but it was made available several weeks ago, and is available at http://www.dot.state.tx.us/services/texas_turnpike_authority/pub_priv_partnerships.htm

I wrote about it at http://tollroadsnews.info/artman/publish/article_1752.shtml

If Senator Nelson thought the contracts were being kept secret on what basis was she speaking in denouncing them?

Her spokesman told us she was relying on the word of her colleague Senator Robert Nichols who had been a member of the Texas Transportation Commission, and who knew the details.

Robert Nichols says provisions "alarming"

Senator Robert Nichols co-author with Nelson of SB1267 says in the only statement he has made so far that provisions of the concession contracts are "alarming" but he is rather circumspect about what specifically he finds alarming. He suggests "guidelines" for toll concession contracts which imply some of what Nelson states explicitly and falsely.

The needed guidelines according to Nichols are:

"Elimination of competition penalties that cripple the state when building new roads or improving current roads."

But where do the contracts "cripple the state" from building new roads when they explicitly exempt from compensation the impact of all planned new roads and even unplanned additions to several specified competing roads.

"Provisions to ensure toll rates remain reasonable." (Nichols guidelines again)

What is unreasonable about toll rate caps that adjust for inflation?

"Establish a formula to determine cost should the state need to terminate the contract early." (Nichols third guideline)

The contracts have very detailed provisions for handling termination of the contract in Article 19 of the SH121 document under the heading Termination including not just default and force majeure events, but also "conditional election to terminate". There are 15 pages on this including liabilities of each party. Further Exhibit 23 under "Terms for termination compensation" sets out the very formula for "Termination for convenience" which Nichols says needs to be established. It sets out how internal rates of return will be calculated, how costs are to be calculated and documented, how fair market rates will be established, procedures for adjudicating disagreements etc - another 15 pages.

So although Nichols doesn't put out the blatant falsehoods of Nelson he is full of highly tendentious and misleading implications.

Signing away public control

Nichols more general point is that TxDOT is signing away public control. But the concession contracts are in their very detail, their 60,000 or so legally binding words each, a careful retention of most public control.

What is being signed away to a concessionaire is a limited right to perform the development of the roadway, and upgrades, the operations and maintenance and the toll collection to be operated as a business, all this within a highly specified framework of public controls.

It is interesting how some of the people who tend to denounce government bureaucracies for being self-serving rather than devoted to the public interest now accuse it of ceding all its power to another entity, of giving away its powers. Why would an entrenched bureaucracy do that?

People who say that can't have read the concession contracts.

Rush and haste

Similarly the accusations of "rush" and "haste" are odd directed at a bureaucracy normally lambasted as taking forever to get anything done. People following the concession process haven't noticed any great haste. TxDOT has seemed to plod through a process stage by stage rather methodically. Public notices requesting expressions of interest are followed by informational workshops, questions are taken and answers distributed, evaluations of qualifications done, short lists invited to propose etc, the whole contracting rigamarole.

Only people who haven't been paying attention can see any haste.

Full text of Nelson's statement from her website

STATEMENT ON CO-AUTHORSHIP OF SB 1267 RELATING TO TOLL CONTRACTS

"There is a growing discomfort among citizens about the rush to toll so many roads in our region and about turning over highway construction to a foreign company. The author of this legislation, who served on the Texas Transportation Commission, helped me better understand what the state is giving up by entering into these contracts that have yet to be fully disclosed. Non-compete clauses prevent the state from building roads that would compete with toll roads, buyback provisions require us to repay the up-front money and the operators have unlimited authority to raise toll rates. Acting in haste now is not worth the long-term costs to taxpayers." (March 8 2007 by Sen Jane Nelson)

Full text of Nichols' statement

"Nichols' Bills Aim to Rein in Private Toll Projects

"25 Senators co-sponsor legislation to freeze public/private toll contracts AUSTIN -- State Senator Robert Nichols (R-Jacksonville) today filed a pair of bills aimed at public/private toll road contracts. SB 1267 places a two year moratorium on the privatization of toll roads. SB 1268 prohibits converting existing roads to toll roads.

"We must closely evaluate private toll contracts before we sign away half a century of control of our transportation system. Many provisions in recent toll contracts are alarming," said Nichols, a former Texas Transportation Commissioner.

"Nichols' bills place a two year freeze on the privatization of state toll roads or the sell (sic) of existing toll roads to private interests and prohibit the conversion of existing roads to toll roads.

"Under current law, a road can be converted to a toll road if approved by local voters even though many roads have regional and statewide use.

"These roads were built with public money for public use," said Nichols. "Converting existing roads to toll roads would break a promise to taxpayers. No one should have to worry that the roads they drive on today will be tolled tomorrow. Tolling provides a valuable tool for expansion but should be reserved to add new capacity," continued Nichols.

Nichols suggests three key guidelines for any toll road contracts with private companies:

• Elimination of competition penalties that cripple the state when building new roads or improving current roads.

• Provisions to ensure toll rates remain reasonable.

• Establish a formula to determine cost should the state need to terminate the contract early." (End Nichols' March 6 press release)

OUR VIEW:

The contract has now been available on the TxDOT website for long enough for even the slowest politicians to read. Or have their staff read it for them.

A moratorium is certainly needed in Texas - a moratorium on ignorant demagoguery by posturing politicians and a legislative study committee devoted to reading what has been out there to be read but which they haven't bothered to read before opening their big mouths.

TxDOT has brought a lot of this on itself. First, TxDOT itself spread the notion that the contracts were secret by keeping the SH130 5&6 concession secret for a long time, and suggesting there was something to hide. There wasn't, it transpired when it was quietly released last summer.

Second, given the developing controversy you'd think TxDOT would have had their PR people do a fact sheet or guide to the concessions, a summary of what they contain.

Nothing.

TOLLROADSnews 2007-03-12