County will study leasing toll roads

Investment bank says private firms would pay billions to operate them

Sept. 28, 2005

By BILL MURPHY, Houston Chronicle

An investment bank concluded that a private firm might pay up to $7 billion for the right to operate Harris County toll roads, prompting Commissioners Court Tuesday to authorize a study of the pluses and minuses of such a deal.

If the plan worked right, the multibillion-dollar windfall could be invested, and interest earned on it would pay for future road projects. Pricey road bonds likely would be a thing of the past, Harris County Judge Robert Eckels said.

"This could avoid the need for bond elections and the need to go to taxpayers for tax increases," he said.

As part of the 50- to 75-year deal, the county would maintain ownership of the toll roads, decide whether the system should expand and possibly set limits on future toll increases.

The county isn't looking to turn the Harris County Toll Road Authority over to an operator that would be interested solely in the bottom line and wouldn't be flexible in helping meet the region's transportation needs, Eckels said.

"I believe it is a good idea to do something like this," he said.

Public protection

Commissioner El Franco Lee said he will wait to see the study's conclusions before deciding whether he will support the idea.

"Does it make for strong public policy? Do we have a proper amount of control to protect the public?" he said. "And can a concessionaire be responsive to the public?"

The court appointed Dick Raycraft, director of county management services, to report back Oct. 25 on what exactly will be studied.

Commissioner Steve Radack said he does not oppose studying the concessionaire concept. On one level, it makes sense — the county takes the windfall, uses the interest to pay for roads and does not float any road bonds, he said.

But it is flawed in another, he said. Taxpayers will not tolerate the county's maintaining a multibillion-dollar surplus and will demand that the money go toward lowering taxes, he said.

"I don't think it's possible to stockpile cash and not get the public riled," he said.

Spring 2007 targeted

The group that does the study would give its report by April. A deal, if it is approved, could be in place by spring 2007.

The idea of leasing toll-road operator rights has been floating around for a number of years. In 1999, county officials looked at the concept, but didn't go forward. Radack questioned it at the time, saying it deviated from what voters approved when the Toll Road Authority was created in 1983.

In a report, First Southwest Co., an investment company retained by the county, recently concluded that the Harris County Toll Road Authority has three options.

• Continue to operate the authority, a setup which limits the amount of revenue that it can raise through bonds and places all future investment risks on the authority.

• Sell the authority to a governmental body or a private firm — deals that could cause the county to lose control over toll increases, construction projects and repairs. Such a sale might net between $2.7 billion and $4.4 billion.

• Sell operating rights to a concessionaire. As part of such a deal, the county might retain at least some control of toll increases and future toll road projects.

The court is interested in exploring only the concessionaire arrangement.

First Southwest estimated the county could net between $2 billion and $5.1 billion by selling concession rights.

Goldman Sachs, another investment bank, reported that concession rights might be sold for $7 billion or more.

In its report, First Southwest says the authority is marketable because it is one of the more successful toll roads nationwide.

It took in $318 million in tolls last year and has $1.8 billion in outstanding bond debt.

Other toll roads have leased operational rights.

Chicago last year leased the rights to run the Chicago Skyway for 99 years for $1.8 billion. The deal spells out that Cintra-Macquarie Consortium can double the toll to $4 in the next decade on the Skyway, about 8 miles of elevated highway.

The Civic Federation, a government watchdog group in Chicago that often supports Mayor Richard Daley's decisions, has complained that he has frittered away the windfall gained by privatizing the Skyway, according to the Chicago Tribune.