Texan pols finally cook up Swiss cheese freeze - SB792

2007-05-28

TOLLROADSnews

On about their 57th shot this year at writing a new law for toll concessions Texas' politicians have contrived to produce a Swiss cheese freeze - a freeze on concessions shot through with a load of loopholes and exemptions. No one much likes it, not the moratorium crowd not the road builders, but all think it could have been worse, so in the spirit of democratic compromise - sheer exhaustion more likely - SB792 is being hailed as something most can live with. They'll have to.

In the last days of this bizarre legislative session in Austin the seemingly endless back and forth over tollroads was overshadowed by frenzied scenes of jeering, chants, walkouts, and scuffles over control of microphones as the House Speaker Thomas Craddick played banana republic autocrat, repeatedly refusing to acknowledge motions of no confidence in his management of the house. Advisers who told him he was in breach of legislative rules and precedent were simply fired - caudillo style.

Governor Perry will sign the tollroad bill even though it stops many of the tollroad projects his administration sponsored and said were essential for the future of Texas.  And even though the date for a veto override had passed.

The bill SB792 is headed up "A BILL TO BE ENTITLED AN ACT relating to the authority of certain counties and other entities with respect to certain transportation projects and to comprehensive development agreements with regard to such projects..." and continues in this mode of never using a single precise word where a dozen vagaries can be cobbled together.

It's an illogical bill. First it asserts a moratorium on concessions with no end date, then most of the bill is devoted to exemptions and to laying out the terms of concessions:

• concession terms may be 10, 20, 30, 40, 50 or 52 years from start of toll collection (the actual bill takes nearly a page to say that)

• concession contracts must provide a mechanism for early termination by the state or other concessionee

• payments to unsuccessful concession proposers will be limited to their value to the concessionee

The moratorium is enacted on toll concessions (defined as "comprehensive development agreements permitting the private participant to operate the toll project and collect toll revenues") from May 1, 2007 - this in a bill not yet law when we write May 28! (Invitation to challenge in the courts?)

And unlike the previous legislation the moratorium is openended. The vetoed bill HB1892 ended the moratorium Sept 1, 2009. SB792 has no end date at all, although the legislative budget board in a "Fiscal Note" incorrectly claim there is still a cutoff date.

Here is the moratorium as stated early in the bill before exemptions are listed:

"    ARTICLE 3.  MORATORIUM ON CERTAIN TERMS IN COMPREHENSIVE
     DEVELOPMENT AGREEMENTS OR SALE OF TOLL PROJECTS
            SECTION 3.01.  Subchapter E, Chapter 223, Transportation
     Code, is amended by adding Section 223.210 to read as follows:
            Sec. 223.210.  MORATORIUM ON CERTAIN TERMS IN COMPREHENSIVE
     DEVELOPMENT AGREEMENTS OR SALE OF TOLL PROJECTS. (a)  In this
     section:
                  (1)  "Toll project" means a toll project described by
     Section 201.001(b), regardless of whether the toll project:
                        (A)  is a part of the state highway system; or
                        (B)  is subject to the jurisdiction of the
     department.
                  (2)  "Toll project entity" means a public entity
     authorized by law to acquire, design, construct, finance, operate,
     or maintain a toll project, including:
                        (A)  the department;
                        (B)  a regional tollway authority;
                        (C)  a regional mobility authority; or
                        (D)  a county.
            (b)  A comprehensive development agreement entered into with
     a private participant by a toll project entity on or after May 1,
     2007, for the acquisition, design, construction, financing,
     operation, or maintenance of a toll project may not contain a
     provision permitting the private participant to operate the toll
     project or collect revenue from the toll project, regardless of
     whether the private participant operates the toll project or
     collects the revenue itself or engages a subcontractor or other
     entity to operate the toll project or collect the revenue."

Exemptions

Specifically exempted are these projects:

• Trinity parkway Dallas City

• managed (toll) lane projects in poor air quality areas for which requests for proposals were issued before May 1 2007

• Loop 9 south of Dallas area

• SH99 or Grand Parkway Houston

• parts of Trans Texas Corridor 69 near Corpus Christi

• SH121 north of Dallas exempt but project must go to NTTA if its offer is assessed as of greater value than the selected concessionaire

• US281 north of San Antonio

• El Paso projects

(Here is the obfuscatory way the bill says El Paso: "(r) Subsection (b) does not apply to a project that is located in a county with a population of 300,000 or more and adjacent to an international border, except that Subsection (b)     does not apply to a project that is located in a county that has a population of 600,000 or more and is adjacent to an international border only if before May 1, 2007, the project has been adopted by the metropolitan planning organization for the county in the transportation improvement plan or metropolitan transportation    plan.")

Public toll projects may not be privatized says another clause.

For managed lane concessions TxDOT must get local government acknowledgment of penalties for new competing capacity.

A legislative study committee is created to hold hearings and study the implications of toll concessions and privatization of public tollroads and report by Dec 2008.

More public information is mandated for the Trans Texas Corridor projects.

Harris County Primacy

Harris County in the Houston area is given primacy in doing the following tollroads:

(1)  Beltway 8 Tollway East, between US 59 North and US90 East

(2)  Hardy Downtown Connector, consisting of the proposed direct connection from the Hardy Toll Road southern terminus at Loop 610 to downtown Houston

(3)  State Highway 288, between US59 and Grand Parkway South (State Highway 99);

(4)  US290 Toll Lanes, between I-610 West and the Grand Parkway Northwest (State Highway 99);

(5)  Fairmont Parkway East, between Beltway 8 East and Grand Parkway East (State Highway 99);

(6)  South Post Oak Road Extension, between I-610 South and near the intersection of Beltway 8 and Hillcroft in the vicinity of the Fort Bend Parkway Tollway;

(7)  Westpark Toll Road Phase II, between Grand Parkway (State Highway 99) and FM 1463;

(8)  Fort Bend Parkway, between State Highway 6 and the Brazos River; and

(9)  Montgomery County Parkway, between State Highway 242 and the Grand Parkway (State Highway 99), and if the Grand Parkway project has not begun construction, a nontolled extension of the Montgomery County Parkway to allow a connection to I-45.

Unlike earlier legislation (HB1892) vetoed by the Governor SB 792 seems to give TxDOT reserve powers to keep the state in compliance with federal law so local governments cannot encumber state assets.

"Notwithstanding an action of a county taken under this section, the commission or department may take any action that is necessary in its reasonable judgment to comply with any federal requirement to enable this state to receive federal-aid highway funds."

Local authorities are to always have first option to develop toll projects, TxDOT only being able to move in if they decline. TxDOT must gain local approval for the terms of a toll project from counties in which they are located. If they can't agree the project won't go ahead. There are pages of mindnumbingly repetitive verbiage on this, with 'Notwithstanding' the favorite first word for sentences.

Exemption is given to a requirement for MPO approval for a bunch of NTTA projects:

(1)  any project for which the department has issued a request for qualifications or request for competing proposals and qualifications before May 1, 2007, except for the State Highway 161 project in Dallas County;

(2)  the eastern extension of the President George Bush    Turnpike from State Highway 78 to I-30 in Dallas County;

(3)  the Phase 3 and 4 extensions of the Dallas North Tollway in Collin and Denton Counties from State Highway 121 to the Grayson County line, and the planned future extension into Grayson County, regardless of which local toll project entity develops the extension into Grayson County;

(4)  the Lewisville Lake Bridge (and portions of FM 720     widening projects) in Denton County;

(5)  the Southwest Parkway (State Highway 121) in Tarrant County from Dirks Road/Altamesa Boulevard to I-30.

Subject to requirements of federal law counties are given new power to initiate and approve new toll projects. The bill still gives counties the right to use state highway right of way.

On comprehensive development agreements the bill at one point redefines them to apparently to design-build and perhaps availability payment contracts by the state or local government: "Sec. 366.401.  COMPREHENSIVE DEVELOPMENT AGREEMENTS. (a)  An authority may use a comprehensive development agreement with a private entity to design, develop, finance, construct, maintain, repair, operate, extend, or expand a turnpike project." (Note omission of the right to toll revenues)

Later however it recognizes concessions, here: "Sec. 366.407.  TERMS OF PRIVATE PARTICIPATION...(5) concerning the private participant's right to operate and collect revenue from the turnpike project

Here there is the normal boilerplate of toll concessions. Gone is the flat "killer clause" of earlier legislation giving the concessionee the right to terminate the concession for convenience at cost, depriving the concessionaire completely of market value based on prospective toll revenues. In one place the bill simply says there will be a mechanism established for termination but doesn't rule out basing it on prospective revenues forgone.

However shades of the killer clause reappear later in the bill in somewhat diluted form:

"Sec. 371.101.  TERMINATION FOR CONVENIENCE. (a)  A toll
     project entity having rulemaking authority by rule and a toll
     project entity without rulemaking authority by official action
     shall develop a formula for making termination payments to
     terminate a comprehensive development agreement under which a
     private participant receives the right to operate and collect
     revenue from a toll project. A formula must calculate an estimated
     amount of loss to the private participant as a result of the
     termination for convenience.
            (b)  The formula shall be based on investments,
     expenditures, and the internal rate of return on equity under the
     agreed base case financial model as projected over the original
     term of the agreement, plus an agreed percentage markup on that
     amount.
            (c)  A formula under Subsection (b) may not include any
     estimate of future revenue from the project, if not included in an
     agreed base case financial model under Subsection (b).
     Compensation to the private participant upon termination for
     convenience may not exceed the amount determined using the formula
     under Subsection (b)."

TxDOT/NTTA agreement the basis for SH121 procurement "is invalidated" One section late in the bill is uncharacteristically terse. It simply declares "invalidated" the TxDOT/NTTA regional protocol agreement of Aug 10 2006 in which the public toll authority NTTA agreed not to bid for SH121. The absense of a bid from NTTA was the basis on which private groups were invited to bid for a toll concession, a competition held and a concessionaire selected. First TxDOT, now the legislature, treat the terms of this procurement in cavalier fashion, arbitrarily changing the terms of that 90%-done procurement - a nasty precedent if the state cares about its credibility as a partner.

Attorney general and state auditor to have hand in concessions Then it's back to dictating the terms of future or exempt concessions. The bill provides for the state attorney general to pass on the legalities of concessions and the state auditor to verify the traffic and revenue estimates of concessions before they can be finalized.

Non-compete clauses

The bill maintains the "non compete" formula put in SH130 5&6 and SH121 in which there is no bar to additional free capacity but a right of the concessionaire to seek compensation. New is a limit to compensation for extra capacity within 6.5km (4 miles):

      "Sec. 371.103.  PROHIBITION AGAINST LIMITING OR PROHIBITING
     CONSTRUCTION OF TRANSPORTATION PROJECTS. (a)  A comprehensive
     development agreement may not contain a provision that limits or
     prohibits the construction, reconstruction, expansion,
     rehabilitation, operation, or maintenance of a highway or other
     transportation project, as that term is defined by Section 370.003,
     by the toll project entity or other governmental entity, or by a
     private entity under a contract with the toll project entity or
     other governmental entity.
            (b)  Except as provided by Subsection (c), a comprehensive
     development agreement may contain a provision authorizing the toll
     project entity to compensate the private participant in the
     agreement for the loss of toll revenues attributable to the
     construction by the entity of a limited access highway project
     located within an area that extends up to four miles from either
     side of the centerline of the project developed under the
     agreement, less the private participant's decreased operating and
     maintenance costs attributable to the highway project, if any.

The bill passed 29/1 in the Senate and 127/19 in the House May 26.

U-turn from four years ago

The "moratorium" or freeze in SB792 is almost a total reversal of - a U-turn from - HB3588 passed just over four years ago encouraging toll concessions. HB3588 passed 31/0 in the Senate and 137/2 in the House May 10 2003.

TOLLROADSnews 2007-05-28