Texas red herring: ‘Availability payments’ are public-private partnerships

Availability payment P3s take Texas away from a ‘user pays’ traditional turnpike toll model (backed by private toll revenue bonds, not public money), and transfers the risk and obligation to every Texan, regardless of whether or not they ever use the toll road.

By Terri Hall | May 15, 2013

The Texas legislature is considering another ‘tool in the toolbox’ to build roads, without the controversial concession public-private partnership (P3) model, called ‘availability payments.’ House bill 3650 by Rep. Linda Harper-Brown opens the door to this type of P3, where the private sector pays for the road and gets paid back as money is ‘available.’

The argument by proponents is that payments to the private entity are only made if money is appropriated or ‘available,’ and that it does not constitute a debt to the state. However, this argument is a red herring, since the terminology is meant to deceive and confuse; it is not at all what it appears to be. This ‘tool’ puts ALL Texas taxpayers on the hook for repayment of the project. Whether it’s a toll project and revenues are inadequate to repay the obligation or debt to the private company, or a non-toll project, taxpayers are obligated to re-pay the private entity, presumably with interest. Just because the debt is off the balance sheet, doesn’t mean taxpayers are not obligated to pay it.

Though the bill’s author argues availability payments are not necessarily a P3, the Federal Highway Administration (FHWA) states availability payments are a form of P3 (see slide 39 of this FHWA document here). FHWA’s P3 Project Coordinator Patrick DeCorla-Souza stated during a webinar on P3 evaluation that the availability payment model puts all the risk on the public, not the private company. So if the toll traffic fails to show-up, Texas taxpayers are on the hook for those losses, though the risk doesn’t appear on the balance sheet.

DeCorla-Souza described the potential adverse consequences this way – the public sector would have to “cancel other projects or issue bonds in order to make the availability payments.”

Availability payments are primarily for toll projects. The public sector collects the tolls and then is obligated to make payments to the private sector as revenues are available. However, the obligation for payment (the debt) remains even when money is NOT available. If it’s not a toll project, the state highway fund, which is already inadequately funded, would be tapped for re-payment.

HB 3650 states: “The department may use any available funds for the purpose of making a payment under an agreement entered into under this subchapter, including money in the state highway fund that is required to be used for public roadways by the Texas Constitution or federal law.”

This bill puts the language into Chapter 223 of the Texas Transportation Code, not the P3 chapter of the Transportation Code, Chapter 371, that has the protections put in place in 2007. If the bill passes, there would be no limit on how many projects could be entered into, no restrictions on length of the contract (instead of 50 year maximum it could be 75 to 100 years), no limitations on the non-compete agreements (currently 30 years and cannot prohibit expansion of free routes but allows compensation if free expansion cuts into toll revenues), no public hearing requirement, and no oversight by the Attorney General and Legislative Budget Board. Currently, only a list of 20 projects can move forward as a P3, since blanket authority expired in 2009. Under HB 3650, availability payment P3s would not expire or sunset.

So, this bill is a blank check, and, in many ways, worse than the concession P3s since taxpayers bear the burden for 100% of the obligation – no risk gets transferred to the private sector. The bill also includes the controversial payments to losing bidders. It’s truly corporate welfare to socialize any of the losses and privatize, and, in effect, guarantee, all the profits, even when the private companies don’t even win the bid or actually build the project.

Harper-Brown argues this model can be used on non-toll projects, but then why wouldn’t the Texas Department of Transportation (TXDOT) do these projects as a standard freeway project with a traditional design-bid-build procurement method? Why hand it to a private company in a long-term deal if it’s a regular non-toll road like Texas has done without availability payments and gimmicks since the dawn of the highway department?

‘User pays’ out the window

Availability payment P3s take Texas away from a ‘user pays’ traditional turnpike toll model (backed by private toll revenue bonds, not public money), and transfers the risk and obligation to every Texan, regardless of whether or not they ever use the toll road. A P3 model will always cost the taxpayer more than a purely public project. Dennis Enright, a P3 expert from Northwest Financial, testified to the Texas Senate Transportation Committee on March 1, 2007, that P3s cost 50% more than a public project.

This availability payment model still puts the private entity in the driver’s seat and gives them effective control over our public highways since the bill describes a provision where TxDOT can ‘purchase’ the highway from the private company: “for the purchase by the department, under terms agreed to by the parties, of the interest of the private entity in the agreement and related property, including any interest in a highway or other facility designed, developed, financed, constructed, maintained, or operated under the agreement; that establishes the purchase price, or the methodology to be used to determine the purchase price, for the interest of the private entity in the agreement and related property.”

With road funding already scarce and inadequate, how will the state of Texas make these payment obligations since the majority of toll projects are not 100% toll viable and cannot pay for themselves with tolls alone? It’s still a form of debt and puts future generations of Texans on the hook to pay for this generation’s failures.

Availability payment P3s are bad public policy and should not be implemented in Texas or anywhere. It’s DOUBLE TAXATION to make all Texans pay for or subsidize a toll road.

Terri Hall is the founder of Texans Uniting for Reform and Freedom (TURF), which defends against eminent domain abuse and promotes non-toll transportation solutions. She’s a home school mother of eight turned citizen activist. Ms. Hall is also a contributor to SFPPR News & Analysis.